Semler Scientific Inc (SMLR) 2022年年度報告「NASDAQ」.pdf

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1、Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended:December 31,2022orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT

2、OF 1934For the transition period from:to Commission file number:001-36305SEMLER SCIENTIFIC,INC.(Exact name of registrant as specified in its charter)Delaware26-1367393(State or other jurisdiction(I.R.S.Employerof incorporation or organization)Identification No.)2340-2348 Walsh Avenue,Suite 2344Santa

3、 Clara,CA 95051(Address of principal executive offices)(Zip Code)(877)774-4211(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading SymbolName of each exchange on which registeredCommon Stock,$0.001 par valueSMLRThe Nas

4、daq Stock Market LLCSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section

5、13 or Section 15(d)of the Act.Yes No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or forsuch shorter period that the registrant was required to file such reports)

6、,and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 month

7、s(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or emerging growth company.See the definitionsof“large accele

8、rated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registra

9、nt has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the

10、effectiveness of its internal control over financial reporting under Section404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whethe

11、r the financial statements of the registrant included in the filing reflect the correction of an error topreviously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by

12、 any of the registrants executiveofficers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No The aggregate market value of the voting and non-voting stock held by non-affiliates of

13、the registrant was approximately$155,160,658 as of June 30,2022,the last business day of the registrantsmost recently completed second fiscal quarter.The number of shares of the registrants common stock outstanding as of March 16,2023 was 6,844,512.DOCUMENTS INCORPORATED BY REFERENCENone.Table of Co

14、ntentsi2022 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PagePART ICautionary Note Regarding Forward Looking Statements and Industry DataRisk Factor SummaryItem 1.Business4Item 1A.Risk Factors20Item 1B.Unresolved Staff Comments38Item 2.Properties38Item 3.Legal Proceedings38Item 4.Mine Safety Disclos

15、ure38PART IIItem 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of EquitySecurities39Item 6.Reserved39Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations39Item 7A.Quantitative and Qualitative Disclosures about Market Ri

16、sk44Item 8.Financial Statements and Supplementary Data44Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure45Item 9A.Controls and Procedures45Item 9B.Other Information46Item 9C.Disclosure Regarding Foreign Jurisdictions the Prevent Inspections46PART IIIItem 10

17、.Directors,Executive Officers and Corporate Governance46Item 11.Executive Compensation50Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters53Item 13.Certain Relationships and Related Transactions,and Director Independence54Item 14.Principal Accounta

18、nt Fees and Services55PART IVItem 15.Exhibits,Financial Statement Schedules56Item 16.Form 10-K Summary57SIGNATURES58In this report,unless otherwise stated or as the context otherwise requires,references to“Semler Scientific,”“theCompany,”“we,”“us,”“our”and similar references refer to Semler Scientif

19、ic,Inc.The Semler Scientific logo,QuantaFloand other trademarks or service marks of Semler Scientific,Inc.appearing in this report are the property of SemlerScientific,Inc.This report also contains registered marks,trademarks and trade names of other companies.All othertrademarks,registered marks an

20、d trade names appearing in this report are the property of their respective holders.Table of Contents1CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATAThis annual report on Form 10-K contains forward-looking statements.Such forward-looking statements include thosethat express pl

21、ans,anticipation,intent,contingency,goals,targets or future development and/or otherwise are notstatements of historical fact.These forward-looking statements are based on our current expectations and projections aboutfuture events and they are subject to risks and uncertainties known and unknown th

22、at could cause actual results anddevelopments to differ materially from those expressed or implied in such statements.In some cases,you can identify forward-looking statements by terminology,such as“expects,”“anticipates,”“intends,”“estimates,”“plans,”“believes,”“seeks,”“may,”“should,”“continue,”“co

23、uld”or the negative of such terms orother similar expressions.Accordingly,these statements involve estimates,assumptions and uncertainties that could causeactual results to differ materially from those expressed in them.Any forward-looking statements are qualified in theirentirety by reference to th

24、e factors discussed throughout this annual report on Form 10-K.You should read this annual report on Form 10-K and the documents that we reference herein and therein and havefiled as exhibits,completely and with the understanding that our actual future results may be materially different from whatwe

25、 expect.You should assume that the information appearing in this annual report on Form 10-K is accurate as of the dateon the front cover of this annual report only.Because the risk factors referred to herein could cause actual results oroutcomes to differ materially from those expressed in any forwa

26、rd-looking statements made by us or on our behalf,youshould not place undue reliance on any forward-looking statements.These risks and uncertainties,along with others,aredescribed under the heading“Risk Factors.”Further,any forward-looking statement speaks only as of the date on which itis made,and

27、we undertake no obligation to update any forward-looking statement to reflect events or circumstances afterthe date on which the statement is made or to reflect the occurrence of unanticipated events.New factors emerge from timeto time,and it is not possible for us to predict which factors will aris

28、e.In addition,we cannot assess the impact of eachfactor on our business or the extent to which any factor,or combination of factors,may cause actual results to differmaterially from those contained in any forward-looking statements.We qualify all of the information presented in thisannual report on

29、Form 10-K,and particularly our forward-looking statements,by these cautionary statements.This annual report on Form 10-K includes statistical and other industry and market data that we obtained from industrypublications and research,surveys and studies conducted by third parties.Industry publication

30、s and third-party research,surveys and studies generally indicate that their information has been obtained from sources believed to be reliable,although they do not guarantee the accuracy or completeness of such information.While we believe these industrypublications and third-party research,surveys

31、 and studies are reliable,we have not independently verified such data.Table of Contents2RISK FACTOR SUMMARYOur business involves significant risks.Below is a summary of the material risks that our business faces,which makesan investment in our common stock speculative and risky.This summary does no

32、t address all these risks.These risks aremore fully described below under the heading“Risk Factors”in Part I,Item 1A of this annual report on Form 10-K.Beforemaking investment decisions regarding our common stock,you should carefully consider these risks.The occurrence ofany of the events or develop

33、ments described below could have a material adverse effect on our business,results ofoperations,financial condition,prospects and stock price.In such event,the market price of our common stock coulddecline,and you could lose all or part of your investment.In addition,there are also additional risks

34、not described belowthat are either not presently known to us or that we currently deem immaterial,and these additional risks could alsomaterially impair our business,operations or market price of our common stock.If we do not successfully implement our business strategy,our business and results of o

35、perations will beadversely affected.We predominantly market only one U.S.Food and Drug Administration,or FDA,cleared product,QuantaFlo,acardiac and vascular testing product,and it may not achieve broad market acceptance or be commerciallysuccessful.We may also fail to generate meaningful revenues fr

36、om our Insulin Insights distribution arrangement,which includes prepaid licenses,or benefit from our recent investments in other companies developing othercomplementary products.Changes in the regulatory reimbursement landscape,such as the recent“Advance Notice”issued by Centers forMedicare and Medi

37、caid Services,or CMS,could impact the perceived profitability of using our products to aiddiagnosis of cardiovascular diseases.Physicians and other customers may not widely adopt our products unless they determine,based on experience,long-term clinical data and published peer reviewed journal articl

38、es,that the use of our products provides a safeand effective alternative to other existing devices,including ankle brachial index,or ABI devices.If healthcare providers are unable to obtain adequate coverage and reimbursement either for proceduresperformed using our product or patient care incorpora

39、ting the use of our product,it is unlikely that our productwill gain widespread acceptance.Our cardiac and vascular testing product is generally but not specifically approved for reimbursement under anythird-party payor codes;if third-party payors refuse to reimburse our customers for their use of o

40、ur product,itcould have a material adverse effect on our business.Our business has been and could continue to be adversely affected by the ongoing COVID-19 pandemic.We rely heavily upon the talents of a small number of key personnel,the loss of whom could severely damage ourbusiness.We rely on a sma

41、ll number of employees in our direct sales force and face challenges and risk in managing andmaintaining our distribution network and the parties who make up that network.To adequately commercialize our products and any new products we add,we may need to increase our sales andmarketing network,which

42、 will require us to hire,train,retain and supervise employees and other independentcontractors.We do not require our customers to enter into long-term licenses or maintenance contracts for our products orservices and may therefore lose customers on short notice.We are exposed to risk as a significan

43、t portion of our revenues and accounts receivables are with a limitednumber of customers.We rely on a small number of independent suppliers and facilities for the manufacturing of our cardiac andvascular testing product.Any delay or disruption in the supply of the product or facility may negatively

44、impactour operations.Because we operate in an industry with significant product liability risk,and we may not be sufficiently insuredagainst this risk,we may be subject to substantial claims against our product or services that we may provide.We may implement a product recall or voluntary market wit

45、hdrawal or stop shipment of our product due toproduct defects or product enhancements and modifications,which would significantly increase our costs.If we fail to properly manage our anticipated growth,our business could suffer.An information security incident,including a cybersecurity breach,could

46、have a negative impact on our businessor reputation.Table of Contents3Fluctuations in insurance cost and availability could adversely affect our profitability or our risk managementprofile.We will need to generate significant revenues to remain profitable.Our future financial performance will depend

47、 in part on the successful improvements and software updates to ourvascular testing product on a cost-effective basis.We operate in an intensely competitive and rapidly changing business environment,and there is a substantial riskour products or service offerings could become obsolete or uncompetiti

48、ve.One of our business strategies is developing additional products and service offerings that allow healthcareproviders to deliver cost-effective wellness and receive increased compensation for their services.Thedevelopment of new products and service offerings involves time and expense and we may

49、never realize thebenefits of this investment.We have used our cash resources to invest in other companies,and there is no guarantee that we will be repaid onmaturity nor realize any other expected benefits from such investments,which could harm our business.Our business is subject to many laws and g

50、overnment regulations governing the manufacture and sale of medicaldevices,including the FDAs 510(k)clearance process,and laws and regulations governing patient data andinformation,among others.The FDA may change its policies,adopt additional regulations,or revise existing regulations,in particularr

51、elating to the 510(k)clearance process.Our business is subject to unannounced inspections by FDA to determine our compliance with FDArequirements.Although part of our business strategy is based on payment provisions enacted under government healthcarereform,we also face significant uncertainty in th

52、e industry regarding the implementation,transformation or repealand replacement of the Health Care Reform Law.The applicable healthcare fraud and abuse laws and regulations,along with the increased enforcementenvironment,may lead to an enforcement action targeting us,which could adversely affect our

53、 business.Changes in,or interpretations of,tax rules and regulations may adversely affect our effective tax rates.Our ability to use net operating loss,or NOL,carryforwards to offset future taxable income may be subject tolimitations.We have had material weaknesses in our internal control over finan

54、cial reporting.Although we have remedied ourprior material weaknesses,if we identify additional material weaknesses in the future,or if our former materialweaknesses recur,it could have an adverse effect on our company.Our success largely depends on our ability to obtain and protect the proprietary

55、information on which we base ourproduct.We may need to license intellectual property from third parties,and such licenses may not be available or may notbe available on commercially reasonable terms.We may be subject to claims by third parties asserting that our employees or we have misappropriated

56、theirintellectual property,or claiming ownership of what we regard as our own intellectual property.If we are unable to protect the confidentiality of our trade secrets,our business and competitive position would beharmed.Our business could be impacted by macroeconomic factors,such as the effects of

57、 the Russian invasion of Ukraineon the global economy and supply chain and inflation.Our executive officers,directors and significant stockholders,if they choose to act together,have the ability tosignificantly influence all matters submitted to stockholders for approval.Provisions in our corporate

58、charter documents and under Delaware law could make an acquisition of ourcompany,which may be beneficial to our stockholders,more difficult and may prevent attempts by ourstockholders to replace or remove our current management.Table of Contents4PART IITEM 1.BUSINESSGeneralWe are a company providing

59、 technology solutions to improve the clinical effectiveness and efficiency of healthcareproviders.Our mission is to develop,manufacture and market innovative products and services that assist our customers inevaluating and treating chronic diseases.Our patented and U.S.Food and Drug Administration,o

60、r FDA,cleared product,QuantaFlo,measures arterial blood flow in the extremities to aid in the diagnosis of peripheral arterial disease,or PAD,andserves as an aid to measure hemodynamics related to heart dysfunction.We have an agreement with Mellitus Health,Inc,or Mellitus,a private company to exclus

61、ively market and distributeInsulin Insights,an FDA-cleared software product that recommends optimal insulin dosing for diabetic outpatients in theUnited States,including Puerto Rico,except for selected accounts.We have also made cash investments in Mellitus,in Monarch Medical Technology,LLC,or Monar

62、ch,a privately-helddigital health company whose proprietary product,EndoTool Glucose Management System,or EndoTool,offers atechnology-enabled approach to inpatient glycemic management,and in NeuroDiagnostics Inc.,a privately-held companythat is doing business as SYNAPS Dx,or SYNAPS,whose product,Dis

63、cern,is a test for early Alzheimers disease.Wecontinue to develop additional complementary proprietary products in-house(such as our recently released QuantaFloextension as an aid to measure hemodynamics related to heart dysfunction),and seek out other arrangements for additionalproducts and service

64、s that we believe will bring value to our customers and to our company.We believe our currentproducts and services,and any future products or services that we may offer,position us to provide valuable information toour customer base,which in turn permits them to better guide patient care.In the year

65、 ended December 31,2022,we had total revenues of$56.7 million and net income of$14.3 millioncompared to total revenues of$53.0 million and net income of$17.2 million in 2021.Our Products and ServicesWe currently market a patented and FDA-cleared,cardiac and vascular testing product,QuantaFlo,to our

66、customers,who include insurance plans,physician groups,risk assessment groups,hospitals and retailers.We also have an exclusivedistribution arrangement for the United States,including Puerto Rico,to distribute Insulin Insights,an FDA-cleared,software solution designed to provide insulin dosing recom

67、mendations to clinicians for the adjustment and maintenance ofblood glucose levels in insulin-dependent patients with Type 2 diabetes.We believe this product will be attractive to ourexisting customers as well as help expand our customer base.Table of Contents5QuantaFloQuantaFlo is a four-minute in-

68、office blood flow test.Healthcare providers can use blood flow measurements as part oftheir examinations of a patients vascular condition,including assessments of patients who have vascular disease.Thefollowing diagram illustrates the use of QuantaFlo:QuantaFlo features a sensor clamp that is placed

69、 on the toe or finger.Infrared light emitted from the clamp on thedorsal surface of the digit is scattered and reflected by the red blood cells coursing through the area of illumination.Returning light is sensed by the sensor.A blood flow waveform is instantaneously constructed by our proprietarysof

70、tware algorithm.Both index fingers and both large toes are interrogated,which takes about 30 seconds for each.Theproduct may be used with provocative maneuvers.We have primarily developed a license model rather than an outright sales model for QuantaFlo.This license modeleliminates the need to make

71、a capital equipment sale.Consequently,we generally require no down payment or long-termcommitment from our customers.QuantaFlo has an expected average lifetime of at least three years.To date,we roughlyestimate that routine office usage of the QuantaFlo has ranged from a few tests per week up to 10

72、tests per day.We alsooffer contracts in which we invoice on a per test basis for use of QuantaFlo.Approximately 62%of our customers are onthe fixed-fee software licensing model,whereas 38%are on the variable fee model based on usage.We have placed our QuantaFlo product with healthcare insurance plan

73、s,integrated delivery networks,independentphysician groups,hospitals and companies contracting with the healthcare industry such as risk assessment groups andretailers in addition to doctors offices.Our two largest customers are U.S.diversified healthcare companies and affiliatedplans,and in the yea

74、r ended December 31,2022,they accounted for 40.4%and 29.0%of our revenues,respectively,compared to 40.8%and 28.6%,respectively,in the prior year.Table of Contents6Other Blood Flow Testing MethodsBlood flow is the amount of blood delivered to a given region per unit time,whereas blood pressure is the

75、 forceexerted by circulating blood on the walls of arteries.Given a fixed resistance,blood flow and blood pressure areproportional.The ABI with Doppler test uses a blood pressure cuff to measure the systolic blood pressure in the lower legsand in the arms.A blood pressure cuff is inflated proximal t

76、o the artery in question.Using a Doppler device,the inflationcontinues until the pulse in the artery ceases.The blood pressure cuff is then slowly deflated.When the arterys pulse is re-detected through the Doppler probe the pressure in the cuff at that moment indicates the systolic pressure of that

77、artery.Thetest is repeated on all four extremities.Well-established criteria for the ratio of the blood pressure in a leg compared to theblood pressure in the arms are used to assess the presence or absence of flow obstruction.Generally,these tests take 15minutes to perform and require a vascular te

78、chnician to be done properly.Like QuantaFlo,the traditional analog ABI testwith Doppler is a non-invasive physiologic measurement that may be abnormal in the presence of PAD.Alternatively,primary care physicians may palpate the pedal pulses to assess blood flow in the lower extremities.However,pulse

79、palpation is generally not sensitive for the detection of vascular disease.Other options to detect arterial obstructions orhemodynamic problems are imaging systems that use ultrasound,x-ray technology or magnetic resonance to obtainanatomic information about blood vessels in the legs.However,as comp

80、ared to QuantaFlo,imaging tests are much moreexpensive,time consuming and are performed by specialists in special laboratories or offices.Insulin InsightsInsulin Insights is a software program that is used by a healthcare provider to optimize outpatient insulin dosing.InApril 2021,we entered into an

81、 agreement with Mellitus to exclusively market and distribute this software program in theUnited States,including Puerto Rico,except for selected accounts.Under this agreement and its December 2022amendment,we have pre-paid for an aggregate of$2.5 million of licenses($2.0 million in April 2021 and$0

82、.5 million inDecember 2022).We currently are distributing Insulin Insights using a software as a service,or SaaS,license model on a per patient permonth fee rather than an outright sales model.We generally require no down payment or long-term commitment from ourcustomers.We intend to reevaluate the

83、price periodically.As we have only recently deployed Insulin Insights withcustomers,we do not have enough experience with the product to be able estimate routine usage of Insulin Insights interms of patients per location.We seek to distribute Insulin Insights to healthcare insurance plans,integrated

84、 delivery networks,independentphysician groups,and companies that contract with the healthcare industry,such as risk assessment groups,long-term care,or remote patient monitoring organizations,in addition to doctors offices.We believe that this software product will be ofinterest to our existing cus

85、tomer base,as well as help us to expand interest in QuantaFlo to additional customers.Market OpportunityQuantaFloFee-for-service is a payment model where services are unbundled and paid for separately.In health care,it gives anincentive for physicians to provide more treatments because payment is de

86、pendent on the quantity of care,rather thanquality of care.Capitation is a payment arrangement that pays a physician or group of physicians a set amount for eachenrolled person assigned to them,per period of time,whether or not that person seeks care.The amount of remuneration isbased on the average

87、 expected healthcare utilization of that patient,with greater payment for patients with significantmedical history.For Medicare Advantage patients CMS pays a fee per patient,also known as capitation.CMS uses riskadjustment to adjust capitation payments to health plans,either higher or lower,to accou

88、nt for the differences in expectedhealth costs of individuals.Accordingly,under CMS guidelines,risk factor adjustments per patient will provide paymentthat is higher for sicker patients who have conditions that are codified.Table of Contents7The current coding system used by CMS for the Medicare Adv

89、antage program is a hierarchical condition category,orHCC,diagnostic classification system that began by classifying over 14,000 diagnosis codes into approximately 1,500diagnostic groups,or DXGs.Each code maps to exactly one DXG,which represents a well-specified medical condition,such as DXG 96.01 p

90、re-cerebral or cerebral arterial occlusion with infarction.DXGs are further aggregated into 204condition categories,or CCs.CCs describe a broader set of similar diseases.Diseases within a CC are related clinically andwith respect to cost.An example is CC100 Ischemic or Unspecified Stroke,which inclu

91、des DXG 95.02 iatrogeniccerebrovascular infarction or hemorrhage(e.g.,postoperative stroke),DXG 96.01 precerebral or cerebral arterial occlusionwith infarction,DXG 96.02 acute but ill-defined cerebrovascular disease(ICD-9),and DXG 170.59 neonatal cerebralinfarction.Undiagnosed cardiac and vascular d

92、iseases are major under-diagnosed health problems in the United States.Theseconditions are common and deadly cardiovascular disease is often undiagnosed.As with clogged arteries in the heart,clogged arteries in the legs place patients at an increased risk of heart attack and stroke.Published studies

93、 have shown thatpersons with PAD are four times more likely to die of heart attack,and two to three times more likely to die of stroke.According to a study by P.G.Steg published in the JAMA,patients with PAD have a 21%event rate of cardiovasculardeath,heart attack,stroke or cardiovascular hospitaliz

94、ation within 12 months.The SAGE Group has estimated that as manyas 20 million people are affected with PAD in the United States alone and A.T.Hirsch et al.in a JAMA published articlefurther estimate that only 11%have claudication(pain on exertion),a classic symptom of PAD.The spectrum of heart dysfu

95、nction includes heart failure.Published studies have shown that there are over one millionhospitalizations per year in the United States from heart failure and the annual cost of care exceeds$30 billion.Accordingto a study published in AHA Journals by S.L.Jackson,et al,heart failure affects approxim

96、ately 6.5 million adults in theUnited States and the lifetime risk of heart failure is estimated to be one in five at 40 years of age.The study also notespersons with heart failure have mortality rates 20%to 25%higher after hospitalization within one year after diagnosis.Many people affected with ca

97、rdiac and vascular diseases do not have noticeable symptoms.When symptoms arepresent,they often include fatigue,heaviness,cramping or pain during activity,leg or foot pain,sores,wounds or ulcers onthe toes,feet,or legs,which are slow to heal,shortness of breath,peripheral edema,or enlarged liver.Per

98、sons with cardiacand vascular diseases may become disabled and not be able to work.Risk factors for developing cardiac and vascular diseases include:Age(over 50 years)Race(African-American)History of smokingDiabetesHigh blood pressureHigh blood cholesterolPersonal history of vascular disease,heart a

99、ttack,or stroke.We believe medical personnel and insurance plans who care for those older than 50 years are the target market forQuantaFlo.Based on U.S.Census data,we believe there are more than 80 million older Americans who could be evaluatedfor the presence of cardiac and vascular diseases.There

100、are over 400,000 medical professionals practicing primary care in the United States.In addition,based onAmerican Heart Association data,there are over 20,000 cardiologists and 7,500 vascular and cardiovascular surgeons.Also,there are millions of diabetic patients seen routinely by endocrinologists.M

101、any podiatrists who see patients withthese problems and orthopedic surgeons may see value in screening patients for circulation issues prior to legTable of Contents8procedures.Neurologists may need a tool to differentiate leg pain from vascular versus neurologic etiology.Nephrologistssee patients wi

102、th kidney disease,who have a higher frequency of cardiac and vascular diseases.Wound care centers need toknow the adequacy of limb perfusion.We expect that each physician will have many patient visits annually from peopleolder than 50 years.While it is standard practice to ask about symptoms of card

103、iac and vascular diseases and to look forsigns on physical exam,we believe that it is often the case in busy practices that the questions go unasked.Generally speaking,individual products are not specifically approved by name under a third-party payor code.Physicians who seek reimbursement for testi

104、ng procedures are likely to use codes that describe non-invasive physiologictesting.We do not track directly how physicians code for and receive payment for such procedures.Insulin InsightsOf the growing diabetic population in the United States,over a quarter use insulin according to the Center for

105、DiseaseControl and Prevention.Insulin is a necessary medication as nearly all Type 1 diabetics(approximately 1.6 million peoplein the United States,and roughly 21%of Type 2 diabetics(of the over 30 million people in the United States with Type 2diabetics)must also use insulin to bring their blood gl

106、ucose levels down to a healthy range.Without insulin,patients arelikely to suffer from blurred vision,weight loss,and intolerable thirst.Eventually,uncontrolled diabetes can lead toblindness,kidney failure,gangrene,loss of limbs,and ultimately death.Tighter control of glucose is proven to improve th

107、eoutcomes in diabetes care.In the United States,about 90%of diabetic patients treating with insulin are managed by primary care practitioners.Insulin Insights is designed to be used by such practitioners to recommend optimal insulin dosing for each individualpatient.CMS has established a star rating

108、 system to measure and report on the quality of health services received by consumers in Medicare Advantage plans.Based on the star ratings,high performing health plans are also eligible to be paid bonuses by CMS.Among measures factored into plans star ratings are measures assessing diabetes care,in

109、cluding a measure adapted from the Healthcare Effectiveness Data and Information Set(HEDIS)that assesses the percentage of diabetic plan enrollees aged 18-75 who demonstrate good blood sugar control(HbA1c 9.0%).We believe this provides a financial incentive to potential customers for an Insulin Insi

110、ghts software license,as it will assist them in working with their diabetic patients to optimize insulin dosing and achieve better control of their blood glucose levels.Other Products and ServicesIn addition to our internal research and development efforts,in October 2020,we invested in SYNAPS,whose

111、product,Discern,is a test for early Alzheimers disease.In December 2022,we purchased a senior secured convertiblepromissory note of Monarch,maker of EndoTool,a technology-enabled approach to inpatient glycemic management.Wedo not have a distribution agreement for Discern or EndoTool.StrategyOur miss

112、ion is to develop,manufacture and market products and services that assist healthcare providers in evaluatingand treating chronic diseases.We intend to do this by:Targeting customers with patients at risk of developing cardiac and vascular diseases.Healthcare providers useblood flow measurements as

113、part of their assessment of a patients cardiac and vascular condition.Our strategy isto keep marketing QuantaFlo on a recurrent revenue model to insurance plans and medical personnel who care forthose older than 50 years,including cardiologists,internists,nephrologists,endocrinologist,podiatrists,an

114、dfamily practitioners.Specifically,we believe there are more than 400,000 physicians and other potentialcustomers in the United States alone,many of whom care for patients will be more than 50 years old and atincreased risk of developing cardiac and vascular diseases.Based on U.S.Census data,the eva

115、luable patientpopulation for QuantaFlo is estimated to be more than 80 million patients in the United States annually.Table of Contents9Expanding the tools available to internists and non-peripheral vascular experts.Our intention is to provide atool to internists and non-cardiovascular experts,for w

116、hom it was previously impractical to conduct a blood flowmeasurement unless in a specialized vascular laboratory.For cardiovascular specialists,QuantaFlo does notrequire the use of blood pressure cuffs(which should not be used on some breast cancer patients),and measureswithout blood pressure in obe

117、se patients and patients with non-compressible,hard,calcified arteries.Currently,these patients often are unable to be measured satisfactorily with traditional devices.Developing additional product and service offerings that allow healthcare providers to deliver cost-effectivewellness and receive in

118、creased compensation for their services.In March 2015,we received FDA 510(k)clearance of our product,QuantaFlo,reflecting several updates and modifications to the original model that weredeveloped in conjunction with our consultant engineering groups.We recently began marketing QuantaFlo as anaid to

119、 measure hemodynamics related to heart dysfunction and continue to explore potential new product andservice offerings through our research and development programs.Our goal is to provide cost-effective wellnesssolutions for our growing,established customer base,achieve a reputation for outstanding s

120、ervice,all whileleveraging our gains in the marketplace for such product and service offerings.Exploring additional product and service offerings through arrangements or potential acquisitions.In addition to our in-house research and development efforts,we are also seeking out opportunities to expan

121、d our product and service offerings through marketing,distribution and licensing arrangements,such as our agreement to exclusively market and distribute Insulin Insights line in the United States,including Puerto Rico.Such arrangements will allow us to sell products related to chronic disease manage

122、ment through our network of physicians and other customers.We may also consider opportunistically acquiring additional products if we believe they fit within our strategy.Sales and MarketingWe provide our QuantaFlo product to our customers through our salespersons,who have experience selling product

123、sand services to our anticipated market.We deliver our QuantaFlo testing product directly to our customers,and in-service training to the customers isprovided either on-line or in person.Because QuantaFlo is relatively easy to use,training can generally be accomplished inless than one day.Customers

124、who have licensed our QuantaFlo product may pay by credit card or check generally on the 15th of eachmonth as an advance for usage during the next 30 days.In some cases,customers prefer an annual license paid in advance.We provide technical support daily,coupled directly to the manufacturing operati

125、on so that replacement products,ifneeded,can be shipped overnight directly to the customer.The majority of the support is over the telephone and focuses onsoftware and connectivity issues,rather than hardware.We upgrade QuantaFlo operating systems as appropriate by directshipments or electronically.

126、In addition to the license model with a fixed monthly fee,we also have contracts that charge a variable monthly fee,inwhich we invoice based on the number of tests performed with QuantaFlo.In addition to licensing the QuantaFlo software,we have sold QuantaFlo equipment and accessories.We have an agr

127、eement with Mellitus to exclusively market and distribute Insulin Insights,a new software product,inthe United States,including Puerto Rico,except for selected accounts.Under this April 2021 agreement as amended inDecember 2022,we pre-paid for an aggregate$2.5 million of licenses($2.0 million in Apr

128、il 2021 and$0.5 million inDecember 2022.We signed several customers to a license for this product in late 2022.As of December 31,2022,we hadnot generated any material revenues from this product.ManufacturingWe manufacture our product,QuantaFlo,in the United States through independent contractors who

129、m we pay forfinished goods.Our contracts provide for subassemblies,product final assembly,test,serialization,finished goods,Table of Contents10inventory and shipping operations.Our current contracts will remain in force until terminated by us upon three monthswritten notice,or until terminated by ei

130、ther party for cause.Although we believe we have a good working relationship withour current contract manufacturers,there are many such qualified contract manufacturers available around the countryshould we need to replace them or if they are not able to meet demand as we grow our business as antici

131、pated.While ourcurrent independent contract manufacturers source some supplies from China,we believe QuantaFlo is relatively easy tomanufacture,and should we encounter issues due to supply chain disruptions as a result of the ongoing COVID-19pandemic or other global supply chain constraints,we belie

132、ve alternative sources should be available.We employ aconsultant vendor qualification expert to monitor and test the quality controls and quality assurance procedures of ourcontract manufacturer.CompetitionThe principal competitor for QuantaFlo is the standard blood pressure cuff ABI device.QuantaFl

133、o does not include ablood pressure cuff.There are several companies that manufacture the traditional ABI device,which range in price from$2,500 to$20,000.Some of these companies are much larger than us and have more financial resources and their owndistributor network.The traditional ABI devices are

134、 differentiated by the degree of automation designed into each product.ABI devices that rely more heavily on operator assessment(i.e.,listening to the return of pulse while decreasing cuffpressure),are thought to have less objectivity in their measurement.Because standard ABI devices require a bette

135、r trainedoperator,the products are usually sold to specialized vascular labs that are supervised by a vascular surgeon,with the testsperformed by a licensed vascular technician.It is not uncommon for such ABI devices to be marketed to the offices ofinternists,podiatrists,endocrinologists or most car

136、diologists.Our intention is to provide a tool to internists and non-cardiovascular experts,for whom it was previously impracticalto conduct a blood flow measurement unless in a specialized vascular laboratory.For cardiovascular specialists,QuantaFlodoes not require the use of blood pressure cuffs(wh

137、ich should not be used on some breast cancer patients),and measureswithout blood pressure in obese patients and patients with non-compressible,hard,calcified arteries.Currently,thesepatients often are unable to be measured with traditional devices.Competitors are beginning to market competing digita

138、l devices seeking to provide fast results that may be used outsideof a specialized vascular laboratory.Given the potential size of the market,we expect competitors to continue to enter thespace.Research and Development ProgramWe have dedicated engineering consultants that are well integrated into ou

139、r overall business,ranging from customerrequirements to technical support.The engineering group uses our in-house quality system as its framework for newproduct development and release.The majority of the engineering is circuit design and software development.We arecurrently developing several updat

140、es and modifications to QuantaFlo in conjunction with our consultant engineeringgroups,as well as exploring potential new product and service offerings.These product and service offerings are beingdesigned to provide cost-effective wellness solutions for our growing,established customer base.The new

141、 products andservice offerings under development or that may be developed may incorporate some of our current technology or newtechnology.We are also directing much of our activity to building our trade secrets and protecting proprietary positions.Clinical ExperienceSeveral studies of our blood flow

142、 measurement products have been conducted by our customers or authors facilitatedby access to our database.Other studies were conducted by our customers using their own independently generateddatasets.One of these studies,the results of which were compiled in 2012 and published in a peer reviewed jo

143、urnal in 2013,sought to determine the frequency of finding undiscovered vascular disease in primary care practices using our vasculartesting product.In the study of 632 patients at 19 office practices,the frequency of flow obstruction was 12%and of thesepatients,75%did not have classic symptoms of P

144、AD.Among other limitations of the study,the publicationTable of Contents11mentioned the studys retrospective design,no direct comparison to other vascular tests and passive data collection suchthat 8%of patients had one or more missing data fields.Another study was designed to assess the side-by-sid

145、e performance of our vascular testing product compared withtraditional analog ABI with Doppler measurements in medical practices.In the study of 181 limbs from 121 patients at 5medical practices during 2012 and 2013,three techniques were used on all limbs:our test,traditional analog ABI withDoppler,

146、and Duplex ultrasound imaging as a gold standard.Traditional analog ABI with Doppler was unable to perform aconclusive study in 8.7%of limbs.In the remaining limbs,our vascular testing product and the ABI with Dopplermeasurements were in agreement,or in other words concordant,in 78%of limbs.Among th

147、e discordant limbs,Dupleximaging judged that the true positive rate of our vascular testing product was significantly higher than that of ABI withDoppler by a 2 to 1 margin.The results of the study are available as a white paper that may be shown to potentialcustomers or other interested parties.Amo

148、ng other limitations of the study,the study had a small sample size,wasconducted at specialty practices not primary care practices,had a retrospective design with incomplete collection ofdemographic information and clinical characteristics of the population,was not peer reviewed and was not peer rev

149、iewed.Another study also was designed to assess the side-by-side performance of our vascular testing product compared withtraditional analog ABI with Doppler measurements in medical practices.In this prospective study at five medical practicesduring 2013 through 2015,360 limbs from 180 patients were

150、 examined with three techniques:Our vascular testingproduct,traditional analog ABI with Doppler,and Duplex ultrasound imaging as a gold standard.Results demonstrated thatour test demonstrated greater sensitivity,greater accuracy and equivalent specificity compared to ABI with Dopplermeasurements.The

151、 results of the study are available as a white paper.Among limitations of the study are that it had a smallsample size,was conducted at a mix of primary care and specialty practices,had no formal tracking of consecutivepatients,and was not peer reviewed.Another study,the results of which were compil

152、ed and published in a peer reviewed journal in 2018,reported ananalysis of a registry of screening PAD testing with our product between January 2017 and July 2017.In this study,226,565 patients were tested and 31.3%had moderate to severe flow impairment in the lower extremities.Further analysisof a

153、subset of 26,459 patients for whom clinical characteristics were recorded showed that 95%were asymptomatic.Theauthors concluded that earlier recognition of PAD may lead to earlier secondary preventive measures and improvedoutcomes for a population with a high-risk of cardiovascular mortality and mor

154、bidity.Among other limitations of the study,the publication mentioned the studys retrospective design and that clinical factors were recorded for only approximately10%of patients.A retrospective case series compiled and published in a peer reviewed journal in 2018 reported on 48 patients thatwere te

155、sted with our product and subsequently had a contrast angiography procedure for clinical indications.Using contrastangiography as the gold standard for determining PAD,the author concluded the data supports the use of our product as anaid for practicing physicians to accurately diagnose PAD in combi

156、nation with clinical judgment.Among other limitationsof the study,the sample size was small,tests were performed at specialty centers,and the analysis was done retrospectively.Certain racial and economic groups in the United States are underserved by the medical community with limitedaccess to speci

157、alists,a lack of early detection programs and inadequate preventive disease management.There is abundantevidence that certain ethnic populations are more at risk for cardiovascular disease and suffer sequelae of untreated PAD.Astudy was compiled and published in a peer reviewed journal in 2018 that

158、presented a retrospective analysis of 1,901patients tested with our product at 22 medical practices that serve predominately lower-income,non-white populations.Theauthor concluded that our product can be effectively utilized by primary care clinicians in poor and underservedcommunities to identify P

159、AD.The author posited that identifying PAD earlier in the disease process can be an importantstep towards filling the unmet need of higher intensity vascular care for minority populations.Limitations of the studyinclude that it was a retrospective analysis and that there was no protocol to unveil th

160、e identity or ethnicity of any of theindividual patients.Women may lack early detection programs and have inadequate preventive disease management.A study wascompiled and published in a peer reviewed journal in 2019 that presented a retrospective analysis of 68,402 femaleTable of Contents12patients

161、tested with our product at primary care medical practices in the United States.The author concluded that ourproduct was an efficient means to aid in the diagnosis of PAD in vulnerable women who are currently underserved by theirhealth care providers.Limitations of the study include that it was a ret

162、rospective analysis with self-reporting of clinicalcharacteristics.A February 2022 published peer-reviewed study analyzed screening tests using QuantaFlo for undetected andasymptomatic heart failure in a Medicare Advantage population between January 2016 and December 2016.In this study,13,971 patien

163、ts were tested and 31.6%had a positive result for PAD.Almost 60%had lower socio-economic income levelwith 15.1%living under the poverty level.The risk associated with detecting PAD was substantial with a 60-70%increasedrisk of all-cause mortality or morbidity at one year and a 40-50%increased risk o

164、f all-cause mortality or morbidity at threeyears.The risk was not modified by a history of coronary or cerebrovascular artery disease.The authors concluded thatthese findings highlight an enormous potential to realize cost-savings by reducing cardiovascular event rates and deployingpopulation-based

165、PAD risk mitigation strategies.Among other limitations of the study,the publication mentioned that theywere not able to study the potential impact of PAD risk management strategies used after a positive PAD screen wascommunicated with the primary care provider and patient.This may have led to an und

166、erestimation of the true risk astargeted PAD risk management and behavior modification strategies may have been initiated at the discretion of theprovider and patient.A September 2022 a peer-reviewed study under real-world conditions,illustrating the benefits of PAD in-homescreening was published.Th

167、e study analyzed screening tests using QuantaFlo for Medicare Advantage beneficiaries aged65 years participating in the Optum HouseCalls program in the U.S.between April 1,2017 and February 1,2019.Of the192,500 patients tested in their homes,27.7%had a positive result for PAD.One-year all-cause mort

168、ality,1-and 2-yearmajor adverse cardiovascular events(MACE),and major adverse limb events(MALE)in the PAD positive patients wereall significantly increased versus those patients who screened negative for PAD(p.001).Moreover,the severity of the testresults was associated with worse outcomes.The autho

169、rs stated,“Detecting previously undiagnosed peripheral arterydisease is a way to risk stratify a population that would benefit from further cardiovascular risk management.”Amongother limitations of the study,the publication mentioned that the findings are only generalizable to individuals aged 65yea

170、rs and the study could not assess the proportion of deaths due to cardiovascular causes.A February 2023 a peer-reviewed study was published assessing the accuracy our vascular testing product usingcardiac echocardiography(Echo)as a gold standard of heart failure.Results were that our test showed a s

171、ignificantcorrelation with Echo(p.01).Among other limitations of the study,the publication mentioned that data on severity werenot including and outcomes following preventative measures were not studied.Patents and LicensesWe have been issued one patent for our apparatus,U.S.Patent No.7,628,760,whic

172、h expires December 11,2027.Government RegulationU.S.Food and Drug Administration RegulationQuantaFlo is a medical device subject to extensive regulation by the FDA and other federal,state,local and foreignregulatory bodies.FDA regulations govern,among other things,the following activities that we or

173、 our partners performand will continue to perform:product design and development;product testing;product manufacturing;product safety;Table of Contents13post-market adverse event reporting;post-market surveillance;product labeling;product storage;record keeping;pre-market clearance or approval;post-

174、market approval studies;advertising and promotion;andproduct sales and distribution.FDAs Pre-market Clearance and Approval RequirementsTo commercially distribute QuantaFlo or any future medical device we develop requires or will require either prior 510(k)clearance or prior approval of a pre-market

175、approval,or PMA,application or de novo classification from the FDA.The FDA classifies medical devices into one of three classes.Devices deemed to pose lower risk are placed in either class I or II,which requires the manufacturer to submit to the FDA a pre-market notification requesting permission fo

176、r commercial distribution.This process is known as 510(k)clearance.Some low risk devices are exempt from this requirement.Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to FDAs“general controls”,which include compliance with the applicable portion

177、s of the FDAs Quality System Regulation,or QSR,facility registration and product listing,reporting of adverse medical events and malfunctions through the submission of Medical Device Reports,or MDRs,and appropriate,truthful and non-misleading labeling,advertising and promotional materials.Class II d

178、evices are subject to FDAs general controls and any other“special controls”deemed necessary by FDA to ensure the safety and effectiveness of the device,such as performance standards,product-specific guidance documents,special labeling requirements,patient registries or post-market surveillance.Devic

179、es deemed by the FDA to pose the greatest risk,such as life-sustaining,life-supporting or implantable devices,or devices deemed not substantially equivalent to a previously cleared 510(k)device are placed in class III,requiring approval of a PMA application.To market low to moderate risk devices tha

180、t are automatically placed into class III,a manufacturer may request a de novo classification from FDA.Both pre-market clearance,PMA applications and de novo classification requests are subject to the payment of user fees,paid at the time of submission for FDA review.The FDA can also impose restrict

181、ions on the sale,distribution or use of devices at the time of their clearance or approval or authorization,or subsequent to marketing.510(k)Clearance PathwayTo obtain 510(k)clearance,a medical device manufacturer must submit a pre-market notification demonstrating thatthe proposed device is substan

182、tially equivalent to a previously cleared 510(k)device or a device that was in commercialdistribution before May 28,1976 for which the FDA has not yet called for the submission of a PMA application or a devicethat has been reclassified from class III to class II or class I.A device is substantially

183、equivalent if,with respect to thepredicate device,it has the same intended use and has either(i)the same technological characteristics,or(ii)differenttechnological characteristics,but the information provided in the 510(k)submission demonstrates that the device does notraise new questions of safety

184、and effectiveness and is at least as safe and effective as the predicate device.The FDAs510(k)clearance pathway usually takes from three to 12 months from the date the notification is submitted,but it can takesignificantly longer,and clearance is never assured.Although many 510(k)pre-market notifica

185、tions are cleared withoutclinical data,in some cases,the FDA requires significant clinical data to support substantial equivalence.In reviewing pre-market notification,the FDA may request additional information,includingTable of Contents14clinical data,which may significantly prolong the review proc

186、ess.After a device receives 510(k)clearance,anymodification that could significantly affect its safety or effectiveness,or that would constitute a major change in itsintended use,will require a new 510(k)clearance or could require a PMA application.The FDA requires eachmanufacturer to make this dete

187、rmination initially,but the FDA can review any such decision and can disagree with amanufacturers determination.If the FDA disagrees with a manufacturers determination regarding whether a new pre-market submission is required for the modification of an existing device,the FDA can require the manufac

188、turer to ceasemarketing and/or recall the modified device until 510(k)clearance or approval of a PMA application is obtained.Pre-market Approval PathwayA PMA application must be submitted if the device cannot be cleared through the 510(k)clearance process andrequires proof of the safety and effectiv

189、eness of the device to the FDAs satisfaction.Accordingly,a PMA application mustbe supported by extensive data including,but not limited to,technical information regarding device design anddevelopment,preclinical studies and clinical trials,data and manufacturing and labeling to support the FDAsdeter

190、mination that the device is safe and effective for its intended use.After FDA determines that a PMA application issufficiently complete to permit a substantive review,the FDA begins an in-depth review of the submitted information,which generally takes between one and three years,but may take signifi

191、cantly longer.During this review period,the FDAmay request additional information or clarification of information already provided.Also,during the review period,anadvisory panel of experts from outside the FDA may be convened to review and evaluate the application and providerecommendations to the F

192、DA as to the approvability of the device.In addition,the FDA will conduct a preapprovalinspection of the manufacturing facility to ensure compliance with the QSR,which impose elaborate design development,testing,control,documentation and other quality assurance procedures in the design and manufactu

193、ring process.The FDAmay approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the deviceincluding,among other things,restrictions on labeling,promotion,sale and distribution and collection of long-term follow-up data from patients in the clinical

194、study that supported approval.Failure to comply with the conditions of approval canresult in materially adverse enforcement action,including the loss or withdrawal of the approval.New PMA applications orPMA application supplements are required for significant modifications to the manufacturing proce

195、ss,labeling and designof a device that is approved through the PMA process.PMA supplements often require submission of the same type ofinformation as a PMA application,except that the supplement is limited to information needed to support any changesfrom the device covered by the original PMA applic

196、ation,and may not require as extensive clinical data or the conveningof an advisory panel.De Novo Classification PathwayDevice types that the FDA has not previously classified as class I,II or III are automatically classified into class IIIregardless of the level of risk they pose.To market low to m

197、oderate risk devices that are automatically placed into class IIIdue to the absence of a predicate device,a manufacturer may request a de novo classification.This procedure allows amanufacturer whose novel device is automatically classified into class III to request classification of its device into

198、 class Ior II on the basis that the device presents low or moderate risk,rather than requiring the submission and approval of a PMAapplication.A device may be eligible for de novo classification if the manufacturer first submitted a 510(k)premarketnotification and received a determination from the F

199、DA that the device was not substantially equivalent or a manufacturermay request de novo classification directly without first submitting a 510(k)premarket notification to the FDA andreceiving a not substantially equivalent determination.The FDA is required to classify the device within 120 daysfoll

200、owing receipt of the de novo classification request,although in practice,the FDAs review may take significantlylonger.If the manufacturer seeks reclassification into class II,the manufacturer must include a draft proposal for specialcontrols that are necessary to provide a reasonable assurance of th

201、e safety and effectiveness of the device.The FDA mayreject the de novo classification request if it identifies a legally marketed predicate device that would be appropriate for a510(k)or determines that the device is not low to moderate risk or that general controls would be inadequate to control th

202、erisks and special controls cannot be developed.In the event FDA determines the data and information submitteddemonstrate that general controls or general and special controls are adequate to provide reasonable assurance of safety andeffectiveness,FDA will grant the de novo request for classificatio

203、n.When FDA grants a de novo request for classification,the device is granted marketing authorization and further can serve as a predicate for future devices of that type through a510(k)premarket notification.Table of Contents15Clinical TrialsClinical trials are typically required to support a PMA an

204、d often for a de novo classification request,and aresometimes required to support a 510(k)submission.All clinical investigations of devices to determine safety andeffectiveness must be conducted in accordance with the FDAs investigational device exemption,or IDE,regulations whichgovern investigation

205、al device labeling,prohibit promotion of the investigational devices,and specify an array ofrecordkeeping,reporting and monitoring responsibility of study sponsors and study investigators.If the device presents a“significant risk,”as defined by the FDA,to human health,the FDA requires the device spo

206、nsor to submit an IDEapplication to the FDA,which must be approved prior to commencing human clinical trials.A significant risk device is onethat presents a potential for serious risk to the health,safety or welfare of a patient and either is implanted,purported orrepresented to be used in supportin

207、g or sustaining human life,is for a use that is substantially important in diagnosing,curing,mitigating or treating disease or otherwise preventing impairment of human health,or otherwise presents a potentialfor serious risk to a subject.An IDE application must be supported by appropriate data,such

208、as animal and laboratory testresults,showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.A clinicaltrial may begin 30 days after receipt of the IDE application by the FDA unless the FDA notifies the company that theinvestigation may not begin.If

209、 the FDA determines that there are deficiencies or other concerns with an IDE for which itrequires modification,the FDA may permit a clinical trial to proceed under a conditional approval.Acceptance of an IDEapplication for review does not guarantee that the FDA will approve the IDE and,if it is app

210、roved,the FDA may or maynot determine that the date derived from the trials support the safety and effectiveness of the device or warrant thecontinuation of clinical trials.An IDE supplement must be submitted to,and approved by,the FDA before a sponsor orinvestigator may make a change to the investi

211、gational plan that may affect its scientific soundness,study plan or the rights,safety or welfare of human subjects.In addition,the study must be approved by,and conducted under the oversight of,an institutional review board,orIRB,for each clinical site.The IRB is responsible for the initial and con

212、tinuing review of the IDE,and may pose additionalrequirements for the conduct of the study.If an IDE application is approved by the FDA and one or more IRBs,humanclinical trials may begin a specific number of investigational sites with a specific number of patients,as approved by theFDA.If the devic

213、e is considered a“non-significant risk,”an IDE application to the FDA is not required.Instead,onlyapproval from the IRB overseeing the investigation at each clinical trial site is required.Abbreviated IDE requirements,such as monitoring the investigation,ensuring that the investigators obtain inform

214、ed consent,and labeling and record-keeping requirements also apply to non-significant risk device studies.During a study,the sponsor is required to comply with the applicable FDA requirements,including,for example,trialmonitoring,selecting clinical investigators and providing them with the investiga

215、tional plan,ensuring IRB review,adverseevent reporting,record keeping and prohibitions on the promotion of investigational devices or on making safety oreffectiveness claims for them.The clinical investigators in the clinical study are also subject to FDAs regulations and mustobtain patient informed

216、 consent,rigorously follow the investigational plan and study protocol,control the disposition of theinvestigational device,and comply with all applicable reporting and record keeping requirements.Additionally,after a trial begins,we,the FDA or the IRB could suspend or terminate a clinical trial at

217、any time forvarious reasons,including a belief that the risks to study subjects outweigh the anticipated benefits.Even if a clinical trialis completed,there can be no assurance that the data generated during a clinical study will meet the safety and effectivenessendpoints or otherwise produce result

218、s that will lead the FDA to grant marketing clearance or approval.Information aboutcertain device clinical trials must be posted on clinicaltrials.gov.Table of Contents16Pervasive and Continuing FDA RegulationAfter a device is placed on the market,regardless of its classification or pre-market pathw

219、ay,numerous regulatoryrequirements apply.These include,but are not limited to:establishment registration and device listings with the FDA;QSR,which require manufacturers to follow stringent design,testing,process control,documentation and otherquality assurance procedures;labeling regulations,which

220、prohibit the promotion of products for uncleared or unapproved,i.e.,“off-label,”usesand impose other restrictions on labeling;medical device reporting regulations,which require that manufacturers report to the FDA if their device may havecaused or contributed to a death or serious injury or malfunct

221、ioned in a way that would likely cause or contributeto a death or serious injury if it were to recur;corrections and removal reporting regulations,which require that manufacturers report to the FDA fieldcorrections and product recalls or removals if undertaken to reduce a risk to health posed by the

222、 device or toremedy a violation of the U.S.Federal Food,Drug,and Cosmetic Act,or FDCA,that may present a risk to health;andrequirements to conduct post-market surveillance studies to establish continued safety data.The FDA enforces these requirements by inspection and market surveillance.Failure to

223、comply with applicableregulatory requirements can result in enforcement action by the FDA,which may include any of the following sanctions:untitled letters or warning letters;fines,injunctions and civil penalties;recall or seizure of our products;operating restrictions,partial suspension or total sh

224、utdown of production;refusing our request for 510(k)clearance or pre-market approval or de novo classification of new products;withdrawing pre-market approvals that are already granted or reclassifying the devices;andcriminal prosecution.We are subject to unannounced device inspections by the FDA an

225、d the California Food and Drug Branch.Theseinspections may include our suppliers facilities.Third-Party Coverage and ReimbursementWe cannot control whether or not providers who use QuantaFlo will seek third-party coverage for such procedures orreimbursement.If providers intend to seek third-party co

226、verage or reimbursement for use of QuantaFlo,the success of ourproduct could become dependent on the availability of coverage and reimbursement from third-party payors,such asgovernmental programs including Medicare and Medicaid,private insurance plans and managed care programs.Reimbursement is cont

227、ingent on established coding for a given procedure,coverage of the codes by the third-party payorsand adequate payment for the resources used.Table of Contents17Physician coding for procedures is established by the American Medical Association.CMS,the agency responsible foradministering Medicare and

228、 Medicaid,and the National Center for Health Statistics,are jointly responsible for overseeingchanges and modifications to billing codes used by hospitals for reporting inpatient procedures,and many private payorsuse coverage decisions and payment amounts determined by CMS as guidelines in setting t

229、heir coverage andreimbursement policies.All physician and hospital coding is subject to change,which could impact coverage andreimbursement and physician practice behavior.We do not track denial of requests for reimbursement made by the users ofQuantaFlo.It is our belief that such denials have occur

230、red and might occur in the future with more or less frequency.Weare not in the business of performing QuantaFlo measurements that require us to seek reimbursement from third-partypayors,including governmental healthcare programs,such as Medicare and Medicaid,commercial health insurers,including thos

231、e that offer Medicare Advantage plans,and managed care programs.Many of our customers are third-partypayors who pay us directly for use of our product and services.Independent of the coding status,third-party payors may deny coverage based on their own criteria,such as if theybelieve that the clinic

232、al efficacy of a device or procedure is not well established and is deemed experimental orinvestigational,is not the most cost-effective treatment available,or is used for an unapproved indication.We will continueto provide the appropriate resources to patients,physicians,hospitals and insurers in o

233、rder to promote the best in patientcare and clarity regarding reimbursement and work to obtain appropriate coverage policies.For some governmentalprograms,such as Medicaid,coverage and reimbursement differ from state to state,and some state Medicaid programsmay not pay an adequate amount for the pro

234、cedures performed with our products,if any payment is made at all.As theportion of the U.S.population over the age of 65 and eligible for Medicaid continues to grow,we may be more vulnerableto coverage and reimbursement limitations imposed by CMS.National and regional coverage policy decisions are s

235、ubjectto unforeseeable change and have the potential to impact physician behavior.For example,if CMS decreases the monthlypayment for a 65-year-old patient,then the provider will have to decide which steps to eliminate from his or her routineoffice visits in order to maintain a profitable business m

236、odel.If the time of an office visit will need to be reduced tomaintain a profitable business,a provider may decide to eliminate certain services or conducting certain procedures,suchas deciding not to use a thermometer,take someones blood pressure or use a QuantaFlo to run an ABI test.Thus,reimburse

237、ment limitations imposed by CMS on providers may affect their decision making about which services to provideduring an office visit,which could affect our company.Particularly in the United States,third-party payors carefully review,have undertaken cost-containment initiatives,andincreasingly challe

238、nge,the prices charged for procedures and medical products as well as any technology that they,in theirown judgment,consider experimental or investigational.In addition,an increasing percentage of insured individuals arereceiving their medical care through managed care programs,which monitor and oft

239、en require pre-approval or pre-authorization of the services that a member will receive.Many managed care programs are paying their providers on acapitated basis,which puts the providers at financial risk for the services provided to their patients by paying them apredetermined amount per member per

240、 month.The percentage of individuals covered by managed care programs isexpected to grow in the United States over the next decade.There can be no assurance that third-party coverage and reimbursement will be available or adequate,or that futurelegislation,regulation,or coverage and reimbursement po

241、licies of third-party payors will not adversely affect the demandfor our products or our ability to sell these products on a profitable basis.The unavailability or inadequacy of third-partypayor coverage or reimbursement could have a material adverse effect on our business,operating results and fina

242、ncialcondition.Healthcare Fraud and AbuseOur operations may be subject to federal and state healthcare laws and regulations including fraud and abuse laws,such as anti-kickback and false claims laws,data privacy and security laws and transparency laws related to paymentsand/or other transfers of val

243、ue made to physicians and other healthcare professionals and teaching hospitals.The federal Anti-Kickback Law prohibits unlawful inducements for the referral of business reimbursable underfederally-funded healthcare programs,such as remuneration provided to physicians to induce them to use certain t

244、issueproducts or medical devices reimbursable by Medicare or Medicaid.The federal Anti-Kickback Law is subject to evolvinginterpretations.For example,the government has enforced the federal Anti-Kickback Law to reach largeTable of Contents18settlements with healthcare companies based on,among other

245、things,inappropriate consultant arrangements withphysicians or questionable joint venture arrangements.The majority of states also have anti-kickback laws,which establishsimilar prohibitions that may apply to items or services reimbursed by any third-party payor,including commercialinsurers.Further,

246、the Patient Protection and Affordable Care Act,as amended by the Health Care and EducationReconciliation Act of 2010,or collectively the Health Care Reform Law,among other things,amended the intentrequirement of the federal Anti-Kickback Law and criminal healthcare fraud statutes.A person or entity

247、no longer needs tohave actual knowledge of this statute or specific intent to violate it in order to have committed a violation.In addition,theHealth Care Reform Law provided that the government may assert that a claim including items or services resulting from aviolation of the federal Anti-Kickbac

248、k Law constitutes a false or fraudulent claim for purposes of the civil False ClaimsAct and certain criminal healthcare fraud statutes.Additionally,the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false,fictitiousor fraudulent claim for payment to the U.S.go

249、vernment.Actions under the False Claims Act may be brought by theAttorney General or as a qui tam action by a private individual in the name of the government.The federal government isusing the civil False Claims Act,and the accompanying threat of significant liability,in its investigations of healt

250、hcareproviders and suppliers throughout the country for a wide variety of Medicare billing practices and has obtained multi-million and multi-billion dollar settlements in addition to individual criminal convictions.In addition,off-label promotionhas been pursued as a violation of the federal False

251、Claims Act.Pursuant to FDA regulations,we can only market ourproducts for cleared or approved uses.Although physicians are permitted to use medical devices for indications other thanthose cleared or approved by the FDA based on their independent medical judgment,we are prohibited from promotingprodu

252、cts for such off-label uses.Given the significant size of actual and potential settlements,it is expected that thegovernment will continue to devote substantial resources to investigating healthcare providers and suppliers compliancewith the healthcare reimbursement rules and fraud and abuse laws.Ad

253、ditionally,the majority of states in which we market our products have similar fraud and abuse laws,such as anti-kickback,false claims,anti-fee splitting and self-referral laws,which may apply to items or services reimbursed by anythird-party payor,including commercial insurers,and violations may re

254、sult in substantial civil,criminal and administrativepenalties.The Health Care Reform Law also included the federal Physician Payments Sunshine Act,which requires devicemanufacturers for which payment is available under Medicare,Medicaid,or the Childrens Health Insurance Program todisclose annually

255、to CMS any“transfer of value”made or distributed to physicians(defined to include doctors,dentists,optometrists,podiatrists and chiropractors),other licensed health care practitioners,and teaching hospitals.Suchinformation is now made publicly available in a searchable format,and device manufacturer

256、s are now required to reportand disclose any investment interests held by physicians and their family members during the preceding calendar year.Failure to submit required information may result in significant civil monetary penalties for all payments,transfers of valueor ownership or investment int

257、erests not reported in an annual submission.Additionally,the commercial complianceenvironment is continually evolving in the healthcare industry as some states,including California,Massachusetts andVermont,mandate implementation of corporate compliance programs,along with the tracking and reporting

258、of gifts,compensation and other remuneration to physicians.The shifting compliance environment and the need to build andmaintain robust and expandable systems to comply in multiple jurisdictions with different compliance and/or reportingrequirements increases the possibility that a healthcare compan

259、y may run afoul of one or more of the requirements.Our business operations may also be subject to certain federal and state laws regarding the use and disclosure ofindividually identifiable health information,such as the federal Health Insurance Portability and Accountability Act of1996,as amended b

260、y the Health Information Technology for Economic and Clinical Health Act of 2009,which imposeobligations on certain entities with respect to safeguarding the privacy,security and transmission of individuallyidentifiable health information.To enforce compliance with the federal laws,the U.S.Departmen

261、t of Justice,or DOJ,has increased its scrutiny ofinteractions between healthcare companies and healthcare providers,which has led to an unprecedented level ofinvestigations,prosecutions,convictions and settlements in the healthcare industry.Dealing with investigations can betime-and resource-consumi

262、ng.Additionally,if a healthcare company settles an investigation with the DOJ or other lawTable of Contents19enforcement agencies,the company may be required to agree to additional compliance and reporting requirements as partof a consent decree or corporate integrity agreement.The U.S.and foreign g

263、overnment regulators have increased regulation,enforcement,inspections and governmentalinvestigations of the medical device industry,including increased U.S.government oversight and enforcement of theForeign Corrupt Practices Act.Whenever a governmental authority concludes that we are not in complia

264、nce withapplicable laws or regulations,that authority can impose fines,delay or suspend regulatory clearances,instituteproceedings to detain or seize our products,issue a recall,impose operating restrictions,enjoin future violations and assesscivil penalties against us or our officers or employees a

265、nd can recommend criminal prosecution.Moreover,governmentalauthorities can ban or request the recall,repair,replacement or refund of the cost of devices we distribute.If a governmental authority were to conclude that we are not in compliance with applicable fraud and abuse laws andregulations,we and

266、 our officers and employees could be subject to severe penalties including,for example,civil,criminaland administrative penalties,damages,fines,disgorgement,individual imprisonment,exclusion from participation as asupplier of product to beneficiaries covered by Medicare or Medicaid,additional report

267、ing obligations and oversight ifsubject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws,contractual damages,reputational harm,diminished profits and future earnings,and curtailment or restructuring ofoperations,any of which could adverse

268、ly affect our ability to operate our business and the results of our operations.It is uncertain whether and how future legislation,whether domestic or foreign,could affect prospects for QuantaFloor what actions foreign,federal,state or private payors for health care treatment and services may take i

269、n response to anysuch health care reform proposals or legislation.Healthcare ReformPolitical,economic and regulatory influences are subjecting the healthcare industry to fundamental changes.Forexample,the Health Care Reform Law significantly changed the health care industry and brought a new way of

270、doingbusiness for providers and health insurance plans.There have been executive,judicial and Congressional challenges to certain aspects of the Health Care Reform Law.For example,several executive orders were issued along with other directives designed to delay the implementation ofcertain provisio

271、ns of the Health Care Reform Law or otherwise circumvent some of the requirements for health insurancemandated by the Health Care Reform Law.Concurrently,Congress considered legislation that would repeal or repeal andreplace all or part of the Health Care Reform Law.While Congress has not passed com

272、prehensive repeal legislation,it hasenacted laws that modify certain provisions of the Health Care Reform Law such as removing penalties,effective January1,2019,for not complying with the Health Care Reform Laws“individual mandate”to carry health insurance,delayingthe implementation of certain Healt

273、h Care Reform Law-mandated fees,and repealing the medical device excise tax.InJune 2021,in an appeal from a lower court decision holding that the individual mandate under the Health Care ReformLaw is unconstitutional,the United States Supreme Court ruled that the plaintiffs lacked standing to challe

274、nge the law asthey had not alleged personal injury traceable to the allegedly unlawful conduct.As a result,the Supreme Court did notrule on the constitutionality of the Health Care Reform Law.In January 2021,an executive order was issued to initiate aspecial enrollment period from February 15,2021 t

275、hrough May 15,2021 for purposes of obtaining health insurancecoverage through the Health Care Reform Law marketplace.The executive order also instructs certain governmentalagencies to review and reconsider their existing policies and rules that limit access to healthcare,including among others,reexa

276、mining Medicaid demonstration projects and waiver programs that include work requirements,and policies thatcreate unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Health Care ReformLaw.It is unclear how additional litigation or executive orders will impac

277、t the Health Care Reform Law and our business.Other legislative changes have been proposed and adopted in the United States since Health Care Reform Law.Forexample,through the process created by the Budget Control Act of 2011 and subsequent legislation,there are automaticreductions of Medicare payme

278、nts to providers of generally 2%per fiscal year;these reductions went into effect in AprilTable of Contents202013 and except for a period of temporary relief that was afforded in response to the COVID-19 public health emergencywill remain in effect through fiscal year 2031 unless additional Congress

279、ional action is taken.Additionally,there has been increasing legislative and enforcement interest in the United States with respect to cost-containment initiatives within the health care industry.We cannot predict what healthcare reform initiatives may beadopted in the future,particularly in light o

280、f the new presidential administration.Further,it is possible that additionalgovernmental action is taken in response to the ongoing COVID-19 pandemic or other global pandemics.Human Capital ManagementAs of December 31,2022,we had 127 employees,all of which were full-time.None of our employees are re

281、presentedby a labor union,and we consider our relationship with our employees to be positive.We also regularly engage consultantsand subcontractors on an as-needed basis.We increased our head count in the fiscal year 2022 from 124 to 127,whichrepresents a 2%increase from the prior year.As we grow ou

282、r business,we expect to continue to experience growth in thenumber of our employees,particularly in the areas of sales,marketing,and distribution.Our human capital resources objectives include,as applicable,identifying,recruiting,retaining,incentivizing andintegrating our existing and additional emp

283、loyees.We use different incentive plans such as annual cash bonuses,no-costhealthcare for employees and their families,paid vacation and generous referral bonuses to attract,retain and motivate ouremployees.Governance and Culture-Our board of directors,including committees thereof,and executive mana

284、gement team areactively involved in overseeing our employee-related strategies and practices as well as our company culture.Our directorof human resources and her team are also actively involved in implementing these decisions.We believe our companyculture has been a critical component of our succes

285、s in attracting and retaining personnel.Diversity and Inclusion-We aim to create an inclusive working environment where all employees are respected andtreated equally.We value diversity of backgrounds and perspectives and our policy is that we do not discriminate based onrace,religious creed,color,n

286、ational origin,ancestry,physical disability,mental disability,medical condition,geneticinformation,marital status,sex,gender,gender identity,gender expression,age,military and veteran status,sexualorientation or any other protected characteristics established by federal,state or local laws.This mess

287、age is emphasizedfrom the top of our organization down to all of our employees.Health,Safety and Well-Being-The safety and well-being of our employees is critical to our successful operation.Our health and safety activities are overseen by our board of directors,executive management team and directo

288、r of human resources.Most of our employees work remotely,with the exception of a few employees who work in the office.These employees are generally in fulfillment and sales support roles.Our human resources department coordinates on-line training programs with the help of outside consultants.We beli

289、eve that this model of training better fits our business operations and needs.Response to COVID-19As a virtual company,we believe we were better prepared than many at home offices to deal with the effects of theglobal spread of the still ongoing COVID-19 pandemic.As a result of governmental restrict

290、ions mandating“shelter-in-place”or similar limitations,which at the time resulted in our sales personnel eliminating travel,we increased the use ofour on-line platforms and created new means to replace training methods and hands-on interactions with the customers thatwe relied on pre-pandemic.To dat

291、e,we have not terminated any of our employees due to the pandemic.We continue toclosely monitor the COVID-19 situation and,if needed,will evolve our plans and policies to keep our employees andcustomers safe.ITEM 1A.RISK FACTORSAny investment in our securities involves a high degree of risk.Investor

292、s should carefully consider the risks describedbelow and all of the information contained in this annual report on Form 10-K before deciding whether toTable of Contents21purchase our common stock.Our business,financial condition or results of operations and trading price or value of oursecurities co

293、uld be materially adversely affected by these risks if any of them actually occur.This annual report on Form10-K also contains forward-looking statements that involve risks and uncertainties.Our actual results could differmaterially from those anticipated in these forward-looking statements as a res

294、ult of certain factors,including the risks weface as described below and elsewhere in this annual report on Form 10-K.Risks Related to Our BusinessIf we do not successfully implement our business strategy,our business and results of operations will be adverselyaffected.Our business strategy was form

295、ed based on assumptions about the cardiac and vascular diseases market and healthcarereform that might prove wrong.We believe that various demographics and industry-specific trends,including the aging ofthe general population,growth of capitated payment programs,numbers of undiagnosed patients with

296、cardiac and vascularor other diseases and the importance of codifying vascular disease and potentially other diseases will help drive growth inthe cardiac and vascular diseases market and our risk assessment business.However,these demographics and trends,andour assumptions about them,are uncertain.A

297、ctual demand for our products and service offerings could differ materiallyfrom projected demand if our assumptions regarding these factors prove to be incorrect or do not materialize,or ifalternatives to our products or other risk assessment service providers gain widespread acceptance.Moreover,if

298、ourcustomers do not believe they can benefit from increased capitated payments by identifying sicker patients in their patientpools,they may not see the benefit in screening patients for PAD or heart dysfunction using our products,which wouldhave material and adverse effect on our business,financial

299、 condition and results of operations.Recently CMS issued anAdvance Notice,which proposes to revise the HCC codes for vascular disease,created uncertainty in the future whetheridentifying patients with PAD or heart dysfunction will qualify for an increased capitated payment.Although the AdvanceNotice

300、 is not final and is open to public comment,there may be uncertainty regarding proper HCC codes andreimbursement,which could negatively impact our business.In addition,we may not be able to successfully implement our business strategy.To implement our business strategy,we need to(among other things)

301、find new applications for and improve our products and service offerings and educatehealthcare providers and plans about the clinical and cost benefits of our products,all of which we believe could increaseacceptance of our products by physicians.Although we recently began distributing licenses to I

302、nsulin Insights,there is noguarantee that we will be successful or that our customers will be interested in this software,which we view ascomplementary to QuantaFlo.We also mutually terminated a distribution agreement for a different product line inNovember 2021,and in the fourth quarter of 2021 wro

303、te down$1.2 million of inventory that we had acquired,as ourexpectations regarding the marketing and distribution of this product line did not prove to be accurate.We may also need todevelop or acquire rights to other products and services that would be of interest to our customers given the patient

304、populations they serve.In addition,we are seeking to increase our sales and,in order to do so,might need to continue toexpand our direct and distributor sales forces in existing and new territories,all of which could result in our becomingsubject to additional or different regulatory requirements,wi

305、th which we may not be able to comply.Moreover,even if wesuccessfully implement our business strategy,our operating results may not improve or may decline.We may decide toalter or discontinue aspects of our business strategy and may adopt different strategies due to business or competitivefactors no

306、t currently foreseen,such as new medical technologies that would make our products obsolete or changes in theregulatory landscape that may undermine the economic rationale for QuantaFlo.Our attempts to alter aspects of ourbusiness strategy,such as our recent entry into an exclusive marketing and dis

307、tribution agreement and our investments inprivate companies,may not yield positive effects on our business,results of operations and financial condition.Any delayor failure to implement our business strategy may adversely affect our business,results of operations and financialcondition.Our business

308、has been and could continue to be adversely affected by the ongoing COVID-19 pandemic.Our business has been and could continue to be adversely affected by the global ongoing COVID-19 pandemic.In thefirst half of 2020,we experienced decreased test volumes due to social distancing and other executive

309、orders mandatingshelter-in-place or similar restrictions,which limited patient visits by our customers,and restricted participation in tradeshows and in-person training,among other items.The testing volume decrease primarily affectedTable of Contents22revenues from our variable-fee licenses,which ar

310、e based on usage of our QuantaFlo product,often during home visits byour customers.The extent to which COVID-19 may continue to impact us will depend on a variety of factors and futuredevelopments,which are highly uncertain and cannot be predicted with confidence,including the duration,scope andseve

311、rity of the pandemic,business closures or other business disruptions,including supply chain disruptions and laborshortages,and the effectiveness of actions taken in the United States and other countries to contain and treat COVID-19,including global vaccination efforts.Any recurrence or subsequent“w

312、ave”of COVID-19 cases,including those caused bynew variants,could cause other widespread or more severe impacts depending on where infection rates are highest.We predominantly market only one FDA-cleared cardiac and vascular testing product;it may not achieve broad marketacceptance or be commerciall

313、y successful.We may also fail to generate meaningful revenues from our Insulin Insightsdistribution arrangement,which includes prepaid licenses,or benefit from our recent investments in other companiesdeveloping complementary products.We currently actively market only one cardiac and vascular testin

314、g product,QuantaFlo,and have an agreement toexclusively market and distribute Insulin Insights,a new software product line in the United States,including Puerto Rico,for which we have prepaid an aggregate of$2.5 million of software licenses($2.0 million in April 2021 and$0.5 million inDecember 2022)

315、.We also have a minority investment in,NeuroDiagnostics Inc.,doing business as SYNAPS Dx,which isdeveloping an additional potentially complementary product offering,Discern,although such product is in early stages andmay not ultimately fit with our strategy and customer base.In December 2022,we comm

316、itted to loan up to$5.0 millionthrough the purchase of a senior convertible promissory note to Monarch,a digital health company whose proprietaryproduct,EndoTool,offers a technology-enabled approach to inpatient glycemic management.We do not have anydistribution agreement for Discern or EndoTool and

317、 we may never generate meaningful revenues from distribution of ourprepaid licenses for Insulin Insights.Moreover,there is a risk that we may never receive repayment of our loans to Mellitusor Monarch,nor receive any benefit from our equity investment in SYNAPS Dx.Accordingly,we expect that revenues

318、from our cardiac and vascular testing product will account for the vast majority of our revenues for at least the next severalyears.Our cardiac and vascular testing product,including our recent extension of QuantaFlo to aid in diagnosis of heartdysfunction,and any other products we may be offering i

319、n the future,may not gain broad market acceptance unless wecontinue to educate physicians and plans of their benefits.Moreover,even if insurance plans,home health care providersand physicians understand the benefits of cardiovascular and other risk assessment testing,they still may elect not to useo

320、ur products for a variety of reasons,such as familiarity with other devices and approaches,or the impact of the recentCMS Advance Notice,which may change the regulatory landscape for HCC codes and could impact the perceivedprofitability of using QuantaFlo to aid diagnosis of cardiovascular diseases.

321、We may not be successful in gaining marketacceptance of a technique measuring comparative blood flows using our proprietary algorithm to indicate flow obstructionas opposed to existing techniques that measure comparative blood pressures using well-accepted criteria to indicate flowobstruction,or ima

322、ging techniques that visualize anatomy of the arteries.Providers may also object to renting anexamining tool with ongoing monthly payments rather than making a one-time capital purchase or be reluctant to paymonthly fees for tools in the examining room when they have many such tools,such as thermome

323、ter and stethoscope thatonly required one-time minimal purchases.Providers may also not synch their devices as required per their servicecontracts in the fee-per-test(variable license fees)model,and thus we may not capture all revenue to which we are entitled.If our cardiac and vascular testing prod

324、uct,QuantaFlo,our diabetes software,Insulin Insights,or other products wemay offer are not viewed as an attractive alternative to other products,procedures and techniques,we will not achievesignificant market penetration or be able to generate significant revenues.To the extent that any products we

325、offer are notcommercially successful or are withdrawn from the market for any reason,our revenues will be adversely impacted,andour business,operating results and financial condition will be harmed.Table of Contents23Physicians and other customers may not widely adopt our products unless they determ

326、ine,based on experience,long-term clinical data and published peer reviewed journal articles,that the use of our products provides a safe and effectivealternative to other existing ABI devices.We believe that physicians and other customers will not widely adopt our vascular testing product or our ot

327、herproducts in development or products we distribute unless they determine,based on experience,long-term clinical data andpublished peer reviewed journal articles,that the use of such product provides a safe and effective alternative to otherexisting ABI devices.We cannot provide any assurance that

328、the data collected from our past,current and any future clinical trials will besufficient to demonstrate that our products are an attractive alternative to other ABI devices or procedures.If we fail todemonstrate safety and efficacy that is at least comparable to other ABI devices that are available

329、 on the market,our abilityto successfully market our products will be significantly limited.Even if the data collected from clinical studies or clinicalexperience indicate positive results,each physicians actual experience with our products will vary.We also believe thatpublished peer-reviewed journ

330、al articles and recommendations and support by influential physicians regarding our vasculartesting product and our other products in development will be important for market acceptance and adoption,and wecannot assure you that we will receive these recommendations and support,or that supportive art

331、icles will be published.Accordingly,there is a risk that our products may not be adopted by many physicians,which would negatively impact ourbusiness,financial condition and results of operations.Moreover,we acquired exclusive distribution rights to a new product area and may in the future acquire r

332、ights to othercomplementary products.If we are not able to convince potential customers of their benefits,these rights and potentialfuture rights may not generate any meaningful revenues for our company.If healthcare providers are unable to obtain adequate coverage and reimbursement either for proce

333、dures performedusing our product or patient care incorporating the use of our product,it is unlikely that our product will gainwidespread acceptance.Maintaining and growing revenues from our products and service offerings depends on the availability of coverage andadequate reimbursement from third-party payors,including government programs such as Medicare and Medicaid,privateinsurance plans and m