ITEM 1A. RISK FACTORS.
An investment in our securities involves a high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information contained or referred to in this report, before making an investment decision with respect to our securities. If any of the following events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected. In that event, the market price of our shares could decline, and you could lose all or part of your investment.
Risks Related to the Company ’ s Business, Operations and Industry
We are facing significant liquidity risks that raise substantial doubt about our ability to continue as a going concern.
We have incurred recurring losses and experienced negative cash flows from operations since our inception, and we may continue to incur operating losses. For the fiscal year ended December 31, 2025, we had an accumulated deficit of $111,615 and negative cash flows from operating activities of approximately $8,194. We have generated minimal revenue to date, and our ability to generate recurring revenue depends on the successful commercialization of our products, which remains in the early stages of market adoption.
Our financial position raises significant liquidity concerns. Our existing capital resources may be insufficient to fund our operations for the next twelve months, and we may be unable to realize our assets or discharge our liabilities in the normal course of business. These conditions raise substantial doubt about our ability to continue as a going concern. To mitigate these risks, we are actively pursuing additional capital through equity or debt financings and implementing cost-reduction measures. However, there is no assurance that we will be able to secure such funding on favorable terms or at all. Failure to obtain additional financing would materially and adversely affect our ability to continue operations and could force us to delay, reduce, or eliminate our commercialization efforts, product development activities, or other key initiatives.
Our continued existence is dependent on our ability to raise additional capital and ultimately achieve and maintain profitable operations. Even if we are successful in raising additional funds, our expenses may exceed expectations, or we may deplete our available capital resources more quickly than anticipated. The report of our independent registered public accounting firm for the fiscal year ended December 31, 2025 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern, which may further impair our ability to raise capital and negatively impact investor confidence.
We have engaged, and may continue to engage, in strategic acquisitions or transactions, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Acquisitions involve a number of risks, including diversion of management’s attention, ability to finance the acquisition on attractive terms, failure to retain key personnel or valuable customers, legal liabilities, the need to amortize acquired intangible assets, and intellectual property ownership and infringement risks, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any additional future acquisitions may also result in the incurrence of indebtedness or the issuance of additional equity securities.
We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to governmental approval, execution, integration or underperformance relative to prior expectations. Acquisitions may not result in long-term benefits to us or we may not be able to further develop the acquired business in the manner we anticipated.
Following the completion of acquisitions, we may have to rely on the seller to provide administrative and other support, including financial reporting and internal controls, and other transition services to the acquired business for a period of time. There can be no assurance that the seller will do so in a manner that is acceptable to us.
We may not realize the anticipated benefits of past or future acquisitions and integration of these acquisitions may disrupt our business.
On April 30, 2025, we completed the acquisition of Evoke Neuroscience Inc., which resulted in our acquisition of the Evoke business and a significant expansion of our business operations and headcount. In the future, we may acquire additional companies, project pipelines, products, or technologies, or enter into joint ventures or other strategic initiatives. Our ability as an organization to integrate acquisitions is unproven. We may not realize the anticipated benefits of our acquisitions or any other future acquisition or the acquisition may be viewed negatively by customers, financial markets or investors.
Any acquisition has numerous risks, including, but not limited to, the following:
difficulty in assimilating the operations and personnel of the acquired company;
difficulty in effectively integrating the acquired technologies or products with current products and technologies;
difficulty in maintaining controls, procedures and policies during the transition and integration;
disruption of ongoing business and distraction of management and employees from other opportunities and challenges due to integration issues;
difficulty integrating the acquired company’s accounting, management information and other administrative systems;
inability to retain key technical and managerial personnel of the acquired business;
inability to retain key customers, vendors, and other business partners of the acquired business;
inability to achieve the financial and strategic goals for the acquired and combined businesses;
incurring acquisition -related costs or amortization costs for acquired intangible assets that could impact operating results;
failure of due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things;
inability to assert that internal controls over financial reporting are effective; and
inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions.
We are subject to operating risks, including excess or constrained capacity and operational inefficiencies, which could adversely affect our results of operations.
We are subject to operating risks, including excess or constrained capacity and pressure on our internal systems and personnel. In order to manage current and anticipated future operations effectively, we must continually implement and improve our operational, financial and management information systems, hire, train, motivate, manage and retain employees. We may be unable to balance near-term efforts to meet existing demand with future customer demand, including adding personnel, creating scalable, secure and robust systems and operations, and automating processes needed for long term efficiencies. Any such failure could have a material impact on our business, operations and prospects.
Our products and information technology systems are critical to our business. Issues with product development or enhancements, IT system integration, implementation, updates and upgrades could disrupt our operations and have a material impact on our business and operating results.
We rely on the efficient, uninterrupted and secure operation of our IT systems and are dependent on key third-party software embedded in our products and IT systems as well as third-party hosted IT systems to support our operations. All software and IT systems are vulnerable to damage, cyber-attacks or interruption from a variety of sources. To effectively manage and improve our operations, our IT systems and applications require an ongoing commitment of significant expenditures and resources to maintain, protect, upgrade, enhance and restore existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving industry and regulatory standards, increasingly sophisticated cyber threats, and changing consumer preferences. Failure to adequately protect and maintain the integrity of our products and IT systems may result in a material effect on our financial position, results of operations and cash flows.
We plan to continuously upgrade and issue new releases of our products and customer-facing software applications, upon which our operations depend. Software applications and products containing software frequently contain errors or defects, especially when first introduced or when new versions are released. Additionally, any third-party software integrated into or interoperable with our products and services will routinely reach end of life, and as a consequence, may be exposed to additional vulnerabilities, including increased security risks, errors and malfunctions that may be irreparable or difficult to repair. The discovery of a defect, error or security vulnerability in our products, software applications or IT systems, incompatibility with future customers’ computer operating systems and hardware configurations with a new release or upgraded version or the failure of our products or primary IT systems may cause consequences, including: or of revenues, significant remediation costs, in market acceptance, of data, disclosure of financial, health or other personal information of any customers or patients, product , to our reputation, or increased service costs, any of which could have a material effect on our business, financial condition or results of our operations and the operations of our potential customers or our business partners.
Our operations and financial performance depend on global and regional economic conditions. Inflation, fluctuations in currency exchange rates, changes in consumer confidence and demand, tariffs and trade policy changes, and weakness in general economic conditions and threats, or actual recessions, could materially affect our business, results of operations, and financial condition.
Macroeconomic conditions impact consumer confidence and discretionary spending, which could adversely affect demand for any products we bring to market. Consumer spending habits are affected by, among other things, inflation, fluctuations in currency exchange rates, weakness in general economic conditions, threats or actual recessions, pandemics, wars and military actions, levels of employment, wages, debt obligations, discretionary income, interest rates, volatility in capital, and consumer confidence and perceptions of current and future economic conditions. Changes and uncertainty can, among other things, reduce or shift spending away from treatments and procedures to address mental illness and cognitive disorders, and could drive patients and clinicians towards other options in the marketplace that may cost less than our products, reduce patient traffic in clinicians’ offices or reduce demand for services to treat mental illness and cognitive disorder generally. The recent declines in, or uncertain economic outlooks for, the U.S., European and certain other international economies has and may continue to adversely affect consumer and healthcare practice spending. The increase in the cost of fuel and energy, food and other essential items along with elevated interest rates could reduce consumers’ disposable income, resulting in less discretionary spending for products like ours. Decreases in disposable income and discretionary spending or change in consumer confidence and spending habits may affect our revenues and operating results.
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In addition, tariffs and changes in trade policy — including new or increased tariffs imposed by the U.S. or other governments on imported goods, components, or materials — could increase our costs of goods or disrupt our supply chain, and may trigger retaliatory measures by foreign governments that adversely affect our ability to sell products in international markets. Tariff-related cost increases may be difficult to pass on to customers or healthcare providers, which could compress our margins. The current uncertainty surrounding trade policy, including the scope, duration, and potential escalation of existing and proposed tariffs, makes it difficult to predict their ultimate impact on our business. Depending on the markets in which we operate and the countries from which we or our suppliers source materials or components, tariff-driven cost increases could be material.
Inflation continues to adversely impact spending and trade activities and we are unable to predict the impacts of higher inflation on global and regional economies. Higher inflation has also increased domestic and international shipping costs, tariffs, raw material prices, and labor rates, which could adversely impact the costs of producing, procuring and shipping any products we bring to market. If similar trends continue, our ability to recover these cost increases through price increases may have limited effectiveness, resulting in downward pressure on our operating results. Attempts to offset cost increases with price increases could reduce sales, increase customer dissatisfaction or otherwise harm our reputation. Further, we are unable to predict the impact of efforts by central banks and federal, state and local governments to combat elevated levels of inflation. If their efforts to reduce inflation are too aggressive, they may lead to a recession. Alternatively, if they are insufficient or are not sustained long enough to lower inflation to more acceptable levels, consumer spending may be impacted for a period of time. Any of these events could materially affect our business and operating results.
Our business could be impacted by political events, trade and other international disputes, war, and terrorism, including the military conflict between Russia and Ukraine.
Political events, trade and other international disputes, war, and terrorism could harm or disrupt international commerce and the global economy and could have a material effect on our business as well as our potential customers, suppliers, contract manufacturers, distributors, and other business partners.
Political events, trade and other international disputes, wars, and terrorism can lead to unexpected tariffs or trade restrictions, which could adversely impact our business. Once we begin marketing our products, these increased costs could adversely impact our gross margin and make our products less competitive or reduce demand. Countries could also adopt other measures, such as controls on imports or exports of goods, technology or data, that could adversely impact our operations and supply chain and limit our ability to offer products and services. These measures could require us to take various actions, including changing suppliers or restructuring business relationships. Complying with new or changed trade restrictions is expensive, time-consuming and disruptive to our operations. Such restrictions can be announced with little or no advance notice and we may be unable to effectively mitigate the adverse impacts of such measures. If disputes and conflicts in the future, actions by governments in response could be significantly more and restrictive and could materially affect our business.
Political unrest, threats, tensions, actions and responses to any social, economic, business, geopolitical, military, terrorism, or acts of war involving key commercial, development or manufacturing markets such as China, Mexico, Israel, Europe, or other countries or regions could materially impact any international operations we undertake. For example, our employees in Israel could be obligated to perform annual reserve duty in the Israeli military and be called for additional active duty under emergency circumstances. If any of these events or conditions occur, the impact on us, our employees and potential customers is uncertain, particularly if emergency circumstances, armed conflicts or an escalation in political instability or violence disrupts our product development, data or information exchange, payroll or banking operations, product or materials shipping by us or our suppliers and other unanticipated business disruptions, interruptions and limitations in telecommunication services or critical systems or applications reliant on a and uninterrupted communications infrastructure.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. In response to the military conflict, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia, including certain Russian citizens and enterprises, and the continuation of the conflict may trigger additional economic and other sanctions. The potential impacts of the conflict and related sanctions could include supply chain and logistics disruptions, macro financial impacts resulting from the exclusion of Russian financial institutions from the global banking system, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy and heightened cybersecurity threats. We have no way to predict the progress or outcome of the in Ukraine or the reactions by governments, businesses or consumers. A , intensified military activities or more extensive sanctions impacting the region and the resulting economic impact could have a material effect on our business, results of operations, financial condition, liquidity, growth prospects and business outlook.
We conduct certain of our operations in Israel. Conditions in Israel, including the attack by Hamas and other terrorist organizations from the Gaza Strip and Israel ’ s war against them, may affect our operations.
We currently have five full-time employees, who are located in and/or reside in Israel. As a result, our business and operations are directly affected by economic, political, geopolitical and military conditions in Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries and terrorist organizations active in the region. These conflicts have involved missile strikes, hostile infiltrations and terrorism against civilian targets in various parts of Israel, which have negatively affected business conditions in Israel.
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In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Moreover, the clash between Israel and Hezbollah in Lebanon, may escalate in the future into a greater regional conflict.
The active military conflict involving Iran, Israel and the United States poses immediate and material risks to our operations, employees, financial condition and business.
The conflict between Iran, Israel and the United States has escalated into an active military war with significant regional and global consequences. On February 28, 2026, the United States and Israel launched coordinated strikes against Iran targeting its nuclear infrastructure, military assets and government leadership. Iran has retaliated with missile and drone attacks against targets in Israel, U.S. military bases across the region, and civilian and commercial infrastructure across multiple Gulf states. The conflict has spread across at least a dozen countries, resulting in the closure of the Strait of Hormuz — the world's major oil artery — and has caused significant casualties throughout the region.
We conduct certain of our operations in Israel and have full-time employees who are located in and/or reside in Israel. The active and expanding nature of this conflict directly heightens the risk to our personnel and operations. Israeli cities, including Tel Aviv, have been targeted by Iranian missile and drone barrages, and the conflict has simultaneously expanded into Lebanon, with Hezbollah launching attacks and Israel conducting military operations there as well. Armed conflicts or heightened security conditions may result in employee absences, evacuation or relocation of personnel, interruptions to communications or transportation infrastructure, or other operational disruptions that could materially affect our ability to conduct business activities in Israel. The conflict has materially disrupted the global economy and financial markets. The war has pushed oil prices sharply higher, disrupted shipping through the Strait of Hormuz and displaced millions of civilians across the region. Broader economic forecasts of inflationary pressures and global growth, and a near-total of tanker traffic in the Strait of Hormuz has the supply of fuel and essential commodities, global food security. These developments could lead to sustained in financial markets, increased costs of capital, supply chain , and reduced investor confidence, each of which could affect our financial condition and access to capital markets.
Iran has declared U.S. financial institutions and other technology and multinational companies operating in the Middle East as justified targets. This declaration meaningfully increases our exposure to cybersecurity threats and potential disruptions to our technology infrastructure and operations. We may face increased costs associated with protecting our systems, personnel and data, and we cannot guarantee that our defensive measures will be sufficient to prevent a material cybersecurity incident.
The conflict also carries significant sanctions, export control and regulatory risk. Expanded U.S. or allied sanctions regimes targeting Iran and its proxies, changes in government policy, and evolving export control restrictions on technology companies could alter the regulatory environment in which we operate, including with respect to our activities involving our Israeli operations and any technology developed or deployed in the region.
There is no certainty as to the duration, geographic scope, or ultimate resolution of the conflict. The failure of diplomatic negotiations and the current military trajectory suggest a prolonged conflict is possible, with an uncertain post-conflict political and economic framework. Any continuation or further escalation of hostilities — including the potential involvement of additional state or non-state actors — could materially and adversely affect our operations, personnel safety, financial condition and results of operations in ways that are difficult to predict or quantify at this time.
Any hostilities involving Israel could adversely affect our operations and results of operations. Shelter-in-place and work-from-home measures, government-imposed restrictions on movement and travel and other precautions taken to address the ongoing conflict may temporarily disrupt our employees ’ ability to effectively perform their daily tasks.
The Israel Defense Force (the “IDF”), the national military of Israel, is a conscripted military service, subject to certain exceptions. Several of our employees are subject to military service in the IDF and have been and may be called to serve. Currently, all male adult citizens and permanent residents of Israel under the age of 40 (or older, depending on their position with the Israeli Defense Forces reserves), unless exempt, are obligated to perform military reserve duty annually and are subject to being called to active duty at any time under emergency circumstances. It is possible that there will be further or longer military reserve duty call-ups in the future, which may affect our business due to a shortage of skilled labor and loss of institutional knowledge, and necessary mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, for example, which may have unintended negative effects and adversely impact our results of operations, liquidity or cash flows.
Also, in the event of sustained military conflict, civil unrest, or other disruptive events in Israel, we could face challenges in maintaining normal business operations or communicating with employees in the region. Our ability to recruit and retain talent locally could also be affected. Moreover, government-imposed restrictions, transportation shutdowns, or damage to infrastructure may inhibit our ability to conduct business activities.
While our facilities have not been damaged during the current war, the hostilities with Hamas, Hezbollah, Iran and its proxies and others have caused and may continue to cause damage to private and public facilities, infrastructure, utilities, and telecommunication networks, and potentially disrupting our operations and supply chains. In addition, Israeli organizations, government agencies and companies have been subject to extensive cyber attacks. This could lead to increased costs, risks to employee safety, and challenges to business continuity, with potential financial losses.
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business.
Our operations may be impacted by natural disaster and may adversely impact our business and operating results as well as those of our potential customers and suppliers.
Natural disasters and other extreme weather events may impact us and our potential customers, as well as suppliers critical to our operations. Natural disasters include earthquakes, tsunamis, floods, droughts, hurricanes, wildfires, and other extreme weather conditions that can cause deaths, injuries, and critical health crises, power outages, restrictions and shortages of food, water, shelter, and medical supplies, telecommunications failures, materials scarcity, price volatility and other ramifications.
The frequency and severity of such events can vary over time and by region. Regardless of their cause, natural disasters and extreme weather may pose ongoing operational and financial risks to us and others within our supply chain. These events can lead to facility shutdowns, shipping and logistics disruptions, increased insurance or operating costs, and potential loss of revenue.
In addition, changes in the broader economic environment due to environmental factors may affect the supply, demand, or availability of energy and other critical resources used in our operations. Any of these factors could have a material adverse effect on our business, financial condition, or results of operations.
Risks Related to our Software Platform
Our operations depend in part on third-party software platforms and artificial intelligence services, and disruptions to those services, including interruptions resulting from government actions or policy decisions, could adversely affect our business.
We rely on various third-party software tools, cloud infrastructure providers and artificial intelligence platforms to support our research, development, and operational activities. These services may be provided by large technology companies or emerging AI providers. Our ability to access and use such services may be affected by technical outages, service interruptions, contractual disputes, regulatory actions, or government policy decisions affecting technology providers.
For example, government actions or policy decisions affecting AI providers or technology supply chains may result in service interruptions, restricted access, or changes to the availability of certain platforms. Recent developments have demonstrated that government determinations regarding technology supply chain risks can lead to restrictions on the use of certain AI providers in government or commercial environments.
If any of the third-party services on which we rely were to become unavailable, experience prolonged outages, impose usage restrictions, significantly increase pricing, or otherwise change their service terms, we may experience operational disruptions, delays in product development, increased costs, or reduced efficiency. Although we may seek alternative providers where possible, transitioning to substitute platforms could require significant time, cost and technical effort.
Any interruption or limitation in our access to critical software or AI services could adversely affect our operations, research and development activities, and overall business.
If we are not successful in enhancing awareness of our products, driving adoption across our current target markets and expanding the population of eligible patients, our sales, business, financial condition and results of operations will be negatively affected.
Our business currently depends primarily on our ability to successfully market our products, which involves successfully executing our commercialization program, increasing adoption of and driving utilization our products by clinicians, in the United States. We continue to increase awareness of our products, as well as grow the number of clinicians that utilize our products, but there can be no assurance that we will succeed.
Our commercial success will continue to depend on a number of factors, including the following:
the actual and perceived effectiveness and clinical benefit, of our products;
the prevalence and severity of any adverse patient events involving our products;
our ability to provide earlier awareness of and education about our products to patients and clinicians;
the degree to which clinicians and patients adopt our products;
the availability, relative cost and perceived advantages and disadvantages of alternative technologies or treatment methods for cognitive disorders;
the results of future clinical and other studies relating to the health, economic or other benefits of our products;
whether key thought leaders in the medical community accept that our future clinical utility is sufficiently meaningful to influence their decision to adopt our products;
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the extent to which we are successful in educating clinicians and patients about the benefits of our products;
our reputation among clinicians and patients;
our ability to predict product performance;
the strength of our marketing and distribution infrastructure, including our ability to drive adoption and utilization of our products;
our ability to obtain, maintain, protect, enforce and defend our intellectual property rights, including those covering our products;
our ability to maintain compliance with all legal and regulatory requirements, including those applicable to our products; and
our ability to continue to attract and retain key talent.
If we fail to successfully initiate our broad commercialization program, market and sell our products cost-effectively, our sales, business, financial condition and results of operations will be negatively affected.
Our commercial success will depend in large part on the future adoption of our products into patient work streams in clinics. We cannot predict how quickly, if at all, clinicians and patients will adopt our product. Moreover, we cannot predict how quickly, if at all, those currently living with mental illness or cognitive disorders but who are not being treated will seek treatment. Our ability to grow sales of our products and drive market acceptance will depend on successfully educating clinicians and patients of the relative benefits of our products. If we are unable to successfully drive interest in our products, our business, financial condition and results of operations would be harmed.
We may be unable to compete successfully with competitive technologies, which could harm our sales, business, financial condition and results of operations.
Our industry is competitive and has been evolving rapidly. Our current customer base includes neurology and psychiatric clinics in the United States.
We will face competition in the market for our products from competing technologies, and we expect competition from new companies that may enter the market or introduce new technologies in the future. Third-party payors may encourage the use of competitors’ products due to lower costs of competing products or alternatives. Additionally, treating neurologists may promote the use of other competitors’ products or alternative therapies.
Our current and future competitors may include large, well-capitalized companies with significant market share and resources. They may have more established sales and marketing programs than we do and have greater name recognition. In addition to competing for market share, competitors may develop or acquire patents or other rights that may limit our ability to compete.
We believe that the competitive advantages of our products will be important factors in our future success. Our continued success depends on, among other things, our ability to:
successfully scale our commercialization program to target clinicians (i.e. neurologists in the United States);
drive awareness to increase the number of mental illness and cognitive impairment patients referred to target clinicians, namely neurologists in the United States;
attract and retain skilled research, development, sales, marketing and clinical personnel;
continue to innovate in order to improve our software platform and enhance the patient and provider experience;
adequately predict product performance;
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obtain and maintain regulatory clearances and approvals, including for expanded indications;
cost-effectively market and sell our products;
obtain, maintain, protect, enforce and defend our intellectual property rights and operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others; and
acquire products or technologies complementary to or necessary for our business.
The medical device industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. There can be no assurance that other companies or institutions will not succeed in developing or marketing devices and products that are more effective than ours or that would render our products obsolete or noncompetitive.
Patient and product variability may produce misleading report results
Misled clinical decision due to incorrect score results is a known risk and is continually mitigated. EEG is subject to external “noise” or artifact that contaminates waveforms such as Electrical grid; nearby medical/other devices which cause interference in frequencies near EEG frequencies., or excessive patient movement. Artifact-free data cannot always be guaranteed. This variability may lead to customer dissatisfaction which could harm our sales, business, financial condition, and results of operations.
Use of our platform requires appropriate training and inadequate training may lead to negative clinician experiences, which could harm our business, financial condition, and results of operations.
The successful use of our products depends in part on the training and skill of the clinician performing EEG recording and reading our reports. Clinicians could experience difficulty interpreting the results of our reports. Moreover, clinicians rely on their previous medical training and experience when recommending or utilizing our software platform, and we cannot guarantee that all clinicians will have the necessary skills to properly utilize the platform. We cannot be certain that clinicians that will use our platform will have received sufficient training, and clinicians who have not received adequate training may nonetheless attempt to use our platform with their patients. If clinicians utilize our platform incorrectly, or without adhering to or completing all relevant training, their patient outcomes may not be consistent with the outcomes achieved in our research studies and any future clinical studies. Adverse safety outcomes that arise from improper or incorrect use of our software platform may negatively impact the perception of patient benefit and the safety of our software platform, notwithstanding results from our research studies and any future clinical studies. These results could limit adoption of our platform, which would our sales, business, financial condition, and results of operations.
We are highly dependent on our senior management team and key personnel, and our business could be harmed if we are unable to attract and retain personnel necessary for our success.
We are highly dependent on our senior management and key personnel. Our success will depend on our ability to retain senior management and to attract and retain qualified personnel in the future, including sales and marketing professionals, engineers, scientists, data science specialists and other highly skilled personnel and to integrate current and additional personnel in all departments.
Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms, or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have issued stock options that vest over time, restricted share units subject to vesting conditions, and certain performance warrants. The value to employees of stock options that vest over time may be significantly affected by fluctuations in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management and other key personnel may terminate their employment with us on short notice. Our employment arrangements with our employees provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We also do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees.
As we scale, the commercialization program for our platform, expand our product offerings in the future and increase our future marketing efforts, we will need to build and expand the reach of our marketing and sales networks. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled employees with significant technical knowledge in various areas. An inability to attract, hire, train and retain employees will harm our sales, business, financial condition, and results of operations.
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We expect to increase the size of our organization in the future, and we may experience difficulties in managing the operational elements or timing of this growth. If we are unable to manage or appropriately time the anticipated growth of our business, our future revenue and operating results may be harmed.
As of the date of this report, we have 17 full time employees. As our sales and marketing strategies evolve and as we launch commercialization of our software platform, we may need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
identifying, recruiting, integrating, maintaining and motivating additional employees;
managing our internal development efforts effectively, while complying with our contractual obligations to contractors and other third parties; and
improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to successfully market and sell our software platform will depend, in part, on our ability to effectively manage or time any future growth, and our management may also have to divert a disproportionate amount of attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
As demand for our platform increases in the future, we will need to expand customer service, billing and systems processes and enhance our internal quality assurance program. We cannot be certain that any increases in scale, related improvements and quality assurance will be successfully implemented or that appropriate personnel will be available to facilitate the growth of our business. If we encounter difficulty meeting market demand, quality standards or clinician expectations, our reputation will be harmed and our business will suffer. Additionally, additional growth may result in higher fixed costs and may slow our ability to reduce costs in the face of a sudden decline in demand for our products.
We may not be able to achieve or maintain satisfactory pricing and margins for our products, which could harm our business and results of operations.
The medical device industry has a history of price competition, and we can give no assurance that we will be able to maintain satisfactory prices for our products or any future products at competitive levels. The pricing of our products could be impacted by several factors, including pressure to reduce prices by our customers due to a decline in the amount that third-party payors reimburse for EEG tests for clinicians utilizing our products. If we are forced to lower or are unable to increase the price we charge for our products, our gross margins will decrease, which will harm our ability to invest in and grow our business. If we are unable to maintain our prices, or if our costs increase and we are unable to offset such increase with an increase in our prices, our margins could erode, which could harm our business and results of operations.
Future sales of our products may depend on healthcare providers ’ or patients ’ ability to obtain reimbursement from third-party payors, such as insurance carriers.
Future sales of our products may depend on healthcare providers’ or patients’ ability to obtain reimbursement from third-party payors, such as insurance carriers. Where such insurance or third-party reimbursement becomes available in the future, any reduction in insurance or other third-party payor reimbursement for our products may cause negative price pressure, which would reduce our revenues. Without a corresponding reduction in the cost to produce such products, the result would be a reduction in our overall gross profit. Similarly, any increase in the cost of such products would reduce our overall gross profit unless there was a corresponding increase in third-party payor reimbursement. Failure by our patients or healthcare provider customers to obtain or maintain coverage or to secure adequate reimbursement for our treatment by third-party payors could have an adverse effect on our business, results of operations, and financial condition.
Our results of operations may be harmed if we are unable to accurately forecast clinician demand for our products or any future products.
Our ability to accurately forecast demand for our products or our future our products could be negatively affected by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, our inability to forecast the lifecycle of our products, an increase or decrease in customer demand for our products or for competitor products, our failure to accurately forecast customer adoption of new products, unanticipated changes in general market conditions or regulatory matters and weakening of economic conditions or consumer confidence in future economic conditions. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand, which may negatively affect our business, financial condition, and results of operations.
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Adoption of our products depends on positive clinical data as well as clinician acceptance of the data and our products, and negative clinical data or perceptions among these clinicians would harm our sales, business, financial condition, and results of operations.
The rate of adoption and sales of our products is heavily influenced by clinical data. Although we have positive research data from our publications, there can be no assurance that future clinical studies, including those to demonstrate the efficacy of our current products or future products in current target patient populations and those to support label retention and expansion for our products, will demonstrate clinical utility and effectiveness. Unfavorable or inconsistent clinical data from future clinical studies conducted by us, our competitors, or third parties, or the negative interpretation of our clinical data internally and externally, including by customers, competitors, patients, and regulators could harm our business, financial condition, and results of operations.
The rate of adoption and sales of our products are also influenced by clinician perceptions. Negative perceptions of our products by clinicians, including due to negative clinical data, could result in decreased adoption or use of our products, which would harm our business, financial condition, and results of operations. Further, if we are not able to attain strong working relationships with clinicians and receive their advice and input, the marketing of our products could suffer, which could harm our business, financial condition and results of operations.
Our future success also depends upon patients having an experience with our products that meets their expectations in order to increase clinician demand for our products as a result of positive feedback and word-of-mouth. Patients may be dissatisfied if their expectations of the products are not met or if the performing clinicians are not adequately trained on the use of our products. If the results of our products do not meet the expectations of the patient, it could discourage the patient and/or their healthcare provider from continuing to use our device or referring our products to others. Dissatisfied patients may express negative opinions through social media, advocacy, or other publicity. Any failure to meet patient expectations and any resulting negative publicity could harm our reputation and future sales.
Risks Related to the Integration of the Evoke and Firefly Businesses
The integration of the Evoke and Firefly businesses may be complex, time-consuming and costly, and we may not realize the anticipated benefits of the combination. We are in the process of integrating the operations, products, personnel, technology platforms, databases and regulatory frameworks of the Evoke and Firefly businesses. The integration efforts will be completed successfully or on the anticipated timeline, or that we will achieve the expected strategic, operational or financial benefits of the combination. Integration of product platforms and databases may require additional development work, validation, testing and, in certain cases, regulatory review or new regulatory submissions. Any delays in product harmonization, data migration, system interoperability, or regulatory approvals could adversely affect our ability to commercialize integrated solutions, expand our customer base or realize anticipated synergies. The integration process may also result in increased expenses, diversion of management attention, disruption to our ongoing operations or difficulties in retaining customers and key employees. If we fail to effectively integrate the Evoke and Firefly businesses, our business, financial condition and results of operations could materially affected.
We may acquire businesses or products, or form strategic alliances, in the future, and may not realize the benefits of such acquisitions.
We may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with its existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing, and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent it from realizing our expected benefits or enhancing our business. There is no assurance that, following any such acquisition, we will achieve the synergies expected to justify the transaction, which could result in a material adverse effect on our business and prospects.
Risks Related to Legal, Regulatory and Compliance Matters
Complying with regulations enforced by FDA and other regulatory authorities is expensive and time consuming, and failure to comply could result in substantial penalties.
Our current and potentially future products are considered medical devices and, accordingly, are subject to rigorous regulation by government agencies in the U.S. and other countries in which we intend to sell our products. Compliance with these rigorous regulations will affect capital expenditures, earnings and the competitive position of the Company. These regulations vary from country to country but cover, among other things, the following activities with respect to medical devices:
design, development and manufacturing;
testing, labeling, content and language of instructions for use and storage;
product storage and safety;
marketing, sales and distribution;
pre-market clearance and approval;
record keeping procedures;
advertising and promotion;
recalls and field safety corrective actions;
post-market surveillance;
post-market approval studies; and
product import and export.
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The regulations to which we are subject are complex. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs, or lower than anticipated sales. Our failure to comply with applicable regulatory requirements could result in enforcement action by FDA or state agencies, which may include any of the following sanctions:
warning letters, fines, injunctions, consent decrees, and civil penalties;
repair, replacement, refunds, recall, or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or modifications to existing products;
withdrawing clearance or pre-market approvals that have already been granted; and
criminal prosecution.
If any of these events were to occur, they could harm our business.
We may not receive the necessary authorizations to market any future new products, and any failure to timely do so may adversely affect our ability to grow our business.
Before we can sell a new medical device in the U.S., or market a new use of, new claim for, or significant modification to a legally marketed device, we must first obtain either FDA 510(k) clearance or approval, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the applicant must submit a premarket notification to FDA under Section 510(k) of the FD&C Act, and FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” 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, not raise different questions of safety or effectiveness than the predicate device, and be as safe and as effective as the predicate device. The 510(k) clearance process can be expensive and uncertain and typically takes from three to 12 months, but may last significantly longer. Clinical data may be required in connection with an application for 510(k) clearance. Furthermore, even if we are granted regulatory clearances or approvals, they may include limitations on the indications for use or intended uses of the device, which may limit the market for the device.
Our Evoke System and BNA Platform are Class II medical devices, which were cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process.
FDA can delay, limit, or deny 510(k) clearance, or other approval or reclassification, of a device for many reasons, including:
we may be unable to demonstrate to FDA’s satisfaction that the products or modifications are substantially equivalent to a proposed predicate device or safe and effective for their intended uses;
we may be unable to demonstrate that the clinical and other benefits of the device outweigh the risks; and
the applicable regulatory authority may identify deficiencies in our submissions or in the facilities or processes of our third party contract manufacturers.
Any delay or failure to obtain necessary regulatory clearances or approvals could harm our business. For example, if we decide to market our products for a broader or additional indication(s) for use and/or make any material modifications to any element of the device and/or the manufacturing or distribution thereof in the future, an additional 510(k) submission, and FDA clearance thereof, will be required prior to making any promotional communications expressly or impliedly claiming that the device may be used for such indication(s) and/or prior to making such modification, respectively.
In addition, FDA may change its policies, adopt additional regulations, revise existing regulations, or take other actions, or Congress may enact different or additional statutory requirements, which may prevent or delay clearance of our future products under development or impact our ability to modify our currently marketed products on a timely basis. Such policy, statutory, or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current marketing authorizations.
We may also need to obtain regulatory approval in other foreign jurisdictions in which we may plan to market and sell our products. The time required to obtain registrations or approvals, if required by other countries, may be longer than that required for FDA clearance, and requirements for such registrations, clearances, or approvals may significantly differ from FDA requirements. If we modify our products, we may need to apply for additional regulatory approvals before we are permitted to sell the modified product. In addition, we may not continue to meet the quality and safety standards required to maintain the authorizations that we have received.
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Failure to comply with these rules, regulations, self-regulatory codes, circulars, and orders could result in significant civil and criminal penalties and costs and could have a material adverse impact on our business. Also, these regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that could require us to make changes in our operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition, many of these laws are vague or indefinite and have not been interpreted by the courts and have been subject to frequent modification and varied interpretation by prosecutorial and regulatory authorities, increasing compliance risks.
Certain modifications to our products may require new 510(k) clearance or other marketing authorizations.
Once a medical device is permitted to be legally marketed in the U.S. pursuant to a 510(k) clearance, a medical device developer may be required to notify FDA of certain modifications to the device. Medical device developers determine in the first instance whether a change to a product requires a new premarket submission, but FDA may review any such decision.
While our products have received 510(k) clearance, we may in the future apply for 510(k) clearance for updated components, which must, then, be found by the FDA to be substantially equivalent to the existing cleared product and, thus, may not be lawfully marketed in the U.S. until FDA make a substantial equivalence determination and issues the requisite 510(k) clearance for the updated product. Although the development of our products have been carefully monitored and documented by professionals who are experienced in the FDA clearance process, there is no assurance that the FDA will agree that an updated component of our product is substantially equivalent to the cleared product and allow the updated product to be marketed in the United States. The FDA may determine that the device is not substantially equivalent and require a premarket approval (“PMA”) or, more likely, a de novo reclassification, and/or require further information, such as additional test data, including data from clinical studies, before it is able to make a determination regarding substantial equivalence. By requesting additional information, the FDA can delay market introduction of an updated product. Delays in receipt of or failure to receive any necessary 510(k) clearance, de novo classification, or PMA, or the imposition of stringent restrictions for our products, could have a material effect on our business, results of operations and financial condition.
In the future, we may make other modifications to our products, and determine, based on our review of the applicable FDA regulations and guidance, that in certain instances new 510(k) clearances or other premarket submissions are not required. If FDA disagrees with our determinations, we may be subject to a wide range of enforcement actions, including, for example, a warning letter, among other consequences, after which we will likely have to cease marketing the applicable modified product and/or to recall distributed units of such modified product until we obtain the requisite clearance or approval.
Our acquisition of Evoke increases our exposure to 510(k) regulatory risks due to the expansion of our medical device portfolio.
With our acquisition of Evoke, we have expanded our product portfolio to include additional medical devices that are subject to regulation by the FDA under the 510(k) premarket notification process. As a result, we are now responsible for ensuring ongoing regulatory compliance, post-market surveillance, and reporting obligations for multiple Class II medical devices, including both our BNA Platform and the products acquired from Evoke. This expansion increases our exposure to FDA 510(k) regulatory risks in several ways. Each product line may have unique technical characteristics, intended uses, and regulatory histories, which increases the complexity of our compliance management and the likelihood of regulatory scrutiny. Any compliance issue, adverse event, or regulatory deficiency associated with any product in our expanded portfolio could trigger FDA enforcement actions, including warning letters, product recalls, or withdrawal of marketing clearance, any of which could materially and adversely affect our business, financial condition, and results of operations. Furthermore, modifications to any of the acquired products, or efforts to expand their indications for use, may require new 510(k) submissions, increasing the risk of delays, , or additional data requirements from the FDA. The integration of Evoke’s regulatory processes and quality systems into our existing compliance infrastructure may also present , and any gaps or in Evoke’s historical compliance could us to legacy risks or require remediation efforts. As a result, the addition of Evoke’s products to our portfolio has heightened our overall risk profile with respect to FDA 510(k) regulatory compliance, and any to effectively manage these increased risks could have a material effect on our ability to commercialize our products and our strategic objectives.
Ongoing changes in healthcare regulation could negatively affect our revenues, business and financial condition.
The United States healthcare system has been continually evolving at the federal and state level due to comprehensive reforms relating to the payment for, the availability of and reimbursement for healthcare services. Key reforms have ranged from fundamentally changing federal and state healthcare reimbursement programs, including providing comprehensive healthcare coverage to the public under government-funded programs, to minor modifications to existing programs, and many have been challenged (with some being overturned or modified) along the way. One example, among countless others, is the Patient Protection and Affordable Care Act (the “Affordable Care Act”), which was the most significant federal healthcare reform law enacted in the U.S. in recent history. The Affordable Care Act has undergone substantial challenges and changes since its enactment in 2010, and numerous other federal healthcare reform legislation, executive orders, and judicial rulings have been implemented in the years since, most of which have been or are aimed at lowering healthcare costs in the U.S. To the extent any such reform measures or any future initiatives reduce reimbursement or coverage eligibility or any amounts or funds available (such as by reductions in reimbursement to our healthcare provider customers) for our Systems and/or any future products we may market in the U.S. (if any), our business may be adversely affected.
Healthcare reform initiatives will continue to be proposed and may reduce healthcare related funding. It is impossible to predict the ultimate content and timing of any healthcare reform legislation and its resulting impact on us. If significant reforms are made to the healthcare system in the United States, or in other jurisdictions, those reforms may increase our costs or otherwise negatively effect on our business, results of operations, and financial condition.
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On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Device Directive and became effective on May 26, 2021. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable, and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The new regulations, among other things:
strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;
set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union; and
strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.
These modifications may have an effect on the way we conduct our business.
Any change in the laws or regulations that govern the clearance and approval processes relating to our current, planned and future products could make it more difficult and costly to obtain clearance or approval for new products or to produce, market and distribute existing products. Significant delays in receiving clearance or approval or the failure to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business.
Our products may contribute to adverse medical events that we are required to report to FDA and other governmental authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, results of operations, and financial condition. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of FDA or another governmental authority, could have a negative impact on us.
We are required to timely file various reports with FDA, including reports required by the medical device reporting regulations which require us to report to FDA when we receive or become aware of information that reasonably suggests that one of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur in the device or a similar device that we market, could cause or contribute to a death or serious injury. If we fail to comply with our reporting obligations, FDA or other governmental authorities could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products, or delay in clearance of future products. FDA and certain foreign regulatory bodies have the authority to require the of commercialized products under certain circumstances.
A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, labeling or design deficiencies, packaging defects, or other deficiencies, or failures to comply with applicable regulations. If we do not adequately address problems associated with our devices, we may face additional regulatory requirements or enforcement action, including required new marketing authorizations, FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal proceedings.
We may initiate voluntary withdrawals, removals, or corrections for our products in the future that we determine do not require notification of FDA because no material compliance issue or safety risk is involved. If FDA disagrees with our determinations, it could require us to report those actions and we may be subject to enforcement action. A future recall announcement or other corrective action could harm our financial results and reputation, potentially lead to product liability claims against us, require the dedication of our time and capital, and negatively affect our sales.
In addition, FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our future products. For example, in November 2018, FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. It is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances.
We also cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, either in the U.S. or abroad. For example, the Trump Administration previously enacted several executive actions that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine regulatory and oversight activities. It is difficult to predict how these executive actions and executive actions that may be taken under the Biden Administration may affect FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
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Changes in internet regulations could adversely affect our business.
Laws, rules, and regulations governing internet communications, advertising, and e-commerce are dynamic, and the extent of future government regulation is uncertain. Federal and state regulations govern various aspects of our online business, including intellectual property ownership and infringement, trade secrets, the distribution of electronic communications, marketing and advertising, user privacy and data security, search engines, and internet tracking technologies. Future taxation on the use of the internet or e-commerce transactions could also be imposed. Existing or future regulation or taxation could increase our operating expenses and expose us to significant liabilities.
Disruptions at the FDA, other agencies or notified bodies caused by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared or approved, or commercialized in a timely manner, or at all, which could negatively impact our business.
The ability of the FDA, other agencies and notified bodies to review and authorize or certify for marketing new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, agency’s or notified body’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the agency’s or notified body’s ability to perform routine functions. Average review times at the FDA and other agencies and notified bodies have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA, other agencies and notified bodies may also slow the time necessary for new medical devices or modifications to be reviewed and/or cleared, approved or certified by necessary agencies or notified bodies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop activities. In addition, in recent years, the FDA most inspections of domestic and foreign manufacturing facilities at various points in response to the global COVID-19 pandemic. If a government occurs, or if global health , including pandemics, were to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material effect on our business.
In the EU, notified bodies must be officially designated to certify products and services in accordance with the MDR, which regulates the development and sale of medical devices in Europe. While several notified bodies have been designated, the COVID-19 pandemic significantly slowed down their designation process and the current designated notified bodies are facing a large amount of requests with the new regulation, as a consequence of which review times have lengthened although a regulation amending the EU MDR was adopted in March 2023, extending existing transitional provisions to December 31, 2028. This situation could significantly impact the ability of notified bodies to timely review and process our regulatory submissions, which could have a material adverse effect on our business in the EU and EEA (which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland).
The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies, particularly if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.
Our products are Class II medical devices cleared by FDA for commercialization in the U.S. pursuant to the 510(k) notification process. We, thus, are not currently able to promote the products for any other indications for use or make any promotional claims that are inconsistent with, or outside the scope of, our respective FDA clearances (often referred to as “off-label” claims). However, the assessment of whether a given claim is or is not consistent with a given FDA clearance or approval can often be subjective, and we cannot guarantee that FDA will always agree with our position regarding a particular claim or that all of our employees, representatives, and agents will abide by our marketing policies. If FDA determines that we have promoted any product without the requisite clearance or approval and/or for an off-label or unapproved use, it could take any number of enforcement actions against us, including (among others), issuing untitled or warning letters and/or pursuing an injunction, seizure, civil fine and/or criminal . It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as laws prohibiting for reimbursement, any of which would have a material effect on our financial condition and/or business as a whole.
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Additionally, we must have competent and reliable scientific evidence or, where applicable, other adequate substantiation for each reasonable interpretation of every promotional claim we make. In particular, comparative or superiority claims generally require adequate, well controlled, head-to-head clinical studies, comparing the product to the applicable competing products. To the extent we make any claims, or are otherwise held responsible for third-party claims about any product we may market in the United States, without the requisite clinical substantiation, we could be subject to enforcement action by FDA and/or the Federal Trade Commission (FTC), as well as a competitor challenge via the National Advertising Division (NAD) of the Better Business Bureau. Our plans to utilize social media as a primary promotional tool for our device(s) increases the applicable enforcement risk, as it makes it easier for our employees, affiliates, and any third parties with which we may have a relationship and/or arrangement under which we are deemed responsible for such party’s claims about our product(s) to disseminate promotional claims about our product(s) that may be with applicable regulations governing device promotions. Further, consumers can bring private -advertising lawsuits, including class actions, us for any material and/or or (among other similar causes of action) in our promotional materials or other advertising. Any of the foregoing could have a material effect on our business.
We may be subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business.
There are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse, including anti-kickback, false claims, and physician transparency laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. Our business practices and relationships with providers and patients are subject to scrutiny under these laws. We may also be subject to patient information privacy and security regulation by both the federal government and the states and foreign jurisdictions in which we conduct our business. The healthcare laws and regulations that may affect our ability to operate include:
the federal healthcare Medicare and Medicaid Patient Protection Act of 1987 (the “Anti-Kickback Statute”), which prohibits, among other things, persons, and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arrange for or recommend a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a specific intent to violate. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a or claim for purposes of the federal civil Act. Although there are a number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti- Statute protecting certain common business arrangements and activities from or regulatory sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or recommend medical device products, including discounts, or engaging individuals as speakers, consultants, or advisors, may be subject to if they do not fit squarely within an exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti- liability. Moreover, there are no safe harbors for many common practices, such as reimbursement support programs, educational or research grants, or donations;
the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal government funds, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Private individuals, commonly known as “whistleblowers,” can bring civil False Claims Act qui tam actions, on behalf of the government and such individuals and may share in amounts paid by the entity to the government in recovery or settlement. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble and mandatory for each or claim or statement. The government may assert that a claim including items or services resulting from a of the federal Anti- Statute constitutes a or claim under the federal civil Act. Many pharmaceutical and medical device manufacturers have been and have reached substantial settlements under the federal civil Act in connection with off-label promotion of their products and providing free products to customers with the expectation that the customers would bill federal health care programs for the product. In addition, manufacturers can be held liable under the federal civil Act even when they do not submit directly to government payers if they are deemed to “cause” the submission of or . There are also , including and , for making or presenting , or to the federal government;
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Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially , or statements or representations, or making or using any writing or document knowing the same to contain any materially , or statement or entry in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal healthcare Anti- Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to it to have committed a ;
the federal Physician Payments Sunshine Act under the Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and group purchasing organizations, as well as ownership and investment interests held by physicians and their immediate family members. Since January 2022, applicable manufacturers are also required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives;
HIPAA, as amended by Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, which imposes privacy, security, and breach reporting obligations with respect to Protected Health Information (“PHI”), upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, and their respective business associates that perform services on their behalf that involve PHI. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make HIPAA compliance as well as civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; and
analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and local laws that require the licensure of sales representatives; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; data privacy and security laws and regulations in foreign jurisdictions that may be more stringent than those in the United States (such as the EU, which adopted the General Data Protection Regulation, which became effective in May 2018); state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance in the case of involving private insurers.
These laws and regulations, among other things, may constrain our business, marketing, and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with physicians or other potential purchasers of our products and consulting agreements we enter into with physicians. Further, while we do not submit claims and our future customers will make the ultimate decision on whether or how to submit any potential claims, we may provide reimbursement guidance and support regarding our products, to the extent reimbursement may be available, which could implicate these laws. Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.
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To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. For example, U.S. federal and state regulatory and enforcement agencies continue to actively investigate violations of healthcare laws and regulations, including pursuing novel theories of liability under these laws. These government agencies recently have increased regulatory scrutiny and enforcement activity with respect to manufacturer reimbursement support activities and patient support programs, including bringing criminal charges or civil enforcement actions under the federal healthcare Anti-Kickback statute, federal civil False Claims Act, the health care fraud statute, and HIPAA privacy provisions. Responding to can be time and resource consuming and can management’s attention from the business. Any such or settlement could increase our costs or otherwise have an effect on our business. Even an or into our practices could cause publicity, and be to respond to.
If our operations are found to be in violation of any of the healthcare laws or regulations described above or any other healthcare regulations that may apply to us, we may be subject to administrative, civil and criminal penalties, damages, fines, disgorgement, substantial monetary penalties, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations, and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, reputational harm, and the curtailment or restructuring of our operations.
Since our software platform will utilize cloud-based information systems and the exchange of protected information, we will be subject to numerous U.S. federal and state laws and regulations related to the privacy and security of personally identifiable information, including health information.
Among other data-privacy and/or confidentiality laws to which we may be subject, HIPAA establishes privacy and security standards that limit the use and disclosure of PHI and require covered entities and business associates to implement administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability of individually identifiable health information in electronic form, among other requirements.
Violations of HIPAA may result in civil and criminal penalties. We must also comply with HIPAA’s breach notification rule which requires notification to affected individuals and the Secretary of Health and Human Services (“HHS”), and in certain cases to media outlets, in the case of a breach of unsecured PHI. The regulations also require business associates of covered entities to notify the covered entity of breaches by the business associate.
State attorneys general also have the right to prosecute HIPAA violations committed against residents of their states, and HIPAA standards have been used as the basis for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance.
Many states also have laws that protect the privacy and security of sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. For example, California passed the California Consumer Privacy Act or CCPA on June 28, 2018, which went into effect January 1, 2020. On November 3, 2020, the California Privacy Rights Act of 2020 (“CPRA”), which amends the CCPA and adds new privacy protections that became effective on January 1, 2023, was enacted through a ballot initiative. While information we maintain that is covered by HIPAA may be exempt from the CCPA, other records and information we maintain related to patients or personnel may be subject to the CCPA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but also some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information has been misused. In addition, state and federal privacy laws subject to frequent change.
In addition to HIPAA and state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security practices and deceptive statements about privacy and security, laws that place specific requirements on certain types of activities, such as data security and texting, and laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach.
Our subsidiary, Firefly Neuroscience Ltd., has received Israeli governmental grants to assist in the funding of its research and development activities. The IIA grants which Firefly Neuroscience Ltd. ’ s technology has received for research and development expenditures restrict its ability to manufacture products and transfer (including by way of license for R&D purposes) know-how outside of Israel and require it to satisfy specified conditions.
Firefly Neuroscience Ltd.’s technologies were developed, in part, with grants from the Israel Innovation Authority, or IIA (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry) in the aggregate amount of approximately $4.60 million. As of December 31, 2025, Firefly Neuroscience Ltd. has paid royalties to the IIA and had a contingent obligation to the IIA (including interest) of $6.043 million. The requirements and restrictions for such grants are set forth in the Encouragement of Research, Development and Technological Innovation in Industry Law, 5744-1984 (formerly known as the Law for the Encouragement of Research and Development in Industry, 5744-1984), or the Innovation Law, the IIA’s rules and guidelines and the terms of these grants.
In general, the recipients of IIA grants are obligated to pay the IIA royalties from the revenues generated from the sale of products and related services developed as a result of a research and development program funded, in whole or in part, by the IIA, at rates which are determined under the IIA’s rules and guidelines (generally of 3% to 6% on sales of IIA-funded products or related services, which rates may be increased under certain circumstances) up to the aggregate amount of the total grants received by the IIA (which may be increased under certain circumstances, as described below), plus annual interest (as determined in the IIA’s rules and guidelines). Following the full payment of such royalties and interest, there is generally no further liability for royalty payments; however, other restrictions under the Innovation Law continue to apply, as described below.
Under the IIA’s rules and guidelines, Firefly Neuroscience Ltd. is generally prohibited from manufacturing products developed using the IIA funding outside of the State of Israel without the prior approval of the IIA (except for the transfer of less than 10% of the manufacturing capacity in the aggregate which requires only a notice) and subject to payment of increased royalties (up to 300% of the grant amount plus accrued interest, depending on the manufacturing volume that is performed outside of Israel). Additionally, under the IIA’s rules and guidelines, Firefly Neuroscience Ltd. is prohibited from transferring the IIA-funded know-how and related intellectual property rights outside of the State of Israel, except under limited circumstances and only with the prior approval of the IIA. Firefly Neuroscience Ltd. may not receive the required approvals for any proposed transfer, and even if received, Firefly Neuroscience Ltd. may be required to pay the IIA a redemption fee of up to 600% of the grant amounts (less paid royalties, if any, and depreciation, but no less than the total grants received) plus accrued interest. Approval of the transfer of know-how to an Israeli company is also required, and may be granted if the recipient assumes all of our responsibilities towards the IIA, including the restrictions on the transfer of know-how and the manufacturing rights outside of Israel and the obligation to pay royalties, and, although such transfer will not be subject to the payment of a redemption fee, there will be an obligation to pay royalties to the IIA from the income of such sale transaction as part of the royalty payment obligation. No assurance can be given that approval for any such transfer, if requested, will be granted.
These restrictions may impair our ability to perform or outsource manufacturing outside of Israel or otherwise transfer or sell Firefly Neuroscience Ltd.’s IIA funded know-how outside of Israel, without the approval of the IIA. Furthermore, the consideration available to Firefly Neuroscience Ltd.’s and/or our shareholders in a transaction involving the transfer outside of Israel of know-how developed with IIA funding (such as a merger or similar transaction) may be reduced by any amounts that Firefly Neuroscience Ltd. is required to pay to the IIA. If Firefly Neuroscience Ltd. fails to comply with the requirements of the Innovation Law and the IIA’s rules and guidelines, Firefly Neuroscience Ltd. may become subject to financial sanctions, be required to return certain grants previously received along with interest and penalties and may become subject to criminal proceedings. In addition, the Government of Israel may, from time to time, audit sales of products which it claims incorporate technology funded via IIA programs and this may lead to additional royalties being payable on additional products, and may subject such products to the restrictions and obligations specified hereunder.
It may be difficult to enforce a U.S. judgment against our subsidiary, Firefly Neuroscience Ltd., and our officers and directors in Israel or otherwise outside the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors.
While we are incorporated in Delaware, our subsidiary, Firefly Neuroscience Ltd. is incorporated in Israel. Some of our executive officers and directors reside outside of the United States, and many of our assets and most of the assets of our executive officers and directors are located outside of the United States. Therefore, a judgment obtained in the United States against us or such executive officers and our directors, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States, and it may be difficult for you to affect service of process on these persons in the United States. In addition, it may be difficult to obtain a judgment in Israel based on the civil liability provisions of U.S. federal securities laws. Israeli courts might not enforce judgments obtained in the United States against us or our non-U.S. directors and executive officers, which may make it difficult to collect on judgments rendered against us or our non-U.S. officers and directors by either a U.S. or foreign court. Moreover, an Israeli court will not enforce a non-Israeli judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to cases), if its enforcement is likely to the sovereignty or security of the State of Israel, if it was obtained by or in the of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties, or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action was brought.
Cybersecurity incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging our reputation, or exposing us to liability.
We receive, process, store, and transmit, often electronically, data of our customers and others which may be confidential. Unauthorized access to our computer systems or stored data could result in the theft or improper disclosure of confidential information, the deletion or modification of records, or could cause interruptions in our operations. These cybersecurity risks increase when we transmit information from one location to another, including transmissions over the Internet or other electronic networks. Despite implemented security measures, our facilities, systems, and procedures, and those of our third-party service providers, may be vulnerable to security breaches, phishing scams, acts of vandalism, software viruses, misplaced or lost data, programming and/or human errors, or other similar events which may disrupt our delivery of services or expose the confidential information of the Company, our customers and others. Any security involving the , , or other disclosure or use of confidential information of our customers or others, whether by us or a third party, could: (i) subject us to civil and ; (ii) have a impact on our reputation; or (iii) us to liability to our customers, third parties, or government authorities. Any of these developments could have a material effect on our business, financial condition, and results of operations.
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Foreign data protection, privacy, and other laws and regulations are often more restrictive than those in the U.S. The E.U., for example, traditionally has imposed stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the U.S. In May 2018, the GDPR, governing data practices and privacy in the E.U., became effective and replaced the data protection laws of the individual member states. GDPR requires companies to meet stringent requirements regarding the handling of personal data of individuals in the E.U. These more stringent requirements include expanded disclosures to inform members about how we may use their personal data, increased controls on profiling members, and increased rights for members to access, control and delete their personal data. In addition, there are mandatory data breach notification requirements. The law also includes significant penalties for non-compliance, which may result in monetary penalties of up to 20 million Euros or 4% of a company’s worldwide turnover, whichever is higher. GDPR and other similar regulations require companies to give specific types of notice, and informed consent is required for the placement of a cookie or similar technologies on a user’s device for online tracking for behavioral advertising and other purposes and for direct electronic marketing. The GDPR also imposes additional conditions in order to such consent, such as a prohibition on pre-checked consents. It remains unclear how the U.K. data protection laws or regulations will develop in the medium to longer term and how data transfer to the U.K. from the E.U. will be regulated. Outside of the E.U., there are many other countries with data protection laws, and new countries are adopting data protection legislation with increasing frequency.
Many of these laws may require consent from individuals for the use of data for various purposes, including marketing, which may reduce our ability to market our products.
There is no harmonized approach to these laws and regulations globally. Consequently, we increase our risk of non-compliance with applicable foreign data protection laws and regulations when we expand internationally. We may need to change and limit the way we use personal information in operating our business and may have difficulty maintaining a single operating model that is compliant. Compliance with such laws and regulations will result in additional costs and may necessitate changes to our business practices and divergent operating models, limit the effectiveness of our marketing activities, adversely affect our business, results of operations, and financial condition, and subject us to additional liabilities.
Our business could be adversely affected by professional and legal challenges to our business model or by new state actions restricting our ability to provide our products and services in certain states.
Since the success of our business will be dependent on the widespread adaptation of our software platform as a valid method for statistical analysis of EEG scans, neurologists across multiple geographies will be needed to use our software platform and provide positive feedback and results. This will expose us to legal risk of patients or neurologists who may have a negative experience with our software platform filing lawsuits claiming damages or other claims. Although we will seek insurance coverage for such legal actions, there is no assurance that the amount of coverage will be sufficient to cover these claims. In addition, such legal actions from consumers and neurologists may result in material and adverse effects on our ability to continue to conduct business due to negative press.
Security breaches, data breaches, cyber-attacks, other cybersecurity incidents or the failure to comply with privacy, security and data protection laws could materially impact our operations, patient care could suffer, we could be liable for damages, and our business, operations and reputation could be harmed.
We expect to retain confidential customer personal and financial, patient health information and our own proprietary information and data essential to our business operations. We will rely upon the effective operation of our IT systems, and those of our service providers, vendors, and other third parties to safeguard the information and data. Additionally, our success may be dependent on the success of healthcare providers, many of whom are comprised of individual or small operations with limited IT experience and inadequate or untested security protocols, in managing data privacy and data security requirements. It is critical that the facilities, infrastructure and IT systems on which we depend to run our business and the products we develop remain secure and be perceived by the marketplace and our potential customers to be secure. Despite the implementation of security features in our products and security measures in our IT systems, we and our service providers, vendors, and other third parties may become subject to physical break-ins, computer viruses or other malicious code, unauthorized or access, programming or other technical , hacking or phishing attacks, malware, ransomware, employee or , cyber-attacks, and other of IT systems or similar actions, including by organized groups and nation-state actors. For example, we may experience cybersecurity and internal employee exfiltration of company information.
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Further, the frequency of third-party cyber-attacks has increased over the last several years. The military conflict in Ukraine may cause nation-state actors or hackers sympathetic to either side of the conflict to carry out cyber-attacks to achieve their goals, which may include espionage, information gathering operations, monetary gain, ransomware, disruption, and destruction. Significant service disruptions, breaches in our infrastructure and IT systems or other cybersecurity incidents could expose us to litigation or regulatory investigations, impair our reputation and competitive position, be distracting to our management, and require significant time and resources to address. Affected parties or regulatory agencies could initiate legal or regulatory action us, which could prevent us from resolving the issues quickly or us to them in ways, cause us to incur significant expense and liability, or result in judicial or governmental orders us to operations or modify our business practices in ways that could materially limit or restrict the products and services we provide. over our privacy practices could affect others’ perception of us and potential customers, patients and partners from using our products. In addition, patient care could , and we could be liable if our products or IT systems to deliver accurate and complete information in a timely manner. We have internal monitoring and detection systems as well as cybersecurity and other forms of insurance coverage related to a event covering expenses for notification, credit monitoring, , management, public relations and legal advice. However, and arising from such may not be covered or may exceed the amount of any coverage and do not cover the time and effort we may incur and responding to any , which may be material. The costs to eliminate, mitigate or recover from security and cyber-attacks and could be material and depending on the nature and extent of the and the networks or products impacted, may result in network or systems , decreased product sales, or data that may have a material impact on our operations, net revenues and operating results.
Our business will expose us to potential liability for the quality and safety of our products and services, how we advertise and market those products and services and how and to whom we sell them, and we may incur substantial expenses or be found liable for substantial damages or penalties if we are subject to claims or litigation.
Our products and services involve an inherent risk of claims concerning their design, manufacture, safety and performance, how they are marketed and advertised in a complex framework of highly regulated domestic and international laws and regulations, how we package, bundle or sell them to potential customers, who may be private individuals or companies or public entities such as hospitals and clinics, and how we train and support doctors, their staffs and patients who administer or use our products. Moreover, consumer products and services are routinely subject to claims of false, deceptive or misleading advertising, consumer fraud and unfair business practices. Additionally, we may be held liable if any product we develop or manufacture or services we offer or perform causes injury or is otherwise found unhealthy. If our products are safe but they are promoted for off-label usage, we may be investigated, fined or have our products or services enjoined or approvals rescinded or we may be required to ourselves in . Although we maintain insurance for product liability, business practices and other types of activities we make or offer, coverage may not be available on acceptable terms, if at all, and may be for actual liabilities. Any claim for product liability, sales, advertising and business practices, regardless of its merit or eventual outcome, could result in material legal defense costs and our reputation, increase our expenses and management’s attention.
The ESG regulatory landscape has shifted materially under the current U.S. administration, and we face risks from both the relaxation of certain federal requirements and the continued — and potentially intensifying — pressure from state, international, and market-driven ESG expectations.
At the federal level, the current administration has rolled back or suspended a number of ESG-related regulations. Most notably, the Securities and Exchange Commission has abandoned its defense of its climate risk disclosure rule, which would have required public companies to disclose greenhouse gas emissions and climate-related financial risks, and has revised its guidance on shareholder proposals in ways that make it easier for companies to exclude ESG-related proposals from proxy materials. The Department of Labor has also initiated rulemaking to rescind or replace Biden-era rules permitting pension fund managers to consider ESG factors in investment decisions.
Additionally, the administration has revoked billions of dollars in clean energy and transportation funding, rolled back environmental regulations, and taken executive action aimed at limiting the ability of state and local governments to regulate energy and environmental matters.
While these federal rollbacks may provide near-term compliance relief, they introduce new categories of risk. The fragmentation of ESG regulation — with the federal government moving in one direction while many U.S. states and international jurisdictions move in another — creates a complex and potentially more costly compliance environment than a uniform federal framework would. Blue states, including California, have moved aggressively to expand their own ESG disclosure and enforcement regimes, and we expect increased litigation as state attorneys general challenge both federal rollbacks and corporate ESG practices, including on greenwashing theories. We may face claims that our ESG disclosures or commitments were false or misleading, regardless of whether such disclosures were made in response to federal requirements.
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Our global operations remain subject to significant and evolving ESG requirements outside the United States. The European Union's Sustainable Finance Disclosure Regulation, Corporate Sustainability Reporting Directive, and related frameworks impose disclosure and compliance obligations that apply to us regardless of changes in U.S. federal policy. A growing divergence between U.S. and international ESG standards may increase our compliance costs, require us to maintain different reporting frameworks for different markets, and affect our competitiveness with companies subject to more uniform regulatory regimes.
We also face continued and potentially increasing pressure from investors, proxy advisory services, and other market participants. Notwithstanding the change in federal policy direction, institutional investors and investment funds with global mandates continue to apply ESG screens and engagement strategies. If our ESG practices fail to meet evolving investor expectations — including with respect to environmental stewardship, human capital management, supply chain practices, board diversity, and corporate governance — our access to capital, stock price, and relationships with key counterparties may be adversely affected. Conversely, if we maintain or expand ESG commitments that are perceived as contrary to the current federal regulatory environment or the preferences of certain investors, we may face different reputational or commercial pressures.
Meeting our obligations under existing ESG laws and regulations — at the state, federal, and international levels — is already costly, and we expect those costs to remain significant and potentially increase as the regulatory landscape continues to evolve. We cannot provide assurance that we will be in compliance with all applicable requirements at all times, or that our suppliers will be in compliance. If we or our suppliers fail to comply with any applicable ESG requirements, we could be subject to penalties, litigation, reputational harm, and loss of customers or business partners.
Given the pace and unpredictability of changes in ESG-related laws, regulations, investor expectations, and public sentiment, we may be unable to anticipate, adapt to, or accurately communicate our ESG practices in a manner that satisfies all stakeholders. Any failure to do so could adversely affect our business, financial condition, results of operations, and stock price.
We are subject to consumer protection laws that regulate our marketing practices and prohibit unfair or deceptive acts or practices. Our actual or perceived failure to comply with such obligations could harm our business, and changes in such regulations or laws could require us to modify our products, marketing or advertising efforts.
In connection with the marketing or advertisement of our products and services, we could be the target of claims relating to false, misleading, deceptive, or otherwise noncompliant advertising or marketing practices, including under the auspices of the FTC and state consumer protection statutes. If we rely on third parties to provide any marketing and advertising of our products and services, we could be liable for, or face reputational harm as a result of, their marketing practices if, for example, they fail to comply with applicable statutory and regulatory requirements.
If we are found to have breached any consumer protection, advertising, unfair competition, or other laws or regulations, we may be subject to enforcement actions that require us to change our marketing and business practices in a manner which may negatively impact us. This could also result in litigation, fines, penalties, and adverse publicity that could cause reputational harm and loss of patient trust, which could have an adverse effect on our business.
New FDA Quality Management System Regulation (“QMSR”) requirements could increase our compliance costs and expose us to additional regulatory risk.
The FDA’s Quality Management System Regulation (“QMSR”) becomes effective on February 2, 2026 and amends the medical device current good manufacturing practice requirements in 21 CFR Part 820 by incorporating by reference ISO 13485:2016. While the QMSR is intended to better harmonize FDA quality system requirements with international standards—which may facilitate international expansion over time—transitioning our quality management system, procedures, documentation, training, supplier controls, and internal audit processes to ensure full compliance with the QMSR may require significant management attention, additional personnel and consulting resources, and increased operating expenses.
If we do not implement changes to our quality system in a timely or effective manner, we may be unable to consistently demonstrate compliance during FDA inspections or other regulatory reviews. Noncompliance could result in warning letters, product holds or delays in review of submissions, import/export or distribution restrictions, product seizures, recalls, civil penalties, injunctions, or other enforcement actions, any of which could adversely affect our business, financial condition, results of operations, and cash flows. In addition, regulatory expectations and inspection approaches under the QMSR may evolve as the FDA implements the rule, creating uncertainty and potentially increasing the risk of findings, remediation obligations, and related costs.
Risks related to Our Intellectual Property
Our success depends in part on our proprietary technology, and if we are unable to successfully enforce our intellectual property rights, our competitive position may be harmed.
Our success will depend in part on our ability to maintain existing intellectual property and to obtain and maintain further intellectual property protection for our products and services, both in the U.S. and in other countries. We intend to protect our intellectual property rights, including our AI technology and related algorithms, through a combination of patent, trademark, copyright, and trade secret laws, as well as third-party confidentiality and assignment agreements. Our inability to do so could harm our competitive position.
We rely on our portfolio of issued and pending patent applications in the U.S. and other countries to protect a large part of our intellectual property and our competitive position; however, our currently pending or future patent filings may not result in the issuance of patents. While we generally apply for patents in those countries where we intend to make, have made, use, or sell patented products, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail to timely file for a patent, we may be precluded from doing so at a later date.
Economic and trade policy, including tariffs and customs regulations, could have a material and adverse effect on our business.
The U.S. has established free trade laws and regulations that set certain duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where components of our products may be sourced, such as China, could have a material adverse effect on our business and financial results. In recent years, the U.S. and Chinese governments have imposed a series of significant incremental retaliatory tariffs to certain imported products. Most notably with respect to the automotive industry, the U.S. imposed tariffs on imports of certain steel, aluminum and automotive components, and China imposed retaliatory tariffs on imports of U.S. vehicles and certain automotive components. Further, the U.S. administration recently has proposed and begun to enact additional or enhanced tariffs in various jurisdictions relevant to our business. Implementation of tariffs or other restrictive trade measures by the United States and potentially reciprocally by other countries subject to such to tariffs remains highly uncertain. Due to the global nature of our business, specifically in the jurisdictions impacted by the recent tariffs announcements, if the actual and potential tariffs and reciprocal tariffs are implemented as currently proposed, our results of operations could be materially impacted, both directly and indirectly through effects to our supply chain, as a result of increased costs, decreased demand and other economic impacts, and we may not be to mitigate or offset such impacts. Depending upon their implementation and duration, as well as our ability to mitigate their impact, these tariffs and any other future regulatory actions implemented on a broader range of products or raw materials could materially affect our business, including in the form of increased cost of goods sold, decreased margins, increased pricing for customers, reduced sales and in our supply chain. Furthermore, additional trade restrictions could be adopted with little to no advanced notice, and we may not be to effectively mitigate the impacts from such measures, which could further increase the cost of our products, our supply chain and our ability to effectively operate and compete in the countries where we do business.
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In addition, various countries regulate cross-border transactions of certain products through import permitting and licensing requirements. The exportation, re-exportation, transfers within foreign countries and importation of our products, including by our suppliers and vendors, must comply with these laws and regulations, and any violations may result in reputational harm, government investigations and penalties, and a denial or curtailment of importing or exporting activities. Complying with U.S. export, sanctions and import laws, including ongoing and rapidly changing sanctions against certain countries, regions, governments and related persons and entities, may be time consuming, may increase our costs, and may result in the delay or loss of sales opportunities. If we are found to be in violation of U.S. export, sanctions or import laws, or similar laws in other jurisdictions, we and the individuals working for us could incur substantial and . Changes in export, sanctions or import laws or regulations may the sale of complementary products in the U.S. and international markets, and require us to spend resources to seek necessary alternatives, or, in some cases, prevent the export or import of complementary products to certain countries, regions, governments, persons or entities, which could affect our business, financial condition and operating results.
Patent rights are territorial, and patent protection extends only to those countries where we have issued patents. Filing, prosecuting and defending patents on our products and our future products in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. Many countries do not protect intellectual property to the same extent as the U.S. or Europe, and their litigation processes differ. Competitors may successfully challenge or avoid our patents, or manufacture products in countries where we have not applied for patent protection. Changes in the patent laws in the U.S. or other countries may diminish the value of our patent rights. As a result of these and other factors, the scope, validity, enforceability, and commercial value of our patent rights are uncertain and unpredictable.
Furthermore, the patent positions of medical device companies involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. The issuance of a patent, while presumed valid and enforceable, is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Any patents issued to us may be challenged, invalidated, held unenforceable, circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products. In addition, any protection afforded by foreign patents may be more limited than that provided under U.S. patent and intellectual property laws. There can be no assurance that any of our patents, any patents licensed to us, or any patents which we may be issued in the future, will provide us with a competitive advantage or afford us protection by others, or that the patents will not be or by third parties, including our competitors. Further, there can be no assurance that we will have adequate resources to enforce our patents. Competitors may also be to design around our patents. Other parties may develop and obtain patent protection for more technologies, designs or methods.
Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product, particularly in litigation in countries other than the U.S. that do not provide an extensive discovery procedure. Any litigation to enforce or defend our patent rights, if any, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
Moreover, advances in AI technology may generate developments that existing IP laws do not adequately protect. The legislative and regulatory environment is out of our control, may change rapidly and unpredictably, and may negatively influence our revenue, costs, earnings, and growth. Some rules and regulations may be subject to litigation or other challenges that delay or modify their implementation and impact on us.
We also may seek to rely on protection of copyright, trade secrets, know how, and confidential and proprietary information. We generally enter into confidentiality and non-compete agreements with our employees, consultants, and collaborative partners upon their commencement of a relationship with us. However, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may not exist if unauthorized use or disclosure were to occur. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition, and future growth prospects. In particular, a failure to protect our proprietary rights might allow competitors to copy our technology, which could adversely affect our pricing and market share. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees. Further, other parties may independently develop substantially equivalent know-how and technology.
We currently own registered trademarks for our BNA Platform and Evoke Systems, and we intend to rely on both registered and common law rights for our trademarks in the future. There can be no assurance that our future trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, there can be no assurance that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
Litigation, interferences, oppositions, re-exams, inter partes reviews, post grant reviews, or other proceedings are, have been, and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the validity, scope, or non-infringement of certain proprietary rights claimed by third parties to be pertinent to the manufacture, use, or sale of our products or provision of our services. These types of proceedings are unpredictable and may be protracted, expensive, and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products and provide our services, require us to seek a license for the infringed product or technology, or result in the assessment of significant monetary damages. An ruling could include monetary or, in cases where injunctive relief is sought, an prohibiting us from selling our products or providing our services. Any of these results from could affect our business, financial condition, and results of operations.
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Successful cybersecurity attacks, data breaches, unapproved use of machine learning or AI tools, or other security incidents could result in the loss of IP and key technological advantages. Security incidents could result in, for example, unauthorized access to, disclosure, modification, misuse, loss, or destruction of company, patient, or other third party data; theft or import of sensitive, regulated, or confidential data including personal information and IP, such as key innovations in AI; the loss of access to critical data or systems through ransomware; and business delays.
If we infringe or violate the patents or proprietary rights of other parties or are subject to an intellectual property infringement or misappropriation claim, our ability to grow our business may be severely limited.
Our commercial success also depends upon our ability, and the ability of any third party with which we may partner, to develop, manufacture, market and sell our products, if approved, and use our patent-protected technologies without infringing the patents of third parties. Extensive litigation over patents and other intellectual property rights is common in the medical device industry.
We may not have identified all patents, published applications or published literature that affect our business either by blocking our ability to commercialize our products, by preventing the patentability of one or more aspects of our products, or by covering the same or similar technologies that may affect our ability to market our products. For example, we may not have conducted a patent clearance search sufficient to identify potentially obstructing third party patent rights. Moreover, patent applications in the United States are maintained in confidence for up to 18 months after their filing. In some cases, however, patent applications remain confidential in the U.S. Patent and Trademark Office, or the USPTO, for the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside of the United States are not typically published until at least 18 months from their first filing date. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. We cannot be certain that we were the first to invent, or the first to file, patent applications covering our products. We also may not know if our competitors filed patent applications for technology covered by our pending applications or if we were the first to invent the technology that is the subject of our patent applications. Competitors may have filed patent applications or received patents and may obtain additional patents and proprietary rights that block or compete with our patents.
We may therefore in the future be the subject of patent or other litigation. From time to time, we may in the future receive letters from third parties drawing our attention to their patent rights. While we do not believe that we infringe upon any valid and enforceable rights that have been brought to our attention, and we take necessary steps to ensure that we do not infringe on the rights of others, there may be other more pertinent rights of which we are presently unaware. The defense and prosecution of intellectual property suits, interference proceedings, and related legal and administrative proceedings could result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination of any litigation or interference proceeding to which we may become a party could subject us to significant liabilities. An adverse determination of this nature could also put our patents at risk of being or interpreted narrowly or require us to seek licenses from third parties. Licenses may not be available on commercially reasonable terms or at all, in which event, our business would be materially affected. Intellectual property or could us to developing, selling or otherwise commercializing one or more of our products; to pay substantial for past use of the asserted intellectual property; and redesign, or rename in the case of trademark , our product(s) to avoid such third party rights, which may not be possible or which could be and time-consuming. Any of these risks coming to fruition could have a material effect on our business, results of operations, financial condition and prospects.
Our failure to secure trademark registrations could adversely affect our ability to market our products and operate our business.
Any future trademark applications in the United States and any other jurisdictions where we may file may not be allowed registration, and we may not be able to maintain or enforce our registered trademarks. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in corresponding foreign agencies, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our applications and/or registrations, and our applications and/or registrations may not survive such proceedings. Failure to secure such trademark registrations in the United States and in foreign jurisdictions could affect our ability to market our products and our business.
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We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the medical device industry, we may employ individuals who were previously employed at other companies similar to ours, including our competitors or potential competitors. We may become subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Obtaining and maintaining patent protection depends on compliance with various procedures and other requirements, and our patent protection could be reduced or eliminated in case of non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the relevant patent agencies in several stages over the lifetime of the patents and /or applications. The relevant patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which the failure to comply with the relevant requirements can result in the abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to use our technologies and know-how which could have a material adverse effect on our business, prospects, financial condition and results of operation.
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our products are obtained, once the patent life has expired for a product, we may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new products, patents protecting such products might expire before or shortly after such products are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor or an author. For example, we may have inventorship or ownership disputes arise from conflicting obligations of consultants or others who are involved in developing our products. Litigation may be necessary to defend against these and other claims challenging inventorship or our ownership of our patents or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose intellectual property rights, such as ownership of, or right to use, intellectual property. Such an outcome could have a material effect on our business. Even if we are in such , could result in substantial costs and be a to management and other employees.
We use AI in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
We incorporate AI solutions into our software platform, services, and features, and these applications are important in our operations. Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations.
Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected. Our use of AI and machine learning is subject to risks related to flaws in our algorithms and datasets that may be insufficient or contain biased information. The development of AI technologies is complex, and there are several challenges associated with achieving the desired level of accuracy, efficiency, and reliability. The algorithms and models used in our AI systems may have limitations, including biases, errors, or inability to handle certain data types or scenarios. There is a risk of system failures, , or that could compromise the , security, or privacy of our platform. These could result in reputational , legal liabilities, or of user confidence, which could materially affect our business.
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The use of AI applications has resulted in, and may in the future result in, cybersecurity incidents that implicate the personal data of patients and users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government regulation of AI, will require significant resources to develop, test and maintain our platform, services, and features to help us implement AI ethically in order to minimize unintended, harmful impact.
Legislative and governmental activity in the privacy area may result in new laws or regulations that are applicable to us and that may hinder our business, for example, by restricting use or sharing of patient data, limiting our ability to provide certain data to our customers, limiting our ability to develop or modify our AI systems, or otherwise regulating AI and machine learning, including the use of algorithms and automated processing in ways that could materially affect our business, or which may lead to significant increases in the cost of compliance.
General Risks Related to Us
Our limited access to sufficient funding may hinder our ability to conduct planned operations and realize potential profits.
To date, we have primarily funded our operations through the sale of equity securities and the issuance of convertible notes. These funding sources have been critical to supporting our ongoing research and development initiatives, maintaining our workforce, and financing our early commercialization efforts. However, the capital we have raised to date has not been sufficient to cover our long-term operational needs, and we continue to rely on external funding to sustain and grow our business. Although we have had success in raising funds previously, the availability of capital markets is subject to a variety of factors beyond our control, including macroeconomic conditions, investor sentiment, and market volatility.
There is no assurance that future financing will be available to us on acceptable terms. Market conditions or changes in our financial performance may limit our ability to attract new investment. If we are unable to raise sufficient funds through equity or debt financing or other strategic alternatives, we may be forced to delay, scale back, or discontinue our product development and commercialization efforts, reduce our workforce, or suspend or curtail planned operations altogether.
Moreover, the report of our independent registered public accounting firm for the fiscal year ended December 31, 2025, includes a statement that substantial doubt exists about our ability to continue as a going concern, which may also limit our ability to access the capital markets or obtain favorable financing terms. The going concern qualification may raise concerns among potential investors, creditors, and business partners, making it more challenging to secure future funding or enter into strategic relationships. Without adequate financing, we may be unable to achieve our planned milestones, capitalize on market opportunities, or execute our growth strategy in a timely and effective manner.
We may not continue to meet the continued listing requirements of Nasdaq, which could result in a delisting of our Common Stock.
Our Common Stock is listed on Nasdaq. While we are currently in compliance, WaveDancer has in the past been, and we may in the future be, unable to comply with certain of the listing standards that we are required to meet to maintain the listing of our Common Stock on Nasdaq. For instance, on August 8, 2024, WaveDancer received a letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC (the “Staff”) indicating that in the former WaveDancer’s Quarterly Report on Form 10-Q filed with the SEC on May 14, 2024, WaveDancer reported stockholders’ equity of $1,708,520 for the period ended March 31, 2024, which did not comply with Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”). Additionally, as previously reported, in a decision dated November 14, 2023, a Nasdaq Hearings Panel (the “Panel”) confirmed that we had regained compliance with the Minimum Stockholders’ Equity Requirement for a prior outstanding deficiency under the Minimum Stockholders’ Equity Requirement as related to the WaveDancer’s stockholders’ equity for the period ended March 31, 2023. In the decision, the Panel imposed a Mandatory Panel Monitor for a period of one year or until November 14, 2024, which would require the Staff to issue a Delist Determination Letter in the event that WaveDancer, prior to the consummation of the Merger, or we, following the consummation of the Merger, failed to maintain compliance with the Minimum Stockholders’ Equity Rule. On August 13, 2024, we received a notice from the Nasdaq Stock Market LLC indicating that following the Staff’s review of the Merger, the Staff determined that we now comply with the Minimum Stockholders’ Equity Requirement and that the matter is now .
While we have regained compliance with the continued listing requirements for Nasdaq, it cannot be assured that we will continue to do so. If Nasdaq delists our Common Stock from trading on its exchange for failure to meet the listing standards, an investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability raise future capital through the sale of our shares could be severely limited. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. Additionally, if we are unable to list on Nasdaq, it would likely be more difficult to trade in or obtain accurate quotations as to the market price of our Common Stock. If our securities are from trading on Nasdaq, and we are not to list its securities on another exchange or to have them quoted on Nasdaq, our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.” As a result, we could face significant consequences including:
a limited availability of market quotations for its securities;
a determination that our Common Stock is a “penny stock,” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
a limited amount of news and analyst coverage for us; and
a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or to obtain additional financing in the future.
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The market price of our Common Stock may be subject to significant fluctuations and volatility, and the stockholders of the company may be unable to resell their shares at a profit and may incur losses.
Prior to the Merger, there has not been a public market for our Common Stock. The market price of our Common Stock could be subject to significant fluctuation. The previous business of WaveDancer differs from our business in important respects and, accordingly, our results of operations and the market price of our Common Stock following the Merger may be affected by factors different from those currently affecting the results of operations of WaveDancer. Market prices for securities of life sciences and medical technology companies in particular have historically been particularly volatile and have shown extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our Common Stock, regardless of our actual operating performance. Some of the factors that may cause the market price of our Common Stock to fluctuate include:
investors reacting negatively to the effect of our business and prospects from the Merger;
the announcement of new products, new developments, services or technological innovations by us or our competitors;
actual or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or prospects;
announcements relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments, or other events by us or our competitors;
conditions or trends in the life sciences and medical technology industries;
changes in the economic performance or market valuations of other life sciences and medical technology companies;
general market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance or financial condition;
sale of our Common Stock by stockholders, including executives and directors;
volatility and limitations in trading volumes of our Common Stock;
volatility in the market prices and trading volumes of the life sciences and medical technology stocks;
our ability to finance our business;
ability to secure resources and the necessary personnel to pursue our plans;
failure to meet external expectations or management guidance;
changes in our capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of Common Stock by stockholders;
our cash position;
a reverse stock split;
announcements and events surrounding financing efforts, including debt and equity securities;
analyst research reports, recommendations and changes in recommendations, price targets, and withdrawals of coverage;
departures and additions of key personnel;
disputes and litigation related to intellectual properties, proprietary rights, and contractual obligations;
investigations by regulators into our operations or those of our competitors;
changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and
other events or factors, many of which may be out of our control.
In the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities class action litigation has often been instituted against these companies. Litigation of this type, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require us to make significant payments.
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We currently take advantage of reduced disclosure and governance requirements applicable to smaller reporting companies, which could result in our Common Stock being less attractive to investors.
We have a public float of less than $250 million and therefore qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, we are able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our Common Stock less attractive if we rely on these exemptions. 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. We may take advantage of the reporting exemptions applicable to a smaller reporting company until we are no longer a smaller reporting company, which status would end once we have a public float greater than $250 million. In that event, we could still be a smaller reporting company if our annual revenues were below $100 million and we have a public float of less than $700 million.
Our Charter provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or stockholder to us or our stockholders, (iii) any action asserting a claim against the Company, its current or former directors, officers or employees arising pursuant to any provision of the DGCL or the Charter or the Bylaws, (iv) any action as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (v) any action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers or employees. If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We will issue additional equity securities in the future, which may result in dilution to existing investors.
To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We will, from time to time, sell additional equity securities in one or more transactions at prices and in a manner it determines. If we sell additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences. In addition, the number of shares available for future grant under our equity compensation plans may be increased in the future. In addition, the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion.
All of WaveDancer’s outstanding shares of common stock, and any shares of WaveDancer Common Stock that were issued in the Merger are, freely tradable without restrictions or further registration under the Securities Act, except for any shares held by our affiliates, as defined in Rule 144 under the Securities Act. Rule 144 defines an affiliate as a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, us and would include persons such as our directors and executive officers and large stockholders. In turn, resales, or the perception by the market that a substantial number of resales could occur, could have the effect of depressing the market price of our Common Stock.
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We are subject to the SEC's "baby shelf" rules, which limit the amount we may raise pursuant to our shelf registration statement, and our ability to access capital markets may be constrained as a result.
As a non-accelerated filer, we are subject to General Instruction I.B.6 of Form S-3, which limits the aggregate market value of securities we may offer and sell pursuant to our registration statement on Form S-3 (File No. 333-282931) during any 12-calendar-month period to one-third of the aggregate market value of our common equity held by non-affiliates (our "public float").
This limitation may significantly restrict our ability to raise capital through public offerings at times and in amounts we deem necessary or desirable, including under our at-the-market offering program with Konik Capital Partners, LLC. We have incurred recurring operating losses as of December 31, 2025, and we have additional capital needs. If the baby shelf limitation prevents us from raising sufficient capital when needed through our shelf registration statement, we may be required to seek alternative financing sources, including private placements, registered direct offerings, or debt financings, which may not be available on terms acceptable to us or at all, or which may result in greater dilution to our stockholders.
We will become eligible to use Form S-3 without the baby shelf limitation only if our public float exceeds $75 million as of a date within 60 days prior to the filing of any prospectus supplement. If our public float does not increase above this threshold, we will remain subject to this limitation for the foreseeable future. The inability to raise sufficient capital in a timely manner could require us to delay, reduce, or eliminate our commercialization efforts and product development activities, and could have a material adverse effect on our business, financial condition, results of operations, and prospects, including our ability to continue as a going concern.
Certain stockholders could attempt to influence changes, which could adversely affect our operations, financial condition and the value of our Common Stock.
Our stockholders may from time to time seek to acquire a controlling stake, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming and could disrupt our operations and divert the attention of the Board and senior management from our business and operations. These actions could adversely affect our operations, financial condition and the value of our Common Stock.
The sale or availability for sale of a substantial number of shares of Common Stock could adversely affect the market price of such shares.
Sales of a substantial number of shares of Common Stock in the public market and other legal restrictions on resale, or the perception that these sales could occur, could adversely affect the market price of such shares and could materially impair our ability to raise capital through equity offerings in the future. As of March 25, 2026 we have approximately 14,793,075 shares of Common Stock outstanding. We are unable to predict what effect, if any, market sales of securities held by our significant stockholders, directors or officers or the availability of these securities for future sale will have on the market price of our Common Stock.
If securities analysts do not publish research or reports about our business, or if they publish negative evaluations, the price of our Common Stock could decline.
The trading market for our Common Stock will rely in part on the availability of research and reports that third-party industry or financial analysts publish about us. There are many large, publicly traded companies active in the life sciences and medical technology industries, which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover us downgrades our stock, our stock price would likely decline. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. Additionally, if securities analysts publish negative evaluations of competitors in the life sciences and medical technology industries, the comparative effect could cause our stock price to decline.
Our management will be required to devote substantial time to comply with public company regulations.
As a public company, we will incur significant legal, accounting and other expenses we did not incur as a private company. The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs relative to those of we incurred as a private company, and will make some activities more time consuming and costly.
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The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of its internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act (“Section 404”). Our compliance with these requirements will require that we incur substantial accounting and related expenses and expend significant management efforts. We will likely need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404. The costs of hiring such staff may be material and there can be no assurance that such staff will be immediately available to us. Moreover, if we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock could and we could be subject to sanctions or by Nasdaq, the SEC or other regulatory authorities.
As a non-accelerated filer, we will not be required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.
We are not an “accelerated filer” or a “large accelerated filer” under the Exchange Act. Rule 12b-2 under the Exchange Act defines an “accelerated filer” to mean any company that first meets the following conditions at the end of each fiscal year: The company had a public float of $75 million or more, but less than $700 million, as of the last business day of the company’s most recently completed second fiscal quarter; the company has been subject to the reporting requirements of the Exchange Act for at least twelve calendar months; the company has filed at least one annual report under the Exchange Act; and the company is not eligible to use the requirements for a “smaller reporting company” under the revenue test in paragraph (2) or (3)(iii)(B), as applicable, of the “smaller reporting company” definition in Rule 12b-2 of the Exchange Act. Rule 12b-2 under the Exchange Act defines a “large accelerated filer” in the same way as an “accelerated filer” except that the company meeting the definition must have a public float of $700 million or more as of the last business day of the company’s most recently completed second fiscal quarter.
A non-accelerated filer is not required to file an auditor attestation report on internal control over financial reporting that is otherwise required under Section 404(b) of the Sarbanes-Oxley Act.
Therefore, our internal control over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will find our common stock less attractive because we are not required to comply with the auditor attestation requirements. 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 the trading price for our common stock may be negatively affected.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our Common Stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our Common Stock.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Prior to the Merger in August 2024, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. In preparing our consolidated financial statements for the ended December 31, 2025, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting as related to the (i) not having adequate Information Technology General Controls ("ITGC") or related Information Produced by Entity ("IPE") Controls, and (ii) lack of segregation of duties
To remediate our material weaknesses, we expect to incur substantially more additional costs for addressing our material weaknesses and deficiencies. Our remedial measures will include: (a) developing, maintaining and revising impacted ITGC and IPE controls as necessary, including reviewing the names and functions of each individual involved in the overall control environment to ensure there is proper segregation of duties and (b) development of policies and procedures that require approval of journal entries by the appropriate supervisor of, or an individual that is in an oversight role to, the individuals who prepare them and retain such documentation. We have commenced the implementation of several aforementioned remedial measures, which we expect to complete in 2026.
The implementation of any or all of these aforementioned measures, however, still may not fully address the material weaknesses in our internal control over financial reporting. Additionally, as most of our documentation will be prepared internally, we do not expect there to be significant material costs to implement our remedial measures. Our failure to correct the material weaknesses or our failure to discover and address any other material weaknesses or control deficiencies could result in inaccuracies and material misstatements in our financial statements, which could result in a restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price. Material could also our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis, reduce our ability to obtain financing or cause investors to confidence in our reported financial information, to a in our stock price, and significantly our ability to prevent .
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As a recently listed public company, we may not be able to timely and effectively implement controls and procedures required by Section 404 that are applicable to us as public company.
The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of a privately held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If management is not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, it may not be able to assess whether its internal control over financial reporting is effective, which may subject us to adverse regulatory consequences and could harm investor confidence and cause the market price of our Common Stock to decline.
We may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.
Although WaveDancer and Private Firefly had conducted due diligence on each other prior to the consummation of the Merger, there can be no assurances that their diligence revealed all material issues that may be present in our business, that all material issues through a customary amount of due diligence will be uncovered, or that factors outside of our control will not later arise. As a result, we may be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in losses. Even if due diligence successfully identifies certain risks, unexpected risks may arise, and previously known risks may materialize in a manner not consistent with each company’s preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may make future financing difficult to obtain on terms or at all.
Anti-takeover provisions under Delaware corporate law may make it difficult for our stockholders to replace or remove our Board, and could deter or delay third parties from acquiring us, which may be beneficial to our stockholders.
We are subject to the anti-takeover provisions of Delaware law, including Section 203 of the DGCL. Under these provisions, which became effective upon the closing of the Merger, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three (3) years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, “interested stockholder” means, generally, someone owning fifteen percent (15%) or more of our outstanding voting stock during the past three (3) years, subject to certain exceptions as described in Section 203 of the DGCL.
We do not anticipate that we will pay any cash dividends in the foreseeable future.
The current expectation is that we will retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our Common Stock will be your sole source of gain, if any, for the foreseeable future.
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Our management team will have broad discretion over the use of the net proceeds from the sales of our Common Stock to Konik via the ATM, if any, and investors may not agree with how we use the proceeds and the proceeds may not be invested successfully.
Our management team will have broad discretion with respect to the use of the net proceeds, if any, from sales of our Common Stock to Konik under the ATM. We may use these net proceeds for general corporate purposes and for other purposes that may not be contemplated at the time this offering is commenced. As a result, investors will be relying on the judgment of our management team regarding the application of the net proceeds, and investors will not have the opportunity, as part of their investment decision, to evaluate whether the net proceeds are being used in a manner that improves our results of operations or financial condition.
Pending the use of the net proceeds, we may invest the net proceeds in short-term, interest-bearing, investment-grade securities, bank deposits, money market funds, or other instruments, and such investments may not yield a favorable return, or any return, and may result in losses. The failure of our management team to allocate these funds effectively, or the failure of these investments to perform as expected, could have a material adverse effect on our business, financial condition, results of operations, cash flows, and the market price of our Common Stock.
Substantial future sales or issuances of the Common Stock or securities convertible into, or exercisable or exchangeable for, the Common Stock, or the perception in the public markets that these sales or issuances may occur, may depress our stock price. Also, future issuances of the Common Stock or rights to purchase Common Stock could result in additional dilution of the percentage ownership of our shareholders and could cause our stock price to fall.
The conversion or exercise of our outstanding convertible or exercisable securities and resale of the underlying Common Stock, and any other future issuances of the Common Stock or securities convertible into, or exercisable or exchangeable for, the Common Stock, would result in a decrease in the ownership percentage of existing shareholders, i.e., dilution, which may cause the market price of the Common Stock to decline. We cannot predict the effect, if any, of future issuances, conversions, or exercises of our securities, on the price of the Common Stock. In all events, future issuances of the Common Stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities are likely to occur, or the perception that holders of securities convertible or exercisable for Common Stock are likely to sell their securities, could adversely affect the market price of the Common Stock. The effect of such dilution may be magnified as to all shares that are not or may eventually not be subject to restrictions on resale as enumerated below.
We also expect that significant additional capital may be needed in the future to continue our planned operations, including expanding research and development, hiring new personnel, marketing our products, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our shareholders may experience substantial dilution. We may sell Common Stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell Common Stock, convertible securities, or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders.
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