ITEM
1. DESCRIPTION OF BUSINESS
Overview
The
Company was incorporated under the name Creative Learning Products, Inc. in the State of New Jersey on August 31, 1988 and changed its
name to Creative Gaming, Inc. in May 1997. The Company changed its name to Management Services, Inc. in October 2006. In August 2008,
the Company changed its name to Centriforce Technology Corp. In May 2010, the Company changed its name to ADB International Group, Inc.
The Company changed its name to its current name, E-Qure Corp., on August 27, 2014.
On
May 12, 2014, the board of directors approved a plan to redomicile from the State of New Jersey to the State of Delaware.
Our
Business
We
are a medical device Company planning to commercialize our Bioelectrical Signal Therapy device (“BST Device,” or “Device”).
Our BST Device treats wounds via electrical stimulation, which is believed to result in accelerated wound healing by imitating the natural
electrical current that occurs in injured skin on the human body. Our BST Device stimulates renewed blood flow and oxygen in order to
induce local cell regeneration and therefore promote wound healing. Our mission is to improve non-invasive wound care treatments and
to become a leading provider of non-invasive wound and ulcer healing treatment. Our device is designed to specifically address many of
the limitations associated with other invasive and non-invasive wound care devices.
We
believe our BST Device is a simple and effective wound heal method that can be used in and incorporated as an adjunctive therapy in wound
healing. Treatment is safe, effective, and well-tolerated.
The
Company’s success greatly depends upon the successful completion of the clinical trial of its BST Device as well as our ability
to raise sufficient equity capital. We successfully completed a Units Rights Offering in 2018 and raised approximately $1.8 million.
The Device may need additional development and there can be no assurance that we will, in fact, achieve the requisite safety and efficacy,
prerequisites for regulatory approval and/or that approval will be received in a timely manner, if at all. Nevertheless, the Company
believes that its BST Device’s design and procedure is safe and effective, but the path to commercial success, even if regulatory
approval is granted, may take more time and may be more costly that we expect or for which we have sufficient resources at the present.
Our
BST Device is designed to treat chronic wounds – primarily Stage III and Stage IV ulcers, which we believe comprises about 11%
and 7% of all chronic wounds, respectively, and severe Stage II wounds.
We
have not generated any sales revenues from our BST Device to date other than the payment of US$40,000 we have received from Colombia
in January 2018 representing an initial order for our BST Device.
Recent
Developments
During
the first quarter of fiscal 2020, we were granted approval from the Helsinki committee to launch a Randomized Control Study (RCT) on
60-100 patients in order to assess the efficacy of the BST Device on diabetic foot patients in collaboration with Clalit Health Services
Organization, Israel’s largest HMO, and the Israeli Ministry of Health (MOH). The study will be conducted at 3 to 5 sites including
leading clinics and hospitals in Israel. To date, we have agreements with two outpatient clinics and one private clinic to conduct our
clinical trial study. We have enrolled 15 to 20 patients out of the required minimum 60 patients for our study. Our enrollment process
has been negatively impacted by COVID 19, but expect to complete our enrollment by the end of the year 2021. We expect trial completion
within 12 to 18 months upon completion of the enrollment. We plan to enroll between 60 to 100 patients based on a ratio of 2:1 between
BST treatment group and the control group receiving only standard care. The double arm clinical trial will be conducted on patients with
diabetic foot ulcers. The BST arm will be treated with the BST device three times a day. Our trial protocol requires two weeks of pre-trial
screening to determine if the wounds qualify for the trial by showing no self-healing of more than 10%. Subsequent to the screening period,
the trial period will consist of 112 treatment days with the BST device followed by 28 days monitoring the post-treatment wounds. The
control group will be monitored the same way except it will not receive the BST device treatment.
The
Company has concluded a 35-wound, one arm clinical pilot, treating recalcitrant wounds in a leading wound clinic in Tel Aviv Israel,
with 78% of the treated wounds completely healed within 20 weeks (Avg. wound duration at the base was 8 months) and an additional 16%
of the treated wounds reaching wound area reduction of greater than 75%. Only 6% of the patients had no substantial positive clinical
effect.
The
Company’s distributor in Colombia, TekMedica SAS, has successfully concluded a clinical pilot study at the Hospital de la Samaritana
in Bogota, Colombia. Colsanitas, a leading Colombian HMO/Health insurance provider and operator of comprehensive healthcare services
in Colombia and a member of the Sanitas group worldwide, intends to commence a clinical pilot study which is expected to be concluded
by the end of the year 2021. If positive results are achieved, similar to those achieved in the one arm clinical pilot in Tel Aviv, Israel,
the Company believes that upon regulatory approval it will be successful in marketing and selling the BST device treatment with to Colsanitas
health services in Colombia.
On
February 20, 2017, the Registrant received the official certification from the Israeli Ministry of Health authorizing the use of the
Registrant’s BST Device in Israel. The BST Device implements patented and proprietary electrical stimulation technologies to treat
hard-to-cure wounds and ulcers up to complete closure and/or cure.
On
January 8, 2017, the Registrant entered into a five-year distribution agreement (the “Distribution Agreement”) with TekMedica
SAS, organized under the laws of Colombia (“TekMedica” or the “Distributor”). Pursuant to the Distribution Agreement,
the Registrant granted TekMedica the exclusive rights to distribute the Registrant’s medical device for the treatment of chronic
wounds (the “BST Device™”) and the accompanying disposable electrodes (sometimes collectively, the “Products”)
in Colombia (the “Territory”). The Company terminated its Distribution Agreement with TekMedica in March 2021.
Our
distribution agreements provide that the Company will provide the distributor with supplies of the BST Devise and disposable electrode
for treatment of patients in hospitals, long-term care facilities, medical centers and out-patient clinics. The distributor will make
an initial advance payment to be applied against the first year’s quota as set forth in the Distribution Agreement, with minimum
annual quota’s during the five-year term. The distributor will be responsible for securing any product certification, permit, license
or approval that may be required in the territory for the marketing, sale, sublicensing and delivery and use of the BST Devise in the
territory.
Our
Wound Healing Strategy
The
objective of our BST Device is to reduce healing time and allow patients to receive treatment at home while delivering optimal therapeutic
results, which eventually should result in significantly higher healing rates along with lower wound treatment costs presently available
on the market.
The
costs associated with untreated and/or unhealed wounds are far in excess of the costs of the physician, hospital and medical equipment,
particularly when there are subsequent complications that require additional medical treatment which are virtually certain to occur as
a result of untreated and/or unhealed wounds in a patient.
The
healing time of chronic wounds usually ranges from a few weeks to up to several months depending on the size and type of the wound and
the patient’s medical condition. Wound treatment typically can involve many direct and indirect costs. Wound dressings comprise
only 10-15% of the total direct treatment cost according to the International Committee of Wound Management. In contrast, a significant
percentage of the total cost is attributable to care providers’ salaries and staff expenses. As a result, treatment methods that
reduce healing time to closure of the wound and reduce staff time inevitably lead to lower cost of care.
We
believe that our BST Device is a very effective and cost-saving method for the chronic wound treatment market. Our belief is based on
the knowledge and experience of our management in the wound care industry that our BST Device is designed to be able to significantly
lower treatment cost compared to other wound therapies modalities due to the fact that our wound heal method requires shorter healing
times, treatment can be easily given at patient homes and therefore reduce per day treatment costs.
Marketing
and Sales
The
Company intends to launch marketing efforts in the US assuming receipt of FDA approval which we anticipate at the end of 2022, of which
there can be no assurance. Until such time, most of our efforts will be related to internally preparing for the launch of our BST Device
in the US as well as proceeding with marketing efforts in the EU, Colombia, Argentina and a few other territories.
Assuming
regulatory approval, which we reasonably believe can be achieved by end of 2022. The Company plans to indirectly sell its wound treatment
solution by entering into distribution agreements with distributors specializing in wound care therapy solutions or by creating its own
sales and marketing force. The distributors or the Company will then sell the treatment to hospitals, nursing homes, geriatric institutions
and private wound care clinics.
In
addition to indirect sales through distribution agreements, the Company considers the outright sale of its treatment to each institution
such as hospitals, nursing homes, geriatric institutions, and private clinics, which would rent the Device to their patients on a monthly
basis. Upon completion of the wound healing treatment, the patient would return the Device, which would then re-enter the medical device
rental market.
Competition
Our
principal competition in the chronic wound care market are expected to be the wound care products manufactured by Acelity (formerly known
as KCI) and Smith & Nephew. Acelity is considered a market leader and, we believe, commands a market share of approximately 21% in
the United States. Smith & Nephew’s U.S. market share is believed to be approximately 19% based on revenues. Other significant
competitors are ConvaTec, Johnson & Johnson and others, all manufacturers of wound healing devices.
We
also face competition from numerous companies that offer a variety of wound healing methods including traditional wound care dressings,
advanced wound care dressings, such as hydrogels, hydrocolloids, and alginates, skin substitutes, and products containing growth factors.
While many of these methods compete with our BST Device, such methods can also be utilized as complementary therapies to our BST Device
and V is versa.
We
believe that the following treatments or therapies represent alternatives or complementary treatments and/or therapies to our BST device:
Hyperbaric
oxygen therapy (“HBOT”): Hyperbaric oxygen therapy is a medical treatment that utilizes pressurized oxygen to heal wounds.
The treatment is administered by placing a patient in a comfortable pressure chamber that circulates oxygen at two to three times the
atmospheric pressure rate. The HBOT method is not specifically designed for chronic wounds and the treatment process is both very long
and very expensive. HBOT treatments typically last 90-120 minutes and are administered 1-2 times a daily for a period of 5 to 6 days
a week. The length of treatment depends on the wound’s severity, with some patients requiring 20-40 treatments. There are many
companies that offer HBOT treatment in clinics as a direct service to patients.
Vacuum-assisted
closure (“V.A.C.”) method: The V.A.C. method is designed for the treatment of acute care setting, serious trauma wounds,
failed surgical closures, amputations, and serious pressure ulcers. The leading V.A.C. product was launched in 1995 by KCI, a major global
medical technology company, recently acquired by Acelity.
EZCARE
(Smith & Nephew) - Following the acquisition of BlueSky Medical in May 2007, Smith & Nephew provide negative pressure wound therapy
(NPWT). NPWT is a technology used to treat chronic wounds such as diabetic ulcers, pressure ulcers, as well as post-operative and hard-to-heal
wounds. It aids in the healing of open wounds by the application of sub-atmospheric pressure (Similar technology to KCI).
In
addition, recently developed technologies, or technologies that may be developed in the future, are or may be the basis for products
which compete with our BST Device. There can be given no assurance that we will be able to successfully enter into the chronic wound
heal market with our BST Device or that we will be able to compete effectively against such companies in the future.
Many
of these companies have substantially greater capital and marketing resources, and greater experience in commercializing products and
services than we have.
Patents,
Trademarks, and Copyrights
The
Company has filed a provisional patent with United States Patent and Trademark Office for the purpose of protecting the main features
of our proprietary unique electrical healing signal BST Device. We have a list of all pending and granted patents to date attached as
exhibit 10.9 to our S-1 Registration Statement as filed with the Company’s S-1 on September 6, 2014.
To
the extent that we determine that additional intellectual property (“IP”) protection may be necessary, we plan to secure
such protection by applying for additional patents, trademarks or copyrights related to our business and IP, as we deem necessary.
Government
Regulation
Our
operations and the marketing of our BST Device is subject to extensive regulation by numerous federal and state governmental authorities.
There can be no assurance that governmental regulatory agencies or a third party will not contend that certain aspects of our business
and our BST Device is either subject to or is not in compliance with applicable laws, regulations or rules or that the state or federal
regulatory agencies or courts would interpret such laws, regulations and rules in our favor. The sanctions for failure to comply with
such laws, regulations or rules could include denial of the right to conduct business, significant fines and criminal and civil penalties.
Additionally, any increase in the complexity or substantive requirements of such laws, regulations or rules could have a material adverse
effect on our business.
Any
change in current regulatory requirements or related interpretations by or positions of, state officials where we operate could adversely
affect our operations within those states. State regulatory requirements could adversely affect our ability to establish operations in
such other states.
We
intend to seek FDA approval of our BST devise in the future at which point various state and federal laws apply to the operations of
medical device providers including, but are not limited to, the following:
Licensing
Requirements: Certain medical device providers are required to be licensed by various state regulatory bodies. However, if we
are found to not be in compliance, we could be subject to fines and penalties or ordered to cease operations which could have an adverse
effect on our business.
False
Claims Act: The Federal False Claims Act and some state laws impose requirements in connection with the submission of claims
for payment for health care services and products, including prohibiting the knowing submission of false or fraudulent claims and submission
of false records or statements for reimbursement and payment to the United States government or state government. Such requirements would
apply to the hospitals to which we provide our Device related to wound care treatment services. Not only are government agencies active
in investigating and enforcing actions with respect to applicable health laws, but also health care providers are often subject to actions
brought by individuals on behalf of the government. As such, “whistleblower” lawsuits, also known as “qui tam”
actions, are generally filed under seal with a court to allow the government adequate time to investigate and determine whether it will
intervene in the action. As a result, health care providers subject to qui tam actions are often unaware of the lawsuit until the government
has made its determination whether to intervene, or not, at which time the seal is lifted. The Federal False Claims Act provides for
penalties equal to three (3) times the actual amount of any overpayments plus $11,000 per claim. Under legislation passed in 2009, those
who bill third parties are now obligated to discover and disclose any overpayments received or be subject to False Claims Act penalties
as well.
Fraud
and Abuse Laws: Since a significant portion of reimbursement for healthcare products and services are currently paid through
reimbursements under Medicare, Medicaid or similar programs, the federal government and many states have adopted statutes and regulations
that address fraudulent and/or abusive behavior in connection with such programs.
As
part of this regulatory scheme, the federal government believes that an “inducement” to refer a Medicare or Medicaid patient
is likely to result in fraud or abuse on the Medicare or Medicaid programs. Therefore, the federal government adopted a number of laws
and regulations to recoup funds and assess penalties which it believes were paid inappropriately. In cases of criminal fraud, the individuals
responsible for the fraudulent activity can be subject to imprisonment.
One
of the principal federal statutes regulating fraud and abuse is the Anti-Kickback Statute. The Anti-Kickback statute prohibits the solicitation,
payment, receipt or offering of any direct or indirect remuneration in exchange for the referral of Medicare and Medicaid patients or
for the purchasing, arranging for or recommending the purchasing, leasing or ordering of Medicare or Medicaid covered services, items
or equipment. To be convicted of a violation of the Anti-Kickback Statute, the party must have had specific intent to induce the referral
of Medicare or Medicaid patients or the purchase, lease or ordering of a good, item or service reimbursable by Medicare or Medicaid.
Some of the federal courts have broadly construed the Anti-Kickback Statute and held that the “intent” required to support
a criminal conviction will exist if only one purpose of the referral is to induce a prohibited referral.
To
clarify some of the issues created by the Anti-Kickback Statute, the Center for Medicare and Medicaid Services issued “safe harbor”
regulations identifying actions which will not be deemed to violate the Anti-Kickback Statute. Some of these “safe harbors”
are in the area of joint ventures, personal services, and other arrangements. Conducting an activity that falls within a “safe
harbor” regulation provides comfort that such activity will not be prosecuted. Compliance with each element of a particular “safe
harbor” is required in order to assured of the protection provided by such “safe harbor”. Even though a transaction
that does not fall within a “safe harbor” may be perfectly appropriate, the arrangement will be evaluated based on its facts
and circumstances to determine if the parties intended to induce the referral of Medicare or Medicaid patients or the purchase, lease
or ordering of a good, item or service reimbursable under Medicare or Medicaid.
An
allegation of violation and/or a conviction for violation of the Anti-Kickback Statute and parallel state laws could have a significant
impact on our ability to conduct our business. As noted earlier, significant fines, penalties, exclusion from Medicare and Medicaid programs
and imprisonment of individuals can result. Because the burden to prove specific intent under the Anti-Kickback Statute can sometimes
be difficult, the government has been pursuing enforcement under statutes that do not require specific intent such as the False Claims
Act. In fact, in recent legislation the Congress has required that those submitting claims for third party reimbursement are required
to discover and repay any overpayments, or they are subject to additional penalties.
The
Stark Law: Federal and some state laws prohibit physician referrals to an entity in which the physician or his or her immediate
family members have a financial interest for provision of certain designated health services that are reimbursed by Medicare or Medicaid.
We cannot assure you that the federal government, or other states in which we operate, will not enact similar or more restrictive legislation
or restrictions or interpret existing laws and regulations in a manner that could harm our business.
Health
Care Reform: There are currently a number of legislative proposals that have been proposed as health care reform in the United
States Congress. At this time, it is not clear which, if any, of these proposals will be enacted. Therefore, although one or more of
these proposals, if enacted, could have an impact on our business, we cannot predict at this time what that impact will be until there
is legislation that becomes law.
Ongoing
Investigations: Federal and state investigations and enforcement actions continue to focus on the health care industry, scrutinizing
a wide range of items such as joint venture arrangements and referral and billing practices. We believe planned activities will be substantially
in compliance with applicable legal requirements. We cannot assure you, however, that a governmental agency or a third party will not
contend that certain aspects of our business are subject to, or are not in compliance with, such laws, regulations or rules, or that
state or federal regulatory agencies or courts would interpret such laws, regulations and rules in our favor, or that future interpretations
of such laws will not require structural or organizational modifications of our business or have a negative impact on our business. Applicable
laws and regulations are very broad and complex, and, in many cases, the courts interpret them differently, making compliance difficult.
Although we try to comply with such laws, regulations and rules, a violation could result in denial of the right to conduct business,
significant fines and criminal penalties. Additionally, an increase in the complexity or substantive requirements of such laws, regulations
or rules, or reform of the structure of health care delivery systems and payment methods, could have a material adverse effect on our
business.
Employees
We
presently have one full-time employee, which is our CEO, Ohad Goren. Our CFO, Gal Peleg, dedicates 25% of his professional time to our
business and Itsik Ben Yesha, our CTO, dedicates 50% of his professional time to our business. Our CEO, CTO and CFO are employed under
separate service agreements with the Company.
ITEM
1A. RISK FACTORS
This
Annual Report on Form 10-K contains forward-looking statements that are based on current expectations, estimates, forecasts and projections
about us, our future performance, the market in which we operate, our beliefs and our management’s assumptions. In addition, other
written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Words such as “expects”,
“anticipates”, “targets”, “goals”, “projects”, “intends”, “plans”,
“believes”, “seeks”, “estimates”, variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties
and assumptions that are difficult to predict or assess. Therefore, actual outcomes and results may differ materially from what is expressed
or forecast in such forward-looking statements.
Risks
Related to Our Business
Our
Independent Registered Public Accounting Firm Has Expressed Substantial Doubt As To Our Ability To Continue As A Going Concern.
The
audited financial statements included in the Registration Statement have been prepared assuming that we will continue as a going concern
and do not include any adjustments that might result if we cease to continue as a going concern. We believe that in order to continue
as a going concern, including the costs of being a public company, we will need approximately $50,000 per year simply to cover the administrative,
legal and accounting fees. We have incurred significant losses since our inception. We have funded these losses primarily through the
sale of restricted shares of our Common Stock and the issuance of convertible notes, which have subsequently been converted into restricted
shares of Common Stock.
Based
on our financial history, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue
as a going concern. We are a development stage company that has generated no revenue.
Notwithstanding
our success in funding our business from the sale of equity and debt securities to date, there can be no assurance that we will have
adequate capital resources or be able to continue to raise equity and/or debt capital to fund planned operations or that any additional
funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by
us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some
or all of our plan of operations, which may have a material adverse effect on our business, results of operations and ability to operate
as a going concern.
The
outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our preclinical
studies and clinical trials.
Public
health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus,
SARS-CoV-2, which causes coronavirus disease 2019 (“COVID-19”), surfaced in Wuhan, China. Since then, COVID-19 has spread
to multiple countries, including Israel and the United States.
As
a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely impact
our business, preclinical studies and clinical trials, including:
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delays
or difficulties in enrolling patients in our clinical trials;
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delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
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delays
or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations and vendors along their
supply chain;
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increased
rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to
quarantine, or not accepting home health visits;
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interruption
of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended
by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly
any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;
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interruption
or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines;
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limitations
on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because
of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance
on working from home or mass transit disruptions.
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These
and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue
to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could
further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact
on our operations and financial condition and results.
As
a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. The COVID-19
outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies and clinical trials
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such
as social distancing and quarantines or lock-downs in Israel and the United States and other countries, business closures or business
disruptions and the effectiveness of actions taken in Israel and the United States and other countries to contain and treat the disease.
We
Have Limited Operating History And Face Many Of The Risks And Difficulties Frequently Encountered By Start-Up Companies.
In
January 2014, the Company acquiring certain patents pertaining to a wound healing device. The Company’s new plan of operation has
not yet generated any revenues. We have no operation history as a medical device company upon which an evaluation of the Company and
its prospects could be based. There can be no assurance that management of the Company will be successful in commercially exploiting
our wound healing device and implementing the corporate infrastructure to support its new operations so that the Company will generate
sufficient revenues to meet its expenses or to achieve or maintain profitability.
If
we are unable to raise sufficient capital as needed, we may be required to reduce the scope of our business development activities, which
could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case, you will lose
all your investment.
If
The Clinical Trial Studies Of Our Current Patented Device Does Not Produce Results Necessary To Support Regulatory Clearance Or Approval
In The United States, We Will Be Unable To Commercialize Our Device.
We
expect trial results by the end of 2022. Clinical testing may be expected to take a significant amount of time, is expensive and carries
uncertain outcomes. The initiation and completion of the trial study may be prevented, delayed, or halted for numerous reasons, including,
but not limited to, the following:
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the institutional review boards or other regulatory authorities do not approve a clinical study protocol, force us to modify a previously
approved protocol, or place a clinical study on hold;
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patients do not enroll in, or enroll at a lower rate than we expect, or do not complete a clinical study;
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patients or investigators do not comply with study protocols;
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patients do not return for post-treatment follow-up at the expected rate;
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patients experience serious or unexpected adverse side effects for a variety of reasons that may or may not be related to our product
causing a clinical trial study to be put on hold;
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sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;
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difficulties or delays associated with establishing additional clinical sites;
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third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated
schedule, or act in ways inconsistent with the investigator agreement, clinical study protocol, good clinical practices, and other FDA
and Institutional Review Board requirements;
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third-party entities do not perform data collection and analysis in a timely or accurate manner;
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regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies;
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changes in federal, state, or foreign governmental statutes, regulations or policies;
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interim results are inconclusive or unfavorable as to immediate and long-term safety or efficacy; or
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the study design is inadequate to demonstrate safety and efficacy.
Clinical
trial failure can occur at any stage of the testing. Our clinical study may produce negative or inconclusive results, and we may decide,
or regulators may require us, to conduct additional clinical and/or non-clinical testing in addition to those we have planned. Our failure
to adequately demonstrate the safety and efficacy of our device would prevent receipt of regulatory clearance or approval and, ultimately,
the commercialization of that device or indication for use. Any of these occurrences may harm our business, financial condition and prospects
significantly.
Our
Expected Revenue Will Be Generated From Our Sole Product, And Any Decline In The Future Sales Of This Product Or Failure To Gain Market
Acceptance Of This Product Will Negatively Impact Our Business.
We
expect our revenue to be derived entirely from sales of our wound healing Device for the foreseeable future. If we are unable to achieve
and maintain market acceptance of our product and do not achieve sustained positive cash flow, we will be severely constrained in our
ability to fund our operations, fulfill our business plan and be able to possibly develop and commercialize other potential products.
In addition, if we are unable to market our product as a result of a quality problem, failure to maintain or obtain regulatory approvals,
unexpected or serious complications or other unforeseen negative effects related to our product or the other factors discussed in these
risk factors, we would lose our only potential source of revenue, and our business will be materially adversely affected.
If
We Fail To Develop And Retain Our Sales Force, Our Business Could Suffer.
We
plan to develop a direct sales force. As we launch our product, assuming that we are successful in securing regulatory approval, any
efforts to increase our marketing efforts and expand into new geographies will be dependent on our ability to hire and retain, as well
as grow and develop our sales personnel. We intend to make a significant investment in recruiting and training sales representatives.
There is significant competition for sales personnel experienced in relevant medical device sales. Once hired, the training process may
be expected to be lengthy because it requires significant education for new sales representatives to achieve the level of competency
with our product and meet the expectations of potential clients. Upon completion of the training, and any previous experience in marketing
medical devices, generally, our sales representatives typically require lead time in the field to grow their network of accounts and
achieve the productivity levels we expect them to reach in any individual territory. If we are unable to attract, motivate, develop and
retain a sufficient number of qualified sales personnel, and if our sales representatives do not achieve the productivity levels we expect
them to reach, our revenue will not grow at the rate we expect and our financial performance will suffer. Also, to the extent we hire
personnel from our competitors, we may have to wait until applicable non-competition provisions have expired before deploying such personnel
in restricted territories or incur costs to relocate personnel outside of such territories, and we may be subject to allegations that
these new hires have been improperly solicited, or that they have divulged to us proprietary or other confidential information of their
former employers.
If
We Are Unable To Educate Physicians On The Safe And Effective Use Of Our Product, We May Be Unable To Achieve Our Expected Growth.
An
important part of our sales process will include the education of physicians on the safe and effective use of our wound healing device.
There is a learning process for physicians to become proficient in the use of our product and, based upon the use of our BST Device in
Europe, it typically takes several procedures for a physician to become comfortable using the device. If a physician experiences difficulty
during an initial procedure or otherwise, that physician may be less likely to continue to use our product, or to recommend it to other
physicians. It is critical to the success of our commercialization efforts to educate physicians on the proper use of the device, and
to provide them with adequate product support during training. It is important for our expected growth that these physicians advocate
for the benefits of our product in the broader marketplace. If physicians are not properly trained, they may misuse or ineffectively
use our product. This may also result in unsatisfactory patient outcomes, negative publicity or lawsuits against us, any of which could
have a material adverse effect on our business.
There
May Not Be A Wide Enough Client Base To Sustain Our Business.
The
Company’s principal business is to engage in marketing and selling its wound healing treatments with our device. The Company hopes
to sell its wound healing device treatments in numbers large enough to make its business model work for profitability, of which there
can b no assurance.
If
We Are Unable To Protect Our Intellectual Property, Our Business Will Be Negatively Affected.
The
market for medical devices is subject to frequent litigation regarding patent and other intellectual property rights. It is possible
that our device may not withstand challenges made by others or that our patents protect our rights adequately.
Our
success depends in large part on our ability to secure and maintain effective patent protection for our product in the United States
and internationally. We have acquired patents that have been granted as well as patents pending and expect to continue to file patent
applications for various aspects of our device technology. However, we face the risks that:
●
we may fail to secure necessary patents on our patents pending prior to or after obtaining regulatory clearances, thereby permitting
competitors to market competing products; and
●
our already-granted patents may be re-examined, invalidated or not extended.
If
we are unable to protect our intellectual property adequately, our business and commercial prospects will suffer.
We
May Be Accused Of Infringing Intellectual Property Rights Of Third Parties.
Other
parties may claim that our Device infringes on their proprietary rights. We may be subject to claims and legal proceedings regarding
alleged infringement by us of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result
in the expenditure of significant financial and managerial resources, legal fees, injunctions or the payment of damages. In the event
that our patents do not fully protect us, we may need to obtain licenses from third parties who allege that we have infringed their rights,
but such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms
that are favorable to us, or at all, licenses or other rights with respect to intellectual property we do not own.
We
May Face Product Liability Claims That Could Result In Costly Litigation And Significant Liabilities.
Marketing
of our device and clinical testing of our product may expose us to product liability and other tort claims. Although we intend to purchase
and maintain product liability insurance, the coverage limits of our policies may not be adequate and one or more successful claims brought
against us may have a material adverse effect on our business and results of operations. Additionally, product liability claims could
negatively affect our business reputation, adversely impacting continued product sales as well as our ability to obtain and maintain
regulatory approval for our products.
Current
Or Future Government Regulations May Add To Our Operating Costs.
We
may face unanticipated increases in operating costs because of any changes in governmental regulations related to our wound healing Device,
specifically, and/or medical devices, generally. We have no assurance that the independent clinical trials will result in favorable data
that will be accepted by the FDA. Laws and regulations may be introduced and court decisions may be rendered that materially affect the
demand for our product. Complying with new regulations and/or court decisions could increase our operating costs. Furthermore, we may
be subject to the laws of various jurisdictions where we actually conduct business. Our failure to qualify to do business in a jurisdiction
that requires us to do so could subject us to fines or penalties and could have a material adverse impact on our business and operations.
We
May Be Required To Comply With Medical Device Reporting, Or MDR, Requirements And Must Report Certain Malfunctions, Deaths And Serious
Injuries Associated With Our Device Which Can Result In Voluntary Corrective Actions, Mandatory Recall Or Agency Enforcement Actions.
Under
applicable FDA MDR regulations, medical device manufacturers are required to submit information to the FDA when they receive a report
or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction that
would likely cause or contribute to death or serious injury if the malfunction were to recur. All manufacturers placing medical devices
on the market in the European Economic Area and the United States are legally bound to report any serious or potentially serious incidents
involving devices they produce or sell to the regulatory agency, or Competent Authority, in whose jurisdiction the incident occurred.
Malfunction
of our wound healing Device could result in future voluntary corrective actions, such as recalls, including corrections, or customer
notifications, or agency action, such as inspection or enforcement actions. If malfunctions do occur, we may be unable to correct the
malfunctions adequately or prevent further malfunctions, in which case we may need to cease manufacture and distribution of the affected
products, initiate voluntary recalls, and redesign the products. Regulatory authorities may also take actions against us, such as ordering
recalls, imposing fines, or seizing the affected products. Any corrective action, whether voluntary or involuntary, will require the
dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We
May Be Subject To Federal, State And Foreign Healthcare Laws And Regulations, And A Finding Of Failure To Comply With Such Laws And Regulations
Could Have A Material Adverse Effect On Our Business.
Our
operations may become, directly and indirectly affected by various federal, state or foreign healthcare laws, including, but not limited
to, those described below. In particular, we are subject to the federal Anti-Kickback Statute, which prohibit, among other things, any
person or entity from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, in
cash or in kind, in return for or to induce the referring, ordering, leasing, purchasing or arranging for or recommending the referring,
ordering, purchasing or leasing of any good, facility, item or service, for which payment may be made, in whole or in part, under federal
healthcare programs, such as the Medicare and Medicaid programs.
We
may also become subject to the federal HIPAA statute, which, among other things, created federal criminal laws that prohibit knowingly
and willfully executing, or attempting to execute, a scheme or artifice to defraud any health care benefit program or making any materially
false, fictitious or fraudulent statements relating to health care matters.
We
may also become subject to the federal “sunshine” law, which requires us to track and report annually to the Centers for
Medicare & Medicaid Services, or CMS, information related to “payments or other transfers of value” made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and to report annually to
CMS ownership and investment interests held by physicians, as defined above, and their immediate family members in our company so long
as it is privately held.
In
addition, we are subject to the federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other
things, persons or entities from knowingly presenting, or causing to be presented, a false or fraudulent claim to, or the knowing use
of false records or statements to obtain payment from, or approval by, the federal government. Suits filed under the False Claims Act,
known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, commonly known
as “whistleblowers”, may share in any amounts paid by the entity to the government in fines or settlement. When an entity
is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the
government, plus civil penalties for each separate false claim.
Many
states have also adopted laws similar to each of the above federal laws, such as anti-kickback and false claims laws which may be broader
in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers, as well as laws that restrict
our marketing activities with physicians, and require us to report consulting and other payments to physicians. Some states mandate implementation
of compliance programs to ensure compliance with these laws. We also are subject to foreign fraud and abuse laws, which vary by country.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us
now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, exclusion
from governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely affect our
ability to operate our business and our financial results.
Our
Future Success Is Dependent, In Part, On The Performance And Continued Service Of Ohad Goren and Itsik Ben Yesha, Our Chief Executive
Officer and Chief Technology Officer.
The
Company will be dependent on its key executives, Ohad Goren and Itsik Ben Yesha, our CEO and CTO, respectively, for the foreseeable future.
The loss of the services from either one could have a material adverse effect on the operations and prospects of the Company. They are
expected to handle all aspects of our medical device business and manage our operations. Their responsibilities include developing business
arrangements, directing the development of the Company’s technology and IP, overseeing technical aspects of our business, regulations
and formulating strategies and materials to be used during our presentations and meetings. At this time, the Company does not have an
employment agreement with either Mr. Goren or Ben Yesha, though the Company may enter into such an agreement with Mr. Goren, its CEO
and Mr. Ben Yesha, its CTO, on terms and conditions usual and customary in our industry. The Company does not currently have “key
man” life insurance on neither Mr. Goren, Mr. Ben Yesha nor on Mr. Ron Weissberg, our Chairman and control shareholder.
We
Operate In A Highly Competitive Industry And Compete Against Several Large Companies Which Could Adversely Affect Our Ability to Succeed.
There
are numerous established companies that offer wound healing products including products from Kinetic Concepts, Inc. and Smith & Nephew,
which have far greater financial and other resources and far longer operating histories than we do. We are a new entry into this competitive
market and may struggle to differentiate ourselves as a viable competitor whose wound healing Device provides more value and efficacy
than the competition.
We
Are An “Emerging Growth Company” Under The Recently Enacted Jobs Act And We Cannot Be Certain If The Reduced Disclosure Requirements
Applicable To Emerging Growth Companies Will Make Our Common Stock Less Attractive To Investors.
We
qualify as an “emerging growth company” under the recently enacted JOBS Act. As a result, we are permitted to, and intend
to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, among other things, we
will not be required to:
●
have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
●
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency”;
●
obtain shareholder approval of any golden parachute payments not previously approved; and
●
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the Chief Executive’s compensation to median employee compensation.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other
words, an “Emerging Growth Company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements
may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an “Emerging Growth Company” for up to five years, or until the earliest of (i) the last day of the first fiscal
year in which our total annual gross revenues exceed $1 billion; (ii) the date that we become a “large accelerated filer”
as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that
is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii)
the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Until
such time, however, because the JOBS Act has only recently been enacted, we cannot predict whether investors will find our stock less
attractive because of the more limited disclosure requirements that we may be entitled to follow and other exemptions on which we are
relying while we are an “emerging growth company”. If some investors find our Common Stock less attractive as a result, there
may be a less active trading market for our Common Stock and our stock price may be more volatile.
Our
By-Laws Provide For Indemnification Of Our Directors And the Purchase Of D&O Insurance At Our Expense And Limit Their Liability Which
May Result In A Major Cost To Us And Hurt The Interest Of Our Shareholders Because Corporate Resources May Be Expended For The Benefit
Of Our Directors.
The
Company’s By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary damages
to the fullest extent possible under the laws of the State of Delaware or other applicable law. These provisions eliminate the liability
of directors to the Company and its stockholders for monetary damages arising out of any violation of a director of his fiduciary duty
of due care. Under Delaware law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the
director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of
law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which
the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities
laws or the recovery of damages by third parties.
Reporting
Requirements Under The Exchange Act And Compliance With The Sarbanes-Oxley Act Of 2002, Including Establishing And Maintaining Acceptable
Internal Controls Over Financial Reporting, Are Costly And May Increase Substantially.
The
rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will require
that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally,
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain
adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited
technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over
financial reporting. We expect these costs to be approximately $50,000 per year. In the event that we fail to maintain an effective system
of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports
or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share
price.
As
a public company, we may be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of
2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these
rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming
or costly and increase demand on our systems and resources, particularly after we are no longer an “Emerging Growth Company.”
The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating
results.
We
are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to
our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate
governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will
continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required for being a public
company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel,
such as a chief financial officer familiar with the obligations of public company reporting; consultants to design and implement internal
controls could be material. In addition, if and when we retain independent directors and/or additional members of senior management,
we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability
insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations
and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in
the aggregate, may also be material.
In
addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’
and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors, our board committees or as executive officers.
The
increased costs associated with operating as a public company may decrease our operating performance, and may cause us increase the prices
of our product to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention
from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.
Future
Manufacturing Of Our Product May Be Interrupted Due To International Political Situations, Natural Disasters Or Other Causes.
Once
regulatory approval is granted, we plan to manufacture our BST Device principally in Israel. Domestic situations in Israel and surrounding
countries could possibly result in production and delivery problems. We are subject to the risk that future manufacturing and delivery
of our BST Device may be interrupted as a result of natural disasters or capacity constraints with our vendors’ or suppliers’
hardware. Any such interruptions may lead to a loss of customers or distributors and, accordingly, may adversely affect our business
and results of operations.
Risks
Related to Our Common Stock
There
Is No Assurance Of A Liquid Public Market Of Our Common Stock Or That You May Be Able To Liquidate Your Investment In Our Common Stock.
At
present, our Common Stock is subject to quotation of the OTCQB market. There is only a limited, liquid public trading marketing for our
Common Stock and there can be no assurance that one will ever develop. Market liquidity will depend on the perception of our business
and any steps that our management might take to bring us to the awareness of investors. There can be given no assurance that there will
be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects
the value of the business or the value of their initial investment in our Common Stock. As a result, holders of our securities may not
find purchasers for our securities should they to decide to sell securities held by them. Consequently, our securities should be purchased
only by investors who have no need for liquidity in their investment and who can hold our securities for a prolonged period of time.
The
Market Price Of Our Common Stock May Be Volatile.
In
the event an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile, as is
the stock market in general, and the market for securities subject to quotation on OTCQB Markets in particular. Some of the factors that
may materially affect the market price of our Common Stock are beyond our control, such as changes in conditions or trends in the industry
in which we operate or sales of our Common Stock. These factors may materially adversely affect the market price of our Common Stock,
regardless of our business performance. Public stock markets have experienced extreme price and trading volume volatility. This volatility
has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance
of the specific companies. These market fluctuations may adversely affect the market price of our Common Stock.
A
Large Number Of Additional Shares Will Be Available For Resale Into The Public Market Pursuant To This Offering As Well As In The Near
Future, Which May Cause The Market Price Of Our Common Stock To Decline Significantly, Even If Our Business Performs As Expected.
Sales
of a substantial number of shares of our Common Stock in the public market pursuant to our Offerings, or the perception that additional
shares of Common Stock become available pursuant to Rule 144 promulgated by the SEC under the Act, could adversely affect the market
price of our Common Stock. As of April 30, 2021, we have 34,546,060 shares of Common Stock outstanding of which 21,065,321 shares of
Common Stock are restricted as a result of applicable securities laws. As restrictions on resale expire, the market price could drop
significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. For a more
detailed description, see “Shares Eligible for Future Sale.”
If
holders of restricted securities sell a large number of shares pursuant to Rule 144 under the Act, they could adversely affect the market
price for our Common Stock.
You
Will Experience Dilution Of Your Ownership Interest Because Of The Future Issuance Of Additional Shares Of Our Common Stock Or Our Preferred
Stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests
of our present stockholders. We are authorized to issue an aggregate of 500,000,000 shares of Common Stock, par value $0.00001 per share,
of which 34,546,060 are currently outstanding.
We
may also issue additional shares of our Common Stock or other securities that are convertible into or exercisable for Common Stock in
connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising
purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock or other securities may
have a negative impact on the market price of our Common Stock. There can be no assurance that we will not be required to issue additional
shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future
acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise
prices) below the price at which shares of our Common Stock will be quoted on the OTCQB Markets.
We
May Never Pay Any Dividends To Our Shareholders.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect
to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. The declaration and payment of
all future dividends, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend
policy at any time. Consequently, stockholders must rely on sales of their Common Stock after price appreciation, which may never occur,
as the only way to realize any future gains on their investment.
Insider
Will Continue To Have Substantial Control Over Us After This Offering and Will Be Able To Influence Corporate Matters.
Our
directors and executive officers and stockholders holding more than 5% of our Common Stock and their affiliates will beneficially own,
in the aggregate, approximately 30% of our outstanding Common Stock. As a result, if these stockholders were to choose to act together,
they would be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of
ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from
acquiring control over us. For information regarding the ownership of our outstanding stock by our executive officers and directors and
their affiliates, see “Security Ownership of Certain Beneficial Owners and Management.”
We
cannot assure you that the interests of our management team will coincide with the interests of the investors. So long as our management
team collectively controls a significant portion of our Common Stock, these individuals, or entities controlled by them, will continue
to collectively be able to strongly influence or effectively control our decisions.
Anti-Takeover
Provisions Of The Delaware General Corporation Law May Discourage Or Prevent A Change Of Control, Even If An Acquisition Would Be Beneficial
To Our Shareholders, Which Could Reduce Our Stock Price.
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations
with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate
of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to
obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including a merger,
tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board
of directors could cause the market price of our Common Stock to decline.
State
Blue Sky Registration, Potential Limitations On Resale Of Our Common Stock.
The
holders of our shares of Common Stock and those persons, who desire to purchase our Common Stock in any trading market that might develop,
should be aware that there may be state blue-sky law restrictions upon the ability of investors to resell our securities. Accordingly,
investors should consider the secondary market our securities to be a limited one.
It
is the present intention of management after the active commencement of operations in to seek coverage and publication of information
regarding the Company in an accepted publication manual, which permits a manual exemption. The manual exemption permits a security to
be distributed in a particular state without being registered if the Registrant issuing the security has a listing for that security
in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing
entry must contain (1) the names of issuer’s officers, and directors, (2) an issuer’s balance sheet, and (3) a profit and
loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore,
the manual exemption is a non-issuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling
newly issued securities.
Most
of the accepted manuals are those published in Standard and Poor’s, Moody’s Investor Service, Fitch’s Investment Service,
and Best’s Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they “recognize
securities manuals” but do not specify the recognized manuals. The following states do not have any provisions and therefore do
not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont
and Wisconsin.
Our
Common Stock Is Considered A Penny Stock, Which May Be Subject To Restrictions On Marketability, So You May Not Be Able To Sell Your
Shares.
We
may be subject now and in the future to the Penny Stock rules if our shares of Common Stock sell below $5.00 per share. Penny stocks
generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized
risk disclosure document 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 must also provide the customer with current bid and offer quotations for the penny stock, the compensation
of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally
or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction, 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. The
penny stock rules are burdensome and may reduce purchases of any Offerings and reduce the trading activity for shares of our Common Stock.
As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more
difficult to sell their securities.
The
Control Deficiencies In Our Internal Control Over Financial Reporting May Until Remedied Cause Errors in Our Financial Statements Or
Cause Our Filings With The SEC To Not Be Timely.
We
have identified control deficiencies in our internal control over financial reporting as of the evaluation done by management as of December
31, 2020, including those related to (i) absent or inadequate segregation of duties within a significant account or process, (ii) inadequate
documentation of the components of internal control, and (iii) inadequate design of information technology general and application controls
that prevent the information system from providing complete and accurate information consistent with financial reporting objectives and
current needs. If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be
errors in our financial statements that could require a restatement or our filings may not be timely made with the SEC. Based on the
work undertaken and performed by us, however, we believe the financial statements contained in our reports filed with the SEC are fairly
stated in all material respects in accordance with GAAP for each of the periods presented. We intend to implement additional corporate
governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives.
We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may
require remediation and could lead investors losing confidence in our reported financial information, which could lead to a decline in
our stock price.