ITEM 1A. RISK FACTORS
Investing in our securities carries a significant degree of risk.
You should carefully consider the risks described below, together with all of the other information in this Form 10-K, including our consolidated
financial statements and related notes included elsewhere in this Form 10-K, before deciding whether to invest in our securities. If any
or a combination of the following risks were to materialize, our results of operations, financial condition and prospects could be materially
adversely affected. If that were to be the case, the market price of our securities could decline, and investors could lose all or part
of their investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial may also adversely affect our business.
Risks Related to Our Financial Condition
and Capital Requirements
We are subject to the risks associated with
new businesses.
We entered into a License Agreement with Toray
in October 2020 and are effectively 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 our Symphony platform and test cartridges, assuming
we receive regulatory clearances, for which there is no assurance, and respond to competition. Our efforts to date have related to the
organization and formation of our Company, research and development and performing clinical trials. We have no approved products, have
not yet generated sustainable revenue, and we cannot guarantee we will ever be able to generate future 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. As a result, we may be unable to further develop, obtain regulatory approval for, manufacture, market,
sell and derive revenues from our Symphony platform and test cartridges and the other product candidates in our pipeline, 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, particularly those in the medical device field. In particular, potential investors should consider that there is a significant
risk that we will not be able to:
● maintain our management team and Board of Directors;
● attract, enter into or maintain contracts with, and retain customers; and
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.
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We have incurred significant losses since
inception and may not be able to achieve significant revenues or profitability.
Since our inception, we have engaged primarily
in development activities. We have funded our operations primarily through debt and equity financings, and have incurred losses since
inception, including a net loss of $9.3 million and $3.5 million for the years ended December 31, 2022 and 2021, respectively. 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 product candidates, 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.
We will require substantial additional funding,
which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease
our operations.
To date, we have relied primarily on private debt
and equity financing to carry on our business. We have limited financial resources, negative cash flow from operations and no assurance
that sufficient funding will be available to us to fund our operating expenses and to further our product development efforts and pursue
clinical trials for FDA approval. Based on these and other factors, in our audited consolidated financial statements for the years ended
December 31, 2022 and 2021, we concluded that this circumstance raised substantial doubt about our ability to continue as a going concern
within one year from the original issuance date of such financial statements. Similarly, in its report on the consolidated financial statements
for the years ended December 31, 2022 and 2021, our independent registered public accounting firm included an emphasis of matter paragraph
stating that our recurring losses from operations and continued cash outflows from operating activities raised substantial doubt about
our ability to continue as a going concern. Our consolidated financial statements for the years ended December 31, 2022 and 2021 do not
include any adjustments that may result from the outcome of this uncertainty. We anticipate that we will need to raise additional capital
to fund our operations while we implement and execute our business plan. We currently do not have any contracts or commitments for additional
financing. In addition, any additional equity financing may involve substantial dilution to our existing stockholders.
There can be no assurance that such additional
capital will be available on a timely basis or on terms that will be acceptable to us. Failure to obtain such additional financing could
result in delay or indefinite postponement of operations or the further development of our business with the possible loss of such properties
or assets. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund our business or the
expansion thereof, take advantage of strategic acquisitions or investment opportunities or respond to competitive pressures. Such inability
to obtain additional financing when needed could have a material adverse effect on our business, results of operations, cash flow, financial
condition and prospects.
We have received a notification letter
from the Nasdaq Listing Qualifications Staff that our common stock does not satisfy Nasdaq’s $1.00 minimum price per share rule
and we could face delisting by Nasdaq if we are unable to regain compliance with this requirement, which could adversely affect our ability
to sell stock in the public markets, the liquidity of our common stock and our general ability to raise additional capital.
Our common stock currently is listed for quotation
on the Nasdaq Capital Market. We are required to meet specified financial requirements in order to maintain such listing. On October 25,
2022, we received a notification letter from the Nasdaq Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”)
notifying us that the closing bid price for our common stock had been below $1.00 for the previous 30 consecutive business days and that
we therefore are not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq
Listing Rule 5550(a)(2). The notification has no immediate effect on the listing of our common stock on the Nasdaq Capital Market.
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Under the Nasdaq Listing Rules, we have a period
of 180 calendar days to regain compliance. To regain compliance, the closing bid price of our common stock must be at least $1.00 or higher
for a minimum of ten consecutive business days, and in such case, Nasdaq will provide us with written confirmation of compliance. If we
do not regain compliance by April 24, 2023, we may be eligible for an additional 180 calendar days, provided that we meet the continued
listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, except the bid price
requirement. If we are not eligible or it appears to Nasdaq that we will not be able to cure the deficiency during the second compliance
period, Nasdaq will provide written notice to us that our common stock will be subject to delisting. In the event of such notification,
we may appeal Nasdaq’s determination to delist its securities, but there can be no assurance that Nasdaq would grant our request
for continued listing.
We intend to take all reasonable measures available
to us to achieve compliance to allow for continued listing on the Nasdaq Capital Market. However, there can be no assurance that we will
be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.
If our common stock does not regain compliance with the minimum price requirement during the applicable compliance period, we may need
to effect a reverse stock split, whereby shares of our common stock are consolidated so that the per-share trading price becomes greater
than $1.00 per share. If our common stock is delisted, we may seek to have our common stock quoted on an over-the-counter marketplace,
such as on the OTCQX. The OTCQX is not a stock exchange, and if our common stock trades on the OTCQX rather than a securities exchange,
there may be significantly less trading volume and analyst coverage of, and significantly less investor interest in, our common stock,
which may lead to lower trading prices for our common stock.
Any potential delisting
of our common stock from the Nasdaq Capital Market may have materially adverse consequences to our stockholders, including:
● limited dissemination of the market price of our common stock;
● limited news coverage;
● limited interest by investors in our common stock;
● volatility of the prices of our common stock, due to low trading volume;
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Risks Related to Our Business
The License Agreement with Toray, which
covers the license of the core technology used in our Symphony Cartridges, contains significant risks that may threaten
our viability or otherwise have a material adverse effect on us and our business, assets and its prospects.
We have an exclusive license with Toray for the
entire world, excluding Japan, to use their patents and know-how related to our Symphony test cartridges for the manufacturing, marketing
and sale of such products. We also have a nonexclusive license for the same purposes in Japan. 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:
In addition, see the risks in “Risks
Related to Our Intellectual Property” below. These risks are not the only risks inherent in the License Agreement. You are encouraged
to read the complete text of the License Agreement, which is filed as an exhibit to this Form 10-K.
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We have not yet launched any products and
the ability to do so will depend on the acceptance of our Symphony platform in the healthcare market.
We have not yet launched or received regulatory
approvals in any country or territory for our Symphony platform or test cartridges. Even if we receive regulatory approvals, we are faced
with the risk that our Symphony platform will not be accepted over competing products and that we will be unable to enter the marketplace
or compete effectively. We cannot assure you that our Symphony platform or test cartridges will gain market acceptance. If the market
for our future products fails to develop or develops more slowly than expected, or if any of the technology and standards supported by
us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
We cannot accurately predict the volume
or timing of any sales, making the timing of any revenues difficult to predict.
We may be faced with lengthy and unpredictable
customer evaluation and approval processes associated with our Symphony platform. Consequently, we may incur substantial expenses and
devote significant management effort and expense in developing customer adoption of our Symphony platform, which may not result in revenue
generation. We must also obtain regulatory approvals of our Symphony platform and test cartridges in jurisdictions in which we pursue
approvals, which is subject to risk and potential delays. The same risks apply to other tests we may develop based on our Symphony platform.
As such, we cannot accurately predict the volume, if any, or timing of any future sales.
If third-party payors do not provide coverage
and reimbursement for the use of our platform, 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.
Our Symphony platform, including its software
and systems, may contain undetected errors, which could limit our ability to provide our products and diminish the attractiveness of our
offerings.
Our Symphony platform 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.
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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 future products
and services may 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.
If in the future we pursue foreign jurisdictions,
such international operations will 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.
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. Our future performance depends to a large
extent on the continued services of members of our current management. 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. 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.
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If we or our manufacturers fail to comply
with the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could be interrupted,
and our operating results would suffer.
We and any third-party manufacturers and suppliers
of ours will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction we will
seek to penetrate and also will be subject to the regulations of these jurisdictions regarding the manufacturing processes. If we or any
third-party manufacturers or suppliers of ours are found to be in significant non-compliance or fail to take satisfactory corrective action
in response to adverse regulatory findings in this regard, regulatory agencies could take enforcement actions against us and such manufacturers
or suppliers, which could impair or prevent our ability to produce our products in a cost-effective and timely manner in order to meet
customers’ demands. Accordingly, our operating results would suffer.
Product liability suits, whether or not
meritorious, could be brought against us due to an alleged defective product or for the misuse of our Symphony platform or test cartridges.
These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
rates.
If our Symphony platform or test cartridges, or
any future tests based on our Symphony platform, are defectively designed or manufactured, contain defective components or are 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 readings could cause significant harm
to patients. 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.
There are a number of laws around the world protecting
the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected
information. Privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving
individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to accomplish the intended purpose. We may face difficulties in holding such information
in compliance with applicable law. If we are found to be in violation of the privacy rules, we could be subject to civil or criminal penalties,
which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and
results of operations.
Significant raw material shortages, supplier
capacity constraints, supplier disruptions, and sourcing issues may adversely impact or limited our products sales and or impact our product
margins.
In connection with effects related to the COVID-19
pandemic, we are operating in a supply-constrained environment and are facing, and may continue to face, supply-chain shortages, inflationary
pressures, logistics challenges and manufacturing disruptions that impact our revenues, profitability, and timeliness in fulfilling customer
orders. In addition, our key suppliers are limited- or sole-source suppliers. Disruptions in deliveries, capacity constraints, production
disruptions up- or down-stream, price increases, or decreased availability of raw materials or commodities, including as a result of war,
natural disasters (including the effects of climate change such as sea level rise, drought, flooding, wildfires and more intense weather
events), actual or threatened public health emergencies or other business continuity events, adversely affect our operations and, depending
on the length and severity of the disruption, can limit our ability to meet our commitments to customers or significantly impact our operating
profit or cash flows.
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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 our planned
products.
We intend to market our Symphony platform or test
cartridges following regulatory approval. To date, we have not received regulatory approval in any jurisdiction. The research, design,
testing, manufacturing, labeling, selling, marketing, and distribution of medical devices are subject to extensive regulation by country-specific
regulatory authorities, which regulations differ from country to country. There can be no assurance that, even after such time and expenditures,
we will be able to obtain necessary regulatory approvals for clinical testing or for the manufacturing or marketing of any products. In
addition, during the regulatory process, other companies may develop other technologies with the same intended use as our products.
We also will be subject to numerous post-marketing
regulatory requirements, which may include labeling regulations and medical device reporting regulations, which may require us to report
to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions in a way that would
likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in the future in a way
that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable to us, we may be subject
to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
● warning letters, fines, injunctions, consent decrees and civil penalties;
● customer notification, or orders for repair, replacement, or refunds;
● voluntary or mandatory recall or seizure of our products;
● imposing operating restrictions, suspension, or shutdown of production;
● criminal prosecution.
The occurrence of any of these events may have
a material adverse effect on our business, financial condition and results of operations.
Product clearances and approvals can often
be denied or significantly delayed.
Under FDA regulations, unless exempt, a new medical
device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de novo classification process,
or is the subject of a PMA. The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the
new product is substantially equivalent to another legally marketed product not subject to a PMA. Sometimes, a 510(k) clearance must be
supported by preclinical and clinical data.
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The PMA process typically is more costly, lengthy,
and stringent than either the 510(k) process or the de novo classification process. Unlike a 510(k) review, which determines “substantial
equivalence,” a PMA requires that the applicant demonstrate reasonable assurance that the device is safe and effective by producing
valid scientific evidence, including data from preclinical studies and human clinical trials. Therefore, to obtain regulatory clearance
or approvals, we typically must, among other requirements, provide the FDA and similar foreign regulatory authorities with preclinical
and clinical data that demonstrate to their satisfaction that our products satisfy the criteria for approval. Preclinical testing and
clinical trials must comply with the regulations of the FDA and other government authorities in the United States and similar agencies
in other countries.
We may be required to obtain PMAs, PMA supplements,
de novo classification, or additional 510(k) pre-market clearances to market modifications to our products once they are approved and
commercialized. The FDA requires device manufacturers to make and document a determination of whether a device modification requires approval
or clearance; however, the FDA can review a manufacturer’s decision. The FDA may not agree with our decisions not to seek approvals
or clearances for particular device modifications. If the FDA requires us to obtain PMAs, PMA supplements or pre-market clearances for
any modification to a previously cleared or approved device, we may be required to cease manufacturing and marketing of the modified device
and perhaps also to recall such modified device until we obtain FDA clearance or approval. We may also be subject to significant regulatory
fines or penalties.
The FDA may not clear or approve our product submissions
or applications on a timely basis or at all. Such delays or refusals could have a material adverse effect on our business, financial condition,
and results of operations.
The FDA may also change its clearance and approval
policies, adopt additional regulations, or revise existing regulations, or take other actions which may prevent or delay approval or clearance
of our products under development or impact our ability to modify our currently approved or cleared products on a timely basis. Any of
these actions could have a material adverse effect on our business, financial condition, and results of operations.
International regulatory approval processes may
take more or less time than the FDA’s clearance or approval process. If we fail to comply with applicable FDA and comparable non-U.S.
regulatory requirements, we may not receive regulatory clearances or approvals or may be subject to FDA or comparable non-U.S. enforcement
actions. We may be unable to obtain future regulatory clearance or approval in a timely manner, or at all, especially if existing regulations
are changed or new regulations are adopted. For example, the FDA’s clearance or approval process can take longer than anticipated
due to requests for additional clinical data and changes in regulatory requirements. In addition, the changing landscape related to the
COVID-19 pandemic also could lead to delays in obtaining clinical data. The declining number of COVID patients with respiratory deterioration
may impact our ability to meet the primary endpoint in our Symphony IL-6 Expanded Clinical Study. We are currently working with the FDA
to expand this endpoint to better reflect the current standard of care and to make the number of study subjects more realistic in light
of the decreasing number of COVID positive subjects needed in the study. Any failure or delay in obtaining necessary regulatory clearances
or approvals would materially adversely affect our business, financial condition, and results of operations.
Our Symphony platform may be sold as a research
use only product. The FDA could disagree with this strategy and subject the product to regulation as a regulated medical device,
which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our business and results
of operations.
In the United States, we may decide to label and
sell our Symphony platform for research use only, and not for the diagnosis or treatment of disease. Our future product candidates
also may follow this same pathway to market. Because such products are not intended for use in clinical practice in diagnostics, and the
products cannot include clinical or diagnostic claims, they are exempt from many regulatory requirements otherwise applicable to medical
devices. In particular, while FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use in
diagnostic procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls
for medical devices.
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A significant change in the laws governing RUO
products or how they are enforced may require us to change our ability to consider generating revenue via this path in order to maintain
compliance. For instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro Diagnostic Products
Labeled for Research Use Only or Investigational Use Only” (the “RUO Guidance”) which highlights the FDA’s
interpretation that distribution of RUO products with any labeling, advertising or promotion that suggests that clinical laboratories
can validate the test through their own procedures and subsequently offer it for clinical diagnostic use as a laboratory developed test
is in conflict with RUO status. The RUO Guidance further articulates the FDA’s position that any assistance offered in performing
clinical validation or verification, or similar specialized technical support, to clinical laboratories, conflicts with RUO status. If
we engage in any activities that the FDA deems to be in conflict with the RUO status held by the products that we sell, we may be subject
to immediate, severe and broad FDA enforcement action that would adversely affect our ability to continue operations. Accordingly, if
the FDA finds that we are distributing our RUO products in a manner that is inconsistent with its regulations or guidance, we may be forced
to stop distribution of our RUO tests until we are in compliance, which would reduce our revenue, increase our costs and adversely affect
our business, prospects, results of operations and financial condition. In addition, the FDA’s proposed implementation for a new
framework for the regulation of LDTs may negatively impact the LDT market and thereby reduce demand for RUO products.
Clinical data obtained in the future may
not meet the required objectives, which could delay, limit or prevent any 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 our Symphony platform and test cartridges, 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 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
of our Symphony platform or test cartridges, or other studies that we may be required to undertake in the future, could be delayed, suspended,
or terminated for several reasons, including:
The declining number of COVID patients with respiratory
deterioration may impact our ability to meet the primary endpoint in our Symphony IL-6 Expanded Clinical Study. We are currently working
with the FDA to expand this endpoint to better reflect the current standard of care and to make the number of study subjects more realistic
in light of the decreasing number of COVID positive subjects needed in the study.
If our clinical evaluations are delayed it will
take us longer to ultimately launch our Symphony platform and test cartridges 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.
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We and our suppliers may not meet regulatory quality standards
applicable to our manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.
As a medical device manufacturer, we will need
to register with the FDA and various non-U.S. regulatory agencies and will be subject to periodic inspection by the FDA and foreign regulatory
agencies, for compliance with certain Good Manufacturing Practices, including design controls, product validation and verification, in
process testing, quality control and documentation procedures. Compliance with applicable regulatory requirements is subject to continual
review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Our product and component
suppliers may also be required to meet certain standards applicable to their manufacturing processes.
We cannot assure you that we or our products or
component suppliers will comply with all regulatory requirements. The failure by us or one of our suppliers to achieve or maintain compliance
with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is
achieved or, until a new supplier has been identified and evaluated. Our or any product or component supplier’s failure to comply
with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties,
failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals or clearances,
license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, which could harm our business.
We cannot assure you that if we need to engage new suppliers to satisfy our business requirements, we can locate new suppliers in compliance
with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect
on our business, financial condition and results of operations.
We may be liable if the FDA or another regulatory agency concludes
that we have engaged in the off-label promotion of our products.
Our promotional materials and training methods
must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of the off-label use of our
products. Once our products are cleared or approved for clinical use, healthcare providers may use our products for off-label uses, as
the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines
that our promotional, or training materials for sales representatives or physicians constitute promotion of an off-label use, the FDA
could request that we modify our training, promotional materials and/or subject us to regulatory or enforcement actions, including the
issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, significant penalties, including civil
fines and criminal penalties. Other federal, state or foreign governmental authorities also might take action if they consider our promotion,
reimbursement or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties
under other statutory authorities, such as laws prohibiting false claims for reimbursement. In those possible events, our reputation could
be damaged, and adoption of the products would be impaired.
Our products may be subject to recalls after receiving FDA or
foreign approval or clearance or cause or contribute to a death or a serious injury or malfunction in certain ways prompting voluntary
corrective actions or agency enforcement actions, which could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
The FDA and similar foreign governmental authorities
have the authority to require the recall of our products because of any failure to comply with applicable laws and regulations, or defects
in design or manufacture, or if there is a reasonable likelihood our products might cause or contribute to a death or a serious injury
or malfunction. A government mandated or voluntary product recall by us could occur because of, for example, component failures, device
malfunctions or other adverse events, such as serious injuries or deaths, or quality-related issues, such as manufacturing errors or design
or labeling defects. Any future recalls of our products could divert managerial and financial resources, harm our reputation, and adversely
affect our business.
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If we initiate a correction or removal for one
of our devices to reduce a risk to health posed by the device, we would be required to submit a publicly available Correction and Removal
report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device
recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.
In addition, we will be subject to medical device
reporting regulations that will require us to report to the FDA or similar foreign governmental authorities if one of our products may
have caused or contributed to a death or serious injury or if we become aware that it has malfunctioned in a way that would likely cause
or contribute to a death or serious injury if the malfunction recurred. Failures to properly identify reportable events or to file timely
reports, as well as failure to address each of the observations to the FDA’s satisfaction, can subject us to sanctions and penalties,
including warning letters and recalls. Physicians, hospitals, and other healthcare providers may make similar reports to regulatory authorities.
Any such reports may trigger an investigation by the FDA or similar foreign regulatory bodies, which could divert managerial and financial
resources, harm our reputation, and have a material adverse effect on our business, financial condition and results of operations. Any
adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications,
or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, would require our time and capital, distract management from operating our business and may harm our reputation
and have a material adverse effect on our business, financial condition, and results of operations.
Legislative or regulatory reforms may make
it more difficult and costly for us to obtain regulatory clearance or approval of any future products and to manufacture, market and distribute
our products after clearance or 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, the FDA may change its clearance and approval policies, adopt additional
regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products
under development or impact our ability to modify our currently cleared products on a timely basis. Any new regulations or revisions or
reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products. It is impossible
to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed, and what the impact of
such changes, if any, may be.
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 statutes, regulations or revisions
or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more
difficult to obtain clearance or approval for, manufacture, market or distribute our products. We cannot determine what effect changes
in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the
future. Such changes could, among other things, require additional testing prior to obtaining clearance or approval; changes to manufacturing
methods; recall, replacement or discontinuance of our products; or additional record keeping.
Any change in the laws or regulations that govern
the clearance and approval processes relating to our current, planned and future products could make it more difficult and costly to obtain
clearance or approval for new products or to produce, market and distribute existing products. Significant delays in receiving clearance
or approval or the failure to receive clearance or approval for any new products would have an adverse effect on our ability to expand
our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or
if we are not able to maintain regulatory compliance, we may lose any marketing clearance that we may have obtained and we may not achieve
or sustain profitability.
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Risks Related to Our Intellectual Property
We depend on intellectual property licensed
from Toray, and any dispute over the license would significantly harm our business.
We are dependent on the intellectual property
licensed from Toray. Disputes may arise between us and Toray 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 our Symphony platform and our other product candidates. If we or Toray 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 Toray 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 our Symphony
platform is owned by Toray. Under the License Agreement, Toray generally has the right to file, prosecute, maintain and defend the intellectual
property we have licensed from Toray. If Toray 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, Toray
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 Toray 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 Toray, 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 Toray and its counsel that took place
prior to or after our assuming control, and we cannot ensure the cooperation of Toray 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.
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We and Toray may be unable to protect or
enforce the intellectual property rights licensed to us, which could impair our competitive position.
In order for our business to be viable and to
compete effectively, the proprietary rights with respect to the technologies and intellectual property used in our products must be developed
and maintained. Toray relies primarily on patent protection and trade secrets to protect its technology and intellectual property rights.
There are significant risks associated with Toray’s ability (or our ability, in the absence of action by Toray) to protect the intellectual
property licensed to us, including:
● Toray’s intellectual property rights may not provide meaningful protection;
● the other risks described in “— Risks Related to Our Intellectual Property.”
If any of Toray’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 Toray’s part (or on our part, in the absence of action by Toray) to adequately protect its intellectual property
may have a material adverse effect on our business, financial condition and results of operations.
We and/or Toray may be subject to claims
alleging the violation of the intellectual property rights of others.
We may face significant expense and liability
as a result of litigation or other proceedings relating to intellectual property rights of others. In the event that another party has
intellectual property protection relating to an invention or technology licensed by us from Toray, we and/or Toray 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 Toray 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 Toray 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.
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The cost to us of any intellectual property litigation
or other proceeding relating the intellectual property licensed by us from Toray, 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 Toray are using inventions claimed by their intellectual
property and may go to court to stop us and/or Toray 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 Toray 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 Toray to pay the other
party damages for having infringed their intellectual property. 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.
We and Toray may be subject to claims challenging
the invention of the intellectual property that we license from Toray.
We and Toray 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 Toray 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 Toray
fail in defending any such claims, in addition to paying monetary damages, we and Toray 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 Toray 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 Toray
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 diagnostic
testing market, particularly in the IL-6 space, and as a result we may be unable to effectively compete in our industry.
We expect to compete directly and primarily with
large medical device companies. These large companies have most of the diagnostic testing business and strong research and development
capacity. Their dominant market position and significant control over markets could significantly limit our ability to introduce our Symphony
platform or effectively market and generate sales of our products.
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 diagnostic testing 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 our products,
technical solutions, prices and response time, or a combination of these factors. 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 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.
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If we or Toray fail to respond quickly to
technological developments, our products may become uncompetitive and obsolete.
The diagnostic testing market may experience rapid
technology developments, changes in industry standards, changes in customer requirements and frequent new product introductions and improvements.
If we or Toray are unable to respond to these developments, we may lose competitive position, and our products or technology may become
uncompetitive or obsolete, causing our business and prospects to suffer. In order to compete, we and Toray 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.
Risks Related to Ownership of Our Common Stock
We could issue “blank check”
preferred stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Certificate of Incorporation provides for
the authorization to issue up to 5,000,000 shares of “blank check” preferred stock with designations, rights and preferences
as may be determined from time to time by our Board of Directors. Our Board of Directors is empowered, without stockholder approval, to
issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest
of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging,
delaying or preventing a change in control. For example, it would be possible for our Board of Directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any attempt to change control of our Company. In addition, advanced
notice is required prior to stockholder proposals, which might further delay a change of control.
Shares eligible for future sale may adversely
affect the market for our common stock.
The price of our common stock could decline if
there are substantial sales of our common stock, particularly sales by our directors, executive officers, employees, and significant stockholders,
or when there is a large number of shares of our common stock available for sale.
Our existing stockholders (including the holders
of our preferred stock and warrants) may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market, subject to the limitations of Rule 144, promulgated under the Securities Act. In general, under Rule
144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who
is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale
and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner
other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions
of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares
proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person
is entitled to sell those shares without complying with any of the requirements of Rule 144. Our affiliates and other persons selling
shares on behalf of our affiliates also are entitled to sell as long as they comply with Rule 144’s manner of sale, volume limitation
and notice provisions, in addition to the provisions applicable to non-affiliates described above.
The market price of the shares of our common stock
could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in
the market that the holders of a large number of shares intend to sell their shares.
We do not currently intend to pay dividends
on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation
in the price of our common stock.
We do not anticipate paying any cash dividends
to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares
of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
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If securities industry analysts do not publish