ITEM 1A.
RISK FACTORS
We are
a developmental stage medical device company and have a history of significant operating losses; we expect to continue to incur
operating losses, and we may never achieve or maintain profitability.
As a development-stage
enterprise, we do not currently have revenues to generate cash flows to cover operating expenses. Since our inception, we have
incurred operating losses in each year due to costs incurred in connection with research and development activities and general
and administrative expenses associated with our operations. For the years ended March 31, 2021 and 2020, we incurred net losses
of approximately $7.4 million and $5.3 million, respectively. At March 31, 2021, we had an accumulated deficit of approximately
$15.9 million. As a result, we will need to raise additional capital in the future, which may or may not be available to us at
all or only on unfavorable terms.
We expect to
incur losses for the foreseeable future, as we continue the development of, and seek regulatory clearance and approvals for, our
insulin pump. As our prototype insulin pump is currently our only product, if it fails to gain regulatory approval and market
acceptance, we will not be able to generate any revenue, or explore other opportunities to enhance shareholder value, such as
through a sale. If we fail to generate revenue and eventually become profitable, or if we are unable to fund our continuing losses,
our shareholders could lose all or a substantial part of their investment.
We might
not be able to continue as a going concern which would likely cause our stockholders to lose most or all of their investment.
Our audited
financial statements for the year ended March 31, 2021 were prepared under the assumption that we would continue as a going concern.
However, our independent registered public accounting firm included a “going concern” explanatory paragraph in its
report on our financial statements for the year ended March 31, 2021, indicating that, without additional sources of funding,
our cash at March 31, 2021 is not sufficient for us to operate as a going concern for a period of at least one year from the date
that the financial statements included in this Report are issued. Management’s plans concerning these matters, including
our need to raise additional capital, are described in Management’s Discussion and Analysis of Financial Conditions and
Results of Operations included in Item 7 of this Report and in Note 1 to our consolidated financial statements included in Item
8 of this Report. However, we cannot assure you that our plans will be successful. In light of the foregoing, there is substantial
doubt about our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders would likely
lose most or all of their investment in us.
We have no revenues and substantial
indebtedness, which could adversely affect our business and financial position and, among other things, our ability to raise additional
capital and our ability to satisfy our financial obligations.
Because we are
a development stage company, we have not and do not anticipate generating any revenues for the foreseeable future. As a result,
we are dependent upon our ability to raise capital through sales of our debt and equity securities.
In connection
with our private placement completed in May 2021 (the 2021 Placement), we issued $6,560,000 aggregate principal amount of our
12% unsecured convertible promissory notes (the 2021 Notes), with each 2021 Note due 12 months from the issuance date. As a result,
we have substantial outstanding debt, which could adversely affect our business and financial position, and, among other things,
our ability to raise additional capital and our ability to satisfy our financial obligations, including interest and principal
payments on the 2021 Notes. The impact of the indebtedness may include, but may not be limited to, the following:
· increase our cost of borrowing.
The
full effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events are uncertain
and could have a material and adverse effect on our business, financial condition, operating results and cash flows.
The global
outbreak of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national
emergency by the U.S. government in March 2020. This has negatively affected the world economy, disrupted global supply chains,
significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place”
and created significant disruption of the financial markets. The extent of the impact on our operational and financial performance
will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S.
and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted.
We have
been complying with county and state orders and, until May 2021, had implemented a teleworking policy for our employees and contractors
and significantly minimized the number of employees who visit our office. However, a facility closure, work slowdowns or temporary
stoppage at one of our manufacturing suppliers could occur, which could have a longer-term impact and could delay our prototype
production and ability to conduct business.
If our
workforce is unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility
closures, travel restrictions or other restrictions in connection with the COVID-19 pandemic, our operations will be negatively
impacted. We may be unable to develop our product, and our costs may increase as a result of the COVID-19 outbreak. The impacts
could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions
after they have begun to experience improvement.
We rely
on other companies to provide components and to perform services for us. An extended period of supply chain disruption caused
by the response to COVID-19 could impact our ability to produce our initial product quantities, and, if we are not able to implement
alternatives or other mitigations, product deliveries would be adversely impacted and negatively impact our business, financial
condition, operating results and cash flows. Limitations on government operations can also impact regulatory approvals that are
necessary for us to operate our business.
The continued
spread of COVID-19 has also led to disruption and volatility in the global capital markets. We were recently able to raise additional
capital in a private placement that commenced in February 2021, however, we will need to raise additional capital to support our
operations in the future. We may be unable to access the capital markets, and additional capital may only be available to us on
terms that could be significantly detrimental to our existing stockholders and to our business.
We will
need substantial additional funding to complete subsequent phases of our insulin pump product and to operate our business and
such funding may not be available or, if it is available, such financing is likely to substantially dilute our existing shareholders.
The discovery,
development, and commercialization of new medical devices, such as our insulin pump, entails significant costs. While we believe
that we have generally completed the engineering and mechanical aspects of our insulin pump prototype, we still must modify, refine
and finalize our insulin pump to, among other things, meet the general needs and preferences of the almost pumper marketplace
and the guidelines of third-party payors. To enable us to accomplish these and other related items and continue to operate our
business, we will need to raise substantial additional capital and/or enter into strategic partnerships or joint ventures to enable
us to:
· fund clinical studies and seek regulatory approvals;
· build or access manufacturing and commercialization capabilities;
· develop, test, and, if approved, market our product;
· acquire or license additional internal systems and other infrastructure; and
· hire and support additional management, engineering and scientific personnel.
Until we can
generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance
our cash needs primarily through public or private equity offerings, debt financings or through the establishment of possible
strategic alliances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are
not able to secure additional equity funding when needed, we may have to delay, reduce the scope of, or eliminate one or more
of our clinical studies, development programs or future commercialization initiatives. In addition, any additional equity funding
that we do obtain will dilute the ownership held by our existing equity holders. The amount of this dilution may be substantially
increased if the trading price of our common stock is lower at the time of any financing. Regardless, the economic dilution to
shareholders will be significant if our stock price does not increase significantly, or if the effective price of any sale is
below the price paid by a particular shareholder. Any debt financing that we obtain in the future could involve substantial restrictions
on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for such
financing that we will require, and we do not have commitments from any third parties to provide any future debt financing. If
we fail to obtain funding as needed, we may be forced to cease or scale back operations, and our results, financial condition
and stock price would be adversely affected.
We have a limited operating
history and historical financial information upon which you may evaluate our performance.
You should consider,
among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us,
are in their early stages of development. We may not successfully address these risks and uncertainties or successfully complete
our studies and/or implement our existing and new products. If we fail to do so, it could materially harm our business and impair
the value of our common stock. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business,
conducting research, and developing new products. These include, but are not limited to, inadequate funding, failure to obtain
regulatory approval, unforeseen research issues, lack of consumer acceptance, competition, sluggish product development, and inadequate
sales and marketing. The failure by us to meet any of these conditions would have a materially adverse effect upon us and may
force us to reduce or curtail operations. No assurance can be given that we can or will ever operate profitably.
We may
not be able to meet our future capital needs.
To date, we
have no revenue and we have limited cash liquidity and capital resources. We will need additional capital in the near future.
Any equity financings will result in dilution and may contain other terms that are not favorable to our then-existing stockholders.
We currently have debt financing, and any additional sources of debt financing that we may obtain in the future may result in
a high interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we will
be required to reduce or curtail operations.
The amount
of financing we require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial
condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than
we expect.
Our future funding
requirements will depend on many factors, including, but not limited to:
· our ability to manage administrative and other costs of our operations; and
· the presence or absence of adverse developments in our research program.
If any of these
factors cause our funding needs to be greater than expected, our operations, financial condition, ability to continue operations
and stock price may be adversely affected.
Our future
cash requirements may differ significantly from our current estimates.
Our cash requirements
may differ significantly from our estimates from time to time, depending on a number of factors, including:
· the time and costs involved in obtaining regulatory clearance and approvals;
the costs of general and
administrative infrastructure required to manage our business and protect corporate assets and shareholder interests.
If we fail to
raise additional funds on a timely basis, we will need to scale back our business plans, which would adversely affect our business,
financial condition, and stock price, and we may even be forced to discontinue our operations and liquidate our assets.
Technological
breakthroughs in diabetes monitoring, treatment or prevention could render our insulin pump obsolete.
The diabetes
treatment market is subject to rapid technological change and product innovation. Our insulin pump is based on our proprietary
technology, but a number of companies, medical researchers and existing pharmaceutical companies are pursuing new delivery devices,
delivery technologies, sensing technologies, procedures, drugs and other therapeutics for the monitoring, treatment and/or prevention
of insulin-dependent diabetes. Any technological breakthroughs in diabetes monitoring, treatment or prevention could render our
insulin pump obsolete, which, since our insulin pump is our only product, would have a material adverse effect on our business,
financial condition and results of operations and could result in shareholders losing their entire investment.
Any failure
to attract and retain skilled directors, executives, employees and consultants could impair our product development and commercialization
activities.
Our business
depends on the skills, performance, and dedication of our directors, executive officers and key engineering, scientific and technical
advisors. Many of our current engineering or scientific advisors are independent contractors and are either self-employed or employed
by other organizations. As a result, they may have conflicts of interest or other commitments, such as consulting or advisory
contracts with other organizations, which may affect their ability to provide services to us in a timely manner. We will need
to recruit additional directors, executive management employees, and advisers, particularly engineering, scientific and technical
personnel, which will require additional financial resources. In addition, there is currently intense competition for skilled
directors, executives and employees with relevant engineering, scientific and technical expertise, and this competition is likely
to continue. If we are unable to attract and retain persons with sufficient engineering, scientific, technical and managerial
experience, we may be forced to limit or delay our product development activities or may experience difficulties in successfully
conducting our business, which would adversely affect our operations and financial condition.
We have
limited internal research and development personnel, making us dependent on consulting relationships.
We consider
research and development to be an important part of the process of designing, developing, obtaining regulatory required approvals
and the eventual commercialization of our insulin pump. We continue to incur increased research and development expenditures,
which are attributable to effort and expenses incurred in designing and developing our innovative insulin pump. We expect to continue
to incur substantial costs related to research and development.
We currently
have a limited number of research and development personnel, and rely and expect for the foreseeable future to continue to rely,
on consultants, whom are not our employees, to perform significant functions for us. As a result, we are and expect to continue
for the foreseeable future to be dependent on such third parties. Such third parties may be able to terminate their contractual
relationships with us quickly and with little, if any, notice. Although we believe there is a relatively large and readily accessible
network of third parties that we can draw from to replace any of our third-party consultants, no assurances can be given that
we would be able to quickly and seamlessly find and hire suitable replacements. Any material interruption or delay in our research
and development activities performed by our consultants could impair our ability to meet any deadlines and materially impair our
then product design and development, regulatory approval and/or commercialization activities which could have a material adverse
effect on our business, financial condition and stock price. In addition, if we do not appropriately manage our relationships
with our consultants, we may not be able to efficiently manage the development, testing, regulatory approval and eventual commercialization
of our insulin pump, which also could have a material and adverse effect on our business, financial condition and stock price.
We will
need to outsource and rely on third parties for various aspects relating to the development, manufacture, sales and marketing
of our insulin pump as well as in connection with assisting us in the preparation and filing of our FDA submission, and our future
success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We are dependent
on consultants for important aspects of our product development strategy. We do not have the required financial resources and
personnel to carry out independently the development of our product, and do not have the capability or resources to manufacture,
market or sell our current product. As a result, we contract with and rely on third parties for important functions, including
in connection with the development and finalization of our insulin pump, the preparation and filing of our FDA submission and
eventual manufacturing and commercialization of our product. We have recently entered into several agreements with third parties
for such services. If problems develop in our relationships with third parties, or if such parties fail to perform as expected,
it could lead to delays or lack of progress in obtaining FDA clearance, significant cost increases, changes in our strategies,
and even failure of our product initiatives.
We may
not be able to identify, negotiate and maintain the strategic alliances necessary to develop and commercialize our products and
technologies, and we will be dependent on our corporate partners if we do.
We may seek
to enter into a strategic alliance with a diabetes related service providing company for the further development and approval
of our insulin pump product. At this time, we have not entered into any such strategic alliance. Strategic alliances, if entered
into, could potentially provide us with additional funds, expertise, access, and other resources in exchange for exclusive or
non-exclusive licenses or other rights to the product that we are currently developing or a product we may explore in the future.
We cannot give any assurance that we will be able to enter into strategic relationships with a diabetes related service providing
company or others in the near future or at all. In addition, we cannot assure you that any agreements that we do reach will achieve
our goals or be on terms that prove to be economically beneficial to us. When we do enter into strategic or contractual relationships,
we become dependent on the successful performance of our partners or counter-parties. If they fail to perform as expected, such
failure could adversely affect our financial condition, lead to increases in our capital needs, or hinder or delay our development
efforts. See “Our Business – Number of Total Employees” below.
We may
not receive the necessary regulatory clearance or approvals for our insulin pump, and failure to timely obtain necessary clearances
and/or approvals could harm our then operations, including our ability to commercialize our product.
Before we can
market a new medical device, such as our insulin pump, we must first receive clearance under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act, or the FDCA. In the 510(k) clearance process, before a device may be marketed, the FDA must determine
that such proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which
includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May
28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved pre-market approval
(PMA) and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device
must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate
device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate
device.
Certain future
modifications made to our product, which we currently expect to be cleared through 510(k), may require a new 510(k) clearance.
The 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from
three to 12 months, but can last longer. Despite the time, effort and cost, a device may not be approved or cleared by the FDA.
Any delay or failure to obtain necessary regulatory approvals could harm our business, including our ability to commercialize
our product and our shareholders could lose their entire investment. Furthermore, even if we are granted the required regulatory
clearances, such clearances may be subject to significant limitations on the indicated uses for the device, which may limit the
market for our product.
If the FDA requires
us to go through a lengthier, more rigorous examination for our product than we had expected, product introductions or modifications
could be delayed or canceled, which could adversely affect our ability to grow our business.
The FDA can
delay, limit or deny clearance or approval for our insulin pump medical device for many reasons, including:
· our inability to demonstrate that the benefits of our pump outweigh the risks;
In addition,
the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other
actions, which may prevent or delay approval or clearance of our product or impact our ability to modify our product after clearance
on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability
to obtain clearance for our pump, increase the costs of compliance or restrict our ability to maintain our current approval. For
example, as part of the Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, the U.S. Congress
reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical
Device Regulatory Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device
regulation both pre- and post-clearance and approval. Some of these proposals and reforms could impose additional regulatory requirements
upon us that could delay our ability to obtain new clearance, increase the costs of compliance or restrict our ability to maintain
any clearance or approval we are able to obtain.
As a general
rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among
other things, on the evaluation of data supporting the safety and performance of the products during normal conditions of use.
Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use,
that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of
its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence.
Our competitors
may develop products that are more effective, safer and less expensive than ours.
Existing insulin
pumps are expensive, with the more popular models having purchase prices exceeding $4,000 for individuals without health insurance
and often require significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health insurance
plans, forcing some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for any
pumps, except their most technologically proficient and compliant patients and places pumps out of reach for many patients whom
cannot afford such out of pocket expenses.
We are engaged
in the diabetes treatment sector of the healthcare marketplace, which is intensely competitive. There are current products that
are quite effective at addressing the effects of diabetes, and we expect that new developments by other companies and academic
institutions in the areas of diabetes treatment will continue. If approved for marketing by the FDA, depending on the approved
clinical indication, our product will be competing with existing and future products related to treatments for diabetes.
Our competitors
may:
We expect to
compete against large medical device companies, such as Medtronic, Inc., Tandem Diabetes Care, Inc. and Insulet Corporation and
smaller companies that are collaborating with larger medical device companies, new companies, academic institutions, government
agencies and other public and private research organizations. These competitors, in nearly all cases, produce similar products
relative to the treatment of diabetes that have substantially greater financial resources than we do. Our competitors also have
significantly greater experience in:
· developing medical device and other product candidates;
· undertaking testing and clinical studies;
· building relationships with key customers and opinion-leading physicians;
· obtaining and maintaining FDA and other regulatory approvals;
· formulating and manufacturing medical devices;
· launching, marketing and selling medical devices; and
If we fail to
achieve superiority over other existing or newly developed products, we may be unable to obtain regulatory approval. If our competitors’
market medical devices that are less expensive, safer or more effective than our insulin pump, or that gain or maintain greater
market acceptance, we may not be able to compete effectively. See “Our Business – Competition” below.
We expect
to rely on third-party manufacturers and will be dependent on their quality and effectiveness.
Our insulin
pump requires precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing standards, including
failure to detect or control anticipated or unanticipated manufacturing errors or the frequent occurrence of such errors, could
result in patient injury or death, discontinuance or delay of ongoing or planned clinical studies, delays or failures in product
testing or delivery, cost overruns, product recalls or withdrawals and other problems that could seriously hurt our business.
Contract medical device manufacturers often encounter difficulties involving production yields, quality control and quality assurance
and shortages of qualified personnel. These manufacturers are subject to stringent regulatory requirements, including the FDA’s
current good-manufacturing-practices regulations. If our contract manufacturers fail to maintain ongoing compliance at any time,
the production of our product could be interrupted, resulting in delays or discontinuance of our clinical studies, additional
costs and loss of potential revenues.
We may
not be able to successfully scale-up manufacturing of our product in sufficient quality and quantity, which would delay or prevent
us from developing our product and commercializing our product.
In order to
conduct larger-scale or late-stage clinical studies and for commercialization of our insulin pump, if 510(k) clearance is granted,
we will need to manufacture it in larger quantities. We may not be able to successfully increase the manufacturing capacity for
our product in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities.
If we are unable to successfully scale up the manufacture of our product in sufficient quality and quantity, the development and
testing of our product and regulatory approval or commercial launch may be delayed, which could significantly harm our business.
We may
be subject to potential product liability and other claims that could materially impact our business and financial condition.
The development
and sale of our insulin pump exposes us to the risk of significant damages from product liability and other claims, and the use
of our product in clinical studies may result in adverse effects. We cannot predict all the possible harms or adverse effects
that may result. We maintain a modest amount of product liability insurance to provide some protection from claims. Nonetheless,
we may not have sufficient resources to pay for any liabilities resulting from a personal injury or other claim, even if it is
partially covered by insurance. In addition to the possibility of direct claims, we may be required to indemnify third parties
against damages and other liabilities arising out of our development, commercialization and other business activities, which would
increase our liability exposure. If third parties that have agreed to indemnify us fail to do so, we may be held responsible for
those damages and other liabilities as well.
Legislative,
regulatory, or medical cost reimbursement changes may adversely impact our business.
New laws, regulations
and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to the health care system
in the U.S. and in other jurisdictions may change the nature of and regulatory requirements relating to innovations in medical
devices, testing and regulatory approvals, limit or eliminate payments for medical procedures and treatments, or subject the pricing
of medical devices to government control. In addition, third-party payors in the U.S. are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement of new products. Consequently, significant uncertainty exists
as to the reimbursement status of newly approved health care products. Significant changes in the health care system in the U.S.
or elsewhere, including changes resulting from adverse trends in third-party reimbursement programs, could have a material adverse
effect on our projected future operating results and our ability to raise capital, commercialize products, and remain in business.
We are
subject to extensive regulation by the U.S. Food and Drug Administration, which could restrict the sales and marketing of our
insulin pump and could cause us to incur significant costs.
Our insulin
pump is subject to extensive regulation by the FDA. These regulations relate to manufacturing, labeling, sale, promotion, distribution
and shipping. Before a new medical device, or a new use of or claim for an existing product, can be marketed in the United States,
it must first receive either 510(k) clearance or PMA from the FDA, unless an exemption applies. We may be required to obtain a
new 510(k) clearance for significant post-market modifications to our insulin pump. Each of these processes can be expensive and
lengthy, and entail significant user fees, unless exempt.
Medical devices
may be marketed only for the indications for which they are approved or cleared. Further, 510(k) clearances can be revoked if
safety or effectiveness problems develop.
The current
regulatory requirements to which we are subject may change in the future in a way that adversely affects us. If we fail to comply
with present or future regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA,
which may include any of the following sanctions:
· customer notification, or orders for repair, replacement or refunds
· voluntary or mandatory recall or seizure of our current or future products;
· imposing operating restrictions, suspension or shutdown of production;
· rescinding 510(k) clearance that has already been granted; and
· criminal prosecution.
The occurrence
of any of these events would have a material adverse effect on our business, financial condition and results of operations and
could result in shareholders losing their entire investment.
Our success
depends substantially upon our ability to obtain and maintain intellectual property protection relating to our product and research
technologies.
We have applied
to the U.S. Patent and Trademark Office for patents on our proprietary fluid movement technology and the configuration of our
insulin pump. There is no assurance that these patents will be issued, and no assurance that they will prevent other companies
from competing with us. We will continue to attempt to patent our innovations as appropriate to help ensure a sustainable competitive
advantage.
Due to evolving
legal standards relating to the patentability, validity and enforceability of patents covering health care product inventions,
our ability to enforce our existing patents and to obtain and enforce patents that may issue from any pending or future patent
applications is uncertain and involves complex legal, scientific and factual questions. To date, no consistent policy has emerged
regarding the breadth of claims allowed in medical device patents. Thus, we cannot be sure that any patents will issue from any
pending or future patent applications owned by or licensed to us. Even if patents do issue, we cannot be sure that the claims
of these patents will be held valid or enforceable by a court of law, will provide us with any significant protection against
competing products, or will afford us a commercial advantage over competitive products. If, at some point in the future, one or
more products resulting from our product candidates is approved for sale by the FDA and we do not have adequate intellectual property
protection for those products, competitors could duplicate them for approval and sale in the United States without repeating the
extensive testing required of us to obtain FDA approval.
If we
are sued for infringing on third-party intellectual property rights, it will be costly and time-consuming, and an unfavorable
outcome would have a significant adverse effect on our business.
Our ability
to commercialize our product depends on our ability to use, manufacture and sell our product without infringing the patents or
other proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications owned by third
parties exist in the diabetes medical device area. There may be existing patents, unknown to us, on which our activities with
our insulin pump candidate could infringe.
If a third party
claims that our actions infringe on its patents or other proprietary rights, we could face a number of issues that could seriously
harm our competitive position, including, but not limited to:
If any of these
events occur, it could significantly harm our operations and financial condition and negatively affect our stock price.
Healthcare
reform laws could adversely affect our product and financial condition.
During the past
several years, the U.S. healthcare industry has been subject to an increase in governmental regulation at both the federal and
state levels. Efforts to control healthcare costs, including limiting access to care, alternative delivery models and changes
in the methods used to determine reimbursement scenarios and rates, are ongoing at the federal and state government levels. There
are provisions of law that provide for the creation of a new public-private Patient-Centered Outcomes Research Institute tasked
with identifying comparative effectiveness research priorities. For example, establishing a research project agenda and contracting
with entities to conduct the research in accordance with the agenda. Research findings published by this institute are publicly
disseminated. It is difficult at this time to determine whether a comparative effectiveness analysis impacting our business will
be done, and assuming one is, what impact that analysis will have on our insulin pump or our future financial results.
In addition,
the Affordable Care Act, or the ACA, and related healthcare reform laws, regulations and initiatives have significantly increased
regulation of managed care plans and decreased reimbursement to Medicare managed care. Some of these initiatives purport to, among
other things, require that health plan members have greater access to drugs not included on a plan’s formulary. Moreover,
to alleviate budget shortfalls, states have reduced or frozen payments to Medicaid managed care plans. We cannot accurately predict
the complete impact of these healthcare reform initiatives, but they could lead to a decreased demand for medical devices such
as our insulin pump and other outcomes that could adversely.
Some of the
provisions of the ACA have yet to be fully implemented, and certain provisions have been subject to judicial and Congressional
challenges. In addition, there have been efforts by the Trump administration to repeal or replace certain aspects of the ACA and
to alter the implementation of the ACA and related laws. For example, the Tax Cuts and Jobs Act enacted on December 22, 2017,
eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A
of the Internal Revenue Code of 1986, commonly referred to as the “individual mandate,” effective January 1, 2019.
Further, the Bipartisan Budget Act of 2018 among other things, amended the Medicare statute, effective January 1, 2019, to reduce
the coverage gap in most Medicare drug plans, commonly known as the “donut hole,” by raising the manufacturer discount
under the Medicare Part D coverage gap discount program to 70%. It is unclear how the ACA and its implementation, as well as efforts
to repeal or replace, or invalidate, the ACA, or portions thereof, will affect our insulin pump or our business. Additional legislative
changes, regulatory changes, and judicial challenges related to the ACA remain possible. It is possible that the ACA, as currently
enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future, could have
an adverse effect on our industry generally and on our ability to commercialize our insulin pump and achieve profitability.
If we
are able to obtain all regulatory approvals and have completed all other steps needed to be taken to commercialize our insulin
pump, if we or any contract manufacturers we select fails to comply with the FDA’s quality system regulations, the manufacturing
and distribution of our product could be interrupted, and our product sales and operating results could suffer.
A material step
in the process of the commercialization of our product will involve selecting a manufacturer or manufacturers for our pump. We
and any future contract manufacturers of our insulin pump will be required to comply with the FDA’s quality system regulations,
which impose a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control,
quality assurance, labeling, packaging, sterilization, storage and shipping of medical devices. The FDA enforces its quality system
regulations through periodic unannounced inspections. We cannot assure you that, in the future, any manufacturing facilities owned
by us or any contract manufacturer will pass any quality system inspection. In the event that our or any contract manufacturer’s
facilities fails a quality system inspection, the manufacturing or distribution of our product could be interrupted and our operations
disrupted. Failure to take adequate and timely corrective action in response to an adverse quality system inspection could force
a suspension or shutdown of any packaging and labeling operations or then manufacturing operations of any contract manufacturers,
or a recall of our insulin pump. If any of these events were to occur, we at such time would not be able to provide our customers
with the quantity of insulin pumps that they require on a timely basis, our reputation could be harmed and we could lose any customers
we then have, any or all of which could have a material adverse effect on our business, financial condition and results of operations.
We may
undertake infringement or other legal proceedings against third parties, causing us to spend substantial resources on litigation
and exposing our own intellectual property portfolio to challenge.
We may come
to believe that third parties are infringing on our patents or other proprietary rights. To prevent infringement or unauthorized
use, we may need to file infringement and/or misappropriation suits, which are very expensive and time-consuming, could result
in meritorious counterclaims against us and would distract management’s attention. Also, in an infringement or misappropriation
proceeding, a court may decide that one or more of our patents is invalid, unenforceable, or both, in which case third parties
may be able to use our technology without paying license fees or royalties. Even if the validity of our patents is upheld, a court
may refuse to stop the other party from using the technology at issue on the grounds that the other party’s activities are
not covered by our patents. See “Our Business – Patents,” below.
We may
become involved in disputes with our present or future contract partners over intellectual property ownership or other matters,
which would have a significant effect on our business.
Inventions discovered
in the course of performance of contracts with third parties or contractors may become jointly owned by such third party contractors
and us, in some cases, and the exclusive property of one of us, in other cases. Under some circumstances, it may be difficult
to determine who owns a particular invention or whether it is jointly owned, and disputes could arise regarding ownership or use
of those inventions or jointly developed improvements thereto. Other disputes may also arise relating to the performance or alleged
breach of our agreements with third parties. Any disputes could be costly and time-consuming, and an unfavorable outcome could
have a significant adverse effect on our business. See “Our Business –Use of Proprietary Technology,” below.
Assuming
our insulin pump receives FDA clearance or approval, our insulin pump will still be subject to recalls, which would harm our reputation,
business operations and financial results.
Even assuming
we obtain FDA approval or clearance with regard to our insulin pump, the FDA has the authority to require the recall of our pump
if we commence manufacturing of our insulin pump and we or any contract manufacturers we retain fail to comply with relevant regulations
pertaining to manufacturing practices, labeling, advertising or promotional activities, or if new information is obtained concerning
the safety or efficacy of the product. A government-mandated recall could occur if the FDA finds that there is a reasonable probability
that our product would cause serious, adverse health consequences or death. A voluntary recall by us could occur as a result of
manufacturing defects, labeling deficiencies, packaging defects or other failures to comply with applicable regulations. Any recall
would divert management’s attention and financial resources and harm our reputation with customers. A recall involving our
insulin pump would be particularly harmful to our business, financial condition and results of operations because it is currently
our only product.
Any disruption
and/or instability in economic conditions and capital markets could adversely affect our ability to access the capital markets,
and thus adversely affect our business and liquidity.
Negative economic
conditions and issues with regard to the financial markets, could have a negative impact on our ability to access the capital
markets, and thus have a negative impact on our then operations and liquidity. A general shortage of liquidity and credit combined
with the substantial losses in worldwide equity markets could lead to an extended worldwide recession in the future. If such occurred,
we would face significant challenges if conditions in the capital markets did not improve. Our ability to access the capital markets
under such circumstances could be severely restricted at a time when we need to access such markets, which could have a negative
impact on our business plans. Even if we are able to raise capital under such circumstances, it may not be at a price or on terms
that are favorable to us. We cannot predict the occurrence of future disruptions or how long such negative conditions might continue.
Because
our current insulin pump prototype is still in the development stage, it does not have reimbursement and is not approved for insurance
coverage. If in the future we are approved for and are otherwise able to commercialize our insulin pump, but are unable to obtain
adequate reimbursement or insurance coverage for such product from third-party payors, we will be unable to generate significant
revenue.
Because our
current insulin pump prototype is still in the development stage, it does not have reimbursement and is not approved for insurance
coverage. The future availability of insurance coverage and reimbursement for newly approved medical devices is highly uncertain.
In the United States, patients using insulin pumps are generally reimbursed for all or part of the product cost by Medicare or
other third-party payors. Any future commercial success of our insulin pump will be substantially dependent on whether third-party
coverage and reimbursement is available for future customers. Medicare, Medicaid, health maintenance organizations and other third-party
payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new
medical devices, and, as a result, they may not cover or provide adequate reimbursement for our insulin pump, assuming we are
able to fully develop and obtain all regulatory approval to market it in the United States. Accordingly, unless government and
other third- party payors provide coverage and reimbursement for our insulin pump, patients may not use it, which would cause
investors to lose their entire investment.
We are
subject to the oversight of the SEC and other regulatory agencies. Investigations by those agencies could divert management’s
focus and could have a material adverse effect on our reputation and financial condition.
We are subject
to the regulation and oversight of the SEC and state regulatory agencies, in addition to the FDA. As a result, we may face legal
or administrative proceedings by these agencies. We are unable to predict the effect of any investigations on our business, financial
condition or reputation. In addition, publicity surrounding any investigation, even if ultimately resolved in our favor, could
have a material adverse effect on our business.
We are
a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to
smaller reporting companies, our common stock may be less attractive to investors.
We are a “smaller
reporting company,” and are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically,
“smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings,
are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting
firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased
disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited
financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting
company” may make it harder for investors to analyze our operating results and financial prospects.
Our shares
of common stock are quoted on the OTCQB Venture Market, and the trading market for our common stock is limited.
Our shares of
common stock are traded on the OTCQB Venture Market. There is currently a limited trading market for our common stock, and, prior
to 2021, there had been no active trading market for our common stock. While we believe an active trading market for our common
stock is developing, there can be no assurance that an active trading market for our common stock will develop, or, even if one
develops, it will be sustained.
We do
not expect any cash dividends to be paid on our shares of common stock for the foreseeable future.
We have never
declared or paid a cash dividend and we do not anticipate declaring or paying dividends on our common stock for the foreseeable
future. We expect to use future financing proceeds and earnings, if any, to fund operating expenses. Consequently, shareholders’
only opportunity to achieve a return on their investment is if the price of our stock appreciates and they sell their shares at
a profit. We cannot assure shareholders of a positive return on their investment when they sell their shares or that shareholders
will not lose the entire amount of their investment.
If the
beneficial ownership of our common stock continues to be highly concentrated, it may prevent our shareholders from influencing
significant corporate decisions.
As of March
31, 2021, our executive officers, directors and certain persons who may be deemed their affiliates beneficially owned substantially
in excess of 50.1% of our issued and outstanding common stock. As a result, such persons may exercise substantial influence over
the outcome of corporate actions requiring shareholder approval including, without limitation, the election of directors, certain
mergers, consolidations and sales of all or substantially all of our assets or any other significant corporate transactions. Such
persons may also vote against a change of control, even if such a change of control would benefit our other shareholders.
Sale
of our common stock by shareholders could encourage short sales by third parties, which could contribute to the further decline
of our stock price.
The significant
downward pressure on the price of our common stock that would be caused by the sale of material amounts of our common stock could
encourage short sales by third parties. Such an event could place further downward pressure on the price of our common stock.
We
are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies
will make our common stock less attractive to investors.
We are an
“emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). For as long
as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies, including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding
nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances
could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (i) the last day of
the fiscal year (a) following the fifth anniversary of the completion of the first sale of shares covered by this prospectus,
(b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated
filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700.0 million as of the prior
September 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the
prior three-year period.
Our
common stock may be classified as “penny stock” and trading of our shares may be restricted by the SEC’s penny
stock regulations.
Our common
stock is traded on the OTCQB Venture Market. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act impose sales
practice and disclosure requirements on certain brokers-dealers who engage in transactions involving a “penny stock.”
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price
of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our common shares
may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons
other than established customers and “accredited investors.” The penny stock rules require a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a
form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny
stock that is not otherwise exempt, the broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our common stock. We believe
that the penny stock rules may discourage investor interest in and limit the marketability and reduce the level of trading activity
of our common shares. The market price of our common stock may suffer as a result.
Future
sales of our securities could adversely affect the market price of our common stock and our future capital-raising activities
could involve the issuance of equity securities, which would dilute your investment and could result in a decline in the trading
price of our common stock.
We may sell
securities in the public or private equity markets at prices per share below the current market price of our common stock, even
if we do not have an immediate need for additional capital at that time. Sales of substantial amounts of shares of our common
stock, or the perception that such sales could occur, could adversely affect the prevailing market price of our shares and our
ability to raise capital. We may issue additional shares of common stock in future financing transactions or as incentive compensation
for our executive management and other key personnel, consultants and advisors. Issuing any equity securities would be dilutive
to the equity interests represented by our then-outstanding shares of common stock. Moreover, sales of substantial amounts of
shares in the public market, or the perception that such sales could occur, may adversely affect the prevailing market price of
our common stock and make it more difficult for us to raise additional capital.
Our
certificate of incorporation allows for our board of directors to create new series of preferred stock without further approval
by our shareholders, which could adversely affect the rights of the holders of our common stock.