Item 1.A. Risk Factors.
Investing in our securities
involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary
Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these
risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the
market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties
described in this prospectus or any prospectus supplement are not the only risks and uncertainties that we face. We may face additional
risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business,
prospects, financial condition or operating results. The following discussion should be read in conjunction with our financial statements
and the financial statements of the Company and notes to the financial statements included herein.
Risks Related to Our Financial Condition and
Capital Requirements
We have incurred significant losses since
inception and may not be able to achieve significant revenues or profitability.
We have incurred substantial net losses since our inception. For the year
ended December 31, 2023 and the year ended December 31 2022, on a consolidated basis, we incurred a net loss of $20.9 million
and $2.9 million, respectively, and on a consolidated basis our cash balance at December 31, 2023 was $4.8 million. We had an
accumulated deficit of $32.8 million as of December 31, 2023. Our losses have resulted primarily from costs incurred in connection
with our design, manufacturing and development activities, research and development activities, building our commercial infrastructure,
legal, and general and administrative expenses associated with our operations.
On September 27, 2023,
the Company executed a new contract with BARDA, providing the Company with additional funding of up to $150.0 million, including
an initial award of approximately $54.9 million to support the clinical validation and FDA clearance of our DeepView System. The
Company will utilize its existing cash balance and the initial award from BARDA for its near-term liquidity and operating needs. The Company
believes that it has sufficient cash and revenue from its BARDA contract to support its operations until it is able to obtain equity or
debt investments on terms acceptable to the Company to meet its expected operating cash-flow needs for its burn, DFU and other indication
research and development.
We do not know whether or when
we will become profitable. Our ability to generate revenue and achieve profitability will depend upon our ability, alone or with others,
to complete the development of our DeepView System, including receipt of the necessary regulatory clearances, approvals, or classifications
and thereafter to successfully commercialize our DeepView System. We may be unable to achieve these goals. We may also encounter unforeseen
expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by medical device companies
in rapidly evolving fields. In addition, the Company’s ability to develop its DeepView System for multiple indications requires
research and development costs that may exceed the Company’s current cash balance. The Company may need to seek additional equity
or debt investments to meet its projected operating costs for the timely development of the DeepView System. To the extent additional
capital is necessary, there are no assurances that we will be able to raise additional capital on favorable terms or at all, and therefore
we may not be able to execute our business plan. In addition, as a U.S. public company, we incur significant legal, accounting and
other expenses. Accordingly, we expect to continue to incur significant operating losses for the foreseeable future and we cannot assure
you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure to
achieve and sustain profitability in the future will make it more difficult to finance the capital requirements needed to operate our
business and accomplish our strategic objectives, which would have a material adverse effect on our business, financial condition and
results of operations, and cause the market price of our common stock to decline.
We are devoting a significant portion of
our efforts towards research and development of our DeepView System.
Our business, prospects, results
of operations and financial condition depend upon our ability, alone or with others, to complete the development of our DeepView System,
including receipt of the necessary regulatory clearances, approvals, or classifications and thereafter to successfully commercialize our
DeepView System. In addition, though we are currently focused on the DFU and burn applications for DeepView, there are other pipeline
applications that we are considering for future commercialization. However, we may be unable to achieve these goals. Approval or clearance
from the FDA and comparable regulatory bodies may never be obtained. We also may encounter unforeseen expenses, difficulties, complications,
delays and other known and unknown factors and risks frequently experienced by medical device companies in rapidly evolving fields. Our
failure to receive the necessary approvals and clearances and to successfully commercialize our DeepView System would have a material
adverse effect on our business, prospects, results of operations and financial condition.
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Further, our business plan
and pipeline depend on, and, as further described below, funding under many of our existing contracts depend on, and future contracts
may also depend on, our ability to meet certain milestones or achieve certain timelines with our applications and indications. Our ability
to achieve these depends on numerous factors, including the factors described in this “Risk Factors” section, many
of which may not be within our control. Our inability to achieve our milestones and timelines could have a material adverse impact on
our business, prospects, results of operations and financial condition.
We depend on government funding, which if
lost or reduced, could have a material adverse effect on our research and development activities and our ability to commercialize our
DeepView technology. Our largest contract is with BARDA and is the largest single source of revenue for us. Our BARDA contract is not
guaranteed to be extended.
We have not made any commercial
sales of our DeepView System. We receive almost all of our revenue from fees and costs payable by BARDA, and to a lesser extent the Defense
Health Agency (“DHA”) of the United States Department of Defense. We currently have agreements with each of BARDA and
the DHA to support continued development of the next generation of our DeepView technology. While we believe we have very good working
relationships with BARDA and DHA, the loss of one or both of our contracts with BARDA and DHA would have an adverse impact on our business,
prospects, results of operations and financial condition. While we expect diversification of customers in future years, assuming
we are able to obtain the necessary regulatory clearances, approvals, De Novo classifications, or certifications (each of which cannot
be guaranteed and may take longer than planned) to commercialize our product, for the time being we are substantially dependent on funding
from BARDA and DHA.
Our BARDA contract is the largest single source of revenue for us.
On September 27, 2023, the Company executed a new contract with BARDA, providing the Company with additional funding of up to $150.0 million,
including an initial award of approximately $54.9 million to support the clinical validation and FDA clearance of our DeepView System,
in place of the prior contract Option 2 award which was approximately $21.9 million. The contract also includes options, similar
to our prior BARDA contracts, with an additional total value of approximately $95.1 million which can be exercised for additional
product development, procurement and the expanded deployment of DeepView Systems at emergency rooms, trauma and burn centers. While we
currently have no reason to believe that we will fail to achieve these contract milestones and decision gates or that these further options
will not be exercised, and while the BARDA contract has been renewed or extended historically, there is no guarantee that the BARDA contract
will be renewed or extended in the future, and there are no assurances that we will achieve the contract milestones and decision gates
on a timely basis, or at all. As the BARDA contract is significant to us and is our largest single source of revenue, a decision by BARDA
not to exercise further options would have a material adverse impact on our business, prospects, results of operations and financial condition.
Under the terms of the BARDA
contract, the U.S. government has the right to terminate the contract for convenience or to terminate for default if we fail to meet
our obligations as set forth in the contract. While the government has a right to terminate the BARDA contract for convenience, we believe
that the government generally does not terminate funding awards unless there is reason, such as the funding contract becomes too costly,
the agency seeks to avoid a dispute with another branch of government, or the agency decides to restructure its contractual arrangements
and perform work in-house. We believe it is unlikely that BARDA will terminate its contract with us. However, there can be no guarantee
that the BARDA contract will not be terminated.
If BARDA were to terminate
its contract with us, we may be entitled to settlement costs for payment for work already performed, but not yet paid, including costs
incurred in anticipation of performance, and costs arising from termination and settling the termination, for example. However, as the
BARDA contract is critical to our business at this time, non-extension or termination of the BARDA contract would have a material adverse
impact on our business, prospects, results of operations and financial condition.
We received a contract from the DHA within the U.S. Department of Defense,
which enables us to research and develop a fully portable, handheld version of our DeepView solution and has been extended through the
first quarter of 2024. We were previously awarded a $1.1 million, Sequential Phase II STTR contract by the DHA within the U.S. Department
of Defense, which is paid to us monthly, as well as a STTR Phase I and initial Phase II contract from the DHA.
Though the Company has no reason
to believe that it will not be offered a Phase III contract, and while DHA contracts have been renewed or extended historically,
there is no guarantee that the contract will be extended after the current period or that we will be offered a Phase III contract.
As this contract is a key contract for the Company, non-extension of the contract, or a failure to enter into a new contract, could have
a material adverse impact on the Company’s business, prospects, results of operations and financial condition. Under the terms of
the DHA contract, the U.S. government has the right to terminate the contract for convenience or to terminate for default if we fail
to meet our obligations as set forth in the contract.
We also are party to a Research
Project Award agreement with the Advanced Technology International as Consortium Manager for MTEC. This agreement extends the DHA
Phase II contract for the development of the handheld device of the DeepView System. Under the terms of this agreement, MTEC will
pay us a firm fixed fee based upon our achievement of certain milestones (such as development of the image technology in the handheld
device, validation of the design and development of a handheld device from the current cart based system, completion of verification testing
builds, and development of commercialization plan) through April 5, 2025. However, there are no assurances that we will achieve the
contract milestones on a timely basis, or at all. Failure to receive the fee under the contract could have a material adverse impact on
the Company’s business, prospects, results of operations and financial condition.
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We may need additional funding to finance
our planned operations, and may not be able to raise capital when needed, which could force us to delay clinical trials necessary to market
our products or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products.
On December 26, 2023, the
Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC
(“B. Riley”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase
Agreement, the Company have the right to sell to B. Riley up to $10,000,000 of shares of the Common Stock (subject to certain limitations
contained in the Purchase Agreement), from time to time during the term of the Purchase Agreement. Additionally, On March 20, 2024, the
Company entered into the Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership
(“Yorkville”) pursuant to which the Company has the right to sell to Yorkville up to $30,000,000 of its shares of Common Stock,
subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA (such transaction,
the “Yorkville Transaction”). In connection with the SEPA, and subject to the conditions set forth therein, Yorkville has
agreed to advance to the Company in the form of convertible promissory notes (the “Convertible Notes”) an aggregate principal
amount of up to $12,500,000 (the “Pre-Paid Advance”), which will be paid in three tranches.
Based on our current operating plan, we believe that our cash and cash
equivalents, together with the remaining funding available to us under the Purchase Agreement, the BARDA contract, the MTEC Agreement,
and the Yorkville financing will be sufficient to meet our capital requirements and fund our operations through at least the next 12 months
from the release date of the consolidated financial statements included in this annual report. However, we have based these estimates
on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Changing
circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to raise capital sooner
or in greater amounts than currently expected because of circumstances beyond our control.
We may require additional capital
in the future to fund our operating expenses and to further our product development efforts, including seeking the necessary regulatory
clearances, approvals, De Novo classifications, or certifications (each which cannot be guaranteed and may take longer than planned) for
our DeepView System and growing our sales and marketing organization. To the extent additional capital is necessary, there are no assurances
that we will be able to raise additional capital on favorable terms or at all, and therefore we may not be able to execute our business
plan. Our future funding requirements will depend on many factors, including:
● the cost of our research and development activities;
● the scope, rate of progress and cost of our clinical studies;
● the costs associated with any product recall that may occur;
We may seek to raise additional
capital through equity offerings or debt financings and such additional financing may not be available to us on acceptable terms, or at
all. In addition, any additional equity or debt financing that we raise may contain terms that are not favorable to us or our stockholders.
For example, if we raise funds by issuing equity or equity-linked securities, the issuance of such securities could result in dilution
to our stockholders. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of
our common stock. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the
market price of our common stock to decline, and the price per share at which we sell additional shares of our common stock, or securities
convertible into or exercisable or exchangeable for shares of our common stock, in future transactions may be higher or lower than the
price per share paid by investors in this offering.
In addition, the terms of debt
securities issued or borrowings could impose significant restrictions on our operations including restrictive covenants, such as limitations
on our ability to incur additional debt or issue additional equity, limitations on our ability to pay dividends, limitations on our ability
to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct
our business. In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required to accept
unfavorable terms, such as relinquishment or licensing of certain rights related to our products or technologies that we otherwise would
seek to develop or commercialize ourselves. In addition, we may be forced to work with a partner, which could lower the economic value
of our programs to us.
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If we are unable to obtain
adequate financing on terms satisfactory to us when we require it, we may be required to terminate or delay the development of our DeepView
technology or any future products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing
capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to grow and support our business
and to respond to market challenges could be significantly limited, which could have a material adverse effect on our business, financial
condition and results of operations.
Risks Related to Product Development and Regulatory
Review
The regulatory review process is expensive,
time-consuming, and uncertain and we may be unable to obtain clearance, approval, De Novo classification, or certification for our DeepView
technology.
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 is no guarantee that our DeepView System
or any future products will receive the requisite market authorization, approval, or De Novo classification for clinical testing, manufacturing,
or marketing. While preliminary results have been encouraging and indicative of the potential performance of our DeepView System, data
already obtained, or obtained in the future, from clinical studies do not necessarily predict the results that will be obtained from later
clinical studies. We will be required to incur significant costs in obtaining market authorization, or De Novo classifications for our
DeepView System.
In the United States,
before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must
first receive 510(k) clearance, approval of a pre-market approval application (“PMA”) or be granted De Novo
classification pursuant to the Federal Food, Drug, and Cosmetic Act (the “FDCA”), unless an exemption applies. Oftentimes
the length of the time and expense are prohibitively long and high, respectively, and it may be impractical or impossible to pursue the
PMA regulatory route should our De Novo request be denied.
In order to sell our device
in member states of the European Union (“EU”), the device must also comply with the general safety and performance requirements
of the EU Medical Devices Regulation (Regulation (EU) No 2017/745). Compliance with these requirements is a prerequisite to be able to
affix the CE mark to our device, without which it cannot be sold or marketed in the EU. All medical devices placed on the market
in the EU must meet the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation including
the requirement that a medical device must be designed and manufactured in such a way that, during normal conditions of use, it is suitable
for its intended purpose. Medical devices must be safe and effective and must not compromise the clinical condition or safety of patients,
or the safety and health of users and — where applicable — other persons; provided that any risks
which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and are compatible
with a high level of protection of health and safety, taking into account the generally acknowledged state of the art.
In the United Kingdom (“UK”),
post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 (“MDR 2002”), which implement the three
EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation. Instead, the
UK government and the Medical Devices and Healthcare Regulatory Authority (“MHRA”) are currently considering amending the
UK MDR. The device must comply with the MDR 2022 and any future UK MDR amendment in order to be sold of marketed in the UK.
Furthermore, market authorization,
approval, De Novo classification, or certification by any regulatory authority does not ensure marketing authorization or similar registration,
clearance, approval, or certification by regulatory authorities in other countries. However, failure to obtain or delay in obtaining authorization,
registration, clearance, approval, or certification in one or more regulatory jurisdictions may have a negative effect on the regulatory
process in others.
We may experience significant delays in
completing clinical trials, which could prevent or significantly delay our targeted product launch timeframe and impair our viability
and business plan.
The completion of any clinical
trials of our DeepView System, or other studies that we may be required to undertake in the future, could be delayed, suspended or terminated
for several reasons, including:
14
In addition, the FDA, applicable
foreign regulatory entities or notified body can delay, limit or deny clearance, approval, De Novo classification, with regards to the
US, or certification of a device for many reasons, including:
If our clinical trials are
delayed, it will take us longer to ultimately launch our DeepView System in the market and generate revenues. Moreover, our development
costs will increase if we have material delays in our clinical trials or if we need to perform more or larger clinical trials than planned.
If the third parties on which we rely to
conduct our clinical trials, to assist us with pre-clinical development or to prepare our regulatory submissions do not perform as contractually
required or expected, we may not be able to obtain market authorization, De Novo classification, certification or other required regulatory
authorizations or certifications to commercialize our products.
We do not have the ability
to independently conduct all of our pre-clinical and clinical trials for our DeepView System and to prepare the associated regulatory
submissions without the participation of third-party research hospitals, burn and wound centers. We must rely on third parties such as
CROs, medical institutions and clinical investigators to conduct such trials. If these third parties do not successfully carry-out their
contractual duties or comply with regulatory obligations, including compliance with Good Clinical Practice (“GCP”) requirements
or meet expected deadlines, if these third parties need to be replaced, if the quality or accuracy of the data they obtain is compromised
due to a failure to adhere to our clinical protocols or regulatory requirements or for other reasons, or if the prepared regulatory submission
does not meet the regulatory agencies’ expectations or requirements, our pre-clinical development activities or clinical trials
may be extended, delayed, suspended or terminated. Furthermore, our third-party clinical trial investigators may be delayed in conducting
our clinical trials for reasons outside of their control, including the COVID-19 pandemic, or another pandemic, epidemic or outbreak of
an infectious disease. In the event of such extensions, delays, suspensions or terminations, we may not be able to obtain market authorization,
De Novo classification, certification or other required regulatory authorizations or certifications for, or successfully commercialize,
our DeepView System on a timely basis, if at all, and our business, financial condition and results of operations may be adversely affected.
New legislation and regulations and legislative
and regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance, approval, De Novo classification,
or certification of our DeepView System, or to manufacture, market and distribute our device after clearance, approval, or classification
is obtained.
From time to time, legislation
is drafted and introduced in the legislative bodies of the countries in which we intend to sell our DeepView System, assuming we receive
the necessary market authorization. In addition, regulations and guidance are often revised or reinterpreted by the applicable competent
authority in ways that may significantly affect our business and our products. For example, it is unclear the extent to which any proposals,
if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase
the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may negatively
affect our business.
The FDA regulations and guidance
are often revised or reinterpreted by the FDA in ways that may significantly affect our business. Any new statutes or regulations or revisions
or reinterpretations of existing statutes or regulations may impose additional costs or lengthen review times or make it more difficult
to obtain market authorization for our DeepView System. 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. Such changes could, among other things, require: additional
testing prior to obtaining marketing authorization; changes to manufacturing methods; recall, replacement or discontinuance of our products;
or additional record keeping.
The FDA’s and other regulatory
authorities’ policies may change and additional government regulations may be promulgated that could prevent, limit or delay regulatory
clearance, approval, or De Novo classification of our DeepView System. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. 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, approval, or De Novo classification that we may have obtained and we may not
achieve or sustain profitability.
15
In addition, the landscape
concerning medical devices in the EU has evolved in recent years.
In the United Kingdom (“UK”),
post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 (“MDR 2002”), which implement the three
EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation. Instead, the
UK government and the Medical Devices and Healthcare Regulatory Authority (“MHRA”) are currently considering amending the
UK MDR. This new regulatory framework for medical devices in the UK is expected to become applicable as from July 2024. It is
not clear to what extent the future UK regulatory framework will align with the EU Medical Devices Regulation, which may lead to duplicative
or divergent requirements.
Any new regulations or revisions
or reinterpretations of existing regulations may impose additional costs or lengthen review times of future products or limit our ability
to sell to clinicians. It is impossible to predict whether legislative changes will be enacted or if regulations, guidance or interpretations
will change and what the impact of such changes, if any, may be.
Disruptions at the FDA and foreign regulatory
agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other
personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively
impact our business.
The ability of the FDA, foreign
regulatory agencies and the notified body, to review and clear, approve, certify, or grant De Novo classifications for new products can
be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept
the payment of user fees and statutory, regulatory and policy changes. Average review times at these organizations have fluctuated in
recent years as a result. In addition, government funding of other government agencies that oversee clearances and approvals and
that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at these agencies
and bodies may slow the time necessary for new devices to be reviewed and/or cleared, approved or certified, which would adversely affect
our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory
agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. It is possible that new COVID-19
variants or a new public health emergency will emerge in the future, further interrupting and affecting the agency’s ability to
carry out inspections in a timely manner. In such cases, regulatory authorities and certification bodies outside the United States
may adopt similar restrictions, inspection priorities, or other policy measures in response to the COVID-19 or any other public health
emergency or revert to relying on remote interactive evaluations, record requests or information from trusted regulatory partners if on-site
inspections are not feasible.
In addition, the FDA reallocated
its personnel and resources during the COVID-19 pandemic, including for reviewing applications for emergency use authorizations for certain
medical devices that may be helpful in responding to the pandemic. If a prolonged government shutdown occurs in the future, or if future
global health concerns prevent the FDA, and other foreign regulatory authorities and certification bodies from conducting their regular
inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA, and other regulatory authorities
and certification bodies to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
For instance, in the EU, notified
bodies must be officially designated to certify products and services in accordance with the EU Medical Devices Regulation. While several
notified bodies have been designated, the COVID-19 pandemic significantly slowed down their designation process and the current designated
notified bodies are facing a large amount of requests with the new regulation, resulting in longer notified body review times. This situation
could impact our ability to grow our business in the EU and EEA.
The ongoing labor shortage may limit our
ability or the investigators’ ability to find and retain medical staff that are needed to conduct the clinical studies
The COVID-19 pandemic has caused and, there still
remains an ongoing shortage of labor force, including nurses, doctors, clinicians, and other medical personnel despite the changing economic
and financial conditions. This shortage is causing medical institutions and other establishments to change their operations to accommodate
the shortage, and in many cases, it results in increased personnel costs in finding and retaining the staff necessary to conduct the institutions’
and establishments’ operations. If the ongoing shortage continues or becomes worse, our ability to conduct clinical trials may be
negatively affected, and we may need to modify or stop clinical trials, or expend greater resources in identifying and retaining the appropriate
personnel necessary for the clinical investigations.
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Risks Related to Ongoing Government Regulation
Even if we receive market authorization,
or even if the FDA grants our De Novo classification request, we will continue to be subject to extensive ongoing regulation. If we fail
to maintain necessary clearances, approvals, classifications, or certifications from the FDA, other applicable foreign regulatory authorities
and notified bodies; or if there are state, federal or international level regulatory changes, our commercial operations could be harmed.
If the FDA grants our market
authorization or grants the De Novo classification for our DeepView technology, our technology will be subject to extensive ongoing regulation
in the United States by the FDA and by corresponding state regulatory agencies and authorities. It will also be subject to extensive
regulation by EU institutions as well as EU member states’ regulatory authorities and notified bodies and the regulatory bodies
of any other countries in which we receive the necessary regulatory approvals. These regulations pertain to the design, development, evaluation,
manufacturing, testing, labeling, marketing, sale, advertising, promotion, distribution, shipping and servicing of products. These entities
regulate and oversee record-keeping procedures, safety alerts, recalls, market withdrawals, removals and field corrective actions, post-market
surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to reoccur, could lead to death or
serious injury, and product import and export.
The regulations to which we
will be subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to
carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. Such regulations, and interpretations
thereof, may limit our ability to market or prevent us from marketing our products. Further, the FDA, foreign regulatory agencies and
U.S. state agencies have broad enforcement powers, and our failure to comply with state, federal and international regulations could
lead to enforcement actions such as warning letters or untitled letters; the imposition of injunctions, suspensions or loss of regulatory
clearance or approvals; product recalls; safety alerts; termination of distribution; product seizures; consent decrees; civil penalties;
or import detentions, import refusals, or import alerts. In the most extreme cases, criminal sanctions, administrative sanctions (e.g.,
seizure), injunctions, or closure of our manufacturing facilities are possible.
Even after clearance, approval,
or De Novo classification, under the FDCA and FDA regulations, the scope of marketing claims we can make about cleared or approved devices,
or devices that were granted De Novo classification is limited to the indications that were previously reviewed and permitted by the FDA. Other
countries also have similar laws and regulations restricting marketing to such indications. If a regulatory agency determines that any
of our marketing claims exceed the scope of permitted indications in a particular country, we may be subject to enforcement action and/or
we may be required to cease making the challenged marketing claims, issue corrective communications, pay fines or stop selling products
until the incorrect claims have been corrected.
Sales of our DeepView System
outside the United States, if approved, will be subject to foreign regulatory requirements that vary widely from country to country,
and such regulatory requirements have been changing and increasing in some countries. Complying with international regulatory requirements
can be an expensive and time-consuming process. We may be unable to obtain or maintain regulatory clearances, approvals, De Novo classifications,
or certifications in these countries. We may incur significant costs in attempting to obtain, renew, or modify foreign regulatory clearances
or approvals, De Novo classifications, or certifications. If we experience difficulties in receiving, maintaining, renewing or modifying
necessary clearances, approvals, De Novo classifications, or certifications to market our products outside the United States, or
if we fail to receive, renew, modify or maintain those clearances, approvals, De Novo classifications, or certifications, we may be unable
to market our products or enhancements in certain international markets effectively, or at all.
Modifications to our DeepView GEN 3 System
may require new clearances, approvals, De Novo classifications, certifications, or new or amended certifications, and may require us to
cease marketing or to recall the modified device until clearances, approvals, De Novo classifications, or the relevant certifications
are obtained.
In the United States, any modification to
a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended
use, design, or manufacture, requires a new 510(k) clearance, or depending on the type and extent of the modification, a De Novo
classification or a PMA. If we wish to market modified versions of DeepView System, we will need to make this determination before
doing so and document our conclusion regarding the necessity of further regulatory review. The FDA may review such determinations and
may not agree with our decisions regarding whether new 510(k), PMA, or De Novo classifications are necessary. If we are found to be marketing
our products for off-label uses or indications for use that have not received the requisite clearances, approvals, De Novo classifications,
or certifications, we might become subject to FDA and other competent authorities’ enforcement action or have other resulting liability.
In addition, if the FDA or the competent authorities in the EU member states and EEA countries determine that our promotional materials
or training constitute promotion of a use which is unapproved, not cleared, not covered by the De Novo classification order, not covered
by a CE mark, or not in compliance with other regulatory authorities’ requirements, they could request that we modify our training
or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter,
an injunction, product seizures, consent decrees, civil fines, criminal penalties, import detention, import refusals, or import alerts.
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If our DeepView System is found to cause
or contribute to adverse medical events, this could interrupt, delay, or prevent its continued development, or negatively affect the market
authorization, De Novo classification, or certification. We may be required to report them to the FDA or comparable regulatory authority,
and if we fail to do so, we could be subject to sanctions that could harm our reputation, business, financial condition and results of
operations, and become subject to further administrative and regulatory enforcement actions. The discovery of serious safety issues with
our DeepView System, or a recall of our device either voluntarily or at the direction of the FDA or another governmental authority, could
have a negative impact on us.
If our DeepView System is approved
for commercialization, we will be subject to the FDA’s medical device reporting regulations and similar foreign regulations, which
require us to report to the FDA or comparable regulatory authorities when we receive or become aware of information that reasonably suggests
that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction
were to recur, it could cause or contribute to a death or serious injury. For investigational devices in clinical evaluation, investigators
are required to submit a report of an unanticipated adverse device effect (“UADE”) to the sponsor within 10 working days
after becoming aware of the UADE. We, as the sponsor, must evaluate the UADE and report the result of the investigation to FDA, institutional
review boards, and all participating investigators within 10 working days of receiving the notice of the UADE. In certain cases,
we may be required to terminate the clinical investigation. The timing of our obligation to report is triggered by the date when we receive
the notice or when we otherwise become aware of the event, as well as the nature of the event. We may fail to report within the prescribed
timeframe events of which we become aware. The investigator in the clinical evaluation may not be aware of the reporting or notification
requirements or may otherwise fail to report a UADE. We may also fail to recognize that a reportable event has occurred, especially
if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the
product. If we fail to comply with our reporting obligations, the FDA or comparable regulatory authorities could act, including warning
letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, delay or termination
of clinical investigations, revocation of our marketing authorizations, seizure of our products or delay in obtaining marketing authorizations
or certifications for our product candidates.
The FDA and in certain cases,
equivalent foreign regulatory bodies, have the authority to require the recall of products in the event of material deficiencies or defects
in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to
require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death.
We may also choose to voluntarily recall a product if we determine that such reasonable probability exists, or otherwise, if any material
deficiency is found. Such recalls, whether government-mandated or voluntary, could occur as a result of an unacceptable risk to health,
component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects, or other deficiencies or
failures to comply with applicable regulations. In addition, for investigational devices in development, non-compliance with the above
or related requirements may have a negative effect on our application process, and the FDA or other foreign regulatory bodies may delay
or refuse to clear, approve, issue the De Novo classification request, or issue a certification for our device.
Depending on the corrective action we take to
redress a product’s deficiencies or defects, the FDA or foreign regulatory authorities or bodies may require, or we may decide,
that we need to obtain new clearances, approvals, De Novo classifications, or certifications for the device before we may market or distribute
the corrected device. Seeking such clearances, approvals, De Novo classifications, or certifications may delay our ability to replace
the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional
regulatory enforcement action, including FDA or foreign regulatory bodies’ warning letters, product seizures, injunctions, administrative
penalties or civil or criminal fines.
Quality problems and product liability claims
could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect
on our business, results of operations, financial condition, and cash flows.
Quality is extremely important
to us and our customers due to the impact on patients, and the serious and potentially costly consequences of product failure. Our business
exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices. Once commercialized,
many of our products will be used in settings with seriously ill patients where the devices’ failure may cause serious adverse effects
on the patients. Component failures, manufacturing non-conformances, design defects, off-label or unapproved use, insufficient training
of healthcare professionals, or inadequate disclosure of product-related risks or product-related information with respect to our products,
if they were to occur, could result in an unsafe condition or injury to a patient. These problems could lead to recall of, or issuance
of a safety alert relating to, our products, and could result in product liability claims and lawsuits, including class actions. If such
problems occur during clinical investigations, FDA or other foreign regulatory agencies may refuse to grant market authorization or a
De Novo classification request, or issue certifications for our products. In addition, negative publicity resulting from such problems
may negatively affect or seriously hinder the sales of our products even after market authorization, De Novo classification, or certification.
Any of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm
our reputation and have a material adverse effect on our business, results of operations, financial condition and cash flows.
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The FDA and other regulatory enforcement
agencies actively enforce the laws and regulations prohibiting the promotion of off-label or unapproved uses. If we are found to have
improperly promoted off-label or unapproved uses, we may become subject to significant liability.
If we decide to market any
of our products, our marketing practices must stay within the scope of the permitted claims under the market authorization or De Novo
classification order that we may receive in the future. The FDA and other regulatory enforcement agencies strictly regulate the promotional
claims that may be made about medical devices. While we cannot restrict or dictate the healthcare professionals’ use of our devices,
we cannot market for any off-label uses, or any uses that FDA has not reviewed and permitted. The use of the DeepView System for indications
other than those for which FDA cleared, approved, or granted De Novo classification requests, or otherwise were certified by a notified
body or foreign regulatory enforcement authority, may not effectively diagnose conditions not referenced in product indications, which
could harm our reputation in the marketplace among clinicians. If we are found to have promoted such off-label uses or unapproved uses,
we may become subject to significant government fines and other related liability. For example, if the FDA or any foreign regulatory body
determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training
or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter,
which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine, or criminal penalties, among others.
It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such
as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant
penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation
in government healthcare programs and the curtailment of our operations. The federal government has levied large civil and criminal fines
against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion or promotion
of unapproved uses. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed.
In addition, clinicians may
misuse our products or use improper techniques if they are not adequately trained, potentially leading to misdiagnosis, injury, and an
increased risk of product liability. If our device is misused or used with improper technique, we may become subject to costly litigation
by clinicians or their patients. Even if we ultimately prevail, product liability claims could divert management’s attention from
our core business and be expensive to defend. If we do not prevail, such claims may result in sizeable damages awards against us that
may not be covered by insurance.
We must comply with anti-kickback, fraud
and abuse, false claims, transparency, and other healthcare laws and regulations.
If our DeepView System is approved
for commercialization, our future operations will be subject to various federal and state healthcare laws and regulations. These laws
will affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs,
we may develop with hospitals, clinicians or other potential purchasers or users of medical devices and services. They also impose additional
administrative and compliance burdens on us. In particular, these laws will influence, among other things, how we structure our sales,
placement and rental offerings, including discount practices, clinician support, education and training programs and clinician consulting
and other service arrangements. The laws that may affect our practices and arrangements include, but are not limited to:
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The scope and enforcement of
these laws is substantial and subject to rapid change. The shifting compliance environment and the need to build and maintain robust compliance
programs, systems, and processes to comply with different compliance and/or reporting requirements in multiple jurisdictions increase
the possibility that we may run afoul of one or more of the requirements or that federal or state regulatory authorities might challenge
our current or future activities under these laws. Additionally, we cannot predict the impact of any changes in these laws, whether or
not retroactive. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions or safe harbors,
it is possible that some of our future activities could be subject to challenge under one or more of such laws. Any government investigation,
even if we are able to successfully defend against it, will require the expenditure of significant resources, is likely to generate negative
publicity, harm our reputation and potentially our financial condition and divert the attention of our management. Moreover, any investigation
into our practices could cause adverse publicity and require a costly and time-consuming response. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal
and administrative penalties, damages, fines, imprisonment of individuals, exclusion from government funded healthcare programs, such
as Medicare and Medicaid, imposition of compliance obligations and monitoring, and the curtailment or restructuring of our operations.
Any of the foregoing consequences could seriously harm our business and our financial results.
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Healthcare reform measures could hinder
or prevent the commercial success of our DeepView System.
In the United States,
there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in ways
that may harm our future revenues and profitability and the demand for our DeepView System, if it receives the necessary market authorization.
Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare
system, some of which are intended to contain or reduce the costs of medical products and services. Current and future legislative and
regulatory proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures
associated with the use of our DeepView System. The cost containment measures that payors and providers are instituting and the effect
of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our DeepView System.
The continuing efforts of the
government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare
may harm:
● our ability to set a price that we believe is fair for our DeepView System;
● our ability to generate revenue and achieve or maintain profitability; and
● the availability of capital.
We cannot predict what other
laws and regulations will ultimately be enacted and implemented at the federal or state level or the effect of any future legislation
or regulation in the United States on our business, financial condition, prospects and results of operations. Future changes in healthcare
policy could increase our costs and subject us to additional requirements that may interrupt commercialization of our current and future
solutions, decrease our revenue and impact sales of and pricing for our current and future products.
If 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 currently outsource all
of our manufacturing to a contract manufacturer and as such we are not in direct control of the manufacture of our products and are, therefore,
exposed to the risk of poor product quality, non-adherence to applicable standards, disruptions in supply chain, or other matters.
Our third-party manufacturers
and suppliers will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction
in which we will seek to market our products and also will be subject to the regulations of these jurisdictions regarding the manufacturing
processes. If our manufacturers or suppliers 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 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.
In order to mitigate these
risks, we perform regularly scheduled visits with our contract manufacturer and routinely inspect the quality and performance of the device
in accordance with federally mandated standards and certification standards of the International Organization for Standardization (“ISO”).
Our current contract manufacturer, Cobalt Product Solutions is located within a short driving distance from our headquarters and allows
our employees to have hands-on interaction and timely inspections of the device. However, a future pandemic, epidemic or other infectious
disease outbreak could hinder or prevent continued hands-on and timely inspections of the device and the facilities.
Actual or perceived failure to comply with
data protection, privacy and security laws, regulations, standards and other requirements could negatively affect our business, financial
condition or results of operations.
We may be subject to federal,
state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In
the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy
laws, and consumer protection laws and regulations that govern the collection, processing, use, disclosure, and protection of health-related
and other personal information could apply to our operations or the operations of our partners. For example, HIPAA, as amended by the
Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and the regulations implemented
thereunder, or collectively, HIPAA, imposes obligations on “covered entities,” including certain health care providers, health
plans, and health care clearinghouses, and their respective “business associates” that create, receive, maintain or transmit
individually identifiable health information (“PHI”) for or on behalf of a covered entity, as well as their covered subcontractors
with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Entities that are
found to be in violation of HIPAA, whether as the result of a breach of unsecured PHI, a complaint about privacy practices, or an audit
by HHS may be subject to significant civil, criminal, and administrative fines and penalties and/or additional reporting and oversight
obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.
Depending on the facts and circumstances, we could be subject to penalties if we violate HIPAA.
Even when HIPAA does not apply,
according to the Federal Trade Commission (the “FTC”), failing to take appropriate steps to keep consumers’ personal
information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission Act.
The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer
information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Individually identifiable health information is considered sensitive data that merits stronger safeguards.
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In addition, certain state
laws govern the privacy and security of health-related and other personal information in certain circumstances, some of which may be more
stringent, broader in scope or offer greater individual rights with respect to protected health information than HIPAA, many of which
may differ from each other, thus, complicating compliance efforts. Such laws and regulations will be subject to interpretation by various
courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic
partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties
and private litigation.
Foreign data protection laws,
including the General Data Protection Regulation (the “GDPR”), which went into effect in May 2018, may also apply to
our processing of health-related and other personal data regardless of where the processing in question is carried out. The GDPR imposes
stringent requirements for controllers and processors of personal data of individuals within the European Economic Area (the “EEA”).
The GDPR applies to any company established in the EEA as well as to those outside the EEA if they collect, process, and use personal
data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior. The GDPR, together
with national legislation, regulations and guidelines of the EEA countries governing the processing of personal data, impose strict obligations
and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse
event reporting. In particular, these obligations and restrictions involve the consent of the individuals to whom the personal data relates,
the information provided to the individuals, the transfer of personal data out of the EEA to jurisdictions deemed to have inadequate,
security breach notifications and confidentiality of the personal data and imposition of substantial potential fines for breaches of the
data protection obligations. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust
regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the
annual global revenues of the noncompliant company, whichever is greater.
Among other requirements, the
GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection
to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU
and the United States remains uncertain. If necessary, we will be required to implement revised standard contractual clauses, in
relation to relevant existing contracts and certain additional contracts and arrangements, within the relevant time frames. There is some
uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on
for data transfers to non-EEA entities subject to the GDPR.
Further, from January 1,
2021, companies have to comply with the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018,
retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR (e.g., fines up to the greater of €20 million
(£17.5 million) or 4% of global turnover). The European Commission has adopted an adequacy decision in favor of the United
Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the United Kingdom
adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/extends that decision,
and remains under review by the Commission during this period. The relationship between the UK and the European Union in relation to certain
aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium
to longer term, and how data transfers to and from the UK will be regulated in the long term. These changes will lead to additional costs
and increase our overall risk exposure.
Implementing mechanisms that
endeavor to ensure compliance with the GDPR and relevant local legislation in EEA countries and the UK, if necessary, may be onerous and
may interrupt or delay our development activities, and adversely affect our business, financial condition, prospects and results of operations.
While we have taken steps to comply with the GDPR where applicable, including by reviewing our security procedures, and entering into
data processing agreements with relevant contractors, our efforts to achieve and remain in compliance may not be fully successful.
Compliance with applicable
US and foreign data protection, privacy and security laws, regulations and standards could require us to take on more onerous obligations
in our contracts, require us to engage in costly compliance exercises, restrict our ability to collect, use and disclose data, or in some
cases, impact our or our partners’ or suppliers’ ability to operate in certain jurisdictions. Each of these constantly evolving
laws can also be subject to varying interpretations. Any failure or perceived failure to comply could result in government investigations
and enforcement actions (which could include civil or criminal penalties), fines, private litigation, and/or adverse publicity, and could