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View plansAn investment in our common stock involves a high degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors, including our financial statements and related notes, before deciding whether to invest in shares of our common stock. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
RISKS RELATING TO OUR FINANCIAL POSITION AND CAPITAL NEEDS
We are in our development stage and have a limited operating history.
We are a development-stage enterprise with a limited operating history with no sales, and operating losses since its inception. We will need to continue building our organization and team to competently evaluate and secure business opportunities for the development of sophisticated technologies. As an early-stage business we will likely encounter unforeseen costs, expenses, competition and other problems to which such businesses are often subject. Our likelihood of success will depend on the problems, uncertainties, unexpected costs, difficulties, complications and delays frequently encountered in developing and expanding a new business and the competitive environment in which we plan to operate. If we fail to successfully address these risks, our business, financial condition and results of operations would be materially harmed.
We anticipate operating losses to continue into the foreseeable future and substantial additional capital may be required that may not be available on acceptable terms.
Currently, there is no revenue being generated and we have significant operating losses that are expected to continue into the foreseeable future. There is no assurance that we will be able to raise the capital that will be required to commence and sustain operations and execute our business plan, which involves raising capital for acquisitions as well as developing and commercializing technologies. We are especially focused on the green construction materials business, namely DUREVER building products, which includes a line of composite products primarily made from recycled thermoplastics, reinforcement materials and fire-retardant chemicals for use in walls, ceilings, flooring, framing, siding, roofing, molding and decking. The production of green building materials requires establishing manufacturing operations in the United States, whether through contract manufacturing or setting up our own facilities. Should we be unable to raise sufficient capital required to set up manufacturing facilities to produce NEXBOARD NexBoardTM products, we would lose the ability to deliver NEXBOARD NexBoard to interested buyers and incur continued operating losses.
We expect capital outlays and operating expenditures to increase as we expand our product offerings and marketing activities. Our business or operations may change in a manner that would consume available funds more rapidly than anticipated, and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products or services, acquire complementary products, businesses or technologies or otherwise respond to competitive pressures and opportunities. Furthermore, any equity or debt financings, if available at all, may be on terms which are not favorable to the Company (and therefore its shareholders) and, in the case of a new equity offering by the Company, existing shareholders will be diluted unless they purchase their proportionate share of the equity offering. If adequate capital is not available on economically viable terms and conditions, the Companys business, operating results and financial condition may be materially adversely affected.
The high capital requirements of building materials manufacturing may require us to seek large-scale financing, including potential green bond financing or similar structured debt instruments, that may not be available on terms acceptable to us or at all.
Our long-term manufacturing strategy contemplates the potential use of large-scale financing structures, including green bond financing or similar instruments, to fund dedicated NexBoard manufacturing facilities and equipment. Green bond financing is subject to certification requirements, use-of-proceeds restrictions, and ongoing reporting obligations that could restrict our operational flexibility. If market conditions change, interest rates rise materially, investor appetite for green bond instruments declines, or our financial condition or project economics do not meet underwriting standards, we may be unable to complete such financing on acceptable terms or at all. The failure to secure large-scale manufacturing financing when needed could prevent us from scaling production to meet commercial demand, resulting in the loss of customer orders, damage to our market reputation, and material harm to our business and financial condition.
We will need to meet or otherwise resolve the obligations required by the Auctus Fund LLC Senior Secured Note and the Amendment to the Note.
The Company has a Senior Secured Promissory Note with Auctus Fund LLC (Auctus), which became due and payable on March 15, 2023. At this time, there is no assurance that the Company will work out 2023, after two Amendments. Effective October 29, 2025, Xeriant entered into a favorable resolution of its obligations related to this note. If Settlement Agreement with Auctus elects to enforce restructure the Note, we may lose all or substantially all of our assets. Auctus Note and related Xeriant obligations. The Settlement Agreement terms were extended through October 31, 2026. If Auctus elects to convert the note into shares of our Common Stock, our shareholders could experience substantial dilution.
Not obtaining sufficient financing will jeopardize our operations and the ability to execute our business plan.
We need to raise additional debt and/or equity financing to fund future operations and to provide working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet our needs. If cash resources are insufficient to satisfy our on-going cash requirements, the Company will be required to scale back or discontinue its product development programs or obtain funds if available (although there can be no certainties) through strategic alliances that may require us to relinquish rights to its technology, substantially reduce or discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be in terms that are satisfactory to us. Even if we are able to obtain financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. As a result, we can provide no assurance as to whether or if we will ever be profitable. If we are not able to achieve and maintain profitability, the value of our company and our common stock could decline significantly.
Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.
Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. This condition is expected to continue for the foreseeable future until we can produce sufficient revenues to cover our costs as we seek to raise funding and invest in our operations as well as our sales and marketing efforts. Given this financial situation, no assurances assurance can be given that we will be able to raise capital in the future on acceptable terms, or at all. As a result, our independent registered public accounting firm included an explanatory paragraph in its report in our consolidated financial statements for the most recent fiscal years with respect to this uncertainty. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence of investors, partners and employees.
RISKS RELATING TO OUR BUSINESS OPERATIONS There is no assurance that we or our affiliates will be able to accomplish the design and engineering needed to demonstrate that the technologies that are undertaken will perform or operate as planned. Because of unanticipated technological hurdles or the inability to assemble a qualified team to address these challenges, we may not be able to meet the technology development and performance objectives that are needed to be competitive in the various targeted markets. The development timeline for the development of certain technologies could expand. Due to unexpected challenges, the length of time to develop certain technologies may become expanded, causing cost overruns and potentially demanding the infusion of large amounts of capital and other financing, which may not be available. Because of the long timeline, there is also uncertainty regarding the uniqueness or advantages of the technologies at the time they are introduced into the market. Some technologies are still being developed and specific market applications have not been finalized. Because some of the anticipated technologies will be in an early stage of development, there is no certainty as to which market applications will be prioritized and targeted as well as the associated timelines and costs involved when we reach that point of determination after a technology has been proven. There is no assurance that the required selling price of our technologies will be competitive. We will face significant industry competition. Most of the targeted technologies will face significant competition from industry leaders or from well-funded entrants in the marketplace. We could face significant competition from companies who have developed or are developing alternative technologies that could render acquired technologies less competitive than planned. Many existing potential competitors are well-established, have or may have longer-standing relationships with customers and potential business partners, have or may have greater name recognition, and have or may have access to substantially greater financial, technical and marketing resources. 12 BUSINESS OPERATIONS
Our business is substantially concentrated in the building materials industry, and adverse conditions in that industry could materially harm our results of operations.
A substantial portion of our anticipated revenues and commercial activities is dependent on the construction and building materials industry, and specifically on the market for interior and exterior wall panels, and finishing compounds for residential, commercial, and institutional construction applications. Accordingly, our business is subject to risks specific to that industry, including cyclical downturns in residential and commercial construction activity driven by rising interest rates, declining housing starts, reduced consumer spending, tightening credit conditions, and adverse real estate market conditions. Construction activity is historically one of the most interest-rate-sensitive sectors of the economy, and periods of elevated borrowing costs can suppress new construction starts for sustained periods. In addition, our anticipated customer base, including homebuilders, commercial contractors, institutional facility managers, and building material distributors, is itself subject to economic pressures that could delay or reduce purchasing decisions. Our heavy concentration in a single industry means that we do not have diversified revenue streams that could offset a downturn in building materials demand. If construction activity declines materially, or if our target customer segments reduce capital expenditures or defer purchasing decisions, our revenues, cash flow, and results of operations could be materially and adversely affected.
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Widespread acceptance of NexBoard as a replacement for conventional building materials may be slow, uncertain, and more costly than anticipated due to established procurement relationships and resistance to change.
The construction industry is characterized by deeply entrenched purchasing habits, long-standing supplier relationships, established specification standards, and significant institutional resistance to the adoption of new materials, even when those materials offer demonstrably superior performance characteristics. Builders, contractors, architects, and building owners often default to familiar materials, including drywall, plywood, and OSB, not because those materials are optimal but because they are familiar, widely distributed, and supported by established installation practices, workforce training, and supply chain infrastructure. Gaining acceptance of NexBoard as a substitute for these conventional materials will require extensive education of architects, specifiers, contractors, and building inspectors; investment in training programs for installation crews; inclusion in building codes and specification guides that currently reference only conventional materials; and a sustained period of demonstrated field performance to build market confidence. We may encounter resistance from established industry participants, including drywall manufacturers, distribution networks, and trade organizations, who may have economic interests in maintaining the status quo. Even if NexBoard's technical performance advantages are widely recognized, the transition from awareness to specification to procurement to widespread adoption may take significantly longer and require significantly more marketing and business development investment than we currently anticipate. If we are unable to achieve broad industry acceptance within a commercially reasonable timeframe, our ability to generate revenues and reach profitability could be materially and adversely affected.
The manufacture of NexBoard at commercial scale requires substantial capital investment that we may be unable to raise on acceptable terms or at all.
The transition from contract manufacturing to dedicated, internally operated manufacturing facilities capable of producing NexBoard at commercial scale requires substantial capital investment in specialized equipment, which may include injection molding tooling and equipment, sheet extrusion equipment, coating systems equipment, and associated production infrastructure. A fully operational, dedicated manufacturing facility capable of meeting anticipated market demand would require capital outlays that significantly exceed our current resources and near-term financing plans. The specialized nature of the equipment required means that off-the-shelf solutions are not available and lead times for custom equipment procurement are extended. If we are unable to raise the capital necessary to fund manufacturing infrastructure on terms that are economically viable, or if equipment procurement, installation, and commissioning encounters delays, cost overruns, or technical challenges, our ability to fulfill commercial orders, meet customer commitments, and scale revenues could be severely impaired. Additionally, the construction of or transition to owned manufacturing facilities will introduce fixed cost structures, lease or mortgage obligations, and employee headcount that could increase our operating losses in the near term before manufacturing scale and revenue growth provide adequate cost coverage.
Our reliance on contract manufacturing introduces risks of quality control, production capacity, delivery reliability, and confidentiality that are outside of our direct control.
We depend on contract manufacturing partners for the production of NexBoard This reliance introduces risks that we cannot fully control or mitigate, including the risk that our contract manufacturers may not maintain the quality standards required to produce NexBoard to our specifications, experience capacity constraints that limit our ability to fulfill customer orders, fail to meet delivery timelines that could damage our customer relationships, or, in the case of the termination of a manufacturing relationship, leave us without production capacity for an extended period while we identify and qualify alternative manufacturers. Contract manufacturing relationships are also subject to the risk that the manufacturer could, intentionally or inadvertently, disclose, replicate, or reverse-engineer our proprietary Durazite formulation or manufacturing processes, which could compromise our competitive position even if those processes are protected by our U.S. Patent No. 12,679,047. While we believe our patent provides meaningful protection, the risk of trade secret misappropriation in a contract manufacturing environment is inherently difficult to eliminate entirely.
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We face pricing pressure from established, well-capitalized competitors in the construction materials market who benefit from economies of scale, entrenched distribution networks, and lower per-unit production costs.
Our primary competitors in the construction panel market, manufacturers of gypsum drywall, plywood, OSB, and MDF, include some of the largest building materials companies in the world. These companies benefit from fully depreciated manufacturing facilities, decades of production optimization, established nationwide distribution infrastructure, existing relationships with major homebuilders and commercial contractors, and per-unit production costs that reflect the advantages of very high-volume manufacturing. NexBoard, as a new entrant with a novel material composition and manufacturing process, is unlikely to achieve comparable per-unit costs in the near to medium term, and we may face pricing pressure from incumbent products whose manufacturers are willing to reduce margins to defend their market position. If we are unable to price NexBoard competitively relative to conventional alternatives while still maintaining margins sufficient to support our operations, or if established competitors respond to NexBoard's market entry with aggressive pricing strategies, our commercial prospects and financial condition could be materially and adversely affected.
Our products may be subject to building code approval processes, certification requirements, and regulatory compliance obligations that could delay or restrict commercialization.
The construction materials industry is subject to extensive building codes, fire safety regulations, environmental regulations, and product certification requirements at the federal, state, and local levels, including the International Building Code, NFPA standards, EPA and CARB VOC emission standards, and LEED certification requirements. NexBoard has obtained a number of important independent laboratory certifications, including ASTM E84 Class A fire rating and NFPA 286 passage, but there is no assurance that NexBoard will be accepted in all jurisdictions without additional testing, local code approval processes, or product listing by recognized testing laboratories such as UL or ICC-ES. Building inspectors and local authorities having jurisdiction may be unfamiliar with composite polymer panels and may require additional documentation, testing, or approvals before allowing NexBoard to be installed in buildings subject to their oversight. Any delays in obtaining required local approvals, or any failure to obtain or maintain necessary certifications, could restrict our ability to market and sell NexBoard in affected markets and could materially harm our revenues and competitive position.
Our operations and products may be subject to environmental, health, and safety regulations that could increase our costs or restrict our operations.
The manufacture of NexBoard incorporates recycled thermoplastics, fire-retardant chemicals, and nanotechnology-enhanced materials that may be subject to environmental, health, and safety regulations at the federal, state, and local levels, including regulations administered by the Environmental Protection Agency, the Occupational Safety and Health Administration, and state environmental agencies. Changes in applicable environmental regulations, including regulations relating to chemical manufacturing, volatile organic compounds, nanomaterial handling and disclosure, and end-of-life product disposal, could require us to modify our manufacturing processes, reformulate our products, or incur additional compliance costs. Although we believe our products are designed to meet or exceed current environmental standards, we cannot predict the nature or timing of future regulatory changes that could affect our products or operations.
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If we are unable to effectively manage our growth, our ability to implement our business strategy and our operating results will likely be materially adversely affected.
Implementation of our business plan will place a significant strain on our management who must develop administrative, operating and financial infrastructures. To manage our business and planned growth effectively, we must successfully develop, implement, maintain and enhance our financial and accounting systems and controls, identify, hire and integrate new personnel and manage expanded operations. Salaries and benefits of additional personnel can be expected to place significant stress on our financial condition and the availability of such qualified personnel may be limited. There is no assurance that we will be able to manage the operational requirements related to implementing our business strategy.
We are dependent on key personnel.
Our success depends on our ability to identify, hire, train and retain highly qualified, specialized and experienced management and technical personnel. In addition, as we enter new areas of technology, we will need to hire additional highly skilled personnel. Competition for personnel with the required knowledge, skill and experience may be significant, and we may not be able to attract, assimilate or retain such personnel. The inability to attract and retain the necessary managerial and technical personnel could have a material adverse effect on our business, results of operations and financial condition.
We are dependent on developing competitively priced, superior-performance, and industry-certified DUREVER and NEXBOARD products. A significant part of our projected operations is expected to come from the sale of DUREVER products and NEXBOARD composite wallboards that are primarily made from recycled materials that use our proprietary eco-friendly industrial flame retardants and nanomaterials. We are in the process of obtaining certification of NEXBOARD for the construction industry and other applications, however, there is no assurance that the required certifications will be obtained. Operations could be adversely affected by interruptions from suppliers of components that are beyond our control.
Our technology, product development and sales could be adversely affected by interruptions in the supply of necessary components which are sourced from a variety of domestic and international vendors, suppliers and distributors, especially chemicals. We are also dependent upon third parties to timely deliver supplies that meet our specifications at competitive prices. Shortages or interruptions in the supply of these items, including electronic components, raw materials and chemicals could adversely affect the availability, quality and cost of items we sell. If such shortages result in increased cost of our supplies, we may not be able to pass along all of such increased costs to our customers. Such shortages or disruptions could be caused by transportation issues, inclement weather, natural disasters, increased demand, problems in production or distribution, restrictions on imports or exports, the inability of vendors to obtain credit, political instability in the countries in which suppliers and distributors are located, the financial instability of suppliers and distributors, suppliers or distributors failure to meet our standards, product quality issues, inflation, the price of gasoline, other factors relating to the suppliers and distributors and the countries in which they are located, safety regulations, warnings or advisories or the prospect of such pronouncements, the cancellation of supply or distribution agreements or an inability to renew such arrangements or to find replacements on commercially reasonable terms, or other conditions beyond our control. A shortage or interruption in the availability of certain electronic components, like servos and switchboards for industrial manufacturing equipment, chemicals, raw materials or supplies could increase costs and limit the availability of products critical to our operations, which in turn could lead to a significant reduction in our revenue.
Changes in the economy could have a detrimental impact on the Company.
Changes in the general economic climate could have a detrimental impact on our revenue. It is possible that recessionary pressures and other economic factors (such as declining incomes, future potential rising interest rates, higher unemployment and tax increases) may adversely affect the Company. A worsening economy such as we experienced due to the Covid-19 pandemic may have a material adverse effect on our financial results and on your investment.
Our business, results of operations and financial condition may be adversely impacted by pandemics or other significant public health conditions.
The COVID-19 pandemic negatively affected the U.S. and global economy several years ago, resulting in significant travel restrictions, including mandated closures and orders to shelter-in-place, and created significant disruption of supply chains and the financial markets. The extent to which our operations may be impacted by the re-occurrence of this pandemic or other public health conditions cannot be accurately predicted, including actions by government authorities to contain an outbreak or treat its impact. We may experience materially adverse impacts on our business due to a number of potential economic conditions. The impact of significant public health conditions may also exacerbate other risks discussed in these risk factors, any of which could have a material effect on us.
Our success is dependent upon our keeping pace with the advances in technology.
We are positioned as a technology company. Some of our initiatives will be dependent on the technology of other companies. Systems and components may be impacted by rapid changes in technology, including the emergence of new industry standards and practices that could require us to make modifications to its platform. Our performance will depend, in part, on our ability to continue to enhance our existing technology or develop new technology that addresses the increasingly sophisticated and varied needs of the market, license leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical as well as business risks. We may be unsuccessful in using new technologies effectively or adapting its systems or other proprietary technology to the requirements of emerging industry standards. If we are unable to adapt to these changes and demands, our results of operations and financial condition could be materially and adversely affected.
We could face liability or disruption from security breaches.
Our technology and development process involves the storage of critical, secure and proprietary information. Our communications and computer infrastructure are potentially vulnerable to both physical and electronic invasions, such as cyberattacks and security breaches. We may be required to expend significant capital and other resources to defend against and lessen or correct the adverse effects of these invasions. Any such invasion could result in significant damage to us. A person who is able to circumvent the security measures employed by us could capture proprietary information; alter or destroy our information; or cause interruptions of our operations.
Litigation may adversely affect our business, financial condition, and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.
Our insurance coverage may be inadequate to cover all significant risk exposures.
While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, and results of operations. We do not have any business interruption insurance. Any business disruption could result in substantial costs and diversion from executing our business plan.
RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES
We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants.
As of the date of this filing, our management team of four people is currently paid as consultants or independent contractors. We also have engaged and plan to continue to engage outside consultants called Senior Advisors to advise us and have been and will be required to retain additional consultants and employees. Our future performance will depend in part on our ability to successfully integrate newly hired officers into our management team and our ability to develop an effective working relationship among senior management.
Certain of our directors, officers, advisors, and consultants serve as officers, directors, advisors, or consultants of other companies that might be developing competitive products. Other than corporate opportunities, none of our directors are obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly, we can give no assurance, and we do not expect, and stockholders should not expect, that any product or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate opportunities. We can give no assurance that any such other companies will not have interests that are in conflict with its interests.
Losing key personnel or failing to recruit necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for qualified personnel in the technology field, and we may not be able to attract and retain the qualified personnel we need to develop our business.
We rely on independent organizations, advisors and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may not always be available to us on a timely basis.
We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.
As is common in the technology industry, we engage the services of consultants to assist in the development of our products. Many of these consultants were previously employed at or may have previously been or are currently providing consulting services to other technology companies, including our competitors or potential competitors. We may become subject to claims that we or our consultants have inadvertently or otherwise used or disclosed trade secrets or other proprietary information about our former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
Misappropriation Unauthorized disclosure or reverse engineering of our intellectual property and proprietary rights fire-retardant formulation could impair materially compromise our competitive position. position, even if patent protection is in place.
Our success will depend to some extent upon competitive advantage is substantially dependent on our proprietary patented technology. The legal protections available to us can afford only limited protection, fire-retardant formulation, which is incorporated into both NexBoard and these means of protecting NexPatch. While we hold U.S. Patent No. 12,679,047 covering our intellectual property may be inadequate. We rely, specialized manufacturing process, novel composition, and will continue layering architecture, the value of that patent protection is limited by our ability to rely, on patents, trademarks, trade secrets detect and copyright laws, confidentiality agreements, employment agreements, work for hire agreements, pursue infringement, and technical measures to protect its intellectual property. We cannot ensure that the steps taken by it will prevent misappropriation the scope of its technology or that the agreements entered into for patent claims relative to alternative formulations that purpose will be enforceable. Effective trademark, service mark, copyright and trade secret competitors might develop. Patent protection may does not be available in every jurisdiction in which our products and services are made available online. Our intellectual property may be subject to even greater risk in foreign jurisdictions, as prevent competitors from independently developing alternative materials that achieve similar performance characteristics through different chemical approaches, nor does it prevent the laws misappropriation of many countries do not protect intellectual property to the same extent as the laws of the United States. As part of its confidentiality procedures, we generally will enter into agreements with our employees and consultants and limit access to our trade secrets and technology. We cannot assure or assume, however, know-how that former employees will is not seek to start or enhance other competing products or services to our detriment, our business, results of operations and financial condition. Nevertheless, management believes that captured within the technical and creative skills of its personnel, continued development of its proprietary systems and technology, as well as brand name recognition and development are more essential in establishing and maintaining a competitive market position. Despite efforts to protect patent claims. If our proprietary rights, unauthorized persons may attempt to copy aspects of our products formulation were reverse engineered, disclosed by a former employee, consultant, or services contract manufacturer, or to obtain and use information that we regard as proprietary. Policing unauthorized use of independently replicated by a well-resourced competitor, our proprietary rights is difficult and requires constant attention. We may competitive differentiation could be required to spend significant resources to monitor substantially reduced and police our intellectual property rights. investment in research and development could be significantly devalued. We may not be able to detect infringement such misappropriation until significant commercial harm has already occurred, and may lose our competitive position in the market before we are able to ascertain any such infringement. In addition, competitors may design around our proprietary technology or develop competing technologies. Intellectual property cost and uncertainty of litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine rights could be prohibitive.
Third parties may challenge the validity or enforceability of U.S. Patent No. 12,679,047, and scope an adverse outcome could materially harm our competitive position and commercial prospects.
We hold U.S. Patent No. 12,679,047, which we believe provides meaningful protection for key aspects of NexBoard's manufacturing process and composition. However, this patent may be challenged through post-grant proceedings at the proprietary rights of others U.S. Patent and Trademark Office, including inter partes review and post-grant review, or to defend against through invalidity claims raised as defenses in litigation. The outcome of infringement by us. Other companies, including competitors, may obtain patents or other proprietary rights patent validity proceedings is inherently uncertain, and a determination that would prevent, limit our patent is invalid, unenforceable, or interfere with narrower in scope than we believe could significantly weaken our ability to make, use or sell its prevent competitors from manufacturing and selling products that compete directly with NexBoard. In addition, because our patent was issued in connection with a novel and services. Any such litigation by or against us, whether proprietary process, and because the claims are valid or not, could result prior art landscape in our incurring substantial costs polymer composites and diversion fire-retardant chemistry is complex, there is a risk that prior art exists of resources, including the attention of senior management. If which we are unsuccessful unaware that could be cited against our patent in a validity challenge. Any such legal proceedings, we challenge, regardless of its ultimate outcome, could be subjected require us to expend significant damages; financial and management resources in defense, and could create uncertainty regarding our intellectual property position that negatively affects investor confidence, partnership discussions, and commercial relationships.
If competitors develop products that design around our patents or independently achieve comparable performance characteristics, our competitive advantages may be required diminished.
Our existing patent covers specific aspects of NexBoard's manufacturing process, composition, and layering architecture. It may be possible for competitors, particularly well-resourced building materials manufacturers or chemical companies, to license technology develop composite panel products that is critical achieve performance characteristics similar to NexBoard through alternative polymer matrices, different fire-retardant chemistries, or modified manufacturing processes that do not infringe our operations, patent claims. The construction materials market has a history of rapid product innovation, and if a license is available at large, established manufacturer were to develop a cost which we can pay; competing product with comparable or superior performance, that competitor's existing manufacturing scale, distribution infrastructure, and customer relationships would represent significant competitive advantages over us. We cannot assure that our patent protection will be required sufficient to develop replacement technologies at substantial cost prevent such competitive development or to us in money and time. Any of these results could materially and adversely affect maintain our business, results of operations and financial condition. 16 current performance-based differentiation over the long term. We will also rely on patents trade secrets, know-how and patent applications and various regulatory exclusivities to protect some of our product candidates, and our ability to compete may be limited or eliminated if we technology, which are not able protected by patents, to protect maintain our products. The patent positions of companies such as ours are uncertain and involve complex legal and factual questions. competitive position. We may incur significant expenses in protecting our intellectual property and defending or assessing claims with respect will seek to intellectual property owned protect this information by others. Any patent or other infringement litigation by or against us could cause us entering into confidentiality agreements with parties that have access to incur significant expenses it, such as strategic partners, collaborators, employees, contractors and divert the attention consultants. Any of our management. Others these parties may file patent applications or obtain patents on similar technologies that compete with breach these agreements and disclose our products confidential information or those of our joint ventures. We cannot predict how broad competitors might learn of the claims information in some other way. If any such patents trade secret, know-how or applications will be and whether they will be allowed. Once claims have been issued, we cannot predict how they will be construed other technology not protected by a patent were disclosed to, or enforced. We and/or independently developed by, a competitor, our joint ventures may infringe upon intellectual property rights business, financial condition and results of others without being aware of it. If another party claims we are infringing their technology, we operations could have to defend an expensive and time-consuming lawsuit, pay a large sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our products, which may not be possible. materially adversely affected.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated with lawsuits.
If any other person filed patent applications, or is issued patents, claiming technology also claimed by us, we may be required to participate in interference or derivation proceedings in the U.S. Patent and Trademark Office to determine priority and/or ownership of the invention. Our licensors or we may also need to participate in interference proceedings involving issued patents and pending applications of another entity.
The intellectual property environment in our industry is particularly complex, constantly evolving and highly fragmented. Other companies and institutions have issued patents and have filed or will file patent applications that may issue into patents that cover or attempt to cover products, processes or technologies similar to ours. We have not conducted freedom-to-use patent searches on all aspects of our product candidates or potential product candidates and may be unaware of relevant patents and patent applications of third parties. In addition, the freedom-to-use patent searches that have been conducted may not have identified all relevant issued patents or pending patent applications. We cannot provide assurance that our proposed products in this area will not ultimately be held to infringe one or more valid claims owned by third parties which may exist or come to exist in the future or that in such case we will be able to obtain a license from such parties on acceptable terms.
We cannot guarantee that our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition proceedings, either by opposing the validity of others foreign patents or by persons opposing the validity of our foreign patents.
We may also face frivolous litigation or lawsuits from various competitors or from litigious securities attorneys. The cost of any litigation or other proceeding relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management from its business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations.
We cannot be certain we will be able to obtain patent protection to protect our product candidates and technology.
We cannot be certain that all patents applied for will be issued. If a third party has also filed a patent application relating to an invention claimed by us or one or more of our licensors, we may be required to participate in an interference or derivation proceeding declared or instituted by the United States Patent and Trademark Office, which could result in substantial uncertainties and cost for us, even if the eventual outcome is favorable to us. The degree of future patent protection for our product candidates and technology is uncertain. For example:
we, or our licensors, might not have been the first to make the inventions covered by our issued patents, or pending or future patent applications; | ||
we, or our licensors, might not have been the first to file patent applications for the inventions; | ||
others may independently develop duplicative, similar or alternative technologies; | ||
it is possible that our patent applications will not result in an issued patent or patents, or that the scope of protection granted by any patents arising from our patent applications will be significantly narrower than expected; |
any patents under which we hold ultimate rights may not provide us with a basis for commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties as not infringed, invalid, or unenforceable under United States or foreign laws; | ||
any patent issued to us in the future or under which we hold rights may not be valid or enforceable; or | ||
we may develop additional technologies that are not patentable, and which may not be adequately protected through trade secrets; for example, if a competitor independently develops duplicative, similar, or alternative technologies. |
In addition, disputes may arise regarding intellectual property subject to a license agreement, including:
the scope of rights granted under the license agreement and other interpretation-related issues; | ||
the extent to which our technology, products, methods and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; | ||
our diligence obligations under the license agreement and what activities satisfy those obligations; | ||
if a third party expresses interest in an area under a license that we are not pursuing, under the certain terms of our license agreement, we may be required to sublicense rights in that area to the third party, and that sublicense could harm our business; and | ||
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us. |
If disputes over the 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 product candidates.
We may need to obtain licenses from third parties to advance our research to allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our product candidates.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee that our products or product candidates, or manufacture or use of our products or product candidates, will not infringe third-party patents. Furthermore, a third party may claim that we are using inventions covered by the third partys patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates or products. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and scientific personnel. Some of these third parties may be better capitalized and have more resources than us. There is a risk that a court would could decide that we are infringing the third partys patents and would order us to stop cease the activities covered by the patents. In that event, we may not have a viable way to get around the patent and may need to halt commercialization of the relevant product candidate(s) or product(s). In addition, there is a risk that a court will order us to pay the other party damages for having violated the other partys patents. In addition, we may be obligated to indemnify our licensors and collaborators against certain intellectual property infringement claims brought by third parties, which could require us to expend additional resources. The aerospace and technology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert managements time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, and then we will have to defend an infringement action or challenge the validity of the patent in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, fail to develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent the technology, because:
some patent applications in the United States may be maintained in secrecy until the patents are issued; | ||
patent applications in the United States are typically not published until 18 months after the priority date; and | ||
publications in scientific literature often lag behind actual discoveries. |
Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent applications may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed US patent applications on inventions similar to ours that claims priority to any applications filed prior to the priority dates of our applications, we may have to participate in an interference proceeding declared or a derivation proceed instituted by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar inventions prior to our own inventions, resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and thus the third partys patent or patent application may be entitled to priority over our applications in such jurisdictions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed alleged trade secrets.
As is common in the aerospace and technology industries, we may employ individuals who were previously employed at aerospace and technology companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail to defend any such claims, in addition to paying monetary damages, we could lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Our intellectual property may not be sufficient to protect our products from competition, which may negatively affect our business as well as limit our partnership or acquisition appeal. We may be subject to competition despite the existence of intellectual property we license, or we or our joint ventures own. We can give no assurance that our intellectual property will be sufficient to prevent third parties from designing around the patents we own or license and developing and commercializing competitive products. The existence of competitive products that avoid our intellectual property could materially adversely affect our operating results and financial condition. Furthermore, limitations, or perceived limitations, in our intellectual property may limit the interest of third parties to partner, collaborate or otherwise transact with us if third parties perceive a higher than acceptable risk to commercialization of our products or future products. Our approach involves filing patent applications covering new methods of use and/or new formulations of previously known, studied and/or marketed devices. Although the protection afforded by patents issued from our patent applications may be significant, when looking at our patents ability to block competition, the protection offered by our patents may be, to some extent, more limited than the protection provided by patents claiming the composition of matter previously unknown. If a competitor were able to successfully design around any method of use and formulation patents we may have in the future, our business and competitive advantage could be significantly affected. 20 We may elect to sue a third party, or otherwise make a claim, alleging infringement or other violation of patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights that we either own or license. If we do not prevail in enforcing our intellectual property rights in this type of litigation, we may be subject to: paying monetary damages related to the legal expenses of the third party; facing additional competition that may have a significant adverse effect on our product pricing, market share, business operations, financial condition, and the commercial viability of our products; and restructuring our company or delaying or terminating select business opportunities, including, but not limited to, research and development, and commercialization activities, due to a potential deterioration of our financial condition or market competitiveness. A third party may also challenge the validity, enforceability or scope of the intellectual property rights that we license or own; and the result of these challenges may narrow the claim scope of or invalidate patents that are integral to our product candidates in the future. There can be no assurance that we will be able to successfully defend patents we own or licensed in an action against third parties due to the unpredictability of litigation and the high costs associated with intellectual property litigation, amongst other factors. The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in the United States and Europe, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated, rendered unenforceable or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products or product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign markets. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished, and we may face additional competition from others in those jurisdictions. Changes to patent law, for example the Leahy-Smith America Invests Act, AIA or Leahy-Smith Act, of 2011 and the Patent Reform Act of 2009 and other future article of legislation in the U.S., may substantially change the regulations and procedures surrounding patent applications, issuance of patents, prosecution of patents, challenges to patent validity, and patent enforcement. We can give no assurances that our patents and those of our licensor(s) can be defended or will protect us against future intellectual property challenges, particularly as they pertain to changes in patent law and future patent law interpretations. In addition, enforcing and maintaining our intellectual property protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by the U.S. Patent and Trademark Office and courts, and foreign government patent agencies and courts, and our patent protection could be reduced or eliminated for non-compliance with these requirements. 21 If we are not able to protect and control our unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.
We also rely on proprietary trade secrets and unpatented know-how to protect our research and development activities, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect. We will attempt to protect our trade secrets and unpatented know-how by requiring our employees, consultants, collaborators, and advisors to execute a confidentiality and non-use agreement. We cannot guarantee that these agreements will provide meaningful protection, that these agreements will not be breached, that we will have an adequate remedy for any such breach, or that our trade secrets will not otherwise become known or independently developed by a third party. Our trade secrets, and those of our present or future collaborators that we utilize by agreement, may become known or may be independently discovered by others, which could adversely affect the competitive position of our product candidates.
RISKS RELATED TO OWNING OUR COMMON STOCK
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. 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.
We cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.
The price of our common stock may be volatile and fluctuate substantially.
Our stock price has been and is likely to continue to be volatile. The stock market in general and the market for companies with smaller public floats in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our stockholders may not be able to sell our common stock at or above the price they paid for it. The market price for our common stock may be influenced by many factors, including:
the timing, results and capacity of our manufacturing operations; | ||
the success of existing or new competitive products or technologies; | ||
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; | ||
establishment or termination of collaboration of our joint ventures or development programs; | ||
failure of discontinuation of any of our development programs; | ||
the success of our competitors new products entering the marketplace; | ||
regulatory or legal developments in the United States and other countries; | ||
developments or disputes concerning patent applications, issued patents or other proprietary rights; | ||
the recruitment or departure of key personnel; | ||
the level of expenses related to any of our product candidates or development programs; | ||
the results of our efforts to discover, develop, acquire or license additional products; | ||
actual or anticipated changes in estimates as to financial results or production and development timelines; | ||
announcement or expectation of additional financing efforts; | ||
sales of our common stock by us, our insiders or other stockholders; | ||
variations in our financial results or those of companies that are perceived similar to us; | ||
changes in estimates or recommendations by securities analysts, if any, that cover our stock; and | ||
general economic, industry and market conditions. |
Our directors and executive officers can exert significant control over our business and affairs and have actual or potential interests that may depart from those of investors in the subsequent financings.
The interests of our directors and officers may differ from the interests of our other stockholders, including purchasers of our securities, in future financings. As a result, based on their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Companys other stockholders, may vote, including the following actions:
to elect or defeat the election of our directors; | ||
to amend or prevent amendment of our Amended and Restated Articles of Incorporation or By-laws; | ||
to effect or prevent a merger, sale of assets or other corporate transaction; and | ||
to control the outcome of any other matter submitted to our stockholders for vote. |
This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the Common Stock which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
We may issue more shares in a future financing or pursuant to existing agreements which will result in substantial dilution.
Our Amended and Restated Articles of Incorporation authorize the issuance of a maximum of 5,000,000,000 shares of Common Stock and a maximum of 100,000,000 shares of Preferred Stock. Any future merger or acquisition effected by us would result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of our Common Stock held by our then existing stockholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arms-length basis by our management, resulting in an additional reduction in the percentage of Common Stock held by our then existing stockholders. Additionally, we expect to seek additional financing in order to provide working capital to the operating business. Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or Preferred Stock are issued in connection with and following a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of Common Stock might be materially and adversely affected.
Our Board of Directors is authorized to issue Preferred Stock without obtaining shareholder approval.
Our Amended and Restated Articles of Incorporation authorize the issuance of up to 100,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by the Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of Preferred Stock, there can be no assurance that the Company will not do so in the future.
An active trading market for our common stock may not develop, and you may not be able to sell your common stock.
There has been a limited public market for our common stock. An active trading market for shares of our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our common stock, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our common stock as consideration.
Market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over medical epidemics, energy costs, geopolitical issues such as the issues in the Ukraine and the Middle East, the U.S. mortgage market and a deteriorating real estate market, unstable global credit markets and financial conditions, and volatile oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely affected by any such economic downturns such as public health conditions, volatile business environments and continued unstable or unpredictable economic, market, and geopolitical conditions, such as the current situation in the Ukraine. If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development or commercialization plans.
Future sales and issuances of our common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations, including increased marketing, hiring new personnel, commercializing our product, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution for our existing stockholders, and new investors could gain rights superior to our existing stockholders.
We may be at risk of securities class action litigation.
We may be at risk of securities class action litigation. If we face such litigation, it could result in substantial costs and a diversion of managements attention and resources, which could harm our business and result in a decline in the market price of our common stock.
Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws, and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.
Our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, and Nevada law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 100,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our Board of Directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, stock and therefore reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.
Provisions of our Articles of Incorporation and our Amended and Restated Bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, the certificate of incorporation and bylaws and Nevada law, as applicable, among other things:
| provide the board of directors with the ability to alter the bylaws without stockholder approval; | |
| place limitations on the removal of directors; | |
| establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and | |
| provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum. |
Financial reporting obligations of being a public company in the U.S. are expensive and time-consuming, and our management will be required to devote substantial time to compliance matters.
As a publicly traded company we incur significant additional legal, accounting and other expenses. The obligations of being a public company in the U.S. require significant expenditures and will place significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the listing requirements of the stock exchange on which our securities are listed. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.
There will be a substantial number of common shares eligible for future sale from the conversion of Series A Preferred shares.
There were 664,996 547,592 shares of our Series A Preferred Stock outstanding as of June 30, 2025. 2026. Each preferred share is convertible into 1,000 common shares. Once converted, these shares are eligible for resale under Rule 144. The sale, or availability for sale, of the foregoing shares could adversely affect the market price of our common stock or impair our ability to raise capital through future sales of our common stock.