RISK FACTORS

Readers and prospective investors in our common stock should carefully consider the following risk factors as well as the other information contained or incorporated by reference in this prospectus.

If any of the following risks actually occurs, our financial condition, results of operations and liquidity could be materially adversely affected. If this were to happen, the value of our common stock could decline, and if you invest in our common stock, you could lose all or part of your investment.

The discussion below highlights some important risks we have identified related to our business and operations and an investment in shares of our common stock, but these should not be assumed to be the only factors that could affect our future performance and condition, financial and otherwise. We do not have a policy of updating or revising forward-looking statements except as otherwise required by law, and silence by management over time should not be construed to mean that actual events are occurring as estimated in such forward-looking statements.

Risks Related to Financial Condition

Our substantial leverage and debt service obligations could adversely affect the business.

As of February 28, 2022, In the consolidated information of the holding company Medinotec Incorporated we had $0 million of current debt. On 2 March 2022 Medinotec Incorporated proved viability of its business plan to the Shareholders of DISA Medinotec (Pty) Ltd in South Africa which meant that a business combination under common control originated on this date

As of February 28, 2022 in the financial statements of DISA Medinotec (Pty) Ltd we had approximately $209,018 of current debt obligations and $1,583,661 of long-term debt outstanding. We may also incur additional indebtedness in the future. This could have adverse consequences, including the following:

Our debt service obligations require us to use a portion of the operating cash flow to pay interest and principal on indebtedness instead of for other corporate purposes, including funding the future expansion of the business, acquisitions, and ongoing capital expenditures, which could impede growth. If operating cash flow and capital resources are insufficient to service debt obligations, we may be forced to sell assets, seek additional equity or debt financing or to restructure our debt, which could harm long-term business prospects.

Our failure to comply with the terms of our revolving credit facility and other indebtedness could also result in an event of default which, if not cured or waived, could result in the acceleration of all of its debt.

We may need additional financing – any limitation on our ability to obtain such additional financing could have a material adverse effect on the business, financial condition, and results of operations.

Our expansion plans may require additional capital and we may need capital to operate our business in response to circumstances caused by the risks in conducting business in this industry. The raising of additional capital could result in dilution to stockholders. In addition, there is no assurance that we will be able to obtain additional capital if we need it, or that if available, it will be available to us on favorable or reasonable terms. Any limitation on our ability to obtain additional capital as and when needed could have a material adverse effect on the business, financial condition and results of operations.

Our research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any previous or future investments or investment collaborations will be successful.

Our mission is to provide a broad range of products to restore patients to fuller, healthier lives, which requires a wide variety of technologies, products and capabilities. The rapid pace of technological development in the medical industry and the specialized expertise required in different areas of medicine make it difficult for one company alone to develop a broad portfolio of technological solution.

In addition to internally generated growth through our research and development efforts, historically we have relied on, and expect to continue to rely on, investments and investment collaborations to provide us with access to new technologies both in areas served by our existing businesses as well as in new areas.

We expect to make future investments where we believe that we can stimulate the development or acquisition of new technologies and products to further strategic objectives and strengthen our existing businesses. Investments and investment collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments or investment collaborations will be successful or will not materially adversely affect the business, results of operations, financial condition and cash flows.

Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse or unexpected revenue fluctuations and affect the reported results of operations.

A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. This also applies to new standards, practices and rules.

Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. The fact that we operate in multiple territories and have worldwide footprint heightens this risk in specific territories.

Risks Relating to Business Operations

Covid-19 has had, and is expected to continue to have, an adverse effect on the business, results of operations, financial condition and cash flows, the nature and extent of which are highly uncertain and unpredictable.

Our global operations and interactions with healthcare systems, providers and patients around the world expose us to risks associated with public health crises, including epidemics and pandemics such as Covid-19. In particular, the continuing global spread of Covid-19, including corresponding preventative and precautionary measures that we and other businesses, communities and governments are taking to mitigate the spread of the disease, has led to unprecedented restrictions on, disruptions in, and other related impacts on business and personal activities.

In addition to travel restrictions put in place in early 2020, countries, states and governments may continue to close borders, impose prolonged quarantines or other restrictions and requirements on travel. This will further limit the ability to conduct business in-person, requiring businesses to continue to use alternative methods of communication. It is also likely the pandemic will cause an economic slowdown of potentially extended duration, and even a global recession.

Together with the preventative and precautionary measures being taken, as well as the corresponding need to adapt to new and different methods of communicating and conducting business, Covid-19 is having, and is likely to continue to have, an adverse impact on significant aspects of us, including on demand for and supply of products, operations, supply chains and distribution systems. Our strategic investment partners’ ability to research and develop and bring to market new products and services, and our ability to generate cash flow, are being impacted.

Also, as hospital systems continue to prioritize treatment of Covid-19 patients and otherwise comply with government guidelines, certain medical procedures have been suspended or postponed in many of the markets where our products are marketed and sold, which has caused a decrease in the sales of these products. It is not possible to predict the timing of a broad resumption of deferrable medical procedures or to which extent individuals and hospital systems continue to de-prioritize, delay or cancel these procedures. It is also not possible to determine if unemployment or loss of insurance coverage will adversely impact on people’s ability to pay for our products and services. Both circumstances continue to negatively affect the business, cash flows, financial condition and results of operations.

The pandemic is also placing strain on healthcare systems and hospitals around the world, resulting in adverse financial impacts on those systems, which could result in reduced future expenditure on capital equipment, including our products and services. It could also disrupt product launches of our new products.

Furthermore, a significant number of our global suppliers, vendors, distributors and manufacturing facilities have been adversely affected by the Covid-19 pandemic. This includes a negative impact on the ability of their employees to get to their places of work and maintain the continuity of their on-site operations. This could impair our ability to move products through distribution channels to our end customers. Any such delay or shortage in the supply of components or materials may result in our inability to satisfy consumer demand for our products in a timely manner or at all, which in turn could harm our reputation, future sales and profitability.

Covid-19 has impacted and may further impact the global economy and capital markets. This includes the negative impact on access to capital markets (including the commercial paper market), foreign currency exchange rates, and interest rates, each of which may adversely impact the business and its liquidity. We could experience loss of sales and profits due to delayed payments or insolvency of healthcare professionals, hospitals and other customers, suppliers and vendors facing liquidity issues. As a result, we may be compelled to take additional measures to preserve our cash flow.

In addition, Covid-19 could adversely impact our ability to retain key employees and to ensure the continued service and availability of skilled personnel necessary to run our complex production processes and operations. This includes executive officers and other members of the management team. It could also impact the ability of third-party suppliers, manufacturers, distributors and vendors to retain their key employees.

To the extent that our management or other personnel are impacted in significant numbers by Covid-19 and are not available to perform their job duties, we could experience delays in, or the suspension of, manufacturing operations, research and product development activities, regulatory work streams, clinical development programs and other important commercial functions. While the impact of Covid-19 has had, and is expected to continue to have, an adverse effect on the business, results of operations, financial condition and cash flows, the nature and extent of such impact remains uncertain and highly unpredictable.

Consolidation in the healthcare industry could have an adverse effect on revenues and results of operations.

Many healthcare companies, including healthcare systems, distributors, manufacturers, providers, and insurers, are consolidating or have formed strategic alliances. As the healthcare industry consolidates, competition to provide goods and services to industry participants will become more intense. Further, this consolidation creates larger enterprises with greater negotiating power, which they can use to negotiate price concessions. If we must reduce our prices because of industry consolidation, or if we lose customers as a result of consolidation, the business, financial condition, results of operations and cash flows could be adversely affected.

Healthcare industry cost-containment measures could result in reduced sales of the Company’s medical devices and medical device components.

Most of our customers and the healthcare providers to whom our customers supply medical devices, rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the procedures in which medical devices that incorporate components our manufacture or assemble are used.

The continuing efforts of governmental authorities, insurance companies and other payers of healthcare costs to contain or reduce these costs could lead to patients being unable to obtain approval for payment from these third-party payers.

If third-party payer payment approval cannot be obtained by patients, sales of finished medical devices that include our components may decline significantly and our customers may reduce or eliminate purchases of these components.

The cost-containment measures that healthcare providers are instituting, both in the US and outside of the US could harm our ability to operate profitably.

The continuing development of many of our products and offerings depends on our maintaining strong relationships with healthcare professionals.

If we fail to maintain our working relationships with healthcare professionals, many of our products may not be launched and marketed in line with the needs and expectations of the professionals who use and support our products, which could cause a decline in earnings and profitability.

The research, development, marketing and sales of many of our new and improved products depends on our maintaining working relationships with healthcare professionals, relying on them to provide considerable knowledge and experience regarding the development, marketing and sale of products. Physicians assist us as researchers, marketing and product consultants, inventors and public speakers.

In addition, as a result of the Covid-19 pandemic, our access to these professionals has been limited, and travel restrictions, shutdowns and similar measures have impacted the ability to maintain these relationships, thereby affecting the ability to develop, market and sell new and improved products.

Products in development may not come to market/fail to commercialize

We will, at any time, have several innovative products in R&D phase. However, some of these projects may fail to come to market/commercialize for a number of reasons, which could include competitors releasing a similar product at the same time, a lack of viability in terms of production costs or projected sales, or low/no acceptance in the market, etc.

We operate in a highly competitive industry and may be unable to compete effectively.

We compete in medical markets throughout the world, which are characterized by rapid changes resulting from technological advances and scientific discoveries. In the product lines in which we compete, we face competition ranging from large companies with multiple business lines to small, specialized manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products, processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary products lose their patent protection may make existing or planned products less competitive.

In addition, we face competition from providers of alternative medical therapies, such as pharmaceutical companies. We believe our ability to compete depends upon many factors both within and beyond our control, including: product performance and reliability, product technology and innovation, product quality and safety, breadth of product lines, product support services, customer support, cost-effectiveness and price, reimbursement approval from healthcare insurance providers, and changes to the regulatory environment.

Competition may increase as additional companies enter our markets or modify their existing products to compete directly with ours. In addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of similar products.

These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring necessary product technologies. From time to time we have lost, and may in the future lose, market share in connection with product problems, physician advisories, safety alerts and publications about its products, which highlights the importance of product quality, product efficacy and quality systems to the business.

In the current environment of managed care, consolidation among healthcare providers, increased competition, and declining reimbursement rates, we have been increasingly required to compete on the basis of price. Further, our continued growth and success depend on our ability to develop, acquire and market new and differentiated products, technologies and intellectual property. As a result, we also face competition for marketing, distribution, and collaborative development agreements, establishing relationships with academic and research institutions and licenses to intellectual property.

In order to continue to compete effectively, we must continue to create, invest in or acquire advanced technology, incorporate this technology into its proprietary products, obtain regulatory approvals in a timely manner, and manufacture and successfully market our products. Given these factors, we cannot guarantee that we will be able to compete effectively or continue its current level of success.

Reduction or interruption in supply or other manufacturing difficulties may adversely affect operations and related product sales.

The supply of products requires the timely delivery and exact planning due to most of our raw material either being manufactured by suppliers or imported. These suppliers/strategic partners require a sufficient amount of quality components and materials and is highly exacting and complex, due in part to strict regulatory requirements.

We have generally been able to obtain adequate supplies of such finished goods, raw materials, components, and services. However, for reasons of quality assurance, cost effectiveness, or availability, certain components, raw materials, goods and services needed to fill our supply chain are obtained from various sole suppliers.

Although we work closely with our suppliers to ensure continuity of supply while maintaining high quality and reliability, the supply of these goods, components, raw materials and services may be interrupted or insufficient. In addition, due to the stringent regulations and requirements of regulatory agencies, regarding the manufacture and import/export of our products, we may not be able to quickly establish additional or replacement sources. In addition, a reduction or interruption in supply, and an inability to develop alternative sources for such supply, could adversely affect our ability to supply products in a timely or cost-effective manner and could result in lost sales.

Other disruptions in the supply chain process or product sales and fulfilment systems for any reason, including equipment malfunction, failure to follow specific protocols and procedures, supplier facility shut-downs, defective raw materials, natural disasters such as hurricanes, tornadoes or wildfires, property damage from riots, and other environmental factors and the impact of epidemics or pandemics, such as Covid-19, and actions by businesses, communities and governments in response, could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. For example, in the past we have experienced a global information technology (“IT”) systems interruption that affected our customer ordering, distribution, and manufacturing processes, and is currently adversely impacted by the global Covid-19 pandemic. Furthermore, any failure to identify and address manufacturing problems prior to the release of products to customers could result in quality or safety issues.

In addition, several key components are manufactured or sterilized at a particular facility, with limited alternate facilities. If an event occurs that results in damage to or closure of one or more of such facilities, such as the damage caused by natural disasters, power outages, civil unrest and other factors, we may be unable to manufacture or sterilize the relevant products at the previous levels or at all. Because of the time required to approve and license a manufacturing or sterilization facility, a third-party may not be available on a timely basis to replace production capacity in the event manufacturing or sterilization capacity is lost.

Failure to integrate acquired businesses into operations successfully, as well as liabilities or claims relating to such acquired businesses, could adversely affect the business; agreements and contracts entered into with partners and other third parties may not be successful.

As part of our strategy to develop and identify new products and technologies, we have made significant investment in our in-house IP, and may make acquisitions in the future in an effort to bolster both our IP and our product range. Integration of the operations of acquired businesses will require significant efforts, which result in additional expenses and involve significant amounts of management’s time that cannot then be dedicated to other projects.

Failure to manage and coordinate the growth of acquired companies successfully could also have an adverse impact on the business. Furthermore, acquired businesses may have liabilities, or be subject to claims, litigation or investigations that were not anticipated or which exceed estimates at the time of the acquisition.

In addition, we cannot be certain that the businesses we acquire will become profitable or remain so. Factors that will affect the success of any acquisitions made by us include:

We could also experience negative effects on our business, financial condition, results of operations and cash flows from acquisition-related charges, amortization of intangible assets and asset impairment charges. These effects, individually or in the aggregate, could cause a deterioration of its credit rating and result in increased borrowing costs and interest expense.

We have in the past signed, and may pursue in the future, agreements and contracts with third parties to assist our marketing, manufacturing, selling, and distribution efforts. The performance of these partners and third parties cannot be guaranteed, and as such we cannot assure that any agreements or contracts entered into in the future will be successful.

If we fail to manage any expansion or acquisition, the business could be impaired.

We have a very ambitious acquisition strategy and will rely on both organic growth and acquisitive growth to achieve our business goals. We may, therefore, in the future acquire one or more technologies, products or companies that complement the business. We may not, however, be able to integrate these acquisitions effectively, and any such acquisition could bring additional risks, exposures, and challenges to the business.

Due to the nature of our strategic investments division, this may result in acquisitions or joint operations where we do not have full control of the operations or business strategies. This may lead to conflicts or legal matters with joint partners and other shareholders. In cases where we have control, conflicts may arise with minority interests and these would need to be resolved in the legal jurisdiction in which they arise. Litigation and arbitration around these topics can be costly and time consuming and be highly disruptive to the business.

In addition, acquisitions may dilute our earnings per share, disrupt our ongoing business, distract our management and employees, increase our expenses, subject us to liabilities, and increase our risk of litigation, all of which could harm our business. If we use cash to acquire technologies, products, or companies, such use may divert resources otherwise available for other purposes. If we use our common stock to acquire technologies, products, or companies, our stockholders may experience substantial dilution. If we fail to manage any expansions or acquisition, our business could be impaired.

Our future success will depend, in part, upon our ability to manage our expanded business, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. If we are not able to continue the business combinations in an efficient and effective manner, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected, and the value of our common stock may be affected adversely.

An inability to realize the full extent of the anticipated benefits of acquisitions, as well as any delays encountered in the integration process, could have an adverse effect upon on our business, financial condition, or results of operations.

We rely on the proper function, security and availability of our IT systems and data to operate the business, and a breach, cyber-attack or other disruption to these systems or data could materially and adversely affect the business, results of operations, financial condition, cash flows, reputation, or competitive position.

We are increasingly dependent on sophisticated IT systems to operate the business, including to process, transmit and store sensitive data, and many of our products and services include integrated software and IT that collects data regarding patients or connects to its systems.

Like other multi-national corporations, we could experience, and in the past have experienced, attempted or actual interference with the integrity of, and interruptions to, our IT systems, as well as data breaches, such as cyber-attacks, malicious intrusions, breakdowns, interference with the integrity of our products and data or other significant disruptions.

Furthermore, we rely on third-party vendors to supply and/or support certain aspects of our IT systems. These third-party systems could also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference or other significant disruptions, and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the information security of our own systems.

In addition, we continue to grow in part through new business acquisitions and, as a result, may face risks associated with defects and vulnerabilities in their systems, or difficulties or other breakdowns or disruptions in connection with the integration of the acquisitions into its own IT systems.

Our worldwide operations mean that we are subject to laws and regulations, including data protection and cybersecurity laws and regulations, in many jurisdictions. Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory bodies and/or civil litigation, any of which could materially and adversely affect the business, results of operations, financial condition, cash flows, reputation or competitive position.

In addition, our IT systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information systems, and the IT needs associated with changing products and services.

There can be no assurance that the process of consolidating, protecting, upgrading and expanding systems and capabilities, continuing to build security into the design of products, and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues will not arise in the future. Further, a greater number of employees are working remotely in response to the Covid-19 pandemic and related government actions, which could expose us to greater risks related to cybersecurity and its IT systems.

If our IT systems, products or services or sensitive data are compromised, patients or employees could be exposed to financial or medical identity theft or suffer a loss of product functionality. We could lose existing customers, have difficulty attracting new customers, have difficulty preventing, detecting, and controlling fraud, be exposed to the loss or misuse of confidential information, have disputes with customers, physicians, and other healthcare professionals, suffer regulatory sanctions or penalties under federal laws, state laws, or the laws of other jurisdictions, experience increases in operating expenses or an impairment in our ability to conduct operations, incur expenses or lose revenues as a result of a data privacy breach, product failure, IT outages or disruptions, or suffer other adverse consequences including lawsuits or other legal action and damage to reputation.

Our business model is concentrated around developing countries with higher growth rates, although this model also causes forex risk exposure which may cause adverse or unexpected revenue fluctuations and affect the reported results of operations.

Foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations. Also known as currency risk, FX risk and exchange-rate risk, it describes the possibility that an investment’s value may decrease due to changes in the relative value of the involved currencies. Investors may experience jurisdiction risk in the form of foreign exchange risk. Foreign exchange risk arises when a company engages in financial transactions denominated in a currency other than the currency where that company is based. Any appreciation/depreciation of the base currency or the depreciation/appreciation of the denominated currency will affect the cash flows emanating from that transaction. Foreign exchange risk can also affect investors, who trade in international markets, and businesses engaged in the import/export of products or services to multiple countries.

Our business of import/exports of raw materials and goods exposes us to foreign exchange risk by having account payables and receivables affected by currency exchange rates. This risk originates when a contract between us and our suppliers specifies exact prices for goods or services, as well as delivery dates. If a currency’s value fluctuates between when the contract is signed and the delivery date, it could cause a loss for one of the parties.

Our business model is concentrated around developing countries with higher growth rates causes greater exposure to forex risk which may cause adverse or unexpected revenue fluctuations and affect the reported results of operations. Usually the attractive growth rates of these developing countries offsets the long term forex implications of their volatile currencies

There are three types of foreign exchange risk that we are exposed to:

We continually assess our foreign exchange risks and implements varying strategies based on the current economic conditions to implement hedging strategies to mitigate that risk. This usually involves forward contracts, options, and other exotic financial products that, if done properly, can protect us from unwanted foreign exchange moves during periods of high volatility. We may also impose a strategy of not hedging due to the costs involved outweighing the benefits. We then leave exposures unhedged until market conditions and costs justify proceeding with a hedging strategy into the future.

The long-term strategy is to make certain strategic investments that will generate revenue in first-world, stable currencies to offset the impacts of cost of sales imports in developing currencies.

We operate in countries where the market is dominated by certain players and this creates a sales concentration risk which also causes an accounts receivable concentration risk.

Accounts receivable concentration risk is the level of revenue risk a portfolio holds as a result of relying on a small pool of customers. The bigger the client, the greater the risk to the revenue. 70% in 2022 and 77% in 2021 of our sales were made to a single related party. High customer concentration occurs when any single customer accounts for 20% or more of revenue. Much like anything, there are benefits and risks associated with high customer concentration.

These relationships have the upside of:

These relationships also pose the following risks and downsides:

Due to the nature of the territories that we operate in, it will be impossible to eliminate concentration risk. However, we do plan to diversify into a larger product basket and increase our international footprint, either by growing operations into other territories or alternatively acquiring more business share in other geographical territories.

Our insurance program may not be adequate to cover future losses.

We have elected to combine a mix of self-insurance and insured risks for most of the insurable risks across our company. We made this decision based on cost and availability factors in the insurance marketplace.

We continue to maintain a directors and officers liability insurance policy with third-party insurers that provides coverage for our directors and officers. This policy also covers product liability claims to a limited extent. We also maintain a detailed stock throughput policy to ensure inventory is ensured against losses and fire risk. All other assets fall into the category of self-insurance.

We continue to monitor the insurance marketplace to evaluate the value of obtaining insurance coverage for other categories of losses in the future. Although we believe, based on historical loss trends, that our self-insurance program accruals and existing insurance coverage will be adequate to cover future losses, historical trends may not be indicative of future losses.

The absence of sufficient third-party insurance coverage for other categories of losses increases our exposure to unanticipated claims and these losses could have a materially adverse impact on the business, results of operations, financial condition and cash flows.

Our future growth is dependent upon the development of new products and line extensions, which requires significant research and development, clinical trials and regulatory approvals, all of which are very expensive and time-consuming and may not result in a commercially viable product.

In order to develop new products and improve current product offerings through our strategic partnerships with other principles, we focus our research and development programs largely on the development of, or obtaining the exclusive distribution rights to, next-generation and novel technology offerings across multiple programs and opportunities.

As a part of the regulatory process of obtaining marketing clearance from the respective countries’ regulators for new products, we and our strategic partners conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us or partners related to us, by our competitors or by third parties, or the market’s perception of this clinical data, may adversely impact our ability to obtain product approvals from the regulators, our position in, and share of, the markets in which we participate and our business, financial condition, results of operations or future prospects.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate and investors’ views of us.

Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of best practices could have a material adverse effect on the business. It could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of the Common Stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and the business may be harmed.

Risks Related to Management and Personnel

We depend on our senior management personnel and may not be able to retain or replace these individuals or recruit additional personnel, which could harm our business.

Our future success is substantially dependent on the continued service of Dr. Gregory Vizirgianakis, our Founder, President, Chief Executive Officer and a member of our board of directors, and Pieter van Niekerk, our Chief Financial Officer, Treasurer and a member of our board of directors. Dr. Vizigianakis and Mr. van Niekerk have extensive experience both with our company and in our industry and are familiar with our business, systems and processes. Their loss would be catastrophic to our product offerings and ability to manage our business effectively, as we will likely not be able to find suitable individuals to replace them on a timely basis or at all.

If we are unable to find, train and retain key personnel, including new showroom employees that reflect our brand image and embody our culture, we may not be able to grow or sustain our operations.

We depend on several key management, executive, sales and marketing, and technical personnel. The loss of the services of one or more key employees could delay the achievement of business objectives. Our success will also depend on our ability to attract and retain additional highly-qualified executives, management, sales and marketing and technical personnel to meet its growth goals. We further face intense competition for qualified personnel, many of whom are often subject to competing employment offers, and we do not know whether we will be able to attract and retain such personnel.

Our success depends in a large part on the continued service of the senior management team. In particular, the continued service of this group of individuals is critical to our vision, strategic direction, culture, products and business plan. We do not maintain key-man insurance for any of the senior management team, and thus the loss of any of our executives, even temporarily, or any other member of senior management, could harm the business.

Risk Associated With Legal and Regulatory Matters

We are subject to extensive medical device regulation that may impede or hinder the approval process for our products and, in some cases, may not ultimately result in approval or may result in the recall or seizure of previously approved products.

Our medical devices and business activities are subject to rigorous regulation by numerous federal, state and foreign governmental authorities. Certain state governments and the federal government have enacted legislation aimed at increasing the transparency of interactions with health care providers. Any failure to comply with these legal and regulatory requirements could negatively affect the business.

These regulations include regulations pursuant to the Federal Food, Drug, and Cosmetic Act by the US Food and Drug Administration (“FDA”) and comparable agencies in foreign countries, and by other regulatory agencies and governing bodies. The process of obtaining marketing approval or clearance from the FDA for new products, or with respect to enhancements or modifications to existing products, could:

Marketing approvals or clearances are not the only risk. Regulatory bodies can require the withdrawal of an approved or cleared product from commercial distribution due to failure to comply with regulatory standards or the occurrence of unforeseen problems. As a medical device distributor and in some instances manufacturer through our strategic investments, we are required to register with these agencies and is subject to periodic inspection for compliance.

Consequently, there can be no assurance that we will receive the required clearances from regulatory bodies for new products or modifications to existing products on a timely basis or that any approval will not be subsequently withdrawn. Later discovery of previously unknown problems with a product or manufacturer could result in fines, delays or suspensions of regulatory clearances, seizures or recalls of products, operating restrictions and/or criminal prosecution.

The failure to receive product approval clearance on a timely basis, suspensions of regulatory clearances, seizures or recalls of products or the withdrawal of product approval by regulatory bodies could have a material adverse effect on our business, financial condition or results of operations.

Healthcare policy changes may have a material adverse effect on us.

In response to perceived increases in healthcare costs in recent years, there have been and continue to be proposals by several governments, regulators and third-party payers globally, including the US federal and state governments, to control these costs and, more generally, to reform healthcare systems.

Certain of these proposals could, among other things, limit the prices we are able to charge for products or the amounts of reimbursement available for our products, and could also limit the acceptance and availability of such products.

The adoption of some or all of these proposals could have a material adverse effect on the business, results of operations, financial condition and cash flows. If we experience decreasing prices for our goods and services and we are unable to reduce expenses, there may be a materially adverse effect on the business, results of operations, financial condition and cash flows.

The Company is subject to environmental laws and regulations and the risk of environmental liabilities, violations and litigation

We are subject to numerous US and non-US environmental, health and safety laws and regulations concerning, among other things, the health and safety of employees; the generation, storage, use and transportation of hazardous materials; emissions or discharges of substances into the environment; investigation and remediation of hazardous substances or materials at various sites; chemical constituents in medical products; and end-of-life disposal and take-back programs for medical devices.

Our operations and those of certain third-party suppliers involve the use of substances subject to these laws and regulations, primarily those used in manufacturing and sterilization processes. If we or our suppliers violate these environmental laws and regulations, facilities could be shut down and violators could be fined, criminally charged or otherwise sanctioned.

Furthermore, environmental laws outside of the US are becoming more stringent, resulting in increased costs and compliance burdens. Certain environmental laws also assess liability on current or previous owners or operators of real property for the costs of investigation, removal or remediation of hazardous substances or materials at their properties or at properties which they have disposed of hazardous substances. In addition to clean-up actions brought by governmental authorities, private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. The ultimate cost of site clean-up and timing of future cash outflows is difficult to predict, given the uncertainties regarding the extent of the required clean-up, the interpretation of applicable laws and regulations, and alternative clean-up methods.

The costs of complying with current or future environmental protection and health and safety laws and regulations, or liabilities arising from past or future releases of, or exposures to, hazardous substances, may exceed our estimates, or have a material adverse effect on the business, results of operations, financial conditions and cash flows.

Finally, in some jurisdictions around the world, culture and practice encourages reuse of disposable products when the product is clearly labelled for single use. Such reuse may expose us to liability in these jurisdictions.

Claims made against us from time to time can result in litigation that could distract management from our business activities and result in significant liability or damage to our brand.

As a company with expanding operations, we increasingly face the risk of litigation and other claims against us. We have no such claims at present. Litigation and other claims may arise in the ordinary course of our business and include employee claims, commercial disputes, landlord-tenant disputes, intellectual property issues, product-oriented allegations and slip and fall claims. These claims can raise complex factual and legal issues that are subject to risks and uncertainties and could require significant management time. Litigation and other claims against us could result in unexpected expenses and liabilities, which could materially adversely affect our operations and our reputation.

In addition, the medical device industry is characterized by extensive litigation and, from time to time, we are the subject of various claims. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims against us could result in payment of significant monetary damages and/or injunctive relief.

Our failure to comply with laws and regulations relating to reimbursement of healthcare goods and services may subject it to penalties and adversely impact its reputation, business, results of operations, financial condition and cash flows.

Our devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third-party payers, such as governmental healthcare programs, private insurance plans and managed care plans, for the healthcare services provided to their patients.

The ability of customers to obtain appropriate reimbursement for products and services from third-party payers is critical because it affects which products customers purchase and the prices they are willing to pay. As a result, our devices, products and therapies are subject to regulation regarding quality and cost for reimbursement and regulation of health are goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and healthcare fraud.

Many territories have similar laws that apply to reimbursement by state and other funded programs as well as in some cases to all payers. In certain circumstances, insurance companies attempt to bring a private cause of action against a manufacturer for causing false claims.

In addition, our strategic investments position the company as a manufacturer of FDA-approved devices reimbursable by federal healthcare programs. We are thus subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value our company makes to US-licensed physicians or US teaching hospitals. Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties.

We are also subject to risks relating to changes in government and private medical reimbursement programs and policies, and changes in legal regulatory requirements in the US and around the world. Implementation of further legislative or administrative reforms to these reimbursement systems, or adverse decisions relating to coverage of / or reimbursement for our products by administrators of these systems, could have an impact on the acceptance of and demand for our products and the prices that customers are willing to pay for them.

Quality problems and product liability claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse effect on the business, results of operations, financial condition and cash flows.

Quality is extremely important to us and our customers due to the impact of our products on patients, and the serious and potentially costly consequences of product failure. We are thus exposed to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices.

In addition, many products are used in intensive care settings with seriously ill patients and some of the medical devices we sell are designed to be implanted in the human body for long periods of time or indefinitely. Component failures, manufacturing nonconformances, design defects, off-label use, or inadequate disclosure of product-related risks or product related information with respect to our products, if they were to occur, could result in an unsafe condition or injury to, or death of, a patient.

This could lead to recall of, or issuance of a safety alert relating to, our products, and could result in product liability claims and lawsuits, including class actions, which could ultimately result, in certain cases, in the removal from the body of such products and claims regarding costs associated therewith. Due to the strong brand recognition of Medinotec and our brands, a material adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brand, and could harm our reputation and ability to market products in the future.

Further, we may be exposed to additional potential product liability risks related to products designed, manufactured and/or marketed in response to the Covid-19 pandemic, and unpredictable or accelerated changes in demand for certain of our products in connection with Covid-19 and its related impacts could impact development and production of products and services and could increase the risk of regulatory enforcement actions, product defects or related claims, as well as adversely impact our customer relationships and reputation.

Should we fall short of these standards and our products become subject to recalls or safety alerts, our reputation could be damaged, we could lose customers and revenue and results of operations could decline. Our success also depends on the ability to manufacture to exact specification for precision engineered components, sub-assemblies and finished devices from multiple materials. If components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive advantage and market share could be harmed.

In certain situations, we may undertake a voluntary recall of products or temporarily shut down production lines based on performance relative to our own internal safety and quality monitoring and testing data. Any of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on the business, results of operations, financial condition and cash flows.

We may not be able to protect our intellectual property rights effectively.

Patents, trademarks and other intangible proprietary rights are and will be essential to the business and our ability to compete effectively with other companies. During normal day-to-day trade, we also rely on trade secrets, know-how, continuing technological innovations, strategic alliances and licensing opportunities to develop, maintain and strengthen our competitive position.

We pursue a policy of obtaining patent protection in both the US and overseas for patentable subject matter of our proprietary devices and also attempts to review third-party patents and patent applications to the extent publicly available to develop an effective patent strategy, avoid infringement of third-party patents, identify licensing opportunities and monitor the patent claims of others.

We also operate in an industry that is susceptible to significant intellectual property litigation. This litigation is expensive, complex, and lengthy and its outcome is difficult to predict. Future patent litigation may result in significant royalty or other payments or injunctions that can prevent the sale of products and may significantly divert the attention of our technical and management personnel.

In addition, we may have to take legal action in the future to protect our patents, trade secrets, or know-how or to assert our intellectual property rights against claimed infringement by others. Any such legal action could be costly and time consuming and no assurances can be made that any lawsuit will be successful.

The invalidation of key patents or proprietary rights that we own, or an unsuccessful outcome in lawsuits to protect intellectual property, could have a material adverse effect on the business, financial condition, and results of operations. In the event that the right to market any of our products is successfully challenged, or if we fail to obtain a required license or are unable to design around a patent, the business, financial condition, and results of operations could be compromised.

eSecurity breaches, loss of data and other disruptions could also compromise sensitive information related to the business, preventing it from accessing critical information or expose us to liability, which could adversely affect the business and reputation.

In the ordinary course of business, we collect and store sensitive data, including patient health information, personally identifiable information about employees, intellectual property, and proprietary business information. We manage and maintain applications and data utilizing on-site and off-site systems. These applications and data encompass a wide variety of business-critical information including research and development information, commercial information and business and financial information.

The secure processing, storage, maintenance and transmission of this critical information is vital to operations and business strategy, and we devote resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our IT and infrastructure may be vulnerable to attacks by hackers, viruses, breaches or interruptions due to employee error or malfeasance, terrorist attacks, hurricanes, fire, flood, other natural disasters, power loss, computer systems failure, data network failure, internet failure, or lapses in compliance with privacy and security mandates. Any such virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory penalties.

Unauthorized access, loss or dissemination could also interrupt operations, including the ability to receive and ship orders from customers, bill our customers, provide customer support services, conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect the business.

Changes in tax laws or exposure to additional income tax liabilities could have a material impact on the business, the results of operations, financial conditions and cash flows.

We are subject to income taxes, as well as non-income-based taxes, in the US, the UAE, South Africa and other jurisdictions in which we operate. The tax laws in these could change on a prospective or retroactive basis, and any such changes could adversely affect us and our effective tax rate.

Taxation regulation in territories around the world can also change very quickly, which may mean that all the implications for businesses may not have been fully thought through by the regulating authorities before final guidelines and laws are issued. Furthermore, any changes made by tax authorities, together with other legislative changes, to the mandatory sharing of company information (financial and operational) with tax authorities on both a local and global basis, could lead to disagreements between jurisdictions with respect to the proper allocation of profits between such jurisdictions. We therefore continuously monitor changes to tax regulation and double tax treaties between the territories in which we operate. We also maintain a comprehensive transfer pricing policy to govern the flow of funds between various tax territories.

We are further subject to ongoing tax audits in the various jurisdictions in which we operate. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provisions. However, there can be no assurance that we will accurately predict the outcomes of these audits, which could have a material impact on the business, financial condition, results of operations, and cash flows.

While we have recorded reserves for potential payments to various tax authorities related to uncertain tax positions, the calculation of such tax liabilities involves the application of complex tax regulations in many jurisdictions. Therefore, any dispute with a tax authority may result in payment that is significantly different from our estimates. If the payment proves to be less than the recorded reserves, the reversal of the liabilities would generally result in tax benefits being recognized in the period when we determine the liabilities to be no longer necessary. Conversely, if the payment proves to be more than the reserves, we would incur additional charges, and these could have a materially adverse effect on the business, financial condition, results of operations, and cash flows.

The failure to comply with anti-corruption laws could materially adversely affect the business and result in civil and/or criminal sanctions.

FCPA and similar anticorruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Because of the predominance of government-administered healthcare systems in many jurisdictions around the world, many of our customer relationships are with governmental entities and are therefore potentially subject to such laws.

We also participate in public-private partnerships and other commercial and policy arrangements with governments around the globe. Global enforcement of anti-corruption laws has increased in recent years, including investigations and enforcement proceedings leading to assessment of significant fines and penalties against companies and individuals.

Our international operations create a risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents, or distributors. The business maintains policies and programs to implement safeguards to educate employees and agents on these legal requirements, and to prevent and prohibit improper practices. However, existing safeguards and any future improvements may not always be effective, and employees, consultants, sales agents or distributors may engage in conduct for which we could be held responsible.

In addition, regulators could seek to hold us liable for conduct committed by companies in which we invest or that we acquire. Any alleged or actual violations of these regulations may subject us to government scrutiny, criminal or civil sanctions and other liabilities, including exclusion from government contracting, and could disrupt the business, adversely affect our reputation and result in a material adverse effect on the business, results of operations, financial condition and cash flows.

Laws and regulations governing international business operations could adversely impact the business.

The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and the Bureau of Industry and Security at the US Department of Commerce (“BIS”) administer certain laws and regulations that restrict US persons and, in some instances, non-US persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to US economic sanctions.

Our international operations subject us to these laws and regulations, which are complex, restrict business dealings with certain countries, governments, entities, and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations. From time to time, certain subsidiaries have limited business dealings in countries subject to comprehensive sanctions.

Certain of our subsidiaries sell medical devices, and may provide related services, to distributors and other purchasing bodies in such countries. These business dealings represent an insignificant amount of our consolidated revenues and income, but expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment.

We have established policies and procedures designed to assist with compliance with such laws and regulations. However, there can be no assurance that these will prevent us from violating these regulations in every transaction in which we may engage. As such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows.

As an Emerging Growth Company under the Jobs Act, we are permitted to rely on exemptions from certain disclosures requirements.

We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Risks Associated With Political Instability and Regional Issues

Political instability may affect the Company’s ability to operate effectively.

Political instability in the countries in which we operate, including South Africa, where recent episodes of violent civil unrest (riots) have further destabilized the country’s economy and resulted in extensive damage to commercial property, may cause increased uncertainty. This may adversely affect investor confidence as well as our business planning, operations and our market capitalization.

This risk extends to global economic uncertainty and heightened geopolitical tensions, such as those between the United States and China as well as Brexit, which can also have an impact on several factors influencing commodity prices, exchange rates, and interest rates, all of which can affect our business in turn.

In South Africa, BEE requirements may restrict growth opportunities and limit the Company’s ability to attract key talent.

In South Africa, the correction of inequalities amongst the key demographic groups of the country as a result of Apartheid is regulated by the Broad-based Black Economic Empowerment Act 53 of 2003. This is a legislative framework for the promotion of BEE that seeks to advance economic transformation and enhance the economic participation of Black people in the South African economy. Companies failing to meet the requirements of the Act and its associated codes may be at risk of not being able to attract investment and may also face more limited opportunities for growth (both organic and acquisitive) and failure to attract, recruit and retain key candidates and suitably qualified personnel.

The potential damage to property caused by riots and protests may impact the Company’s ability to operate.

Businesses that have operations or own assets in South Africa face risks from events such as civil commotion, public disorder, strikes, riots and terrorism. Resultant damage to property stemming from such events can potentially disrupt our operations and also have an impact on the health and safety of our employees.

Risks Relating to Our Securities

If we undertake future offerings of our common stock, purchasers in this offering will experience dilution of their ownership percentage.

Generally, existing shareholders will experience dilution of their ownership percentage in the company if and when additional shares of common stock are offered and sold. In the future, we may be required to seek additional equity funding in the form of private or public offerings of our common stock. In the event that we undertake subsequent offerings of common stock, your ownership percentage, voting power as a common shareholder, and earnings per share, if any, will be proportionately diluted. This may, in turn, result in a substantial decrease in the per-share value of your common stock.

If a market for our common stock does not develop, shareholders may be unable to sell their shares.

Prior to this offering, there has been no public market for our securities and there can be no assurance that an active trading market for the securities offered herein will develop after this offering, or, if developed, be sustained. We anticipate that, upon completion of this offering, the common stock will be eligible for quotation on the OTCQB or OTCQX. If for any reason, however, our securities are not eligible for initial or continued quotation on the OTCQB or OTCQX or a public trading market does not develop, purchasers of the common stock may have difficulty selling their securities should they desire to do so and purchasers of our common stock may lose their entire investment if they are unable to sell our securities.

Our common stock price may be volatile and could fluctuate widely in price, which could result in substantial losses for investors.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including:

You should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

If securities analysts do not initiate coverage or continue to cover the Common Stock or publish unfavorable research or reports about the business, this may have a negative impact on the market price of the Common Stock.

The trading market for the Common Stock will depend on the research and reports that securities analysts publish about our business and us. We do not have any control over these analysts. There is no guarantee that securities analysts will cover the Common Stock. If securities analysts do not cover the Common Stock, the lack of research coverage may adversely affect our market price.

If we are covered by securities analysts, and the stock is the subject of an unfavorable report, the stock price and trading volume would likely decline. If one or more of these analysts ceases to cover our company or fails to publish regular reports on us, we could lose visibility in the financial markets, which could cause the stock price or trading volume to decline.

Because we will be subject to the “Penny Stock” rules once our shares are quoted on the over-the-counter bulletin board, the level of trading activity in our stock may be reduced.

The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty Purchasers may experience in attempting to liquidate such securities.

If we issue shares of preferred stock with superior rights than the common stock registered in this prospectus, it could result in a decrease in the value of our common stock and delay or prevent a change in control of us.

Our board of directors is authorized to issue up to 20,000,000 shares of preferred stock. Our board of directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any shares of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion rights. The issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us without further vote or action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.

We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.

Provisions in the Nevada Revised Statutes and our Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.

Members of our board of directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law.

This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care.

In addition, our Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.