Item 1A. Risk Factors.
Investing in our common stock is
risky. In addition to the other information contained in this Annual Report on Form 10-K, you should consider carefully the following
risk factors in evaluating our business and us. If any of the following events actually occur, our business, operating results, prospects
or financial condition could be materially and adversely affected. This could cause the trading price of our common stock to decline and
you may lose all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently
known to us or that we currently deem immaterial may also significantly impair our business operations and could result in a complete
loss of your investment.
We have incurred substantial operating losses since
our inception and will continue to incur substantial operating losses for the foreseeable future.
Since our inception, we have been
engaged primarily in the research and development of our electro-optic polymer materials technologies and potential products. As a result
of these activities, we incurred significant losses and experienced negative cash flow since our inception. We incurred a net loss of
$17,230,480 for the year ended December 31, 2022, $18,631,381 for the year ended December 31, 2021 and $6,715,564 for the year ended December
31, 2020. We anticipate that we will continue to incur operating losses through at least 2023.
We may not be able to generate significant
revenue either through customer contracts for our potential products or technologies or through development contracts from the U.S. government
or government subcontractors. We expect to continue to make significant operating and capital expenditures for research and development
and to improve and expand production, sales, marketing and administrative systems and processes. As a result, we will need to generate
significant revenue to achieve profitability. We cannot assure you that we will ever achieve profitability.
We are subject to the risks frequently experienced by early stage companies.
The likelihood of our success must
be considered in light of the risks frequently encountered by early stage companies, especially those formed to develop and market new
technologies. These risks include our potential inability to:
· Establish product sales and marketing capabilities;
· Establish and maintain markets for our potential products;
· Identify, attract, retain and motivate qualified personnel;
· Maintain our reputation and build trust with customers;
If we fail to effectively manage our growth, and
effectively transition from our focus on research and development activities to commercially successful products, our business could suffer.
Failure to manage growth of operations
could harm our business. To date, a large number of our activities and resources have been directed at the research and development of
our technologies and development of potential related products including work in association with external partners. The transition from
a focus on research and development to being a vendor of products requires effective planning and management. Additionally, growth arising
from the expected synergies from future acquisitions will require effective planning and management. Future expansion will be expensive
and will likely strain management and other resources.
In order to effectively manage growth, we must:
· Hire, train and integrate new personnel in all areas of our business;
· Expand our facilities and increase capital investments; and
· Continue to successfully partner with silicon-based foundries.
We cannot assure you that we will be able to accomplish
these tasks effectively or otherwise effectively manage our growth.
We will require additional capital to continue
to fund our operations and if we do not obtain additional capital, we may be required to substantially limit our operations.
Our business does not presently
generate the cash needed to finance our current and anticipated operations. Based on our current operating plan and budgeted cash requirements,
we believe that we have sufficient funds to finance our operations through April 2024; however, we will need to obtain additional future
financing after that time to finance our operations until such time that we can conduct profitable revenue-generating activities. We expect
that we will need to seek additional funding through public or private financings, including equity financings, and through other arrangements,
including collaborative arrangements. Poor financial results, unanticipated expenses or unanticipated opportunities could require additional
financing sooner than we expect. Other than with respect to (i) the purchase agreement for $33 million
we entered into with Lincoln Park Capital Fund, LLC (“Lincoln Park”) on October 4, 2021 (the “2021 Purchase
Agreement”); (ii) the purchase agreement for up to $30 million we entered into with Lincoln Park on February 28, 2023
(the "2023 Purchase Agreement”); and (iii) the sales agreement for up to $35 million we entered into with Roth
Capital Partners, LLC (“Roth Capital”) on December 9, 2022 (the “Roth Sales Agreement”);
we have no plans or arrangements with respect to the possible acquisition of additional financing, and such financing may be unavailable
when we need it or may not be available on acceptable terms. We currently have a remaining amount of $2,126,557 million that is available
to our Company pursuant to the 2021 Purchase Agreement with Lincoln Park, $30 million that is available to our Company pursuant to the
2023 Purchase Agreement with Lincoln Park, and $35 million that is available to our Company pursuant to the Roth Sales Agreement with
Roth Capital.
Our forecast of the period of time
through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and
uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this Annual
Report on Form 10-K. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources
sooner than we currently expect.
Additional financing may not be
available to us, due to, among other things, our Company not having a sufficient credit history, income stream, profit level, asset base
eligible to be collateralized, or market for its securities. If we raise additional funds by issuing equity or convertible debt securities,
the percentage ownership of our existing shareholders may be reduced, and these securities may have rights superior to those of our common
stock. If adequate funds are not available to satisfy our long-term capital requirements, or if planned revenues are not generated, we
may be required to substantially limit our operations.
We are entering new markets, and if we fail to
accurately predict growth in these new markets, we may suffer substantial losses.
We are devoting significant resources
to develop next generation proprietary photonic devices that are based on our advanced electro-optical polymer material systems for future
applications in data communications and telecommunications markets and we are exploring other applications that include automotive/LIDAR,
sensing, displays etc. We expect to continue to develop products for these markets and to seek to identify new markets. These markets
change rapidly, and we cannot assure you that they will grow or that we will be able to accurately forecast market demand, or lack thereof,
in time to respond appropriately. Our investment of resources to develop products for these markets may either be insufficient to meet
actual demand or result in expenses that are excessive in light of actual sales volumes. Failure to predict growth and demand accurately
in new markets may cause us to suffer substantial losses. In addition, as we enter new markets, there is a significant risk that:
· The market may not accept the price and/or performance of our products;
Our plan to develop relationships with strategic partners may not be
successful.
Part of our business strategy is
to maintain and develop strategic relationships with private firms, such as packaging companies and silicone based foundries, and to a
lesser extent, government agencies and academic institutions, to conduct research and development and testing of our products and technologies.
For these efforts to be successful, we must identify partners whose competencies complement ours. We must also successfully enter into
agreements with them on terms attractive to us, and integrate and coordinate their resources and capabilities with our own. We may be
unsuccessful in entering into agreements with acceptable partners or negotiating favorable terms in these agreements. Also, we may be
unsuccessful in integrating the resources or capabilities of these partners. In addition, our strategic partners may prove difficult to
work with or less skilled than we originally expected. If we are unsuccessful in our collaborative efforts, our ability to develop and
market products could be severely limited.
The failure to establish and maintain collaborative relationships may
have a materially adverse affect on our business.
We are initially targeting applications
in data communications and telecommunications markets and are exploring other applications that include automotive/LIDAR, sensing, displays
etc. Our ability to generate revenues depends significantly on the extent to which potential customers and other potential industry partners
develop, promote and sell systems that incorporate our products, which, of course, we cannot control. Any failure by potential customers
and other potential industry partners to successfully develop and market systems that incorporate our products could adversely affect
our sales. The extent to which potential customers and other industry partners develop, promote and sell systems incorporating our products
is based on a number of factors that are largely beyond our ability to control.
We may participate in joint ventures that expose us to operational and
financial risk.
We may participate in one or more
joint ventures for the purpose of assisting us in carrying out our business expansion, especially with respect to new product and/or market
development. We may experience with our joint venture partner(s) issues relating to disparate communication, culture, strategy, and resources.
Further, our joint venture partner(s) may have economic or business interests or goals that are inconsistent with ours, exercise their
rights in a way that prohibits us from acting in a manner which we would like, or they may be unable or unwilling to fulfill their obligations
under the joint venture or other agreements. We cannot assure you that the actions or decisions of our joint venture partners will not
affect our operations in a way that hinders our corporate objectives or reduces any anticipated cost savings or revenue enhancement resulting
from these ventures.
If we fail to develop and introduce new or enhanced
products on a timely basis, our ability to attract and retain customers could be impaired and our competitive position could be harmed.
We plan to operate in a dynamic
environment characterized by rapidly changing technologies and industry standards and technological obsolescence. To compete successfully,
we must design, develop, market and sell products that provide increasingly higher levels of performance and reliability and meet the
cost expectations of our customers. The introduction of new products by our competitors, the market acceptance of products based on new
or alternative technologies, or the emergence of new industry standards could render our anticipated products obsolete. Our failure to
anticipate or timely develop products or technologies in response to technological shifts could adversely affect our operations. In particular,
we may experience difficulties with product design, manufacturing, marketing or certification that could delay or prevent our development,
introduction or marketing of products. If we fail to introduce products that meet the needs of our customers or penetrate new markets
in a timely fashion our Company will be adversely affected.
Our future growth will suffer if we do not achieve
sufficient market acceptance of our organic nonlinear optical material products or our proprietary photonic devices.
We expect our patented and patent-pending
optical materials along with trade secrets and licensed materials, to be the core of and the enabling technology for future generations
of optical devices, modules, sub-systems and systems that we will develop or potentially out-license to electro-optic device manufacturers.
All of our potential products are still in the development stage, and we do not know when a market for these products will develop, if
at all. Our success depends, in part, upon our ability to gain market acceptance of our products. To be accepted, our products must meet
the technical and performance requirements of our potential customers. OEMs, suppliers or government agencies may not accept polymer-based
products. In addition, even if we achieve some degree of market acceptance for our potential products in one industry, we may not achieve
market acceptance in other industries for which we are developing products.
Achieving market acceptance for
our products will require marketing efforts and the expenditure of financial and other resources to create product awareness and demand
by customers. We may be unable to offer products that compete effectively due to our limited resources and operating history. Also, certain
large corporations may be predisposed against doing business with a company of our limited size and operating history. Failure to achieve
broad acceptance of our products by customers and to compete effectively would harm our operating results.
Our potential customers require our products to
undergo a lengthy and expensive qualification process, which does not assure product sales.
Prior to purchasing our products,
our potential customers will require that our products undergo extensive qualification processes. These qualification processes may continue
for several months or more. However, qualification of a product by a customer does not assure any sales of the product to that customer.
Even after successful qualification and sales of a product to a customer, a subsequent revision to the product, changes in our customer’s
manufacturing process or our selection of a new supplier may require a new qualification process, which may result in additional delays.
Also, once one of our products is qualified, it could take several additional months or more before a customer commences volume production
of components or devices that incorporate our products. Despite these uncertainties, we are devoting substantial resources, including
design, engineering, sales, marketing and management efforts, to qualifying our products with customers in anticipation of sales. If we
are unsuccessful or delayed in qualifying any of our products with a customer, sales of our products to a customer may be precluded or
delayed, which may impede our growth and cause our business to suffer.
Obtaining a sales contract with a potential customer
does not guarantee that a potential customer will not decide to cancel or change its product plans, which could cause us to generate no
revenue from a product and adversely affect our results of operations.
Even after we secure a sales contract
with a potential customer, we may experience delays in generating revenue from our products as a result of a lengthy development cycle
that may be required. Potential customers will likely take a considerable amount of time to evaluate our products; it could take 12 to
24 months from early engagement by our sales team to actual product sales. The delays inherent in these lengthy sales cycles increase
the risk that a customer will decide to cancel, curtail, reduce or delay its product plans, causing us to lose anticipated sales. In addition,
any delay or cancellation of a customer’s plans could materially and adversely affect our financial results, as we may have incurred
significant expense and generated no revenue. Finally, our customers’ failure to successfully market and sell their products could
reduce demand for our products and materially and adversely affect our business, financial condition and results of operations. If we
were unable to generate revenue after incurring substantial expenses to develop any of our products, our business would suffer.
Many of our products will have long sales cycles,
which may cause us to expend resources without an acceptable financial return and which makes it difficult to plan our expenses and forecast
our revenue.
Many of our products will have long
sales cycles that involve numerous steps, including initial customer contacts, specification writing, engineering design, prototype fabrication,
pilot testing, regulatory approvals (if needed), sales and marketing and commercial manufacture. During this time, we may expend substantial
financial resources and management time and effort without any assurance that product sales will result. The anticipated long sales cycle
for some of our products makes it difficult to predict the quarter in which sales may occur. Delays in sales may cause us to expend resources
without an acceptable financial return and make it difficult to plan expenses and forecast revenues.
Successful commercialization of our current and future products will
require us to maintain a high level of technical expertise.
Technology in our target markets
is undergoing rapid change. To succeed in our target markets, we will have to establish and maintain a leadership position in the technology
supporting those markets. Accordingly, our success will depend on our ability to:
· Establish and effectively defend our intellectual property; and
We cannot assure you that we will be able to achieve
any of these objectives.
One of our significant target markets is the telecommunications market,
which historically has not accepted polymer modulators.
One of our significant target markets
is the telecommunications market, which demands high reliability optical components. Historically, polymer modulators have not been accepted
into this market even though polymer modulators have achieved TelcordiaTM based specifications. It is clear that the telecommunications
market is demanding higher and higher data rates for its optical components, and may again decide that polymer based modulators are not
suitable even if higher data rates, high reliability, and low power consumption are demonstrated.
Another of our significant target markets is the
data communications (datacenter and/or high performance computing) market, which may be subject to heavy competition from other PIC based
technologies such as silicon photonics and Indium Phosphide.
Another of our significant target
markets is the data communications (datacenter and/or high performance computing) market, which may be subject to heavy competition from
other PIC based technologies such as silicon photonics and Indium Phosphide. As the demands for high performance, low cost ($/Gbps) is
implemented into next generation architectures, polymer modulators and polymer based PIC products may be subject to significant competition.
Furthermore, there is a potential that technologies such as silicon photonics and Indium Phosphide might reach the metric of $1/Gbps at
400Gbps before ours. Customers may then be less willing to purchase new technology such as ours or invest in new technology development
such as ours for next generation systems.
Our inability to successfully acquire and integrate
other businesses, assets, products or technologies could harm our business and cause us to fail at achieving our anticipated growth.
We may grow our business through
strategic acquisitions and investments, and we are actively evaluating acquisitions and strategic investments in businesses, products
or technologies that we believe could complement or expand our product offering, create and/or expand a client base, enhance our technical
capabilities or otherwise offer growth or cost-saving opportunities. From time to time, we may enter into letters of intent with companies
with which we are negotiating potential acquisitions or investments or as to which we are conducting due diligence. Although we are currently
not a party to any binding material definitive agreement with respect to potential investments in, or acquisitions of, complementary businesses,
products or technologies, we may enter into these types of arrangements in the future, which could materially decrease the amount of our
available cash or require us to seek additional equity or debt financing. We have limited experience in successfully acquiring and integrating
businesses, products and technologies. We may not be successful in negotiating the terms of any potential acquisition, conducting thorough
due diligence, financing the acquisition or effectively integrating the acquired business, product or technology into our existing business
and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired
business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory
compliance practices, revenue recognition or other accounting practices, or employee or customer issues.
Additionally, in connection with
any acquisitions we complete, we may not achieve the synergies or other benefits we expected to achieve, and we may incur write-downs,
impairment charges or unforeseen liabilities that could negatively affect our operating results or financial position or could otherwise
harm our business. If we finance acquisitions using existing cash, the reduction of our available cash could cause us to face liquidity
issues or cause other unanticipated problems in the future. If we finance acquisitions by issuing convertible debt or equity securities,
the ownership interest of our existing stockholders may be diluted, which could adversely affect the market price of our stock. Further,
contemplating or completing an acquisition and integrating an acquired business, product or technology could divert management and employee
time and resources from other matters, which could harm our business, financial condition and operating results.
Our operations and financial results could be adversely
impacted by the COVID-19 pandemic, which has at times negatively impacted our stock price and could curtail our ability to raise necessary
funds in the near-term on terms that are acceptable to us, and may negatively impact our business, results of operations, particularly
with respect to our research and development, and financial position.
The
COVID-19 pandemic continues to have a significant impact around the world, prompting governments and businesses to take certain measures
in response, such as the imposition of travel restrictions, temporary closures of businesses, quarantine and shelter-in-place orders,
and adoption of remote working. While the extent of the impact of the COVID-19 pandemic on our business and financial results remains
uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic would have a negative impact on our business,
results of operations, particularly with respect to our research and development, and financial condition. The COVID-19 pandemic has resulted
in significant volatility and substantial declines in the stock markets, which has negatively impacted our stock price at times which
in turn has negatively impacted our ability to raise significant funds in during those times on terms that are acceptable to us. It is
unknown the potential impact in the long-term in the event of a prolonged disruption or recession. In addition, the COVID-19 pandemic
could impact the conduct of our research and development due to the slowdown or stoppage of modulator and materials development at our
laboratory facility. Given the dynamic nature of these circumstances, the duration of any business disruption or potential impact of the
COVID-19 pandemic to our business is difficult to predict.
The extent to which the COVID-19 pandemic will
adversely impact our business, financial condition and results of operations is highly uncertain and cannot be predicted.
The COVID-19 pandemic has created
significant worldwide uncertainty, volatility and economic disruption. The extent to which COVID-19 will adversely impact our business,
financial condition and results of operations is dependent upon numerous factors, many of which are highly uncertain, rapidly changing
and uncontrollable. These factors include, but are not limited to: (i) the duration and scope of the pandemic; (ii) governmental, business
and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines,
social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing
and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or
other impairment charges; (vi) increased cybersecurity risks as a result of pervasive remote working conditions; (vii) our ability to
effectively carry out our operations due to any adverse impacts on the health and safety of our employees and their families; and (viii)
the ability of our collaborative partners to timely satisfy their collaborative obligations to us.
We may incur debt in the future that might be secured
with our intellectual property as collateral, which could subject our Company to the risk of loss of all of our intellectual property.
We currently have no debt to service. If we incur debt
in the future, we may be required to secure the debt with our intellectual property, including all of our patents and patents pending.
In the event we default on the debt, we could incur the loss of all of our intellectual property, which would materially and adversely
affect our Company and cause you to lose your entire investment in our Company.
Our failure to compete successfully could harm our business.
The markets that we are targeting
for our proprietary electro-optic polymer systems and photonic devices are intensely competitive. Most of our present and potential competitors
have or may have substantially greater research and product development capabilities, financial, scientific, marketing, manufacturing
and human resources, name recognition and experience than we have. As a result, these competitors may:
· devote greater resources to developing, marketing or selling their products;
· withstand price competition more successfully than we can;
Our failure to compete successfully against these existing
or future competitors could harm our business.
We may be unable to obtain effective intellectual
property protection for our potential products and technology.
Our intellectual property, or any
intellectual property that we have or may acquire, license or develop in the future, may not provide meaningful competitive advantages.
Our patents and patent applications, including those we license, may be challenged by competitors, and the rights granted under such patents
or patent applications may not provide meaningful proprietary protection. For example, numerous patents held by third parties relate to
polymer materials and electro-optic devices. These patents could be used as a basis to challenge the validity or limit the scope of our
patents or patent applications. A successful challenge to the validity or limitation of the scope of our patents or patent applications
could limit our ability to commercialize our polymer materials technology and, consequently, reduce our revenues.
Moreover, competitors may infringe
our patents or those that we license, or successfully avoid these patents through design innovation. To combat infringement or unauthorized
use, we may need to resort to litigation, which can be expensive and time-consuming and may not succeed in protecting our proprietary
rights. In addition, in an infringement proceeding a court may decide that our patents or other intellectual property rights are not valid
or are unenforceable, or may refuse to stop the other party from using the intellectual property at issue on the ground that it is non-infringing.
Policing unauthorized use of our intellectual property is difficult and expensive, and we may not be able to, or have the resources to,
prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect these rights as fully as
the laws of the United States.
We also rely on the law of trade
secrets to protect unpatented technology and know-how. We try to protect this technology and know-how by limiting access to those employees,
contractors and strategic partners with a need to know this information and by entering into confidentiality agreements with these parties.
Any of these parties could breach the agreements and disclose our trade secrets or confidential information to our competitors, or these
competitors might learn of the information in other ways. Disclosure of any trade secret not protected by a patent could materially harm
our business.
We may be subject to patent infringement claims,
which could result in substantial costs and liability and prevent us from commercializing our potential products.
Third parties may claim that our
potential products or related technologies infringe their patents. Any patent infringement claims brought against us may cause us to incur
significant expenses, divert the attention of our management and key personnel from other business concerns and, if successfully asserted
against us, require us to pay substantial damages. In addition, as a result of a patent infringement suit, we may be forced to stop or
delay developing, manufacturing or selling potential products that are claimed to infringe a patent covering a third party’s intellectual
property unless that party grants us rights to use its intellectual property. We may be unable to obtain these rights on terms acceptable
to us, if at all. Even if we are able to obtain rights to a third party’s patented intellectual property, these rights may be non-exclusive,
and therefore our competitors may obtain access to the same intellectual property. Ultimately, we may be unable to commercialize our potential
products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our
business.
If our potential products infringe
the intellectual property rights of others, we may be required to indemnify customers for any damages they suffer. Third parties may assert
infringement claims against our current or potential customers. These claims may require us to initiate or defend protracted and costly
litigation on behalf of customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages
on behalf of these customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses
on commercially reasonable terms, we may be unable to continue selling such products.
Our technology may be subject to government rights.
We may have obligations to government
agencies in connection with the technology that we have developed, including the right to require that a compulsory license be granted
to one or more third parties selected by certain government agencies. It may be difficult to monitor whether these third parties will
limit their use of our technology to these licensed uses, and we could incur substantial expenses to enforce our rights to our licensed
technology in the event of misuse.
The loss of certain of our key personnel, or any
inability to attract and retain additional personnel, could impair our ability to attain our business objectives.
Our future success depends to a
significant extent on the continued service of our key management personnel, particularly Dr. Michael Lebby, our Chief Executive Officer
and James S. Marcelli our President, Chief Operating Officer, Secretary and Principal Financial Officer. Accordingly, the loss of the
services of either of these persons would adversely affect our business and our ability to timely commercialize our products, and impede
the attainment of our business objectives.
Our future success will also depend
on our ability to attract, retain and motivate highly skilled personnel to assist us with product development and commercialization. Competition
for highly educated qualified personnel in the polymer industry is intense. If we fail to hire and retain a sufficient number of qualified
management, engineering, sales and technical personnel, we will not be able to attain our business objectives.
If we fail to develop and maintain the quality of our manufacturing
processes, our operating results would be harmed.
The manufacture of our potential
products is a multi-stage process that requires the use of high-quality materials and advanced manufacturing technologies. Also, polymer-related
device development and manufacturing must occur in a highly controlled, clean environment to minimize particles and other yield and quality-limiting
contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause a substantial
percentage of a product in a lot to be defective. If we are not able to develop and continue to improve on our manufacturing processes
or to maintain stringent quality controls, or if contamination problems arise, our operating results would be harmed.
The complexity of our anticipated products may
lead to errors, defects and bugs, which could result in the necessity to redesign products and could negatively, impact our reputation
with customers.
Products as complex as those we
intend to market might contain errors, defects and bugs when first introduced or as new versions are released. Delivery of products with
production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of our products
or result in a costly recall and could damage our reputation and adversely affect our ability to sell our products. If our products experience
defects, we may need to undertake a redesign of the product, a process that may result in significant additional expenses.
We may also be required to make
significant expenditures of capital and resources to resolve such problems. There is no assurance that problems will not be found in new
products after commencement of commercial production, despite testing by our suppliers, our customers and us.
If we decide to make commercial quantities of products
at our facilities, we will be required to make significant capital expenditures to increase capacity.
We lack the internal ability to
manufacture products at a level beyond the stage of early commercial introduction. To the extent we do not have an outside vendor to manufacture
our products, we will have to increase our internal production capacity and we will be required to expand our existing facilities or to
lease new facilities or to acquire entities with additional production capacities. These activities would require us to make significant
capital investments and may require us to seek additional equity or debt financing. We cannot assure you that such financing would be
available to us when needed on acceptable terms, or at all. Further, we cannot assure you that any increased demand for our potential
products would continue for a sufficient period of time to recoup our capital investments associated with increasing our internal production
capacity.
In addition, we do not have experience
manufacturing our potential products in large quantities. In the event of significant demand for our potential products, large-scale production
might prove more difficult or costly than we anticipate and lead to quality control issues and production delays.
We may not be able to manufacture products at competitive prices.
To date, we have produced limited
quantities of products for research, development, demonstration and prototype purposes. The cost per unit for these products currently
exceeds the price at which we could expect to profitably sell them. If we cannot substantially lower our cost of production as we move
into sales of products in commercial quantities, our financial results will be harmed.
We may be unable to export our potential products
or technology to other countries, convey information about our technology to citizens of other countries or sell certain products commercially,
if the products or technology are subject to United States export or other regulations.
We are developing certain polymer-based
products that we believe the United States government and other governments may be interested in using for military and information gathering
or antiterrorism activities. United States government export regulations may restrict us from selling or exporting these potential products
into other countries, exporting our technology to those countries, conveying information about our technology to citizens of other countries
or selling these potential products to commercial customers. We may be unable to obtain export licenses for products or technology, if
they become necessary. We currently cannot assess whether national security concerns would affect our potential products and, if so, what
procedures and policies we would have to adopt to comply with applicable existing or future regulations.
We are subject to regulatory compliance related to our operations.
We are subject to various U.S. governmental
regulations related to occupational safety and health, labor and business practices. Failure to comply with current or future regulations
could result in the imposition of substantial fines, suspension of production, alterations of our production processes, cessation of operations,
or other actions, which could harm our business.
We may incur liability arising from the use of hazardous materials.
Our business and our facilities
are subject to a number of federal, state and local laws and regulations relating to the generation, handling, treatment, storage and
disposal of certain toxic or hazardous materials and waste products that we use or generate in our operations. Many of these environmental
laws and regulations subject current or previous owners or occupiers of land to liability for the costs of investigation, removal or remediation
of hazardous materials. In addition, these laws and regulations typically impose liability regardless of whether the owner or occupier
knew of, or was responsible for, the presence of any hazardous materials and regardless of whether the actions that led to the presence
were taken in compliance with the law. In our business, we use hazardous materials that are stored on site. We use various chemicals in
our manufacturing process that may be toxic and covered by various environmental controls. An unaffiliated waste hauler transports the
waste created by use of these materials off-site. Many environmental laws and regulations require generators of waste to take remedial
actions at an off-site disposal location even if the disposal was conducted lawfully. The requirements of these laws and regulations are
complex, change frequently and could become more stringent in the future. Failure to comply with current or future environmental laws
and regulations could result in the imposition of substantial fines, suspension of production, alteration of our production processes,
cessation of operations or other actions, which could severely harm our business.
Our data and information systems and network infrastructure
may be subject to hacking or other cyber security threats. If our security measures are breached and an unauthorized party obtains access
to our proprietary business information, our information systems may be perceived as being unsecure, which could harm our business and
reputation, and our proprietary business information could be misappropriated which could have an adverse effect on our business and results
of operations.
Our Company stores and transmits
its proprietary information on its computer systems. Despite our security measures, our information systems and network infrastructure
may be vulnerable to cyber-attacks or could be breached due to an employee error or other disruption that could result in unauthorized
disclosure of sensitive information that has the potential to significantly interfere with our business operations. Breaches of our security
measures could expose us to a risk of loss or misuse of this information, litigation and potential liability. Since techniques used to
obtain unauthorized access or to sabotage information systems change frequently and generally are not recognized until launched against
a target, we may be unable to anticipate these techniques or to implement adequate preventive measures in advance of such an attack on
our systems. In addition, we use third party vendors to store our proprietary information who use cyber or “Cloud” storage
of information as part of their service or product offerings, and despite our attempts to validate the security of such services, our
proprietary information may be misappropriated by other parties. In the event of an actual or perceived breach of our security, or the
security of one of our vendors, the market perception of the effectiveness of our security measures could be harmed and we could suffer
damage to our reputation or our business. Additionally, misappropriation of our proprietary business information could prove competitively
harmful to our business.
We conduct significantly all of our research and
development activities at our Englewood, CO facility, and circumstances beyond our control may result in considerable business interruptions.
We conduct significantly all of
our research and development activities at our Englewood, CO facility. Our operations are vulnerable to interruption by fire, earthquake,
floods or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist
activities, war, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error,
physical or electronic security breaches and computer viruses, and other events beyond our control. We do not have a detailed disaster
recovery plan. Additionally, presently, the novel strain of coronavirus known as COVID-19 has the potential to interrupt some, if not
all, of our research and development activities.
We could be negatively affected as a result
of a proxy contest and the actions of activist stockholders.
A proxy
contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because:
(1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations
and divert the attention of management and our employees; (2) perceived uncertainties as to our future direction caused by activist activities
may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and
business partners; and (3) if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability
to effectively and timely implement our strategic plans.
The requirements of being a public company are
a strain on our systems and resources, are a diversion to management’s attention and are costly.
As a public company, we are subject
to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”) the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),
and the rules and regulations of The NASDAQ Stock Market. The requirements of these rules and regulations increase our legal, accounting
and financial compliance costs, make some activities more difficult, time-consuming and costly and may also place undue strain on our
personnel, systems and resources.
The Exchange Act requires, among
other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley
Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.
We are continuing the costly process of implementing and testing our systems to report our results as a public company, to continue to
manage our growth and to implement internal controls. We are and will continue to be required to implement and maintain various other
control and business systems related to our equity, finance, treasury, information technology, other recordkeeping systems and other operations.
As a result of this implementation and maintenance, management's attention may be diverted from other business concerns, which could adversely
affect our business. Furthermore, we rely on third-party software and system providers for ensuring our reporting obligations and effective
internal controls, and to the extent these third parties fail to provide adequate service including as a result of any inability to scale
to handle our growth and the imposition of these increased reporting and internal controls and procedures, we could incur material costs
for upgrading or switching systems and our business could be materially affected.
In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and
financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time
as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters
and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion
of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws,
regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application
and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
In addition, we expect these laws,
rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may
be required to incur substantial costs to maintain appropriate levels of coverage. These factors could also make it more difficult for
us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive
officers.
As a result of being a public company,
our business and financial condition are more visible, which we believe may result in threatened or actual litigation, including by competitors
and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the
claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could
divert the time and resources of our management and adversely affect our business and operating results.
If we fail to maintain an effective system of disclosure
controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with
applicable regulations could be impaired.
As a public company, we are subject
to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act),
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the rules and regulations of The NASDAQ Stock Market.
We expect that compliance with these rules and regulations will continue to increase our legal, accounting and financial compliance costs,
make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires,
among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of
our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, (Section 404), requires us to
perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and
our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. Our
compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management
time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover,
if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered
public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses,
the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities,
stockholder or other third-party litigation, all of which would require additional financial and management resources.
Furthermore, investor perceptions
of our Company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock or hinder our ability
to raise capital. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have
a material adverse effect on our stated operating results and harm our reputation. If we are unable to continue to implement and maintain
these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result
in an adverse opinion on our internal controls from our independent registered public accounting firm.
The exercise of options and warrants and other
issuances of shares of common stock or securities convertible into common stock will dilute your interest.
Our Board may determine from time
to time that it needs to raise additional capital by issuing additional shares of our common stock or other securities and we are not
restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent
the right to receive, shares of our common stock. Because our decision to issue securities in any future offering will depend on market
conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future offerings,
or the prices at which such offerings may be affected. Additional equity offerings may dilute the holdings of existing stockholders or
reduce the market price of our common stock.
As of December 31, 2022, we have
outstanding options and warrants to purchase an aggregate of 8,073,173 shares of our common stock at exercise prices ranging from $0.51
- $16.81 per share with a weighted average exercise price of $1.91 per share. The exercise of options and warrants at prices below the
market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the
issuance of shares of our capital stock in connection with any collaboration (although none are contemplated at this time) or in connection
with other financing efforts, including pursuant to the 2021 Purchase Agreement with Lincoln Park, the 2023 Purchase Agreement with Lincoln
Park, and the Roth Sales Agreement with Roth Capital. Any issuance of our common stock that is not made solely to then-existing stockholders
proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder
by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase
our common stock in the future and those options or warrants are exercised or we issue restricted stock, stockholders may experience further
dilution. Holders of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering
of shares of any class or series.
The trading
price of our common stock has been, and may continue to be, volatile, and the value of our common stock may decline. This
volatility, as well as general market conditions, may cause our stock price to fluctuate greatly and even potentially expose us to litigation.
Our common stock may be subject
to continued volatility. During the past 52 weeks, the share price for our common stock ranged from a low of $3.91 to high of $13.59.
We cannot assure you that the market price for our common stock will be less volatile or will remain at its current level. A decrease
in the market price for our shares could result in substantial losses for investors. The market price of our common stock may be significantly
affected by one or more of the following factors, many of which are beyond our control, including:
· our Company’s ability to execute on its business plan;
· actual or anticipated demand for our potential products and technologies;
· issuance of new or updated research or reports by securities analysts;
· large trades, block trades or short selling of our common stock,
· changes in laws or regulations applicable to our products or industry;
· additions or departures of key personnel;
· capital-raising activities or commitments;
· product shortages requiring suppliers to allocate minimum quantities;
· the commencement or conclusion of legal proceedings that involve us;
· costs related to possible future acquisitions of technologies or businesses;
Furthermore,
the stock markets frequently experience extreme price and volume fluctuations that affect the market prices of equity securities of many
companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad
market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, elections, interest
rate changes, or international currency fluctuations, may negatively impact the market price of our common stock. As a result of such
fluctuations, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies
that have experienced volatility in the market price of their stock have been subject to securities class action litigation or derivative
litigation.
A sale of a substantial number of shares of our common stock may cause
the price of our common stock to decline and may impair our ability to raise capital in the future.
Our common stock is traded on The
NASDAQ Capital Market and, despite certain increases of trading volume from time to time, there have been periods when the market for
our common stock could be considered “thinly-traded,” meaning that the number of persons interested in purchasing our common
stock at or near bid prices at any given time may be relatively small. Finance transactions or option/warrant exercises resulting in a
large amount of newly issued shares that become readily tradable, or other events that cause current stockholders to sell shares, could
place downward pressure on the trading price of our stock the trading price of our stock could decline. Additionally, we believe a significant
portion of our shares are held by shareholders that accumulated their shares during a time when our shares prices were significantly less
than our current share prices. If these shareholders, some of which hold a substantial number of shares of our common stock, decide to
sell some or all of their shares at once without regard to the impact of their sales on the market price of our stock, the trading price
of our stock could decline. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number
of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of
our stock.
If our existing stockholders sell,
or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, including
shares issued upon the exercise of outstanding options or warrants or pursuant to the 2021 Purchase Agreement with Lincoln Park, the 2023
Purchase Agreement with Lincoln Park, and the Roth Sales Agreement with Roth Capital, the market price of our common stock could decline.
Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation
that could divert management’s attention and harm our business.
Our common stock will be subject to potential
delisting if we do not maintain the listing requirements of the Nasdaq Capital Market.
Our common stock commenced trading
on The NASDAQ Capital Market on September 1, 2021. We cannot assure you that that an active trading market for our common stock will continue
to be sustained. Nasdaq has rules for continued listing, including, without limitation, minimum market capitalization and other requirements.
Failure to maintain our listing, or de-listing from Nasdaq, would make it more difficult for stockholders to dispose of our securities
and more difficult to obtain accurate price quotations on our securities. This could have an adverse effect on the price of our common
stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need
in the future, may also be materially and adversely affected if our common stock and/or other securities are not traded on a national
securities exchange.
If securities or industry analysts do not publish
research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for most listed
companies’ securities depends in part on the research and reports that securities or industry analysts publish about them or their
business. We currently have no independent research analysts that cover our stock and we may not obtain research coverage by securities
and industry analysts until our products are commercialized and we obtain revenues, and there is no assurances that we will ever obtain
independent research analysts coverage. If no securities or industry analysts commence coverage of us, the trading price for our common
stock could be negatively affected. In the event any analyst who covers us downgrades our securities, the price of our securities would
likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase
of our securities could decrease, which could cause the price of our common stock and its trading volume to decline.
Our board of directors has the authority, without
stockholder approval, to issue preferred stock with terms that may not be beneficial to existing common stockholders and with the ability
to affect adversely stockholder voting power and perpetuate their control over us.
Our articles of incorporation, as
amended, allow us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has
the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority
to issue preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our board of directors
could authorize the issuance of a series of preferred stock that would grant to holders thereof the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock or other preferred
stockholders and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock or existing
preferred stock, if any.
Preferred stock could be used to
dilute a potential hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred stock may
have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control
or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to, and
assets available for distribution to, the holders of our common stock and could adversely affect the rights and powers, including voting
rights, of the holders of our common stock and preferred stock.
Our articles of incorporation and bylaws, and certain
provisions of Nevada corporate law, as well as certain of our contracts, contain provisions that could delay or prevent a change in control
even if the change in control would be beneficial to our stockholders.
Nevada law, as well as our articles
of incorporation, as amended, and bylaws, contain anti-takeover provisions that could delay or prevent a change in control of our Company,
even if the change in control would be beneficial to our stockholders. These provisions could lower the price that future investors might
be willing to pay for shares of our common stock. These anti-takeover provisions:
Nevada Revised Statutes, the terms