ITEM 1A. RISK FACTORS
An investment in our securities
involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this Annual
Report before deciding to invest in or maintain your investment in our company. The risks described below are not intended to be an all-inclusive
list of all of the potential risks relating to an investment in our securities. Any of the risk factors described below could significantly
and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently
known or that are currently considered to be immaterial may also materially and adversely affect our business. As a result, the trading
price or value of our securities could be materially adversely affected and you may lose all or part of your investment.
Risks Relating to Our Financial Position and Need for Additional
Capital
We have incurred significant losses and expect to continue to
incur losses for the foreseeable future.
We have never been profitable.
We did not generate any revenue during the fiscal years ended March 31, 2025 and March 31, 2024. In prior fiscal years we did record revenue
from government contracts. We do not currently have any research grants or contracts. It is possible that we may not be able to enter
into future government contracts. Future profitability, if any, will require the successful commercialization of our Hemopurifier technology
or any other product that we develop or from additional government contract or grant income we may obtain. We may not be able to successfully
commercialize the Hemopurifier or any other products, and even if commercialization is successful, we may never be profitable. While we
currently have over $5.5 million in cash and cash equivalents and have been carrying out certain expense reductions since November 2023,
our planned additional expense reductions may not materialize and/or our patient recruitment may occur more rapidly than expected along
with the concomitant increases in expenses; therefore there is substantial doubt that our cash on hand will carry the company for 12 months
beyond the filing date of the financial statements included in this Annual Report.
We do plan to access the equity
markets for additional capital, however, there can be no assurance that we will be able to access such additional capital.
We will require additional financing to
sustain our operations, achieve our business objectives and satisfy our cash obligations, which may dilute the ownership of our existing
stockholders.
We will require significant
additional financing for our operations and for expected additional future clinical trials in the United States, India and Australia,
regulatory clearances, and continued research and development activities for the Hemopurifier and other future products. In addition,
as we expand our activities, our overhead costs to support personnel, laboratory materials and infrastructure will increase. We may also
choose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working
capital and to strengthen our financial position. Any sale of additional equity or convertible debt securities could result in dilution
of the equity interests of our existing stockholders. Additionally, new investors may require that we and certain of our stockholders
enter into voting arrangements that give them additional voting control or representation on our Board of Directors. If required financing
is unavailable to us on reasonable terms, or at all, we may be unable to support our operations, including our research and development
activities, which would have a material adverse effect on our ability to commercialize our products or continue our business.
Our ability to raise additional
funds may be adversely impacted by our ability to remain listed on Nasdaq, the potential worsening global economic conditions and disruptions
to and volatility in the credit and financial markets in the United States, including due to bank
failures, actual or perceived changes in interest rates and economic inflation, and worldwide resulting from macroeconomic factors.
Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased
expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
We may not currently
or in the future be able to continue as a going concern.
The
financial statements in this Annual Report have been prepared on a going concern basis of accounting, which assumes that we will continue
as a going concern, and do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The
Company’s ability to continue as a going concern is dependent on our ability to generate revenues and raise capital. To date, we
have not generated sufficient revenues to provide cash flows that enable us to finance our operations internally. In connection with an
evaluation conducted by our management during the preparation of the financial statements included in this Annual Report, management concluded
that there were conditions and events which raised substantial doubt as to the Company’s ability to continue as a going concern
within twelve months after the date of the issuance of the financial statements included in this Annual Report.
The
uncertainty regarding our ability to continue as a going concern could materially adversely affect our share price and our ability to
service our indebtedness, raise new capital or enter into commercial transactions. To address these matters, we may take actions that
materially and adversely affect our business, including significant reductions in research, development, administrative and commercial
activities, reduction of our employee base, and ultimately curtailing or ceasing operations, any of which could materially adversely affect
our business, financial condition, results of operations and share price. In addition, doubts about our ability to continue as a going
concern could impact our relationships with partners, vendors and other third parties and our ability to obtain, maintain or renew contracts
with them, or negatively impact our negotiating leverage with such parties, which could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, any loss of key personnel, employee attrition or material erosion of employee
morale arising out of doubts about our ability to operate as a going concern could have a material adverse effect on our ability to effectively
conduct our business and could impair our ability to execute our strategy and implement our business objectives, thereby having a material
adverse effect on our business, financial condition and results of operations.
Risks Related to Our Business Operations
Delays, interruptions or the cessation of
production by our third-party suppliers of important materials or delays in qualifying new materials, has and may continue to prevent
or delay our ability to manufacture our Hemopurifier.
Most of the raw materials
used in the process for manufacturing our Hemopurifier are available from more than one supplier. However, there are materials within
the manufacturing and production process that come from single suppliers. We do not have written contracts with all of our single source
suppliers, and at any time they could stop supplying our orders. FDA review of a new supplier is required if these materials become unavailable
from our current suppliers. In the recent past, we experienced an interruption in the manufacturing of our Hemopurifier as we sought to
transition to a new supplier of galanthus nivalis agglutinin, or GNA, used in the manufacture of our Hemopurifier. We have not received
the required FDA approval of our IDE supplement for a new qualified supplier of the GNA and are working with the FDA to gain approval
of this supplier. Although we have resumed purchasing GNA from our prior supplier, it is possible that we could experience future disruptions
from this supplier as we work to qualify a second supplier. FDA review of the new second supplier could take several additional months
to obtain.
In addition, an uncorrected
impurity, a supplier’s variation in a raw material or testing, either unknown to us or incompatible with its manufacturing process,
or any other problem with our materials, testing or components, could prevent or delay the release of our Hemopurifiers for use in our
clinical trials. For example, in late 2020, we identified during our device quality review procedures prior to product release that one
of our critical suppliers had produced a Hemopurifier component that was not produced to our specifications, although no affected Hemopurifiers
were released into our inventory or to any clinical trial sites. Any such future supplier issues could have a material adverse impact
on our business, results of operations and financial condition.
Difficulties in manufacturing our Hemopurifier
could have an adverse effect upon our expenses, our product revenues and our ability to complete our clinical trials.
We received approval from
the FDA for our IDE supplement to manufacture Hemopurifiers at our site in San Diego. The manufacturing of our Hemopurifier is difficult
and complex. To support our current clinical trial needs, we comply with and intend to continue to comply with current Food Manufacturing
Practices, or cGMP in the manufacture of our product. Our ability to adequately manufacture and supply our Hemopurifier in a timely matter
is dependent on the uninterrupted and efficient operation of our facilities and those of third parties producing raw materials and supplies
upon which we rely in our manufacturing. The manufacture of our products may also be impacted by:
· natural disasters;
· changes in forecasts of future demand for product components;
· potential facility contamination by microorganisms or viruses;
· updating of manufacturing specifications;
· product quality success rates and yields; and
· global viruses and pandemics.
Any future interruption in
the manufacture and supply of our Hemopurifier could delay shipments of our Hemopurifier for use in clinical trials in the United States,
Australia and India.
Our products are
manufactured with raw materials that are sourced from specialty suppliers with limited competitors and we may therefore be unable to access
the materials we need to manufacture our products.
Specifically, the Hemopurifier
contains three critical components with limited supplier numbers. The base cartridge on which the Hemopurifier is constructed is sourced
from Medica S.p.A and we are dependent on the continued availability of these cartridges. We currently purchase the diatomaceous earth
from Janus Scientific Inc., our distributor; however, the product is manufactured by Imerys Minerals Ltd., which is the only supplier
of this product. The GNA is sourced from Vector Laboratories, Inc. and also is available from other suppliers; however, Sigma Aldrich
is our only potential back up supplier at this time and we are in the process of working with the FDA to obtain regulatory approval for
this supplier. A business interruption at any of these sources, including the interruption resulting from the delay in obtaining FDA approval
of our new GNA supplier, has and may continue to have a material impact on our ability to manufacture the Hemopurifier.
We face intense competition in the medical device industry.
We compete with numerous U.S.
and foreign companies in the medical device industry, and many of our competitors have greater financial, personnel, operational and research
and development resources than we do. We believe that because the field of exosome research is burgeoning, multiple competitors are or
will be developing competing technologies to address exosomes in cancer. Progress is constant in the treatment and prevention of viral
diseases, so the opportunities for the Hemopurifier may be reduced there as well. Diagnostic technology may be developed that can supplant
diagnostics we are developing for viruses and cancer. Our commercial opportunities will be reduced or eliminated if our competitors develop
and market products for any of the diseases we target that:
· are more effective;
· have fewer or less severe adverse side effects;
· are better tolerated;
· are more adaptable to various modes of dosing;
· are easier to administer; or
· are less expensive than the products or product candidates we are developing.
Even if we are successful
in developing the Hemopurifier and obtain FDA and other regulatory approvals necessary for commercialization, our products may not compete
effectively with other successful products. Researchers are continually learning more about diseases, which may lead to new technologies
for treatment. Our competitors may succeed in developing and marketing products that are either more effective than those that we may
develop, alone or with our collaborators, or that are marketed before any products we develop are marketed. Our competitors include fully
integrated pharmaceutical companies and biotechnology companies as well as universities and public and private research institutions.
Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities,
greater experience in product development and in obtaining regulatory approvals, and greater marketing capabilities than we do. If our
competitors develop more effective pharmaceutical treatments for infectious disease or cancer, or bring those treatments to market before
we can commercialize the Hemopurifier for such uses, we may be unable to obtain any market traction for our products, or the diseases
we seek to treat may be substantially addressed by competing treatments. If we are unable to successfully compete against larger companies
in the pharmaceutical industry, we may never generate significant revenue or be profitable.
We have limited experience in identifying
and working with large-scale contracts with medical device manufacturers; manufacture of our devices must comply with good manufacturing
practices in the United States.
To achieve the levels of production
necessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements
with contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal,
state and local regulatory agencies in the United States and any other country of use. We have limited experience coordinating and overseeing
the manufacture of medical device products on a large-scale. It is possible that manufacturing and control problems will arise as we attempt
to commercialize our products and that manufacturing may not be completed in a timely manner or at a commercially reasonable cost. In
addition, we may not be able to adequately finance the manufacture and distribution of our products on terms acceptable to us, if at all.
If we cannot successfully oversee and finance the manufacture of our products if they obtain regulatory clearances, we may never generate
revenue from product sales and we may never be profitable.
We have in the
past experienced a material weakness in our internal controls over financial reporting. If we fail to maintain effective internal controls
and fail to remediate any future or present control deficiencies, our ability to produce accurate and timely financial statements could
be impaired, which could harm our operating results, our ability to operate our business and our reputation with investors, ultimately
leading to a decline in the price of our Common Stock.
As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley
Act, and the rules and regulations of the applicable listing standards of Nasdaq. In particular, Section 404 of the Sarbanes-Oxley Act
requires that we evaluate and determine the effectiveness of our internal controls over financial reporting. It also requires our independent
registered public accounting firm to attest to our evaluation of our internal controls over financial reporting.
As
disclosed in Item 9A in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, management identified a material
weakness in the segregation of duties within our financial systems. Specifically, user access controls were not sufficiently maintained
to properly restrict both user and privileged access to financial applications within our accounting software system to initiate, record
and approve entries. We also noted that check stock was secured in an authorized signatory’s office. During 2017 through 2020, the
Company incorrectly recorded accrued commission liability of approximately $404,000. The Company reversed accrued commission liability
of approximately $404,000 during the year ended March 31, 2024 related to this error in accounting under U.S. GAAP. The Company originally
failed to correctly apply appropriate accounting principles in recording the transaction, and the error was not detected and corrected
in a timely manner, resulting in an adjustment to the financial statements. Management has discussed with counsel appropriate measures
to record such potential commission liabilities in the future and will implement a quarterly review of all accruals. The reversal of the
accrued commission liability into equity as of March 31, 2024 corrected the impact of the error.
Since
that time, we have implemented several remediation measures, including enhanced user access controls, segregation of duties, relocation
of check stock to a secure, access-controlled area, and the implementation of a quarterly review process for all significant accruals.
Management has also consulted with legal counsel to clarify how potential commission liabilities should be recorded in the future. The
reversal of the commission accrual into equity as of March 31, 2024 corrected the impact of the historical error.
As
of March 31, 2025, management has concluded that the previously identified material weakness has been remediated. While we are committed
to maintaining a robust control environment, there can be no assurance that future material weaknesses will not be identified.
If
we have difficulty maintaining effective internal controls over financial reporting, or if we identify a material weakness in our
internal controls over financial reporting in the future, we may not detect errors on a timely basis, such that it could harm our
operating results, adversely affect our reputation, cause our stock price to decline, or result in inaccurate financial reporting or
material misstatements in our annual or interim financial statements. We may be unable to maintain compliance with securities laws,
stock exchange listing requirements and debt instruments’ covenants regarding the timely filing of accurate periodic reports,
which could lead to investigations by Nasdaq, the SEC or other regulatory authorities or litigations with our creditors and/or
stockholders, hence requiring additional management attention and impairing our ability to operate our business. Our liquidity,
access to capital markets and perceptions of our creditworthiness may be adversely affected. We could be required to implement
expensive and time-consuming remedial measures. Our independent registered public accounting firm may issue reports that are adverse
in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or
operating, or if it is not satisfied with our remediation of any identified material weaknesses. Any failure to maintain effective
disclosure controls and internal control over financial reporting could have a material adverse effect on our business, financial
position, results of operations, and cash flows.
Our Hemopurifier technology may become obsolete.
Our Hemopurifier product may
be made unmarketable prior to commercialization by us by new scientific or technological developments by others with new treatment modalities
that are more efficacious and/or more economical than our products. The homeland security industry is growing rapidly with many competitors
that are trying to develop products or vaccines to protect against infectious disease. Any one of our competitors could develop a more
effective product which would render our technology obsolete. Further, our ability to achieve significant and sustained penetration of
our key target markets will depend upon our success in developing or acquiring technologies developed by other companies, either independently,
through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our
customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive
products, then market acceptance of our products could be reduced and our business could be adversely affected. Our products may not remain
competitive with products based on new technologies.
We are highly dependent on our key personnel,
and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our
business strategy.
Our ability to compete in
the highly competitive biotechnology and medical device industries depends upon our ability to attract and retain highly qualified managerial,
scientific, and medical personnel. We are highly dependent on our management, scientific, and medical personnel. The loss of the services
of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business,
prospects, financial condition or results of operations.
We do not currently carry
key man life insurance policies on any of our key executive officers which would assist us in recouping our costs in the event of the
loss of those officers. If any of our key officers were to leave us, it could make it impossible, if not cause substantial delays and
costs, to implement our long-term business objectives and growth.
Our inability to attract and retain qualified
personnel could impede our ability to achieve our business objectives.
We have 9 full-time employees.
We utilize, whenever appropriate, consultants in order to conserve cash and resources. Although we believe that these employees and
consultants will be able to handle most of our additional administrative, research and development and business development in the near
term, we will nevertheless be required over the longer-term to hire highly skilled managerial, scientific and administrative personnel
to fully implement our business plan and growth strategies. Due to the specialized scientific nature of our business, we are highly dependent
upon our ability to attract and retain qualified scientific, technical and managerial personnel. Competition for these individuals, especially
in San Diego, California, where many biotechnology companies are located, is intense and we may not be able to attract, assimilate or
retain additional highly qualified personnel in the future. We may not be able to engage the services of qualified personnel at competitive
prices or at all, particularly given the risks of employment attributable to our limited financial resources and lack of an established
track record. Also, if we are required to attract personnel from other parts of the U.S. or abroad, we may have significant difficulty
doing so due to the high cost of living in the Southern California area and due to the costs incurred with transferring personnel to the
area. If we cannot attract and retain qualified staff and executives, we will be unable to develop our products and achieve regulatory
clearance, and our business could fail.
We plan to expand our operations, which
may strain our resources; our inability to manage our growth could delay or derail implementation of our business objectives.
We will need to significantly
expand our operations to implement our longer-term business plan and growth strategies. We will also be required to manage multiple relationships
with various strategic partners, technology licensors, customers, manufacturers and suppliers, consultants and other third parties. This
expansion and these expanded relationships will require us to significantly improve or replace our existing managerial, operational and
financial systems, procedures and controls; to improve the coordination between our various corporate functions; and to manage, train,
motivate and maintain a growing employee base. The time and costs to effectuate these steps may place a significant strain on our management
personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available
at the time. We may not be able to institute, in a timely manner or at all, the improvements to our managerial, operational and financial
systems, procedures and controls necessary to support our anticipated increased levels of operations and to coordinate our various corporate
functions, or that we may not be able to properly manage, train, motivate and retain our anticipated increased employee base. If we cannot
manage our growth initiatives, including our expansion of our clinical trials in India and potentially in other countries, we will be
unable to commercialize our products on a large-scale in a timely manner, if at all, and our business could fail.
We have limited experience in the organ transplant market and
face competition from entities more familiar with this business and our efforts may not succeed.
We have investigated whether
the Hemopurifier, when incorporated into a machine perfusion organ preservation circuit, can remove harmful viruses, exosomes, RNA molecules,
cytokines, chemokines and other inflammatory molecules from recovered organs. This area is new to our product development and management
personnel, and we may not be successful in the organ transplant market where we have limited experience. Even if we are successful in
developing our Hemopurifier for the organ transplant market, we may not be able to compete effectively or generate significant revenues
in this new area. Many companies of all sizes, including major pharmaceutical companies, specialized biotechnology companies, and traditional
healthcare providers, are engaged in redesigning organ transplant care. Competitors operating in this area may have substantially greater
financial and other resources, larger research and development staff, and more experience in this area. It is possible that, even if we
are successful in the organ transplant field, that the market will not accept our product, or that our product will not generate significant
revenues for us.
As a public company with limited financial
resources undertaking the launch of new medical technologies, we may have difficulty attracting and retaining executive management and
directors.
The directors and management
of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims,
as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws
imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management
are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a
timely basis the costs incurred in defending such claims. While we currently carry directors’ and officers’ liability insurance,
such insurance is expensive and could be difficult to maintain in the future. If we are unable to continue or provide directors’
and officers’ liability insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain
qualified outside directors to serve on our Board of Directors. We may lose potential independent board members and management candidates
to other companies in the biotechnology field that have greater directors’ and officers’ liability insurance to insure them
from liability or to biotechnology companies that have revenues or have received greater funding to date which can offer greater compensation
packages. The fees of directors are also rising in response to their increased duties, obligations and liabilities. In addition, our products
could potentially be harmful to users, and we are exposed to claims of product liability including for injury or death. We have limited
insurance and may not be able to afford robust coverage even as our products are introduced into the market. As a company with limited
resources and potential exposures to management, we will have a more difficult time attracting and retaining management and outside independent
directors than a more established public or private company due to these enhanced duties, obligations and potential liabilities.
If we fail to comply with extensive regulations
of U.S. and foreign regulatory agencies, the commercialization of our products could be delayed or prevented entirely.
Our Hemopurifier product is
subject to extensive government regulations related to development, testing, manufacturing and commercialization in the United States
and other countries. The determination of when and whether a product is ready for large-scale purchase and potential use will be made
by the U.S. Government through consultation with a number of governmental agencies, including the FDA, the National Institutes of Health,
the CDC and the Department of Homeland Security. Our Hemopurifier has not received required regulatory approval from the FDA, or any foreign
regulatory agencies, to be commercially marketed and sold. The process of obtaining and complying with FDA and other governmental regulatory
approvals and regulations in the United States and in foreign countries is costly, time consuming, uncertain and subject to unanticipated
delays. Obtaining such regulatory approvals, if any, can take several years. Despite the time and expense exerted, regulatory approval
is never guaranteed. We also are subject to the following risks and obligations, among others:
· the FDA may require additional testing for safety and effectiveness;
· the FDA may change its approval policies and/or adopt new regulations.
Failure to comply with these
or other regulatory requirements of the FDA may subject us to administrative or judicially imposed sanctions, including:
· warning letters;
· civil penalties;
· criminal penalties;
· injunctions;
· product seizure or detention;
· product recalls; and
· total or partial suspension of productions.
Delays in successfully commencing or completing
our planned clinical trials could jeopardize our ability to obtain regulatory approval and sustain our operations.
Our business prospects depend
on our ability to complete studies, commence and complete our planned clinical trials, including our ongoing and planned studies in solid
tumors in cancer, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product
candidate. Completion of our clinical trials, announcement of results of the trials and our ability to obtain regulatory approvals could
be delayed for a variety of reasons, including:
· failure to obtain required approvals to commence our planned clinical trials;
· slow patient enrollment in our planned clinical trials;
· serious adverse events related to our Hemopurifier;
· unsatisfactory results of any clinical trial;
Our development costs will
increase if we have material delays in any clinical trial or if we need to perform more or larger clinical trials than planned. If the
delays are significant, or if any of our product candidates do not prove to be safe or effective or do not receive required regulatory
approvals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, our inability to
complete our clinical trials in a timely manner could jeopardize our ability to obtain regulatory approval for our Hemopurifier or any
other potential product candidates.
If we or our suppliers fail to comply with
ongoing FDA or foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products
could be subject to restrictions or withdrawal from the market.
Any product for which we obtain
clearance or approval, if any, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities
for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and
foreign regulatory bodies. In particular, we and our third-party suppliers may be required to comply with the FDA’s Quality System
Regulation, or QSR. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable regulatory requirements is subject
to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to
QSR requirements in the United States, this could delay production of our products and lead to fines, difficulties in obtaining regulatory
clearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn,
have a material adverse effect on our financial condition or results of operations.
In addition, the FDA assesses
compliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us
or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately
respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
· unanticipated expenditures to address or defend such actions;
· operating restrictions or partial suspension or total shutdown of production;
· refusal to grant export approval for our products; or
· criminal prosecution.
Moreover, the FDA strictly
regulates the promotional claims that may be made about approved products. In particular, a product may not be promoted for uses that
are not approved by the FDA as reflected in the product’s approved labeling. However, companies may share truthful and not misleading
information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the
laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses
may be subject to significant civil, criminal and administrative penalties.
Any of these sanctions could
have a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component
suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result
in our failure to produce our products on a timely basis and in the required quantities, if at all.
If our products, or malfunction of our products,
cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary
corrective actions or agency enforcement actions.
Under the FDA medical device
reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused
or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury
if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA within the
required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could
result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement
action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication
of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We outsource many of our operational and
development activities, and if any party to which we have outsourced certain essential functions fails to perform its obligations under
agreements with us, the development and commercialization of our Hemopurifier product candidate and any future product candidates that
we may develop could be delayed or terminated.
We rely on third-party consultants
or other vendors to manage and implement much of the day-to-day conduct of our clinical trials and the manufacturing of our Hemopurifier
product candidate. Accordingly, we are and will continue to be dependent on the timeliness and effectiveness of the efforts of these third
parties. Our dependence on third parties includes key suppliers and third-party service providers supporting the development, manufacture
and regulatory approval of our Hemopurifier, as well as support for our information technology systems and other infrastructure. While
our management team oversees these vendors, failure of any of these third parties to meet their contractual, regulatory and other obligations
or the development of factors that materially disrupt the performance of these third parties could have a material adverse effect on our
business. For example, all of the key oversight responsibilities for the development and manufacture of our Hemopurifier are conducted
by our management team, but all other activities are the responsibility of third-party vendors.
If a clinical research organization
that we utilize is unable to allocate sufficient qualified personnel to our studies in a timely manner or if the work performed by it
does not fully satisfy the requirements of the FDA or other regulatory agencies, we may encounter substantial delays and increased costs
in completing our development efforts. Any manufacturer that we select may encounter difficulties in the manufacture of new products in
commercial quantities, including problems involving product yields, product stability or shelf life, quality control, adequacy of control
procedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and
facilities. If any of these occur, the development and commercialization of our Hemopurifier product candidate could be delayed, curtailed
or terminated, because we may not have sufficient financial resources or capabilities to continue such development and commercialization
on our own.
If we or our contractors or service providers
fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability
to develop, market and sell our Hemopurifier product candidate and any other future product candidates that we may develop, if any, and
may harm our reputation.
If we or our manufacturers
or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to
regulatory actions, which could affect our ability to successfully develop, market and sell our Hemopurifier product candidate or any
future product candidates, if any, and could harm our reputation and lead to reduced or non-acceptance of our proposed product candidates
by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia
or biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product
candidate no longer viable to manufacture in a cost-efficient manner. The mode of administration may make the product candidate not commercially
viable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials
may be critiqued by the FDA, or a clinical trial site’s IRB or Institutional Biosafety Committee, which may delay or make impossible
clinical testing of a product candidate. The IRB for a clinical trial may stop a trial or deem a product candidate unsafe to continue
testing. This would have a material adverse effect on the value of the product candidate and our business prospects.
We will need to outsource and rely on third
parties for the clinical development, sales and marketing of our Hemopurifier or any future product candidates that we may develop, and
our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We do not have the required
financial and human resources to carry out on our own all the pre-clinical and clinical development for our Hemopurifier product candidate
or any other or future product candidates that we may develop, and do not have the capability and resources to market or sell our Hemopurifier
product candidate or any future product candidates that we may develop. Our business model calls for the partial or full outsourcing of
the clinical and other development, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs
as a means of potentially improving our financial position. Our success will depend on the performance of these outsourced providers.
If these providers fail to perform adequately, our development of product candidates may be delayed and any delay in the development of
our product candidates would have a material and adverse effect on our business prospects.
We are and will be exposed to product liability
risks, and clinical and preclinical liability risks, which could place a substantial financial burden upon us should we be sued.
Our business exposes us to
potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices.
Claims may be asserted against us. A successful liability claim or series of claims brought against us could have a material adverse effect
on our business, financial condition and results of operations. We may not be able to continue to obtain or maintain adequate product
liability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities.
Claims or losses in excess of any product liability insurance coverage that we may obtain could have a material adverse effect on our
business, financial condition and results of operations.
Our Hemopurifier product candidate
may be used in connection with medical procedures in which it is important that those products function with precision and accuracy. If
our product candidates, including our Hemopurifier, do not function as designed, or are designed improperly, we may be forced by regulatory
agencies to withdraw such products from the market. In addition, if medical personnel or their patients suffer injury as a result of any
failure of our products to function as designed, or our products are designed inappropriately, we may be subject to lawsuits seeking significant
compensatory and punitive damages. The risk of product liability claims, product recalls and associated adverse publicity is inherent
in the testing, manufacturing, marketing and sale of medical products. We have obtained general clinical trial liability insurance coverage.
However, our insurance coverage may not be adequate or available. We may not be able to secure product liability insurance coverage on
acceptable terms or at reasonable costs when needed. Any product recall or lawsuit seeking significant monetary damages may have a material
effect on our business and financial condition. Any liability for mandatory damages could exceed the amount of our coverage. Moreover,
a product recall could generate substantial negative publicity about our products and business and inhibit or prevent commercialization
of other future product candidates.
We have not received, and may never receive,
approval from the FDA to market a medical device in the United States.
Before a new medical device
can be marketed in the United States, it must first receive a PMA or 510(k) clearance from the FDA, unless an exemption applies. A PMA
submission, which is a higher standard than a 510(k) clearance, is used to demonstrate to the FDA that a new or modified device is safe
and effective. The 510(k) is used to demonstrate that a device is “substantially equivalent” to a predicate device, that is,
one that has been cleared by the FDA. We expect that any product we seek regulatory approval for, including the Hemopurifier, will require
a PMA. The FDA approval process involves, among other things, successfully completing clinical trials and filing for and obtaining a PMA.
The PMA process requires us to prove the safety and effectiveness of our products to the FDA’s satisfaction. This process, which
includes preclinical studies and clinical trials, can take many years and requires the expenditure of substantial resources and may include
post-marketing surveillance to establish the safety and efficacy of the product. Notwithstanding the effort and expense incurred, the
process may never result in the FDA granting a PMA. Data obtained from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays or rejections may also be encountered based upon changes
in governmental policies for medical devices during the period of product development. The FDA can delay, limit or deny approval of a
PMA application for many reasons, including:
· inadequate compliance with preclinical, clinical or other regulations;
· our failure to meet the FDA’s statistical requirements for approval; and
Modifications to products
that are approved through a PMA application generally need FDA approval. Similarly, some modifications made to products cleared through
a 510(k) may require a new 510(k). The FDA’s 510(k) clearance process usually takes from three to 12 months, but may last longer.
The process of obtaining a PMA is much costlier and more uncertain than the 510(k) clearance process and generally takes from one to three
years, or even longer, from the time the application is submitted to the FDA until an approval is obtained. Any of our products considered
to be a class III device, which are considered to pose the greatest risk and the approval of which is governed by the strictest guidelines,
will require the submission and approval of a PMA in order for us to market it in the United States. We also may design new products in
the future that could require the clearance of a 510(k).
Although we have received
approval to proceed with clinical trials of the Hemopurifier in the United States under the investigational device exemption, the current
approval from the FDA to proceed could be revoked, the study could be unsuccessful, or the FDA PMA approval may not be obtained or could
be revoked. Even if we obtain approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing
or controls. Any delay in, or failure to receive or maintain, clearance or approval for our future products could prevent us from generating
revenue from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement
powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some physicians from using our products
and adversely affect our reputation and the perceived safety and efficacy of our products.
The approval requirements for medical products
used to fight bioterrorism and pandemics are still evolving, and any products we develop for such uses may not meet these requirements.
We are advancing product candidates
under governmental policies that regulate the development and commercialization of medical treatment countermeasures against bioterror
and pandemic threats. While we intend to pursue FDA market clearance to treat infectious bioterror and pandemic threats, it is often
not feasible to conduct human studies against these deadly high threat pathogens. For example, the Hemopurifier is an investigational
device that has not yet received FDA approval for any indication. We continue to investigate the potential for the use of the Hemopurifier
in viral diseases under an open IDE and our FDA Breakthrough Designation for “...the treatment of life-threatening glycosylated
viruses that are not addressed with an approved therapy.” We currently have an open FDA approved Expanded Access Protocol for the
treatment of Ebola infected patients in the United States and a corresponding HealthCanada approval in Canada. Based on our studies to
date, the Hemopurifier can potentially clear many viruses that are pathogenic in humans, including HCV, HIV, Monkeypox and Ebola.
For example, in June 2020,
the FDA approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients
with SARS-CoV-2/COVID-19 in a New Feasibility Study. This study was designed to enroll up to 40
subjects at up to 20 centers in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to
an intensive care unit, or ICU, and have had acute lung injury and/or severe or life-threatening disease, among other criteria. Due
to lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022.
As a result of the termination
of our COVID-19 study due to lack of patients in the ICUs, we were unable to demonstrate the effectiveness of our treatment countermeasures
through controlled human efficacy studies in this U.S. study. Additionally, a change in government policies could impair our ability to
obtain regulatory approval for the Hemopurifier.
The results of our clinical trials may not support our product
candidate claims or may result in the discovery of adverse side effects.
Any research and development,
pre-clinical testing and clinical trial activities involving our Hemopurifier and any additional products that we may develop are subject
to extensive regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must be
conducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may
ultimately be used to support market clearance for these products. Even if our clinical trials are completed as planned, the results of
these trials may not support our product candidate claims and the FDA may not agree with our conclusions regarding the trial results.
Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and the later
trials may not replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that
our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and
may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and,
ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical
trials will experience adverse side effects that are not currently part of the product candidate’s profile.
U.S. legislative or FDA regulatory reforms
may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to manufacture, market and distribute
our products after approval is obtained.
From time to time, legislation
is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture
and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations
of existing regulations may impose additional costs or lengthen review times of future products. It is impossible to predict whether legislative
changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be on
our product development efforts.
Our current and future business activities
are subject to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and
security and other healthcare laws and regulations, which could expose us to significant penalties.
We are currently and will
in the future be subject to healthcare regulation and enforcement by the U.S. federal government and the states in which we will conduct
our business if our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s
restrictions on marketing of approved products, the U.S. healthcare laws and regulations that may affect our ability to operate include:
the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and
federal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)
and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,
thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product
candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.
Because of the breadth of
these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business
activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,
could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and
state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and
administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to
resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations.
We and the third parties with whom we work
are subject to stringent and changing U.S. and foreign laws, rules, regulations and standards as well as policies, contracts and other
obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations, or such failure by
the third parties with whom we work, could lead to regulatory investigations or actions, fines and penalties, a disruption of our clinical
trials or commercialization of our products, private litigation, including class claims, and mass arbitration demands, harm to our reputation,
or other adverse effects on our business or prospects.
In the ordinary course of
business, we collect, receive, store, process, use, generate, transfer, disclose, make accessible, protect, secure, dispose of, transmit,
and share, or collectively, “Process” or “Processing” personal data and other Sensitive Information (as defined
below), including proprietary and confidential business data, trade secrets, and intellectual property that we collect in connection with
clinical trials, as necessary to operate our business, for legal and marketing purposes, and for other business-related purposes. Our
data Processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance,
industry standards, external and internal privacy and security policies, representations, certifications, standards, publications, frameworks,
contractual requirements and other obligations related to data privacy and security collectively, “Data Protection Obligations”.
In the United States, federal,
state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data
privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping
laws). For example, the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act, or HITECH, imposes specific requirements relating to the privacy, security, and transmission
of individually identifiable health information.
In addition, over the past
few years, numerous U.S. states—including California, Virginia, Colorado, Connecticut, and Utah—have enacted comprehensive
privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording
residents with certain rights concerning their personal data. As applicable, such rights may include the right to access, correct, or
delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated
decision-making. The exercise of these rights may impact our business and ability to provide our products and services. Certain states
also impose stricter requirements for processing certain personal data, including sensitive information, such as conducting data privacy
impact assessments. These state laws allow for statutory fines for noncompliance. For example, the California Consumer Privacy Act of
2018, or CCPA, applies to personal data of consumers, business representatives, and employees who are California residents, and requires
covered businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy
rights. The CCPA also provides for fines of up to $7,500 per intentional violation and allows private litigants affected by certain data
breaches to recover significant statutory damages. The CCPA and other comprehensive U.S. state privacy laws exempt some data Processing
in the context of clinical trials, but these developments may further complicate compliance efforts, and increase legal risk and compliance
costs for us, the third parties with whom we work. Similar laws are being considered in several other states, as well as at the federal
and local levels, and we expect more states to pass similar laws in the future.
Outside the United States,
an increasing number of laws, regulations, and industry standards may govern data privacy and security. For example, the European Union’s
General Data Protection Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, or collectively GDPR, Australia’s
Privacy Act, and India’s Information Technology Act and supplementary rules impose strict requirements for Processing personal data.
For example, under GDPR, companies can face private litigation related to Processing of personal data brought by classes of data subjects
or consumer protection organizations authorized at law to represent their interests, temporary or definitive restrictions on data Processing
or other corrective actions, and fines of up to the greater of 20 million Euros under the EU GDPR / 17.5 million pounds streamline under
the UK GDPR or 4% of their worldwide annual revenue, whichever is greater.
In addition, we may be unable
to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements
or limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting
the transfer of personal data to other countries. In particular, the European Economic Area, or EEA, and the United Kingdom, or UK, have
significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it generally believes
are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer
laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States
in compliance with law, such as the EEA’s standard contractual clauses, the UK’s International Data Transfer Agreement / Addendum,
and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant U.S.-based organizations who
self-certify compliance and participate in the Framework) these mechanisms are subject to legal challenges, and there is no assurance
that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for
us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant
transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations,
the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased
exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other
third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Some European
regulators have ordered certain companies to suspend or permanently cease certain transfers of personal data out of Europe for allegedly
violating the EU GDPR’s cross-border data transfer limitations. Additionally, companies that transfer personal data to recipients
outside of the EEA and/or UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators
individual litigants and activist groups.
We publish privacy policies
and may publish marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles,
regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive,
unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse
consequences.
In addition to data privacy
and security laws, we are contractually subject to industry standards adopted by industry groups and may become subject to such obligations
in the future. We are also bound by other contractual obligations related to data privacy and security, and our efforts to comply with
such obligations may not be successful.