Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Risk Factors - ESMC
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ITEM 1A. RISK FACTORS
In addition to other information contained in this report on Form 10-K, the following Risk Factors should be considered carefully in evaluating our business. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected.
Financial Risks
Due to the Company’s history of operating losses, we have compiled these financial statements based on the assumption the Company cannot continue as a going concern.
Our operations are subject to a number of factors that can affect our operating results and financial condition. Such factors include, but are not limited to: the continuous enhancement of the current products, development of new products; changes in domestic and foreign regulations; ability to manufacture successfully; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, our products and our ability to raise capital to support our operations.
As of June 30, 2024, we had an accumulated deficit of $68.5 million, and had incurred historical recurring losses from operations and negative cash flows from operating activities in prior years except for the fiscal year ended June 30, 2023. While the overall trend has been toward profitability, having just one year out of the last five of income, the question remains whether the Company will keep the profitability trend and sales growth. These factors raise substantial doubt regarding our ability to continue as a going concern.
As a result of above matters, our independent auditors have indicated in their report on our June 30, 2024 financial statements that there is substantial doubt about our ability to continue as a going concern. As a result of above matters, our independent auditors have indicated in their report on our June 30, 2021 financial statements that there is substantial doubt about our ability to continue as a going concern. A "going concern" opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going concern. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of our creditors, and potentially be available for distribution to our stockholders, in the event of liquidation.
Our continued operations will ultimately depend on the ability to be profitable from our operations and the on-going support of our stockholders and creditors.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with United States GAAP. Any changes in estimates, judgments and assumptions used could have a material adverse effect on the Company’s business, financial position and operating results.
The consolidated financial statements included in the periodic reports the Company files with the SEC are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and inventories, revenues, expenses and income. This includes estimates, judgments and assumptions for assessing the recoverability of the Company’s other intangible assets, pursuant to Financial Accounting Standards Board (“FASB”) issued authoritative guidance. If any estimates, judgments or assumptions change in the future, the Company may be required to record additional expenses or impairment charges. Any resulting expense or impairment loss would be recorded as a charge against the Company's earnings and could have a material adverse impact on the Company's financial condition and operating results. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on the Company’s financial position and operating results.
On an on-going basis, the Company evaluates its estimates, including, among others, those relating to:
•sales returns;
•allowances for doubtful accounts;
•inventories;
•intangible assets;
•right-of-use assets;
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•income and other tax accruals;
•deferred tax asset valuation allowances;
•sales discounts;
•warranty obligations;
•contingencies and litigation.
The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s assumptions and estimates may, however, prove to have been incorrect and the Company’s actual results may differ from these estimates under different assumptions or conditions. While the Company believes the assumptions and estimates it makes are reasonable, any changes to the Company’s assumptions or estimates, or any actual results which differ from the Company’s assumptions or estimates, could have a material adverse effect on the Company’s financial position and operating results. Improper design and implementation of internal control related to the estimates could result in misstatement of financial reports.
Operational Risk
Any acquisitions, strategic alliances, joint ventures and divestitures that the Company effects, if any, could result in financial results that differ from market expectations.
In the normal course of business, the Company engages in discussions with third parties regarding possible acquisitions, strategic alliances, joint ventures and divestitures. As a result of any such transactions, of which the Company cannot assure that any will occur, the Company’s financial results may differ from the investment community’s expectations in a given quarter. In addition, acquisitions and alliances may require the Company to integrate a different company culture, management team, business infrastructure, accounting systems and financial reporting systems. The Company may not be able to effect any such acquisitions or alliances. The Company may have difficulty developing, manufacturing and marketing the products of a newly acquired business in a way that enhances the performance of the Company’s combined businesses or product lines to realize the value from any expected synergies. Depending on the size and complexity of an acquisition, the Company’s successful integration of the entity depends on a variety of factors, including the retention of key employees and the management of facilities and employees in separate geographical areas. These efforts require varying levels of management resources, which may divert the Company’s attention from other business operations. Also, the Company’s results may be adversely impacted because of acquisition-related costs, amortization costs for certain intangible assets and impairment losses related to goodwill in connection with such transactions. Finally, acquisitions or alliances by the Company may not occur, which could impair the Company’s growth.
The Company’s results fluctuate from quarter to quarter.
The Company has experienced quarterly fluctuations in operating results and anticipates continued fluctuations in the future. A number of factors contribute to these fluctuations:
•The timing and expense of new product introductions by the Company or its competitors, although the Company might not successfully develop new products and any such new products may not gain market acceptance;
•The cancellation or delays in the purchase of the Company’s products;
•Fluctuations in customer demand for the Company’s products;
•Changes in domestic and foreign regulations;
•The gain or loss of significant customers;
•Changes in the mix of products sold by the Company;
•Competitive pressures on prices at which the Company can sell its products;
•Announcements of new strategic relationships by the Company or its competitors;
•Litigation costs and settlements; and
•General economic conditions and other external factors such as energy costs.
The Company sets its spending levels in advance of each quarter based, in part, on the Company’s expectations of product orders and shipments during that quarter. A shortfall in revenue, therefore, in any particular quarter as compared
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to the Company’s plan could have a material adverse impact on the Company’s results of operations and cash flows. Also, the Company’s quarterly results could fluctuate due to general market conditions in the healthcare industry or global economy generally, or market volatility unrelated to the Company’s business and operating results.
Failure of the market to accept the Company’s products could adversely impact the Company’s business and financial condition.
The Company’s business and financial condition will depend in part upon the market acceptance of the Company’s products. The Company’s products may not achieve or maintain market acceptance. Market acceptance depends on a number of factors including:
•The price of the products;
•The continued receipt of regulatory approvals for multiple indications;
•The establishment and demonstration of the clinical safety and efficacy of the Company’s products; and
•The advantages of the Company’s products over those marketed by the Company’s competitors.
Any failure to achieve or maintain significant market acceptance of the Company’s products will have a material adverse impact on the Company’s business.
The success of products with which the Company’s products compete could have an adverse impact on the Company’s business.
The Company faces intense competition in the medical device and pharmaceutical markets, which are characterized by rapidly changing technology, short product life cycles, cyclical oversupply and rapid price erosion. Many of the Company’s competitors have substantially greater financial, technical, marketing, distribution and other resources. The Company’s strategy is to compete primarily on the basis of technological innovation, reliability, quality and price of the Company’s products. Without timely introductions of new products and enhancements, the Company’s products will become technologically obsolete over time, in which case the Company’s revenues and operating results would suffer. The success of the Company’s new product offerings will depend on several factors, including the Company’s ability to:
•Properly identify customer needs;
•Innovate and develop new technologies, services and applications;
•Establish adequate product distribution coverage;
•Obtain and maintain required regulatory approvals from the FDA and other regulatory agencies;
•Protect the Company’s intellectual property;
•Successfully commercialize new technologies in a timely manner;
•Manufacture and deliver the Company’s products in sufficient volumes on time;
•Differentiate the Company’s offerings from the offerings of the Company’s competitors;
•Price the Company’s products competitively;
•Anticipate competitors’ announcements of new products, services or technological innovations; and
•Anticipate general market and economic conditions.
The Company may not be able to compete effectively in the competitive environments in which the Company operates.
Lack of availability of key system components could result in delays, increased costs or costly redesign of the Company’s products.
Although some of the parts and components used to manufacture the Company’s products are available from multiple sources, the Company currently purchases most of the Company’s components and outsourced finished goods from single sources in an effort to obtain volume discounts. Lack of availability of any of these parts, components and finished goods could result in production delays, increased costs or costly redesign of the Company’s products. Any loss of availability of an essential component or finished good could result in a material adverse change to the Company’s business, financial condition and results of operations. Some of the Company’s suppliers are subject to the FDA’s Good Manufacturing Practice regulations. Failure of these suppliers to comply with those regulations could result in the delay
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or limitation of the supply of parts or components to the Company, which would adversely impact the Company’s financial condition and results of operations.
The supply chain challenges could increase the costs of products and the numbers of backorders and could adversely affect our results of operations.
The Company is dependent on its management and key personnel to succeed.
The Company’s principal executive officers and technical personnel have extensive experience with the Company’s products, the Company’s research and development efforts, the development of marketing and sales programs and the necessary support services to be provided to the Company’s customers. Also, the Company competes with other companies, universities, research entities and other organizations to attract and retain qualified personnel. The loss of the services of any of the Company’s executive officers or other technical personnel, or the Company’s failure to attract and retain other skilled and experienced personnel, could have a material adverse impact on the Company’s ability to maintain or expand businesses.
Legal, Regulatory and Global
The Company’s products are subject to stringent ongoing regulation by the FDA and similar domestic and foreign health care regulatory authorities, and if the regulatory approvals or clearances of the Company’s products are restricted or revoked, the Company could face delays that would impair the Company’s ability to generate funds from operations.
The FDA and similar health care regulatory authorities in foreign countries extensively regulate the Company’s activities. The Company must obtain either 510(K) clearances or pre-market approvals and new drug application approvals prior to marketing any products in the United States. Foreign regulation also requires that the Company obtain other approvals from foreign government agencies prior to the sale of products in those countries. Also, the Company may be required to obtain FDA approval before exporting a product or device that has not received FDA marketing clearance or approval.
The Company has received the necessary FDA approvals for all products that the Company currently markets in the United States. Any restrictions on or revocation of the FDA approvals and clearances that the Company has obtained, however, would prevent the continued marketing of the impacted products and other devices. The restrictions or revocations could result from the discovery of previously unknown problems with the product. Consequently, FDA revocation would impair the Company’s ability to generate funds from operations.
The FDA and comparable agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the manufacturing and marketing of pharmaceutical and medical device equipment and related disposables, including the obligation to adhere to the FDA’s Good Manufacturing Practice regulations. Compliance with these regulations requires time-consuming detailed validation of manufacturing and quality control processes, FDA periodic inspections and other procedures. If the FDA finds any deficiencies in the validation processes, for example, the FDA may impose restrictions on marketing the specific products until such deficiencies are corrected.
The Company has received CE approval on several of the Company’s products that allows the Company to sell the products in the countries comprising the European Community. In addition to the CE mark, however, some foreign countries may require separate individual foreign regulatory clearances. The Company may not be able to obtain regulatory clearances for other products in the United States or foreign markets.
The process for obtaining regulatory clearances and approvals underlying clinical studies for any new products or devices and for multiple indications for existing products is lengthy and will require substantial commitments of Company’s financial resources and Company’s management’s time and effort. Any delay in obtaining clearances or approvals or any changes in existing regulatory requirements would materially adversely impact the Company’s business.
The Company’s failure to comply with the applicable regulations would subject the Company to fines, delays or suspensions of approvals or clearances, seizures or recalls of products, operating restrictions, injunctions or civil or criminal penalties, which would adversely impact the Company’s business, financial condition and results of operations.
The Company’s products employ proprietary technology, and this technology may infringe on the intellectual property rights of third parties.
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The Company holds several United States and foreign patents for the Company’s products. Other parties, however, hold patents relating to similar products and technologies. If patents held by others were adjudged valid and interpreted broadly in an adversarial proceeding, the court or agency could deem them to cover one or more aspects of the Company’s products or procedures. Any claims for patent infringements or claims by the Company for patent enforcement would consume time, result in costly litigation, divert technical and management personnel or require the Company to develop non-infringing technology or enter into royalty or licensing agreements. The Company may become subject to one or more claims for patent infringement. The Company may not prevail in any such action, and the Company’s patents may not afford protection against competitors with similar technology.
If a court determines that any of the Company’s products infringes, directly or indirectly, on a patent in a particular market, the court may enjoin the Company from making, using or selling the product. Furthermore, the Company may be required to pay damages or obtain a royalty-bearing license, if available, on acceptable terms.
The Company’s ability to market or sell the Company’s products may be adversely impacted by limitations on reimbursements by government programs, private insurance plans and other third-party payers.
The Company’s customers bill various third party-payers, including government programs and private insurance plans, for the health care services provided to their patients.The Company’s customers bill various third party payers, including government programs and private insurance plans, for the health care services provided to their patients. Third-party payers may reimburse the customer, usually at a fixed rate based on the procedure performed, or may deny reimbursement if they determine that the use of the Company’s products was elective, unnecessary, inappropriate, not cost-effective, experimental or used for a non-approved indication. Third party payers may reimburse the customer, usually at a fixed rate based on the procedure performed, or may deny reimbursement if they determine that the use of the Company’s products was elective, unnecessary, inappropriate, not cost-effective, experimental or used for a non-approved indication. Third-party payers may deny reimbursement notwithstanding FDA approval or clearance of a product and may challenge the prices charged for the medical products and services. Third party payers may deny reimbursement notwithstanding FDA approval or clearance of a product and may challenge the prices charged for the medical products and services. The Company’s ability to sell the Company’s products on a profitable basis may be adversely impacted by denials of reimbursement or limitations on reimbursement, compared with reimbursement available for competitive products and procedures. New legislation that further reduces reimbursements under the capital cost pass-through system utilized in connection with the Medicare program could also adversely impact the marketing of the Company’s products.
The Company may become involved in product liability litigation, which may subject the Company to liability and divert management attention.
The testing and marketing of the Company’s products entails an inherent risk of product liability, resulting in claims based upon injuries or alleged injuries or a failure to diagnose associated with a product defect. Some of these injuries may not become evident for a number of years. Although the Company is not currently involved in any product liability litigation, the Company may be party to litigation in the future as a result of an alleged claim. Litigation, regardless of the merits of the claim or outcome, could consume a great deal of the Company’s time and attention away from the Company’s core businesses. The Company maintains limited product liability insurance coverage of $1,000,000 per occurrence and $2,000,000 in the aggregate, with umbrella policy coverage of $5,000,000 in excess of such amounts. A successful product liability claim in excess of any insurance coverage may adversely impact the Company’s financial condition and results of operations. The Company’s product liability insurance coverage may not continue to be available to the Company in the future on reasonable terms or at all.
The Company’s international operations could be adversely impacted by changes in laws or policies of foreign governmental agencies and social and economic conditions in the countries in which the Company operates.
The Company derives a portion of its revenue from sales outside the United States. Changes in the laws or policies of governmental agencies, as well as social and economic conditions, in the countries in which the Company operates could impact the Company’s business in these countries and the Company’s results of operations. Also, economic factors, including inflation and fluctuations in interest rates and foreign currency exchange rates, and competitive factors such as price competition, business combinations of competitors or a decline in industry sales from continued economic weakness, both in the United States and other countries in which the Company conducts business, could adversely impact the Company’s results of operations.
The impact of terrorism or acts of war could have a material adverse impact on the Company’s business.
Terrorist acts or acts of war, whether in the United States or abroad, could cause damage or disruption to the Company’s operations, its suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability, any of which could have a material adverse impact on the Company’s business.
In February 2022, Russia invaded Ukraine. As military activity proceeds and sanctions, export controls and other measures are imposed by many countries against Russia, Belarus and specific areas of Ukraine, the war is
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increasingly affecting the global economy and financial markets, as well as exacerbating ongoing economic challenges, including rising inflation and global supply-chain disruption. The Company has operations or activities in countries and regions outside the United States. As a result, its global operations are affected by economic, political and other conditions in the foreign countries in which it does business as well as U.S. laws regulating international trade, although the Company has not yet assessed that the war has had a material effect on its financial position or results of operations.
The Company’s charter documents and Pennsylvania law may inhibit a takeover.
Certain provisions of Pennsylvania law and the Company’s Bylaws could delay or impede the removal of incumbent directors and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. These provisions could limit the share price that certain investors might be willing to pay in the future for shares of the Company’s common stock. The Company’s Board of Directors is divided into three classes, with directors in each class elected for three-year terms. The Bylaws impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. The Company’s Board of Directors may issue shares of preferred stock without stockholder approval on such terms and conditions, and having such rights, privileges and preferences, as the Board may determine. The Company’s Board of Directors may issue shares of preferred stock without shareholder approval on such terms and conditions, and having such rights, privileges and preferences, as the Board may determine. The rights of the holders of common stock will be subject to, and may be adversely impacted by, the rights of the holders of any preferred stock that may be issued in the future.
Healthcare policy changes, including pending proposals to reform the U.S. healthcare system and implementation of the Affordable Healthcare Act, may have a material adverse effect on the Company.
Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs down. Certain proposals, if passed, would impose limitations on the prices the Company will be able to charge for the Company’s products, or the amounts of reimbursement available for its products from governmental agencies or third-party payers. These limitations could have a material adverse effect on the Company’s financial position and results of operations.
Changes in the healthcare industry in the U.S. and elsewhere could adversely affect the demand for the Company’s products as well as the way in which the Company conducts the Company’s business. The 2010 Affordable Care Act provides that most individuals must have health insurance, establishes new regulations on health plans, and creates insurance pooling mechanisms and other expanded public health care measures.
The Company anticipates that the healthcare reform legislation will further reduce Medicare spending on services provided by hospitals and other providers and further forms sales or excise tax on the medical device manufacturing sector. Various healthcare reform proposals have also emerged at the federal and state level. The Company cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on the Company. However, an expansion in government’s role in the U.S. healthcare industry may lower reimbursements for the Company’s products, reduce medical procedure volumes and adversely affect the Company’s business, possibly materially.
Future legislation or changes in government programs may adversely impact the market for the Company’s products.
From time to time, the federal government and Congress have made proposals to change aspects of the delivery and financing of health care services. The Company cannot predict what form any future legislation or regulation may take or its impact on the Company’s business. Legislation that sets price limits and utilization controls adversely impact the rate of growth of the markets in which the Company participates. If any future health care legislation or regulations were to adversely impact those markets, the Company’s product marketing could also suffer, which would adversely impact the Company’s business.
Information Security, cybersecurity and Data Privacy Risks
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact the Company's reputation and results of operations.
The Company is subject to cyber security risks and may incur increasing costs in efforts to minimize those risks and to comply with regulatory standards. The Company employs information technology systems and Internet systems, including websites, which allow for the secure storage and transmission of proprietary or confidential information regarding the Company’s customers, employees and others, including credit card information and personal identification information. The Company has made significant efforts to secure its computer network to mitigate the risk of possible
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cyber-attacks and is continuously working to upgrade its existing information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches. Despite these efforts security of the Company’s computer networks could be compromised which could impact operations and confidential information could be misappropriated, which could lead to negative publicity, loss of sales and profits or cause the Company to incur significant costs to reimburse third-parties for damages which could adversely impact profits.
Other
The Company’s Chairman and Chief Executive Officer, Richard DePiano Jr. is the Company’s controlling stockholder and has sufficient voting power to determine the outcome of all matters submitted to the Company’s stockholders for approval. is the Company’s controlling shareholder and has sufficient voting power to determine the outcome of all matters submitted to the Company’s shareholders for approval.
In February 2018, the Company entered into a Debt Exchange Agreement (the "Exchange Agreement") with Mr. DePiano Sr. and DP Associates Inc. Profit-Sharing Plan of which Mr. DePiano is the sole owner and sole trustee (the "Holders"). Pursuant to the terms of the Exchange Agreement, the Holders exchanged a total of $645,000 principal amount of debt the Company owed the Holders under factoring agreements and notes (the "Notes") the Company entered into with the Holders in February and March of 2016 for 2,000,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock"). Each share the Preferred Stock entitles the Holder thereof to 13 votes per share and will vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the Company’s stockholders. As a result of this voting power, the Holders currently beneficially own approximately 77.81% of the voting power on all actions to be taken by the Company’s stockholders. If the Holders were to convert their shares of Preferred Stock into common stock at the current conversion ratio, the Holders would receive a total of 4,300,000 shares of Common Stock, or approximately 36.70% of the currently outstanding shares of Common Stock assuming such conversion.
The Holders, therefore, control the election of all of the members of the Company’s board of directors and control the outcome of any corporate transaction or other matter submitted to a vote of the Company’s stockholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of the Company’s assets, in each case regardless of how all of the Company’s stockholders other than the Holders vote their shares. The Holders, therefore, control the election of all of the members of the Company’s board of directors and control the outcome of any corporate transaction or other matter submitted to a vote of the Company’s shareholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of the Company’s assets, in each case regardless of how all of the Company’s shareholders other than the Holders vote their shares. The interests of the Holders in maintaining this voting control of the Company may have an adverse effect on the price of the Company’s common stock because of the absence of any potential “takeover” premium and may, therefore, be inconsistent with the interest of the Company’s stockholders other than the Holders. The voting control by the Holders could also discourage a third party from attempting to acquire control of the Company and may make it more difficult for a third party to acquire control of the Company. Mr. DePiano Sr. passed away on October 3, 2019 and left a will by which he appointed Richard J. DePiano, Jr., the Chief Executive Officer of the Company, as executor. Richard DePiano Jr. was elected to serve as chairman of the Company's board. Mr. DePiano, Jr. qualified as executor and has control over the shares in his capacity as executor of Mr. qualified as executor and has control over the listed shares in his capacity as executor of Mr. DePiano Sr.'s estate.
The market price of the Company’s stock has historically been volatile, and the Company has not paid cash dividends.
The volatility of the Company’s common stock imposes a greater risk of capital losses on stockholders as compared to less volatile stocks.The volatility of the Company’s common stock imposes a greater risk of capital losses on shareholders as compared to less volatile stocks. In addition, such volatility makes it difficult to ascribe a stable valuation to a stockholder’s holdings of the Company’s common stock. In addition, such volatility makes it difficult to ascribe a stable valuation to a shareholder’s holdings of the Company’s common stock. The following factors have and may continue to have a significant impact on the market price of the Company’s common stock:
•Acquisitions, strategic alliances, joint ventures and divestitures that the Company effects, if any;
•Announcements of technological innovations;
•Changes in marketing, product pricing and sales strategies or new products by the Company’s competitors;
•Changes in domestic or foreign governmental regulations or regulatory requirements; and
•Developments or disputes relating to patent or proprietary rights and public concern as to the safety and efficacy of the procedures for which the Company’s products are used.
Moreover, the possibility exists that the stock market could experience extreme price and volume fluctuations unrelated to operating performance.
The Company has not paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future.
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If the Company raises funds in the future, the Company may be required to raise those funds through public or private financings, strategic relationships or other arrangements at prices and other terms that may not be favorable. The sale of additional equity and debt securities may result in additional dilution to the Company’s stockholders. Additional financing may not be available in amounts or on terms acceptable to the Company or at all.
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ITEM 1B. UNSOLVED SEC STAFF COMMENTS
The Company does not believe there are any unresolved SEC staff comments.
ITEM 1C.ITEM 1A. CYBER SECURITY
Risk Management and Strategy
The Company recognizes the importance of cybersecurity and has implemented a comprehensive program to protect its information assets. Key components of our cybersecurity program include appointment of an Information Security Officer, who is the also the Chief Operating officer with extensive knowledge of cybersecurity issues, information security policies and procedures, engagement of third-party security experts, regular penetration testing, managed backup and data protection, managed threat response, hardware and software protections, physical security measures, employee training, internal cybersecurity audits, and ongoing product cybersecurity assessments. The Company maintains cybersecurity insurance covering its internal operations and customer-facing products.
Despite these measures, the Company cannot guarantee that it will be immune from cybersecurity threats. A successful attack could result in unauthorized access to our systems, data breaches, disruptions to our operations, and financial losses. We are committed to continually evaluating and enhancing our cybersecurity program to mitigate these risks.
Governance
The Company's Board of Directors receives regular reports from the Information Security Officer regarding the Company's cybersecurity program. The Board ensures that the Company has the necessary resources and authority to implement and maintain a sufficient cybersecurity program. The Information Security Officer reports directly to the Chief Executive Officer and is responsible for working with internal and third-party resources to develop and implement the Company's cybersecurity strategy, manage cybersecurity risks, and oversee the Company's cybersecurity operations.
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