ITEM 1A. Risk Factors
In addition to the other information set forth in the Quarterly Report on Form 10-Q,
the reader should carefully the risks described below before making an investment decision. Our business could be harmed by any
of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of
your investment. The following risk factors amend, restate and supplement the risk factors discussed in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2018.
We will require additional financing to finance operating expenses and fulfill
our business plan. Such financing will be dilutive. Our current financing includes secured notes that are due in December 2019.
Our independent public accounting firm has indicated in their audit opinion, contained in our financial statements, that they have
serious doubts about our ability to remain a going concern.
We have not achieved profitability and anticipate that we will continue to incur net
losses at least through the remainder of fiscal 2019. We had revenues of $1,411,655 in 2018, but we had negative operating cash
flows of $5,287,956. We had revenues of $1,064,088 in the first nine months of 2019, but we had negative operating cash flows of
$5,936,803. The Company had cash and cash equivalents of $98,599 as of September 30, 2019 and we need to raise significant additional
capital to meet its operating needs, pay debt obligations coming due, and meet the continued operating needs of Helomics.
The Company has secured convertible notes with remaining principal balances of $1,878,295
due in December 2019 and $847,500 due in March 2020. Repayment of these notes will include interest at 8% per annum. An additional
$1,920,000 in principal amount of promissory notes are due in February 2020. As of September 30, 2019, the Company had debt totaling
$4,969,595. Our accounts payable and accrued expenses as of September 30, 2019 were an aggregate $5,569,656.
Although we are attempting to curtail our expenses, there is no guarantee that we will
be able to reduce these expenses significantly, and expenses for some periods may be higher as we prepare our product for broader
sales, increase our sales efforts and maintain adequate inventories. Further, Helomics continues to incur negative operating cash
flows, and the Helomics business continues to require significant cash resources following the completion of the Merger.
We will require additional funding to finance operating expenses and to invest in our
sales organization and new product development and to compete in the international marketplace, as well as to develop the Helomics
business and other aspects of our CRO business. We will attempt to raise these funds through equity or debt financing that may
include public offerings, private placements, alternative offerings or other means. In October the Company entered into a purchase
agreement for an equity line under which it can raise up to $15,000,000, subject to certain prior conditions. The Company will
also attempt to raise funds from other sources that may include public offerings, private placements, alternative offerings, or
other means.
If we are successful in securing adequate funding, we plan to make significant capital
or equipment investments, and we will also continue to make human resource additions in Helomics over the next 12 months. Such
additional financing will be dilutive to existing stockholders, and there is no assurance that such financing will be available
upon acceptable terms. If such financing or adequate funds from operations are not available, we will be forced to limit our business
activities, which will have a material adverse effect on our results of operations and financial condition.
As a result of the above factors, the Company has concluded that there is substantial
doubt about its’ ability to continue as a going concern. The financial statements have been prepared assuming the Company
will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of
this uncertainty. Furthermore, our independent registered public accounting firm has indicated in their audit opinion, contained
in our financial statements included in this Annual Report on Form 10-K within Item 8, that there is substantial doubt about our
ability to continue as a going concern. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Liquidity and Capital Resources.”
In connection with developing our CRO business, we have committed and will continue
to commit significant capital to investments in early stage companies, all of which may be lost, and which may require us to raise
significant additional capital, and our entering into new lines of business will result in significant diversion of management
resources, all of which may result in failure of our business.
We have committed significant capital and management resources to developing our CRO
business and other new business areas, and we intend to continue to devote significant capital and management resources to new
businesses. In addition, in August 2017, we entered into a merger agreement with CytoBioscience, which was subsequently terminated
in November 2017. From July 2017 through November 2017, we advanced $1,070,000 to CytoBioscience in the form of secured notes,
which are still outstanding. The Company has not received any payments from CytoBioscience since the first quarter of 2019. The
Company has obtained a judgment against CytoBioscience and has proceeded with court proceedings to claim the collateral equipment
and to attempt to recover the original balance plus interest due under the note. Management has concluded that it is probable that
the Company will be unable to collect all amounts due according to the contractual terms of the receivable, and the Company has
reserved all but $250,000 of the note. It is possible that we will make further investments and advances in other businesses as
we develop our CRO business and other business models. There can be no assurance that any of the outstanding balances of our existing
promissory notes or future advances will be repaid. Therefore, we could invest significant capital in other business enterprises
with no certainty when or whether we will realize a return on these investments. Investments in cash will deplete our capital resources,
meaning that we will be required to raise significant amounts of new capital. There is no assurance that we will be successful
in raising sufficient capital, and the terms of any such financing will be dilutive to our stockholders. We may also acquire technologies
or companies by issuing stock or other equity securities rather than or in addition to payment of cash, which may have the result
of diluting the investment of our stockholders. Further, the energy and resources of our officers and personnel are being substantially
diverted to new lines of business, which are unproven. If these businesses are unsuccessful or require too great of a financial
investment to be profitable, our business may fail.
Our limited operating history with respect to our precision medicines services
makes evaluation of our business difficult.
The Company’s precision medicine services were launched with the Company’s
initial investment in Helomics during the first quarter of 2018 and have not generated significant revenue to date. Our ability
to implement a successful business plan with respect to precision medicine remains unproven and no assurance can be given that
we will ever generate sufficient revenues to sustain our business in the event our STREAMWAY business is unsuccessful. We have
a limited operating history which makes it difficult to evaluate our performance. You must consider our prospects in light of these
risks and the expenses, technical obstacles, difficulties, market penetration rate and delays frequently encountered in connection
with the development of new businesses. These factors include uncertainty as to whether we will be able to:
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Be successful in uncertain markets;
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Respond effectively to competitive pressures;
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Successfully address intellectual property issues of others;
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Protect and expand our intellectual property rights; and
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Continue to develop and upgrade our products.
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The Company’s certificate of incorporation, as amended, provides that, to
the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal
actions between the Company and its stockholders, which could limit the Company’s stockholders’ ability to obtain a
judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers
or employees.
The Company’s certificate of incorporation, as amended, provides that, to the fullest
extent permitted by law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative
action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed
by any director or officer of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting
a claim against the corporation arising pursuant to any provision of the General Corporation Law or the corporation’s Certificate
of Incorporation or Bylaws, or (iv) any action asserting a claim against the corporation governed by the internal affairs doctrine.
This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent jurisdiction for any
actions brought under the Securities Act or the Exchange Act. Accordingly, our exclusive forum provision will not relieve us of
our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be
deemed to have waived our compliance with these laws, rules and regulations.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities
shall be deemed to have notice of and consented to these provisions. These exclusive-forum provisions may limit a stockholder’s
ability to bring a claim in a judicial forum of its choosing 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 the choice of forum provision contained in our certificate of
incorporation, as amended, to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving
such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Even if we are
successful in defending against these claims, litigation could result in substantial costs and be a distraction to the Company’s
management.
STREAMWAY Business Risk Factors
Our business is dependent upon proprietary intellectual property rights, which
if we were unable to protect, could have a material adverse effect on our business.
We rely on a combination of patent, trade secret and other intellectual property rights
and measures to protect our intellectual property. We currently own and may in the future own or license additional patent rights
or trade secrets in the U.S., with non-provisional patents elsewhere in the world that cover certain of our products. We rely on
patent laws and other intellectual property laws, nondisclosure and other contractual provisions and technical measures to protect
our products and intangible assets. These intellectual property rights are important to our ongoing operations and no assurance
can be given that any measure we implement will be sufficient to protect our intellectual property rights. Also, with respect to
our trade secrets and proprietary know-how, we cannot be certain that the confidentiality agreements we have entered into with
employees will not be breached, or that we will have adequate remedies for any breach. We may lose the protection afforded by these
rights through patent expirations, legal challenges or governmental action. If we cannot protect our rights, we may lose our competitive
advantage if these patents were found to be invalid in the jurisdictions in which we sell or plan to sell our products. The loss
of our intellectual property rights could have a material adverse effect on our business.
If we become subject to intellectual property actions, this could hinder our ability
to deliver our products and services and our business could be negatively impacted.
We could be subject to legal or regulatory actions alleging intellectual property infringement
or similar claims against us. Companies may apply for or be awarded patents or have other intellectual property rights covering
aspects of our technologies or businesses. Moreover, if it is determined that our products infringe on the intellectual property
rights of third parties, we could be prevented from marketing our products. While we are currently not subject to any material
intellectual property litigation, any future litigation alleging intellectual property infringement could be costly, particularly
in light of our limited resources. Similarly, if we determine that third parties are infringing on our patents or other intellectual
property rights, our limited resources may prevent us from litigating or otherwise taking actions to enforce our rights. Any such
litigation or inability to enforce our rights could require us to change our business practices, hinder or prevent our ability
to deliver our products and services, and result in a negative impact to our business. Expansion of our business via product line
enhancements or new product lines to drive increased growth in current or new markets may be inhibited by the intellectual property
rights of our competitors and/or suppliers. Our inability to successfully mitigate those factors may significantly reduce our market
opportunity and subsequent growth.
We face significant competition, including competition from companies with considerably
greater resources than ours, and if we are unable to compete effectively with these companies, our market share may decline and
our business could be harmed.
Our industry is highly competitive with numerous competitors ranging from well-established
manufacturers to innovative start-ups. A number of our competitors have significantly greater financial, technological, engineering,
manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to compete
more effectively on the basis of price and production and more quickly develop new products and technologies.
Our competitors include Cardinal Health, Inc., a medical manufacturer and distributor,
and Stryker Instruments, a wholly owned subsidiary of Stryker Corporation, which has a leading position in our market. Both of
these competitors are substantially larger than our company and are better capitalized than we are.
Companies with significantly greater resources than ours may be able to reverse engineer
our products and/or circumvent our intellectual property position. Such action, if successful, would greatly reduce our competitive
advantage in the marketplace.
We believe our ability to compete successfully depends on a number of factors, including
our technical innovations of unlimited suction and unlimited capacity capabilities, our innovative and advanced research and development
capabilities, strength of our intellectual property rights, sales and distribution channels and advanced manufacturing capabilities.
We plan to employ these and other elements as we develop our products and technologies, but there are many other factors beyond
our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions,
reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand
our development and marketing of new products, which could adversely impact the trading price of the shares of our common
stock.
Our business is subject to intense governmental regulation and scrutiny, both in
the U.S. and abroad.
The production, marketing, and research and development of our products is subject to
extensive regulation and review by the FDA and other governmental authorities both in the United States and abroad. In addition
to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record
keeping. If we do not comply with applicable regulatory requirements, violations could result in warning letters, non-approvals,
suspensions of regulatory approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions,
injunctions, and criminal prosecution.
Periodically, legislative or regulatory proposals are introduced that could alter the
review and approval process relating to medical products. It is possible that the FDA will issue additional regulations further
restricting the sale of our present or proposed products. Any change in legislation or regulations that govern the review and approval
process relating to our current and future products could make it more difficult and costlier to obtain approval for new products,
or to produce, market, and distribute existing products.
If our STREAMWAY System product is not accepted by our potential customers, it
is unlikely we will ever become profitable.
The medical industry has historically used a variety of technologies for fluid waste
management. Compared to these conventional technologies, our technology is relatively new, and the number of companies using our
technology is limited. The commercial success of our product will depend upon the widespread adoption of our technology as a preferred
method by hospitals and surgical centers. In order to be successful, our products must meet the technical and cost requirements
for these facilities. Market acceptance will depend on many factors, including:
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the willingness and ability of customers to adopt new technologies;
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our ability to convince prospective strategic partners and customers that our technology is an attractive alternative to conventional methods used by the medical industry;
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our ability to select and execute agreements with effective distributors to market and sell our product; and
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our ability to assure customer use of the Skyline proprietary cleaning solution and in-line filter.
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Because of these and other factors, our products may not gain market acceptance or become
the industry standard for the health care industry. The failure of such companies to purchase our products would have a material
adverse effect on our business, results of operations and financial condition.
If demand for our product is unexpectedly high, there is no assurance that there
will not be supply interruptions or delays.
We are currently manufacturing the STREAMWAY System, following GMP compliance regulations
of the FDA, at our own facility and anticipate the capability of producing the STREAMWAY System in sufficient quantities for future
near-term sales. We have contracted with a manufacturing company that can manufacture products at higher volumes. However, if demand
for our product is unexpectedly high, there is no assurance that we or our manufacturing partners will be able to produce the product
in sufficiently high quantity to satisfy demands. Any supply interruptions or inadequate supply would have a material adverse effect
on our results of operations.
We are dependent on a few key executive officers for our success. Our inability
to retain those officers would impede our business plan and growth strategies, which would have a negative impact on our business
and the value of an investment.
Predictive’s success depends on the skills, experience and performance of key members
of its management team. Predictive heavily depends on its management team: Carl Schwartz, Predictive’s Chief Executive Officer
(“CEO”), and Bob Myers, Predictive’s Chief Financial Officer (“CFO”). Predictive has entered into
employment agreements with the CEO and the CFO of the senior management team and may expand the relatively small number of executives
in its company. Were Predictive to lose one or more of these key individuals, it would be forced to expend significant time and
money in the pursuit of a replacement, which could result in both a delay in the implementation of Predictive’s business
plan and the diversion of its limited working capital. Predictive can give no assurance that it can find satisfactory replacements
for these key individuals at all, or on terms that are not unduly expensive or burdensome to Predictive.
Our success is dependent on our ability to attract and retain technical personnel,
sales and marketing personnel, and other skilled management.
Our success depends to a significant degree on our ability to attract, retain and motivate
highly skilled and qualified personnel. Failure to attract and retain necessary technical, sales and marketing personnel and skilled
management could adversely affect our business. If we fail to attract, train and retain sufficient numbers of these highly-qualified
people, our prospects, business, financial condition and results of operations will be materially and adversely affected.
Security breaches, loss of data and other disruptions to Predictive or its third-party
service providers could compromise sensitive information related to Predictive’s business or prevent Predictive from accessing
critical information and expose it to liability, which could adversely affect Predictive’s business and reputation.
Predictive’s business requires that Predictive collect and store sensitive data
including credit card information, and Predictive’s proprietary business and financial information. Predictive faces a number
of risks relative to Predictive’s protection of, and Predictive’s service providers’ protection of, this critical
information, including loss of access, inappropriate disclosure and inappropriate access, as well as risks associated with Predictive’s
ability to identify and audit such events. The secure processing, storage, maintenance and transmission of this critical information
are vital to Predictive’s operations and business strategy, and Predictive devotes significant resources to protecting such
information. Although Predictive takes measures to protect sensitive information from unauthorized access or disclosure, Predictive’s
information technology and infrastructure may be vulnerable to attacks by hackers or viruses or otherwise breached due to employee
error, malfeasance or other activities. While Predictive has not experienced any such attack or breach, if such event would occur
and cause interruptions in Predictive’s operations, Predictive’s networks would be compromised and the information
Predictive stores on those networks could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Unauthorized
access, loss or dissemination could disrupt Predictive’s operations, including collecting, processing and preparing company
financial information, manage the administrative aspects of Predictive’s business and damage Predictive’s reputation,
any of which could adversely affect Predictive’s business. In addition, the interpretation and application of consumer, health-related
and data protection laws in the United States are often uncertain, contradictory and in flux. It is possible that these laws may
be interpreted and applied in a manner that is inconsistent with Predictive’s practices. Complying with these various laws
could cause Predictive to incur substantial costs or require Predictive to change its business practices, systems and compliance
procedures in a manner adverse to Predictive’s business.
Costs incurred because Predictive is a public company may affect its profitability.
As a public company, Predictive incurs significant legal, accounting, and other expenses
and it is subject to the SEC’s rules and regulations relating to public disclosure that generally involve a substantial expenditure
of financial resources. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC,
requires changes in corporate governance practices of public companies. Full compliance with such rules and regulations requires
significant legal and financial compliance costs and makes some activities more time-consuming and costlier, which may negatively
impact its financial results. To the extent Predictive’s earnings suffer as a result of the financial impact of its
SEC reporting or compliance costs, its ability to develop an active trading market for its securities could be harmed.
Limitations on director and officer liability and indemnification of our officers
and directors by us may discourage stockholders from bringing suit against a director.
Our Certificate of Incorporation and Bylaws provide, with certain exceptions as permitted
by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary
duty as a Director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful
payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary
duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director. In addition,
our certificate of incorporation and bylaws may provide for mandatory indemnification of directors and officers to the fullest
extent permitted by governing state law.
We do not expect to pay dividends for the foreseeable future, and we may never
pay dividends; investors must rely on stock appreciation for any return on investment in the Company’s common stock.
We currently intend to retain any future earnings to support the development and expansion
of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will
be at the discretion of our Board of Directors after taking into account various factors, including but not limited to, our financial
condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the
time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, investors must rely
on sales of their common stock after price appreciation, which may never occur, as the only way to realize certain returns on their
investment. As a result, investors must rely on stock appreciation and a liquid trading market for any return on investment in
the Company’s common stock.
Shares eligible for future sale may adversely affect the market.
From time to time, certain stockholders may be eligible to sell some or all of their
shares of common stock pursuant to Rule 144, promulgated under the Securities Act subject to certain limitations. In general, pursuant
to Rule 144 as in effect as of the date of this registration statement, a stockholder (or stockholders whose shares are aggregated)
who has satisfied the applicable holding period and is not deemed to have been one of our affiliates at the time of sale, or at
any time during the three months preceding a sale, may sell their shares of common stock. Any substantial sale, or cumulative sales,
of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market
price of our securities.
We expect volatility in the price of our common stock, which may subject us to
securities litigation.
When established, the market for our common stock may be characterized by significant
price volatility when compared to seasoned issuers, and we expect that our share price will be more volatile than a seasoned issuer
for the indefinite future. In addition, there is no assurance that the price of our common stock will not be volatile. In the past,
plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market
price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and resources.
Our Board of Directors’ ability to issue undesignated preferred stock and
the existence of anti-takeover provisions may depress the value of our common stock.
Our authorized capital includes 20 million shares of preferred stock. Of this amount,
18,950 shares have been designated as Series B Convertible Preferred Stock, 1,213,819 shares have been designated as Series C Preferred
Stock, 3,500,000 shares have been designated as Series D Convertible Preferred Stock, 350 shares have been designated as Series
E convertible stock and the remaining authorized shares are undesignated preferred stock. Our Board of Directors have the power
to issue any or all of the shares of undesignated preferred stock, including the authority to establish one or more series and
to fix the powers, preferences, rights and limitations of such class or series, without seeking stockholder approval. Further,
as a Delaware corporation, we are subject to provisions of the Delaware General Corporation Law regarding “business combinations.”
We may, in the future, consider adopting additional anti-takeover measures. The authority of our Board of Directors to issue undesignated
stock and the anti-takeover provisions of Delaware law, as well as any future anti-takeover measures adopted by us, may, in certain
circumstances, delay, deter or prevent takeover attempts and other changes in control of the company not approved by our Board
of Directors. As a result, our stockholders may lose opportunities to dispose of their shares at favorable prices generally available
in takeover attempts or that may be available under a merger proposal and the market price, voting and other rights of the holders
of common stock may also be affected.
Future sales and issuances of our common stock or rights to
purchase common stock could result in additional dilution of the percentage ownership of our stockholders and could cause our share
price to fall.
We also expect that significant additional capital will be needed in the future to continue
our planned operations. To the extent that 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
to our existing stockholders, and new investors could gain rights superior to our existing stockholders. In addition, in the past,
we have issued warrants to acquire shares of common stock. To the extent these warrants are ultimately exercised, you will sustain
further dilution.
Acquisitions involve risks that could result in adverse changes to operating results,
cash flows and liquidity.
Predictive intends to make strategic acquisitions in addition to the Merger. However,
Predictive may not be able to identify suitable acquisition opportunities or may be unable to obtain the consent of Predictive’s
stockholders and therefore, may not be able to complete such acquisitions. Predictive may pay for acquisitions with its common
stock or with convertible securities, which may dilute shareholders’ investment in its common stock or it may decide to pursue
acquisitions that investors may not agree with. In connection with potential Predictive’s acquisitions, Predictive may agree
to substantial earn-out arrangements. To the extent it defers the payment of the purchase price for any acquisition through a cash
earn-out arrangement, it will reduce cash flows in subsequent periods. In addition, acquisitions may expose Predictive to operational
challenges and risks, including:
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the ability to profitably manage acquired businesses or successfully integrate the operations of acquired businesses, as well as the acquired business’s financial reporting and accounting control systems into its existing platforms;
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increased indebtedness and contingent purchase price obligations associated with an acquisition;
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the ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions, or unforeseen internal difficulties;
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the availability of funding sufficient to meet increased capital needs;
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diversion of management’s time and attention from existing operations; and
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the ability to retain or hire qualified personnel required for expanded operations.
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Completing acquisitions may require significant management time and financial resources
because Predictive may need to assimilate widely dispersed operations with different corporate cultures. In addition, acquired
companies may have liabilities that it failed to or were unable to discover in the course of performing due diligence investigations.
Predictive cannot assure the shareholders’ that the indemnification granted by sellers of acquired companies will be sufficient
in amount, scope or duration to fully offset the possible liabilities associated with businesses or properties it assumes upon
consummation of an acquisition. Predictive may learn additional information about its acquired businesses that could have a material
adverse effect on Predictive, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws.
Any such liabilities, individually or in the aggregate, could have a material adverse effect on its business. Failure to successfully
manage the operational challenges and risks associated with, or resulting from, acquisitions could adversely affect Predictive’s
results of operations, cash flows and liquidity. Borrowings or issuances of convertible securities associated with these acquisitions
may also result in higher levels of indebtedness, which could adversely impact Predictive’s ability to service its debt within
the scheduled repayment terms.
Predictive may fail to prevent further defaults under the Amended and Restated
Notes, which could result in material penalties and acceleration of the Amended and Restated Notes, and the Investor could assert
its rights as a secured creditor.
Effective February 7, 2019, Predictive entered into a Forbearance Agreement with the
Investor in connection with (1) the Investor claims that Predictive failed to timely comply with the requirements of a registration
rights agreement with the Investor and (2) a default resulting from Predictive’s failure to obtain stockholder approval on
or before December 31, 2018 for Predictive’s then-pending Merger with Helomics. Under the Forbearance Agreement, Predictive
issued an aggregate of 11,667 shares to the Investor, and a total of $242,386 was added to the principal amount of Predictive’s
indebtedness to the Investor. Interest on the Amended and Restated Note accrued at a default rate of 18% beginning as of November
15, 2018 and continuing through the date of the Default Cure (as defined below).
Under the Forbearance Agreement, if (a) Predictive obtained shareholder approval of the
then-pending merger with Helomics by March 31, 2019, (b) Predictive maintains the effectiveness of its currently effective registration
statement on Form S-3 that registers the resale of certain shares that we issued to the Investor as an inducement for its investment,
and (c) there are no other defaults under the Amended and Restated Note and related documents, then the above default will be considered
cured (the “Default Cure”), the Amended and Restated Notes would not be accelerated and no additional default penalties
would be paid. If Predictive failed to satisfy these conditions, the forbearance would terminate, the Amended and Restated Notes
would have accelerated, and the Investor may have asserted all of its rights. The Company believes that, as a result of the effectiveness
of such registration statement on February 13, 2019 and the stockholder approval of the Merger on March 22, 2019, the Default Cure
has been achieved. However, there can be no assurance that there will not be additional defaults under terms of the Amended and
Restated Note. Upon a default, among other things, the Amended and Restated Note becomes immediately due and payable, Predictive
is required to pay to the holder 135% (plus an additional 5% per each additional event of default) multiplied by the then
outstanding balance of the Amended and Restated Note plus default interest at 18%. Further, the Investor has a security interest
in substantially all of Predictive’s assets and those of Helomics. In the event of a default, we may attempt to refinance
the payment of the balance of the Amended and Restated Note and applicable penalties; however, there is no assurance that such
refinancing will be available. Therefore, defaults on the Amended and Restated Note would have a material adverse effect on our
financial condition, including the Investor’s rights to seize our assets or those of Helomics in the event we cannot satisfy
our obligations under the Amended and Restated Note.
Predictive’s ability to obtain and/or utilize financing to fund our ongoing
operations may be limited by the terms of certain outstanding Promissory Notes.
On September 27, 2019, the Company entered into an amendment to the L2 Note. Under the
amendment, the maturity date of the L2 Note was extended from September 28, 2019 to December 31, 2019. In exchange for such extension,
the outstanding principal amount of the L2 Note was increased by $120,000, such that, as of the effective date of the amendment,
the outstanding principal amount owed under the L2 Note is $1,789,104. Under the amendment, through October 15, 2019, L2 waived
its rights under the L2 Note to have the L2 Note repaid from the proceeds of any financing consummated by the Company. In exchange
for such waiver, the Company issued 15,000 shares of common stock to the holder.
After October 15, 2019, if Predictive receives cash proceeds from any source other than
(i) sales of our products or (ii) the first $2,000,000 of proceeds from securities offering transactions, Predictive is required
to inform L2 of such receipt. L2 will have the right to require that Predictive apply up to 50% of such proceeds to repay outstanding
amounts owed under the L2 Note. As a result, proceeds from future securities offering transactions will likely be subject to L2’s
repayment right. The aforementioned criteria may negatively impact Predictive’s ability to obtain financing from securities
offering transactions until repayment or conversion of the L2 Note. To the extent we are able to obtain such financing, this arrangement
may limit Predictive’s ability to use the proceeds thereof to fund its operations. If we are unable to obtain financing or
use the proceeds to fund its operations, Predictive will be forced to limit its business activities, which will have a material
adverse effect on Predictive’s results of operations and financial condition.
Risks Related to the Merger with Helomics Holding Corporation
(the “Merger”) completed on April 4, 2019
Completion of the Merger and the Exchange Offer resulted in the issuance of a large
number of our shares and warrants, which significantly diluted and will significantly further dilute the percentage of stock held
by existing holders of our common stock.
On the effective date of the Merger, we issued 400,000 shares of our common stock and
3,500,000 shares of Series D Preferred Stock to holders of Helomics capital stock. This issuance is in addition to the 110,000
shares of Predictive common stock previously issued to Helomics as consideration for Predictive’s prior acquisition of a
twenty percent ownership interest in Helomics; these 110,000 shares remained outstanding and were distributed to holders of Helomics
capital stock. Each share of Predictive Series D Preferred Stock is convertible on a 10:1 basis of Predictive common stock starting
one year after issuance, subject to adjustment. In connection with the Merger, Predictive offered the following offer (the “Exchange
Offer”) to holders of certain promissory notes of Helomics that were issued to investors (the “Helomics Notes Payable”)
and accompanying warrants to purchase Helomics common stock (the “Helomics Warrants”): the exchange of (a) one share
of our common stock for each $1.00 of principal and accrued and unpaid interest outstanding of the tendered Helomics Notes Payable
held by each holder as of the effective time of the Merger, and (b) a warrant to purchase shares of our common stock at an exercise
price of $1.00 per share (a “Predictive Warrant”) for each of the Helomics Warrants held by such holders, at a ratio
of 0.6 Predictive Warrants for each 1.0 Helomics Warrant. Ultimately, we issued such holders: (1) 863,732 additional shares of
our common stock, (2) 1,424,506 warrants to purchase our Common Stock at an exercise price of $10.00 per share and (3) 59,700 warrants
to purchase common stock at an exercise price of $0.10 per share. Conversion of the Series D Preferred Stock and exercise of such
warrants will significantly further dilute the percentage of stock held by existing holders of our common stock.
Costs associated with the Merger are difficult to estimate, may be higher than
expected, and may harm the financial results of the combined company.
Both Predictive and Helomics incurred substantial direct transaction costs associated
with the Merger, and Predictive will incur additional costs associated with consolidation and integration of operations. If the
total costs of the Merger exceed estimates, or the benefits of the Merger do not exceed the total costs of the Merger, Predictive’s
consolidated financial results could be adversely affected.
The Merger may result in disruption of Predictive’s existing business, distraction
of management and diversion of other resources.
The integration of Predictive’s and Helomics’ operations may divert management
time and resources from the main historical businesses of both companies. After the Merger, management will likely be required
to spend significant time integrating Predictive’s and Helomics’ operations. This diversion of time and resources could
cause the combined business to suffer.
Predictive’s ability to use net operating loss and tax credit carryforwards
and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code and may be subject
to further limitation because of prior or future offerings of Predictive’s stock or other transactions.
Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended (the
“Code”) contain rules that limit the ability of a company that undergoes an ownership change, which is generally an
increase in the ownership percentage of certain stockholders in the stock of a company by more than 50% over a three-year period,
to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership
change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5%
or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if
an ownership change, as defined by Section 382 of the Code, occurs, the yearly taxable income limitation on the use of net operating
loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term tax-exempt rate
and the value of the company’s stock immediately before the ownership change. The Merger will result in such an ownership
change. As a result, Predictive will not be able to use its pre-Merger losses or credit carryovers or certain built-in losses to
offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 of the Code, which may result
in the expiration of a portion of Predictive’s tax attributes before utilization.
If Predictive is required to write down goodwill and other intangible assets, Predictive’s
financial condition and operating results would be negatively affected.
When Predictive acquires a business, a substantial portion of the purchase price of the
acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated
to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired.
For example, when Predictive acquired Helomics, it acquired intangible assets with an estimated value of $3,725,000, and $23,790,290
in goodwill represented the excess of the consideration transferred over the fair values of assets acquired and liabilities assumed
and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately
recognized. Predictive tests intangible assets and goodwill for impairment at least annually. Under current accounting standards,
if Predictive determines that intangible assets or goodwill are impaired, Predictive will be required to write down these assets.
Any write-downs Predictive may be required to record would adversely affect Predictive’s financial condition and operating
results.
Predictive will incur significantly increased costs as a result of the completion
of the Merger.
In the periods following the completion of the Merger, Predictive’s operating expenses
are likely to increase significantly as Helomics continues to develop and grow its business. These increases are most likely to
be in the areas of sales and marketing, compensation and research and product development. There also may be increases in legal,
accounting, insurance and compliance costs. As a result, the combined company is expected to report operating losses until Helomics
can significantly increase its revenues. This may have a material adverse impact on the market price of Predictive common stock
following the Merger. Additionally, the integration of the operations of Predictive and Helomics may result in unanticipated costs,
which may be higher than expected and could have a material adverse effect on the combined company’s financial condition
and operating results.
The combined company will not be able to continue operating
without additional financing.
Both Predictive and Helomics have been operating at a loss. In order to continue operating
and remain a going concern, the combined company will need to obtain additional financing, either through borrowings, public offerings,
private offerings, or some type of business combination (e.g., merger, buyout, etc.), and there can be no assurance that it will
be successful in such pursuits with terms satisfactory to management and Predictive’s board of directors. In the past, both
companies have actively pursued a variety of funding sources including private offerings and have consummated certain transactions
in order to address their respective capital requirements. Predictive recently completed a private offering of securities and loaned
a portion of the proceeds to Helomics. However, the combined company anticipates the need for additional capital beyond the recent
offering and may not be able to acquire such additional funding. Accordingly, if the combined company is unable to generate adequate
cash from operations, and if it is unable to find sources of funding, it may be necessary for it to sell one or more lines of business
or all or a portion of its assets, enter into a business combination, reduce or eliminate operations, liquidate assets, or seek
relief through a filing under the U.S. Bankruptcy Code. These possibilities, to the extent available, may be on terms that result
in significant dilution to the combined company’s existing shareholders or that result in its existing shareholders losing
all of their investment in the combined company.
Predictive may fail to realize the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on Predictive’s ability to realize
the anticipated growth opportunities and synergies from combining Predictive and Helomics. The integration of Predictive and Helomics
will be a time consuming and expensive process and may disrupt their operations if it is not completed in a timely and efficient
manner. In addition, Predictive may not achieve anticipated synergies or other benefits of the Merger. Following the Merger, Predictive
and Helomics must operate as a combined organization utilizing common information and communication systems, operating procedures,
financial controls and human resources practices. The combined company may encounter the following integration difficulties, resulting
in costs and delays:
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failure to successfully manage relationships with customers and other important relationships;
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failure of customers to continue using the services of the combined company;
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difficulties in successfully integrating the management teams and employees of Predictive and Helomics;
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challenges encountered in manager larger operations;
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losses of key employees;
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failure to manage the growth and growth strategies of Predictive and Helomics;
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diversion of the attention of management from other ongoing business concerns;
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incompatibility of technologies and systems;
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impairment charges incurred to write down the carrying amount of intangible assets generated as a result of the Merger; and
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incompatibility of business cultures.
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If the combined company’s operations after the Merger
do not meet the expectations of existing or prospective customers of Predictive and Helomics, then these customers and prospective
customers may cease doing business with the combined company altogether, which would harm its results of operations, financial
condition and business prospects. If the management team is not able to develop strategies and implement a business plan that successfully
addresses these difficulties, Predictive may not realize the anticipated benefits of the Merger.
Risk Relating to the Acquisition of Helomics
Helomics molecular diagnostics business has limited revenue, and Helomics expects
to incur net losses for the foreseeable future and Helomics may never achieve or sustain profitability.
The revenue generated from Helomics’ molecular diagnostics business was $297,465,
for the year ended December 31, 2018 and for the same fiscal period, Helomics’ molecular diagnostics business had operating
losses of $5.2 million. Although Helomics expects the revenue generated from Helomics’ molecular diagnostics business to
grow in the future, there can be no assurance that Helomics will achieve revenue sufficient to offset expenses. Additionally, Helomics
is engaged in activities to expand and diversify its revenue base. Helomics expects that a significant portion of Helomics revenue
will come from certain service efforts being offered to pharmaceutical, diagnostic and biotech companies as well as academic institutions.
Helomics’ business may never achieve or sustain profitability, and Helomics’ failure to achieve and sustain profitability
in the future could have a material adverse effect on Helomics’ business, financial condition and results of operations.
Helomics has a limited operating history as a molecular diagnostics company, which
may make it difficult to evaluate the success of Helomics’ business to date and to assess Helomics’ future viability.
Helomics has operated as a molecular diagnostics company since the beginning of 2017.
Helomics is building a new business foundation which may make it difficult to evaluate the success of Helomics’ business
to date and to assess its future viability.
If one or more significant payors stops providing reimbursement or decreases the
amount of reimbursement for Helomics’ molecular diagnostic tests, Helomics’ revenue could decline.
Although Helomics has entered into contracts with certain third-party payors which establish
in-network allowable rates of reimbursement for its molecular diagnostic tests, payors may suspend or discontinue reimbursement
at any time, may require or increase co-payments from patients, or may reduce the reimbursement rates paid to Helomics. Any such
actions could have a negative effect on Helomics’ revenue.
If payors do not provide reimbursement, rescind or modify their reimbursement policies
or delay payments for Helomics’ tests, or if Helomics is unable to successfully negotiate additional reimbursement contracts,
Helomics’ commercial success could be compromised.
Physicians may not order Helomics’ tests unless payors reimburse a substantial
portion of the test price. There is uncertainty concerning third-party reimbursement of any test incorporating new molecular diagnostic
technology. Reimbursement by a payor may depend on a number of factors, including a payor’s determination that tests such
as Helomics’ molecular diagnostic tests are: (a) not experimental or investigational; (b) pre-authorized and appropriate
for the patient; (c) cost-effective; (d) supported by peer-reviewed publications; and (e) included in clinical practice guidelines.
Since each payor makes its own decision as to whether to establish a policy or enter into a contract to reimburse Helomics’
tests, seeking these approvals is a time-consuming and costly process. Also, payor consolidation is underway and creates uncertainty
as to whether coverage and contracts with existing payors will remain in effect. Finally, commercial payors may tie their allowable
rates to Medicare rates, and should Medicare reduce their rates, Helomics may be negatively impacted. If Helomics fails to establish
broad adoption of and reimbursement for its molecular diagnostic tests, or if Helomics is unable to maintain existing reimbursement
from payors, its ability to generate revenue could be harmed and this could have a material adverse effect on Helomics’ business,
financial condition and results of operations.
Helomics may experience limits on its revenue if physicians decide not to order
its molecular diagnostic tests.
If Helomics is unable to create or maintain demand for its molecular diagnostic tests
in sufficient volume, it may not become profitable. To generate demand, Helomics will need to continue to educate physicians and
the medical community on the value and benefits of its molecular diagnostic tests in order to change clinical practices through
published papers, presentations at scientific conferences and one-on-one education by Helomics’ internal sales force. In
addition, Helomics’ ability to obtain and maintain adequate reimbursement from third-party payors will be critical to generating
revenue. In many cases, practice guidelines in the United States have recommended therapies or surgery to determine if a patient’s
condition is malignant or benign. Accordingly, physicians may be reluctant to order a diagnostic test that may suggest surgery
is unnecessary. In addition, Helomics’ molecular diagnostic tests are performed at Helomics’ laboratories rather than
by a pathologist in a local laboratory, so pathologists may be reluctant to support Helomics’ molecular diagnostic tests.
In addition, guidelines for the diagnosis and treatment of thyroid nodules may change to recommend another type of treatment protocol,
and these changes may result in medical practitioners deciding not to use Helomics’ molecular diagnostic tests. These facts
may make physicians reluctant to convert to using Helomics’ molecular diagnostic tests, which could limit Helomics’
ability to generate revenue and achieve profitability which could have a material adverse effect on its business, financial condition
and results of operations.
Helomics may experience limits on its revenue if patients decide not to use its
molecular diagnostic tests.
Some patients may decide not to use Helomics’ molecular diagnostic tests due to
price, all or part of which may be payable directly by the patient if the patient’s insurer denies reimbursement in full
or in part. Many insurers seek to shift more of the cost of healthcare to patients in the form of higher co-payments or premiums.
In addition, the current economic environment in the United States has and may continue to result in the loss of healthcare coverage.
Implementation of provisions of the Patient Protection and Affordable Care Act, or PPACA (also known as the Affordable Care Act)
also resulted in the loss of health insurance, and increases in premiums and reductions in coverage, for some patients. These events
may result in patients delaying or forgoing medical checkups or treatment due to their inability to pay for Helomics’ test,
which could have an adverse effect on Helomics’ revenue.
If Helomics’ sales efforts are less successful than anticipated, its business
expansion plans, including its service offerings, could suffer and its ability to generate revenues could be diminished. In addition,
Helomics has limited history selling its molecular diagnostics tests on a direct basis and Helomics’ limited history makes
forecasting difficult.
If Helomics’ sales efforts are not successful, or new additions to its sales initiatives
fail to gain traction among customers, Helomics may not be able to increase market awareness and sales of its molecular diagnostic
tests or its service offerings. If Helomics fails to establish its molecular diagnostic tests in the marketplace, it could have
a negative effect on its ability to sell subsequent molecular diagnostic tests and hinder the desired expansion of its business.
Helomics has limited historical experience forecasting the direct sales of its molecular diagnostics products and service offerings.
Helomics’ ability to produce product quantities that meet customer demand is dependent upon its ability to forecast accurately
and plan production and processing accordingly.
Helomics relies on sole suppliers for some of the materials used in its molecular
diagnostic tests, and it may not be able to find replacements or transition to alternative suppliers in a timely manner.
Helomics relies on sole suppliers for certain materials that it uses to perform its molecular
diagnostic tests. Helomics also purchases reagents used in its molecular diagnostic tests from sole-source suppliers. While Helomics
has developed alternate sourcing strategies for these materials and vendors, Helomics cannot be certain whether these strategies
will be effective or the alternative sources will be available in a timely manner. If these suppliers can no longer provide Helomics
with the materials it needs to perform its molecular diagnostic tests, if the materials do not meet its quality specifications,
or if it cannot obtain acceptable substitute materials, an interruption in molecular diagnostic test processing could occur. Any
such interruption may directly impact Helomics’ revenue and cause it to incur higher costs.
Helomics may experience problems in scaling its operations, or in delays or reagent
and supply shortages that could limit the growth of its revenue.
If Helomics encounters difficulties in scaling its operations as a result of, among other
things, quality control and quality assurance issues and availability of reagents and raw material supplies, it will likely experience
reduced sales of its molecular diagnostic tests, increased repair or re-engineering costs, and defects and increased expenses due
to switching to alternate suppliers, any of which would reduce Helomics’ revenues and gross margins. Although Helomics attempts
to match its capabilities to estimates of marketplace demand, to the extent demand materially varies from Helomics’ estimates,
Helomics may experience constraints in its operations and delivery capacity, which could adversely impact revenue in a given fiscal
period. Should Helomics’ need for raw materials and reagents used in its molecular diagnostic tests fluctuate, Helomics could
incur additional costs associated with either expediting or postponing delivery of those materials or reagents.
If Helomics is unable to support demand for its molecular diagnostic tests or any
of its future tests or solutions, Helomics’ business could suffer.
As demand for Helomics’ molecular diagnostic tests grow, Helomics will need to
continue to scale its testing capacity and processing technology, to expand its customer service, billing and systems processes
and to enhance its internal quality assurance program. Helomics will also need additional certified laboratory scientists and other
scientific and technical personnel to process higher volumes of its molecular diagnostic tests. Helomics cannot guarantee that
increases in scale, related improvements and quality assurance will be implemented successfully or that appropriate personnel will
be available. Failure to implement necessary procedures, transition to new processes or hire the necessary personnel could result
in higher costs of processing tests or inability to meet demand. There can be no assurance that Helomics will be able to perform
its testing on a timely basis at a level consistent with demand, or that Helomics’ efforts to scale its operations will not
negatively affect the quality of test results. If Helomics encounters difficulty meeting market demand or quality standards its
reputation could be harmed, and its future prospects and business could suffer, causing a material adverse effect on Helomics’
business, financial condition and results of operations.
If Helomics is unable to compete successfully, Helomics may be unable to increase
or sustain its revenue or achieve profitability.
Helomics competes with physicians and the medical community who use traditional diagnostic
methods. In many cases, practice guidelines in the United States have recommended therapies or surgery to determine if a patient’s
condition is malignant or benign. As a result, Helomics believes it will need to continue to educate physicians and the medical
community on the value and benefits of its molecular diagnostic tests in order to change clinical practices. In addition, Helomics
faces competition from other companies that offer diagnostic tests. It is also possible that Helomics faces future competition
from laboratory-developed tests, or LDTs, developed by commercial laboratories such as Quest and/or other diagnostic companies
developing new molecular diagnostic tests or technologies. Furthermore, Helomics may be subject to competition as a result of the
new, unforeseen technologies that can be developed by Helomics’ competitors in its diagnostic tests space.
To compete successfully Helomics must be able to demonstrate, among other things, that
its molecular diagnostic test results are accurate and cost effective, and Helomics must secure a meaningful level of reimbursement
for its tests. Many of Helomics’ potential competitors have stronger brand recognition and greater financial capabilities
than Helomics does. Others may develop tests with a lower price than Helomics that could be viewed by physicians and payors as
functionally equivalent to Helomics’ molecular diagnostic tests or offer a test at prices designed to promote market penetration,
which could force Helomics to lower the price of its molecular diagnostic tests and affect its ability to achieve and maintain
profitability. If Helomics is unable to compete successfully against current and future competitors, it may be unable to increase
market acceptance of its molecular diagnostic tests and overall sales, which could prevent Helomics from increasing its revenue
or achieving profitability and cause the market price of its common stock to decline. As Helomics adds new molecular diagnostic
tests and services, it will face many of these same competitive risks for these new molecular diagnostic tests and services.
Developing new molecular diagnostic tests involves a lengthy and complex process, and
Helomics may not be able to commercialize on a timely basis, or at all, other molecular diagnostic tests Helomics is developing.
Developing new molecular diagnostic tests and solutions will require Helomics to devote considerable resources to research and
development. Helomics may face challenges obtaining sufficient numbers of samples to validate a newly acquired or developed molecular
diagnostic test. In order to develop and commercialize new molecular diagnostic tests, Helomics needs to:
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expend significant funds to conduct substantial research and development;
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conduct successful analytical and clinical studies;
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scale Helomics’ laboratory processes to accommodate new molecular diagnostic tests; and
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build the commercial infrastructure to market and sell new molecular diagnostic tests.
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Typically, few research and development projects result in commercial products, and success
in early clinical studies often is not replicated in later studies. At any point, Helomics may abandon development of a molecular
diagnostic test or Helomics may be required to expend considerable resources repeating clinical studies, which would adversely
affect the timing for generating revenue from such test. If a clinical validation study fails to demonstrate the prospectively
defined endpoints of the study or if Helomics fails to sufficiently demonstrate analytical validity, Helomics might choose to abandon
the development of the molecular diagnostic test, which could harm its business. In addition, competitors may develop and commercialize
new competing molecular diagnostic tests faster than Helomics or at a lower cost, which could have a material adverse effect on
Helomics’ business, financial condition and results of operations.
If Helomics is unable to develop or acquire molecular diagnostic tests to keep
pace with rapid technological, medical and scientific change, its operating results and competitive position could be affected.
Recently, there have been numerous advances in technologies relating to diagnostics,
particularly diagnostics that are based on genomic information. These advances require Helomics to continuously develop its technology
and to work to develop new solutions to keep pace with evolving standards of care. Helomics’ solutions could become obsolete
unless it continually innovates and expands its product offerings to include new clinical applications. If Helomics is unable to
develop or acquire new molecular diagnostic tests or to demonstrate the applicability of its molecular diagnostic tests for other
diseases, Helomics’ sales could decline and its competitive position could be harmed.
If the United States Food and Drug Administration (“FDA”) begins to
enforce regulation of Helomics’ molecular diagnostic tests, Helomics could incur substantial costs and delays associated
with trying to obtain pre-market clearance or approval and costs associated with complying with post-market requirements.
Clinical laboratory tests like Helomics’ molecular diagnostic tests are regulated
under CLIA as well as by applicable state laws. Most Laboratory Developed Tests (“LDTs”) are currently not subject
to the FDA’s, regulation (although reagents, instruments, software or components provided by third parties and used to perform
LDTs may be subject to regulation). In October 2014, the FDA issued two draft guidance documents: “Framework for Regulatory
Oversight of Laboratory Developed Tests”, which provides an overview of how the FDA would regulate LDTs through a risk-based
approach, and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests”, which provides guidance
on how the FDA intends to collect information on existing LDTs, including adverse event reports. On January 13, 2017, the FDA also
issued a discussion paper on LDTs. Pursuant to the Framework for Regulatory Oversight draft guidance, LDT manufacturers would be
subject to medical device registration, listing, and adverse event reporting requirements. The risk-based classification considers
the LDT’s intended use, technological characteristics, and the risk to patients if the LDT were to fail. The FDA has indicated
in its guidance that screening devices for malignant cancers are LDTs of higher concern to the FDA and for which enforcement of
pre-market and post-market review requirements would likely commence before other LDT types.
Pursuant to the Framework for Regulatory Oversight draft guidance, LDT manufacturers
would be required to either submit a pre-market application and receive the FDA’s approval before an LDT may be marketed
or submit a pre-market notification in advance of marketing. These requirements would be phased in, starting with higher risk LDTs,
following the issuance of the FDA’s final guidance on this topic, which the FDA has identified as a priority. The draft guidance
provides that LDTs that are already marketed at the time the final guidance is issued would not be withdrawn from the market during
the FDA’s review process. There is no timeframe within which the FDA must issue its final guidance, but issuance of this
final guidance has been identified among a list of the FDA’s priorities for 2016. As of the date of the filing of this proxy
statement/prospectus/information statement, the FDA has not issued its final guidance. How the final guidance would affect Helomics’
business is not yet known. Helomics cannot provide any assurance that the FDA regulation will not be required in the future for
its tests, whether through additional guidance or regulations issued by the FDA, new enforcement policies adopted by the FDA or
new legislation enacted by Congress. It is possible that legislation will be enacted into law, regulations could be promulgated,
or guidance could be issued by the FDA which may result in increased regulatory burdens for Helomics to continue to offer its molecular
diagnostic tests or to develop and introduce new tests. Helomics cannot predict the timing or content of future legislation enacted,
regulations promulgated, or guidance issued regarding LDTs, or how it will affect Helomics’ business.
If pre-market review is required by the FDA or if Helomics decides to voluntarily pursue
the FDA’s pre-market review of Helomics’ tests, there can be no assurance that Helomics’ molecular diagnostic
tests or any tests Helomics may develop or acquire in the future will be cleared or approved on a timely basis, if at all, nor
can there be assurance that labeling claims will be consistent with Helomics’ current claims or adequate to support continued
adoption of and reimbursement for its tests. If pre-market review is required, Helomics’ business could be negatively impacted
as a result of commercial delay that may be caused by the new requirements. The cost of conducting clinical trials and otherwise
developing data and information to support pre-market applications may be significant. If Helomics is required to submit applications
for its currently-marketed tests, Helomics may be required to conduct additional studies, which may be time-consuming and costly
and could result in Helomics’ currently-marketed tests being withdrawn from the market. If Helomics’ tests are allowed
to remain on the market but there is uncertainty in the marketplace about its tests, if Helomics is required by the FDA to label
them investigational, or if labeling claims the FDA allows Helomics to make are limited, orders may decline, and reimbursement
may be adversely affected. Continued compliance with the FDA’s regulations would increase the cost of conducting Helomics’
business, and subject Helomics to heightened regulation by the FDA and penalties for failure to comply with these requirements.
Helomics cannot predict the timing or form of any such guidance or regulation, or the potential effect on Helomics’ existing
molecular diagnostic tests or Helomics’ tests in development, or the potential impact of such guidance or regulation on Helomics’
business, financial condition and results of operations.
If Helomics fails to comply with Federal, State and foreign laboratory licensing
requirements, Helomics could lose the ability to perform its tests or experience disruptions to Helomics’ business.
Helomics is subject to Clinical Laboratory Improvement Amendments (“CLIA”),
a Federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing
information for the diagnosis, prevention or treatment of disease. CLIA regulations mandate specific standards in the areas of
personnel qualifications, administration, and participation in proficiency testing, patient test management and quality assurance.
CLIA certification is also required in order for Helomics to be eligible to bill Federal and State healthcare programs, as well
as many private third-party payors, for its molecular diagnostic tests. To renew these certifications, Helomics is subject to survey
and inspection every two years. Moreover, CLIA inspectors may make random inspections of Helomics’ clinical reference laboratories.
Helomics is also required to maintain State licenses to conduct testing in its Pittsburgh, Pennsylvania laboratories. Pennsylvania
laws require that Helomics maintain a license and establish standards for the day-to-day operation of Helomics’ clinical
reference laboratory in Pittsburgh, Pennsylvania. In addition, Helomics’ Pittsburgh and New Haven laboratories are required
to be licensed on a test-specific basis by certain other states. If Helomics were unable to obtain or lose its CLIA certificate
or State licenses for its laboratories, whether as a result of revocation, suspension or limitation, Helomics would no longer be
able to perform its molecular diagnostic tests, which could have a material adverse effect on Helomics’ business, financial
condition and results of operations. If Helomics were to lose its licenses issued by the States in which Helomics is required to
hold licenses, Helomics would not be able to test specimens from those States. New molecular diagnostic tests Helomics may develop
may be subject to new approvals by governmental bodies, and Helomics may not be able to offer its new molecular diagnostic tests
to patients in such jurisdictions until such approvals are received.
Complying with numerous statutes and regulations pertaining to Helomics’
molecular diagnostics business is an expensive and time-consuming process, and any failure to comply could result in substantial
penalties.
Helomics is subject to regulation by both the Federal government and the States in which
Helomics conducts its molecular diagnostics business, including:
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The Food, Drug and Cosmetic Act, as supplemented by various other statutes;
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The Prescription Drug Marketing Act of 1987, the amendments thereto, and the regulations promulgated thereunder and contained in 21 C.F.R. Parts 203 and 205, or the PDMA;
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CLIA and State licensing requirements;
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Manufacturing and promotion laws;
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Medicare billing and payment regulations applicable to clinical laboratories;
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The Federal Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a Federal healthcare program;
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The Federal Stark physician self-referral law (and state equivalents), which prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition;
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The Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments made in 2013 to HIPAA under the Health Information Technology for Economic and Clinical Health Act, which strengthen and expand HIPAA privacy and security compliance requirements, increase penalties for violators, extend enforcement authority to state attorneys general, and impose requirements for breach notification;
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The Federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies;
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The Federal False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government;
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Other Federal and State fraud and abuse laws, prohibitions on self-referral, fee-splitting restrictions, prohibitions on the provision of products at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any third-party payor, including private insurers;
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The prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other party;
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The rules regarding billing for diagnostic tests reimbursable by the Medicare program, which prohibit a physician or other supplier from marking up the price of the technical component or professional component of a diagnostic test ordered by the physician or other supplier and supervised or performed by a physician who does not “share a practice” with the billing physician or supplier; and
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State laws that prohibit other specified practices related to billing such as billing physicians for testing that they order, waiving coinsurance, co-payments, deductibles, and other amounts owed by patients, and billing a State Medicaid program at a price that is higher than what is charged to other payors.
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Helomics has implemented policies and procedures designed to comply with these laws and
regulations. Helomics periodically conducts internal reviews of its compliance with these laws. Helomics’ compliance is also
subject to governmental review. The growth of Helomics’ business may increase the potential of violating these laws, regulations
or Helomics’ internal policies and procedures. The risk of Helomics being found in violation of these or other laws and regulations
is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their
provisions are open to a variety of interpretations. Violations of Federal or State regulations may incur investigation or enforcement
action by the FDA, Department of Justice, State agencies, or other legal authorities, and may result in substantial civil, criminal,
or other sanctions. Any action brought against Helomics for violation of these or other laws or regulations, even if Helomics successfully
defend against it, could cause Helomics to incur significant legal expenses and divert Helomics’ managements’ attention
from the operation of its business. If Helomics’ operations are found to be in violation of any of these laws and regulations,
Helomics may be subject to civil and criminal penalties, damages and fines, Helomics could be required to refund payments received
by it, Helomics could face possible exclusion from Medicare, Medicaid and other Federal or State healthcare programs and Helomics
could even be required to cease its operations. Any of the foregoing consequences could have a material adverse effect on Helomics’
business, financial condition and results of operations.
If Helomics uses hazardous materials in a manner that causes contamination or injury,
Helomics could be liable for resulting damages.
Helomics is subject to Federal, State and local laws, rules and regulations governing
the use, discharge, storage, handling and disposal of biological material, chemicals and waste. Helomics cannot eliminate the risk
of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials.
In the event of contamination or injury, Helomics could be held liable for any resulting damages, remediation costs and any related
penalties or fines, and any liability could exceed Helomics’ resources or any applicable insurance coverage Helomics may
have. The cost of compliance with these laws and regulations may become significant, and Helomics’ failure to comply may
result in substantial fines or other consequences, and either could have a significant impact on Helomics’ operating results.
Security breaches, loss of data and other disruptions to Helomics or its third-party
service providers could compromise sensitive information related to Helomics’ business or prevent Helomics from accessing
critical information and expose it to liability, which could adversely affect Helomics’ business and reputation.
Helomics’ business requires that Helomics and its third-party service providers
collect and store sensitive data, including legally protected health information, personally identifiable information about patients,
credit card information, and Helomics’ proprietary business and financial information. Helomics faces a number of risks relative
to Helomics’ protection of, and Helomics’ service providers’ protection of, this critical information, including
loss of access, inappropriate disclosure and inappropriate access, as well as risks associated with Helomics’ ability to
identify and audit such events. The secure processing, storage, maintenance and transmission of this critical information are vital
to Helomics’ operations and business strategy, and Helomics devotes significant resources to protecting such information.
Although Helomics takes measures to protect sensitive information from unauthorized access or disclosure, Helomics’ information
technology and infrastructure may be vulnerable to attacks by hackers or viruses or otherwise breached due to employee error, malfeasance
or other activities. While Helomics has not experienced any such attack or breach, if such event would occur and cause interruptions
in Helomics’ operations, Helomics’ networks would be compromised and the information Helomics stores on those networks
could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Unauthorized access, loss or dissemination could
disrupt Helomics’ operations, including Helomics’ ability to process tests, provide test results, bill payors or patients,
process claims, provide customer assistance services, conduct research and development activities, collect, process and prepare
company financial information, provide information about Helomics’ solution and other patient and physician education and
outreach efforts, manage the administrative aspects of Helomics’ business and damage Helomics’ reputation, any of which
could adversely affect Helomics’ business. In addition, the interpretation and application of consumer, health-related and
data protection laws in the United States are often uncertain, contradictory and in flux. It is possible that these laws may be
interpreted and applied in a manner that is inconsistent with Helomics’ practices. Complying with these various laws could
cause Helomics to incur substantial costs or require Helomics to change its business practices, systems and compliance procedures
in a manner adverse to Helomics’ business.
If Helomics is sued for product liability or errors and omissions liability, Helomics
could face substantial liabilities that exceed its resources.
The marketing, sale and use of Helomics’ molecular diagnostic tests could lead
to product liability claims if someone were to allege that the molecular diagnostic test failed to perform as it was designed.
Helomics may also be subject to liability for errors in the results Helomics provides to physicians or for a misunderstanding of,
or inappropriate reliance upon, the information Helomics provides. A product liability or errors and omissions liability claim
could result in substantial damages and be costly and time consuming for Helomics to defend. Although Helomics maintains product
liability and errors and omissions insurance, Helomics cannot be certain that its insurance would fully protect it from the financial
impact of defending against these types of claims or any judgments, fines or settlement costs arising out of such claims. Any product
liability or errors and omissions liability claim brought against Helomics, with or without merit, could increase its insurance
rates or prevent it from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause injury
to Helomics’ reputation or cause Helomics to suspend sales of its products and solutions. The occurrence of any of these
events could have a material adverse effect on Helomics’ business, financial condition and results of operations.
Billing for Helomics’ diagnostic solutions is complex, and Helomics must
dedicate substantial time and resources to the billing process to be paid for its molecular diagnostic tests.
Billing for clinical laboratory testing services is complex, time consuming and expensive.
Depending on the billing arrangement and applicable law, Helomics bills various payors, including Medicare, insurance companies
and patients, all of which have different billing requirements. To the extent laws or contracts require Helomics to bill patient
co-payments or co-insurance, Helomics must also comply with these requirements. Helomics may also face increased risk in its collection
efforts, including write-offs of doubtful accounts and long collection cycles, which could have a material adverse effect on Helomics’
business, results of operations and financial condition. Among others, the following factors make the billing process complex:
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differences between the list price for Helomics’ molecular diagnostic tests and the reimbursement rates of payors;
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compliance with complex Federal and State regulations related to billing Medicare;
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disputes among payors as to which party is responsible for payment;
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differences in coverage among payors and the effect of patient co-payments or co-insurance;
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differences in information and billing requirements among payors;
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incorrect or missing billing information; and
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the resources required to manage the billing and claims appeals process.
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As Helomics introduces new molecular diagnostic tests, it will need to add new codes
to the billing process as well as to Helomics’ financial reporting systems. Failure or delays in effecting these changes
in external billing and internal systems and processes could negatively affect Helomics’ revenue and cash flow. Additionally,
Helomics’ billing activities require it to implement compliance procedures and oversight, train and monitor its employees,
challenge coverage and payment denials, assist patients in appealing claims, and undertake internal audits to evaluate compliance
with applicable laws and regulations as well as internal compliance policies and procedures. Payors also conduct external audits
to evaluate payments, which add further complexity to the billing process. These billing complexities, and the related uncertainty
in obtaining payment for Helomics’ diagnostic solution, could negatively affect Helomics’ revenue and cash flow, Helomics’
ability to achieve profitability, and the consistency and comparability of Helomics’ results of operations.
Helomics relies on a third-party to process and transmit claims to payors, and
any delay in either could have an adverse effect on Helomics’ revenue.
Helomics relies on a third-party provider to provide overall processing of claims and
to transmit the actual claims to payors based on the specific payor billing format. If claims for Helomics’ molecular diagnostic
tests are not submitted to payors on a timely basis, or if Helomics is required to switch to a different provider to handle claim
submissions, Helomics may experience delays in its ability to process these claims and receipt of payments from payors, which could
have a material adverse effect on Helomics’ business, financial condition and results of operations.
Enacted healthcare reform legislation may increase Helomics’ costs, impair
Helomics’ ability to adjust its pricing to match any such increased costs, and therefore could materially and adversely affect
its business, financial condition and results of operations.
PPACA entails sweeping healthcare reforms with staggered effective dates from 2010 through
2018, although certain of these effective dates have been delayed by action of the current administration. While some guidance
has been issued under PPACA over the past several years, many provisions in PPACA require the issuance of additional guidance from
the U.S. Department of Labor, the Internal Revenue Service, the U.S. Department of Health & Human Services, and State governments.
This reform includes, but is not limited to: the implementation of a small business tax credit; required changes in the design
of Helomics’ healthcare policy including providing insurance coverage to part-time workers working on average thirty (30)
or more hours per week; “grandfathering” provisions for existing policies; “pay or play” requirements;
a “Cadillac plan” excise tax; and specifically required “essential benefits,” that must be included in
“qualified plans,” which benefits include coverage for laboratory tests.
Effective January 1, 2014, each State was required to participate in the PPACA marketplace
and make health insurance coverage available for purchase by eligible individuals through a website. While these websites were
subject to significant administrative issues leading up to their inception dates (and, in some cases, thereafter), it is currently
estimated that in excess of 11 million individuals nationwide had enrolled in health insurance coverage through these exchanges
as of the end of 2015. It is unclear, however, how many of these individuals are becoming insured after previously not having health
insurance coverage, versus maintaining their plans purchased on the exchanges in 2014 or switching from other health insurance
plans.
PPACA also requires “Applicable Manufacturers” to disclose to the Secretary
of the Department of Health & Human Services drug sample distributions and certain payments or transfers of value to covered
recipients (physicians and teaching hospitals) on an annual basis. “Applicable Manufacturers” and “Applicable
Group Purchasing Organizations” must also disclose certain physician ownership or investment interests. The data submitted
will ultimately be made available on a public website. Based upon the structure of Helomics’ relationship with its clients,
Helomics may be included in the definition of “Applicable Manufacturer” for purposes of the disclosure requirements
or may provide services that include the transfer of drug samples and/or other items of value to covered recipients. As such, Helomics
may be required to disclose or provide information that is subject to disclosure. There may be certain risks and penalties associated
with the failure to properly make such disclosures, including but not limited to the specific civil liabilities set forth in PPACA,
which allows for a maximum civil monetary penalty per “Applicable Manufacturer” of $1,150,000 per year. There may be
additional risks and claims made by third parties derived from an improper disclosure that are difficult to ascertain at this time.
While PPACA may increase the number of patients who have insurance coverage, its cost
containment measures could also adversely affect reimbursement for any of Helomics’ molecular diagnostic tests. Cost control
initiatives also could decrease the price that Helomics’ receives for any molecular diagnostic tests Helomics may develop
in the future. If Helomics’ molecular diagnostic tests are not considered cost-effective or if Helomics is unable to generate
adequate third-party reimbursement for the users of its molecular diagnostic tests, then Helomics may be unable to maintain revenue
streams sufficient to realize its targeted return on investment for its molecular diagnostic tests.
Helomics is currently unable to determine the long-term, direct or indirect impact of
such legislation on its business. Since the effect of many of the provisions of PPACA may not be determinable for a number of years,
Helomics does not expect PPACA to have a material adverse impact on its near-term results of operations. However, healthcare
reform as mandated and implemented under PPACA and any future Federal or State mandated healthcare reform could materially and
adversely affect its business, financial condition and operations by increasing Helomics’ operating costs, including its
costs of providing health insurance to Helomics’ employees, decreasing Helomics’ revenue, impeding Helomics’
ability to attract and retain customers, requiring changes to Helomics’ business model, or causing Helomics to lose certain
current competitive advantages.
Changes in governmental regulation could negatively impact Helomics’ business
operations and increase its costs.
The pharmaceutical, biotechnology and healthcare industries are subject to a high degree
of governmental regulation. Significant changes in these regulations affecting Helomics’ business could result
in the imposition of additional restrictions on Helomics’ business, additional costs to Helomics in providing Helomics’
molecular diagnostic tests to its customers or otherwise negatively impact Helomics’ business operations. Changes
in governmental regulations mandating price controls and limitations on patient access to Helomics’ products could also reduce,
eliminate or otherwise negatively impact Helomics’ sales.
If Helomics does not increase its revenues and successfully manage the size of
its operations, Helomics’ business, financial condition and results of operations could be materially and adversely affected.
The majority of Helomics’ operating expenses are personnel-related costs such as
employee compensation and benefits, reagents and disposable supplies as well as the cost of infrastructure to support Helomics’
operations, including facility space and equipment. Helomics continuously reviews its personnel to determine whether they
are fully utilizing their services. If Helomics is unable to achieve revenue growth in the future or fail to adjust
its cost infrastructure to the appropriate level to support its revenues, Helomics’ business, financial condition and results
of operations could be materially and adversely affected.
If Helomics research and development (R&D) efforts for its TruTumor and D-CHIP
artificial intelligence platform take longer than expected the commercial revenues from the service offerings that use these platforms
could also be delayed.
Helomics CRO business offers various services to pharma, diagnostics and biotech companies.
These services use its TruTumor Patient derived tumor platform and its D-CHIP AI platform. These platforms are the subject of active
R&D to further improve and validate them for commercial use in order to help Helomics’ clients in their drug discovery,
biomarker and clinical trial activities. Helomics could face delays in this R&D, for example; Helomics may not be able to secure
access to and approval to use clinical data from academic hospital partners required to validate the D-CHIP platform in a timely
manner; clinical testing volume (number of specimens coming to Helomics for testing) may not grow sufficiently to drive data generation
for D-CHIP as well as further development of the TruTumor platform; patient consent to use the patient’s data and tumor material
for R&D may not be sufficient to support Helomics R&D; Helomics may not be able to attract and retain the appropriately
qualified staff to perform the necessary R&D. Helomics has a limited operating history with the CRO and Informatics business
which makes it difficult to forecast the revenue of these business units. While Helomics is committed to the buildout of both the
CRO and D-CHIP services for the long term, the company cannot predict at this time, with any certainty, the future viability of
either business unit.
If Helomics’ information technology and communications systems fail or Helomics
experiences a significant interruption in its operation, its reputation, business and results of operations could be materially
and adversely affected.
The efficient operation of Helomics’ business is dependent on Helomics’ information
technology and communications systems. The failure of these systems to operate as anticipated could disrupt its business
and result in decreased revenue and increased overhead costs. In addition, Helomics does not have complete redundancy
for all of its systems and its disaster recovery planning cannot account for all eventualities. Helomics’ information
technology and communications systems, including the information technology systems and services that are maintained by third party
vendors, are vulnerable to damage or interruption from natural disasters, fire, terrorist attacks, malicious attacks by computer
viruses or hackers, power loss or failure of computer systems, Internet, telecommunications or data networks. If these
systems or services become unavailable or suffer a security breach, Helomics may expend significant resources to address these
problems, and Helomics’ reputation, business and results of operations could be materially and adversely affected.
If Helomics is unable to protect its intellectual property effectively, Helomics’
business would be harmed.
Helomics relies on patent protection as well as trademark, trade secret and other intellectual
property rights protection and contractual restrictions to protect Helomics’ proprietary technology. If Helomics’ fails
to protect its intellectual property, third parties may be able to compete more effectively against it and Helomics may incur substantial
litigation costs in its attempts to recover or restrict use of its intellectual property. While Helomics applies for patents covering
its products and technologies and uses thereof, Helomics may fail to apply for patents on important products and technologies in
a timely fashion or at all, or Helomics may fail to apply for patents in relevant jurisdictions. Others could seek to design around
Helomics’ current or future patented technologies. Helomics may not be successful in defending any challenges made against
Helomics’ patents or patent applications. Any successful third-party challenge to Helomics’ patents could result in
the unenforceability or invalidity of such patents and increased competition to Helomics’ business. The outcome of patent
litigation can be uncertain and any attempt by Helomics to enforce its patent rights against others may not be successful, or,
if successful, may take substantial time and result in substantial cost, and may divert Helomics’ efforts and attention from
other aspects of its business.
Monitoring unauthorized disclosure is difficult, and Helomics does not know whether the
steps Helomics has taken to prevent such disclosure are, or will be, adequate. If Helomics were to enforce a claim that a third-party
had illegally obtained and was using its trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable.
Further, competitors could willfully infringe Helomics’ intellectual property rights, design around its protected technology
or develop their own competitive technologies that arguably fall outside of Helomics’ intellectual property rights. Others
may independently develop similar or alternative products and technologies or replicate any of Helomics’ products and technologies.
If Helomics’ intellectual property does not adequately protect it against competitors’ products and methods, Helomics’
competitive position could be adversely affected, as could Helomics’ business and the results of its operations. To the extent
Helomics’ intellectual property offers inadequate protection, or is found to be invalid or unenforceable, Helomics would
be exposed to a greater risk of competition. If Helomics’ intellectual property does not provide adequate coverage of its
competitors’ products, Helomics’ competitive position could be adversely affected, as could its overall business. Both
the patent application process and the process of managing patent disputes can be time consuming and expensive.
Helomics may be involved in litigation related to intellectual property, which
could be time-intensive and costly and may adversely affect its business, operating results or financial condition.
Helomics may receive notices of claims of direct or indirect infringement or misappropriation
or misuse of other parties’ proprietary rights from time to time and some of these claims may lead to litigation. Helomics
cannot assume that it will prevail in such actions, or that other actions alleging misappropriation or misuse by Helomics of third-party
trade secrets, infringement by Helomics of third-party patents and trademarks or other rights, or the validity of Helomics’
patents, trademarks or other rights, will not be asserted or prosecuted against it. Helomics might not have been the first to make
the inventions covered by each of Helomics’ pending patent applications and Helomics might not have been the first to file
patent applications for these inventions. No assurance can be given that other patent applications will not have priority over
Helomics’ patent applications. If third parties bring these proceedings against Helomics’ patents, Helomics could incur
significant costs and experience management distraction. Litigation may be necessary for Helomics to enforce its patents and proprietary
rights or to determine the scope, coverage and validity of the proprietary rights of others. The outcome of any litigation or other
proceeding is inherently uncertain and might not be favorable to Helomics, and Helomics might not be able to obtain licenses to
technology that it requires on acceptable terms or at all. In addition, if Helomics resorts to legal proceedings to enforce its
intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary
rights of others, the proceedings could be burdensome and expensive, even if Helomics were to prevail. Any litigation that may
be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect
on Helomics’ business, financial condition and operating results.
In the event of a successful claim of infringement against Helomics, Helomics may be
required to pay damages and ongoing royalties, and obtain one or more licenses from third parties, or be prohibited from selling
its products. Helomics may not be able to obtain these licenses on acceptable terms, if at all. Helomics could incur substantial
costs related to royalty payments for licenses obtained from third parties, which could negatively affect Helomics’ financial
results. In addition, Helomics’ agreements with some of its customers, suppliers or other entities with whom Helomics’
does business require it to defend or indemnify these parties to the extent they become involved in infringement claims, including
the types of claims described above. If Helomics is required or agrees to defend or indemnify third parties in connection with
any infringement claims, Helomics could incur significant costs and expenses that could have a material adverse effect on Helomics’
business, financial condition, and results of operations.