Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. In
deciding whether to invest, you should carefully consider the following risk factors, as well as the financial and other information contained
in this Quarterly Report on Form 10Q, including our condensed consolidated financial statements and related notes. Any of the following
risks could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value
of our stock to decline, which could cause you to lose all or part of your investment. Additional risks and uncertainties of which we
are unaware, or that we currently deem immaterial also may become important factors that affect us.
Summary of the Material and Other Risks Associated
with Our Business
Our business is subject to numerous material and
other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the
following:
| ● | We have incurred significant net losses since inception, and
we expect to continue to incur significant net losses for the foreseeable future. |
| ● | We have a limited operating history, which may make it difficult
to evaluate our prospects and likelihood of success. |
| ● | Our business is tied directly to the diagnostic medical imaging
industry and is dependent on our ability to successfully introduce our Mo-100 and adapt to changing technology and a changing medical
practice landscape. |
| ● | We currently have no customers or sales, but we expect to
be heavily dependent on a few large customers to generate a majority of our revenues for our Mo-100. Our operating results could be adversely
affected by a reduction in business with our future significant customers. |
| ● | We are early in our research and development efforts for Mo-100
and U-235 using the ASP technology. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval
and ultimately commercialize our future isotopes, or experience significant delays in doing so, our business will be materially harmed. |
| ● | Obtaining and maintaining our patent protection depends on
compliance with various procedures, document submissions, fee payments and other requirements imposed by governmental patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements. |
| ● | There has been no prior public market for our common stock,
the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to
resell your shares at or above the initial public offering, or IPO, price. |
| ● | 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, stockholders could
lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. |
|
● |
Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.” |
The material and other risks
summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly
Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC.
If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations
could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face.
Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely
affect our business, prospects, financial condition and results of operations.
Risks Related to Our Limited Operating History, Financial Position
and Need for Additional Capital
We have a very limited operating history, and we have incurred
losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate
any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.
We were incorporated in September 2021, and
we have a very limited operating history upon which you can evaluate our business and prospects. Our operations to date have been primarily
focused on acquiring the assets of Molybdos (after participating in and being declared the winner of a competitive auction process under
Section 45 of the South Africa Consumer Protection Act, 2008 for ZAR 11,000,000, which at the then current exchange rate
was approximately USD 734,000)) and in-licensing intellectual property rights related to the production of Molybdenum-100 (a non-radioactive
isotope we believe may have applications primarily in the medical industry) and Uranium-235 (an isotope of uranium we believe may have
application in the clean, efficient and carbon-free energy industry) using the ASP technology, organizing and staffing our company, research
and development activities, business planning, raising capital, and providing general and administrative support for these operations.
In July 2022, we acquired assets comprising a dormant Silicon-28 aerodynamic separation processing plant from Klydon for ZAR 6,000,000
(which at the then current exchange rate was approximately USD 364,000), which will be payable to Klydon on the later of 180 days of the
acquisition and the date on which the assets generate any revenues of any nature. We have not yet built a functioning Mo-100 or U-235
manufacturing plant or even demonstrated the ability to produce Mo-100 or U-235 using the ASP technology. We have not yet demonstrated
an ability to overcome many of the risks and uncertainties frequently encountered by companies in the medical, technology and energy industries,
including an ability to obtain applicable regulatory approvals, manufacture any isotopes at commercial scale (or arrange for a third party
to do so on our behalf), or conduct sales and marketing activities necessary for successful isotope commercialization. In addition, we
have not yet sought any regulatory approval that may be necessary for application of Mo-100 that we may develop using the ASP process
in the medical industry. Consequently, any predictions about our future performance may not be as accurate as they would be if we had
a history of successfully developing and commercializing isotopes.
Investment in isotope enrichment technology is highly
speculative because it entails substantial upfront capital expenditures and significant risk that any potential isotopes will fail to
demonstrate adequate utility or effectiveness in the targeted application (or for medical indications, an acceptable safety profile),
gain regulatory approval, if applicable, and become commercially viable. We have no products approved for commercial sale and have not
generated any revenue to date, and we continue to incur significant research and development and other expenses related to our ongoing
operations. As a result, we are not profitable and have incurred losses since our inception in September 2021. For the period from
September 13, 2021 (inception) through December 31, 2021, we reported a net loss of $2.6 million. For the nine-month period
ended September 30, 2022, we reported a net loss of $3.6 million. As of September 30, 2022, we had an accumulated deficit of $6.2 million.
We expect to continue to incur significant losses
for the foreseeable future, and we expect these losses to increase as we:
| ● | continue to invest in our research and development activities; |
| ● | seek applicable regulatory approvals for any future isotopes
that we may successfully develop; |
| ● | experience any delays or encounter any issues with any of
the above, including but not limited to failed research and development activities, safety issues or other regulatory challenges, the
risk of which in each case may be exacerbated by the ongoing COVID-19 pandemic; |
| ● | hire additional engineering and production personnel and build
our internal resources, including those related to audit, patent, other legal, regulatory and tax-related services associated with maintaining
compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs; |
| ● | obtain, expand, maintain, enforce and protect our intellectual
property portfolio; |
| ● | establish a sales, marketing and distribution infrastructure
and establish manufacturing capabilities, whether alone or with third parties, to commercialize future isotopes (assuming receipt of
applicable regulatory approvals), if any; and |
| ● | operate as a public company. |
We expect limited commercial activity for Mo-100
in the United States during the next two to three years and we anticipate that most of our initial revenues from future sales of our Mo-100
will be derived from countries in Asia and EMEA (Europe, Middle East and Africa). To become and remain profitable, we must succeed in
developing and eventually commercializing isotopes that generate significant revenue. This will require us to be successful in a range
of challenging activities, including completing research and development activities relating to our ASP technology, obtaining applicable
regulatory approval for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable
regulatory approvals). We are only in the preliminary stages of most of these activities. We may never succeed in these activities and,
even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertainties
associated with chemical isotopes separation, we are unable to accurately predict the timing or amount of increased expenses or when,
or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our
ability to raise capital, expand our business, maintain our research and development efforts, diversify our future isotopes or even continue
our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
Our future prospects are tied directly to the diagnostic medical
imaging industry and depend on our ability to successfully introduce our Mo-100 and adapt to a changing technology and medical practice
landscape.
The field of diagnostic medical imaging is dynamic,
with new products, including equipment, software and products, continually being developed and existing products continually being refined.
New hardware (scanners), software or agents in a given diagnostic modality may be developed that provide benefits superior to the then-dominant
hardware, software and agents in that modality, resulting in commercial displacement of the existing radiotracers. For example, alternate
scanners and radiotracers could be introduced. Similarly, changing perceptions about comparative efficacy and safety, as well as changing
availability of supply may favor one agent over another or one modality over another. In addition, new or revised appropriate use criteria
developed by professional societies, to assist physicians and other health care providers in making appropriate imaging decisions for
specific clinical conditions, can and have reduced the frequency of and demand for certain imaging modalities and imaging agents. Technological
obsolescence in any of the medical imaging products that would use the Mo-100 that we plan to manufacture could have a material adverse
effect on our business, results of operations, financial condition and cash flows.
We may not realize the anticipated benefits of previous acquisitions.
The success of the company will depend in large
part on the success of our management in integrating the acquired assets into the company. In October 2021, our subsidiary in South
Africa acquired the assets of Molybdos after participating in and being declared the winner of a competitive auction process under Section 45
of the South Africa Consumer Protection Act, 2008 for ZAR 11,000,000 (which at the then current exchange rate was approximately
USD 734,000), plus value added tax (VAT) levied by the government of South Africa at the rate of 15% and auctioneers’ commission
at the rate of 10%. We have not yet built a functioning Mo-100 or U-235 manufacturing plant or even demonstrated the ability to produce
Mo-100 or U-235 using the assets acquired at the business rescue auction. We will not know whether the assets that we acquired will work
according to our expectations until we have completed construction of the Molybdos plant as contemplated by our turnkey contract with
Klydon. In July 2022, we acquired assets comprising a dormant Silicon-28 aerodynamic separation processing plant from Klydon located in
Pretoria, South Africa for ZAR 6,000,000 (which at the then current exchange rate was approximately USD 364,000). We intend to explore
commercial opportunities for Silicon-28 and other light isotopes that may be produced using these assets. Our failure to achieve the integration
of the acquired assets into the company and to commercialize the assets could result in our failure to realize the anticipated benefits
of those acquisitions and could impair our results of operations, profitability and financial results.
We currently have no customers or sales, but we expect to be
heavily dependent on a few large customers to generate a majority of our revenues for our Mo-100. Our operating results could be adversely
affected by a reduction in business with our future significant customers.
We currently have no customers or sales. However,
we expect to rely on a limited number of customers outside of the United States to purchase any Mo-100 that we develop using the
ASP technology under long-term contracts. Our future key customers may stop ordering our Mo-100 at any time or may become bankrupt or
otherwise unable to pay. The loss of any of our future key customers could result in lower revenues than we anticipate and could harm
our business, financial condition or results of operations.
Our independent registered public accounting firm’s report
contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
We incurred a net loss of $2.6 million for
the period from September 13, 2021 (inception) through December 31, 2021 and a net loss of $3.6 million for the nine-month period
ended September 30, 2022. As of September 30, 2022, we had approximately $0.4 million in cash. We have yet to generate any revenues,
and we anticipate that our losses will continue for the foreseeable future. We cannot assure you that our plans to commercialize isotopes
that we may develop will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going
concern. The financial statements contained elsewhere in this report do not include any adjustments that might result from our inability
to continue as a going concern. Unless we can begin to generate material revenue, we may not be able to remain in business. We cannot
assure you that we will raise enough money or generate sufficient sales to meet our future working capital needs.
We will require substantial additional capital to finance our
operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force
us to delay, limit or terminate certain of our product development efforts or other operations.
We expect our expenses to increase substantially
in connection with our ongoing and planned activities, particularly as we continue our research and development activities, seek applicable
regulatory approvals for any future isotopes that we may successfully develop, and expand our organization by hiring additional personnel.
In addition, following the closing of our IPO, we expect to incur additional costs associated with operating as a public company.
As of September 30, 2022, our cash was approximately
$0.4 million. We believe, based on our current operating plan, that the net proceeds from our IPO, together with our existing cash
and cash equivalents, will be sufficient to fund our operations for at least the next 12 months from the date the financial statements
are issued. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional
funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements,
as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches.
In any event, we will require substantial additional
capital to support our business operations as we pursue additional research and development activities related to our ASP technology and
seek applicable regulatory approval of our any future isotopes, and otherwise to support our continuing operations. In addition, we expect
to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution (assuming receipt
of applicable regulatory approvals for our future isotopes). Even if we believe we have sufficient capital for our current or future operating
plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Any additional
capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our future isotopes (assuming receipt of applicable regulatory approvals).
Additional funding may not be available on acceptable
terms, or at all. We have agreed to pay the underwriter of our IPO “tail compensation” equal to 8.0% of the aggregate gross
proceeds received by us from the sale of our common stock in any private or public offering or other financing or capital-raising transaction
of any kind within the 12-month period from the date the financial statements are issued. As a result of the COVID-19 pandemic
and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including
severely diminished liquidity and credit availability. If the equity and credit markets deteriorate, it may make any necessary debt or
equity financing more difficult, more costly or more dilutive. If we do not raise additional capital in sufficient amounts, we may be
prevented from pursuing development and commercialization efforts, which will harm our business, operating results and prospects.
Raising additional capital or acquiring or licensing assets by
issuing equity or debt securities may cause dilution to our stockholders, and raising funds through lending and licensing arrangements
may restrict our operations or require us to relinquish proprietary rights.
We may seek additional capital through a combination
of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent
that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and
the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness
would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. If we raise additional capital through future collaborations, strategic
alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue
streams, research programs or future isotopes, or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional capital when
needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant
rights to develop and market our future isotopes (assuming receipt of applicable regulatory approvals for our future isotopes) that we
would otherwise develop and market ourselves.
Risks Related to the Development and Commercialization of Our Future
Isotopes
We are early in our research and development efforts for Mo-100
and U-235 using the ASP technology. If we are unable to advance our future isotopes in development, obtain applicable regulatory approval
and ultimately commercialize our future isotopes, or experience significant delays in doing so, our business will be materially harmed.
We are early in our research and development efforts
and currently have only Mo-100, a non-radioactive isotope we believe may have applications primarily in the medical industry (for use
by radiopharmacies, hospitals, clinics and others in the medical community to prepare various nuclear imaging agents), in development
using the ASP technology. We initiated the initial proof of concept stage (Phase 1) of the Mo-100 development plan in October 2021
and while we expect to complete the proof-of-concept stage during the second half of 2022, it is possible that the proof-of-concept stage
will take longer than anticipated to complete due to unexpected delays.
We also plan to begin enrichment of uranium, which
is a chemical element we believe may have application in the clean, efficient and carbon-free energy industry, using the ASP technology.
We are in the planning stage of research and development activities for enriched uranium. If we are unable to advance our future isotopes
in development, obtain applicable regulatory approval and ultimately commercialize our future isotopes (assuming receipt of applicable
regulatory approvals), or experience significant delays in doing so, our business will be materially harmed.
Our ability to generate product revenues will depend
heavily on the success of our research and development activities, receipt of applicable regulatory approvals, and eventual commercialization
of our future isotopes (assuming receipt of applicable regulatory approvals and compliance with all applicable regulatory authorities).
The success of our business, including our ability
to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval
and commercialization of our currently planned future isotopes, Mo-100 and enriched uranium, which may never occur.
We will have to be successful in a range of challenging
activities, including completing research and development activities relating to our ASP technology, obtaining applicable regulatory approval
for future isotopes, if any, and manufacturing, marketing and selling any future isotopes (assuming receipt of applicable regulatory approvals).
We are only in the preliminary stages of most of these activities. If we are unable to succeed in these activities, we may not be able
to generate sufficient revenue to continue our business.
We rely on a limited number of suppliers to provide us components
and a material interruption in supply could prevent or limit our ability to execute our strategic plan and development programs in the
expected timeframe.
We depend upon a limited number of third-party suppliers
located for certain components required to construct the centrifuges and other equipment for the enrichment plant that is being constructed
in South Africa. To date, we have been able to obtain the required components for our centrifuges without any significant delays or interruptions,
except for certain delays related to COVID-19. If we lose any of these suppliers, we may be required to find and enter into supply arrangements
with one or more replacement suppliers. Obtaining alternative sources of supply could involve significant delays and other costs, and
these supply sources may not be available to us on reasonable terms or at all. Any disruption of supplies could delay completion of the
enrichment plant in South Africa, which could adversely affect our ability to execute our strategic plan and development programs in the
expected timeframe.
Our business, financial and operating performance could be adversely
affected by epidemics and other health related issues including but not limited to the coronavirus disease 2019 (“COVID-19”)
pandemic.
The global outbreak of COVID-19 has negatively affected
global economies, disrupted supply chains, and has resulted in significant travel, transport, and other restrictions. The COVID-19 outbreak
has disrupted the supply chains and our day-to-day operations (and the operations of our suppliers and contractors (including Klydon),
which could materially adversely affect our operations). In this regard, global supply chains and the timely availability of components
imported to South Africa from the United States, countries in Europe or other nations could be materially disrupted by quarantines,
slowdowns or shutdowns, border closings, and travel restrictions resulting from the global COVID-19 pandemic or other global pandemic
or health crises. Further, impacts of COVID-19 infections and other COVID-19 pandemic related impacts on our management and workforce,
or our suppliers and contractors (including Klydon), could adversely impact our business. While we have taken steps to protect our workforce
and carry-on operations, we may not be able to mitigate all of the potential impacts. We anticipate increased costs related to, or resulting
from, the COVID-19 pandemic due to, among other things, delays in supplier deliveries, impacts of travel restrictions, site access and
quarantine requirements.
In the event that the COVID-19 pandemic prevents
our employees or our contractors from working in person at our facility in South Africa or our suppliers are unable to provide goods and
services on the schedule we anticipated, the impacts on our schedule and costs could be material. The ultimate impact of the COVID-19
pandemic on our operations, including our ability to execute our strategic plan and development programs in the expected timeframe, remains
uncertain and will depend on future pandemic-related developments, including the duration of the pandemic and any potential subsequent
variants of COVID-19 and related government actions to prevent and manage disease spread, all of which are uncertain and cannot be predicted.
The long-term impacts of the COVID-19 pandemic on us, our contractors and suppliers that could impact our business are also difficult
to predict but could adversely affect our business, results of operations, and prospects.
Development activities at our facility in South Africa could
be disrupted for a variety of reasons, which could prevent us from completing our development activities.
A disruption in development activities at our facility
in South Africa could have a material adverse effect on our business. Disruptions could occur for many reasons, including power outages,
fire, natural disasters, weather, unplanned maintenance or other manufacturing problems, public health crises (including, but not limited
to, the COVID-19 pandemic), disease, strikes or other labor unrest, transportation interruption, government regulation, political unrest
or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may
take a significant time to start production, each of which could negatively affect our business and financial performance.
Risks associated with the in-licensing of the ASP technology
for development of Mo-100 or enriched uranium could cause substantial delays in the development of our future isotopes.
Prior to October 2021, as a company we had
no involvement with or control over the research and development of the ASP technology. We have relied and continue to rely on Klydon
to conduct such research and development in accordance with the applicable legal, regulatory and scientific standards prior to the in-licensing
of the ASP technology for development of Mo-100 or U-235. If the research and development processes or the results of the development
programs prior to the in-licensing of the ASP technology for development of Mo-100 or U-235 prove to be unreliable, this could result
in increased costs and delays in the development of our future isotopes, which could adversely affect any future revenue from these future
isotopes (assuming receipt of applicable regulatory approvals).
Regulatory approval for production and distribution of radiopharmaceuticals
used for medical imaging and therapeutic treatments may involve a lengthy and expensive process with an uncertain outcome.
Currently, the sale or use of Mo-100 is not regulated
by a healthcare regulator, such as the FDA, European Medicines Agency (EMA) or comparable foreign regulatory authorities. However, products
such as Mo-99 and Tc-99m that are produced from Mo-100 in a cyclotron or a linear accelerator are regulated by healthcare regulators.
We expect radiopharmacies, hospitals, clinics and others in the medical community to produce the widely used medical radioisotope technetium-99m
(Tc-99m) from the Mo-100 that we may produce using our ASP technology. Tc-99m is a diagnostic agent that is used by health care professionals
with FDA-approved imaging devices to detect potential diseases like coronary artery disease and cancer, as well as evaluate lung, liver,
kidney and brain function. When used with the appropriate diagnostic scanner device, such as a SPECT imaging system, the Tc-99m emits
signals that are captured and produces an image of internal organs to detect various medical problems and contribute to diagnosis and
treatment decisions. Our future customers who may use Mo-100 to produce radiopharmaceuticals will likely require regulatory approval for
their products. To date, only one healthcare regulator (Canada) has approved the use of Tc-99m produced from Mo-100 via a cyclotron. Obtaining
regulatory approval is expensive and can take many years to complete, and its outcome is inherently uncertain. Our customers’ regulatory
approval process may not be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the process.
In the future, we may need to obtain approval from
the FDA, EMA or comparable foreign regulatory authorities prior to the sale of Mo-100 that we may produce using our ASP technology for
use in medical imaging and therapeutic treatments. If we require FDA, EMA or other comparable foreign regulatory authorities to approve
the sale of Mo-100 that we may produce using our ASP technology for medical imaging and therapeutic treatments, we must demonstrate the
safety and utility or efficacy of our Mo-100. Obtaining regulatory approval is expensive and can take many years to complete, and
its outcome is inherently uncertain. Our regulatory approval process may not be conducted as planned or completed on schedule, if at all,
and failure can occur at any time during the process.
Our success depends on our future customers’ ability to
successfully commercialize products that are produced from our isotopes.
Our customers operate in a competitive environment.
If our customers are unable to successfully commercialize products that they produce from our isotopes, our business will be negatively
impacted. Our customers may fail for a number of reasons, including but not limited to pricing pressure from competing products and failure
to gain regulatory approval for the production of their products from healthcare regulators.
Our success depends on our ability to adapt to a rapidly changing
competitive environment in the nuclear industry.
The nuclear industry in general, and the nuclear
fuel industry in particular, is in a period of significant change, which could significantly transform the competitive landscape we face.
The uranium and isotope enrichment sector is competitive. Changes in the competitive landscape may adversely affect pricing trends, change
customer spending patterns, or create uncertainty. To address these changes, we may seek to adjust our cost structure and efficiency of
operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions. We are
actively considering, and expect to consider from time to time in the future, potential strategic transactions, which could involve, without
limitation, changes in our capital structure, acquisitions and/or dispositions of businesses or assets, joint ventures or investments
in businesses, products or technologies.
In connection with any such transaction, we may
seek additional debt or equity financing, contribute or dispose of assets, assume additional indebtedness, or partner with other parties
to consummate a transaction. Any such transaction may not result in the intended benefits and could involve significant commitments of
our financial and other resources. Legal and consulting costs incurred in connection with debt or equity financing transactions in development
are deferred and subject to immediate expensing if such a transaction becomes less likely to occur. If the actions we take in response
to industry changes are not successful, our business, results of operations and financial condition may be adversely affected.
We may explore strategic collaborations that may never materialize
or may fail.
We intend to accelerate the development of our enriched
uranium program by selectively collaborating with energy companies in the United States. We intend to retain significant technology,
economic and commercial rights to our programs in key geographic areas that are core to our long-term strategy. As a result, we intend
to periodically explore a variety of possible additional strategic collaborations in an effort to gain access to additional resources.
At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition
in seeking appropriate strategic collaborators, and strategic collaborations can be complicated and time-consuming to negotiate and document.
We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will
enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing them.
If the market opportunities for our future isotopes are smaller
than we estimate (even assuming receipt of any required regulatory approval), our business may suffer.
We are currently focused on producing Mo-100 using
our ASP technology to meet critical patient healthcare needs and advance clinical research. We also plan to produce enriched uranium to
meet the future needs of developers of U.S. advanced reactor technologies requiring HALEU. Our projections of the potential
markets are based on estimates that have been derived from a variety of sources, including scientific literature and market research,
and which may prove to be incorrect. We must be able to successfully acquire a significant market share in our potential markets to achieve
profitability and growth. Customers may become difficult to gain access to, which would adversely affect our results of operations and
our business.
We face substantial competition, which may result in others discovering,
developing or commercializing isotopes before or more successfully than us.
The development and commercialization of radioisotopes
and chemical elements is highly competitive. We face competition with respect to Mo-100 that we may produce using our ASP technology from
established biotechnology and nuclear medicine technology companies and will face competition with respect to enriched uranium that we
may seek to develop or commercialize in the future from innovative technology and energy companies. There are a number of large biotechnology
and nuclear medicine technology companies that currently market and sell radioisotopes to radiopharmacies, hospitals, clinics and others
in the medical community (Mo-99 is the active ingredient for Tc-99m-based radiopharmaceuticals used in nuclear medicine procedures). There
are also a number of technology and energy companies that are currently seeking to develop HALEU. Potential competitors also include
academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection
and establish collaborative arrangements for research, development, manufacturing and commercialization.
More established companies may have a competitive
advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience
and expertise in securing reimbursement, government contracts, relationships with key opinion leaders, obtaining and maintaining regulatory
approvals and distribution relationships to market products. These companies also have significantly greater research and marketing capabilities
than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition
may be harmed.
As a result of these factors, our competitors may
complete development of isotopes before we are able to, which may limit our ability to develop or commercialize our future isotopes. Our
competitors may also develop radioisotopes or technologies that are safer, more effective, more widely accepted and cheaper than ours,
and may also be more successful than us in manufacturing and marketing their isotopes. These appreciable advantages could render our future
isotopes obsolete or non-competitive before we can recover the expenses of their development and commercialization.
Mergers and acquisitions in the technology and energy
industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, as well as
in acquiring technologies complementary to, or necessary for, our programs.
Even if the products that we or our customers may produce using
the ASP technology receives regulatory approval, it may fail to achieve market acceptance by radiopharmacies, hospitals, clinics or others
in the medical community necessary for commercial success.
Even if the Mo-100 that we may produce using the
ASP technology, or Tc-99m or Mo-99 that we expect our future customers to produce using the Mo-100 that we plan to offer, receives regulatory
approval, the isotopes may fail to gain sufficient market acceptance by radiopharmacies, hospitals, clinics and others in the medical
community. If it does not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become
profitable. The degree of market acceptance of Mo-100 that we may produce using the ASP technology, or the Tc-99m or Mo-99 that our future
customers may produce, will depend on a number of factors, including but not limited to:
| ● | the potential advantages compared to alternative radioisotopes; |
| ● | the timing of market introduction of the product as well as
competitive products; |
| ● | effectiveness of sales and marketing efforts; |
| ● | the strength of our relationships with radiopharmacies, hospitals,
clinics and others in the medical community; |
| ● | the cost in relation to alternative radioisotopes; |
| ● | our ability to offer Mo-100 that we may produce using the
ASP technology for sale at competitive prices; |
| ● | the convenience and ease of use compared to alternative radioisotopes; |
| ● | the willingness of radiopharmacies, hospitals, clinics and
others in the medical community to try an innovative radioisotope; and |
| ● | the strength of marketing and distribution support; |
Our efforts to educate radiopharmacies, hospitals,
clinics and others in the medical community on the benefits of Mo-100 that we may produce using the ASP technology may require significant
resources and may never be successful.
Because we expect sales of Mo-100 that we may produce
using the ASP technology (assuming receipt of applicable regulatory approvals for commercial sale) to generate substantially all of our
revenues for the foreseeable future, the failure of Mo-100 that we may produce using the ASP technology (assuming receipt of applicable
regulatory approvals for commercial sale) to find market acceptance would harm our business and could require us to seek additional financing.
We currently have no marketing and sales organization and have
no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities.
If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products,
we may not be able to generate product revenue.
We have no internal sales, marketing or distribution
capabilities, nor have we commercialized a product. If the Mo-100 that we may produce using our ASP technology gains market acceptance
and our customers receive regulatory approval for the isotopes they produce, we must build a marketing and sales organization with technical
expertise and supporting distribution capabilities to commercialize such product in the markets that we target, which will be expensive
and time-consuming, or collaborate with third parties that have direct sales forces and established distribution systems, either to augment
our own sales force and distribution systems or in lieu of our own sales force and distribution systems. We currently plan to independently
commercialize the Mo-100 that we may produce using our ASP technology (assuming receipt of applicable regulatory approvals) in the United States
by establishing a focused sales force and marketing infrastructure. We may opportunistically seek additional strategic collaborations
to maximize the commercial opportunities for our medical isotopes business outside of the United States. We have no prior experience
as a company in the marketing, sale and distribution of isotopes and there are significant risks involved in building and managing a sales
organization, including our ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate
training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay
in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these
products. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing
and distribution functions on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any,
may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop
ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and
attention to sell and market our products effectively. If we are not successful in commercializing our isotopes, either on our own or
through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant
additional losses.
Obtaining regulatory approval for either the Mo-100 that we may
produce using the ASP technology, or the Tc-99m or Mo-99 that our future customers may produce using the Mo-100 that we plan to offer,
in one jurisdiction does not mean that we or they will be successful in obtaining regulatory approval of such future products in other
jurisdictions.
Currently, the production and distribution of Mo-100
does not require any regulatory licenses from healthcare regulators. Healthcare regulators frequently change such requirements, and it
is possible that in the future Mo-100 may be regulated as a healthcare product. Obtaining such regulatory licenses, if required, may be
a timely and costly process and could materially impact our ability to commercialize the Mo-100 that we plan to offer. Obtaining regulatory
approval of the Mo-100 that we may produce using the ASP technology in one jurisdiction does not guarantee that we will be able to obtain
regulatory approval in any other jurisdiction. For example, even if the FDA grants regulatory approval of the Mo-100 that we may produce
using the ASP technology, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and
promotion and reimbursement of such future product in those countries. However, a failure or delay in obtaining regulatory approval in
one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions
and can involve requirements and administrative review periods different from those in the United States.
Obtaining foreign regulatory approvals and establishing
and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and
could delay or prevent the introduction of the Mo-100 that we may produce using the ASP technology. Products such as Tc-99m and Mo-99
that may be produced by our future customers using the Mo-100 that we plan to offer will likely require regulatory licenses in most regions.
Healthcare regulators frequently change such requirements and it is unclear what each healthcare regulator will require. To date, only
one region (Canada) has approved the use of Tc-99m that has been produced from Mo-100 in a cyclotron. Obtaining such regulatory licenses,
if required, may be a timely and costly process and could materially impact the ability of our future customers to operate and use the
Mo-100 that we plan to offer. Obtaining regulatory approval in one jurisdiction does not guarantee that we or they will be able to obtain
regulatory approval in any other jurisdiction.
If we or any future collaborator fail to comply
with the regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be
reduced and our ability to realize the full market potential of the Mo-100 that we may produce using the ASP technology will be harmed.
Product liability lawsuits against us could cause us to incur
substantial liabilities and could limit commercialization of any isotopes that we may develop.
We face an inherent risk of product liability exposure
if we commercialize any isotopes that we may develop. If we cannot successfully defend ourselves against claims that any such isotopes
caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for any isotopes that we may develop; |
| ● | substantial monetary awards to patients; |
| ● | significant time and costs to defend the related litigation; |
| ● | a diversion of management’s time and our resources; |
| ● | initiation of investigations by regulators; |
| ● | the inability to commercialize any isotopes that we may develop; |
| ● | injury to our reputation and significant negative media attention;
and |
| ● | a decline in our share price. |
Any product liability insurance coverage that we
obtain and maintain may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance
coverage each time we commence a clinical trial and if we successfully commercialize any isotopes. Insurance coverage is increasingly
expensive. We may not be able to obtain or maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability
that may arise.
Risks Related to Regulatory Compliance
Our business is and could become subject to a wide variety of
extensive and evolving laws and regulations. Failure to comply with such laws and regulations and failure to obtain licenses, approvals
and permits that may be required to execute on our strategy and develop our company’s business could have a material adverse effect
on our business.
We are subject to a wide variety of laws and regulations
relating to various aspects of our business, including with respect to the development of the ASP technology and our future isotopes,
employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at
the South African and foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries,
and we cannot always reasonably predict the impact of, or the ultimate cost of compliance with, current or future regulatory or administrative
changes. In South Africa, our Mo-100 enrichment facility is heavily regulated. South Africa is a signatory to the International Atomic
Energy Agency (“IAEA”) conventions and has adopted safety standards from the IAEA. The design, construction and operation
of the Mo-100 enrichment plant are highly regulated and require government licenses, approvals and permits, and may be subject to the
imposition of conditions. In some cases, these licenses, approvals and permits entail periodic review and inspections. While we and Klydon
have received all licenses, approvals and permits required to build and operate our Mo-100 enrichment facility in South Africa, we cannot
predict whether the conditions associated with such licenses, approvals and permits will be maintained. For example, each of Klydon and
ASP Isotopes South Africa (Proprietary) Limited has received from the South African Council for The Non-Proliferation of Weapons of Mass
Destruction (1) a registration certificate (which are valid for two years from the date of issuance) and (2) a Manufacturing and Services
Permit. The permits provide that the Non-Proliferation Secretariat will conduct at least two industry visits in June and November (or
as arranged) of every year. Each of the permits includes numerous conditions, including, for example, the obligation to keep the Council
updated or informed on all separation projects at all times and at least through biannual declarations, which must be done through correspondence
to the Council at the end of April and September every year. The permit issued to ASP Isotopes South Africa (Proprietary) Limited includes
additional specific information requirements related to (i) the progress on the design and construction of the Mo-100 separation plant,
(ii) the progress on the manufacturing of Molybdenum separation elements, and (iii) the commissioning of the plant. Each of the permits
further provides that (i) any potential export of controlled goods and technology should be requested at an early stage through a Provisional
Export Guidance Request, (ii) all isotope separation applications remain controlled regardless of the isotope atomic mass and will be
dealt with on a case-by-case basis, and (iii) any ultimate transfer of these controlled goods and technology will be subject to the issuance
of a permit by the Council as required in terms of the Non-Proliferation Act and related Government Notices and Regulations.
In addition, we cannot assure you that we will be
able to obtain, on a timely basis or at all, any additional licenses, approvals and permits that may be required to execute on our strategy
and develop our company’s business, including any such licenses, approvals and permits that may be required to introduce Mo-100
produced using ASP technology into the market and to begin the enrichment of uranium to demonstrate our capability to produce HALEU using
the ASP technology.
Changes in law or the imposition of new or additional
regulations or permit requirements that impact our business could negatively impact our performance in various ways, including by limiting
our ability to collaborate with partners or customers or by increasing our costs and the time necessary to obtain required authorization.
We monitor new developments and devote a significant amount of management’s time and external resources to compliance with these
laws and regulations. We cannot assure you, however, that we are and will remain in compliance with all such requirements and, even when
we believe we are in compliance, a regulatory agency may determine that we are not. In addition, we cannot assure you that we will be
able to obtain all licenses, approvals and permits that may be required to execute on our strategy and develop our company’s business
as currently contemplated. Failure by us, our employees, affiliates, partners or others with whom we work to comply with applicable laws
and regulations or to obtain or comply with necessary licenses, approvals and permits could result in administrative, civil, commercial
or criminal liabilities, including suspension or debarment from government contracts or suspension of our export/import privileges. Failure
by us, our employees, affiliates, partners or others with whom we work to comply with the permits issued to us by the South African Council
for The Non-Proliferation of Weapons of Mass Destruction could result in disruption of our development activities at our facility in South
Africa, which could prevent us from completing our development activities.
If technology developed for the purposes of enriching isotopes
can be applied to the creation or development of weapons-grade materials, then our technology may be considered “dual use”
technology and be subject to limitations on public disclosure or export.
Our research and development of isotope enrichment
is dedicated not only to producing Mo-100 for use in nuclear medical diagnostic procedures and concentrating uranium in the isotope uranium-235
for use in nuclear energy, but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied.
Enrichment is among the most sensitive nuclear technologies because it can produce weapon-grade materials. The ASP technology may be considered
dual use and could be subject to export control, for example, under the Wassenaar Arrangement.
Risks Related to Our Intellectual Property
Our intellectual property is not protected through patents or
formal copyright registration. As a result, we do not have the full benefit of patent or copyright laws to prevent others from replicating
the ASP technology.
Neither we nor Klydon have yet protected our respective
intellectual property rights through patents or formal copyright registration, and neither we nor Klydon currently have any patent applications
pending. To date, we and Klydon have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements
with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our
intellectual property, and intend to continue to rely on these and other means. As we intend to transition into the commercialization
of Mo-100, we envision our intellectual property and its security becoming more vital to our future. Until we protect our intellectual
property through patent, trademarks and registered copyrights, we may not be able to protect our intellectual property and trade secrets
or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining
access to our intellectual property or trade secrets. In such an instance, our competitors could produce products that are nearly identical
to ours, resulting in us selling less products or generating less revenue from our sales.
We may be unable to adequately protect our intellectual property
and proprietary rights and prevent others from making unauthorized use of our products and technology.
Our success and competitiveness depend, in significant
part, on our ability to protect our intellectual property rights, including the ASP technology and certain other practices, tools, technologies
and technical expertise we utilize in designing, developing, implementing and maintaining processes used in the development of our future
isotopes. To date, we and Klydon have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements
with our respective employees, consultants, vendors, potential customers and other relevant persons and other measures to protect our
intellectual property, and intend to continue to rely on these and other means.
For strategic reasons, neither we nor Klydon have
yet protected our intellectual property by filing patent applications related to our technology, inventions and improvements. Even if
we or Klydon filed patent applications and patents were granted, we cannot assure you we would be fully protected against third parties
as those patents may not be sufficiently broad in their coverage, may not be economically significant, or may not provide us with any
competitive advantage. Competitors may be able to design around any patents and develop isotope production techniques comparable or superior
to the ASP technology. Furthermore, the filing of a patent would entail the disclosure of our know-how, and breaches of patent rights
related to a wrongful use of this know-how would be difficult to enforce in the international landscape. We believe that our intellectual
property strategy differs significantly from the strategies of others involved in the medical isotope industry, many of whom have extensive
patent portfolios and rely heavily on intellectual property registrations to enforce their intellectual property rights. As a result
of this discrepancy in strategy, we may be at a competitive disadvantage with respect to the strength of our intellectual property protection.
Unlike others involved in the medical isotope industry, who generally have patents providing exclusive control over their innovations,
we have no recourse against any entity that independently creates the same technology as ours or legitimately reverse-engineers our technology.
We generally enter into non-disclosure agreements
with our employees, consultants and other parties with whom we have strategic relationships and business alliances. We cannot, however,
assure you that these agreements will be effective in controlling access to and distribution of our technology and proprietary information.
Since we do not protect our intellectual property by filing patent applications, we rely on our personnel to protect our trade secrets,
know-how and other proprietary information to a greater degree than we would if we had patent protection for our intellectual property.
In any jurisdiction in which our research and development is not protected by similar agreements, there is no protection against the
manufacture and marketing of identical or comparable research and development by third parties, who are generally free to use, independently
develop, and sell our developments and technologies without paying license or royalty fees. Furthermore, our former employees may perform
work for our competitors and use our know-how in performing this work. In the event we scale our business by hiring additional personnel
and entering into contracts with third parties, the risks associated with breaches of non-disclosure agreements, confidentiality agreements
and other agreements pertaining to our technology and proprietary information will increase, and such breaches could have an adverse
effect on our business and competitive position.
We may come to believe that third parties are
infringing on, or otherwise violating, our intellectual property or other proprietary rights. To prevent infringement or unauthorized
use, we may need to file infringement and/or misappropriation suits, which are expensive and time-consuming, could result in meritorious
counterclaims against us and would distract management’s attention. In addition, in an infringement or misappropriation proceeding,
a court may decide that one or more of our intellectual property rights is invalid, unenforceable, or both, in which case third parties
may be able to use our technology without paying license fees or royalties. If we are unable to protect our intellectual property and
proprietary rights, we may be unable to prevent competitors from using our own inventions and intellectual property to compete against
us, and our business may be harmed.
We depend on intellectual property licensed from Klydon, the
termination of which could result in the loss of significant rights, which would harm our business.
We are dependent on technology, know-how, and
proprietary materials licensed from Klydon. We have an exclusive license from Klydon to use, develop, modify, improve, subcontract and
sublicense certain intellectual property rights relating to the ASP technology for the production, distribution, marketing and sale of
all isotopes produced using the ASP technology (the “Klydon license agreement”). The Klydon license agreement is royalty-free,
has a term of 999 years, and the license is worldwide for the development of the ASP technology and the distribution, marketing and sale
of isotopes. Future production of isotopes is limited to member countries of the Nuclear Suppliers Group. Klydon has the right to terminate
the exclusivity of the Klydon license agreement in the event that the licensee ceases to carry on activities related to isotope enrichment
for a period longer than 24 consecutive months. Any termination of exclusivity under the Klydon license agreement will result in the
loss of significant rights and will restrict our ability to develop and commercialize our planned isotopes. If we or Klydon fails to
adequately protect this intellectual property, our ability to commercialize the isotopes, such as Mo-100 or uranium, that we may produce
using ASP technology could suffer.
In addition, agreements under which we license
intellectual property or technology to or from third parties may be complex, and certain provisions in such agreements may be susceptible
to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to
be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other
obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition,
results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability
to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize
the affected future isotopes. Our business also would suffer if our licensor fails to abide by the terms of the license, or if we are
unable to enter into necessary licenses on acceptable terms. Moreover, our licensor may own or control intellectual property that has
not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise
violating the licensor’s rights.
Licensing of intellectual property is of critical
importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific
discovery in our industry. Disputes may also arise between us and our licensors regarding intellectual property subject to a license
agreement, including those relating to:
| ● | the scope of rights granted under the license
agreement and other interpretation-related issues; |
| ● | whether and the extent to which our technology
and processes infringe on intellectual property of the licensor that is not subject to the
license agreement; |
| ● | our right to sublicense rights to third parties
under collaborative development relationships; |
| ● | whether we are complying with our diligence
obligations with respect to the use of the licensed technology in relation to our development
and commercialization of our future isotopes, and what activities satisfy those diligence
obligations; |
| ● | the priority of invention of patented technology; |
| ● | the amount and timing of payments owed under
license agreements; and |
| ● | the allocation of ownership of inventions
and know-how resulting from the joint creation or use of intellectual property by our licensor
and by us and our partners. |
If disputes over intellectual property that we
have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected future isotopes. We are generally also subject to all of the same risks with respect to protection
of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensor
fail to adequately protect this intellectual property, our ability to commercialize our future isotopes could suffer.
We have received a letter asserting that the license for the
ASP technology granted to us from Klydon, which is critical to our business, may be invalid because these rights were already granted
to a third party, Radfarma.
On October 25, 2022, we received a letter (the
“NMS Letter”) from a law firm acting on behalf of Norsk Medisinsk Syklotronsenter AS (“NMS”), asserting, among
other things, that the grant of a license to the ASP technology to us by Klydon violates a pre-existing exclusive sub-license to the
ASP technology granted to Radfarma. The NMS Letter makes reference to: (1) a license agreement entered into on October 25, 2013 by Klydon
and API Labs Pharmaceuticals (Proprietary) Limited (“API Labs”) to license the ASP technology for enriching certain isotopes
of the element Molybdenum (“2013 API Labs License”); and (2) an exclusive sub-license to the ASP technology granted on October
1, 2019 to Radfarma, as licensee, by API Labs and SaPhotonica Limited (“SaPhotonica”), as licensors (the “2019 Radfarma
Sub-License”). The NMS Letter states that Radfarma is a joint venture that is 45% owned by NMS and 45% owned by SaPhotonica. The
NMS Letter also states that Klydon, SaPhotonica and ASP Isotopes Inc. are under common control by Dr. Hendrik Strydom and Einar Ronander.
The NMS Letter asserts, among other things, that
the grant of a license to the ASP technology to us by Klydon (pursuant to license agreements entered into subsequent to the Radfarma
Sub-License) violates a covenant in the 2019 Radfarma Sub-License that the licensors shall not be entitled, directly or indirectly, to
use, grant or otherwise give the rights, or any similar rights, which were granted to Radfarma under the 2019 Radfarma Sub-License to
any other person for use in the territory. “Territory” is defined in the 2019 Radfarma Sub-License as “the Kingdom
of Norway for the construction of the 20-kilogram capacity plants; and means the international market where distribution agreements can
be produced.” The NMS Letter asserts that while Klydon purported to give to us a license to market the ASP technology globally,
these rights were already granted to Radfarma.
The NMS Letter includes a request for us to enter
into discussions and an agreement with NMS based on terms proposed in previous correspondence from NMS which outlined a future collaboration
on technology and product development. The NMS Letter does not include a threat of litigation against us or any parties to the 2013 API
Labs License or 2019 Radfarma Sub-License. However, if the licensed rights granted to us are found to be invalid or unenforceable (in
whole or in part), or if our exclusive license agreement with Klydon is terminated or Klydon, as licensor, fails to abide by the terms
of our exclusive license agreement, our ability to commercialize our future isotopes would suffer and our business, results of operations
and financial condition may be adversely affected.
Our license for the ASP technology with Klydon may be found
to infringe third party intellectual property rights.
Third parties may in the future assert claims
or initiate litigation related to their intellectual property rights in technology that is important to us, including the ASP technology.
For example, on October 25, 2022, we received a letter (the “NMS Letter”) from a law firm acting on behalf of Norsk medisinsk
syklotronsenter AS (“NMS”), asserting, among other things, that the grant of a license to the ASP technology to us by Klydon
violates a pre-existing exclusive sub-license to the ASP technology granted to Radfarma, as more fully described in the risk factor above.
The asserted claims, arbitration and/or litigation could include claims against us, our licensor (Klydon), or Klydon’s present
or former sub-licensors alleging infringement of intellectual property rights with respect to the ASP technology on which our company
relies. Regardless of the merit of the claims, they could be time consuming, resulting in costly arbitration or litigation and diversion
of technical and management personnel, or require us to develop non-infringing technology or enter into license agreements. We cannot
assure you that licenses will be available on acceptable terms, if at all. Furthermore, because of the potential for significant damage
awards, which are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims resulting in large settlements.
If any infringement or other intellectual property claim made against us by any third party (including NMS or Radfarma) is successful,
or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions,
our business, operating results and financial condition could be materially adversely affected.
If the ASP technology that we license from Klydon
infringes the proprietary rights of other parties (including NMS or Radfarma), we could incur substantial costs, and we may have to take
certain actions, including the following:
| ● | obtain licenses, which may not be available
on commercially reasonable terms, if at all; |
| ● | redesign our technology or processes to avoid
infringement; |
| ● | stop using the subject matter claimed to be
held by others; |
| ● | defend arbitration, litigation or administrative
proceedings which may be costly whether we win or lose (and may be prohibitively expensive,
particularly for a company of our size), and which could result in a substantial diversion
of our financial and management resources. |
In addition, in an infringement proceeding, a
court or tribunal may decide that our asserted intellectual property is not valid or is unenforceable. An adverse determination in any
litigation, arbitration or defense proceedings could put our licensed intellectual property at risk of being invalidated or interpreted
narrowly. If the licensed rights granted to us are found to be invalid or unenforceable (in whole or in part), or if our exclusive license
agreement with Klydon is terminated or Klydon, as licensor, fails to abide by the terms of our exclusive license agreement, our ability
to commercialize our future isotopes would suffer and our business, results of operations and financial condition may be adversely affected.
We may enter into collaboration agreements and strategic alliances,
and we may not realize the anticipated benefits of such collaborations or alliances.
We may wish to form collaborations in the future
with respect to our future isotopes but may not be able to do so or to realize the potential benefits of such transactions, which may
cause us to alter or delay our development and commercialization plans. Research and development collaborations are subject to numerous
risks, which may include the following:
| ● | collaborators have significant discretion
in determining the efforts and resources that they will apply to a collaboration and may
not commit sufficient efforts and resources or may misapply those efforts and resources; |
| ● | collaborators may not pursue development and
commercialization of future isotopes or may elect not to continue or renew development or
commercialization programs; |
| ● | collaborators may delay, provide insufficient
resources to, or modify or stop development activities for future isotopes; |
| ● | collaborators could develop or acquire products
outside of the collaboration that compete directly or indirectly with our future isotopes; |
| ● | collaborators may not properly maintain or
defend our intellectual property rights or may use our intellectual property or proprietary
information in a way that gives rise to actual or threatened litigation that could jeopardize
or invalidate our intellectual property or proprietary information or expose us to potential
liability; |
| ● | disputes may arise between us and a collaborator
that cause the delay or termination of the research, development or commercialization of
our future isotopes, or that result in costly litigation or arbitration that diverts management
attention and resources; |
| ● | collaborations may be terminated and, if terminated,
may result in a need for additional capital and personnel to pursue further development or
commercialization of the applicable future isotopes; and |
| ● | collaborators may own or co-own intellectual
property covering our products that results from our collaborating with them, and in such
cases, we may not have the exclusive right to commercialize such intellectual property. |
The development and potential commercialization
of our future isotopes will require substantial additional capital to fund expenses. We may form or seek further strategic alliances,
create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement
or augment our development and commercialization efforts with respect to our future isotopes, including in territories outside the United States
or for certain indications. These transactions can entail numerous operational and financial risks, including exposure to unknown liabilities,
disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired
products or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration
or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges,
increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any
acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes
in management and ownership and the inability to retain key employees of any acquired business. As a result, if we enter into acquisition
or in-license agreements or strategic partnerships, we may not be able to realize the benefit of such transactions if we are unable to
successfully integrate them with our existing operations and company culture, or if there are materially adverse impacts on our or the
counterparty’s operations resulting from COVID-19, which could delay our timelines or otherwise adversely affect our business.
We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that
justifies such transaction or such other benefits that led us to enter into the arrangement.
In addition, we face significant competition in
seeking appropriate strategic partners and the negotiation process is time-consuming and complex. We may not be successful in our efforts
to establish a strategic partnership or other alternative arrangements for our future isotopes because they may be deemed to be at too
early of a stage of development for collaborative effort and third parties may not view our future isotopes as having the requisite potential
to demonstrate safety and efficacy. If and when we collaborate with a third-party for development and commercialization of a future isotope,
we can expect to relinquish some or all of the control over the future success of that future isotope to the third-party. Our ability
to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s
resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our
technologies, future isotopes and market opportunities. The collaborator may also consider alternative isotopes or technologies for similar
applications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for
our future isotope. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with
potential collaborators.
As a result of these risks, we may not be able
to realize the benefit of our existing collaborations or any future collaborations or licensing agreements we may enter into. In addition,
we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have
to curtail the development of such future isotope, reduce or delay one or more of our other development programs, delay the potential
commercialization or reduce the scope of any planned sales or marketing activities for such future isotope, or increase our expenditures
and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures
to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not
be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our future
isotopes or bring them to market and generate product revenue.
We may be dependent on intellectual property licensed or sublicensed
to us from, or for which development was funded or otherwise assisted by, government agencies, for development of our technology and
future isotopes. Failure to meet our own obligations to our licensor or upstream licensors, including such government agencies, may result
in the loss of our rights to such intellectual property, which could harm our business.
Government agencies may provide funding, facilities,
personnel or other assistance in connection with the development of the intellectual property rights owned by or licensed to us. Such
government agencies may have retained rights in such intellectual property, including the right to grant or require us to grant mandatory
licenses or sublicenses to such intellectual property to third parties under certain specified circumstances, including if it is necessary
to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified
by federal regulations, or to manufacture products in the United States. Any exercise of such rights, including with respect to
any such required sublicense of these licenses could result in the loss of significant rights and could harm our ability to commercialize
licensed products.
If we are unable to obtain patent protection for our future
isotopes, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our
markets.
We anticipate that Klydon will file patent applications
both in the United States and in other countries, as appropriate. However, we cannot predict:
| ● | if and when any patents will issue; |
| ● | the degree and scope of protection any issued
patents will afford us against competitors, including whether third parties will find ways
to invalidate or otherwise circumvent our patents; |
| ● | whether others will apply for or obtain patents
claiming aspects similar to those covered by our patents and patent applications; |
| ● | whether we will need to initiate litigation
or administrative proceedings to defend our patent rights, which may be costly whether we
win or lose; or |
| ● | whether the patent applications that we own
or in-license will result in issued patents with claims that cover our future isotopes or
uses thereof in the United States or in foreign countries. |
We currently rely upon a combination of trade secret
protection and confidentiality agreements to protect the intellectual property related to our isotope development techniques and future
isotopes. Our success will depend in large part on our (or Klydon, as our licensor) ability to obtain and maintain patent protection
in the United States and other countries with respect to the ASP technology. We expect Klydon to seek to protect its proprietary
position by filing patent applications in the United States and abroad related to its current and future development programs and
future isotopes to the extent permitted by applicable law. Our exclusive license agreement with Klydon provides that additional patents,
knowhow and improvements in the ASP technology that may be developed in the future will be considered part of the intellectual property
rights granted under the license. The patent prosecution process is expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner, including as a result of the COVID-19
pandemic impacting our or our licensors’ operations.
It is possible that we (or Klydon, as our licensor)
will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The
patent applications that we own or in-license may fail to result in issued patents with claims that cover our future isotopes in the
United States or in foreign countries. There is no assurance that all of the potentially relevant prior art relating to our (or
Klydon’s) patents and patent applications has been found, which can invalidate a patent or prevent a patent from being issued from
a pending patent application. Even if patents are successfully issued and even if such patents cover the ASP technology, third parties
may challenge their scope, validity, or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable.
Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the
successful commercialization of any future isotopes using the ASP technology. Further, if we encounter delays in regulatory approvals,
the period of time during which we could market a future isotope could be reduced.
If the patent applications we hold or have in-licensed
with respect to our development programs fail to issue, if their breadth or strength of protection is threatened, or if they fail to
provide meaningful exclusivity for the ASP technology, it could dissuade companies from collaborating with us, and threaten our ability
to commercialize, isotopes produced using the ASP technology. Any such outcome could have a negative effect on our business.
Even if we obtain patents covering the ASP technology
or our methods, we may still be barred from making, using and selling such technology or methods because of the patent rights of others.
Others may have filed, and in the future may file, patent applications covering technology or methods that are similar or identical to
ours, which could materially affect our ability to successfully develop our technology or to successfully commercialize any isotopes
alone or with collaborators.
Patent applications in the United States and
elsewhere are generally published approximately 18 months after the earliest filing for which priority is claimed, with such earliest
filing date being commonly referred to as the priority date. Therefore, patent applications covering our platform technologies and methods
could have been filed by others without our knowledge. Additionally, pending claims in patent applications which have been published
can, subject to certain limitations, be later amended in a manner that could cover our platform technologies. These patent applications
may have priority over patent applications filed by us.
Obtaining and maintaining our patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity
fees and various other government fees on patents and/or applications will be due to be paid to the USPTO and various government patent
agencies outside of the United States over the lifetime of our owned and licensed patents and/or applications and any patent rights
we may own or license in the future. We will rely on our outside counsel, patent annuity service providers, or our licensing partners
to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance
with several procedural, documentary, and other similar provisions during the patent application process. We will employ reputable law
firms and other professionals to help us comply and we will also be dependent on Klydon (as our licensor) to take the necessary action
to comply with these requirements with respect to our licensed intellectual property. 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. There are situations, however, in which non-compliance
can result in 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, potential competitors might be able to enter the market and this circumstance could harm our
business.
Third parties may initiate legal proceedings alleging that we
are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success
of our business.
Our commercial success depends, in part, upon our
ability and the ability of our current or future collaborators to develop, manufacture, market and sell our future isotopes and use our
proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The technology industry
is characterized by extensive and complex litigation regarding patents and other intellectual property rights. Our future isotopes and
other proprietary technologies we may develop may infringe existing or future patents owned by third parties. We may in the future become
party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our future
isotopes and technology, including interference proceedings, post-grant review and inter partes review before the USPTO. Third parties
may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their
merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights
against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents
are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize our future isotopes. In order
to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity.
As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent
claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are
found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license
from such third party to continue developing, manufacturing and marketing our future isotope(s) and technology. However, we may
not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could
be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could
require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing
and commercializing the infringing technology or future isotope. In addition, we could be found liable for monetary damages, including
treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right.
A finding of infringement could prevent us from manufacturing and commercializing our future isotopes or force us to cease some or all
of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information
or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and
prospects.
Third parties asserting their patent or other intellectual
property rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further
develop and commercialize our future isotopes or force us to cease some of our business operations. Defense of these claims, regardless
of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources
from our business, cause development delays, and may impact our reputation. In the event of a successful claim of infringement against
us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or
more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible on a cost-effective basis
or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our future
isotopes, which could harm our business significantly. Claims that we have misappropriated the confidential information or trade secrets
of third parties could have a similar negative impact on our business.
We may be subject to claims asserting that our employees, consultants
or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership
of what we regard as our own intellectual property.
Certain of our employees, consultants or advisors
are currently, or were previously, employed at universities or other technology companies, including Klydon. Although we try to ensure
that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may
be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary
information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If
we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while it is our policy to require
our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning
such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops
intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment
agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against
us, to determine the ownership of what we regard as our intellectual property.
Reliance on third parties requires us to share our trade secrets,
which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
If we rely on third parties to manufacture or commercialize
our future isotopes, or if we collaborate with additional third parties for the development of our future isotopes, we must, at times,
share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets
under the terms of our research and development partnerships or similar agreements. We seek to protect our proprietary technology in
part by entering into confidentiality agreements and, if applicable, material transfer agreements, services agreements, consulting agreements
or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing
proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information,
including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets
and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated
into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based,
in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure
could have an adverse effect on our business and results of operations.
In addition, these agreements typically restrict
the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets.
Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements
with third parties, independent development or publication of information by any third-party collaborators. A competitor’s discovery
of our trade secrets could harm our business.
Confidentiality agreements with employees and third parties
may not prevent unauthorized disclosure of trade secrets and other proprietary information.
In addition to the protection afforded by patents,
we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that
we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our future isotopes, technology
and product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by
patents. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our
facilities or third-party consultants and vendors that we engage, or misappropriation by third parties (such as through a cybersecurity
breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements,
thus eroding our competitive position in our market. Because we expect to rely on third parties in the development and manufacture of
our future isotopes, we must, at times, share trade secrets with them. Our reliance on third parties requires us to share our trade secrets,
which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Trade secrets and confidential information, however,
may be difficult to protect. We seek to protect our trade secrets, know-how and confidential information, including our proprietary processes,
in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors, and collaborators.
With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations.
We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or
proprietary technology and processes. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside
scientific advisors, contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors.
In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information
and techniques. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including
our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed
or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them
from using that technology or information to compete with us. Furthermore, the laws of some foreign countries do not protect proprietary
rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems
in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized
material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties,
we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business,
operating results, and financial condition.
Risks Related to Our Dependence on Third Parties
Klydon currently performs or supports many of our operating
activities pursuant to a turnkey contract, and if we are unable to replicate or replace these functions or if this services agreement
is terminated, our operations could be adversely affected.
In November 2021, we entered into a turnkey
contract with Klydon (Turnkey Contract). Under this agreement, Klydon has been appointed to supply to ASP Isotopes South Africa (Proprietary)
Limited a complete turnkey Molybdenum-100 enrichment plant. The activities to be undertaken or performed by Klydon include: taking control
of the assets acquired by us in the Molybdos Business Rescue Auction; the design of a Molybdenum-100 enrichment facility with target
manufacturing capability of 20 Kg p.a of 95% and above enriched Molybdenum isotope; the supply of components, equipment and labor required
for 20 Kg p.a.; the installation, testing and commissioning of the Molybdenum enrichment plant, including production of targets to be
used by customers in cyclotrons; securing all required approvals, regulatory authorizations and other required consents for the operation
of the plant; providing training to local ASP Isotopes South Africa (Proprietary) Limited personnel to enable them to operate the plant
going forward; and providing warranties in relation to the performance targets of the plant which are required to be met. Klydon will
be responsible for liaising with the relevant South African authorities, including the South African Non Proliferation Council, the Nuclear
Suppliers Group and International Atomic Energy Agency to ensure that the Turnkey Contract and the Molybdenum-100 enrichment plant are
compliant with international laws and guidelines. Because our company does not yet have sufficient internal capabilities to perform these
functions, we are substantially dependent on the Turnkey Contract for the operation of our company.
If Klydon fails to perform its obligations under
the Turnkey Contract, we would be required to build and develop our internal capabilities more quickly than anticipated, and it is possible
that we will not be able to do so within the time needed to operate our business effectively.
If we use hazardous and chemical materials in a manner that
causes injury or violates applicable law, we may be liable for damages.
Our research and development activities involve
the controlled use of potentially hazardous substances, including chemical materials. Klydon is subject to international and local laws
and regulations in South Africa governing the use, manufacture, storage, handling and disposal of radioactive and hazardous materials.
Although we believe that Klydon’s procedures for using, handling, storing and disposing of these materials comply with legally
prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from radioactive or hazardous materials.
As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the
use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized
with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from radioactive or hazardous
materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations
may impair our research, development, and production efforts, which could harm our business, prospects, financial condition, or results
of operations.
Risks Related to Our Business Operations, Employee Matters and
Managing Growth
We are highly dependent on the services of our senior management
team, and if we are not able to retain these members of our management team and recruit and retain additional management, clinical and
scientific personnel, our business will be harmed.
We are highly dependent on our senior management
team. The employment agreements we have with these officers do not prevent such persons from terminating their employment with us at
any time. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization
objectives.
In addition, we will need to attract, retain and
motivate highly qualified additional management and scientific personnel. If we are not able to retain our management and to attract,
on acceptable terms, additional qualified personnel necessary for the continued development of our business, we may not be able to sustain
our operations or grow.
We may not be able to attract or retain qualified
personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses.
Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and
other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities
and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants
than what we have to offer. If we are unable to continue to attract, retain and motivate high-quality personnel and consultants to accomplish
our business objectives, the rate and success at which we can develop future isotopes and our business will be limited, and we may experience
constraints on our development objectives.
Our future performance will also depend, in part,
on our ability to successfully integrate newly hired executive officers into our management team and our ability to develop an effective
working relationship among senior management. Our failure to integrate these individuals and create effective working relationships among
them and other members of management could result in inefficiencies in the development and commercialization of our future isotopes,
harming future regulatory approvals, sales of our future isotopes and our results of operations. Additionally, we do not currently maintain
“key person” life insurance on the lives of our executives or any of our employees.
We will need to expand our organization, and we may experience
difficulties in managing this growth, which could disrupt our operations.
As of September 30, 2022, we had four full-time
employees. We currently operate as a virtual company and rely on service providers for certain general administrative, financial, accounting,
tax, intellectual property and other legal services, and we will need to expand our organization to hire qualified personnel to perform
these functions internally. Our management may need to divert significant attention and time to managing these growth activities. We
may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational
inefficiencies, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth
could require significant capital expenditures and may divert financial resources from other projects, such as the development of our
future isotopes. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability
to generate and grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance,
our ability to commercialize future isotopes, develop a scalable infrastructure and compete effectively will depend, in part, on our
ability to effectively manage any future growth.
Our employees, consultants and commercial partners may engage
in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct
by our employees, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with
FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and other regulatory authorities,
report financial information or data accurately or disclose unauthorized activities to us. It is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure
to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves
or asserting our rights, those actions could have a negative impact on our business, financial condition, results of operations and prospects,
including the imposition of significant fines or other sanctions.
Significant disruptions of our information technology systems
or data security incidents could result in significant financial, legal, regulatory, business and reputational harm to us.
We are dependent on information technology systems
and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we collect, store,
process and transmit large amounts of sensitive information, including intellectual property, proprietary business information, personal
information and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity
and availability of such sensitive information. We have also outsourced elements of our operations (including elements of our information
technology infrastructure) to third parties, and as a result, we manage a number of third-party vendors who may or could have access
to our computer networks or our confidential information. In addition, many of those third parties, in turn, subcontract or outsource
some of their responsibilities to third parties. While all information technology operations are inherently vulnerable to inadvertent
or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of our information technology
systems, and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious,
internal and external attacks on our technology environment. In addition, all of our employees work remotely, which may make us more
vulnerable to cyberattacks. Potential vulnerabilities can be exploited from inadvertent or intentional actions of our employees, third-party
vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence,
sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives
(including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,”
nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful
malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality,
integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents.
Significant disruptions of our, our third-party
vendors’ and/or our business partners’ information technology systems or other similar data security incidents could adversely
affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the
prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to
us. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses,
natural disasters, terrorism, war and telecommunication and electrical failures, could result in a material disruption of our development
programs and our business operations. Additionally, theft of our intellectual property or proprietary business information could require
substantial expenditures to remedy. If we or our third-party collaborators, consultants, contractors, suppliers, or service providers
were to suffer an attack or breach, for example, that resulted in the unauthorized access to or use or disclosure of personal or health
information, we may have to notify consumers, partners, collaborators, government authorities, and the media, and may be subject to investigations,
civil penalties, administrative and enforcement actions, and litigation, any of which could harm our business and reputation.
There is no way of knowing with certainty whether
we have experienced any data security incidents that have not been discovered. While we have no reason to believe this to be the case,
attackers have become very sophisticated in the way they conceal access to systems, and many companies that have been attacked are not
aware that they have been attacked. Any event that leads to unauthorized access, use or disclosure of personal information, including
but not limited to personal information regarding our patients or employees, could disrupt our business, harm our reputation, compel
us to comply with applicable federal and/or state breach notification laws and foreign law equivalents, subject us to time-consuming,
distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness
of database contents, or otherwise subject us to liability under laws, regulations and contractual obligations, including those that
protect the privacy and security of personal information. This could result in increased costs to us, and result in significant legal
and financial exposure and/or reputational harm. In addition, any failure or perceived failure by us or our vendors or business partners
to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security
incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information,
which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines,
litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators
or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy-
or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security
incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of
the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure,
there can be no assurance that such measures will successfully prevent service interruptions or security incidents.
Our international operations subject us to risks of doing business
in foreign countries, which could adversely affect our business, financial condition and results of operations.
Our primary operations are located outside the
U.S. (primarily the construction of the isotope enrichment plant in South Africa), and we plan to sell our isotopes to customers
outside the U.S. Accordingly, our business is subject to risks related to the differing legal, political, social and regulatory
requirements and economic conditions of non-U.S. jurisdictions. Risks inherent in international operations include the following:
| ● | fluctuations in foreign currency exchange
rates may affect product demand and may adversely affect the profitability in U.S. dollars
of products and services we provide in international markets where payment for our products
and services is made in the local currency; |
| ● | transportation and other shipping costs may
increase, or transportation may be inhibited; |
| ● | increased cost or decreased availability of
raw materials; |
| ● | changes in foreign laws and tax rates or U.S. laws
and tax rates with respect to foreign income may unexpectedly increase the rate at which
our income is taxed, impose new and additional taxes on remittances, repatriation or other
payments by subsidiaries, or cause the loss of previously recorded tax benefits; |
| ● | foreign countries in which we do business
may adopt other restrictions on foreign trade or investment, including currency exchange
controls; |
| ● | trade sanctions by or against these countries
could result in our losing access to customers and suppliers in those countries; |
| ● | unexpected adverse changes in foreign laws
or regulatory requirements may occur; |
| ● | our agreements with counterparties in foreign
countries may be difficult for us to enforce and related receivables may be difficult for
us to collect; |
| ● | compliance with the variety of foreign laws
and regulations may be unduly burdensome; |
| ● | compliance with anti-bribery and anti-corruption
laws (such as the Foreign Corrupt Practices Act) as well as anti-money- laundering laws may
be costly; |
| ● | unexpected adverse changes in export duties,
quotas and tariffs and difficulties in obtaining export licenses may occur; |
| ● | general economic conditions in the countries
in which we operate could have an adverse effect on our earnings from operations in those
countries; |
| ● | our foreign operations may experience staffing
difficulties and labor disputes; |
| ● | termination or substantial modification of
international trade agreements may adversely affect our access to raw materials and to markets
for our products outside the U.S.; |
| ● | foreign governments may nationalize or expropriate
private enterprises; |
| ● | increased sovereign risk (such as default
by or deterioration in the economies and creditworthiness of local governments) may occur;
and |
| ● | political or economic repercussions from terrorist
activities, including the possibility of hyperinflationary conditions and political instability,
may occur in certain countries in which we do business. |
Unanticipated events, such as geopolitical changes,
could result in a write-down of our investment in the affected joint venture or a delay or cause cancellation of those capital projects,
which could negatively impact our future growth and profitability. Our success as a global business will depend, in part, upon our ability
to succeed in differing legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies
and strategies that are effective in each location where we and our joint ventures do business.
Furthermore, we will be subject to rules and regulations
related to anti-bribery and anti-trust prohibitions of the U.S. and other countries, as well as export controls and economic embargoes,
violations of which may carry substantial penalties. For example, export control and economic embargo regulations limit the ability of
our subsidiaries to market, sell, distribute or otherwise transfer their products or technology to prohibited countries or persons. Failure
to comply with these regulations could subject our subsidiaries to fines, enforcement actions and/or have an adverse effect on our reputation
and the value of our common stock.
Our tangible assets may be subject to defects in title.
We have investigated our rights to the assets we
have purchased and developed, and, to the best of our knowledge, those rights are in good standing. However, no assurance can be given
that such rights will not be revoked, or significantly altered, to our detriment. There can also be no assurance that our rights will
not be challenged or impugned by third parties, including by governments and non-governmental organizations.
We are subject to foreign currency risks.
Our operations are subject to foreign currency
fluctuations. Our operating expenses and revenues are primarily transacted in U.S. dollars, while some of our cash balances and
expenses are measured in other currencies. Any strengthening or weakening of the U.S. dollar in relation to the currencies of other
countries or vice versa can have a material impact on our cash flows and profitability and affect the value of our assets and shareholders’
equity.
Risks Related to Ownership of Our Common Stock
We do not know whether an active, liquid and orderly trading
market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for
you to sell your shares of our common stock.
Prior to our IPO in November of 2022, there was
no public market for shares of our common stock. Although our common stock is listed on the Nasdaq Capital Market (Nasdaq), an active
trading market for our shares may never develop or be sustained following our IPO. You may not be able to sell your shares quickly or
at the market price if trading in shares of our common stock is not active. The initial public offering price for our common stock was
determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our common
stock after the IPO. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above
the initial public offering price.
Further, an inactive market may also impair our
ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire
companies or products by using our shares of common stock as consideration.
The price of our stock may be volatile, and you could lose all
or part of your investment.
The trading price of our common stock is highly
volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited
trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Form 10-Q, these
factors include:
| ● | adverse results or delays in our development
activities; |
| ● | adverse regulatory decisions, including failure
to receive regulatory approval for our future isotopes; |
| ● | changes in laws or regulations applicable
to our future isotopes, including but not limited to requirements for approvals; |
| ● | any changes to our relationship with any manufacturers,
suppliers, licensors, future collaborators or other strategic partners; |
| ● | our inability to obtain adequate product supply
for any future isotope or inability to do so at acceptable prices; |
| ● | our inability to establish collaborations
if needed; |
| ● | our failure to commercialize our future isotopes; |
| ● | additions or departures of key scientific
or management personnel; |
| ● | unanticipated serious safety concerns related
to the use of our future isotopes; |
| ● | introduction of new products or services offered
by us or our competitors; |
| ● | announcements of significant acquisitions,
strategic partnerships, joint ventures, or capital commitments by us or our competitors; |
| ● | our ability to effectively manage our growth; |
| ● | actual or anticipated variations in quarterly
operating results; |
| ● | our failure to meet the estimates and projections
of the investment community or that we may otherwise provide to the public; |
| ● | publication of research reports about us or
our industry or positive or negative recommendations or withdrawal of research coverage by
securities analysts; |
| ● | changes in the market valuations of similar
companies; |
| ● | overall performance of the equity markets; |
| ● | issuances of debt or equity securities; |
| ● | sales of our common stock by us or our stockholders
in the future or the perception that such sales may occur; |
| ● | trading volume of our common stock; |
| ● | changes in accounting practices; |
| ● | ineffectiveness of our internal controls; |
| ● | disputes or other developments relating to
proprietary rights, including patents, litigation matters, and our ability to obtain patent
protection for our technologies; |
| ● | significant lawsuits, including patent or
stockholder litigation; |
| ● | general political and economic conditions,
including the COVID-19 pandemic; and |
| ● | other events or factors, many of which are
beyond our control. |
In
addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors
may negatively affect the market price of our common stock, regardless of our actual operating performance, and you
may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action
litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities.
This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources,
which would harm our business, operating results or financial condition.
We do not intend to pay dividends on our common stock, so any
returns will be limited to the value of our stock.
We have never declared or paid any cash dividend
on our common stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our
business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders would therefore
be limited to the appreciation, if any, of their stock.
Our principal stockholders and management own a significant
percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Prior to our IPO, our executive officers, current directors, greater
than 5% holders, and their affiliates beneficially owned approximately 35.8% of our common stock as of September 30, 2022. Upon the closing
of our IPO, that same group will hold approximately 34.4% of our outstanding common stock from the sale of 1,250,000 shares of common
stock in our IPO (based on shares of common stock outstanding as of September 30, 2022 and excluding awards of 3,000,000 shares of restricted
stock that were made upon consummation of our IPO). Therefore, even after our IPO, these stockholders will have the ability to influence
us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example,
these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger,
sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our
common stock that you may feel are in your best interest as one of our stockholders.
Sales of a substantial number of shares of our common stock
by our existing stockholders in the public market, or the perception that such sales could occur, could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell,
substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale lapse, the trading
price of our common stock could decline. Upon the closing of our IPO, we had a total of 34,357,127 shares of common stock outstanding.
Of these shares, only the shares of common stock sold in our IPO by us, plus any shares sold upon exercise of the underwriters’
option to purchase additional shares, will be freely tradable without restriction in the public market immediately following our IPO.
Subject to the restrictions described in the paragraph
below, future sales in the public market of shares issued prior to our IPO will be subject to the volume and other restrictions of Rule 144
under the Securities Act if held by a person that is deemed to be our affiliate, unless the shares to be sold are registered with the
SEC. The sale of a substantial number of shares after our IPO pursuant to Rule 144 or other exemption from registration under the
Securities Act, or a perception that such sales could occur, could significantly reduce the market price of our common stock.
Of our outstanding common stock, 28,711,294 shares
are subject to lock-up agreements pertaining to our IPO. We expect that the lock-up agreements will expire 180 days from the date
of our IPO. After the lock-up agreements expire, up to an additional 28,711,294 shares of common stock will be eligible for
sale in the public market, of which 14,376,125 shares are held by directors, executive officers, and other affiliates and will be subject
to volume limitations under Rule 144 under the Securities Act. In addition, 7,901,000 shares of common stock that are either subject
to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market
to the extent permitted by the provisions of various vesting schedules, the lock-up agreements, and Rule 144 and Rule 701 under
the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public
market, the trading price of our common stock could decline.
The holders of 3,012,280 shares of our common stock
are entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements
described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction
under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities
by these stockholders could have a material adverse effect on the trading price of our common stock.
Future sales and issuances of our common stock or rights to
purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership
of our stockholders and could cause our stock price to fall.
We expect that we will need significant additional
capital in the future to continue our planned operations, including development activities, commercialization efforts if we are able
to obtain marketing approval of future isotopes, research and development activities, and costs associated with operating a public company.
To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and
in a manner that we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors
may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new
investors could gain rights, preferences and privileges senior to the holders of our common stock, including shares of common stock sold
in our IPO.
Pursuant to our 2022 Plan, our management is authorized
to grant stock options to our employees, directors and consultants. Additionally, the number of shares of our common stock reserved for
issuance under our 2022 Plan will automatically increase on January 1 of each year, beginning on January 1, 2023 and continuing
through and including January 1, 2032, by 5% of the total number of shares of our capital stock outstanding on December 31
of the preceding calendar year (determined on an as-converted to voting common stock basis, without regard to any limitations on the
conversion of the non-voting common stock), or a lesser number of shares determined by our board of directors. Such issuances will result
in dilution to our stockholders.
We have broad discretion in the use of our existing cash and
cash equivalents and may not use them effectively.
Our management has broad discretion in the application
of our existing cash and cash equivalents. Because of the number and variability of factors that will determine our use of our existing
cash and cash equivalents, their ultimate use may vary substantially from their currently intended use. Our management might not apply
our existing cash and cash equivalents in ways that ultimately increase the value of our common stock. The failure by our management
to apply these funds effectively could harm our business. We intend to invest our existing cash and cash equivalents that are not used
as described above in short- and medium-term, investment-grade, interest-bearing instruments, certificates of deposit or direct or guaranteed
obligations of the U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest
or apply our existing cash and cash equivalents in ways that enhance stockholder value, we may fail to achieve expected financial results,
which could cause our stock price to decline.
We are an emerging growth company and a smaller reporting company,
and the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies may make our common stock
less attractive to investors.
We are an emerging growth company, as defined in
the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on
executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth
company until December 31, 2027, although circumstances could cause us to lose that status earlier, including if we become a “large
accelerated filer” as defined in Rule 12b-2 under the Exchange Act or if we have total annual gross revenue of $1.235 billion
or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following
December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three year period before that time, we
would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still
qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure
requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Investors may find
our common stock less attractive because we may 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.
In addition, the JOBS Act provides that an emerging
growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision
allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private
companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from
new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting
standards as other public companies that are not emerging growth companies.
We are also a “smaller reporting company”
as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth
company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million
measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the
most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million
measured on the last business day of our second fiscal quarter.
Delaware law and provisions in our amended and restated certificate
of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the
trading price of our common stock.
Provisions of our amended and restated certificate
of incorporation and amended and restated bylaws, which became effective upon the closing of our IPO, may delay or discourage transactions
involving an actual or potential change in our control or change in our management, including transactions in which stockholders might
otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests.
Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate
of incorporation and amended and restated bylaws:
| ● | permit our board of directors to issue up
to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they
may designate (including the right to approve an acquisition or other change in our control); |
| ● | provide that the authorized number of directors
may be changed only by resolution of the board of directors; |
| ● | provide that our board of directors or any
individual director may only be removed with cause and the affirmative vote of the holders
of at least 66-2/3% of the voting power of all of our then-outstanding shares of the
capital stock entitled to vote generally in the election of directors, voting together as
a single class; |
| ● | provide that all vacancies, including newly
created directorships, may, except as otherwise required by law, be filled by the affirmative
vote of a majority of directors then in office, even if less than a quorum; |
| ● | divide our board of directors into three classes; |
| ● | require that any action to be taken by our
stockholders must be effected at a duly called annual or special meeting of stockholders
and not be taken by written consent; |
| ● | provide that stockholders seeking to present
proposals before a meeting of stockholders or to nominate candidates for election as directors
at a meeting of stockholders must provide notice in writing in a timely manner and also specify
requirements as to the form and content of a stockholder’s notice; |
| ● | do not provide for cumulative voting rights
(therefore allowing the holders of a majority of the shares of common stock entitled to vote
in any election of directors to elect all of the directors standing for election, if they
should so choose); |
| ● | provide that special meetings of our stockholders
may be called only by the chair of our board of directors, our Chief Executive Officer or
by the board of directors pursuant to a resolution adopted by a majority of the total number
of authorized directors; and |
| ● | provide that the Court of Chancery of the
State of Delaware will be the sole and exclusive forum for the following types of actions
or proceedings under state, statutory and common law: (i) any derivative action or proceeding
brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty
owed by any of our directors, officers or other employees to us or our stockholders; (iii) any
action asserting a claim pursuant to any provision of the Delaware General Corporation Law,
our certificate of incorporation or our bylaws; (iv) any action as to which the Delaware
General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware;
and (vi) any action governed by the internal affairs doctrine, in all cases subject
to the court’s having personal jurisdiction over the indispensable parties named as
defendants; provided these provisions of our amended and restated certificate of incorporation
and amended and restated bylaws will not apply to suits brought to enforce a duty or liability
created by the Exchange Act, or any other claim for which the federal courts have exclusive
jurisdiction; and provided that, unless we consent in writing to the selection of an alternative
forum, to the fullest extent permitted by law, the federal district courts of the United States
of America shall be the exclusive forum for the resolution of any complaint asserting a cause
of action arising under the Securities Act of 1933, as amended (Securities Act),
including all causes of action asserted against any defendant to such complaint. For the
avoidance of doubt, this provision is intended to benefit and may be enforced by us, our
officers and directors, the underwriters to any offering giving rise to such complaint, and
any other professional or entity whose profession gives authority to a statement made by
that person or entity and who has prepared or certified any part of the documents underlying
the offering. |
The amendment of any of these provisions, with
the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges
thereto, would require approval by the holders of at least 66-2/3% of our then-outstanding common stock.
In addition, as a Delaware corporation, we are
subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular
those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware
corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate
of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.
These and other provisions in our amended and restated
certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential
acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including
delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect
the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
For information regarding these and other provisions,
see “Description of Capital Stock.”
Our amended and restated certificate of incorporation provides
that the Court of Chancery of the State of Delaware will be the exclusive forum for certain 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 amended and restated certificate of incorporation
provides that, subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, unless we
consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive
forum for the following types of actions or proceedings:
| ● | any derivative action or proceeding brought
on our behalf; |
| ● | any action asserting a claim of breach of
fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; |
| ● | any action asserting a claim arising pursuant
to any provision of the Delaware General Corporation Law, our certificate of incorporation
or bylaws; |
| ● | any action as to which the Delaware General
Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and |
| ● | any action asserting a claim that is governed
by the internal affairs doctrine. |
This provision would not apply to suits brought
to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction
to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings
by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal
district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action
arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid,
a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such
instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated
certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions
and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These exclusive forum provisions 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 other employees,
which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum
provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further
significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.
General Risk Factors
We will incur significant increased costs as a result of operating
as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant
legal, accounting, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the
Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to
our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq
to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment
and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010,
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted. There are significant corporate governance
and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in
these areas such as “say on pay” and proxy access. Emerging growth companies and smaller reporting companies are exempted
from certain of these requirements, but we may be required to implement these requirements sooner than budgeted or planned and thereby
incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs
and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable
to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming
and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have
a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net
income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products
or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director
and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot
predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees
or as executive officers.
We have identified a material weakness in our internal control
over financial reporting. If our remediation of this material weakness is not effective, or if we experience material weaknesses in the
future or otherwise fail to implement and maintain an effective system of internal controls in the future, we may not be able to accurately
report our financial condition or results of operations which may adversely affect investor confidence in us, and as a result, the value
of our common stock.
Our common stock was only recently listed on the
NASDAQ Stock Exchange on November 10, 2022. Prior to listing, we were a privately-held company, we were not required to evaluate our
internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a)
of the Sarbanes-Oxley Act, or Section 404. As a public company, we are subject to significant requirements for enhanced financial reporting
and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us
to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to
maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. In addition, we will
be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control
over financial reporting in the second annual report following the completion of our IPO. This assessment will need to include disclosure
of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency
or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
The rules governing the standards that must be
met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing,
and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are
important to our business. Once we are no longer an “emerging growth company,” or a “smaller reporting company”,
our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis.
In the course of preparing the financial statements
that are included in this Form 10-Q, management has determined that a material weakness exists within the internal controls over financial
reporting. The material weakness identified relates to the lack of a sufficient complement of personnel within the finance and accounting
function with an appropriate degree of knowledge, experience and training. We also noted a material weakness related to logical security
and privileged access in the area of information technology. We concluded that the material weakness in our internal control over financial
reporting occurred because, prior to our IPO, we were a private company and did not have the necessary business processes, systems, personnel,
and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.
In order to remediate the material weakness, we
expect to hire additional accounting and finance resources or consultants with public company experience.
We may not be able to fully remediate the identified
material weakness until the steps described above have been completed and our internal controls have been operating effectively for a
sufficient period of time. We believe we have already and will continue to make progress in our remediation plan during the year ending
December 31, 2022, but cannot assure you that we will be able to fully remediate the material weakness by such time. If the steps we
take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control
over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial
statements would not be prevented or detected on a timely basis. We also may incur significant costs to execute various aspects of our
remediation plan but cannot provide a reasonable estimate of such costs at this time.
In accordance with the provisions of the JOBS Act,
we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control
over financial reporting as of December 31, 2021 nor any period subsequent in accordance with the provisions of the Sarbanes-Oxley Act.
Accordingly, we cannot assure you that we have identified all material weaknesses. Material weaknesses may still exist when we report
on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act after the
completion of our IPO.
In the future, it is possible that additional material
weaknesses or significant deficiencies may be identified that we may be unable to remedy before the requisite deadline for these reports.
Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting
and data systems and controls across our company. Any weaknesses or deficiencies or any failure to implement new or improved controls,
or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail
to meet our financial reporting obligations, or result in material misstatements in our consolidated financial statements, which could
adversely affect our business and reduce our stock price.
If we are unable to conclude on an ongoing basis
that we have effective internal control over financial reporting in accordance with Section 404, our independent registered public accounting
firm may not issue an unqualified opinion. If we are unable to conclude that we have effective internal control over financial reporting,
investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price
of our common stock. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain
other effective control systems required of public companies, could also restrict our future access to the capital markets.
We could be subject to securities class action litigation.
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant
for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such
litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our
business.
Our failure to meet Nasdaq’s continued listing requirements
could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements
of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist
our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability
to sell or purchase our common stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action
taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market
price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement
or prevent future non-compliance with the listing requirements of Nasdaq.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends
in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts
do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company,
the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage,
if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business,
our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly,
demand for our stock could decrease, which might cause our stock price and trading volume to decline.