# EDGAR Filing Document

**Accession Number:** 0001254348
**File Stem:** 0001493152-23-002618
**Filing Date:** 2023-1
**Character Count:** 1381201
**Document Hash:** 75b17f5309647f5125ad70f0b8afe9cc
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001493152-23-002618.hdr.sgml**: 20230126

**ACCESSION NUMBER**: 0001493152-23-002618

**CONFORMED SUBMISSION TYPE**: S-1/A

**PUBLIC DOCUMENT COUNT**: 43

**FILED AS OF DATE**: 20230126

**DATE AS OF CHANGE**: 20230126

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** EMULATE THERAPEUTICS, INC.
- **CENTRAL INDEX KEY:** 0001254348
- **STANDARD INDUSTRIAL CLASSIFICATION:** SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
- **IRS NUMBER:** 912174500
- **STATE OF INCORPORATION:** WA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** S-1/A
- **SEC ACT:** 1933 Act
- **SEC FILE NUMBER:** 333-266924
- **FILM NUMBER:** 23558205

**BUSINESS ADDRESS:**
- **STREET 1:** 425 PONTIUS AVENUE NORTH, SUITE 200
- **CITY:** SEATTLE
- **STATE:** WA
- **ZIP:** 98109
- **BUSINESS PHONE:** (206) 708-2288

**MAIL ADDRESS:**
- **STREET 1:** 425 PONTIUS AVENUE NORTH, SUITE 200
- **CITY:** SEATTLE
- **STATE:** WA
- **ZIP:** 98109

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Nativis, Inc.
- **DATE OF NAME CHANGE:** 20100407

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** WAVBANK INC
- **DATE OF NAME CHANGE:** 20030715

**As filed with the U.S. Securities and Exchange Commission on January 26, 2023.**

Registration No. 333-266924

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM S-1/A**

**(Amendment No. 3)**

**REGISTRATION STATEMENT UNDER**

**THE SECURITIES ACT OF 1933**

**EMULATE THERAPEUTICS, INC.**

*(Exact name of registrant as specified in its charter)*

 

---

| | | |
|:---|:---|:---|
| **Washington** | **3841** | **91-2174500** |
| ***(State or other jurisdiction of*<br> *incorporation or organization)***  | ***(Primary Standard Industrial*<br> *Classification Code Number)***  | ***(I.R.S. Employer*<br> *Identification Number)***  |

---

**13810 SE Eastgate Way, Suite 560**

**Bellevue, WA 98005**

**Telephone: (425) 415-3140**

(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)

**Chris Rivera, Chief Executive Officer**

**EMulate Therapeutics, Inc.**

**13810 SE Eastgate Way, Suite 560**

**Bellevue, WA 98005**

**Telephone: (425) 415-3140**

(Name, address, including zip code and telephone number, including area code, of agent for service)

*Copies of all communications, including communications sent to agent for service, should be sent to:*

---

| | |
|:---|:---|
| **Joseph M. Lucosky, Esq.**<br> **Lahdan S. Rahmati, Esq.**<br> **Lucosky Brookman LLP**<br> **101 Wood Avenue South, 5th Floor**<br> **Woodbridge, NJ 08830**<br> **(732) 395-4511**<br> **jlucosky@lucbro.com**<br>| **Keith J. Billotti, Esq.**<br>**Seward & Kissel LLP**<br>**One Battery Park Plaza**<br> **New York, NY 10004**<br> **(212) 574-1200**<br> **billotti@sewkis.com**<br>|

---

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ <br> Non-accelerated filer ☒ Smaller reporting company ☒ <br> Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

**The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.**

**The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.**

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 26, 2023

![](forms-1a_001.jpg)

**EMULATE THERAPEUTICS, INC.**

**2,500,000** **Shares of Common Stock**

This is our initial public offering. We are offering 2,500,000 shares of our common stock, par value $0.001 per share ("Common Stock", and each a "Share" and collectively, the "Shares"). We expect the public offering price to be between $4.00 and $6.00 per Share. After the offering, the market price for our Shares may be outside this range.

Prior to this offering, there has been no public market for our Common Stock. We have applied to have our Common Stock listed on the Nasdaq Capital Market (Nasdaq) under the symbol "EMTX".

We are an "emerging growth company" under applicable U.S. Securities and Exchange Commission (SEC) rules and will be subject to reduced public company reporting requirements.

**Investing in our securities involves a high degree of risk. See "*Risk Factors*" beginning on page 11 of this prospectus. You should carefully consider these risk factors, as well as the information contained in this prospectus, before purchasing any of the securities offered by this prospectus.**

NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

---

| | | |
|:---|:---|:---|
|  | **Per Share** | **Total** |
| Public offering price | $5.00 | $12500000 |
| Underwriting discounts and commissions <sup>(1)</sup> | $0.84 | $2100000 |
| Proceeds to us, before expenses | $4.16 | $10400000 |

---

(1) We have agreed to reimburse the underwriters for certain expenses and the underwriters will receive compensation in addition to underwriting discounts and commissions. See "*Underwriting*" for additional disclosure regarding underwriters' compensation and offering expenses.

We have granted a 45-day option to the representative of the underwriters to purchase up to an additional 375,000 Shares to cover over-allotments, if any.

For a description of the other compensation to be received by the underwriters, see "*Underwriting*" beginning on page 105.

The underwriters expect to deliver the securities in the offering on or about [●], 2023.

**EF Hutton,**

division of Benchmark Investments, LLC

**The date of this prospectus is** [●]**, 2023**

**<u>**TABLE OF CONTENTS**</u>**

---

| | |
|:---|:---|
| [CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS](#noah_001) | ii |
| [PROSPECTUS SUMMARY](#noah_002) | 4 |
| [SUMMARY OF THE OFFERING](#noah_003) | 8 |
| [RISK FACTORS](#noah_004) | 11 |
| [USE OF PROCEEDS](#noah_005) | 39 |
| [DIVIDEND POLICY](#noah_006) | 40 |
| [CAPITALIZATION](#noah_007) | 41 |
| [DILUTION](#noah_008) | 42 |
| [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#noah_010) | 43 |
| [BUSINESS](#noah_009) | 48 |
| [MANAGEMENT](#noah_011) | 84 |
| [EXECUTIVE AND DIRECTOR COMPENSATION](#noah_012) | 90 |
| [PRINCIPAL STOCKHOLDERS](#noah_013) | 94 |
| [CERTAIN RELATIONSHIPS AND RELATED PERSONS TRANSACTIONS](#noah_014) | 95 |
| [DESCRIPTION OF SECURITIES](#noah_015) | 96 |
| [SHARES ELIGIBLE FOR FUTURE SALE](#noah_016) | 102 |
| [MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF THE COMPANY'S COMMON STOCK](#noah_017) | 103 |
| [UNDERWRITING](#noah_018) | 106 |
| [LEGAL MATTERS](#noah_019) | 110 |
| [EXPERTS](#noah_020) | 110 |
| [WHERE YOU CAN FIND MORE INFORMATION](#noah_021) | 110 |
| [INDEX TO CONSOLIDATED FINANCIAL STATEMENTS](#noah_022) | F-1 |

---

**You should rely only on the information contained in this prospectus. Neither we nor the representative have authorized anyone to provide any information or to make any representations other than those contained in this prospectus we have prepared. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. You should also read this prospectus together with the additional information described under "Where You Can Find More Information."**

i

**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

This prospectus contains "forward-looking statements". Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as "anticipate," "believe," "estimate," "intend," "could," "should," "would," "may," "seek," "plan," "might," "will," "expect," "anticipate," "predict," "project," "forecast," "potential," and "continue" or the negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees of future performance. While we believe these assumptions and expectations to be reasonable and made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or expectations and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, our management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. **You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates.**

We cannot predict all the risks and uncertainties that may impact our business, financial condition or results of operations. Accordingly, the forward-looking statements in this prospectus should not be regarded as representations that the results or conditions described in such statements will occur or that our objectives and plans will be achieved. These forward-looking statements are found at various places throughout this prospectus and include information concerning possible or projected future results of our operations, including statements about potential acquisition or merger targets, strategies or plans; business strategies; prospects; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results; and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to a variety of factors and risks, including, but not limited to, those set forth under "*Risk Factors*" starting on page 11 of this prospectus.

Many of those risks are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. All subsequent written and oral forward-looking statements concerning other matters addressed in this prospectus and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this prospectus.

**Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.**

ii

**MARKET AND INDUSTRY DATA**

This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications or other publicly available information, as well as other information based on our internal sources. While we believe the industry and market data included in this prospectus are reliable and are based on reasonable assumptions, these data involve many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" included in this prospectus.

**TRADEMARKS AND TRADE NAMES**

We own or have rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties' trademarks, service marks, trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the <sup>®</sup>, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks and trade names.

**GLOSSARY OF CERTAIN TERMS**

As a clinical-stage therapeutic device company, describing our business involves referencing certain technical terms and acronyms. We are providing the following glossary to assist readers with certain technical terms and acronyms and to also define certain frequently used terms.

"ACA" means the Affordable Care Act, a comprehensive reform law which increases health insurance coverage for the uninsured and implements reforms to the health insurance market.

"BLE" means Bluetooth low energy.

"CBD" means cannabidiol.

"CCPA" means the California Consumer Privacy Act, a state statute intended to enhance privacy rights and consumer protection for residents of California.

"CE" means that the manufacturer or importer of a commercial product affirms the product's conformity with European health, safety and environmental safety standards.

"Cellsana" means Cellsana Therapeutics, Inc., a Washington corporation and wholly-owned subsidiary of the Company.

"CE Certificate" means the CE mark that is placed on the backside of certain products sold in the European Economic Area and the European Union.

"cGCPs" means current Good Clinical Practices, which is an international ethical and scientific quality standard for designing, conducting, recording and reporting trials that involve the participation of human subjects.

"GH" means growth hormone, a peptide hormone that stimulates growth, cell reproduction, and cell regeneration in humans and other animals.

"CMS" means Centers for Medicare and Medicaid Services, a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer Medicaid, the Children's Health Insurance Program, and health insurance portability standards.

"CNS" means Central Nervous System.

"CPRA" means the California Privacy Rights Act of 2020, is a California ballot proposition that expands California's consumer privacy law and builds upon the California Consumer Privacy Act of 2018.

"CPT codes" means the Common Procedural Terminology codes, a medical code set that is used to report medical, surgical, and diagnostic procedures and services to entities such as physicians, health insurance companies and accreditation organizations.

"CRF" means Case Report Form, a paper or electronic questionnaire specifically used in clinical trial research.

"CRO" means Contract Research Organizations, which are life sciences companies that provide support to the pharmaceutical, biotechnology, and medical device industries in the form of research services outsourced on a contract basis.

"DHS" means designated health services.

"DME" means durable medical equipment, which are equipment and supplies ordered by a health care provider for everyday or extended use.

"DMG" means diffuse midline glioma.

"DIPG" means diffuse intrinsic pontine glioma.

"EEA" means the European Economic Area.

"EGFR" means epidermal growth factor receptor, a transmembrane protein that is a receptor for members of the epidermal growth factor family of extracellular protein ligands

"EU" means the European Union.

"FATCA" means the Foreign Account Tax Compliance Act, which requires all non-U.S. foreign financial institutions to search their records for customers with indicia of a connection to the U.S., including indications in records of birth or prior residency in the U.S., or the like, and to report the assets and identities of such persons to the U.S. Department of the Treasury.

"FDA" means the U.S. Food and Drug Administration.

"FDCA" means the Federal Food, Drug, and Cosmetic Act, a set of laws giving authority to the U.S. Food and Drug Administration to oversee the safety of food, drugs, medical devices, and cosmetics.

"FSCA" means Field Safety Corrective Actions, which is an action taken by a manufacturer to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market.

"GBM" means glioblastoma, a rare cancerous tumor that develops in the brain.

"GDPR" means General Data Protection Regulation, a regulation in EU law on data protection and privacy in the EU and the EEA.

"Hapbee" means Hapbee Technologies, Inc., a Canadian company in which we hold approximately a 23.5% interest.

"HCPCS code set" means Healthcare Common Procedure Coding System, a collection of codes that represent procedures, supplies, products and services which may be provided to Medicare beneficiaries and to individuals enrolled in private health insurance programs.

"HDE" means Humanitarian Device Exemption, a regulatory pathway for products intended for diseases or conditions that affect small, rare populations.

"HIPAA" means Health Insurance Portability and Accountability Act, which is a US law designed to provide privacy standards to protect patients' medical records and other health information provided to health plans, doctors, hospitals and other health care providers.

"IDE" means an investigational device exemption, a regulatory pathway that allows a significant risk investigational device to be used in a clinical study in order to collect safety and effectiveness data.

"Indolor" means Indolor Therapeutics, Inc., a Washington corporation and wholly-owned subsidiary of the Company.

"IRB" means Institutional Review Board, which is any group that has been formally designated to review and monitor biomedical research involving human subjects.

"JOBS Act" means the Jumpstart Our Business Startups Act of 2012, as amended, which is a law intended to encourage funding of small businesses in the U.S. by easing many of the country's securities regulations.

"MACs" means Medicare Administrative Contractors, which is a private health care insurer that has been awarded geographic jurisdiction to process Medicare Part A and Part B medical claims or Durable Medical Equipment claims for Medicare Fee-For-Service beneficiaries.

"MDD" means major depressive disorder, a common mental health disorder caused by episodes of psychological depression.

"MDR" means medical device reporting, one of the post-market surveillance tools the FDA uses to monitor device performance, detect potential device-related safety issues, and contribute to benefit-risk assessments of these products.

"Mensana" means Mensana Therapeutics, Inc., a Washington corporation and wholly-owned subsidiary of the Company.

"MHLW" means Ministry of Health, Labour and Welfare of Japan, a cabinet level ministry of the Japanese government that provides services on health, labor and welfare.

"MOA" means mechanism of action, which refers to the specific biochemical interaction through which a drug substance produces its pharmacological effect.

"nGBM" means newly diagnosed GBM.

"Novocure" means Novocure GmbH, a medical technology manufacturer in Switzerland.

"Optune" means Novocure's Optune GBM Trailblazer.

"PMA" means premarket approval application, the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices.

"PoC" means proof of concept, which is a realization of a certain method or idea in order to demonstrate its feasibility or a demonstration in principle with the aim of verifying that some concept or theory has practical potential.

"PTSD" means post-traumatic stress disorder.

"QSR" means quality system regulations.

"RFE" means radio frequency energy.

"RCW" means the Revised Code of Washington, which is the compilation of all permanent laws currently in force in the U.S. state of Washington.

"Sayre" means Sayre Therapeutics Pvt Ltd., an Indian company.

"S.E.M." means standard error of the mean, a measure of the dispersion of sample means around the population mean.

"TCA" means the EU-UK Trade and Cooperation Agreement, a free trade agreement signed on December 30, 2020, between the EU, the European Atomic Energy Community, and the United Kingdom, that provides for free trade in goods and limited mutual market access in services, as well as for cooperation mechanisms in a range of policy areas, transitional provisions about EU access to UK fisheries, and UK participation in some EU programs.

"Teijin Pharma" means Teijin Pharma Limited, a Japanese pharmaceutical company.

"TSXV" means the TSX Venture Exchange.

"UKCA" means UK conformity assessment.

"UKCA Marking" means a certification mark that indicates conformity with the applicable requirements for products sold within Great Britain.

"USPTO" means United States Patent and Trademark Office.

"Zoesana" means Zoesana Animal Health, Inc., a Washington corporation and wholly-owned subsidiary of the Company.

**PROSPECTUS SUMMARY**

*This prospectus summary contains an overview of the information from this prospectus, but may not contain all of the information that is important to you. This prospectus includes specific terms of the offering of our securities, information about our business, and financial data. We encourage you to read this prospectus, including the "Risk Factors" section beginning on page 11 and the financial statements and the notes thereto, in its entirety before making an investing decision. As used in this prospectus, the terms "we," "us," "the Company," "our," and "EMulate" refer to EMulate Therapeutics, Inc., a corporation organized under the laws of Washington, including our subsidiaries, unless the context indicates a different meaning.*

 

**Overview**

 ****

We are on a mission to advance the development and adoption of medical, health, and environmental applications of our low-to-ultra-low radio frequency energy technology that are determined by the FDA (or other applicable regulators) to be non-toxic, non-invasive, non-ionizing, safe and effective. We have invented and patented what we believe to be a groundbreaking technology that utilizes radio frequency energy (RFE) precisely targeted at the low and ultra-low ends of the RFE spectrum (*ul*RFE<sup>®</sup>) to specifically regulate signaling and metabolic pathways on the molecular and genetic levels – without chemicals, radiation or drugs – delivered via a simple-to-use non-invasive therapeutic system. For example, using our proprietary technology, we derived a *ul*RFE signal from paclitaxel, a well-understood chemotherapy drug, which is known to have a particular effect on tumor cells by interrupting or significantly slowing the normal metabolic activity of cell division. Our clinical trials using the *ul*RFE signal of paclitaxel produced survival data (both median progression-free survival data and overall survival data) that are substantially similar to, or better than, historical survival data, based on FDA meta-analysis, for rGBM patients treated with best supportive care. The similarity of these results does not, in itself, show that the *ul*RFE signal of paclitaxel produces the same metabolic effect as paclitaxel: rGBM patients are not, as a standard, treated in a clinical setting with paclitaxel because the paclitaxel molecule cannot pass through the blood-brain barrier. This circumstance also prevents clinical trial investigators from performing blinded, controlled studies directly comparing (and measuring the statistical significance of) the effects of using the *ul*RFE signal of paclitaxel with the effects of using the paclitaxel molecule in treating rGBM patients. However, to establish the metabolic correlation between the paclitaxel drug and the *ul*RFE signal of paclitaxel, we examined the metabolic effect of the *ul*RFE signal of paclitaxel in pre-clinical in vitro polymerization studies using an a-cellular tubulin protein assay (the protein cells were extracted and purified from bovine brains). These studies showed that the paclitaxel-derived *ul*RFE signal alone (without the concomitant use of any other chemical or drug, and without the use of any other treatment intervention such as radiation), acts in the same or similar way to the paclitaxel drug upon tubulin (the protein component of microtubules within the cancer cell) simultaneously promoting the assembly and disassembly of microtubules to form stable, non-functioning microtubules, which in turn inhibits the mitotic activity of the cell, decreasing the cell's disassembly function and in some cases leading to the death of the cancer cell (apoptosis). The shortening and lengthening of microtubules (termed dynamic instability) is necessary for their function as a transportation highway for the cell. Chromosomes, for example, rely upon this property of microtubules during mitosis, according to Drugbank Online.

We expect that, for regulatory purposes, the EMulate Therapeutics *ul*RFE<sup>®</sup> therapeutic system will be evaluated by the FDA as a Class III medical device requiring approval of a PMA (see discussion below regarding FDA Premarket Clearance and Approval Requirements).

The human indications that we are initially targeting in our product pipeline include: (i) the glioblastoma multiforme (GBM) and the diffuse midline glioma (DMG) in the field of oncology, (ii) acute and chronic pain in the field of pain management, and (iii) PTSD, ADHD, anxiety and depression in the mental health field. The companion animal indications that we are initially targeting in our product pipeline include solid tumor cancers in the field of oncology, acute and chronic pain in the field of pain management, and anxiety in the mental health field.

Our device has been used in feasibility studies (phase 1 and phase 2 trials) to treat patients with GBM and DMG cancers, and will, consistent with FDA regulation, be used in pivotal clinical trials to treat GBM and DMG patients. These uses are the first of many product expressions of the Company's underlying *ul*RFE platform technology. Our therapeutic medical device has potential treatment applications in a wide range of diseases, including cancer, acute and chronic pain management, mental health conditions, among others.

We currently are not conducting active clinical trials, but we have completed studies with respect to two brain cancer indications: feasibility studies for GBM indication and a compassionate use study for the DMG/diffuse intrinsic pontine glioma (DIPG) indication. In each of these indications, we are ready to initiate pivotal (phase 3) trials, the results of which will be submitted to the FDA for commercialization approval. Initiation of these trials will depend, in part, on trial design (number of patients and the extent to which the trial is controlled and blinded) and cost. We anticipate that the pivotal trial for DMG, based on these factors, will be undertaken sooner than the pivotal trial for GBM.

With respect to acute and chronic pain management and mental health indications, we have completed enabling pre-clinical animal studies and are prepared to initiate feasibility (phase 1) human clinical trials. In its initial review of our device and data to date in oncology indications, the FDA did not make any negative comments regarding safety or effectiveness (although the absence of such comments is not predictive of future determinations by the FDA based on analysis of further trial data from pivotal trials or otherwise). We will be required to perform additional clinical trials in order to obtain FDA approval for the use of our device in treating acute and chronic pain and mental health indications. We plan to seek FDA approval for treating, or for further treatment of, each medical indication within the fields of oncology, pain management and mental health.

**Pipeline**

The chart below depicts our product pipeline. Columns with rectangular headings describe completed activities, and arrow headings indicate activities yet to be completed.

![](forms-1a_034.jpg)

We are pivotal trial-ready in the therapeutic areas of oncology, specifically in respect of GBM (both newly diagnosed and recurring incidences) and DMG/DIPG. Currently, there are no effective drug treatments for GBM because, among other reasons, existing chemotherapies are unable to pass through the blood/brain barrier and those drug treatments that can are not consistently effective, while our *ul*RFE signals, with their beneficial effects, freely pass through the entire brain. Prior to Novocure's Optune approval in 2015 for newly diagnosed GBM, there had not been any clinical improvements for this patient population since the approval of temozolomide in August 1999. Nonetheless, Optune has demonstrated a significant market opportunity in GBM generating $550 million in annual revenues for Novocure. EMulate believes that if its GBM therapeutic product can generate similar or better clinical outcomes as Optune, it will gain significant market share based on clinician, patient, caretaker and investor feedback.

Our subsidiary, Cellsana Therapeutics, Inc. was established in February 2022 to provide transactional and partnering flexibility in the oncology sector.

We are presently conducting pre-clinical studies and collecting data which has to date been encouraging from limited human exposures in the therapeutic area of acute and chronic pain management.

Our subsidiary, Indolor Therapeutics, Inc. was established in November 2021 to provide transactional and partnering flexibility in the pain management sector. We are presently conducting pre-clinical studies and collecting data, which has to date been encouraging, from limited human exposures in the therapeutic area of mental health and other CNS conditions.

Our subsidiary, Mensana Therapeutics, Inc. was established in November 2021 to provide transactional and partnering flexibility in the mental health/CNS sector.

Our subsidiary, Zoesana Animal Health, Inc., was established in June 2022 to provide transactional and partnering flexibility in the animal health sector.

We have animal proof of concept validated in the therapeutic area of ag-bio.

Hapbee is approximately 23.5%-owned by EMulate and operates in the non-medical, consumer products area. Hapbee is at the commercialization/revenue stage. We created Hapbee, a Canadian company that is publicly listed on the TSX Venture Exchange (TSXV) under the symbol "HAPB" since October 2020, to utilize *ul*RFE technology for the consumer wellness industry. Hapbee has licensed certain recorded *ul*RFE signals from us for use in its non-regulated, consumer-focused business.

**Market Opportunity**

The market for pain management is illustrated in the figure below.

![](pain_001.jpg)

**Industry Overview**

Magnetic fields have been shown to have specific effects on biological systems. For example, they have been found to alter the analgesic effects of opioids, produce analgesic responses, stimulate bone growth, reduce tissue swelling, and promote wound healing in both animal models and humans. Magnetic fields that enhance bone growth and aid in wound healing have been in clinical use for at least 40 years. Pain reduction has been observed in studies of breast reconstruction and breast reduction, post-cesarean operative recovery, and osteoarthritis. Analgesic and opioid use and edema were also reduced in breast reduction, breast reconstruction and post-caesarean patients. Devices generating magnetic fields are effective for treating major depression and obsessive-compulsive disorder, and such devices are recommended for treating acute phase of depression in patients who are resistant and intolerant of other therapeutic options. In concert with the clinical development of magnetic field use, researchers have attempted to define the underlying biological effects that lead to the field's therapeutic effects and to relate them to one or more of the underlying theories of magnetic field function. This work has included isolated protein systems, cells grown in culture, and organisms ranging from nematodes to mammals, as well as numerical modeling of the functions of the cell.

In addition, magnetic fields have been shown to alter the behavior of the epidermal growth factor receptor (EGFR), an important regulator of cell growth. This receptor, when exposed to a magnetic field, forms clusters in the membrane, which leads to phosphorylation of the receptor and to activation of one of the receptor targets. These changes reflect what occurs when epidermal growth factor binds to EGFR and indicate that the magnetic field activated the receptor in the absence of its natural activator epidermal growth factor. Proliferation and cell migration are affected by magnetic fields. The growth and migration of endothelial cells has been reported to be altered by magnetic fields. Mice injected with a transformed cell line formed smaller tumors when treated with magnetic fields. Additional studies in models of cancer demonstrate effects of magnetic fields. Thus, evidence that magnetic fields have beneficial effects in therapeutics is abundant.

Our technology falls within the mainstream of science regarding the use of magnetic fields for treating maladies and diseases, as described above. It measures and records the electromagnetic emission of molecules and then transmits the electromagnetic radiation fields in an oscillating form by *ul*RFE. As with all magnetic fields, our *ul*RFE signals are not attenuated by physiological barriers, such as the blood/brain or enzymatic barriers, and therefore, unlike pharmaceuticals which must pass through the metabolic system, can be applied directly to the affected biological site. Mapping of the *ul*RFE field and non-attenuation by bone and tissue data have been submitted by us, at the FDA's request, to the FDA. The use of EMulate's *ul*RFE magnetic field technology is not limited to the treatment of a single indication, but, consistent with the established science referred to above, can potentially be applied to treat multiple serious diseases and conditions such as cancer, acute and chronic pain and mental health conditions, and by overcoming physiological barriers and certain limitations of current pharmaceutical treatments (e.g., blood/brain barrier), may provide a more effective solution than existing treatments.

**Competition**

To our knowledge, the FDA has not approved or cleared any product that uses the same mechanism of action as our cancer-treating device. The Optune product of Novocure GmbH is an FDA-approved medical device being marketed in the United States and other markets for the treatment of GBM. If EMulate's *ul*RFE therapeutic medical device for treating GBM brain cancer is approved for commercialization by the FDA, the Optune device will be the only product known to us as of the date of this prospectus that will be a competitor for the treatment of GBM. However, Optune uses a markedly different technology. Optune claims to disrupt cell division through the use of heat-generating electrical energy; EMulate's therapeutic device disrupts cancer cell division through the use of specific low and ultra-low radiofrequency energy, which has no thermal or ionizing effect.

We may also compete with other products that have come or may come to the oncology market in the future, though we are unaware at this time of any entities directly competing by using our technology. For more detailed information regarding our technology, products, plans regarding clinical trials and plans to seek FDA approval, see the *"Business"* section*.*

We have no known competitors in treating DMG/DIPG brain cancer since treatments available in the market are not effective; that is, survival outcomes have not changed notwithstanding attempted treatments.

Several competitors (see e.g., pain management market figure) exist in the pain management and mental health sectors, but to our knowledge, no competing medical device uses the same mechanisms of action as, or provides the benefits of, our *ul*RFE technology.

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In addition, Hapbee's consumer products face direct and indirect competition from a variety of players engaged in the wearables industry such as Oura Ring, Halo Neuroscience, Muse, NeoRhythm and Calm, as well as software applications that claim to produce benefits like those of wellness products. The table below is a comparison of Hapbee to its competitors.

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**Our Competitive Strengths** 

We believe that the following competitive strengths will enable us to compete effectively:

● Large market opportunities. Results from testing in animals and humans to date suggest the technology's effectiveness for treating solid cancer tumors such as mycosis fungoides, plasma cell tumors, fibrosarcomas, neurofibrosarcomas, schwannomas, malignant melanomas, hermangiopericytomas, hepatic adenocarcinomas, mast cell tumors, adenocarcinomas (mammary), osteosarcomas, chondrosarcomas, apocrine gland adenocarcinomas, undifferentiated carcinomas, and transitional cell carcinomas.

● Continual development of innovative technologies and applications. EMulate is a true platform technology because it can be applied to multiple medical indications, and therefore will readily lend itself to continuing product and market development. As discussed below, the EMulate technology has applications in the non-medical consumer wellness space, and can be applied also in veterinary medicine and agriculture. Currently, our technology is used by EMulate or its licensee, Hapbee, in over ten applications.

● Technology that is designed to be used, as it has been used in investigations for the treatment of GBM, DMG, and acute and chronic pain conditions to date, to emulate the therapeutic effects of many drugs/drug combination treatments for not one, but many serious disease indications and conditions.

● Technology presents a less expensive alternative, as compared to drug development, for developing effective disease and condition treatments. It takes less time and expense for the Company to develop a therapeutic product because we do not need to invent the molecule from which the relevant *ul* RFE signal is derived; rather, we measure and record the electromagnetic emissions of proven molecules for transmission to biological systems. As an example, EMulate identified two lead indications as candidates for clinical investigation, pain management and mental health. For each of these indications, it took less than 12 months and $500,000 to take a product from concept to clinic-readiness.

● Our medical device is portable, lightweight, and easy to use, comparing favorably to other therapeutic products in the market.

Moreover, when it comes to the use of our technology for treating GBM, our therapeutic medical device has strong potential market advantages when compared to Optune. As illustrated in the graphic above, it features:

● Ability to reproduce and deliver MOA of multiple drugs/combination therapies

● Freely penetrates the brain and does not generate thermal or ionizing energy

● Response within 23 to 28 days

● 3+ month rGBM survival improvement

● User-friendly

● No need to shave hair, non-stigmatizing

● Lightweight 3-ounce controller

● 12 to 16 hour battery life

**Our Growth Strategies**

● Continuous focus on product innovation.

● We believe there is a serious need for our *ul* RFE therapies in both U.S. and international markets and we aim to drive adoption and utilization of our products by leveraging additional clinical studies and market education.

Our business plan includes a strategy for the treatment of multiple disease indications. Because of the high, unmet need in treatments for multiple rare diseases or conditions, our initial strategy for the oncology market is to target the treatment of rare diseases and conditions and then, under appropriate regulatory and business conditions, to target larger oncology markets such as lung cancer and breast cancer. The Company's *ul*RFE signal derived from paclitaxel, a well understood chemotherapy, has the potential to affect several tumor types, as initially demonstrated in the treatment of glioblastoma in adult patients and of DMG/DIPG in pediatric patients, presenting a promise for improving quality of life and extending life in patients with other cancers. Further DMG/DIPG and GBM clinical trials are expected to support the use of the Company's therapeutic medical device and the paclitaxel *ul*RFE signal for the treatment of many other solid tumor types. The successful completion of these clinical trials will provide the basis for us to initiate and pursue other clinical trials using the paclitaxel *ul*RFE signal.

Our broader business strategy includes the development of *ul*RFE signals for the treatment of other oncology indications, as well as other serious disease indications. The Company plans to out-license its technology to other companies that are active, or interested in becoming active, in treating particular indications. As an alternative to licensing its technology, we can, directly or through our vertical market subsidiaries, partner or combine with other companies. In these arrangements, we will have the flexibility to develop multiple market entries and grant rights to the use of our technology to various market participants. Initial licensing and distribution transactions with Teijin Pharma (Japan; 2016) and Sayre (India; 2018) to treat GBM and DMG provide third-party validation of this business approach.

In the next 12 to 24 months, with appropriate funding, we plan to (1) initiate pivotal clinical trials for GBM and DMG indications, (2) initiate or continue feasibility trials in pain management and mental health, (3) establish partnering and/or licensing relationships for treating additional indication in humans, and (4) establish partnering and/or licensing relationships for treating indications in animals and for advancing bio-agriculture business initiatives. These and additional milestones are illustrated in the following image.

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Hapbee in-licenses our technology for use in the non-medical consumer wellness and lifestyle space. Other potential market opportunities are present in veterinary medicine and agriculture.

The achievement of these milestones will depend on our ability to raise sufficient funds, and the achievement of certain of the milestones described above (e.g., commercial launch of a product for treating DMG brain cancer) will depend, in material part, on the FDA's decision to approve relevant products for commercialization, which depends on the results of future clinical trials. In many product cases, however, value would be realized from the Company's licensing of the related technology to companies or organizations that operate, or desire to operate, in the markets in which such technology applies. The level of such product value would be increased, but not determined solely, by or with respect to the FDA's approval of the product for commercialization.

**COVID-19 Pandemic**

Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, "stay at home" rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. As a result, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, including such authorities in Europe, which could result in delays of reviews and approvals. While there have been no specific notices of delay from federal or foreign government authorities, potential interruptions, delays, or changes to the operations of the FDA, or of any foreign authority with which we might interact, might impact the approval of any applications we plan and will need to file in the future.

In addition, we are dependent upon certain contract manufacturers, service providers and suppliers, and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers, service providers and suppliers. As a result, we may face delays or difficulty sourcing certain products or services, which could negatively affect our business and financial results.

For a further discussion of the impact of the COVID-19 pandemic on our business, see "*Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of COVID-19 Pandemic*" and "*Risk Factors*" sections.

**Implications of Being a Smaller Reporting Company**

We are a "smaller reporting company" as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates equals or exceeds $250 million as of the prior June 30th, or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June 30th. Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our results of operations and financial prospects.

For additional information, see *"Risk Factors - Because we are a 'smaller reporting company,' we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less company information than they would receive from a public company that is not a smaller reporting company" and "As a 'smaller reporting company,' we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public shareholders."*

**Implications of Being an Emerging Growth Company**

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company for up to five years or until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (2) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"), which would occur on the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period, or (3) if the market value of our Common Stock held by non-affiliates exceeds $700 million as of any December 31 before that time, in which case we would no longer be an emerging growth company as of the following December 31. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, we may:

● present only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related management's discussion and analysis of financial condition and results of operations in this prospectus;

● avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley;

● provide reduced disclosure about our executive compensation arrangements; and

● not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result we will adopt new or revised accounting standards on relevant dates on which adoption of such standards is required for other public companies.

**Our** **Corporate History**

We are a Washington corporation incorporated on February 7, 2002. In June 2003, we amended the Articles of Incorporation of WavBank, Inc. to reflect the issuance of Series A Preferred Stock. In February 2006, we amended the Articles of Incorporation of WavBank, Inc. to change the Company's name to Nativis, Inc. In February 2012, we amended the Articles of Incorporation of Nativis, Inc. to reflect the issuance of Series A-1 Preferred Stock. In February 2013 and June 2014, we amended the Articles of Incorporation of Nativis, Inc. to reflect the issuance of additional shares of Series A-1 Preferred Stock. In February 2019, we amended the Articles of Incorporation of Nativis, Inc. to change our name to EMulate Therapeutics, Inc.

On October 8, 2022, our Board of Directors (the "Board") approved the mandatory conversion of all Series A-1 Preferred shares into shares of common stock at the Voluntary Conversion Price (as defined in the Company's Amended and Restated Articles of Incorporation) equal to $4.6875 upon the effectiveness of the registration statement of which this prospectus forms a part. Accordingly, each Series A-1 Preferred shareholder will be deemed to have exercised his or her option pursuant to Section 2(c)(i)(B) of the Company's Amended and Restated Articles of Incorporation to convert all of his, her or its Series A-1 Preferred shares at the Voluntary Conversion Price upon consummation of this offering.

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Our principal executive offices are located at 13810 SE Eastgate Way, Suite 560, Bellevue, Washington 98005, and our telephone number is (425) 415-3140. Our corporate website is https://emulatetx.com/. Information available on this website is not incorporated by reference in and is not deemed to be a part of this prospectus or the registration statement of which this prospectus is a part.

**SUMMARY OF THE OFFERING**

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| | |
|:---|:---|
| **Issuer:** | EMulate Therapeutics, Inc. |
| **Securities Offered:** | 2,500,000 shares of Common Stock, at an assumed public offering price of $5.00 per share of Common Stock, which is the midpoint of the range set forth on the cover page of this prospectus. |
| **Over-allotment option:** | We have granted to the representative of the underwriters ("Representative") a 45-day option to purchase up to 375,000 additional shares of our Common Stock at a public offering price of $5.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, less the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any. |
| **Representative's Warrants:** | We have agreed to issue to the Representative warrants to purchase a number of shares of Common Stock equal in the aggregate to 4% of the total number of shares issued in this Offering. The Representative's Warrants will be exercisable at a per share exercise price equal to 100% of the public offering price per share of Common Stock sold in this Offering. The Representative's Warrants will be exercisable at any time and from time to time, in whole or in part, during the four and a half-year period commencing six (6) months from the commencement date of sales in this Offering. The registration statement of which this prospectus forms a part also registers the shares of Common Stock issuable upon exercise of the Representative's Warrants. See "*Underwriting*" for more information. |
| **Common Stock issued and outstanding (or reserved for issuance) before this Offering (1):** | 15,370,766 Shares |
| **Common Stock issued and outstanding after the offering (2):** | 7,246,724 Shares |
| **Use of proceeds:** | Based upon an assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering, after deducting the underwriting discounts and the estimated offering expenses payable by us, of approximately $10.4 million assuming the underwriter does not exercise its over-allotment option. <br>We intend to use the net proceeds of this Offering primarily for general corporate purposes, including clinical trials, preclinical research and development, technology development, outstanding accounts payable and working capital. For use of the net proceeds of this Offering by therapeutic area and additional information, see "*Use of Proceeds*".  |
| **Proposed Nasdaq Capital Market Trading Symbol and Listing:** | We have applied to list our Common on the Nasdaq Capital Market under the symbol "EMTX". We believe that upon the completion of this Offering, we will meet the standards for listing on Nasdaq. The closing of this Offering is contingent upon the successful listing of our Common Stock on Nasdaq. |
| **Risk Factors:** | See "*Risk Factors*" beginning on page 11 and the other information contained in this prospectus for a discussion of factors you should carefully consider before investing in our securities. |
| **Lock-up:** | We, our directors, executive officers, and shareholders who own 5% or more of our outstanding Common Stock have agreed, or will agree, with the underwriters not to offer for sale, issue, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company, in the case of the Company for a period of 120 days after the date of this prospectus, and in the case of our directors and executive officers and our 5% and greater stockholders for a period of 180 days after the date of this prospectus, without the prior written consent of the underwriter. See "*Underwriting*" for additional information. |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) The
 total number of shares of Common Stock issued and outstanding (or reserved for issuance) prior to this offering is
 based on 15,370,766 shares of Common Stock outstanding as of September 30, 2022.

(2) The total number of shares of Common Stock issued and outstanding
 after this offering will be 7,246,724 and excludes the following:

● 465,301 shares of Common Stock issuable upon exercise of warrants to purchase Common Stock;

● [1,984,000] shares of Common Stock issuable upon conversion of debt which is based on a formula and presently indeterminable;

● 5,500,000 shares of Common Stock (4,931,735 shares of which have been issued and some of which are subject to vesting) issuable upon exercise of options to purchase Common Stock and 2,200,000 shares of our Common Stock (1,524,343 shares of which have been issued and are subject to vesting) issuable upon exercise of Restricted Stock Units to receive Common Stock under our Amended and Restated 2016 Equity Incentive Plan (the "Plan"); and

● 100,000 shares of our Common Stock issuable upon exercise of the Representative's warrants to purchase Common Stock.

Unless otherwise indicated, this prospectus reflects and assumes no exercise by the underwriters of their over-allotment option.

**Summary of Risk Factors**

Our business is subject to a number of risks and uncertainties of which you should be aware before making an investment decision. You should consider all of the information set forth in this prospectus and, in particular, the specific factors set forth under *"Risk Factors"* in deciding whether to invest in our securities. These risks include, without limitation, the following:

*Risks relating to our business and products*

 

● Our business and prospects depend heavily on our current investigational products, which have not been approved by the FDA and comparable authorities in other jurisdictions. If we are unable to obtain regulatory approvals and commercialize our products, or are significantly delayed or limited in doing so, our business and prospects will be materially harmed.

● To date, we have not generated any operating profits, and due to our long-term research and development efforts, we have a history of incurring substantial operating losses.

● We have suffered recurring losses from operations and have a net capital deficiency that raises substantial doubt about our ability to continue as a going concern.

● We may not be successful in achieving market acceptance of our products by healthcare professionals, patients and/or third-party payers in the timeframes we anticipate, or at all, which could have a material adverse effect on our business, prospects, financial condition and results of operations.

● Failure to secure and maintain adequate coverage and reimbursement from third-party payers could adversely affect acceptance of our products and reduce our revenues.

● Quality control problems with respect to devices and components supplied by third-party suppliers could have a material adverse effect on our reputation, our clinical studies or the commercialization of our products and, as a result, a material adverse effect on our business, prospects, financial condition and results of operations.

● Continued testing of our products may not yield successful results and could reveal currently unknown aspects or safety hazards associated with our products.

● Because of the specialized nature of our business, the termination of relationships with our key employees, consultants and advisors may be detrimental to our business.

&nbsp;&nbsp;&nbsp;&nbsp;

● Product liability suits, whether or not meritorious, could be brought against us and result in expensive and time-consuming litigation, payment of substantial damages and/or expenses and an increase in our insurance rates.

● Other future litigation and regulatory actions could have a material adverse impact on the Company.

● Our products face certain risks, including from cyber security breaches and data leakage. We are also subject to privacy and data security laws.

● Legislative and regulatory changes in the U.S. and in other countries regarding healthcare and government-sponsored programs may adversely affect us.

● We are subject to ongoing and extensive post-marketing regulation by the FDA and comparable authorities in other jurisdictions, which could cause us to incur significant costs to maintain compliance.

● Modifications to our products may require regulatory approvals and our regulators may not agree with our conclusions regarding whether new approvals are required. Regulatory authorities may require us to cease promoting or to recall the modified versions of our products until such approvals are obtained.

● In addition to FDA requirements, we will spend considerable time and money complying with other federal, state, local and foreign rules, regulations and guidance.

● If we, our collaborative partners, our contract manufacturers, or our component suppliers fail to comply with regulations, the manufacturing and distribution of our products could be interrupted.

● Our products could be subject to recalls that could harm our reputation and financial results.

● If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.

● We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label uses.

● We are affected by and subject to environmental laws and regulations that could be costly to comply with or that may result in costly liabilities.

● Changes in U.S. patent law could impair our ability to protect our intellectual property.

● Future regulatory action remains uncertain.

● Our product candidates will remain subject to ongoing regulatory review even after they receive marketing approval, and if we fail to comply with continuing regulations, we could lose these approvals and the sale of any of our approved commercial products could be suspended.

● We depend extensively on our proprietary technology, and we must protect those assets in order to preserve our business.

● Due in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates, and/or we may be unable to pursue the pre-clinical studies or clinical trials that we would like to pursue.

● If the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates.

● With the exception of certain oncology areas that are wholly unserved with viable treatments, the oncology, pain management and mental health treatment industries in which our Company competes is intensely competitive, and we compete with companies with significantly greater resources.

*Risks Related to Our Common Stock and this Offering*

● There has been no public market for our Common Stock prior to this Offering, and an active market in which investors can resell their shares of our Common Stock may not develop.

● Volatility in the market price of our Common Stock may prevent investors from being able to sell their Common Stock at or above the initial public offering price.

● Certain recent initial public offerings with smaller public floats have experienced extreme price volatility that was seemingly unrelated to company performance. Such volatility may make it difficult for prospective investors to assess the rapidly changing value of our Common Stock.

● We may not be able to satisfy the continued listing requirements of Nasdaq or maintain a listing of our Common Stock on Nasdaq.

● We have considerable discretion as to the use of the net proceeds from this Offering and we may use these proceeds in ways with which you may not agree.

● You will experience immediate and substantial dilution as a result of this Offering.

● We do not expect to declare or pay dividends in the foreseeable future.

● Future issuances of our Common Stock or securities convertible into, or exercisable or exchangeable for, our Common Stock, or the expiration of lock-up agreements that restrict the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our Common Stock to decline and would result in the dilution of your holdings.

● Future issuances of debt securities, which would rank senior to our Common Stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our Common Stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Common Stock.

**RISK FACTORS**

*Investing in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained in this prospectus before you decide to purchase our Common Stock. The risks and uncertainties described in this prospectus are not the only ones we may face. Additional risks and uncertainties that we do not presently know about or that we currently believe are not material may also adversely affect our business, business prospects, results of operations or financial condition. Any of the risks and uncertainties set forth herein, could materially and adversely affect our business, results of operations and financial condition. This could cause the market price of our Common Stock to decline, perhaps significantly, and you may lose part or all of your investment.*

**Risks relating to our business and our products**

***Our business and prospects depend heavily on our current investigational products, which have not been approved by the FDA. Even if we receive FDA approval for our products, they will remain subject to ongoing regulatory review. If we are unable to obtain regulatory approvals and commercialize our products, or are significantly delayed or limited in doing so, our business and prospects will be materially harmed.***

Almost all of our revenues will, in the near term, derive from sales and royalties from sales of our investigational therapeutic medical devices, if approved, for the treatment of newly diagnosed and recurrent GBM, DMG, acute and chronic pain, mental health and CNS conditions, and Hapbee licensing agreements and, potentially, dividends from Hapbee based on the earnings from consumer use products that help with sleep, focus, and other life-improving sensations. The commercial success of our products and our ability to generate and maintain revenues from the sale of our products will depend on a number of factors, including:

● our ability to develop investigational products and obtain regulatory approvals and commercialize our products;

● our ability to expand into new markets and future indications;

● the acceptance of our products by patients and the healthcare community, including physicians and third-party payers (both private and governmental), as therapeutically effective and safe;

● the accomplishment of various scientific, engineering, clinical, regulatory and other goals, which we sometimes refer to as milestones, on our anticipated timeline;

● the relative cost, safety and efficacy of alternative therapies;

● our ability to obtain and maintain sufficient coverage or reimbursement by private and governmental third-party payers and to comply with applicable health care laws and regulations;

● the ability of our third-party manufacturers to manufacture our products in sufficient quantities with acceptable quality;

● our ability to provide marketing, distribution and customer support for our products;

● the presence of competitive products in our active indications;

● results of future clinical studies relating to our products or other competitor products for similar indications;

● compliance with applicable laws and regulatory requirements, in particular in the United States, the EU and Japan;

● the maintenance of our regulatory approvals, if obtained; and

● the consequences of any reportable adverse events involving our products.

In addition, the promotion of our products will be limited to approved indications, which will vary by geography. We anticipate that the labeling for our EMulate therapeutic medical devices in the U.S. will be limited in certain respects, which may limit the number of patients to whom it is prescribed. In addition, the labeling for Hapbee consumer use products contains certain limitations that may adversely affect adoption.

Our ability to generate future revenues will also depend on achieving regulatory approval of, and eventual commercialization of, our products for additional indications and in additional geographies, which is not guaranteed. Our near-term prospects are substantially dependent on our ability to obtain regulatory approvals on the timetable we have anticipated, and thereafter to further successfully commercialize our products for additional indications. Regulatory changes or actions in areas in which we operate or propose to operate may further affect our ability to obtain regulatory approvals on our anticipated timetable. If we are not able to receive such approvals, meet other anticipated milestones, or further commercialize our products, or are significantly delayed or limited in doing so, our business and prospects will be materially harmed and we may need to reduce expenses by delaying, reducing or curtailing the development of our products and we may need to raise additional capital to fund our operations, which we may not be able to obtain on favorable terms, if at all.

***To date, we have not generated any operating profits, and due to our long-term research and development efforts, we have a history of incurring substantial operating losses.***

We were founded in 2002 and have a history of incurring substantial operating losses. We anticipate continuing to incur significant costs associated with developing and commercializing our products for approved indications including signal development, device hardware and software development, product sales, marketing, manufacturing, and distribution expenses. We expect our research, development, and clinical study expenses to increase in connection with our ongoing activities and as additional indications enter clinical development and as we advance our product development. Our expenses could increase beyond expectations if, for example, we are required by the FDA, or other regulatory agencies or similar governing bodies, to change manufacturing processes for our products or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. Our revenues are dependent, in part, upon the size of the markets in the jurisdictions in which we receive regulatory approval, the accepted price for our products and the ability to obtain reimbursement at the accepted applicable price. If the number of addressable patients is not as significant as we or our strategic partners and licensees estimate, the indications approved by regulatory authorities are narrower than we expect or the eligible population for treatment is narrowed by competition, regulatory approvals, physician choice or treatment guidelines, we may not generate significant revenues. If we are not able to generate significant revenues, we may never be sustainably profitable. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to the financial statements.

***We have material weaknesses in our internal control over financial reporting. If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.***

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Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Prior to this offering, due to accounting resource constraints, we have had limited review controls. These constraints have resulted in (1) a lack of internal segregation of duties, since we have a limited administrative staff, and (2) lack of internal controls structure review. As a result of these constraints, we have a material weakness in our internal control over financial reporting.

Our management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. All responsibility for accounting entries and the creation of financial statements is held by a single person, though the Company has previously employed additional accounting staff and currently engages multiple accounting consultants for accounting, tax and audit support. To remedy this situation and remove the material weakness, we would need to hire additional staff and/or financial consultant support. In May 2022, we engaged a finance and accounting CPA firm to add a layer of public reporting expertise and assist with internal controls. Currently, we are unable to hire additional staff to facilitate greater segregation of duties but will reassess our capabilities after completion of the offering.

In connection with this offering, we intend to begin the process of documenting, reviewing and improving our internal controls and procedures as a public company for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, the Company has undertaken various actions, and will take additional actions, such as remediating the material weaknesses described above, implementing additional internal controls and procedures and hiring internal audit staff or financial consultants. Testing and maintaining internal controls can divert our management's attention from other matters that are important to the operation of our business. Additionally, when evaluating internal controls over financial reporting, the Company may identify additional material weaknesses that it may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. If the Company identifies any additional material weaknesses in its internal control over financial reporting or is unable to remediate the material weakness described above or comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if the Company's independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting once it is no longer an emerging growth company, or if the Company is unable to conclude in our quarterly and annual reports that our disclosure controls and procedures are effective, investors may lose confidence in the accuracy and completeness of the Company's financial reports and the market price of our Common Stock could be negatively affected, and the Company could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

In addition, if the Company fails to remediate any material weakness, including the material weaknesses described above, our financial statements could be inaccurate and the Company could face restricted access to capital markets. Our small size and internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. Moreover, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.

***If any governmental authority were to require marketing authorization or similar certification for the Hapbee consumer use products, or for any other product that we or our partners sell and which we or our partners do not believe requires marketing authorization, we or our partners could be subject to regulatory enforcement action and/or be required to cease selling or recall the product pending receipt of marketing authorization from such governmental authority, which can be a lengthy and time-consuming process, harm financial results and have long-term negative effects on our operations.***

We do not, as of the date of this prospectus, have any plans to market or sell any of our products, including those licensed in the future to any of our partners, as a consumer wellness or lifestyle product in the non-medical field. Should we develop such plans, the risk factors applicable to Hapbee discussed below would apply also to us or our future partners.

Hapbee in-licenses our technology for use in the non-medical consumer wellness and lifestyle space. Hapbee commercializes its consumer use products for help with sleep, focus, and other life-improving sensations. Neither we nor Hapbee has obtained any medical device clearance, marketing authorization, or approval from any governmental authority for our technology. Hapbee has concluded that its consumer wellness products are not medical devices and do not require clearance, marketing authorization, or approval from the FDA or similar marketing authorization or certification from such other regulatory authorities. However, regulatory authorities may disagree with that conclusion, and if they do, Hapbee may be required to obtain clearance, marketing authorization, or approval, or other certification to continue to sell the products.

Obtaining clearance, marketing authorization or approval to sell the Hapbee consumer use products as medical devices is a time-consuming and costly process and Hapbee may be precluded from selling if it is required to obtain marketing authorization, such as a clearance or approval, or other certification. If granted, a clearance, marketing authorization, or approval could require conditions to sale, for example, a prescription requirement. If regulatory authorities require such clearance, marketing authorization, or approval for the Hapbee consumer use products, Hapbee could be subject to regulatory enforcement action and/or required to cease selling or recall the product in the corresponding jurisdiction pending receipt of such clearance, marketing authorization, or approval, which can be a lengthy and time-consuming process. In addition, Hapbee may be required to modify the product's functionality or limit the product's marketing claims, whether or not Hapbee obtains such clearance, marketing authorization, or approval. In any such event, our business could be substantially harmed.

***Our clinical studies could be delayed or otherwise adversely affected by many factors, including difficulties in enrolling patients.***

Clinical testing can be costly and take many years, and the outcome is uncertain and susceptible to varying interpretations. Moreover, success in pre-clinical and early clinical studies, including feasibility studies, does not ensure that large-scale studies will be successful or predict final results. Acceptable results in early studies may not be replicable in later studies. A number of companies in therapeutics industries have suffered significant setbacks in advanced clinical studies, even after promising results in earlier studies. Negative or inconclusive results or adverse events or incidents during a clinical study could cause the clinical study to be redone or terminated. In addition, failure to appropriately construct clinical studies could result in high rates of adverse events or incidents, which could cause a clinical study to be suspended, redone or terminated. Our failure or the failure of third-party participants in our studies to comply with their obligations to follow protocols and/or legal requirements may also result in our inability to use the affected data in our submissions to regulatory authorities.

The timely completion of clinical studies depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment in our clinical studies for a variety of reasons, including:

● the severity of the disease under investigation;

● the limited size and nature of the patient population;

● the patient eligibility criteria defined in our protocol and other clinical study protocols;

● the nature of the study protocol, including the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects;

● difficulties and delays in clinical studies that may occur as a result of the COVID-19 pandemic;

● the ability to obtain IRB approval at clinical study locations;

● clinicians' and patients' perceptions as to the potential advantages, disadvantages and side effects of our products in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are pursuing;

● availability of other clinical studies that exclude use of our products;

● the possibility or perception that enrolling in a product's clinical study may limit the patient's ability to enroll in future clinical studies for other therapies due to protocol restrictions;

● the possibility or perception that our software is not secure enough to maintain patient privacy;

● patient referral practices of physicians;

● the ability to monitor patients adequately during and after treatment;

● the availability of appropriate clinical study investigators, support staff, drugs and other therapeutic supplies and proximity of patients to clinical sites;

● physicians' or our ability to obtain and maintain patient consents; and

● the risk that patients enrolled in clinical studies will choose to withdraw from or otherwise not be able to complete a clinical study.

If we have difficulty enrolling and retaining a sufficient number or diversity of patients to conduct our clinical studies as planned, or encounter other difficulties, we may need to delay, terminate or modify ongoing or planned clinical studies, any of which would have an adverse effect on our business.

***If we are unable to develop an adequate sales and marketing organization or contract with third parties to assist us, we may not be able to successfully commercialize our products for current and future indications.***

To achieve commercial success for our products, we must compliantly develop and grow our sales and marketing organization and, as necessary, enter into sales and distribution relationships with third parties to market and sell our products. Developing and managing a sales and marketing organization is a difficult, expensive and time consuming process. We may not be able to successfully develop adequate sales and marketing capabilities to achieve our growth objectives. We compete with other medical device, pharmaceutical and life sciences companies to recruit, hire, train and retain the sales and marketing personnel that we anticipate we will need, and the nature of our products may make it more difficult to compete for sales and marketing personnel. In addition, because our current products require, and we anticipate our future products will require, physician training and education, our sales and marketing organization may need to grow substantially as we expand our approved indications and markets. As a consequence, our expenses associated with building up and maintaining our sales force and marketing capabilities may be disproportionate to the revenues we may be able to generate on sales of our products.

If we are unable to establish adequate sales and marketing capabilities or successful sales and distribution relationships, we may fail to realize the full revenue potential of our products for current and future indications, and we may not be able to achieve the necessary growth in a cost-effective manner or realize a positive return on our investment. In our current and future sales and distribution agreements with other companies, we generally do not and may not have control over the resources or degree of effort that any of these third parties may devote to our products, and if they fail to devote sufficient time and resources to the marketing of our products, or if their performance is substandard, our revenues may be adversely affected.

***The success of our business may be dependent on the actions of our collaborative partners.***

Our global business strategy includes, in part, the consummation of collaborative arrangements with companies who will support the development and commercialization of our products and technology. For example, we have exclusively licensed or granted rights in Japan and India, see "*Business—Intellectual Property.*" We may also enter into clinical collaborations with third parties to test our products and technology together with other products and technologies.

When we collaborate with a third party for commercialization of a product in a particular territory, we can expect to relinquish some or all of the control over the future success of that product to the third party in that territory. In addition, our collaborative partners may have the right to terminate applicable agreements, including payment obligations, prior to or upon the expiration of the agreed-upon terms. We may not be successful in establishing or maintaining collaborative arrangements on acceptable terms or at all, collaborative partners may terminate funding before completion of projects, our products may not achieve the criteria for milestone payments, our collaborative arrangements may not result in successful product commercialization, our products may not receive acceptable pricing and we may not derive any revenue from such arrangements. Additionally, our collaborators may not perform their obligations as expected or in compliance with study protocols or applicable laws. Acts or omissions by collaborators may disqualify study data for use in regulatory submissions and/or create liability for us in the jurisdictions in which we operate. Any disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of commercialization, might cause delays or termination of the commercialization of products, might lead to additional responsibilities for us with respect to commercializing products, or might result in litigation or arbitration, any of which would be time-consuming and expensive. To the extent that we are not able to develop and maintain collaborative arrangements, we would need to devote substantial capital to undertake commercialization activities on our own in order to further expand our global reach, and we may be forced to limit the territories in which we commercialize our products.

***We may not be successful in achieving market acceptance of our products by healthcare professionals, patients and/or third-party payers in the timeframes we anticipate, or at all, which could have a material adverse effect on our business, prospects, financial condition and results of operations.***

We may not achieve market acceptance of our products for current or future indications within the timeframes we have anticipated, or at all, for a number of different reasons, including the following factors:

● it may be difficult to gain broad acceptance of our products because they are new technologies and involve a novel or derivative mechanism of action and, as such, physicians may be reluctant to prescribe our products without prior experience or additional data or training;

● physicians may be reluctant to prescribe our products due to their perception that the supporting clinical study designs have limitations, as they are, for example, unblinded;

● physicians at large academic universities and medical centers may prefer to enroll patients into clinical studies instead of prescribing our products;

● it may be difficult to gain broad acceptance at community hospitals where the number of patients seeking treatment may be more limited than at larger medical centers, and such community hospitals may not be willing to invest in the resources necessary for their physicians to become trained to use our products, which could lead to reluctance to prescribe our products;

● patients may be reluctant to use our products for various reasons, including a perception that the treatment is untested or difficult to use or a perception that our software is not secure;

● our products may have side effects and our products cannot be worn in all circumstances; and

● the price of our products includes a monthly fee for use of the device and therefore, as the duration of the treatment course increases, the overall price will increase correspondingly and, when used in combination with other treatments, the overall cost of treatment will be greater than using a single type of treatment.

In particular, our products may not achieve market acceptance for current or future indications because of the following additional factors:

● achieving patient acceptance could be difficult because we are targeting devastating diseases with poor prognoses, and not all patients with potentially short lifespans are willing to comply with requirements of treatment with our products, and other patients may forego our products for financial, privacy, cosmetic, visibility or mobility reasons;

● achieving patient compliance may be difficult because the recommended use of our oncology products is throughout the day, requiring patients to wear the device nearly continuously, which to some extent restricts physical mobility because the battery must be frequently exchanged and recharged, and the patient or a caregiver must ensure that it remains continuously operable and this may also impact the pool of patients to whom physicians may be willing to prescribe our products;

● certain patients are contraindicated to using our products due to a variety of factors, including, but not limited to, those who have an implanted ferrous medical device or other ferrous implant at the site where the device is to be worn;

● there may be certain perceived limitations to our study designs or data obtained from our clinical studies;

● efficacy may also be limited in instances where patients take a break from the device when experiencing skin rashes, or while bathing or swimming (because our products should not get wet); and

● patients may decline therapy or prescribers may be unwilling to prescribe our products due to certain adverse events attributable to the device reported in clinical studies by patients treated with our products; adverse events reported in clinical studies by patients treated with our products were nausea, fatigue, excessive sleepiness, and vomiting, but those adverse events were identified as being only "possibly" related to the device.

In addition, even if we are successful in achieving market acceptance of our products for GBM, DMG or other indication, we may be unsuccessful in achieving market acceptance of our products for other indications.

There may be other factors that are presently unknown to us that also may negatively impact our ability to achieve market acceptance of our products. If we do not achieve market acceptance of our products in the timeframes we anticipate, or are unable to achieve market acceptance at all, our business, prospects, financial condition and results of operations could be materially adversely affected.

***Failure to secure and maintain adequate coverage and reimbursement from third-party payers could adversely affect acceptance of our products and reduce our revenues.***

We expect that the vast majority of our revenues will come from third-party payers either directly to us in markets where we provide our products or plan to provide our device candidates to patients or indirectly via payments made to hospitals or other entities providing our products or which may in the future provide our device candidates to patients.

In the U.S., private payers cover the largest segment of the population, with the remainder either uninsured or covered by governmental payers. The majority of the third-party payers outside the U.S. are government agencies, government sponsored entities or other payers operating under significant regulatory requirements from national or regional governments.

Third-party payers may decline to cover and reimburse certain procedures, supplies or services. Additionally, some third-party payers may decline to cover and reimburse our products for a particular patient even if the payer has a favorable coverage policy addressing our products or previously approved reimbursement for our products. Additionally, private and government payers may consider the cost of a treatment in approving coverage or in setting reimbursement for the treatment.

Private and government payers around the world are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of governments around the world. Adoption of additional price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our revenues and operating results. If third-party payers do not consider our products or the combination of our products with additional treatments to be cost-justified under a required cost-testing model, they may not cover our products for their populations or, if they do, the level of reimbursement may not be sufficient to allow us to sell our products on a profitable basis.

Reimbursement for the treatment of patients with medical devices around the world is governed by complex mechanisms established on a national or sub-national level in each country. These mechanisms vary widely among countries, can be informal, somewhat unpredictable, and evolve constantly, reflecting the efforts of these countries to reduce public spending on healthcare. As a result, obtaining and maintaining reimbursement for the treatment of patients with medical devices has become more challenging globally. We cannot guarantee that the use of our products will receive reimbursement approvals and cannot guarantee that our existing reimbursement approvals will be maintained in any country.

Our failure to secure or maintain adequate coverage or reimbursement for our products by third-party payers in the U.S. or in the other jurisdictions in which we market our products could have a material adverse effect on our business, revenues and results of operations and cause our stock price to decline.

***We may not be successful in securing and maintaining reimbursement codes necessary to facilitate accurate and timely billing for our products or physician services attendant to our products*.**

Third-party payers, healthcare systems, government agencies or other groups often issue reimbursement codes to facilitate billing for products and physician services used in the delivery of healthcare. Within the U.S., the billing codes most directly related to our products are contained in the Healthcare Common Procedure Coding System (HCPCS code set). The HCPCS code set contains Level I codes that describe physician services, also known as Common Procedural Terminology codes (CPT codes) and Level II codes that primarily describe products. CMS is responsible for issuing the HCPCS Level II codes. The American Medical Association issues HCPCS Level I codes.

No HCPCS codes or CPT codes currently exist to describe physician services related to the delivery of therapy using our products. We may not be able to secure HCPCS codes and CPT codes for physician services related to our products. Our future revenues and results may be affected by the absence of CPT codes, as physicians may be less likely to prescribe the therapy when there is no certainty that adequate reimbursement will be available for the time, effort, skill, practice expense and malpractice costs required to provide the therapy to patients.

Outside the U.S., we have not secured codes to describe our products or to document physician services related to the delivery of therapy using our products. The failure to obtain and maintain these codes could affect the future growth of our business.

***There is no assurance that Medicare or the Medicare Administrative Contractors will provide coverage or adequate payment rates for our products.***

We anticipate that a significant portion of patients using our products will be beneficiaries under the Medicare fee-for-service program. Failure to secure or maintain coverage or maintain adequate reimbursement from Medicare would reduce our revenues and may also affect the coverage and reimbursement decisions of other third-party payers in the U.S. and elsewhere.

Medicare may classify our EMulate therapeutic medical device as durable medical equipment (DME). We also expect that, for purposes of regulatory and payor (such as Medicare) approvals of GBM and DMG treatments, the Company will be viewed as a "fast follower" of Novocure's (Nasdaq: NVCR) Optune medical device, that is, our device should (but not necessarily will) receive the same regulatory and payor treatment as Optune, which has been approved for commercialization by the FDA for GBM treatment and approved for payment coverage by U.S. government and private insurance providers. Novocure's Optune device is not classified as DME.

Medicare has the authority to issue national coverage determinations or to defer coverage decisions to its regional Medicare Administrative Contractors (MACs). The fact that only two MACs administer the entire DME program may negatively affect our ability to petition individual medical policy decision-makers at the MACs for coverage. The absence of a positive coverage determination or a future restriction to existing coverage from Medicare or the DME MACs would materially affect our future revenues.

Additionally, Medicare has the authority to publish the reimbursement amounts for DME products. Medicare may in the future publish reimbursement amounts for our products that do not reflect then-current prices for our products. Medicare fee schedules are frequently referenced by private payers in the U.S. and around the world. Medicare's publication of reimbursement amounts for our products that are below our products' established prices could materially reduce our revenues and operating results with respect to non-Medicare payers in the U.S. and our other active markets.

Even if our products were authorized by Medicare, CMS requires prior authorization for certain DME items. Claims for such items that did not receive prior authorization before they were furnished to a beneficiary will be automatically denied. In the event Medicare adds one of our products to the list of items requiring prior authorization, our ability to bill and secure reimbursement for patients who would otherwise be covered to use our product under the Medicare fee-for-service program may be reduced.

We cannot provide any assurance that we can access transitional, expedited, or expanded Medicare coverage for our products. CMS is expected to issue rules regarding coverage of emerging technologies; however, no specific information is available about the content of the expected rules and we cannot provide any assurance that any new rules regarding emerging technologies would be applicable to our future products.

***We may depend on single-source suppliers for some of our components. The loss of these suppliers could prevent or delay shipments of our products, delay our clinical studies or otherwise adversely affect our business.***

In certain jurisdictions, we may source some of the components of our products from only a single vendor. If any one of these single-source suppliers were to fail to continue to provide components to us on a timely basis, or at all, our business and reputation could be harmed. Our policy is to seek and maintain second-source suppliers, but we can provide no assurance that we will secure or maintain such suppliers. We have developed or are in the process of developing second sources for components in all jurisdictions. Various steps must be taken before securing these suppliers, including qualifying these suppliers in accordance with regulatory requirements, but we may never receive such approvals. The risks associated with the failure of our suppliers to comply with strictly enforced regulatory requirements as described below are exacerbated by our dependence on single-source suppliers.

If we experience any deficiency in the quality of, delay in or loss of availability of any components supplied to us by third-party suppliers, or if we switch suppliers or components, we may face additional regulatory delays and the manufacture and delivery of our products would be interrupted for an extended period of time, which could materially adversely affect our business, prospects, financial condition and results of operations. If we are required to obtain prior regulatory approval from the FDA or regulatory authorities or similar governing bodies in other jurisdictions or to conduct a new conformity assessment procedure for our products, regulatory approval for our products may not be received on a timely basis, or at all, which would have a material adverse effect on our business, prospects, financial condition and results of operations.

***Quality control problems with respect to devices and components supplied by third-party suppliers could have a material adverse effect on our clinical studies, the commercialization of our products or our reputation and, as a result, a material adverse effect on our business, prospects, financial condition and results of operations****.*

Our products, which are manufactured by third parties, are highly technical and are required to meet exacting specifications and regulatory requirements, including the QSR. Any quality control problems that we experience with respect to the devices and components supplied by third-party suppliers could have a material adverse effect on our attempts to complete our clinical studies, our operating expenses, the commercialization of our products or our reputation. The failure of our suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action, including warning letters, product recalls, suspension or termination of distribution, product seizures or civil penalties. If we experience any delay in the receipt or deficiency in the quality of products supplied to us by third-party suppliers, or if we have to switch to replacement suppliers, we may face additional regulatory delays and the manufacture and delivery of our products would be interrupted for an extended period of time, which would materially adversely affect our business, prospects, financial condition and results of operations.

***Continued testing of our products may not yield successful results and could reveal currently unknown aspects or safety hazards associated with our products****.*

Our research and development programs are designed to test the safety and effectiveness of our products through extensive pre-clinical and clinical testing. Even if our ongoing and future pre-clinical and clinical studies are completed as planned, we cannot be certain that their results will support our claims or that the FDA and other regulatory authorities will agree with our conclusions. Success in pre-clinical studies and early clinical studies, including feasibility studies, does not ensure that later clinical studies will be successful, and we cannot be sure that the later studies will replicate the results of prior studies and pre-clinical studies. The clinical study process may fail to demonstrate that our device candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a device candidate and may delay development of others. It is also possible that patients enrolled in clinical studies will experience adverse side effects that have not been previously observed. In addition, our pre-clinical and clinical studies for our device candidates involve relatively small patient populations and, as a result, these studies may not be indicative of future results.

We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our products, including the following:

● pre-clinical and clinical testing for our products may not produce the desired effect, may be inconclusive or may not be predictive of safety or efficacy results obtained in future clinical studies, following long-term use or in much larger populations;

● unanticipated adverse events or other side effects that are not currently known may occur during our clinical studies that may preclude additional regulatory approval or result in additional limitations to commercial use if approved; and

● the data collected from our clinical studies may not reach statistical significance or otherwise not be sufficient to support FDA or other regulatory approval.

If unacceptable side effects arise in the development of our products for future indications, we could suspend or terminate our clinical studies or the FDA or other regulatory authorities could order us to cease clinical studies or deny approval of our device candidates for any or all targeted indications, narrow the approved indications for use or otherwise require restrictive product labeling or marketing or require further clinical studies, which may be time-consuming and expensive and may not produce results supporting FDA or other regulatory approval of our products in a specific indication. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the study or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have a need to train medical personnel using our devices for clinical studies and upon any commercialization of our products for future indications. Inadequate training in recognizing or managing the potential side effects of our products could result in patient injury or death. Any of these occurrences may harm our business, prospects and financial condition significantly.

Any delay or termination of our clinical studies will delay the filing of submissions for regulatory approvals of our products and ultimately our ability to commercialize our products and generate revenues. Furthermore, we may abandon our products for indications that we previously believed to be promising. Any of these events could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***As we expand, we may experience difficulties managing our growth***.

Our anticipated growth will place a significant strain on our management and on our operational and financial resources and systems. We could face challenges inherent in efficiently managing a more complex business with an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Failure to manage our growth effectively could materially adversely affect our business. Additionally, our anticipated growth will increase the demands placed on our third-party suppliers, resulting in an increased need to carefully monitor the available supply of components and services and to scale up our quality assurance programs. There is no guarantee that our suppliers will be able to support our anticipated growth. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.

***Because of the specialized nature of our business, the termination of relationships with our key employees, consultants and advisors may prevent us from successfully operating our business, including developing our products, conducting clinical studies, commercializing our products and obtaining any necessary financing****.*

We are highly dependent on the members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each of our key executives, any of them could leave our employment at any time. We do not have "key person" insurance on any of our employees. The loss of the services of one or more of our current employees might impede the achievement of our business objectives.

The competition for qualified personnel in the medical device fields is intense, and we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. Our future success depends upon our ability to attract, retain and motivate highly skilled employees. In order to commercialize our products successfully, we will be required to expand our workforce, particularly in the areas of research and development and clinical studies, sales and marketing and supply chain management. These activities will require the addition of new personnel and the development of additional expertise by existing management personnel. We face intense competition for qualified individuals from numerous pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other research institutions. We may not be able to attract and retain these individuals on acceptable terms or at all. Failure to do so could materially harm our business.

***We will need substantial additional funding to support our operations and pursue our growth strategy. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts***.

Based on our current operating plan, which is subject to change pursuant to our strategic review, we expect to devote substantial financial resources to our ongoing and planned activities. Significant financial resources will be required to conduct research and development and to potentially seek regulatory approval for our other product candidates. In addition, substantial financial resources will be required for to commercialize our products, if approved, including product manufacturing, sales, marketing and distribution for any of our product candidates for which marketing approval is obtained. Accordingly, substantial additional funding will be required to support our continuing and planned operations. If we are unable to raise or otherwise access capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

***Our need for capital will create additional risks and create potential substantial dilution to existing shareholders.***

As mentioned above, we will need to raise additional capital in the future. These capital expenditures are intended to be funded from third party sources and from affiliates if available, including the incurring of debt (which may be converted into common stock) and/or the sale of additional equity securities. As of December 31, 2022, the Company is indebted to certain individuals in the amount of $5.0 million in principal and interest on promissory notes that are payable or convertible on demand; $0.9 million in short-term deferred compensation which is due on demand; and $5.5 million in long-term deferred compensation and postemployment benefits which is payable upon board approval. The Company has no means to repay its existing debt.

Pursuant to an arbitrated settlement in 2016 with two former employees and founders of the Company regarding the severance amounts payable under their respective employment agreements, we are obligated for the payment of a severance amount to these individuals. Payment of the full amount has to date been deferred pursuant to a series of agreements, the most recent of which was executed as of December 31, 2022, for a deferral period ending March 3, 2023, and we will remain current in our scheduled payment obligations under those deferral agreements until March 3, 2023. The unpaid aggregate severance amount as December 31, 2022 is approximately $5.7 million and interest accrued as of December 31, 2022, is approximately $0.4 million. We are in discussions with the former employees and founders. The ultimate outcome of this matter cannot be predicted at this time.

To the extent that any of the debt described is converted to common stock, or converted from preferred stock to common stock, the conversion of this debt will cause additional dilution to existing shareholders, which may be substantial. In addition, the sale of additional equity securities or the sale and conversion of other debt likewise will be dilutive to the interests of current equity holders and such dilution may be substantial. There can be no assurance that such additional financing, whether debt or equity, will be available to the Company or that it will be available on acceptable commercial terms. Any inability to secure such additional financing on appropriate terms could have a material adverse impact on the business, financial condition and operating results of the Company.

***Product liability suits, whether or not meritorious, could be brought against us due to alleged defective devices or for the misuse of our products, which could result in expensive and time-consuming litigation, payment of substantial damages and/or expenses and an increase in our insurance rates****.*

If our current or future devices are defectively designed or manufactured, contain defective components or are misused, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. For example, we may be sued if our products cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. This may occur if our products are misused or damaged, have a sudden failure or malfunction (including with respect to safety features) or are otherwise impaired due to wear and tear. Even absent a product liability suit, malfunctions of our products or misuse by physicians or patients would need to be remedied swiftly in order to maintain continuous use and ensure efficacy of our products.

Any product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the device, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Even successful defense may require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

● decreased demand for our products;

● injury to our reputation;

● withdrawal of clinical study participants and inability to continue clinical studies;

● initiation of investigations by regulators;

● costs to prepare for and defend the related litigation;

● a diversion of management's time and our resources;

● substantial monetary awards to study participants or patients;

● product recalls, withdrawals or labeling, marketing or promotional restrictions;

● loss of revenues;

● exhaustion of any available insurance and our capital resources;

● the inability to commercialize any device candidate; and

● a decline in our share price.

Product liability claims could divert management's attention from our core business, be expensive to defend and result in sizable damage awards against us. We may not have sufficient insurance coverage for all claims. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenues. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, if any, which could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. Even if our agreements with our third-party manufacturers and suppliers entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

***Other future litigation and regulatory actions could have a material adverse impact on the Company****.*

From time to time, we may be subject to litigation and other legal and regulatory proceedings relating to our business or investigations or other actions by governmental agencies. No assurances can be given that the results of these or new matters will be favorable to us. An adverse resolution of lawsuits, arbitrations, investigations or other proceedings or actions could have a material adverse effect on our financial condition and results of operations, including as a result of non-monetary remedies. Defending ourselves in these matters may be time-consuming, expensive and disruptive to normal business operations and may result in significant expense and a diversion of management's time and attention from the operation of our business, which could impede our ability to achieve our business objectives. Additionally, any amount that we may be required to pay to satisfy a judgment, settlement, fine or penalty may not be covered by insurance. Subject to the Washington Business Corporations Act, our articles of association permit us to indemnify any director against any liability, to purchase and maintain insurance against any liability for any director and to provide any director with funds (whether by loan or otherwise) to meet expenditures incurred or to be incurred by such director in defending any criminal, regulatory or civil proceedings or in connection with an application for relief (or to enable any such director to avoid incurring such expenditure). In addition, under our Articles of Incorporation and bylaws (the "Bylaws") we are obligated to indemnify each of our directors and officers against certain liabilities and expenses arising from their being a director or officer to the maximum extent permitted by Washington law. In the event we are required to make such payments to our directors and officers, there can be no assurance that any of these payments will not be material.

Global economic, political and industry conditions constantly change and unfavorable conditions may have a material adverse effect on our business and results of operations.

We are a global company and plan to have worldwide operations. Volatile economic, political and market conditions, such as political or economic instability, civil unrest, trade sanctions, acts of terrorism in the regions or hostilities, including the recent conflict between Russia and Ukraine even though none of our current research or business is conducted in Russia or Ukraine, in locations in which we operate may have a negative impact on our operating results and our ability to achieve our business objectives. We may not have advance insight into economic and political trends that could emerge and negatively affect our business. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies may have a material adverse impact upon our liquidity, revenues, costs and operating results.

Additionally, natural disasters and public health emergencies, such as extreme weather events and the COVID-19 pandemic, could have a significant adverse effect on our business, including interruption of our commercial and clinical operations, supply chain disruption, endangerment of our personnel, fewer patient visits, increased patient drop-out rates, delays in recruitment of new patients, and other delays or losses of materials and results.

***The COVID-19 pandemic could materially adversely impact our business***.

As the COVID-19 pandemic continues around the globe, we have experienced and will likely continue to experience disruptions that could severely impact our business and clinical studies, which could include:

● delays and/or difficulties in onboarding active patients and enrolling patients in our clinical studies;

● delays and/or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

● declines in prescriptions written due to a perception that our products are difficult to administer remotely or if patients are unwilling to travel to treatment sites or receive in-home treatment assistance from us or other caregivers;

● reductions in third-party reimbursements, which could materially affect our revenue, as most of our patients rely on third-party payers to cover the cost of our products and a material number of our patients could lose access to their private health insurance plan if they or someone in their family lose their job;

● diversion of healthcare resources away from conducting clinical studies, including the diversion of hospitals serving as our clinical study sites and hospital staff supporting the conduct of our clinical studies;

● interruption of key clinical study activities, such as clinical study site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

● staff disruptions and turnover internally and at treatment sites and third-party providers who provide support, either directly as a result of illness or indirectly as a result of vaccine mandates and other changes in terms of employment;

● delays in receiving approval from local regulatory authorities or IRBs to initiate our planned clinical studies;

● delays in clinical sites receiving the supplies and materials needed to conduct our clinical studies;

● interruption in global shipping that may affect the transport of active patient and clinical study materials;

● changes in local regulations as part of a response to the COVID-19 outbreak that may require us to change the ways in which our clinical studies are conducted, which may result in unexpected costs, or to discontinue the clinical studies altogether;

● delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

● disruption of our supply chain as our suppliers and common carriers are unable to meet our requirements to provide us the materials we need for clinical study and active patient care needs;

● indirect consequences of the COVID-19 pandemic on the global economy in general, such as an increase in bankruptcies of our key suppliers, or the inability of our third-party payers to meet their obligations reimburse us in a timely fashion or at all;

● postponements and cancellations of key conferences and meetings and travel restrictions could interfere with our ability to interact with key thought leaders in the field, leading to a disruption in the rate of adoption of our technology;

● access restrictions at offices, hospitals, and treatment centers, and stakeholder illness could interfere with the ability of our sales force to engage in face-to-face visits with providers, leading to a disruption in the rate of adoption of our technology;

● increases in expenditures for technology and other tools necessary to provide patient care in an environment where both patient and care-giver travel is restricted and access to in-person interaction is limited;

● refusal of the FDA to accept data from clinical studies in affected geographies outside the United States; and

● patient delays in seeking or receiving treatment, either due to fear of infection or lack of access to treatment and study sites, leading to fewer diagnoses of the indications our products are approved to treat or more advanced procession of the disease, which may contraindicate the use of our products or disqualify the patient from participating in a given study.

The global status of the COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic may impact our business and clinical studies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing guidelines, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease. The response to the pandemic may result in permanent changes to the environment in which we operate as described above in ways we are unable to predict. The COVID-19 pandemic may also have the effect of heightening many of the other risks described herein.

***We are increasingly dependent on information technology systems and are subject to privacy and security laws. Our products and our systems and infrastructure face certain risks, including from cyber security breaches and data leakage****.*

We increasingly rely upon technology systems and infrastructure. Our technology systems, including our products, are potentially vulnerable to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events. Likewise, data privacy breaches by employees and others with both permitted and unauthorized access to our products and our systems may pose a risk that protected patient information (PI) may be exposed to unauthorized persons or to the public, or may be permanently lost. The increasing use and evolution of technology, including cloud-based computing, creates additional opportunities for the unintentional dissemination of information, intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage devices. We could also experience a business interruption, information theft of confidential information, or reputational damage from industrial espionage attacks, malware or other cyber incidents, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party service providers or other business partners.

The size and complexity of our computer systems, and scope of our geographic reach, make us potentially vulnerable to information technology system breakdowns, internal and external malicious intrusion, cyberattacks and computer viruses. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure or properly manage third-party contractors who perform data management services on our behalf, then a security breach could subject us to, among other things, transaction errors, business process inefficiencies, the loss of customers, damage to our reputation, business disruptions or the loss of or damage to intellectual property. Such security breaches could expose us to a risk of loss of information, litigation, penalties, remediation costs and potentially significant liability to customers, employees, business partners and regulatory authorities, including, for example, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) in the United States and Regulation 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data under GDPR in the EU. If our data management systems (including third party data management systems) do not effectively collect, secure, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired. Any such impairment could materially and adversely affect our financial condition and results of operations.

While we have invested heavily in the protection of data and information technology and in related training, there can be no assurance that our efforts will prevent significant breakdowns, breaches in our systems or other cyber incidents or ensure compliance with all applicable security and privacy laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information, including PI, on our behalf.

A security breach, whether of our products, systems or third-party hosting services we utilize, could disrupt treatments being provided by our products, disrupt access to our customers' stored information, such as patient treatment data and health information, and could lead to the loss of, damage to or public disclosure of such data and information, including patient health information. Such an event could have serious negative consequences, including possible patient injury, regulatory action, fines, penalties and damages, reduced demand for our products, an unwillingness of customers to use our products, harm to our reputation and brand and time-consuming and expensive litigation, any of which could have a material adverse effect on our financial results. We do not currently carry insurance for cybersecurity liability, and the amount of insurance coverage we may purchase in the future may be inadequate. In the future, our insurance coverage may be expensive or not be available on acceptable terms or in sufficient amounts, if at all.

***We may choose to, or may be required to, suspend, repeat or terminate our clinical studies if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the studies are not well designed****.*

Clinical studies must be conducted in accordance with the FDA's cGCPs and the equivalent laws and regulations applicable in other jurisdictions in which the clinical studies are conducted. The clinical studies are subject to oversight by the FDA, regulatory agencies in other jurisdictions, ethics committees and IRBs at the medical institutions where the clinical studies are conducted. In addition, clinical studies must be conducted with device candidates produced under the FDA's QSR and in accordance with the applicable regulatory requirements in the other jurisdictions in which the clinical studies are conducted. The conduct of clinical studies may require large numbers of test patients.

The FDA or regulatory agencies in other jurisdictions might delay or terminate our clinical studies of a device candidate for various reasons, including:

● the device candidate may have unforeseen adverse side effects or may not appear to be more effective than current therapies;

● we may not agree with the FDA, a regulatory authority in another jurisdiction or an ethics committee regarding the protocol for the conduct of a clinical study;

● new therapies may become the standard of care while we are conducting our clinical studies, which may require us to revise or amend our clinical study protocols or terminate a clinical study; or

● adverse events may occur during a clinical study due to medical problems that may or may not be related to clinical study treatments.

Furthermore, the process of obtaining and maintaining regulatory approvals in the U.S. and other jurisdictions can vary substantially based on the type, complexity and novelty of the product involved. If any of our device candidates takes a significantly longer time than we expect to gain regulatory approval due to regulatory requirements, our clinical trials may need to be extended, delayed, repeated, or terminated, which could be lengthy, expensive and uncertain. As a result, we may not be able to obtain regulatory approval or successful commercialization in a timely fashion, or at all, and it could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***Legislative and regulatory changes in the U.S. and in other countries regarding healthcare insurance and government-sponsored reimbursement programs (such as Medicare in the United States) may adversely affect our business and financial results***.

We rely to a material degree on highly regulated private and government-run health insurance programs for our revenue in most of the countries in which we operate. The laws and regulations regarding health care programs, both public and private, are driven by public policy considerations that may be unrelated to the direct provision of patient care, such as lowering costs or requiring or limiting access to healthcare options. These laws and regulations are very complicated and there are many requirements we must satisfy in order for our products to become and remain eligible for reimbursement under these programs. In many cases we may have limited negotiating power when negotiating reimbursement rates for our products.

In the future, lawmakers and regulators could also pass additional healthcare laws and implement other regulatory changes at both the national and local levels. These laws and regulations could potentially affect coverage and reimbursement for our products. However, we cannot predict the ultimate content, timing or effect of any future healthcare initiatives or the impact any future legislation or regulation will have on us.

With respect to countries outside the U.S., the national competent authorities in the EU member states, the UK, Switzerland, Israel, Japan, and other jurisdictions are also increasingly active in their goal of reducing public spending on healthcare. We cannot, therefore, guarantee that the treatment of patients with our products would be reimbursed in any particular country or, if successfully included on reimbursement lists, whether we will remain on such lists.

***Premarket approvals for our therapeutic medical devices could be denied or significantly delayed.***

 ****

Under the FDCA and FDA regulations, unless exempt, a new medical device may only be commercially distributed after it has received 510(k) clearance, is authorized through the de novo classification process, or is the subject of an approved PMA. We expect that our therapeutic devices will require approval of PMAs in order to be marketed. The PMA process in the U.S. and other jurisdictions can vary substantially, based on the type, complexity and novelty of the product involved and is typically costly, lengthy, and uncertain, and usually requires substantial clinical studies. Preclinical testing and clinical trials must comply with the regulations of the FDA and other government authorities in the U.S. and similar agencies in other countries. The FDA may not approve our future PMA applications on a timely basis or at all. Such delays or refusals, regardless of the cause, could have a material adverse effect on our business, financial condition, and results of operations. The FDA may also change its approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products.

The FDA can delay, limit or deny PMA approval of a device for many reasons, including:

● our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses;

● the disagreement of the FDA or the applicable foreign regulatory body with the design, conduct or implementation of our clinical trials or the analyses or interpretation of data from pre-clinical studies or clinical trials;

● serious and unexpected adverse device effects experienced by participants in our clinical trials;

● the data from our pre-clinical studies and clinical trials may be insufficient to support approval, where required;

● our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;

● an advisory committee, if convened by the applicable regulatory authority, may recommend against approval of our application or may recommend that the applicable regulatory authority require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee, if convened, makes a favorable recommendation, the respective regulatory authority may still not approve the product;

● the applicable regulatory authority may identify significant deficiencies in our manufacturing processes, facilities or analytical methods or those of our third-party contract manufacturers;

● the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory filings insufficient for approval; and

● the FDA or foreign regulatory authorities may audit our clinical trial data and conclude that the data are not sufficiently reliable to support clearance.

As a condition of approving a PMA application, the FDA may also require some form of post-approval study or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional safety and effectiveness data for the device. Failure to conduct a post-approval study in compliance with applicable regulations or to timely complete required post-approval studies or comply with other post-approval requirements could result in withdrawal of approval of a PMA, which would harm our business.

***We are subject to extensive post-marketing regulation by the FDA and comparable authorities in other jurisdictions, which could impact the sales and marketing of our products and could cause us to incur significant costs to maintain compliance. In addition, we may become subject to additional regulation in other jurisdictions as we increase our efforts to market and sell our products outside of the U.S****.*

 

We will market and sell our products, if approved, subject to extensive regulation by the FDA and numerous other federal, state and governmental authorities in other jurisdictions. These regulations are broad and relate to, among other things, the conduct of pre-clinical and clinical studies, product design, development, manufacturing, labeling, testing, product storage and shipping, premarket clearance and approval, conformity assessment procedures, premarket clearance and approval of modifications introduced in marketed products, post-market surveillance and monitoring, reporting of adverse events and incidents, pricing and reimbursement, interactions with healthcare professionals, interactions with patients, information security, advertising and promotion and product sales and distribution. Although we intend to initially seek approval from the FDA to market our products in the U.S. for GBM and DMG, the ability to market our products for other indications will require additional FDA approval. We may be required to obtain approval of a new PMA or PMA supplemental application for modifications made to our products. This approval process is costly and uncertain, and it could take one to three years, or longer, from the time the application is submitted to the FDA. We may make modifications in the future that we believe do not or will not require additional approvals. If the FDA disagrees, and requires new PMAs or PMA supplemental applications for the modifications, we may be required to recall and to stop marketing the modified versions of our products.

In addition, before our products can be marketed in the EU, our products must obtain a CE Certificate from a notified body. New intended uses of CE marked medical devices falling outside the scope of the current CE Certificate require a completely new conformity assessment before the device can be CE marked and marketed in the EU for the new intended use. The process required to gather necessary information and draw up documentation in order to obtain CE Certification of a medical device in the EU can be expensive and lengthy and its outcome can be uncertain. We may make modifications to our products in the future that we believe do not or will not require notifications to our notified body or new conformity assessments to permit the maintenance of our current CE Certificate. If the competent authorities of the EU member states or our notified body disagree and require the conduct of a new conformity assessment, the modification of the existing CE Certificate or the issuance of a new CE Certificate, we may be required to recall or suspend the marketing of the modified versions of our products.

In Japan, new medical devices or new therapeutic uses of medical devices falling outside the scope of the existing approval by the MHLW require a new assessment and approval for each such new device or use. Accordingly, we may be required to obtain a new approval from MHLW before we launch a modified version of our products or the use of our products for additional indications. Approval time frames from the MHLW vary from simple notifications to review periods of one or more years, depending on the complexity and risk level of the device. In addition, importation into Japan of medical devices is subject to "Quality Management System (QMS) Ordinance," which includes the equivalent of "Good Import" regulations in the U.S. As with any highly regulated market, significant changes in the regulatory environment could adversely affect our ability to commercialize our products in Japan.

In the U.S. and other jurisdictions, we also are subject to numerous post-marketing regulatory requirements, which include regulations under the QSR related to the manufacturing of our products, labeling regulations, MDR regulations and recordkeeping requirements. In addition, these regulatory requirements may in the future change in a way that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable to us, we may be subject to enforcement action by the FDA or comparable regulatory authorities in other jurisdictions and notified bodies, which may include any of the following sanctions:

● untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

● unanticipated expenditures to address or defend such actions;

● patient notification, or orders for repair, replacement or refunds;

● voluntary or mandatory recall, withdrawal or seizure of our current or future devices;

● administrative detention by the FDA or other regulatory authority in another jurisdiction of medical devices believed to be adulterated or misbranded;

● operating restrictions, suspension or shutdown of production;

● refusal or delay of our requests for approval of a PMA, supplemental PMA or analogous approval for new intended uses for or modifications to our products or for approval of new devices;

● refusal or delay in obtaining CE Certificates for new intended uses for or modifications to our products;

● suspension, variation or withdrawal of the CE Certificates granted by our notified body in the EU;

● prohibition or restriction of products being placed on the market;

● operating restrictions;

● suspension or withdrawal of PMA or analogous approvals that have already been granted;

● refusal to grant export approval for our products or any device candidates; or

● criminal prosecution.

The occurrence of any of these events could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***Over time, we expect to make modifications to our products that are designed to improve efficacy, reduce side effects, enhance the user experience or for other purposes. Modifications to our products may require approvals of new PMAs, or PMA supplemental applications, modified or new CE Certificates and analogous regulatory approvals in other jurisdictions or even require us to cease promoting or to recall the modified versions of our products until such clearances, approvals or modified or new CE Certificates are obtained, and the FDA, comparable regulatory authorities in other jurisdictions or our notified body may not agree with our conclusions regarding whether new approvals are required.***

Any modification to a device approved through the PMA pathway that impacts the safety or effectiveness of the device requires submission to the FDA and FDA approval of a PMA supplemental application or even a new PMA, as the case may be. The FDA requires a company to make the determination as to whether a new PMA or PMA supplemental application is necessary, but the FDA may review the Company's decision. From time to time, we may make changes to the devices, software, packaging, manufacturing facilities and manufacturing processes and may submit PMA supplemental applications for these changes. FDA may conduct a facility inspection as part of its review and approval process. In addition, it is possible that the FDA will require a human factors (user interface) study. It is also possible that the FDA may require additional clinical data. We can provide no assurance that we will receive FDA approval for these changes on a timely basis, or at all. We also may make additional changes in the future that we may determine do not require the filing of a new PMA or PMA supplemental application. The FDA may not agree with our decisions regarding whether the submission of new PMAs or PMA supplemental applications are required.

In addition, any substantial change introduced to a medical device or to the quality system that may be certified by a notified body requires a new conformity assessment of the device and can lead to changes to the CE Certificates or the preparation of a new CE Certificate of Conformity. Substantial changes may include, among others, the introduction of a new intended use of the device, a change in its design or a change in the Company's suppliers. Responsibility for determination that a modification constitutes a substantial change lies with the manufacturer of the medical device. We must inform the notified body that conducted the conformity assessment of the products we market or sell in the EU of any planned substantial changes to our quality system or changes to our products that could, among other things, affect compliance with the MDR or the devices' intended use. The notified body will then assess the changes and verify whether they affect the product's conformity with the Essential Requirements laid down in Annex I to the MDD or the conditions for the use of the device. If the assessment is favorable, the notified body will issue a new CE Certificate or an addendum to the existing CE Certificate attesting compliance with the Essential Requirements laid down in Annex I to the MDD. There is a risk that the competent authorities of the EU member states or our notified body may disagree with our assessment of the changes introduced to our products. The competent authorities of the EU member states or our notified body also may come to a different conclusion than the FDA on any given product modification.

In addition, medical devices that have obtained a CE Certification under the MDD may in principle continue to be marketed under such CE Certificate until the CE Certificate expires and at the latest until May 27, 2024, provided that the manufacturer complies with the MDR's additional requirements related to post-marketing surveillance, market surveillance, vigilance, and registration of economic operators and of devices. However, if such medical devices undergo a significant change in their design or intended use, we would need to obtain a new CE Certificate under the MDR for these devices.

If the FDA disagrees with us and requires us to submit a new PMA or PMA supplemental application for then-existing modifications and/or the competent authorities of the EU member states or our notified body disagree with our assessment of the change introduced in a product, its design or its intended use, we may be required to cease promoting or to recall the modified product until we obtain approval and/or until a new conformity assessment has been conducted in relation to the product, as applicable. In addition, we could be subject to significant regulatory fines or other penalties. Furthermore, our products could be subject to recall if the FDA, comparable regulatory authorities in other jurisdictions, or our notified body determine, for any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. Any recall or requirement that we seek additional approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenues and potential operating restrictions imposed by the FDA, comparable foreign regulatory authorities in other jurisdictions, or our notified body. Delays in receipt or failure to receive approvals/certification, or the failure to comply with any other existing or future regulatory requirements, could reduce our sales, profitability and future growth prospects.

***In addition to FDA requirements, we will spend considerable time and money complying with other federal, state, local and foreign rules, regulations and guidance and, if we are unable to fully comply with such rules, regulations and guidance, we could face substantial penalties****.*

We are subject to extensive regulation by the U.S. federal government and the states and other countries in which we conduct our business. U.S. federal government healthcare laws apply when we submit a claim on behalf of a U.S. federal healthcare program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal government-funded healthcare program, such as Medicare or Medicaid. The laws that affect our ability to operate our business in addition to the Federal Food, Drug, and Cosmetic Act and FDA regulations include, but are not limited to, the following:

● the U.S. federal Anti-Kickback Statute, an intent-based federal criminal statute which prohibits knowingly and willfully offering, providing, soliciting or receiving remuneration of any kind to induce or reward, or in return for, referrals or the purchase, lease, order or recommendation or arranging of any items or services reimbursable by a federal healthcare program;

● the Federal Civil False Claims Act, which imposes civil penalties, including through civil whistleblower or "qui tam" actions, for knowingly submitting or causing the submission of false or fraudulent claims of payment to the federal government, knowingly making, using or causing to be made or used a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government;

● the Federal Criminal False Claims Act, which is similar to the Federal Civil False Claims Act and imposes criminal liability on those that make or present a false, fictitious or fraudulent claim to the federal government;

● Medicare laws and regulations that prescribe requirements for coverage and reimbursement, including the conditions of participation for DME suppliers, and laws prohibiting false claims or unduly influencing selection of products for reimbursement under Medicare and Medicaid;

● healthcare fraud statutes that prohibit false statements and improper claims to any third-party payer;

● the Federal Physician Self-Referral Law, commonly known as the Stark law, which, absent an applicable exception, prohibits physicians from referring Medicare and Medicaid patients to an entity for the provision of certain designated health services (DHS), including DME, if the physician (or a member of the physician's immediate family) has an impermissible financial relationship with that entity and prohibits the DHS entity from billing for such improperly referred services;

● the Federal Beneficiary Anti-Inducement Statute, which prohibits the offering of any remuneration to a beneficiary of Medicare or Medicaid that is likely to influence that beneficiary's choice of provider or supplier. This can include, but is not limited to, inappropriate provision of patient services including financial assistance. Recent government investigations have focused on this particular prohibition. There are established exceptions from liability, but we cannot guarantee that all of our practices will fall squarely within those exceptions;

● similar state anti-kickback, false claims, insurance fraud and self-referral laws, which may not be limited to government-reimbursed items, as well as state laws that require us to maintain permits or licenses to distribute DME;

● federal and state accreditation and licensing requirements applicable to DME providers and equivalent requirements in other jurisdictions;

● the U.S. Foreign Corrupt Practices Act, which can be used to prosecute companies in the U.S. for arrangements with physicians or other parties outside the U.S. if the physician or party is a government official of another country and the arrangement violates the law of that country;

● the Federal Trade Commission Act, the Lanham Act and similar federal and state laws regulating truthfulness in advertising and consumer protection; and

● the Federal Physician Payments Sunshine Act, the French Sunshine Act and similar state and foreign laws, which require periodic reporting of payments and other transfers of value made to U.S. and French-licensed physicians, teaching hospitals, and in the U.S., physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.

Similar laws exist in the EU, individual EU member states and other countries. These laws are complemented by EU or national professional codes of practices.

HIPAA provides data privacy and security provisions for safeguarding medical information. Additionally, states in the U.S. are enacting local privacy laws (e.g., California). In the EU, the GDPR harmonizes data privacy laws and rules on the processing of personal data, including patient and employee data, across the EU. The GDPR has a number of strict data protection and security requirements for companies processing data of EU residents, including when such data is transferred outside of the EU. Additionally, we need to comply with analogous privacy laws in other jurisdictions in which we operate, such as the Israeli Privacy Protection Law, the Asia Pacific Economic Cooperation Privacy Framework, and Japan's Act on the Protection of Personal Information.

The laws and codes of practices applicable to us are subject to evolving interpretations. Moreover, certain U.S. federal and state laws regarding healthcare fraud and abuse and certain laws in other jurisdictions regarding interactions with healthcare professionals and patients are broad and we may be required to restrict certain of our practices to be in compliance with these laws. Healthcare fraud and abuse laws also are complex and even minor, inadvertent irregularities, or even the perception of impropriety, can potentially give rise to claims that a statute has been violated.

Any violation of these laws could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. Similarly, if there is a change in law, regulation or administrative or judicial interpretations, we may have to change our business practices or our existing business practices could be challenged as unlawful, which likewise could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline. Fines and penalties for violations of these laws and regulations could include severe criminal and civil penalties, including, for example, significant monetary damages, exclusion from participation in the federal healthcare programs and permanent disbarment of key employees. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business, our prospects and our financial results. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and damage our reputation.

In addition, although we believe that we have the required licenses, permits and accreditation to dispense our products in the future, a regulator could find that we need to obtain additional licenses or permits. We also may be subject to mandatory reaccreditation and other requirements in order to maintain our billing privileges. Failure to satisfy those requirements could cause us to lose our privileges to bill governmental and private payers. If we are required to obtain permits or licenses that we do not already possess, we also may become subject to substantial additional regulation or incur significant expense.

To ensure compliance with Medicare, Medicaid and other regulations, federal and state governmental agencies and their agents, including DME MACs, may conduct audits of our operations to support our claims submitted for reimbursement of items furnished to beneficiaries and health care providers. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could adversely impact our revenue, financial condition and results of operations.

If we, our collaborative partners, our contract manufacturers or our component suppliers fail to comply with the FDA's QSR or equivalent regulations established in other countries, the manufacturing and distribution of our products could be interrupted, and our product sales and results of operations could suffer.

We, our collaborative partners, our contract manufacturers and our component suppliers are required to comply with the FDA's QSR and the equivalent quality system requirements imposed by the laws and regulations in other jurisdictions, which are a complex regulatory framework that covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. We cannot assure you that our facilities or our contract manufacturers' or component suppliers' facilities would pass any future quality system inspection. If our or any of our contract manufacturers' or component suppliers' facilities fails a quality system inspection, the manufacturing or distribution of our products could be interrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse quality system inspection could force a suspension or shutdown of our packaging and labeling operations or the manufacturing operations of our contract manufacturers, and lead to suspension, variation or withdrawal of our regulatory approvals or a recall of our products. If any of these events occurs, we may not be able to provide our customers with our products on a timely basis, our reputation could be harmed and we could lose customers, any or all of which could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***Our products may in the future be subject to recalls that could harm our reputation, business and financial results****.*

The FDA and similar governmental authorities in other jurisdictions have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that a recall is necessary to protect the public health and welfare because a distributed product presents a risk of illness or injury or gross consumer deception and the firm has not initiated a recall. In addition, governmental bodies in other jurisdictions have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Distributors and manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our manufacturers could occur as a result of, among other things, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated. Requirements for the reporting of product recalls to the competent authorities are imposed in other jurisdictions in which our products are or would be marketed in the future. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or to the competent authorities of other countries. In the future, we may initiate voluntary recalls involving our products that we determine do not require notification of the FDA or to other equivalent non-U.S. authorities. If the FDA or the equivalent non-U.S. authorities disagree with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA and the equivalent non-U.S. authorities could take enforcement action if we fail to report the recalls when they were conducted. Recalls of our products would divert managerial and financial resources and could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions****.*

Under the FDA MDR regulations and the equivalent regulations applicable in other jurisdictions in which our products are or may be marketed in the future, medical device manufacturers are required to report to the FDA and to the equivalent non-U.S. authorities information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA or to the equivalent authorities in other jurisdictions within the required time frames, or at all, the FDA or the equivalent authorities in other jurisdictions could take enforcement action against us. Any such adverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.

***We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or off-label uses***.

Medical devices may be marketed only for the indications for which they are approved. Our promotional materials and training materials must comply with FDA regulations and other applicable laws and regulations governing the promotion of our products in the U.S. and other jurisdictions.

If the FDA or the competent authorities in other jurisdictions determine that our promotional materials or training constitutes promotion of an unapproved use, they could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled or warning letter, an injunction, seizure, civil fines and criminal penalties. It is also possible that authorities in other federal, state or national enforcement in other jurisdictions might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and the commercialization of our products could be impaired.

***We are affected by and subject to environmental laws and regulations that could be costly to comply with or that may result in costly liabilities***.

We are subject to environmental laws and regulations, including those that impose various environmental controls on the manufacturing, transportation, storage, use and disposal of batteries and hazardous chemicals and other materials used in, and hazardous waste produced by, the manufacturing of our products. We incur and expect to continue to incur costs to comply with these environmental laws and regulations. Additional or modified environmental laws and regulations, including those relating to the manufacture, transportation, storage, use and disposal of materials used to manufacture our products or restricting disposal or transportation of batteries, may be imposed that may result in higher costs.

In addition, we cannot predict the effect that additional or modified environmental laws and regulations may have on us, our third-party suppliers of equipment and our products or our customers.

***The oncology and medical device industries are characterized by patent and other intellectual property litigation and disputes, and any litigation, dispute or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our business, harm our reputation and require us to remove certain devices from the market****.*

Whether a product infringes a patent or violates other intellectual property rights involves complex legal and factual issues, the determination of which is often uncertain. Any intellectual property dispute, even a meritless or unsuccessful one, would be time consuming and expensive to defend and could result in the diversion of our management's attention from our business and result in adverse publicity, the disruption of research and development and marketing efforts, injury to our reputation and loss of revenues. Any of these events could negatively affect our business, prospects, financial condition and results of operations.

Third parties may assert that our products, the methods employed in the use of our products or other activities infringe on their patents. Such claims may be made by competitors seeking to obtain a competitive advantage or by other parties, many of whom have significantly larger intellectual property portfolios than we have. Additionally, in recent years, individuals and groups have begun purchasing intellectual property assets for the purpose of making claims of infringement and attempting to extract settlements from companies like ours. With respect to our current products, the risk of infringement claims is exacerbated by the fact that there are numerous issued and pending patents relating to the treatment of cancer. Because patent applications can take many years to issue, and in many cases remain unpublished for many months after filing, there may be applications now pending of which we are unaware that may later result in issued patents that our products may infringe.

There could also be existing patents that one or more components of our products or other device candidates may inadvertently infringe. As the number of competitors in the market or other device candidates grows, the possibility of inadvertent patent infringement by us or a patent infringement claim against us increases. To the extent we gain greater market visibility, our risk of being subject to such claims is also likely to increase. If a third party's patent was upheld as valid and enforceable and we were found to be infringing, we could be prevented from making, using, selling, offering to sell or importing our products or other device candidates, unless we were able to obtain a license under that patent or to redesign our systems to avoid infringement. A license may not be available at all or on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of our products or development of device candidates to avoid infringement could require us to conduct additional clinical studies and to revise our filings with the FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license or redesigning our devices, we may be unable to make, use, sell, offer to sell or import our devices and our business could suffer. We may also be required to pay substantial damages and undertake remedial activities, which could cause our business to suffer.

We may also be subject to claims alleging that we infringe or violate other intellectual property rights, such as copyrights or trademarks, may have to defend against allegations that we misappropriated trade secrets, and may face claims based on competing claims of ownership of our intellectual property. The confidentiality and assignment of inventions agreements that our employees, consultants and other third parties sign may not in all cases be enforceable or sufficient to protect our intellectual property rights. In addition, we may face claims from third parties based on competing claims to ownership of our intellectual property.

We may employ individuals who were previously employed at other medical device companies, and as such we may be subject to claims that such employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of their former employers. Any such litigation, dispute or claim could be costly to defend and could subject us to substantial damages, injunctions or other remedies, which could have a material adverse effect on our business, prospects, financial condition and results of operations and cause our stock price to decline.

***Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our devices****.*

As is the case with other medical device companies, our success is heavily dependent on our intellectual property rights, and particularly on our patent rights. Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity, and is therefore costly, time consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementing wide-ranging patent reform legislation. Certain U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could further negatively impact the value of our patents, narrow the scope of available patent protection or weaken the rights of patent owners.

***Future regulatory action remains uncertain.***

We operate in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable laws and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals could materially affect our reputation, business and operations.

***If physicians and patients do not accept our current and future products or if the market for indications for which any product candidate is approved is smaller than expected, we may be unable to generate significant revenue, if any.***

Even when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party payers. Physicians may decide not to recommend our treatments for a variety of reasons including:

● timing of market introduction of competitive products;

● demonstration of clinical safety and efficacy compared to other products;

● cost-effectiveness;

● limited or no coverage by third-party payers;

● convenience and ease of administration;

● prevalence and severity of adverse side effects;

● restrictions in the label of the device;

● other potential advantages of alternative treatment methods; and

● ineffective marketing and distribution support of its products.

If any of our product candidates is approved, but fails to achieve market acceptance or such market is smaller than anticipated, we may not be able to generate significant revenue and our business would suffer.

***Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products.***

The therapeutic medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact our ability to sell current or future products in the affected category.

***We depend extensively on our patents and proprietary technology and the patents, and we must protect those assets in order to preserve our business.***

Although we expect to seek patent protection for any devices, *in silico* products (if any), systems, and processes we discover and/or for any specific use we discover for new or previously known compounds, devices, biologics, products, systems, or processes, any or all of these may not be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may find ways to avoid the claims in the patents.

Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and proprietary knowledge and operate without infringing on the proprietary rights of others. We are the sole assignee of numerous granted United States patents, pending United States patent applications and international patents. The patent position of pharmaceutical and biotechnology firms like us are generally highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned to us may not result in patents being issued, any issued patents assigned to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve profitability.

Moreover, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third-party or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain such licenses, we could encounter delays in product market introductions during our attempts to design around such patents or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. In addition, we could incur substantial costs in defending suits brought against us or in connection with patents to which we hold licenses or in bringing suit to protect our own patents against infringement.

***Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.***

Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our pending patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Due to our financial uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us. Because a substantial number of patents have been issued in the field of cellular therapy and because patent positions can be highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the extent patents have been issued or will be issued, whether these patents will be subject to further proceedings limiting their scope, will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated. One of our currently issued patents has expired, and eight of them will expire in the next twelve months.

Also, because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods in the United States and other countries, even after reasonable investigation, we may not know with certainty whether any products that we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. We believe that the patents that we own or have applied for do not infringe any third-party patents; however, we cannot know for certain whether we could successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or process.

***We may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by other companies.***

Our products will compete with existing and new therapies and treatments for cancer, acute and chronic pain, mental health conditions, and other indications targeted for our technology. We are aware of a number of companies currently seeking to develop alternative therapies or treatment for such diseases and conditions at least in part. Numerous pharmaceutical, biotechnology, drug delivery and medical device companies, hospitals, research organizations, individual scientists, and nonprofit organizations are engaged in the development of alternatives to our technology. Some of these companies have greater research and development capabilities, experience, manufacturing, marketing, financial, and managerial resources than we do. Collaborations or mergers between large pharmaceutical or biotechnology companies with competing treatment technologies could enhance our competitors' financial, marketing, and other resources. Developments by other medical device companies could make our products or technologies uncompetitive or obsolete. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA approval for products or gaining market acceptance more rapidly than we can.

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***Due in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates, and/or we may be unable to pursue the clinical trials that we would like to pursue.***

We have limited technical, managerial, and financial resources to determine the indications on which we should focus the development efforts related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development programs and activities that might otherwise have led to more rapid progress of our product candidates through the regulatory and development processes.

We may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that we do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and financial resources toward particular indications or therapeutic areas for our product candidates may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs may also cause us to miss valuable opportunities.

***If the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities in accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates.***

We use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of our product candidates, and expect to continue to do so for the foreseeable future.

The FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval, and commercialization of our product candidates or result in enforcement action against us.

***Our Company has an evolving business strategy and investors must be willing to accept a substantial degree of uncertainty.***

The Company's strategic focus is on the development of therapeutic medical devices for humans using its *ul*RFE**<sup>®</sup>** platform technology. The Company is engaged in ongoing discussions with potential licensees, other strategic partners and institutional or private financing sources, the result of which could add to or alter its current strategic focus, cash needs or ownership structure. Investors must be willing to accept a substantial degree of uncertainty and must be willing to rely upon our Board and management to complete an appropriate business strategy to commercially exploit targeted business opportunities.

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***The industry in which our Company competes is intensely competitive, and we compete with companies with significantly greater resources.***

The market for the Company's products and services is relatively new and rapidly evolving. Accordingly, it is difficult to predict its future growth rate, if any, and its ultimate size. Moreover, the Company's success is dependent on the popularity of its products and services within this new market, which the Company cannot predict. The Company has entered into one licensing agreement for a specific indication in the Japanese oncology market and one distribution agreement for specific indications in the Indian oncology market, but the Company may experience significantly long processes for additional licensing or for sales in order to monetize its products or services. While the Company is not aware of any businesses currently developing or using *ul*RFE technology similar to its technology, the broader life sciences industry is marked by intense competition, including many companies with significantly greater resources, which they could use to attempt to limit the Company's ability to gain market share.

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***You should consult with a tax expert before investing in our Company.***

You should consult with your own tax advisor about the tax consequences of investing in EMulate Therapeutics through the purchase of its securities.

***If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations.***

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an "investment company" for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an "investment company," as such term is defined in either of those sections of the 1940 Act.

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the 1940 Act or otherwise conduct our business in a manner that does not subject us to the registration and other requirements of the 1940 Act. In order to ensure that we are not deemed to be an investment company, we may be limited in the assets that we may continue to own and, further, may need to dispose of or acquire certain assets at such times or on such terms as may be less favorable to us than in the absence of such requirement. If anything were to happen which would cause us to be deemed to be an investment company under the 1940 Act (such as significant changes in the value of our programs or a change in circumstance that results in a reclassification of our interests in our programs for purposes of the 1940 Act), the requirements imposed by the 1940 Act could make it impractical for us to continue our business as currently conducted, which would materially adversely affect our business, financial condition and results of operations. In addition, if we were to become inadvertently subject to the 1940 Act, any violation of the 1940 Act could subject us to material adverse consequences, including potentially significant regulatory penalties and the possibility that certain of our contracts could be deemed unenforceable.

**Risks Related to Our Common Stock and this Offering**

***There has been no public market for our Common Stock prior to this offering, and an active market in which investors can resell their shares of our Common Stock may not develop.***

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Prior to this Offering, there has been no public market for our Common Stock. We have applied to list our Common Stock on Nasdaq under the symbol "EMTX." The closing of this Offering is contingent upon the successful listing of our Common Stock on the Nasdaq Capital Market. There is no guarantee that Nasdaq, or any other exchange or quotation system, will permit our Common Stock to be listed and traded.

Even if our Common Stock is approved for listing on Nasdaq, a liquid public market for our Common Stock may not develop. The initial public offering price for our Common Stock has been determined by negotiation between us and the underwriters based upon several factors, including prevailing market conditions, our historical performance, estimates of our business potential and earnings prospects, and the market valuations of similar companies. The price at which the Common Stock is traded after this Offering may decline below the initial public offering price, meaning that you may experience a decrease in the value of your Common Stock regardless of our operating performance or prospects.

 ***Volatility in the market price of our Common Stock may prevent investors from being able to sell their Common Stock at or above the initial public offering price.***

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After this Offering, the market price for our Common Stock is likely to be volatile, in part because our shares have not been traded publicly. In addition, the market price of our Common Stock may fluctuate significantly in response to several factors, most of which we cannot control, including:

● actual or anticipated variations in our periodic operating results;

● actual or anticipated changes in our growth rate relative to our competitors;

● increases in market interest rates that lead investors of our Common Stock to demand a higher investment return;

● changes in earnings estimates;

● changes in market valuations of similar companies;

● actions or announcements by our competitors;

● adverse market reaction to any increased indebtedness we may incur in the future;

● sales of our common stock by our officers, directors, or significant stockholders;

● additions or departures of key personnel;

● our progress toward developing our products;

● the commencement, enrollment and results of our future clinical trials;

● adverse results from, delays in or termination of our clinical trials;

● adverse regulatory decisions, including failure to receive regulatory approval;

● publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts, if any;

● perceptions about the market acceptance of our products and the recognition of our brand;

● threatened or actual litigation and governmental investigations;

● actions by shareholders;

● speculation in the media, online forums, or investment community; and

● our intentions and ability to list our Common Stock on Nasdaq and our subsequent ability to maintain such listing.

The public offering price of our Common Stock has been determined by negotiations between us and the underwriters based upon many factors and may not be indicative of prices that will prevail following the closing of this Offering. In addition, the stock market in general, and the stock of early-stage companies like ours in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Such rapid and substantial price volatility, including any stock run-up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for investors to assess the rapidly changing value of our stock. Volatility in the market price of our Common Stock may prevent investors from being able to sell their Common Stock at or above the initial public offering price. As a result, you may suffer a loss on your investment.

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***Certain recent initial public offerings with smaller public floats have experienced extreme price volatility that was seemingly unrelated to company performance. Such volatility may make it difficult for prospective investors to assess the rapidly changing value of our Common Stock.***

The trading price of our Common Stock following this offering is likely to be volatile, and our Common Stock may be subject to rapid and substantial price volatility. There have been recent instances of extreme stock price run-ups followed by rapid price declines following initial public offerings, particularly among companies with relatively smaller public floats, and we expect that such instances may continue and/or increase in the future. Contributing to this risk of volatility are a number of factors. First, our Common Stock is likely to be more sporadically and thinly traded than that of larger, more established companies. As a consequence of this lack of liquidity, the trade of relatively small quantities of Common Stock by our stockholders may disproportionately influence the price of those shares of Common Stock in either direction. The price of our shares of Common Stock could, for example, decline precipitously in the event that a large number of our shares of Common Stock are sold on the market without commensurate demand as compared to a seasoned issuer that could better absorb those sales without adverse impact on its stock price. Second, we are a speculative investment due to our limited operating history, not being profitable, and not expecting to be profitable in the foreseeable future. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares of Common Stock on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that has a relatively large public float.

Many of these factors are beyond our control and may decrease the market price of our securities. Such volatility, including any stock run-ups, may be unrelated or disproportionate to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our shares of Common Stock.

Furthermore, the stock market in general, and the market for biotech companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political and market conditions such as recessions or interest rate changes, may seriously affect the market price of our securities, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our securities shortly following this offering. If the market price of our shares of Common Stock after this offering does not exceed the per share offering price, you may not realize any return on your investment in us and may lose some or all of your investment. If the market price of our shares of Common Stock does not exceed the exercise price of the Warrants during the period in which the Warrants are exercisable, then the Warrants may become worthless upon expiration.

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***We may not be able to satisfy the continued listing requirements of Nasdaq or maintain a listing of our Common Stock on Nasdaq.***

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If our Common Stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate Nasdaq's listing requirements, or if we fail to meet any of Nasdaq's listing standards, our Common Stock may be delisted. In addition, the Board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Common Stock from Nasdaq may materially impair our shareholders' ability to buy and sell our Common Stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock. The delisting of our Common Stock could significantly impair our ability to raise capital and the value of your investment.

***We have considerable discretion as to the use of the net proceeds from this Offering and we may use these proceeds in ways with which you may not agree.***

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We intend to use the proceeds from this Offering for research and development, general working capital and other corporate purposes. However, we have considerable discretion in the application of the proceeds. Because of the number and variability of factors that will determine our use of our net proceeds from this Offering, their ultimate use may vary substantially from their currently intended use. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this Offering. The net proceeds may be used for corporate or other purposes with which you do not agree or that do not improve our profitability or increase our share price. The net proceeds from this Offering may also be placed in investments that do not produce income or that lose value. See "*Use of Proceeds*" below for more information.

***You will experience immediate and substantial dilution as a result of this Offering.***

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As of December 31, 2021, our net tangible book value was approximately $(47.1 million), or approximately $(3.20) per share. Since the effective price per share of our Common Stock being offered in this Offering is substantially higher than the net tangible book value per share of our Common Stock, you will suffer substantial dilution with respect to the net tangible book value of the Common Stock you purchase in this Offering. Based on the assumed public offering price of $5.00 per share of Common Stock being sold in this Offering, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus, and our net tangible book value per share as of December 31, 2021, if you purchase shares of Common Stock in this Offering, you will suffer immediate and substantial dilution of $5.71 per share (or $5.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, if the underwriters exercise the over-allotment option in full) with respect to the net tangible book value of the Common Stock. In addition, the automatic conversion of all outstanding shares of our Series A Preferred Stock and Series A-1 Preferred Stock into 5,657,219 shares of our common stock in connection with the closing of this offering will result in substantial dilution. See risk factor heading "*Our need for capital will create additional risks and create potential substantial dilution to existing shareholders"* and see the section titled "*Dilution*" for a more detailed discussion of the dilution you will incur if you purchase securities in this Offering.

***The terms of our notes, and our debt repayment obligations thereunder, may restrict our ability to obtain additional financing, and adversely affect our financial condition and cash flows from operations in the future***.

The Company has issued promissory notes payable to certain lenders which are due on demand. Though we have not received any demands as of the date of this prospectus and we expect these lenders to agree to extend payment deadlines to a date subsequent to the date of the closing of this offering, there is no guarantee that this will occur. Our indebtedness under the notes issued to Nancy Nordhoff, a holder of more than 5% of our Common Stock, John Kingma, our director, and Andrew Daniels, our director, and certain restrictions included within the terms of the notes, may restrict, and otherwise impair our ability to obtain additional financing in the future for general corporate purposes, including working capital, capital expenditures, potential acquisitions and strategic transactions. Our ability to meet our debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which are outside of our control. Our future operations may not generate sufficient cash to enable us to repay our debt, including the notes. If we fail to make a payment on our debt, we could be in default on such debt. If we are at any time unable to pay our indebtedness under the notes in cash when due, we may be required to issue additional shares of common stock on unfavorable terms.

***We do not expect to declare or pay dividends in the foreseeable future.***

 ****

We do not expect to declare or pay dividends in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore, holders of our Common Stock will not receive any return on their investment unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all.

***If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our Common Stock could be negatively affected.***

 ****

Any trading market for our Common Stock may be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our Common Stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price and market trading volume of our Common Stock could be negatively affected.

***Future issuances of our Common Stock or securities convertible into, or exercisable or exchangeable for, our Common Stock, or the expiration of lock-up agreements that restrict the issuance of new Common Stock or the trading of outstanding Common Stock, could cause the market price of our Common Stock to decline and would result in the dilution of your holdings.***

 ****

Future issuances of our Common Stock or securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance of new Common Stock or the trading of outstanding Common Stock, could cause the market price of our Common Stock to decline. We cannot predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our Common Stock. In all events, future issuances of our Common Stock would result in the dilution of your holdings. In addition, the perception that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups expire, could adversely affect the market price of our Common Stock. In connection with this Offering, we will enter into a lock-up agreement that prevents us, subject to certain exceptions, from offering additional shares of capital stock for up to six months after the closing of this Offering, as further described in the section titled "*Underwriting*." In addition to any adverse effects that may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and without notice. If the restrictions under the lock-up agreements are waived, our Common Stock may become available for resale, subject to applicable law, including without notice, which could reduce the market price for our Common Stock.

***Future issuances of debt securities, which would rank senior to our Common Stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Common Stock.***

 ****

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our Common Stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of Common Stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our Common Stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our Common Stock.

***We are authorized to issue "blank check" preferred stock without stockholder approval, which could adversely impact the rights of holders of our Common Stock.***

 ****

Our articles of incorporation authorize us to issue up to 10,000,000 shares of preferred stock, among which 1,817,333 shares are designated as Series A preferred stock and 2,400,000 shares are designated as Series A-1 preferred stock. Any preferred stock that we issue in the future may rank ahead of our Common Stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our Common Stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of Common Stock, which could dilute the value of Common Stock to current stockholders and could adversely affect the market price, if any, of our Common Stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company.

***If our shares of Common Stock become subject to the penny stock rules, it would become more difficult to trade our shares.***

 ****

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our Common Stock is less than $5.00, our Common Stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser's written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Common Stock, and therefore shareholders may have difficulty selling their shares.

***We will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our shareholders could receive less information than they might expect to receive from more mature public companies.***

 ****

Upon the completion of this Offering, we will be required to publicly report on an ongoing basis as an "emerging growth company" (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to:

● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

● being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and

● being exempt from the requirement to hold a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an emerging growth company for up to five years, although if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.

Because we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our shareholders could receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find our Common Stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our Common Stock.

***Because the Company is a "smaller reporting company," we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than they would receive from a public company that is not a smaller reporting company.***

 ****

We are a "smaller reporting company" as defined in the Exchange Act. As a smaller reporting company, we may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of any reduced disclosure obligations, it may make it harder for investors to analyze the Company's results of operations and financial prospectus in comparison with other public companies.

As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC filings will result in less information about our company being available than for other public companies.

If investors consider our common stock less attractive as a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading market for our common stock and our share price may be more volatile.

***As a "smaller reporting company," we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse effect on our public shareholders.***

 ****

Under Nasdaq rules, a "smaller reporting company," as defined in Rule 12b-2 under the Exchange Act, is not subject to certain corporate governance requirements otherwise applicable to companies listed on Nasdaq. For example, a smaller reporting company is exempt from the requirement of having a compensation committee composed solely of directors meeting certain enhanced independence standards, as long as the compensation committee has at least two members who do meet such standards. Although we have determined not to avail ourselves of this or other exemptions from Nasdaq requirements that are or may be afforded to smaller reporting companies while we will seek to maintain our shares on Nasdaq, in the future we may elect to rely on any or all of these exemptions. By electing to utilize any such exemptions, our Company may be subject to greater risks of poor corporate governance, poorer management decision-making processes, and reduced results of operations from problems in our corporate organization. Consequently, if we were to avail ourselves of these exemptions, our stock price might suffer, and there is no assurance that we would be able to continue to meet all continuing listing requirements of Nasdaq from which we would not be exempt, including minimum stock price requirements.

**USE OF PROCEEDS**

Based upon an assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering, after deducting the underwriting discounts and the estimated offering expenses payable by us, of approximately $10.4 million assuming the underwriter does not exercise its over-allotment option.

We plan to use the net proceeds we receive from this Offering for the following purposes:

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| | |
|:---|:---|
|  | **Use of Net Proceeds<br>**  |
| Clinical Trials | $1600000 |
| Preclinical Research and Development | $300000  |
| Technology Development | $550000  |
| Outstanding Accounts Payable | $2800000  |
| Working Capital | $5150000  |

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Use of Proceeds by Therapeutic Area:

![](forms-1a_038.jpg)

We believe that our existing cash and cash equivalents, together with interest on cash balances, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

**DIVIDEND POLICY**

The Company has not declared or paid any cash dividend on its Common Stock, and it currently intends to retain future earnings, if any, to finance the expansion of its business, and the Company does not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on its Common Stock will be made by the Board, in their sole discretion, and may take into account general and economic conditions, our available cash and current and anticipated cash needs, contractual, statutory and regulatory prohibitions and other restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as the Board. Our future ability to pay cash dividends on our Common Stock may also be limited by the terms of any future debt securities, preferred stock or credit facility.

**CAPITALIZATION**

Set forth below is our cash and capitalization as of September 30, 2022:

● on an actual basis;

● on a pro forma basis to reflect the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 5,657,221 shares of Common Stock in connection with the closing of this offering; and

● on a pro forma as adjusted basis to reflect the issuance and sale of the Shares by us in this offering at an assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, as adjusted for the proposed reverse stock split of 1-for-4.43, after deducting the estimated underwriting discounts and the estimated offering expenses payable by us.

You should read the information in the below table together with our consolidated financial statements and related notes, "*Management's Discussion and Analysis of Financial Condition and Results of Operations*," and "*Use of Proceeds*" included elsewhere in this prospectus.

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| | | | |
|:---|:---|:---|:---|
|  | **As of September 30, 2022** | **As of September 30, 2022** | **As of September 30, 2022** |
|  | **Actual<br> (1)** | **Pro<br> Forma**  | **Pro Forma As Adjusted<br> (2)**  |
| Cash and restricted cash | $11 | $[●]  | $[●]  |
| Total debt at face value (convertible) | 7832 | [●]  | [●]  |
| Total debt at face value (nonconvertible) | 1930 | [●]  | [●]  |
| Total stockholders' deficit: |  | [●] | [●] |
| Preferred Stock, $0.001 par value. Authorized 10,000,000 Shares |  | [●] | [●]  |
| &nbsp;&nbsp;&nbsp;Series A convertible preferred stock. 1,817,333 shares authorized; 1,817,225 shares issued and outstanding as of September 30, 2022 | 1236 | [●]  | [●] |
| &nbsp;&nbsp;&nbsp;Series A-1 convertible preferred stock. 2,400,000 shares authorized; 2,399,997 shares issued and outstanding as of September 30, 2022 | 18000 | [●]  | [●] |
| Common Stock, $0.001 par value, 40,000,000 shares authorized, 15,370,766 shares issued and outstanding as of September 30, 2022; [●] shares issued and outstanding on a pro forma as adjusted basis after giving effect to [ ] | 15 | [●] | [●] |
| Additional paid-in capital | 142054 | [●] | [●] |
| Accumulated deficit | (185962) | [●] | [●] |
| Total stockholders' equity (deficit) | (24657) | [●] | [●] |
| Capitalization | $(24657) | $[●] | $[●] |

---

The table above is based on 15,370,766 shares of Common Stock outstanding as of September 30, 2022, after giving effect to the planned reverse stock split, and excludes, as of such date:

● 465,301 shares of our Common Stock issuable upon exercise of warrants to purchase Common Stock; and

● 5,500,000 shares of our Common Stock (4,931,735 shares of which have been issued and some of which are subject to vesting) issuable upon exercise of options to purchase Common Stock and 2,200,000 shares of our Common Stock (1,524,343 shares of which have been issued and are subject to vesting) issuable upon exercise of Restricted Stock Units to receive Common Stock under our Amended and Restated 2016 Equity Incentive Plan (the "Plan").

**DILUTION**

If you invest in the Company's Shares in this offering, your ownership interest will be diluted to the extent of the difference between the offering price per share of its Common Stock and the as-adjusted net tangible book value per Share of its Common Stock immediately after the offering. Historical net tangible book value per Share represents the amount of the Company's total tangible assets less total liabilities, divided by the number of Shares of its Common Stock outstanding.

The historical net tangible book value (deficit) of the Company's Common Stock as of September 30, 2022, was approximately $(24.7 million) or $(1.60) per Share based upon shares of Common Stock outstanding on such date. Historical net tangible book value (deficit) per Share represents the amount of its total tangible assets reduced by the amount of its total liabilities, divided by the total number of shares of Common Stock outstanding. The pro forma historical net tangible book value (deficit) was $[●] per Share based upon shares of Common Stock outstanding as of September 30, 2022.

After giving effect to the Company's sale of all of the 2,500,000 shares of Common Stock offered in this offering at an assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and the Company's estimated offering expenses, the Company's pro forma as adjusted net tangible book value (deficit) as of September 30, 2022 would have been $[●] or $[●] per Share. This represents an immediate increase in net tangible book value of $[●] per Share to the Company's existing stockholders, and an immediate dilution in net tangible book value of $[●] per Share to new investors. The following table illustrates this per Share dilution:

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| | |
|:---|:---|
| Assumed public offering price per Share | $5.00 |
| Historical net tangible book value (deficit) per Share as of September 30, 2022 | $(1.60 ) |
| Pro forma historical net tangible book value (deficit) per Share as of attributable to the pro forma transaction described above | $[●] |
| Pro forma as adjusted historical net tangible book value (deficit) per Share as of attributable to the pro forma as adjusted transaction described above | $[●] |
| Increase in pro forma as adjusted net tangible book value per Share as of attributable to the pro forma as adjusted transactions described above | $[●] |
| Pro forma net tangible book value per Share as of September 30, 2022 | $[●] |
| Dilution per Share to new investors in this offering | $[●] |

---

The information discussed above is illustrative only, and the dilution information following this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value by $[●] per Share and increase the dilution to new investors by $[●] per Share and decrease the dilution to new investors by $[●] per Share, assuming the number of shares offered by the Company, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company. The Company may also increase or decrease the number of shares it is offering. An increase of 100,000 Shares offered by it would increase the pro forma as adjusted net tangible book value by $[●] per Share and decrease the dilution to new investors by $[●] per share, assuming the assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of the prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company. Similarly, a decrease of 100,000 Shares offered by the Company would decrease the pro forma as adjusted net tangible book value by $[●] per share and increase the dilution to new investors by $[●] per Share, assuming the assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of the prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by the Company.

If the underwriters' over-allotment option to purchase additional Shares from the Company is exercised in full, and based on the assumed public offering price of $5.00 per Share, which is the midpoint of the range set forth on the cover page of this prospectus, the pro forma as adjusted net tangible book value per share after this offering would be $[●] per Share, the increase in as adjusted net tangible book value per Share to existing stockholders would be $[●] per Share and the dilution to new investors purchasing shares in this Offering would be $[●] per share.

The number of shares of Common Stock outstanding is based on 15,370,766 shares of Common Stock issued and outstanding as of September 30, 2022 and excludes the following:

● 465,301 shares of Common Stock issuable upon the exercise of warrants to purchase Common Stock;

● 5,500,000 shares of our Common Stock (4,931,735 shares of which have been issued and some of which are subject to vesting) issuable upon exercise of options to purchase Common Stock and 2,200,000 shares of our Common Stock (1,524,343 shares of which have been issued and are subject to vesting) issuable upon exercise of Restricted Stock Units to receive Common Stock under our Amended and Restated 2016 Equity Incentive Plan (the "Plan").

Except as otherwise indicated herein, all information in this prospectus assumes:

● no exercise of the outstanding options or warrants described above; and

● no exercise of the underwriters' option to purchase up to an additional 375,000 shares of Common Stock to cover over-allotments, if any, or any warrants issued to the underwriters as fees.

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

 

**Overview**

EMulate has, since its inception in 2002, invented, developed, and advanced its technology such that it will present alternative and improved methods of treatment for those suffering from serious diseases and conditions such as cancer, chronic and acute pain, and mental health maladies. Our technology is new in the medical industry. We believe the improved treatment modalities our technology provides are attractive to patients and the physicians treating them. Pharmaceutical and other entities desiring to treat underserved patient populations or improve currently available treatments for all patients will likely be interested in transacting with EMulate to make its technology available for such purposes. Our operations and expenditures have been, and will continue to be, directed to these ends.

In the therapeutic area of oncology, EMulate is pivotal trial-ready for the treatment of adult and pediatric brain cancers, and we have established a subsidiary, Cellsana Therapeutics, Inc., to provide transactional and partnering flexibility in the oncology sector. Planned-for initiatives for continuing development include pivotal trials in treating GBM and DMG/DIPG.

Our *ul*RFE therapeutic system has potential treatment applications in a wide range of diseases other than cancer. We are conducting pre-clinical animal studies and collecting data from limited human exposures in the therapeutic areas of acute and chronic pain management and mental health and other CNS conditions. Our subsidiaries, Indolor Therapeutics, Inc. and Mensana Therapeutics, Inc., respectively, have been established to provide transactional and partnering flexibility in those sectors. Continuing development in these areas includes confirmatory pre-clinical studies and, later, clinical trials in treating acute and chronic pain and mental health conditions.

Since our inception, we have incurred significant operating losses. Our loss from operations was $11.3 million and $10.6 million for the years ended December 31, 2021 and 2020, respectively, and $17.5 million for the nine months ended September 30, 2022. As of September 30, 2022, we had an accumulated deficit of $186.0 million. We expect to incur significant expenses and operating losses for the foreseeable future as we continue with our clinical trials and test new ways to utilize our technology to improve treatment methods.

As funding and resources allow, we will also continue our investigations into the therapeutic areas of animal health and ag-bio. We have proof of concept validation in each of those areas.

As we have done with Hapbee, we will look for opportunities to commercialize our technology in the non-medical space. Hapbee is already at the commercialization/revenue stage, and we believe we are capable of producing the same results with other companies.

With this offering, we are seeking sufficient capital to enable us to continue the technology and business expansion already well underway. We believe proceeds from this offering will be sufficient to fund our business plan for at least the next 12 months.

**Factors Affecting our Business and Results of Operations**

Our planned operating expenses consist of research, development, pre-clinical studies, clinical trials and general and administrative expenses. Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses. Personnel costs also include share-based compensation. We expect personnel costs to continue to increase as we hire new employees to continue to grow our business.

Our operations, research, development, pre-clinical and clinical trial activity is focused on advancing our technology through the pivotal trial stage for multiple tumor types, for pain management treatments, and for mental health treatment. Our activity will also focus on improving the delivery systems of our devices. Research, development, pre-clinical and clinical trials costs, including direct and allocated expenses, are expensed as incurred and consist primarily of the following: personnel costs (including share-based compensation) for those employees involved in our research, development, pre-clinical studies, clinical trials, regulatory and medical affairs activities; costs to conduct research, development, pre-clinical studies and clinical trial activity through agreements with contract research organizations and other third parties; facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies; manufacturing expenses associated with our medical device systems; and professional fees related to regulatory approvals.

General and administrative expenses consist primarily of personnel costs, professional fees and facilities costs. General and administrative personnel costs (including share-based compensation) include our executive, finance, human resources and legal functions. Our professional fees consist primarily of accounting, legal and other consulting costs. We expect that general and administrative expenses will increase in absolute dollars to support our growth. In addition, following the consummation of this offering, we expect to incur significant additional legal and accounting costs related to compliance with SEC rules and regulations, including the additional costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act and compliance with Nasdaq rules, as well as additional insurance, investor relations and other costs associated with being a public company.

Our investment in Hapbee is valued each reporting period based on Hapbee's stock price with the gain/(loss) flowing through non-operating income. While the fluctuation in the stock price does not impact our operating results, these changes do have a negative impact on our net income and earnings per share. For the years ended December 31, 2021 and 2020, and the nine months ended September 30, 2022, Hapbee stock fluctuations impacted net income $(8.1) million, $14.8 million and $(5.2) million, respectively. Also, for the years ended December 31, 2021 and 2020, and the nine months ended September 30, 2022, Hapbee stock fluctuations impacted earnings per share $(0.59), $0.63 and $(0.34), respectively. In this regard, the stock price (expressed in Canadian dollars) has decreased from CAD$0.67 on December 31, 2020, to CAD$0.08 as of September 30, 2022.

***Results of Operations for the Nine Months Ended September 30, 2022 and September 30, 2021***

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| | | | |
|:---|:---|:---|:---|
|  | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **$ Change** |
| (in thousands) |  |  |  |
| Royalty Revenue, related party | $224 | $224 | $- |
| License Revenue, related party |  | 20 | (20) |
| **Operating expenses:** |  |  |  |
| Research and development | 445 | 557 | (112) |
| General and administrative | 10149 | 4100 | 6049 |
| **Total operating expenses** | 10594 | 4657 | 5937 |
| **Loss from operations** | (10370) | (4413) | (5957) |
| **Other income (expense):** |  |  |  |
| Unrealized loss on investment | (5157) | (7440) | 2283 |
| Other income |  | 318 | (318) |
| **Interest expense** | (1926) | (1962) | 36 |
| **Total other income (expense)** | **(7083)** | **(9084)** | **2001** |
| **Net income (loss)** | $**(17453**)** | $**(13497**)** | $**(3956**)** |

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*Revenues*

 

Royalty revenue was the same at $224 for the nine months ended September 30, 2021 and 2022.

We had no license revenue in the nine months ended September 30, 2022, and license revenue was approximately $20 for the nine months ended September 30, 2021. We expect license revenue to increase as we enter into new licenses for our *ul*RFE signal technology.

*Costs and Expenses*

 

Research and development costs decreased approximately $112, or 20.1%, from approximately $557 for the nine months ended September 30, 2021, to approximately $445 for the nine months ended September 30, 2022, mainly because of an overall reduction in headcount and efficiencies gained through the use of contract research organizations. We expect research and development costs to increase as we grow, primarily due to efforts expended to accumulate necessary scientific data regarding the use of our technology by EMulate and our various business subsidiaries.

General and administrative costs increased approximately $6.1 million, or 147.5%, from approximately $4.1 million for the nine months ended September 30, 2021, to approximately $10.2 million for the nine months ended September 30, 2022. The increase is due to is $0.3 million of warrant inducement expense and $7.2 million of additional stock compensation expense related issuance of additional options during 2022. This increase was partially offset by significantly higher compensation expenses in 2021 of approximately $1.5 million due mainly to decreases in executive salary of approximately $0.5 million, investor relations salary of approximately $0.3 million, legal salary of approximately $0.5 million, and general compensation of approximately $0.2 million in the nine months ended September 30, 2022.

*Other Income (Expense)*

 

Unrealized gain(loss) on investment relate to our minority investment in Hapbee. For the nine months ended September 30, 2022, we had a loss on investment of approximately $5.2 million attributable to a decline in the market value of Hapbee.

We recorded interest expense of approximately $1.9 million for the nine months ended September 30, 2022, which is consistent with the $2.0 million for the nine months ended September 30, 2021.

***Results of Operations for the Years Ended December 31, 2021 and December 31, 2020***

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** | **$ Change** |
| (in thousands) |  |  |  |
| Royalty Revenue, related party | $221 | $113 | $108 |
| License Revenue, related party | 20 |  | 20 |
| **Operating expenses:** |  |  |  |
| Research and development | 1536 | 2064 | (528) |
| General and administrative | 10033 | 8685 | 1348 |
| **Total operating expenses** | 11569 | 10749 | 820 |
| **Loss from operations** | (11328) | (10636) | (692) |
| **Other income (expense):** |  |  |  |
| Unrealized gain (loss) on investment | (8089) | 14777 | (22866) |
| Other income | 318 |  | 318 |
| **Interest expense** | (2993) | (1521) | (1472) |
| Total other income (expense) | (10764) | 13256 | (24020) |
| **Net income (loss)** | $(22092) | $2620 | $(24712) |

---

*Revenues*

Royalty revenue is derived from royalty payments made to us by Hapbee pursuant to license agreements under which Hapbee licenses from us certain of our *ul*RFE signals for use in their products. Royalty revenue increased approximately $108 thousand, or 95.6%, from $113 thousand for the year ended December 31, 2020, to $221 thousand for the year ended December 31, 2021. The increase can be explained by the increase in sales of Hapbee product and in subscriptions for the use of the products, the proceeds of which are the basis for the royalty calculation. We believe royalty revenue will continue to increase as sales of Hapbee product and in subscriptions for the use of the products increase.

Non-royalty license revenue is derived from upfront fees paid by Hapbee under their license agreements with us. Non-royalty license revenue was approximately $20 thousand for the year ended December 31, 2021, and we had no license revenue for the year ended December 31, 2020. We expect non-royalty license revenue to increase as new licenses for our *ul*RFE signal technology are entered into.

*Costs and Expenses*

Research and development costs consist of costs incurred for performing preclinical research and proof of concept research in the use and application of our *ul*RFE technology. Research and development costs decreased approximately $0.5 million, or 25.6%, from approximately $2.1 million for the year ended December 31, 2020, to approximately $1.5 million for the year ended December 31, 2021, mainly because of an overall reduction in headcount and efficiencies gained through the use of contract research organizations. We expect research and development costs to increase as we grow, primarily due to efforts expended to accumulate necessary scientific data regarding the use of our technology by EMulate and our various business subsidiaries.

General and administrative costs increased approximately $1.3 million, or 15.5%, from approximately $8.7 million for the year ended December 31, 2020, to approximately $10.0 million for the year ended December 31, 2021. The increase is due to $831 thousand of warrant inducement expense, an increase of $1.8 million in stock-based compensation due to significant options issued and vested during 2021. These increases were offset by decreases of approximately $0.2 million for business development compensation, $0.4 million for R&D compensation, $0.1 million for health insurance, $0.4 million for consulting expense, and $0.2 million rent expense.

*Other Income (Expense)*

Unrealized gain (loss) on investment relate to our minority investment in Hapbee. For the year ended December 31, 2021, we had a loss on investment of approximately $8.1 million attributable to the overall decrease in Hapbee's stock price. By comparison, for the year ended December 31, 2020, we had a gain on investment of approximately $14.8 million attributable to the overall increase in Hapbee's stock price. The change is primarily due to the change in the market value of Hapbee.

We recorded interest expense of approximately $3.0 million for the year ended December 31, 2021, which was a difference of $1.5 million, or 96.8%, from interest expense of approximately $1.5 million for the year ended December 31, 2020. The change is due to increased issuances of convertible and non-convertible notes.

 

We recorded other income, related to the gain forgiveness of SBA PPP loan originated in 2021, of approximately $0.3 million for the year ended December 31, 2021, and we had no other income for the year ended December 31, 2020.

**Liquidity and Capital Resources**

Our principal liquidity requirements are for research and development, working capital and capital expenditures. We fund our liquidity requirements primarily through cash on hand, cash flows from equity funding, borrowings. licensing fees and royalty receipts. As of December 30, 2022, we had cash on hand of approximately $0.1 million.

We believe the net proceeds of this offering will be sufficient to fund our operation for at least the next 12 months. We have no definitive agreements or term sheets for any debt or equity financing at this time, and the timing and success of any additional financing is uncertain and not assured.

Additionally, we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act. This additional corporate governance time required of management could limit the amount of time our management has to implement our business plan and may delay our anticipated growth plans. We anticipate over the next 12 months the cost of being a reporting public company will be approximately $700,000.

The following table summarizes our cash flows from operating, investing, and financing activities:

---

| | | |
|:---|:---|:---|
|  | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** |
| (in thousands) |  |  |
| Net cash used in operating activities | $(3295) | $(2356) |
| Net cash provided by (used in) investing activities |  |  |
| Net cash provided by financing activities | 2829 | 2841 |
| **Net increase (decrease) in cash and restricted cash** | $**(466**)** | $**485**  |

---

***Operating Activities*** – Cash used in operating activities primarily consisted of unrealized gain (loss) on investment, stock-based compensation and deferred compensation and post-employment benefits.

***Financing Activities*** – Net cash provided by financing activities primarily consisted of proceeds from the issuance of convertible notes in the aggregate principal amount of approximately $1.7 million and notes payable in the aggregate principal amount of $1.0 million for the nine months ended September 30, 2022 and approximately $1.6 million from convertible notes, $0.2 million from notes payable, and $0.3 million from a Small Business Administration loan for the nine months ended September 30, 2021.

The following table summarizes our cash flows from operating, investing, and financing activities:

---

| | | |
|:---|:---|:---|
|  | **Years Ended December 31,** | **Years Ended December 31,** |
|  | **2021** | **2020** |
| (in thousands) |  |  |
| Net cash used in operating activities | $(3322) | $(4018) |
| Net cash provided by (used in) investing activities |  |  |
| Net cash provided by financing activities | 3550 | 2765 |
| **Net increase (decrease) in cash and restricted cash** | $**228** | $**(1253)** |

---

***Operating Activities*** – Cash used in operating activities primarily consisted of unrealized gain (loss) on investment, stock-based compensation and deferred compensation and post-employment benefits.

***Financing Activities*** – Net cash provided by in financing activities primarily consisted of proceeds from the issuance of convertible notes in the aggregate principal amount of approximately $1.8 million for the year ended December 31, 2021 and approximately $2.0 million for the year ended December 31, 2020. For the year ended December 31, 2021, we also received approximately $1.7 million from the exercise of Common Stock purchase warrants.

***Convertible Notes Conversion*** – Between January 2020 and December 2020, the Company issued 32 unsecured convertible notes with an aggregate principal amount of $2.0 million. Between January 2021 and December 2021, the Company issued an additional 22 unsecured convertible notes with an aggregate principal amount of $1.8 million. Between January 2022 and September 2022, the Company issued an additional 21 unsecured convertible notes in an aggregate principal amount of $1.7 million. All convertible notes have a maturity date of the earlier of February 15, 2023 (except for two notes totaling $201 thousand due in August 2023) or consummation of a deemed liquidation and bear interest at an annual rate of 10%. During the nine months ended September 30, 2022, 30 convertible notes matured or were converted and resulted in a total of $1,952 in principal and accrued interest being converted into 462,347 shares of common stock under the amended conversion terms of the notes. The remaining convertible notes are set to convert on their maturity dates, all but two on February 15, 2023, and will convert their principal and accrued interested into Common Stock at a price of $4.09 per share.

**Hapbee Technologies, Inc.**

We hold an approximate 23.5% equity interest in Hapbee. Royalty and license revenue received from Hapbee represented 100% of our revenue for the nine months ended September 30, 2022 and the years ended December 31, 2021 and 2020. We are providing the summarized financial information for Hapbee due to our investment in Hapbee being deemed a significant equity investee as it comprised 59.7%, 86.4% and 91.5% of our total assets at September 30, 2022, December 31, 2021 and December 31, 2020, respectively.

The Hapbee financial statements were audited under Canadian Auditing Standards (CAS) using International Financial Reporting Standards (IFRS). Accordingly, Hapbee's financial statements were not prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and are not directly comparable to financial statements prepared in accordance with U.S. GAAP. Hapbee meets the requirements of a "foreign issuer" under SEC rules and, as such, Hapbee is eligible to use financial statements prepared in accordance with CAS and IFRS in SEC filings. Dollar amounts in Hapbee's financial statements are expressed in U.S. dollars.

The following information was derived from the Hapbee financial statements for the nine months ended September 30, 2022. Information presented below is as of the most recent interim period publicly available.

---

| | |
|:---|:---|
|  | **At September**<br> **30, 2022**<br> **(in thousands)** |
| Current Assets | $680 |
| Noncurrent Assets | 2124 |
| Current Liabilities | 2056 |
| Noncurrent Liabilities | 350 |
| Total equity | 398 |

---

---

| | | |
|:---|:---|:---|
|  | **For the Nine**<br> **Months Ended**<br> **September 30,**<br> **2022**<br> **(in thousands)** | **For the Nine**<br> **Months Ended**<br> **September 30,**<br> **2021**<br> **(in thousands)** |
| Revenues | $993 | 1147 |
| Gross Profit | 261 | 571 |
| Net loss | 2418 | 4732 |
| Net loss and comprehensive loss | 1920 | 4731 |

---

The following information was derived from the Hapbee financial statements for the years ended December 31, 2021 and 2020.

---

| | | |
|:---|:---|:---|
|  | **Years Ended** | **Years Ended** |
|  | **December 31,<br> 2021<br> (in thousands)** | **December 31,<br> 2020<br> (in thousands)** |
| Current assets | $4006 | $3765 |
| Noncurrent assets | 2283 | 2475 |
| Current liabilities | (1578) | (795) |
| Noncurrent liabilities | (3103) | (3236) |
| Total equity | 1608 | 2209 |

---

---

| | | |
|:---|:---|:---|
|  | **Years Ended** | **Years Ended** |
|  | **December 31,<br> 2021<br> (in thousands)** | **December 31, 2020<br> (in thousands)** |
| Revenues | $1728 | $662 |
| Gross Profit | 479 | 145 |
| Net loss | (6732) | (10336) |
| Net loss and comprehensive loss | (6728) | (10306) |

---

Hapbee's net loss decreased from $10.3 million for the year ended December 31, 2020 to $6.7 million for the year ended December 31, 2021. Material fluctuations causing this decrease are a change in warrant liability of $5.7 million ($3.3 million loss to $2.4 million gain) and a reduction in shared-based compensation expense of $0.9 million, offset by a $1.5 million increase in general and administrative expenses due to increased marketing, selling, and office expenses, and a $1.9 million increase in consulting expenses.

Hapbee's revenues increased from $0.6 million during the year ended December 31, 2020 to $1.7 million during the year ended December 31, 2021. This increase is attributable primarily due to an increase in the number of devices sold during the year ended December 31, 2020, as compared to the year ended December 21, 2021. As a result of the foregoing increase in revenues, Hapbee's gross profit increased from $0.1 million during the year ended December 31, 2020 to $0.5 million during the year ended December 31, 2021. The increase in gross profit was mostly attributable to the increase in revenues.

Hapbee's net loss decreased from $4.7 million for the nine months ended September 30, 2021 to $1.9 million for the nine months ended September 30, 2022. Material fluctuations causing this decrease are a change in warrant liability of $3.1 million, an increase in other comprehensive income of 0.5 million, and a reduction in shared-based compensation expense of $0.7 million, offset by a $0.9 million increase in consulting expenses and $0.5 million increase in product development costs.

Hapbee's revenues decreased from $1.1 million during the nine months ended September 30, 2021 to $1.0 million during the nine months ended September 30, 2022. This decline is attributable primarily due to a decrease in the number of devices sold during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2022. As a result of the foregoing decrease in revenues, Hapbee's gross profit decreased from $0.6 million during the nine months ended September 30, 2021 to $0.3 million during the nine months ended September 30, 2022. The decrease in gross profit was mostly attributable to the decrease in revenues.

Due to ongoing substantial losses, and given the significant percentage of our balance sheet made up by the investment in Hapbee, we have evaluated Hapbee's ability to continue as a going concern. Hapbee's financial statements presented below are on a going concern basis. Hapbee's ability to continue as a going concern is dependent upon Hapbee generating profitable operations in the future and, or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. We have been advised that there remains substantial doubt about the ability of Hapbee to continue as a going concern.

**Critical Accounting Policies**

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application.

The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates. We have considered the significant accounting policies described in the notes to our consolidated financial statements included elsewhere in this prospectus and concluded that none of our significant accounting policies constitute critical accounting policies.

**Recent Accounting Pronouncements**

There are no recently issued accounting pronouncements that we have not yet adopted that we believe are applicable or would have a material impact on our financial statements. For more information regarding recent accounting pronouncements, refer to Note 2(n) to our audited financial statements contained elsewhere in this prospectus.

**Quantitative and Qualitative Disclosures About Market Risk**

We have not utilized any derivative financial instruments such as futures contracts, options and swaps, forward foreign exchange contracts or interest rate swaps and futures. We believe that adequate controls are in place to monitor any hedging activities. We do not intend to hedge any existing or future borrowings and, consequently, we do not expect to be affected by changes in market interest rates. We do not currently have any sales or own assets and operate facilities in countries outside the United States and, consequently, we are not affected by foreign currency fluctuations or exchange rate changes. Overall, we believe that our exposure to interest rate risk and foreign currency exchange rate changes is not material to our financial condition or results of operations.

**Off-Balance Sheet Arrangements**

We do not have any off-balance sheet arrangements.

**BUSINESS**

**Overview**

We are on a mission to advance the development and adoption of medical, health, and environmental applications of our low-to-ultra-low radio frequency energy technology that are determined by the FDA (or other applicable regulators) to be non-toxic, non-invasive, non-ionizing, safe and effective. We have invented and patented what we believe to be a groundbreaking technology that utilizes radio frequency energy (RFE) precisely targeted at the low and ultra-low ends of the RFE spectrum (*ul*RFE<sup>®</sup>) to specifically regulate signaling and metabolic pathways on the molecular and genetic levels – without chemicals, radiation or drugs – delivered via a simple-to-use non-invasive therapeutic system. For example, using our proprietary technology, we derived a *ul*RFE signal from the well understood chemotherapy paclitaxel, which is known to have a particular effect on tumor cells by interrupting or significantly slowing the normal metabolic activity of cell division. Our clinical trials using the *ul*RFE signal of paclitaxel produced survival data (both median progression-free survival data and overall survival data) that are substantially similar to, or better than, historical survival data, based on FDA meta-analysis, for rGBM patients treated with best supportive care. The similarity of these results does not, in itself, show that the *ul*RFE signal of paclitaxel produces the same metabolic effect as paclitaxel: rGBM patients are not, as a standard, treated in a clinical setting with paclitaxel because the paclitaxel molecule cannot pass through the blood-brain barrier. This circumstance also prevents clinical trial investigators from performing blinded, controlled studies directly comparing (and measuring the statistical significance of) the effects of using the *ul*RFE signal of paclitaxel with the effects of using the paclitaxel molecule in treating rGBM patients. However, to establish the metabolic correlation between the paclitaxel drug and the *ul*RFE signal of paclitaxel, we examined the metabolic effect of the *ul*RFE signal of paclitaxel in pre-clinical in vitro polymerization studies using an a-cellular tubulin protein assay (the protein cells were extracted and purified from bovine brains). These studies showed that the paclitaxel-derived *ul*RFE signal alone (without the concomitant use of any other chemical or drug, and without the use of any other treatment intervention such as radiation) acts in the same or similar way to the paclitaxel drug upon tubulin (the protein component of microtubules within the cancer cell) simultaneously promoting the assembly and disassembly of microtubules to form stable, non-functioning microtubules, which in turn inhibits the mitotic activity of the cell, decreasing the cell's disassembly function and in some cases leading to the death of the cancer cell (apoptosis). The shortening and lengthening of microtubules (termed dynamic instability) is necessary for their function as a transportation highway for the cell. Chromosomes, for example, rely upon this property of microtubules during mitosis, according to Drugbank Online.

The EMulate Therapeutics *ul*RFE<sup>®</sup> therapeutic system is a non-invasive therapeutic medical device. It is the first of many product expressions of the Company's underlying *ul*RFE platform technology. The EMulate Therapeutics therapeutic medical device has potential treatment applications in a wide range of diseases, including cancer, acute and chronic pain management, mental health conditions, among others. The EMulate Therapeutics therapeutic medical device is being evaluated for the treatment of glioblastoma multiforme (GBM) brain tumors and diffuse midline glioma (DMG)/diffuse intrinsic pontine glioma (DIPG) brain tumors in human clinical trials.

We believe our guiding principles contribute to success:

&nbsp;&nbsp;&nbsp;&nbsp;1. *Pioneering*:
 We are pioneers. Great change can happen only when someone takes the lead and the risk. EMulate Therapeutics is committed
 to modernizing disease treatment by pioneering what we believe is groundbreaking medical technology.

2. *Responsibility:* There is a need for safe, effective and affordable treatments for cancer, acute and chronic pain, mental health conditions, and
 other serious diseases. EMulate Therapeutics is taking the responsibility to develop and provide these treatments to patients around
 the world.

3. *Partnership:* Developing the best technology means forming a diverse set of partnerships across a broad range of disciplines – including
 industry and research partners around the world.

4. *Leadership:* The EMulate Therapeutics platform technology is the result of more than two decades of cutting-edge research and development. We
believe this dedication and commitment to our mission will help transform the treatment of some of the world's most serious
diseases and address worldwide health and environmental challenges.

Our corporate structure as of the date of this prospectus consists of our parent company with four presently non-operating subsidiaries.

![](forms-1a_039.jpg)

In 2019, EMulate created Hapbee, a Canadian company that is publicly listed on the TSXV under the symbol "HAPB" since October 2020 to utilize its *ul*RFE technology for the consumer wellness industry. As of September 30, 2022, EMulate owns approximately 23.5% of Hapbee and is Hapbee's largest shareholder. Hapbee has licensed certain recorded *ul*RFE signals from EMulate for use in its non-regulated, consumer-focused business.

Mensana Therapeutics, Inc., a Washington corporation established in November 2021, is a wholly-owned subsidiary of the Company, which will use our *ul*RFE<sup>®</sup> technology to develop and provide, subject to FDA approval, safe and effective therapies to those suffering from a variety of mental health conditions.

Indolor Therapeutics, Inc., a Washington corporation established in November 2021, is a wholly-owned subsidiary of the Company, which will use our *ul*RFE technology to develop and provide, subject to FDA approval, safe and effective therapies to those suffering from serious acute and chronic pain conditions.

Cellsana Therapeutics, Inc., a Washington corporation established in February 2022, is a wholly-owned subsidiary of the Company, which will use our *ul*RFE technology to develop and provide, subject to FDA approval, safe and effective therapies to those suffering from cancer.

Zoesana Animal Health, Inc., a Washington corporation established in June 2022, is a wholly-owned subsidiary of the Company, which will use our *ul*RFE technology to develop and provide, subject to applicable regulatory approvals, safe and effective treatments to companion animals suffering from cancer and other serious diseases or conditions.

**Our Corporate History**

We are a Washington corporation incorporated on February 7, 2002. In June 2003, we amended the Articles of Incorporation of WavBank, Inc. to reflect the issuance of Series A Preferred Stock. In February 2006, we amended the Articles of Incorporation of WavBank, Inc. to change the Company's name to Nativis, Inc. In February 2012, we amended the Articles of Incorporation of Nativis, Inc. to reflect the issuance of Series A-1 Preferred Stock. In February 2013 and June 2014, we amended the Articles of Incorporation of Nativis, Inc. to reflect the issuance of additional shares of Series A-1 Preferred Stock. In February 2019, we amended the Articles of Incorporation of Nativis, Inc. to change our name to EMulate Therapeutics, Inc.

On October 8, 2022, the Board approved the mandatory conversion of all Series A-1 Preferred shares into common shares at the Voluntary Conversion Price (as defined in the Company's Amended and Restated Articles of Incorporation) equal to $4.6875 upon consummation of this offering. Accordingly, each Series A-1 Preferred shareholder will be deemed to have exercised his or her option pursuant to Section 2(c)(i)(B) of the Company's Amended and Restated Articles of Incorporation to convert all of his, her or its Series A-1 Preferred shares at the Voluntary Conversion Price upon consummation of this offering.

**Industry Overview**

EMulate Therapeutics is developing treatments for multiple disease areas that affect human health. The Company expects to participate and compete at this time specifically in the oncology treatment industry, the pain management industry, and the mental health treatment industry.

***Oncology***

● According to industry sources, the global oncology treatment market was $141 billion in 2019, and is forecast to reach $394 billion in 2027.

● According to industry sources, the global oncology/cancer drugs market was estimated at $199 billion in 2019.

● The global GBM treatment market size is expected to reach USD 4.82 billion by 2030 according to a recent study by Polaris Market Research.

● Diffuse midline glioma (DMG), a WHO grade IV tumor, is an aggressive and lethal brain tumor in young children, adolescents and young adults. EMulate perceives that its participation in this market presents a $100 million annual revenue opportunity.

● Markets of these magnitudes are well able to tolerate additional entrants such as EMulate, and even a smaller market share would result in significant revenues.

*Competition in GBM*

The Optune product of Novocure GmbH is the only medical device and therapy on the market today that is comparable to EMulate's *ul*RFE investigational therapeutic device for treating GBM brain cancer in terms of effect, that is, limiting cancer cell division. However, Optune uses a markedly different technology: it works by applying a voltage gradient across two electrodes and altering the polarity of the electrodes at a fixed frequency. The Optune device generates heat along with electrical energy. Use of the Optune device requires shaving the head, applying adhesive electrodes to the scalp (which must be frequently re-positioned), carrying a 2.7-pound battery pack, and changing the battery every eight hours. A backpack, housing the battery, is required to be worn continuously while upright. In contrast, EMulate's therapeutic device is designed to limit cancer cell division through the use of specific low and ultra-low radiofrequency energy signals that emulate the therapeutic effects and method of action of proven drugs (the paclitaxel chemotherapy for GBM treatment); our device has no thermal (heating) or ionizing effects; it is extremely lightweight (3-ounce battery/controller), is portable without a backpack, has a 12 to 16 hour battery life, and can be used without shaving the head.

![](forms-1a_040.jpg)

*Competition in DMG/DIPG*

We have no known competitors in treating DMG/DIPG brain cancer since treatments available in the market are not effective.

We may also compete with other medical device products that have come to market or may come to the oncology market in the future, though we are unaware of any such competitors at this time.

***Mental Health***

Mental Health issues are significantly on the rise. There are high failure rates in treating patients for PTSD, ADHD, anxiety and depression. CNS Spectrums and suicide rates are unacceptably high. Patients experience better outcomes in treatments combining psychiatric therapy with psychedelic drugs.

The market for drugs treating mental health conditions is included in the market for CNS drugs. The global CNS drugs market is expected to grow from $123.4 billion in 2019 to reach $160.4 billion in 2023. The global CNS therapeutic market is expected to reach $128.9 billion by 2025.

*Competition in Mental Health*

EMulate's technology presents competitive benefits for the treatment of mental health conditions:

● The duration of signal activity is shorter than the duration of psychedelic drug effects.

● Signal activity and its effects can be quickly terminated if the patient is in distress.

● Because no controlled substance is involved in signal administration, a psychotherapist can administer treatment without the presence of a psychiatrist/physician.

● Unlike psychedelic drugs, which have no composition of matter protection, the use of drug signals themselves will be covered by utility patent protections, thus limiting accessibility to the therapeutic product.

***Pain Management***

● According to industry sources, the global pain management market was $71 billion in 2019, and is forecast to reach $91 billion by 2027.

● According to industry sources, in another analysis, the global pain management market was $65 billion in 2019, and is forecast to reach $85 billion by 2027.

● The market for effective pain treatment with minimal side effects is large, as illustrated by the following:

![](pain_001.jpg)

● Markets of these magnitudes are well able to tolerate additional entrants such as EMulate, and even a smaller market share would result in significant revenues.

*Competition in Pain Management*

We know of one FDA-approved medical device that would compete with our investigational device, if approved, in the pain management sector, but its application is very limited and it does not use, or provide the potential benefits of, our *ul*RFE technology. IB-Stim (formerly Neuro-Stim) is a percutaneous nerve stimulator intended for use as an adjunct in the treatment of a single abdominal pain indication in adolescent patients with irritable bowel syndrome (IBS). It does not claim to treat multiple pain pathways, as the EMulate product is intended to do. Unlike the IB-Stim device, which for use must penetrate the skin, EMulate's therapeutic device is completely non-invasive (as well as being non-thermal, non-sterile, and non-ionizing).

NeoRhythm markets a pulsed electromagnetic field device claiming to entrain the brain into five different brainwave states – which they call gamma, beta, alpha, theta, delta – one of which states is purported to stimulate areas that produce pain reducing hormones such as endorphins and serotonin. NeoRhythm does not claim to directly affect cellular activity in the same or similar way to proven drugs and biologics, as the EMulate product is designed to do.

There are also certain transcutaneous electrical nerve stimulation (TENS) products, which are not FDA-approved, being used for pain mitigation in arthritis and other autoimmune cases. Unlike the EMulate device, these products must penetrate the skin. One such device is marketed by Neurosoft. None of the TENS manufacturers claims that the product emulates the method of action of approved drugs, as EMulate's device is designed to do.

In addition, Hapbee's consumer products face direct and indirect competition from a variety of players including firms engaged in the wearables industry such as Oura Ring, Halo Neurosciences, Muse, NeoRhythm and Calm, as well as software applications that claim to produce benefits like those of wellness products. The table is a comparison of Hapbee and its competitors.

![](forms-1a_041.jpg)

**Our Competitive Strengths** 

We believe that the following competitive strengths will enable us to compete effectively:

● Large market opportunities. Results from testing in animals and humans to date suggest the technology's effectiveness for treating solid cancer tumors such as mycosis fungoides, plasma cell tumors, fibrosarcomas, neurofibrosarcomas, schwannomas, malignant melanomas, hemangiopericytomas, hepatic adenocarcinomas, mast cell tumors, adenocarcinomas (mammary), osteosarcomas, chondrosarcomas, apocrine gland adenocarcinomas, undifferentiated carcinomas, and transitional cell carcinomas.

● Continual development of innovative technologies and applications. EMulate is a true platform technology because it can be applied to multiple medical indications, and therefore will readily lend itself to continuing product and market development.

● Technology that is designed to be used, as it has been used in investigations for the treatment of GBM, DMG, and acute and chronic pain conditions to date, to emulate the therapeutic effects of many drugs/drug combination treatments for not one, but many serious disease indications and conditions.

● Technology presents a less expensive alternative, as compared to drug development, for developing effective disease and condition treatments. It takes less time and expense for the Company to develop a therapeutic product because we do not need to invent the molecule from which the relevant *ul* RFE signal is derived; rather, we measure and record the electromagnetic emissions of proven molecules for transmission to biological systems. As an example, EMulate's recent two lead clinical candidates, pain management and mental health, each took less than 12 months and $500,000 to go from concept to clinic-readiness.

● Our medical device is portable, lightweight, and easy to use, comparing favorably to other therapeutic products in the market.

Moreover, when it comes to the use of our technology for treating GBM, our therapeutic medical device has strong potential market advantages when compared to Optune. As illustrated in the graphic above, it features:

● Ability to reproduce and deliver MOA of multiple drugs/combination therapies

● Freely penetrates the brain and does not generate thermal or ionizing energy

● Response within 23 to 28 days

● 3+ month rGBM survival improvement

● User-friendly

● No need to shave hair, non-stigmatizing

● Lightweight 3-ounce controller

● 12 to 16 hour battery life

**Our Growth Strategies**

● Continuous focus on product innovation.

● We believe there is a serious need for our ulRFE therapies in both U.S. and international markets, and we aim to drive adoption and utilization of our products by leveraging additional clinical studies and market education.

**Pipeline and Key Target Market**

EMulate Therapeutics' *ul*RFE technology has demonstrated potential application(s) in multiple indications including oncology, pain management, mental health, animal health, ag-biotechnology and consumer markets. The company is at varying stages of development with GBM and DMG devices and is ready to initiate pivotal (phase 3) human trials after obtaining approval of IDEs from the FDA. EMulate has established other companies to develop the markets for our technology.

EMulate formed our wholly-owned subsidiary Cellsana to develop the use of our technology in the oncology market. Cellsana is ready to proceed with a DMG/DIPG pivotal trial and a GBM pivotal trial. EMulate has partnered with companies in Japan (Teijin Pharma) and India (Sayre) to market, sell and distribute devices following regulatory clearance.

EMulate has also formed our wholly-owned subsidiaries Indolor and Mensana to develop the use of our technology in the pain relief and mental health markets, respectively. Initial animal safety and efficacy studies have demonstrated promising effects, and both companies are ready to proceed to human clinical trials to collect data to submit to the FDA for a determination of safety and efficacy.

EMulate has also formed our wholly-owned subsidiary, Zoesana, to develop the use of our technology in the animal health markets, focusing primarily on treatment of cancer and pain conditions. Initial animal safety and efficacy studies have demonstrated promising effects, and Zoesana is ready to perform further studies to collect data to submit to the FDA for a determination of safety and efficacy in treating various indications.

Hapbee is a company established by EMulate, to deliver and commercialize a licensed subset of our signal catalog to users in the non-medical consumer space. EMulate receives license fees and royalties from the sale of devices and subscriptions to the Hapbee services.

The effectiveness of EMulate's *ul*RFE signal technology has been demonstrated in two other sectors to date: animal health and agriculture. Business opportunities are or will be available in these and other market areas.

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**Technology**

***RFE Technology***

Radiofrequency energy (RFE) is an oscillating form of magnetic or electromagnetic radiation that transfers energy by radio waves. Oscillating magnetic fields can impact cellular dynamics through the forcing of ions. The literature establishes that low and ultra-low RFE fields (0 Hz to 30 kHz) (**Figure 1**) are bioactive, exerting their effects by forced-vibration of all the free ions on the cell surface. A magnetic field can alter the behavior of a cell membrane channel and affect calcium movement into the cell, which may influence the cell's physiology. Oscillating magnetic fields could also change the binding properties of specific proteins, and alter nitric oxide and reactive oxygen species, which are critical regulators of essential physiological pathways, resulting in specific phenotypic changes.

Our patented RFE technology is targeted at the low and ultra-low ends of the RFE spectrum (*ul*RFE<sup>®</sup>) – 0 Hz to 22 kHz. Numerous pre-clinical and human studies consistently demonstrate the ability to emulate the biological activity (with specificity) of a broad range of molecules such as drugs, siRNA molecules as well as hormones.

![](forms-1a_014.jpg)

**Figure 1.** Radio Frequency Energy (RFE): Electrostatic potential of molecules in motion. *The EMulate platform uses ulRFE of the low and ultra-low wavelength ranges (less than 22 kHz) of the spectrum to emit signals that emulate phenotypic changes produced by proven drugs.*

EMulate has developed the technology to measure and record the electromagnetic emission of molecules that are suspended in a liquid solvent, such as water. This proprietary RFE-based platform can emulate the therapeutic effect of drugs. EMulate's technology is broadly divided into two sectors: 1) signal acquisition and 2) signal delivery. The Molecular Interrogation and Data Systems (MIDS; see Diagram of MIDS) is a shielded environment that blocks the external electromagnetic (EM) spectrum from 0 kHz (DC) to 300 MHz wavelengths, reducing the external environmental electromagnetic power by -80 to -120 dB (frequency dependent power reduction). Molecular signals are obtained from solvated molecules using a direct-current Superconducting Quantum Interference Device (SQUID), originally developed by the U.S. military, coupled to a second derivative gradiometer operating in this highly shielded electromagnetic environment. The SQUID technology measures the electrostatic potential of solvated molecules and is applicable to most non-covalent proven drugs, including e.g. siRNA molecules, to downregulate target proteins, and endogenous chemicals, such as hormones. The signals are recorded, analyzed, and digitized for testing in pre-clinical studies. Transduction of precise *ul*RFE profiles into biological systems have been shown to produce precise biological responses. Thus, transduction of these signals, when emitted via our proprietary controller and head coil system, is hypothesized to interact with charges on proteins and induce selective electron movement and charge transfer, or charge redistribution in a defined bioactive target, resulting in altered cell dynamics that produce relevant phenotypic changes and therapeutic effects.

The recording process is as follows:

● MIDS (acquisition system) "super-cooled" to 4.4' Kelvin with liquid helium

● Sample non-covalent molecule of interest solvated in solution

● Multiple "dilutions" measured during recording session as a time domain series

● "WAV files" (or "signals") with most digital activity identified

● Top 2-5 signals identified and converted as a waveform audio file format (WAV)

● Those signals move into pre-clinical studies

![](forms-1a_015.jpg)

Diagram of MIDS

 

***Concept to the Clinic***

The process from signal molecule identification to validated pre-clinical safety and efficacy readout (using contract research organizations for testing) takes six to twelve months and costs $250,000 to $500,000.

***Disruptive Platform Technology***

Our disruptive platform technology captures the electromagnetic capability of molecules to affect biological systems as illustrated below.

![](forms-1a_016.jpg)

The highlights of our disruptive platform technology include the following:

● *Versatility:* WAV file "magnetic fields" emulate effects of proven commercial targets and of novel MOAs

● *Precision*: EMulate device and Hapbee transmitted WAV files produce RFE fields, which emulate effects of drug therapy

● *Safety:* Our product is a non-ionizing, non-thermal, non-invasive, non-sterile device, presenting no significant adverse effects in clinical trials to date by virtue of its form factor. No significant adverse events and no product-related adverse events have been identified in thousands of human subjects (in clinical trials and recreational uses) over millions of hours of exposure

**Products**

***EMulate Therapeutics Medical Device***

The EMulate Therapeutics *ul*RFE<sup>®</sup> therapeutic system is a non-invasive therapeutic medical device. It is the first of many product expressions of the company's underlying *ul*RFE platform technology. There is no work required to complete the device, which has been used in GBM clinical trials since 2018 and in and DMG compassionate use studies since 2018. Showing promise in pre-clinical studies and clinical trials, the EMulate Therapeutics therapeutic system has potential treatment applications in a wide range of diseases, including cancer, acute and chronic (inflammatory) pain, CNS and mental health conditions, among others. EMulate may modify the configuration of the antenna portion of its therapeutic medical device for treatment application at the part of the body at which the indication (cancer, pain) mainly presents, but no changes will be necessary to parts of the device associated with the transmission of *ul*RFE to the antenna portion.

The EMulate therapeutic medical device is already being evaluated for the treatment of GBM brain tumors and DMG/DIPG brain tumors in human clinical trials.

The EMulate therapeutic medical device is ready for pivotal trial for DMG and GBM. In addition, we are preparing for human clinical trials in acute and chronic pain and multiple mental health indications. Evaluation of our medical device in treating other serious disease indications are planned to follow.

Validated data from pre-clinical animal models and first in human exposures support a safety profile and potential effectiveness in the following:

● Over 20 potential solid tumor indications treated with taxane signals and with signals targeting I/O and EGFR protein targets (demonstrated), such indications including brain cancer(s), melanoma, sarcomas, mast cell tumors, and others,

● mental health indications, emulating the effects of psychedelic drugs in potential PTSD, anxiety, depression, and other treatments, and

● acute and chronic pain indications, emulating the effects of fentanyl, opioids, CBD, NSAIDs, and other drugs.

![](forms-1a_017.jpg)

 

EMulate's products for pain management will target the treatment of "pain pathways" broadly categorized in the industry as follows: acute, chronic, neuropathic, inflammatory and visceral. These five broad categories can overlap with one another, as part of a disease or injury progression.

Traditional pain management focuses on the use of non-steroidal anti-inflammatory drugs (NSAIDs) that target the COX1/2 enzymes to regulate prostaglandin production for inflammatory pain (late acute and chronic).

Cannabidiol (CBD) and its derivatives work across a broad range of pain sensation as modulators of pain. In specific cases, CBD has shown excellent efficacy as an anti-nausea medication. Although nausea is not strictly a pain indication, nausea is adjacent and correlated to pain. CBD has been shown to modulate pain sensation across all five pain categories.

Visceral pain is mostly associated with post-surgical, renal, cardiac, bone breaks/injuries, hepatic and bowel injuries or diseases, that are due to different etiologies. Opioids are frontline pain control medications, usually coupled with NSAIDs, to reduce or modulate severe pain.

Neuropathic pain is associated with nerve injury, stemming from diabetes, nerve crush/pinch and neurodegenerative conditions. Neuropathic pain is a chronic condition that produces variable intensities of pain.

EMulate's therapeutic device's safety and effectiveness tests have been performed on animal models and have demonstrated that the technology can emulate the effects of the conventional drug treatments for each of the pain pathways described above. Subject to receiving requisite regulatory approvals, we intend to use the specific *ul*RFE signals produced by our device to treat patients suffering from these pain conditions.

 

***Hapbee Consumer Use Products***

Hapbee developed a new form factor utilizing Bluetooth low energy (BLE) to connect to a phone and our proprietary *ul*RFE technology to deliver both individual signals and signal blends. Signals and blends are derived from compounds that help with sleep, focus, and other wellness sensations. This product can be worn on either the consumer's head, around the neck or placed under the consumer's pillow for sleep. It costs approximately $360 per unit and a recurring subscription between $25 and $40 per month for all-access membership. Hapbee's sales model for selling a basic product accompanied by monthly subscriptions is often referred to in the consumer products industry as a "razor/razor blade" model. Hapbee's smart sleep pad product began shipping in 2022 and face mask product is in beta testing.

***Hapbee Wearable Wellness Product***

 

A working prototype of the Hapbee Wearable Wellness Product was completed in September 2019.

The Hapbee Wearable Wellness Product weighs 4.5 ounces and comes with a USB-C charging and holding cradle that allows the headband to stand upright as it charges. It is designed to have eight hours of battery life for each charge. The lightweight and low-profile design of the Hapbee Wearable Wellness Product allows users to wear the product comfortably on their heads, over the brim of a hat, or discreetly around their collars under their shirts.

The Hapbee Wearable Wellness Product allows wearers to choose how they feel by producing a variety of sensations by "playing" signals emitting precise electromagnetic fields. The sensations fall under several broad categories such as: Happy, Alert, Relax, Calm, Sleepy, and Focus. The product connects to and is controlled by the customizable Hapbee App that is available for both iOS and Android compatible smartphones.

All of the Hapbee's signals have been tested and confirmed to fall below the applicable International Commission on Non-Ionizing Radiation Protection's safe exposure guidelines for low-frequency magnetic fields.

Bennett M. (Mike) Butters is a co-founder of EMulate and is the principal inventor of its technology. Mr. Butters performed the measurement of the magnetic field of the Hapbee Wearable Wellness Products.

Unique features of the Hapbee Wearable Wellness Product include:

● *Ergonomic design*. The design of the Hapbee Wearable Wellness Product allows users to wear the product comfortably on their heads, over the brim of a brim of a hat, or discretely around their necks, on or under clothing.

● *Low wavelength*. The Hapbee Wearable Wellness Product emits a very low energy frequency of less than 22 kHz. The product produces approximately 40mG of magnetic field strength at peak, about half the amount of the average toaster and much less than a vacuum cleaner. By comparison, all humans continually experience 500mG from the magnetic field of the earth itself.

● *Non-invasive - no substance ingestion*. The Hapbee Wearable Wellness Product can produce dozens of different sensations by "playing" precise *ul* RFE electromagnetic signals, without ingesting any substances. The product is non-ionizing, non-thermal, and non-invasive. Users return to baseline after an average of 15 to 30 minutes after turning off each signal.

● *Easily controllable*. Users can easily control signal strength and variation through the Hapbee App by turning the signals on and off, which allows individual wearers to tailor their experiences to their desires at the touch of a button. The logo light can also be switched off for movie theaters or nighttime use. A cellular phone can detect the Hapbee Wearable Wellness Product up to 30 feet, and it will continue to function for 30 minutes if users accidentally lose connection temporarily.

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In addition to its Wearable Wellness Product, Hapbee has developed a "smart sleep pad," which is ready for shipping to wholesale customers on a trial-sales basis and is developing a face mask product that is in beta testing, intended primarily for use while sleeping. Hapbee is also in the process of developing multiple OEM relationships.

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***Hapbee App***

 

The Hapbee App currently has over 2051 unique builds and updates and has been launched commercially.

The signals themselves, which are played on the Hapbee Wearable Wellness Products, are security protected using encryption standards such as AES 128-bit song encryption keys, 128-bit device communication encryption keys and 2048 key length using RSA and ECDSA encryption providers on Hapbee's server resources. Signals, which are sometimes metaphorically referred to as "songs" because of the large volume of electromagnetic data points of molecules recorded when *ul*RFE signals are created and because they are transmitted from a WAV file as is often used for digital music recordings, are transferred from EMulate via Secure HTTPS to our secure server hosted by Microsoft Azure to distribute to users via the Hapbee App and transferred to each product using a secure device key determined by the manufacturer (over the Bluetooth LE frequency).

Hapbee has also developed a protective song encryption tool for enhanced software security. Hapbee will be able to encrypt songs using the specifications of our product, and there is no reliance on a third-party vendor to create updates, nor are there security violations inside the encryption tool that would compromise the product. The utility for song encryption uses Microsoft.NET Framework and Windows Desktop Platform to ensure the highest security. Subscriber data, which includes basic contact information, is encrypted and saved on Hapbee's secure server.

In addition to platform security protection though encryption protocols, which protect the loading and playing of the signals through the Hapbee App onto the Hapbee Wearable Wellness Products, the product is also sealed through sonic welding, and if broken open or tampered with, the product and embedded signals are rendered useless.

The Hapbee App will allow Hapbee to collect trends on user habits including time of day plays, duration, and other demographics. The Hapbee App will also give Hapbee the opportunity to cobrand and release new signals with other companies for products such as VR, float pod, pillow and mattress companies.

The Hapbee App stores all available predictable electromagnetic signals on a "playlist" that can be accessed via a monthly subscription which is priced according to the features included. Currently, signals can be added, updated and removed on the fly, and the app can specify suggested play time on a per signal basis. The Hapbee App launched with six signals that fall in the broad categories: Happy, Alert, Calm, Relax, Sleepy, Focus, and two more signal categories have since been added. As of October 26, 2020, there were seven signals available related to performance, sleep, and memory function, for use single form or in combination blends available on the Hapbee App Hapbee is evaluating additional signals to potentially license from EMulate.

***Hapbee's Revenue Potential for EMulate***

 

Hapbee has two primary sources of revenue: sale of Hapbee Wearable Wellness Products and subscriptions to use all of the signals in the Hapbee App. Hapbee sells its Hapbee Wearable Wellness Products both on its website and through third party resellers. The price on the website is $299 for the headband or neck-wearable product and $259 for the smart sleeping pad product.

Each customer gets a free trial period in the Hapbee App for unlimited use of certain signals, and then they pay between $25 and $40 per month as a subscription fee for unlimited use of all signals. If customers do not wish to continue paying for the monthly membership, they are still allowed to use one signal a month unlimited, and the monthly free signal will rotate. Hapbee currently has over 2,400 all-access members.

On October 26, 2020, April 21, 2021 and July 29, 2021, we entered into four Exclusive License Agreements, as amended (the "Exclusive License Agreements") with Hapbee to grant Hapbee certain exclusive, royalty-bearing rights and licenses to develop, use, import, and commercialize products using patents, know-how, and other intellectual property relating to our proprietary *ul*RFE technology (the "Authorized Products"). The Authorized Products are for recreational and/or non-medical use in humans. We also granted Hapbee a non-exclusive, royalty-free license under EMulate's Trademarks related to the Authorized Products, including *ul*RFE<sup>®</sup>.

Under the Exclusive License Agreements, Hapbee granted us a royalty-free, fully-paid, perpetual, irrevocable, non-exclusive license, with the right to grant sublicenses, to and under all Hapbee's know-how, all patents that claim inventions that relate to the Authorized Products, and Hapbee's interests in the patents claiming inventions discovered, conceived or reduced to practice jointly by or on behalf Hapbee, on the one hand, and by or on behalf of EMulate, on the other hand (Joint Inventions), and know-how included in Joint Inventions.

Pursuant to the Exclusive License Agreements, Hapbee is solely responsible for commercializing the Authorized Products and should use commercially reasonable efforts to achieve the first commercial sale within six months after the effective date of the Exclusive License Agreements, and such six-month period may be extended by written consent.

In consideration for the licenses and rights granted to Hapbee, Hapbee agreed to pay us, within 10 days following the effective date of each Exclusive License Agreements, a payment in the amount of $10,000.

In further consideration for the licenses and rights granted to Hapbee, Hapbee agreed to pay us, on a calendar quarter basis, royalties on the quarterly net income from sales, lease, or rental of the Authorized Products worldwide multiplied by the percentage royalty rate equal to 20%, and use of Authorized Products worldwide multiplied by the percentage royalty rate equal to 20%; provided, that the percentage royalty rate on the first $10 million of net income form use of Authorized Products will be equal to 25%.

The terms of the Exclusive License Agreements are 20 years from the effective date of each Exclusive License Agreement. The Exclusive License Agreements may be terminated by mutual written agreements or material breach.

**Pre**-**clinical** **Data**

 

Targeting Immuno-oncology targets (CTLA-4 and PD-1) Proof of Concept studies conducted at the University of California at San Diego from December 2013 to May 2014, without any involvement or participation by us, looked at the effects of tumor growth on a GBM model in mice (U-87 MG), and at targeting tumor growth via the downregulating of the CTLA-4 and PD1 (A2 signal, right graph) immune checkpoint inhibitor genes using the recordings of siRNA targeting the murine versions of the human genes played sequentially while exposing mice to the A2 magnetic field against a murine GL261 tumor cell line. Tumor growth in both models was reduced to a statistically significant degree when compared to the control mice (exposed to a white noise signal). The immuno-oncology proof of concept study synopses are as follows:

● Immune Checkpoint Modulators: FDA-approved inhibitors that target cytotoxic T-lymphocyte associated protein-4 (CTLA-4) or programmed cell death protein-1 (PD-1)

● Signal Design: White noise was generated electronically and captured as a signal; mouse CTLA-4 and PD-1 siRNA in solution were recorded; the two signals were concatenated (i.e. – one signal was played directly after the other signal and looped) and thus signal inhibitors for CTLA4 and PD-1 were alternated throughout the treatment period

● Study Design: Immune-competent C57BL/6 were injected in the flank with the GL261 mouse glioma; treatment was initiated after tumor randomization based on tumor size; mouse cages were exposed to the signal treatment for approximately 24 hours per day, apart from brief time needed for tumor measurement and husbandry

 

 

**Targeting EGFR**

 

*In-Vitro Results (Swedish Neuroscience Institute)*

The specificity of the biologic activity produced by *ul*RFE was demonstrated in experiments conducted, without any involvement or participation by us, by independent labs from June 2016 to January 2017 (Charles Cobbs, Swedish Neuroscience Institute; J Neurooncol (2017) 133:257–264, DOI 10.1007/s11060-017-2440-x) targeting the epidermal growth factor receptor EGFR on glioblastoma cell line U-87 MG. A recording of a small interfering RNA (siRNA) targeting human EGFR was tested in vitro at 48 and 72 hours. EGFR inhibition by specific *ul*RFE reduced the level of EGFR protein by 27% and 73%, respectively. These data indicate that certain *ul*RFE can inhibit gene expression at the transcriptional and protein levels, similar to what is observed with physical small interfering RNA (siRNA) inhibition. Specific EGFR knockdown effect was detected in U-87 MG cells treated with *ul*RFE using an 80 gene PCR-based array.

 

***In-Vivo Results (University of California at San Francisco)***

 

The results of in-vivo studies conducted in four phases at the University of California at San Francisco during the period November 2015 to December 2016, without any involvement or participation by us, demonstrated that the technology is flexible enough to record very different molecules to target specific pathways and the data is in preparation for publication. As a result, median survival was increased in the EGFR RFE group, and histology showed significant reduction in EGFR expression.

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Small inhibitor RNA (siRNA) *ul*RFE directed against EGFR in a xenograft model of a human glioblastoma cell line (U-87 MG).

A study by the laboratory of Dr. Todd Mockler at the Donald Danforth Plant Science Center using *ul*RFE derived from siRNA against MAA7 (tryptophan synthase beta) showed a decrease in mRNA levels for MAA7 in, clearly demonstrating an effect in MAA7, as well as in the genes regulated by MAA7 expression (a gene ontology expression map). In cells exposed to the *ul*RFE, an increase in cell growth was observed as compared to no *ul*RFE.

 

***GBM – Human Clinical Trials***

We have sponsored three clinical trials of our investigational device in GBM: Study NAT-101 in the continental United States for recurrent GBM patients, Study NAT-105 in Australia for recurrent GBM patients, and Study NAT-109 in the continental United States for newly diagnosed GBM patients.

The table below shows historical data based on FDA meta-analysis and current Optune labeling for progression-free survival (PFS) and overall survival (OS). We have included in this table data for the EMulate therapeutic device (sometimes called "Voyager") from Studies NAT-101 and NAT-105.

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The following bar charts show the EMulate therapeutic device's clinical effect in recurrent GBM in Study NAT-101.

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Our NAT-101 GBM trial was conducted in rGBM patients in the US. Our GBM clinical trial was conducted at the trial sites by the investigators identified below. The trial's first and second cohorts enrolled the first patient on February 11, 2015 and completed the last patient visit on January 31, 2018 with 75 patients enrolled and treated. Patients were eligible to participate in the study if they had a histologically-confirmed diagnosis of GBM, had prior radiotherapy and temozolomide chemotherapy, had progressive disease with at least one measurable lesion on MRI or CT, were at least 18 years of age, had a KPS score ≥ 60, had adequate organ and marrow function, and provided signed, informed consent. Patients with recurrent GBM were treated with Voyager as monotherapy or in combination with standard-of-care chemotherapy or immunotherapy at the Investigator's discretion. Treatment with the investigational device was administered continuously (i.e., 24/7) until unequivocal disease progression, occurrence of a device-related clinically significant adverse event, unacceptable adverse reactions, or withdrawal of informed consent. At the discretion of the Investigator, patients could remain on treatment post-progression, and to date, in most cases patients experiencing progression have remained on treatment. Patient visits occurred at least every 8 weeks during the first 6 months and every 4 months thereafter. Routine hematology and chemistry assessments, physical exam (including vital signs and neurological exam), and MRI were performed at baseline and at each visit. Safety was assessed by incidence of adverse events associated with the therapeutic device, as well as trends in clinical laboratory parameters, vital signs, and physical exams. Patients were followed until death. There were no clinically significant changes on physical exams (including changes in vital signs and neurological exams) or in laboratory findings, and no device-related serious adverse events were reported. Clinical utility was assessed via standard calculation of overall survival and progression-free survival. The study was designed to observe at least a 25% response rate (suggesting active therapy) in patients with first or second recurrence. The study did not prespecify any statistical comparisons; however, the data suggest a clinically meaningful benefit in overall survival and progression-free survival as compared to historical control data.

---

| | | |
|:---|:---|:---|
| **Trial Site** | **Investigator** | **Serious Adverse Events Observed** |
| Austin, TX | Brian D. Vaillant, MD | None |
| Seattle, WA | Charles Cobb, MD | None |
| Lake Success, NY | Paul Duic, MD | None |
| Encinitas, CA | Edward McClay, MD | None |
| Santa Monica, CA | Garni Barkhoudarian, MD | None |
| Birmingham, AL | L. Burt Nabors, MD | None |
| Boca Raton, FL | Sajeel Chowdhary, MD | None |
| Seattle, WA | John Paul Flores, MD | None |
| Overland Park, KS | Michael Salacz, MD | None |
| Austin, TX | Ekokobe Fonkem, DO | None |
| Fairfield, CT | Nicholas Blondin, MD | None |
| Tucson, AZ | Michael Badruddoja, MD | None |

---

The results in NAT-101 indicated that

Overall Survival in patients with recurrent GBM was approximately 10 months in patients treated with EMulate's therapeutic device combined with Best Supportive Care (BSC), which consists of appropriate palliative care without any other anticancer therapies. We believe the results are clinically meaningful as compared with historical performance of Overall Survival of approximately 7 months in patients treated with commonly used pharmaceutical treatments (Active Tx). These Active Tx demonstrated efficacy in historical clinical trials while the therapies identified as Inactive Tx demonstrated no efficacy in historical clinical trials. In addition, patients with recurrent GBM using EMulate's therapeutic device without other treatment (monotherapy) survived 7 months (median), which is consistent for patients using Active Tx (e.g., chemotherapy), but with many fewer side effects attributable to the treatment product. This is the first potential improvement in recurrent GBM survival in decades.

***Mental Health***

Pre-clinical, observational tests also indicate a potential for use of *ul*RFE<sup>®</sup> in a therapeutic setting. The results in human observation tests are as follows:

● Volunteers, including clinical experts in mental health, assessed the effects of multiple EMulate *ul* RFE signals

● Effects could be felt within 10 to 15 minutes of exposure to the signal

● Effects were reported to be potentially clinically useful in a subset of signals

Our next steps will be to design clinical trials to be initiated in the first half of 2023 and multiple sites have been identified for phase 1 to 2 in the CNS space.

 

***Pain Management***

Pre-clinical data confirm activity in validated pain management models. ANS Biotech, a pre-clinical CRO known for its expertise in validated pain animal models, conducted an independent study using ten validated animal pain models to assess the effects of eight different EMulate *ul*RFE signals in comparison to known "gold standard" pain drugs. ANS's final report provides detailed data on all animal data in pain study completed June 2021 that shows the following:

● Fentanyl *ul* RFE signal showed pain reduction greater than the reference pain drug in two different animal models, one inflammatory and one neuropathic, and noticeable activity in a third

● CBD *ul* RFE signal showed pain reduction greater than the reference pain drug in neuropathic pain model and noticeable activity in two other animal models

● Four other *ul* RFE signals showed activity and two *ul* RFE signals had effects no greater than untreated mice.

The internal reference drugs are morphine, (-) U-50/488H, duloxetine and indomethacin. All three drugs are internal reference drugs against which the relative effects of new therapies are measured.

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The above-mentioned study results were further confirmed by ANS' assays as indicated in the chart below (N=10 rats per exposure group). In the assays, five different pain models: Carrageenan: Inflammatory pain model, Oxaliplatin: Neuropathic pain model, TNBS: Visceral pain model, Acetic acid: Acute pain model, and Bennett paw pressure: Surgical pain model were assessed, three of which were significant. Six *ul*RFE signals were tested in the assays, including fentanyl, hydromorphone, CBD, dexamethasone, indomethacin and naproxen. All assays were assessed with N=10 per signal group, which means technicians were blinded to the type of signal used, error bars are standard error of the mean (S.E.M.) and were powered for statistical analysis.

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The following human feasibility data further support the effectiveness of EMulate's pain relief technology.

● Six volunteers with chronic pain were treated with an EMulate pain relief signal of CBD and filled out case report forms (CRF), two with knee pain, three with back pain, and one with abdominal pain.

● All experienced pain relief (with coil placed on head or at pain site) with 71% to 100% reduction in pain score. Pain relief was experienced within 11 to 33 minutes. Pain relief lasted 30 minutes to two days after discontinuing device use.

EMulate is currently working with key opinion leaders to design clinical trials, selecting indications and endpoints.

***Companion Animals – Oncology***

*ul*RFE has been tested in over 300 dogs (pets) with naturally occurring malignancies by Dr. Greg Ogilvie (Angel Care Cancer Center, southern California; data on file). Interim review of the first 200 pets observed partial responses and complete responses in over 20 different solid, non-brain tumor types. No clinically important or significant toxicities (Grade 3 or 4) were observed.

![](forms-1a_027.jpg)

Canine open label trial results for using our *ul*RFE<sup>®</sup> on companion animals' oncology are as follows:

● Over 300 pets treated with naturally occurring malignancies

● PRs or CRs observed in pets with over 20 different solid tumor types

● Response seen as early as 14 days – monotherapy

● No clinically important or significant toxicities (Grade 3 or 4) were observed

 

***Bio-Agriculture***

Experiments in the agricultural/botanical sector were done in collaboration with the Donald Danforth Plant Sciences Center, assessing the gene-regulating ability of a plant growth hormone (agrin), the effects of a recorded signal of agrin and the outcomes of a siRNA against a highly conserved chlorophyl gene. A gene ontology screen, comparing physically treated plant and untreated plant to *ul*RFE-treated plants, demonstrated that the overlap in gene expression and gene suppression reached a statistically significant level (P < 0.0001) in overlap for both the agrin signal and the siRNA signal directed against a chlorophyl plant gene (data on file).

 

***Wellness Wearables***

 

Initial rodent studies conducted at Crown Bio, an independent contract research organization (CRO) for Hapbee, demonstrated behavioral changes in mice that were exposed to oscillating magnetic fields derived from chemistries intended to either stimulate or suppress moods and sensations (e.g., caffeine, nicotine, melatonin, CBD, THC and alcohol). Under controlled and blinded conditions, independent evaluators noted the mice reacting to the specific *ul*RFE in a manner consistent with reactions expected from using the compound from which the *ul*RFE was derived (**Figure 4**).

![](forms-1a_028.jpg)

These *ul*RFE signals are now part of the Hapbee catalog of products that are in the non-medical, commercial market space (Hapbee.com), which launched its first product to customers in late 2020.

**Marketing**

The Company's platform technology provides us with multiple marketing opportunities. We can ascertain the market-readiness of any particular molecular signal within six to twelve months following molecule identification, all at a relatively low cost. These advantages make a technology licensing model possible for us and attractive to prospective licensees. The licensee is able to receive an early readout of a drug-candidate's effectiveness by using the signal of the drug, produced by our medical device, in pre-clinical models. Moreover, the licensee can use a drug signal to determine at the pre-clinical stage whether additional investment in pre-clinical and clinical trials is warranted.

Under this model, EMulate would develop a molecular signal, often at the request of a drug company, evaluate the signal preliminarily for safety and effectiveness, usually in animal models, then license the drug signal to the interested drug company. The prospective licensee would pay the Company for such evaluation, and licenses would produce revenues for EMulate in the form of up-front fees, milestone fees, and continuing royalties. Before a drug signal licensee will be able to commercialize a treatment using the *ul*RFE derived from the specified drug, the licensee will need to have the EMulate *ul*RFE<sup>®</sup> therapeutic system delivering the specified drug signal evaluated by the FDA, at the licensee's expense but with our assistance (paid for by the licensee), probably as a Class III medical device requiring approval of a PMA. The amount of fees and royalties we receive from any prospective licensee will depend in part on how far along in the FDA evaluation process the specified drug signal and delivery device are at the time of licensing: the amount of effort and money we expend in developing, testing, and advancing the regulatory process for a particular *ul*RFE system prior to licensing will be proportionately reflected in the amount of fees and royalties we would expect to receive from the licensee.

EMulate's strategy for marketing treatments for rare indications is different. DMG/DIPG, for which we are currently developing our therapeutic device and intend to seek FDA approval after completion of a pivotal clinical trial, is such a rare disease indication – about 150 to 300 new cases are diagnosed per year in the U.S. Rare disease indications are often underserved or not served at all by the medical industry because the cost for developing treatments, as compared with the revenues that could be earned from relatively few cases, is viewed as prohibitive. EMulate's low costs to develop *ul*RFE signal treatments avoid such a financial result. EMulate's business plans would include marketing *ul*RFE treatments for rare diseases by ourselves to doctors and patients in the United States; the relatively small sales and marketing force needed to do so makes this a viable option. Outside the United States, we would contract for the distribution of therapeutic signal products with a company or agency in the non-U.S. jurisdiction, which would be more familiar and capable of efficiently complying with local regulation. We have used this model as a basis for entering into an agreement with Sayre in India for the distribution of devices to treat GBM and DMG/DIPG.

**Customers**

We do not have any customers that provide 10% or more of consolidated revenues.

**Licensing Strategies**

***Regional Strategic Partners***

We have third-party validation from regional strategic partners for treatment of brain cancer. Teijin Pharma, a large Japanese pharmaceutical company, has licensed from EMulate the rights to use our *ul*RFE technology for treating GBM patients in the territory of Japan. Sayre Therapeutics Pvt Ltd (Sayre Pharma), an Indian company, has received distribution rights from EMulate for using our *ul*RFE technology for treating GBM patients and DMG patients in the 29 States and Union Territories of India.

***Vertical Market Subsidiaries***

Our affiliates and subsidiaries, Mensana, Indolor, Cellsana and Zoesana, together with our licensee, Hapbee, provide us with investors, strategic targeted investment, and partnering opportunities.

**Our Opportunity**

 ****

Multiple studies in a variety of systems confirm that magnetic fields can alter biological function. Therapeutically useful devices are or have been used presently in clinical practice, both in human and veterinary medicine. Treatment for bone growth, wound healing, arthritis pain and depression are among the clinical uses. Research aims to understand better how these magnetic fields produce their effects to further enable new and exciting therapeutic options for many diseases.

In multiple pre-clinical animal and agriculture models and in-human clinical studies, EMulate Therapeutics has observed that specific *ul*RFE demonstrates a measurable, objective and specific biological change. The magnetic fields generated by the EMulate *ul*RFE point to the flexibility and specificity of the technology. Feasibility (phase 1 and phase 2) clinical trials in GBM and a compassionate use clinical trial in DMG have produced promising safety data and preliminary and encouraging effectiveness data in overall survival. Pre-clinical in vitro assays have demonstrated the ability to selectively reduce mRNA and protein expression in cell-culture for EGFR and in immuno- oncology targets. *ul*RFE derived from known pain inhibiting compounds have resulted in measurable reduction in pain scales in validated and objective pain models. Encouraging pre-clinical results in mental health models suggest that specific *ul*RFE may be able to help treat patients suffering from anxiety, depression, PTSD and other mental health conditions.

EMulate's technology has a broad range of applications in multiple areas of human and animal health conditions and may offer significant benefits over current treatments for many patients.

***Oncology Opportunity***

We have comprehensive, integrated pre-clinical and clinical proof of concept (PoC), including the paclitaxel signal, which is active in human GBM, DMG and 20+ canine tumor types, and additional targets with published activity: EGFR pre-clinical; immuno-oncology (CTLA4 + PD-1 protein targets); GBM – pre-clinical and phase 1 data published.

In addition, our strategic partners have validated the opportunity. Teijin Pharma has licensed rights to commercialize GBM in Japan and Sayre Pharma has distribution rights for GBM and DMG treatments in India.

Our oncology strategy includes the following:

● NAT-101 (rGBM) study results are being prepared by independent principal investigators for peer-reviewed publication.

● We plan to self-commercialize DMG therapy in North America, consistent with FDA regulation. The pivotal trial for DMG is in development, subject to receipt or confirmation of sufficient incoming capital to fund IRB approval, patient recruitment and trial commencement as coordinated with the Pacific Pediatric Neuro-Oncology Consortium. We plan to initiate the pivotal trial in mid-2023. It will take approximately six to nine months to fully enroll, and approximately 12 months to follow-up.

● The pivotal trial in GBM will be launched in the first half of 2024 (upon funding and/or partnering additional to funds raised in this Offering).

● Pre-clinical testing of paclitaxel and other oncology signals in multiple solid tumor models to establish PoC in selected solid tumors with quick read-out (six to nine months), with EGFR, Immuno-oncology targets (e.g., CTLA-4, PD-1, etc.).

 

***DMG Market***

We estimate that DMG will provide an over $150 million annual revenue opportunity to us. DMG is a WHO grade IV tumor, which is usually diagnosed in patients under 18 years-old. It is an aggressive and lethal brain tumor in young children, adolescents and young adults, and has 1,821 annual incidence. Median survival in DMG cases is six to twelve months.

We are in discussion with Pacific Pediatric Neuro-Oncology Consortium (PNOC) to conduct a clinical trial for regulatory approval. This clinical trial will be a 30 to 40 patient trial to show at least a three-month improvement in the overall survival primary endpoint (approximately nine to twelve months follow-up on trial). We anticipate initiation of the DMG pivotal trial in mid-2023, with interim data expected in the second half of 2024. The trial will be single-arm and without a control group because there are no alternative treatments and median overall survival of DMG patients is poor, usually less than one year. Study results will be compared to historical survival data. No BSC is identified for DMG, though treating physicians may determine that resection or radiation is indicated for individual patients prior to treatment with our therapeutic device. The safety profile of *ul*RFE brain cancer signals currently appears to be benign in both children and adults treated, approximately 150 human patients. The Company has received humanitarian use device (HUD) designation from the FDA for its therapeutic device for the treatment of pediatric DMG and has discussed in multiple meetings with the FDA a possible humanitarian device exemption (HDE) pathway for approval. While the Company and the FDA had productive discussions regarding the potential for an HDE for the Company's therapeutic device for the treatment of pediatric DMG, the Company has decided at this point not to pursue the HDE approval pathway for the device.

Compassionate use treatment with the EMulate investigational device was requested by parents of DMG patients. In response, the Company coordinated with treating physicians and the FDA for the physicians to obtain approval of protocols to treat individual patients. Below is a summary of results in treating DMG compassionate use patients.

Early clinical responses for DMG treatment were encouraging, compared with the median survival rate of six to nine months, and no serious adverse events were reported, with only two patients reporting mild to moderate possibly device-related adverse events, one patient reporting nausea, fatigue, and excessive sleepiness and one patient reporting vomiting.

***Mental Health Market Opportunity***

There is a high unmet need in the current mental health market. Mental health issues are significantly on the rise with high failure rate in ADHD, anxiety, and depression drug treatments. There are too few psychiatrists/psychotherapists to handle the increased load and the suicide rate is unacceptably high. The use of psychedelics has produced better outcomes than standard of care in ADHD, anxiety, and depression; however, therapy involves the use of controlled substances, supervision by psychiatrists increases costs, lacks composition of matter intellectual property protection for ketamine, MDMA, and psilocybin, and many patients are uncomfortable with psychedelics.

Our *ul*RFE<sup>®</sup> technology, on the other hand, has many benefits compared to psychedelic drugs. It has shorter duration of action than psychedelics, could be instantly "turned off" if the patient is in distress, it wears off quickly, and no controlled substances are involved. In addition, doctors can prescribe our *ul*RFE<sup>®</sup> technology so that psychotherapists can administer it independently without psychiatrist supervision. Strong IP protection of our *ul*RFE technology provides an extended window for high-margin business.

![](forms-1a_030.jpg)

 

***Pain Management Market Opportunity***

![](forms-1a_031.jpg)

There are three different business models for pain relief:

&nbsp;&nbsp;&nbsp;&nbsp;1. Direct
 to physicians or consumer sales, such as for TENS, patches, or other general wellness products.

2. Prior
 to FDA approval and consistent with FDA regulation, build more value by gathering further data supporting safety and effectiveness,
 and then license the technology to pharmaceutical companies or device companies or fund Indolor through institutional investors.

3. FDA-approved
 products.

![](forms-1a_032.jpg)

EMulate has initial data potentially indicating safety and activity. We expect to generate feasibility data from clinical trials in the first half of 2023, with the strategy to license to large pharmaceutical or device companies or fund Indolor through institutional investors.

***Animal Health Market Opportunity***

Oncology

● 300+ pet dogs were treated by Dr. Gregory Ogilvie at the Angel Care Cancer Center at California Veterinary Specialists in southern California

● 20+ different types of solid cell cancer tumors responded to treatment with our *ul* RFE signal derived from paclitaxel – partial remissions or complete remissions occurred in open trial patients

Pain relief

● Proof of Concept for pain relief has been reported in pets using an opiate-derived *ul* RFE signal

Anxiety

● Hapbee device is being used by pet owners to help calm their pets

Plants and Livestock

● Growth hormone (GH) – proof of concept has been demonstrated in plants using a *ul* RFE derived from agricultural growth hormone as well as an siRNA that modulates photosynthesis

● Other areas of interest include delivery of antibiotic effects, pesticide effects and/or herbicide effects, all subject to demonstrated applicability

Global Health

● Organizations have expressed interest in our technology for serving the needs of populations in developing countries EMulate and its subsidiaries would move proof of concept to one or more proven business models

● Advancement of the use of EMulate's technology can be achieved through third-party investment in one or more of EMulate's subsidiaries. Third parties can acquire rights to use EMulate's technology through licensing or partnering structures with EMulate's subsidiaries or with EMulate itself

Global Ag-Bio companies have expressed interest in our technology

● $80 billion to $100 billion global market with unmet needs in crops and livestock

● Targets include proven agents for breeding/genetics, microbials, small molecules, pesticides, fungicides, and other chemicals

● Potential investors and/or acquirers to fund vertical company and attract expertise

● Examples: improve corn yield, fungal resistance, treat mites diminishing bee populations

Proof of concept confirmed in plant growth hormone, photosynthesis, and weed control models

● Gene expression analysis of plant growth hormone and siRNA that were recorded, comparing magnetic field to source molecules yielded exceptional p-values (less than 0.1%)

● The signal of glyphosate (Roundup) produced a magnetic field that stunted the growth of sugar pea sprouts, similar effect to the Roundup chemical

We may consider pursuing consumer-use products at some point in the future.

**Government/Private Grants**

In April 2022, the Company applied to the National Institutes of Health (NIH) for a grant for the "Treatment of Newly Diagnosed Children with DMG/DIPG with Ultra-Low Radio Frequency Energy." If the application is successful, NIH would make significant funds available to the Company to pursue the completion of clinical trials and commercialization of our signal product to serve the community of DMG/DIPG pediatric cancer patients for whom no approved treatment currently exists. The Company intends to make other applications to NIH and other grant sources to assist us in our development, regulatory approval and commercialization efforts.

**COVID-19 Pandemic**

Starting in late 2019, a novel strain of the coronavirus, or COVID-19, began to rapidly spread around the world and every state in the United States. At this time, there continues to be significant volatility and uncertainty relating to the full extent to which the COVID-19 pandemic and the various responses to it will impact our business, operations and financial results.

Most states and cities have at various times instituted quarantines, restrictions on travel, "stay at home" rules, social distancing measures and restrictions on the types of businesses that could continue to operate, as well as guidance in response to the pandemic and the need to contain it. As a result, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, including such authorities in Europe, which could result in delays of reviews and approvals. While there have been no specific notices of delay from federal or foreign government authorities, potential interruptions, delays, or changes to the operations of the FDA, or of any foreign authority with which we might interact, COVID-19 might impact the approval of any applications we plan and will need to submit in the future.

In addition, we are dependent upon certain contract manufacturers, service providers and suppliers and their ability to reliably and efficiently fulfill our orders is critical to our business success. The COVID-19 pandemic has impacted and may continue to impact certain of our manufacturers, service providers and suppliers. As a result, we may face delays or difficulty sourcing certain products or services, which could negatively affect our business and financial results.

For a further discussion of the impact of the COVID-19 pandemic on our business, see "*Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of COVID-19 Pandemic*" and "*Risk Factors*" sections.

**Intellectual Property**

Our intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research and development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our executive officers and directors.

 

***Trademarks***

 

The Company has three registered trademarks, all of which are being used in commerce:

● EMulate<sup>®</sup>(company name);

● Hælo<sup>TM</sup>(name of pediatric cancer treatment device); and

● *ul* RFE<sup>®</sup>(term for RFE spectrum of our technology and the RFE spectrum in which the technology operates)

The company has no unregistered trademarks.

 

***Patents***

 

The Company has eight registered United States patents and thirty-one non-U.S. patents.

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **COUNTRY** | **SERIAL NO.** | **FILING DATE** | **PATENT**<br> **NO.** | **ISSUE DATE** | **TITLE** | **STATUS** | **ANTICIPATED EXPIRATION DATE** |
| Australia | 2003231978 | March 28, 2003 | 2003231978 | June 2, 2005 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| Canada | 2473142 | March 28, 2003 | 2473142 | April 26, 2011 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| Canada | 2684009 | March 28, 2003 | 2684009 | February 15, 2011 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| China | 03803793.9 | March 28, 2003 | ZL03803793.9 | July 4, 2012 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| India | 1821/CHENP/2004 | March 28, 2003 | 229893 | February 24, 2009 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| Japan | 2003-580829 | March 28, 2003 | 4425639 | December 18, 2009 | System and method for characterizing a sample by low-frequency spectra | Granted | March 28, 2023 |
| US | 10/923,545 | August 20, 2004 | 7081747 | July 25, 2006 | System and method for characterizing a sample by low-frequency spectra | Granted | August 21, 2023 |
| Australia | 2003230950 | April 18, 2003 | 2003230950 | February 22, 2007 | System and method for sample detection based on low-frequency spectral components | Granted | April 18, 2023 |
| Canada | 2460794 | April 18, 2003 | 2460794 | February 8, 2005 | System and method for sample detection based on low-frequency spectral components | Granted | April 18, 2023 |
| US | 10/805,066 | March 19, 2004 | 6952652 | October 4, 2005 | System and method for sample detection based on low-frequency spectral components | Granted | June 9, 2023 |
| US | 11/097,632 | April 1, 2005 | 7412340 | August 12, 2008 | System and method for sample detection based on low-frequency spectral components | Granted | June 9, 2023 |
| Australia | 2004280998 | October 8, 2004 | 2004280998 | July 24, 2008 | System and method for characterizing a sample by low-frequency spectra | Granted | October 8, 2024 |
| Brazil | PI0415235-2 | October 8, 2004 | PI0415235-2 | July 4, 2017 | System and method for characterizing a sample by low-frequency spectra | Granted | July 4, 2027 |
| Canada | 2538988 | October 8, 2004 | 2538988 | February 15, 2011 | System and method for characterizing a sample by low-frequency spectra | Granted | October 8, 2024 |
| China | 200480029490.2 | October 8, 2004 | ZL200480029490.2 | May 5, 2010 | System and method for characterizing a sample by low-frequency spectra | Granted | October 7, 2024 |
| India | 1592/CHENP/2006 | October 8, 2004 | 237823 | January 8, 2010 | System and method for characterizing a sample by low-frequency spectra | Granted | May 9. 2026 |
| Japan | 2006-534425 | October 8, 2004 | 4425922 | December 18, 2009 | System and method for characterizing a sample by low-frequency spectra | Granted | October 8, 2024 |
| Australia | 2011201847 | July 27, 2005 | 2011201847 | January 9, 2014 | System and method for producing chemical or biochemical signals | Granted | July 27, 2025 |
| Canada | 2574616 | July 27, 2005 | 2574616 | April 30, 2019 | System and method for producing chemical or biochemical signals | Granted | July 27, 2025 |
| China | 200580025199.2 | July 27, 2005 | ZL200580025199.2 | May 16, 2012 | System and method for producing chemical or biochemical signals | Granted | July 26, 2025 |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **COUNTRY** | **SERIAL NO.** | **FILING DATE** | **PATENT**<br> **NO.** | **ISSUE DATE** | **TITLE** | **STATUS** | **ANTICIPATED EXPIRATION DATE** |
| Japan | 2007523775 | July 27, 2005 | 5624708 | Oct. 3, 2014 | System and method for producing chemical or biochemical signals | Granted | July 27, 2025 |
| Australia | 2005269345 | July 27, 2005 | 2005269345 | December 9, 2010 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | July 27, 2025 |
| Brazil | PI0512678-9 | July 27, 2005 | 1943 | April 1, 2008 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | February 14, 2028 |
| Canada | 2573350 | July 27, 2005 | 2573350 | May 13, 2014 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | July 27, 2025 |
| India | 808/CHENP/2007 | July 27, 2005 | 252124 | April 27, 2012 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | February 26, 2027 |
| Japan | 2007-523767 | July 27, 2005 | 4726900 | April 22, 2011 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | July 27, 2025 |
| US | 13/555,025 | July 20, 2012 | 9417257 | Aug. 16. 2016 | System and method for collecting, storing, processing, transmitting and presenting very low amplitude signals | Granted | September 14, 2027 |
| US | 11/825,249 | July 3, 2007 | 7575934 | August 18, 2009 | Oriented magnetic particle-fluorescence detectable moiety compositions and methods of making and using the same | Granted | April 2, 2028 |
| Australia | 2013290020 | July 11, 2013 | 2013290020 | August 3, 2017 | Miniaturized molecular interrogation and data system | Granted | July 11, 2033 |
| China | 201380047342.2 | March 11, 2015 | ZL201380047342.2 | March 23, 2018 | Miniaturized molecular interrogation and data system | Granted | July 10, 2033 |
| Australia | 2014233227 | March 15, 2014 | 2014233227 | May 16, 2019 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| Australia | 2019203023 | March 15, 2014 | 2019203023 | March 4, 2021 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| Canada | 2905150 | March 15, 2014 | 2905150 | December 17, 2019 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| China | 201480015755.7 | March 15, 2014 | ZL201480015755.7 | March 30, 2018 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 14, 2034 |
| China | 201810153289.9 | March 15, 2014 | ZL201810153289.9 | November 26, 2021 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 14, 2034 |
| HK | 16102741.0 | March 9, 2016 | HK1214786 | July 12, 2019 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| HK | 19101233.4 | March 15, 2014 |  |  | Controller and flexible coils for administering therapy, such as for cancer therapy | Pending |  |
| India | 9289/DELNP/2015 | March 15, 2014 |  |  | Controller and flexible coils for administering therapy, such as for cancer therapy | Pending |  |

---

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **COUNTRY** | **SERIAL NO.** | **FILING DATE** | **PATENT**<br> **NO.** | **ISSUE DATE** | **TITLE** | **STATUS** | **ANTICIPATED EXPIRATION DATE** |
| Japan | 2016-503310 | September 14, 2015 | JP6654132 | February 26, 2020 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| US | 14/774,688 | September 10, 2015 | 10046172 | August 14, 2018 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | September 22, 2034 |
| US | 16/032,024 | July 10, 2018 | 11103721 | August 31, 2021 | Controller and flexible coils for administering therapy, such as for cancer therapy | Granted | March 15, 2034 |
| US | 17/459,563 | August 27, 2021 |  |  | Controller and flexible coils for inducing an effect of a chemical or biochemical agent to a mammalian subject | Pending |  |
| AU | 2018346161 | October 3, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |
| CA | 3078503 | October 3, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |
| CN | 201880078693.2 | October 3, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |
| EP | 18934524.2 | October 3, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |
| JP | 2020-540684 | October 3, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |
| US | 29/740,047 | June 30, 2020 | D944,999 S | March 1, 2022 | Therapeutic energy emission headband design | Granted | June 30, 2035 |
| US | 62/294,054 | December 27, 2021 |  |  | Non-intrusive delivery mechanism for producing physiological effects in living organisms | Pending |  |
| US | US16/151,235 | October 4, 2018 |  |  | Methods for treating glioblastoma or recurrent glioblastoma utilizing a wireless signal alone or in combination with one or more cancer drugs, and associated systems, apparatuses, and devices | Pending |  |

---

*Trade Secrets*

There are company trade secrets in connection with the method in which molecular signals are measured, recorded and optimized.

*Licensing Agreements*

 

See "*Business - Hapbee's Revenue Potential for EMulate*."

*Sayre Distribution Agreement*

On October 10, 2019, we entered into a distribution agreement (the "Distribution Agreement") with Sayre for Sayre to act as exclusive licensee for our Company and supply our systems for treating adult and pediatric brain cancers (collectively, "EMulate's Products") in the treatment fields diffuse midline glioma including DIPG in patients less than 22 years of age and GBM in adults (collectively, the "Field") in India. Sayre will be responsible for permits and ancillary approvals required for Sayre to import, resell and distribute EMulate's Products and for obtaining and maintaining regulatory approval of EMulate's Products at its own expense, including any government fees and approvals of labelling and packaging of EMulate's Products.

Pursuant to the Distribution Agreement, Sayre agreed to pay us an upfront payment in the amount of $50,000 upon signing the definitive agreement, in addition to the initial transfer price of EMulate's Products of $10,000 per each twelve-month-treatment unit, $5,000 per each six-month treatment unit, and $2,500 per each three-month treatment unit, as well as milestone payments as follows: (i) payment on CE Mark approval of the device for GBM, in the amount of $50,000, (ii) payment on US FDA approval of the device for GBM, in the amount of $25,000.

The term of the Distribution Agreement is 6 years from the date of receipt of fulfilment of Sayre's first order under the named patient program (supply of medical device that is not the subject of marketing authorization issued by the relevant regulatory authority in the individual country where a bona fide unsolicited order for use of medical device has originated from a healthcare professional or from another individual as permitted by the regulatory authority in the country where the medical device is intended to be used). The Distribution Agreement could be renewed upon mutual consent of the parties. Neither party may terminate the Distribution Agreement without assigning any cause and the Distribution Agreement may be terminated for an uncured material breach or in the event Sayre fails to diligently pursue and accomplish the importation, sale, distribution and supply of EMulate's Products.

*Teijin License Agreement*

On April 1, 2017, we entered into an agreement (the "License Agreement") with Teijin granting Teijin an exclusive, royalty-bearing license under the Company's patents and know-how to develop, use, sell, offer for sale, lease, rent, import, and otherwise commercialize the Company's *ul*RFE system for treating GBM in the territory of Japan.

Pursuant to the License Agreement, the Company received an up-front payment of $3 million and will be paid additional amounts upon the achievement of certain milestones including reimbursement fee determination, receipt of U.S. regulatory approval to commercialize, achievement of certain product sales milestones. In addition, following reimbursement approval the Company will receive royalties based on gross sales receipts.

Milestone amounts payable to the Company under the License Agreement are determined as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Assuming
 the receipt within the license term of regulatory approval for the commercialization of licensed
 products, we will receive a $1,000,000 royalty payment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Assuming
 that within the license term the Japanese Ministry of Health, Labor and Welfare has approved
 a reimbursement of more than $13,500 for each licensed product, then when calendar year gross
 sales first exceed $15,000,000, the Company would receive a milestone payment equal to the
 product of $5,000,000 multiplied by the quotient of the approved reimbursement amount divided
 by $57,500.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Assuming
 that within the license term the Japanese Ministry of Health, Labor and Welfare has approved
 a reimbursement of more than $13,500 for each licensed product, then when calendar year gross
 sales first exceed $30,000,000, the Company would receive an additional milestone payment
 equal to the product of $5,000,000 multiplied by the quotient of the approved reimbursement
 amount divided by $57,500.

Under the License Agreement, royalty payments are calculated at a percentage rate of ten percent (10%) on the gross sale amount for any licensed product for which the Japanese Ministry of Health, Labor and Welfare has approved a reimbursement of more than $13,500.

The term of the License Agreement will expire ten years after receipt of reimbursement approval, though it is expressly intended that the parties will commence negotiations on the ninth anniversary of receipt of reimbursement approval to extend the term so the license. Each party has the right to terminate the License Agreement for an uncured material breach.

***Other Intellectual Property***

The company has made no invention disclosures or prepared unfiled patent applications.

**Implications of Being a Smaller Reporting Company**

We are a "smaller reporting company" as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares held by non-affiliates equals or exceeds $250 million as of the prior June 30th, or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million as of the prior June 30th. Such reduced disclosure and corporate governance obligations may make it more challenging for investors to analyze our results of operations and financial prospects.

For additional information, see "*Risk Factors- Because we are a 'smaller reporting company,' we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less company information than they would receive from a public company that is not a smaller reporting company*" and "*As a 'smaller reporting company,' we may at some time in the future choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders*."

**Implications of Being an Emerging Growth Company**

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company for up to five years or until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (2) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur on the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period, or (3) if the market value of our Common Stock held by non-affiliates exceeds seven hundred million dollars ($700,000,000) as of any December 31 before that time, in which case we would no longer be an emerging growth company as of the following December 31. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, we may:

● present only two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related management's discussion and analysis of financial condition and results of operations in this prospectus;

● avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley;

● provide reduced disclosure about our executive compensation arrangements; and

● not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to avail ourselves of this extended transition period, and, as a result we will adopt new or revised accounting standards on relevant dates on which adoption of such standards is required for other public companies.

**Government Regulation**

Our products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject to regulation as medical devices in the United States under the FDCA, and its implementing regulations.

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***Regulation of Medical Devices in the United States***

The FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices intended for human use in the United States to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. Veterinary medical devices are not required to comply with FDA regulations, including premarket approval.

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***FDA Premarket Clearance and Approval Requirements***

Unless an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires (1) FDA clearance of a 510(k) premarket notification, (2) FDA marketing authorization of a de novo request for classification or (3) FDA approval of a PMA. All of these processes can be resource intensive, expensive, and lengthy.

Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA's general controls for medical devices, which include compliance with the applicable portions of FDA's current good manufacturing practices for devices, as reflected in the QSR, establishment registration and device listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devices, also called Class I reserved devices, also require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I devices are exempt from the premarket notification requirements.

Class II devices are subject to the FDA's general controls, and any other special controls deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, special labeling requirements, post-market surveillance, patient registries and FDA guidance documents.

Most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA's permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance.

Class III devices include devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, requiring approval of a PMA. Due to the level of risk associated with Class III devices, the FDA's general controls and special controls alone are insufficient to assure their safety and effectiveness. Devices placed in Class III generally require the submission of a PMA application demonstrating the safety and effectiveness of the device, which must be approved by the FDA prior to marketing, or the receipt of a de novo classification, which provides for the reclassification of the device in Class I or II. The PMA approval process is generally more costly and time consuming than the 510(k) or de novo process. Through the PMA application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use to the FDA's satisfaction. Accordingly, a PMA application typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies. The PMA application must provide valid scientific evidence that demonstrates to the FDA's satisfaction a reasonable assurance of the safety and effectiveness of the device for its intended use.

If a new medical device does not qualify for the 510(k) premarket notification process because no predicate device to which it is substantially equivalent can be identified, the device is automatically classified into Class III. The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the de novo classification process. This process allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. The FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for a 510(k) or determines that the device is not low to moderate risk and requires PMA or that general controls would be inadequate to control the risks and special controls cannot be developed.

A medical device intended for a disease or condition that affects a small (i.e., rare) population may be eligible for the HDE program. An HDE application is a marketing application for a humanitarian use device HUD. An HUD is a medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in not more than 8,000 individuals in the U.S. per year. An HDE is exempt from the effectiveness requirements of the FDCA and is subject to certain profit and use restrictions.

Obtaining 510(k) clearances, de novo marketing authorization, or approval for medical devices is expensive and uncertain, and may take several years, and generally requires significant scientific and clinical data.

***Investigational Device Process***

Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission and de novo request. In the United States, absent certain limited exceptions, human clinical trials intended to support medical device clearance or approval or to determine safety and effectiveness of a device for an investigational use must be conducted in accordance with the FDA's investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. In some cases, one or more smaller IDE studies may precede a pivotal clinical trial intended to demonstrate the safety and efficacy of the investigational device. If the device presents a "significant risk," to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of subjects. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards at the clinical trial sites. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials, and although the FDA's approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product's safety and effectiveness, even if the trial meets its intended success criteria.

If the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

Regardless of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.

During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA's regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, a sponsor, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including the following:

● The FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial, or place a clinical trial on hold;

● Patients do not enroll in clinical trials at the rate expected;

● Patients do not comply with trial protocols;

● Patient follow-up is not at the rate expected;

● Patients experience serious adverse events;

● Patients die during a clinical trial, even though their death may not be related to the products that are part of the trial;

● Device malfunctions occur with unexpected frequency or potential adverse consequences;

● Side effects or device malfunctions of similar products already in the market that change the FDA's view toward approval of new or similar PMAs or result in the imposition of new requirements or testing;

● IRBs and third-party clinical investigators may delay or reject the trial protocol;

● Third-party clinical investigators decline to participate in a trial or do not perform a trial on the anticipated schedule or consistent with the clinical trial protocol, investigator agreement, investigational plan, good clinical practices, the IDE regulations, or other FDA or IRB requirements;

● Third-party investigators are disqualified by the FDA;

● The Sponsor or third-party organizations do not perform data collection, monitoring and analysis in a timely or accurate manner or consistent with the clinical trial protocol or investigational or statistical plans, or otherwise fail to comply with the IDE regulations governing responsibilities, records, and reports of sponsors of clinical investigations;

● Third-party clinical investigators have significant financial interests related to a sponsor or a study such that the FDA deems the study results unreliable, or the company or investigators fail to disclose such interests;

● Regulatory inspections of clinical trials or manufacturing facilities, which may, among other things, require the undertaking of corrective action or suspension or termination of clinical trials;

● Changes in government regulations or administrative actions;

● The interim or final results of the clinical trial are inconclusive or unfavorable as to safety or effectiveness; or

● The FDA concludes that a trial design is unreliable or inadequate to demonstrate safety and effectiveness.

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***510(k) Clearance Process***

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the proposed device is "substantially equivalent," as defined in the FDCA, to a legally marketed predicate device.

A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. A device is considered to be substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics; or (ii) different technological characteristics, but the information provided in the 510(k) submission demonstrates that the device is as safe and effective as and does not raise different questions of safety or effectiveness than the predicate device.

Before the FDA will accept a 510(k) premarket notification for substantive review, the FDA will first assess whether the submission satisfies a minimum threshold of acceptability. If the FDA determines that the 510(k) submission lacks necessary information for substantive review, the FDA will issue a "Refuse to Accept" letter which generally outlines the information the FDA believes is necessary to permit a substantive review and to reach a determination regarding substantial equivalence. An applicant must submit the requested information before the FDA will proceed with additional review of the submission. If a 510(k) submission is accepted for substantive review, the Medical Device User Fee Amendments sets a performance goal of 90 calendar days for FDA review of a 510(k) submission, but the review time can be delayed if FDA raises questions or requests additional information during the review process. As a practical matter, clearance often takes longer, and clearance is never assured. Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.

If the FDA determines that the device is substantially equivalent to a predicate device, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is "not substantially equivalent" to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous requirements of the PMA approval process, or can request a risk-based classification determination for the device in accordance with the "*de novo*" process, which is a route to market for certain novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.

Medical devices can only be marketed for the indications for use for which they are cleared or approved. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or *de novo* reclassification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), *de novo* request or a PMA in the first instance, but the FDA may review this determination to evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance or PMA approval is obtained or a *de novo* request is granted. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.

***De Novo Classification***

Devices of a new type that the FDA has not previously classified based on risk are automatically classified into Class III regardless of the level of risk they pose. To avoid requiring PMA review of novel low- to moderate-risk devices classified in Class III by operation of law, Congress enacted a provision that allows the FDA to classify a novel low- to moderate-risk device into Class I or II in the absence of a predicate device that would support 510(k) clearance. The FDA evaluates the safety and effectiveness of devices submitted for review under the de novo pathway and devices determined to be Class II through this pathway can serve as predicate devices for future 510(k) applicants. The de novo pathway can require clinical data.

FDA has a user fee goal to review a de novo request in 150 calendar review days. During the process, FDA may issue an Additional Information request, which stops the clock. The applicant has 180 days to respond. Therefore, the total review time could be as long as 330 days.

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***PMA Approval Process***

Class III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective for its intended use, and the PMA must be supported by extensive data, including data from pre-clinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, the FDA conducts an administrative review to determine whether the application is sufficiently complete to permit a substantive review. If it is not, the agency will refuse to file the PMA. If FDA accepts the application for substantive review, it has 180 days under the FDCA to complete its review of a filed PMA application, although in practice, the FDA's review often takes significantly longer, and can take up to several years or longer. During this review period, the FDA may request additional information or clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant's response to deficiencies communicated by the FDA. The FDA considers a PMA or PMA supplemental application to have been voluntarily withdrawn if an applicant fails to respond to an FDA request for information (e.g., major deficiency letter) within a total of 360 days. Before approving or denying a PMA application, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to whether the FDA should approve the submission, approve it with specific conditions, or not approve it. The FDA may or may not accept the panel's recommendation. Prior to approval of a PMA, the FDA may conduct inspections of the clinical trial data and clinical trial sites, as well as conduct inspections of the applicant or its third-party manufacturers' or suppliers' manufacturing facility or facilities to, among other things, ensure compliance with the QSR. PMA applications are also subject to the payment of substantial user fees, though the fees are lower for small businesses.

Overall, the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:

● The device may not be shown safe or effective to the FDA's satisfaction;

● The data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval;

● The manufacturing process or facilities may not meet applicable requirements; or

● Changes in FDA approval policies or adoption of new regulations may require additional data.

If the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, subject to the conditions of approval and the limitations established in the approval letter. The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and effectiveness data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. If the FDA's evaluation of a PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been sought by other companies have never been approved by the FDA for marketing.

Certain changes to an approved medical device, such as changes in manufacturing facilities, methods, quality control procedures, sterilization (if applicable), packaging, expiration date, labeling, device specifications, materials, or design of a device, or other changes which affect the safety or effectiveness of the device that has been approved through the PMA process require submission of a new PMA or PMA supplemental application. PMA supplemental applications often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original, approved PMA and may not require as extensive clinical data or the convening of an advisory panel, depending on the nature of the proposed change. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness.

***Ongoing Regulation by the FDA***

Even after the FDA permits a device to be marketed, numerous and pervasive regulatory requirements continue to apply. These include:

● Establishment registration and device listing with the FDA;

● QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, supplier/contractor selection, compliant handling, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;

● Labeling regulations, advertising and promotion requirements, restrictions on sale, distribution or sale of a device, each including the FDA prohibition against the promotion of products for any uses other than those authorized by the FDA, which are commonly known as "off-label" uses;

● The Medical Device Reporting (MDR) regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

● Medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

● Recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse health consequences or death;

● An order of repair, replacement, or refund;

● Device tracking requirements; and

● Post-market study and surveillance requirements.

After a device receives 510(k) clearance or de novo marketing authorization, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) or possibly a new de novo request or PMA. The FDA requires each manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer's determination. If the FDA disagrees with a manufacturer's determination not to seek a new 510(k) clearance, the FDA may retroactively require it to seek 510(k) clearance, de novo marketing authorization, or possibly a PMA. The FDA could also require the manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance, de novo marketing authorization, or a PMA is obtained. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines and penalties.

Some changes to an approved PMA device, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new PMA application or PMA supplemental application, as appropriate, before the change can be implemented. Supplements to a PMA often require the submission of the same type of information required for an original PMA application, except that the supplement is generally limited to that information needed to support the proposed change from the device covered by the original PMA. The FDA uses the same procedures and actions in reviewing PMA supplements as it does in reviewing original PMA applications.

FDA regulations require us to register as a medical device manufacturer with the FDA. Additionally, some states also require medical device manufacturers and/or distributors doing business within the state to register with the state or apply for a state license, which could subject a manufacturer or distributors facility to state inspection as well as FDA inspection on a routine basis for compliance with the regulations and any applicable state requirements. These regulations require that medical devices be manufactured and documentation be maintained in a prescribed manner with respect to manufacturing, testing and control activities.

Manufacturing processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. Manufacturers, including contract manufacturers, are subject to periodic scheduled or unscheduled inspections by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing operations and the recall or seizure of marketed products. The discovery of previously unknown problems with a product, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:

● Warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;

● Recalls, withdrawals, or administrative detention or seizure of our products;

● Operating restrictions or partial suspension or total shutdown of production;

● Refusing or delays in processing, clearing, or approving submissions or applications for new products or modifications to existing products;

● Suspension or withdrawal of 510(k) clearances or PMA approvals that have already been granted;

● FDA refusal to issue certification to foreign governments needed to export products for sale in other countries; or

● Criminal prosecution.

Violations of the FDCA relating to the inappropriate promotion of approved products may lead to investigations alleging violations of federal and state healthcare fraud and abuse and other laws, as well as state consumer protection laws.

***Low Risk General Wellness Products***

The FDCA explicitly excludes from the definition of a medical device products that are intended "for maintaining or encouraging a healthy lifestyle and is unrelated to the diagnosis, cure, mitigation, prevention, or treatment of a disease or condition." The FDA has issued guidance further defining this category of products. In this guidance, FDA defines a "general wellness use" to be (i) an intended use that relates to maintaining or encouraging a general state of health or a healthy activity, or (ii) an intended use that relates the role of healthy lifestyle with helping to reduce the risk or impact of certain chronic diseases or conditions and where it is well understood and accepted that healthy lifestyle choices may play an important role in health outcomes for the disease or condition. For example, the FDA identifies sleep management – such as a product intended to track sleep trends – as an intended use of a product that falls within a general wellness use, provided that the product claims do not make reference to any diseases or conditions. Specifically, the FDA has issued guidance explaining that for such low-risk products, FDA does not intend to examine whether the product constitutes a medical device, and if the product is a medical device, whether the product complies with the premarket review and post-market regulatory requirements of the FDCA. As such, if a medical device falls within the definition of a "low risk general wellness product," the product may nevertheless be subject to enforcement discretion under the FDA's compliance policy for such products, meaning that the FDA will not enforce its medical device authorities with respect to that product.

***Regulation of Medical Devices in the European Union***

The European Union, or EU, has adopted specific directives regulating the design, manufacture, clinical investigations, conformity assessment, labeling and adverse event reporting for medical devices. EU directives must be implemented into the national laws of the EU member states and national laws may vary from one member state to another.

In the EU, there is currently no premarket government review of medical devices. However, the EU requires that all medical devices placed on the market in the EU must meet the relevant essential requirements laid down in the Council Directive 93/42/EEC, or the Medical Devices Directive, and the Council Directive 90/385/EEC, or the Active Implantable Medical Devices Directive. The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performances intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter. Compliance with a standard developed to implement an essential requirement also creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product, and post-market experience in respect of similar products already marketed. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-declare the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a Notified Body. Notified Bodies are independent organizations designated by EU countries to assess the conformity of devices before being placed on the market. A Notified Body would typically audit and examine a product's technical dossiers and the manufacturers' quality system (which must, in particular, comply with ISO 13485:2016 related to Medical Devices Quality Management Systems). If satisfied that the relevant product conforms to the relevant essential requirements, the Notified Body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EU.

Notified Body certificates of conformity are valid for a fixed duration (which shall not exceed five years). Throughout the term of the certificate, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In particular, there will be a new audit by the Notified Body before it will renew the relevant certificate(s).

As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. All manufacturers placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, incidents must be reported to the relevant authorities of the EU member states, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices.

The advertising and promotion of medical devices is subject to some general principles set forth by EU directives. According to the Medical Devices Directive, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose. Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example requiring that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at national level. EU member states laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.

Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular vis-à -vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare professionals or entities. In addition, many EU member states have adopted national "Sunshine Acts" which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs.

On May 25, 2017, Regulation 2017/745, or the EU Medical Devices Regulation, entered into force, which repeals and replaces the Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EU member states, regulations are directly applicable, without the need for adoption of EU member state laws implementing them, in all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.

The Medical Devices Regulation was originally intended to become applicable three years after publication, but in April 2020 the transition period was extended by the European Parliament and the Council of the EU by an additional year – until May 26, 2021. Devices lawfully placed on the market pursuant to the Medical Devices Directive and the Active Implantable Medical Devices Directive prior to May 26, 2021 may generally continue to be made available on the market or put into service until May 26, 2025. Once applicable, the new regulations will among other things:

● Strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

● Establish explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;

● Improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

● Set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union, or EU; and

● Strengthen the rules for the assessment of certain high-risk devices, which may have to undergo an additional check by experts before they are placed on the market.

The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet EU requirements.

The EU-UK Trade and Cooperation Agreement, or TCA, came into effect on January 1, 2021. The TCA does not specifically refer to medical devices. However, as a result of Brexit, the Medical Devices Regulation will not be implemented in the UK, and previous legislation that mirrored the Medical Devices Regulation in the UK law has been revoked. The regulatory regime for medical devices in the UK will continue to be based on the requirements derived from current EU legislation, and the UK may choose to retain regulatory flexibility or align with the Medical Devices Regulation going forward. CE markings will continue to be recognized in the UK, and certificates issued by EU recognized Notified Bodies will be valid in the UK, until June 30, 2023. For medical devices placed on the UK market after this period, the UK Conformity Assessment, or UKCA, marking will be mandatory. In contrast, UKCA marking and certificates issued by UK Notified Bodies will not be recognized on the EU market. The TCA does provide for cooperation and exchange of information in the area of product safety and compliance, including market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, the "rules of origin" criteria will need to be reviewed. Depending on which countries products will ultimately be sold in, manufacturers may start seeking alternative sources for components if this would allow them to benefit from no tariffs. The rules for placing medical devices on the Northern Ireland market will differ from those in the UK.

***Healthcare Fraud and Abuse Laws***

In the United States, we are subject to a number of federal and state healthcare regulatory laws that restrict business practices in the healthcare industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, transparency and other healthcare fraud and abuse laws.

The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of value, including cash, improper discounts, and free or reduced price items and services. Among other things, the U.S. federal Anti-Kickback Statute has been interpreted to apply to arrangements between medical device manufacturers on the one hand and prescribers and purchasers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. The government can exercise enforcement discretion in taking action against unprotected activities. Further, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws, which establish similar prohibitions, and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers and self-pay patients.

The federal false claims, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes "any request or demand" for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program.

The federal Health Insurance Portability and Accountability Act of 1996 created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare and Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such obligations will include payments and other transfers of value provided in the previous year to additional healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives.

Violations of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies.

***Coverage and Reimbursement***

Currently, our products are not separately reimbursed by any third-party payors. Once covered in the United States, products will be paid for as part of the procedure in which the product is used. Outside of the United States, there are many reimbursement programs through private payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for the procedures in which our products are used. Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain coverage and adequate reimbursement from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors' coverage and reimbursement policies, may adversely impact demand for our products.

Based on our experience to date, third-party payors generally reimburse for the procedures in which our products are used only if the patient meets the established medical necessity criteria for surgery. Some payors are moving toward a managed care system and control their healthcare costs by establishing coverage policies that categorically restrict coverage of certain procedures, or by limiting authorization for procedures, including elective procedures using our devices. No uniform policy of coverage and reimbursement among payors in the United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor. Third-party payors are increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative devices or procedures before they will reimburse healthcare providers who use the products or therapies. Even though a new product may have been cleared for commercial distribution by the FDA, we may find limited demand for our product unless reimbursement approval can be obtained and/or maintained from governmental and private third-party payors.

In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. These updates could directly impact the demand for our products.

We believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has led to, and will continue to lead to, increased pressures on the healthcare and medical device industry to reduce the costs of products and services. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, and exploration of more cost-effective methods of delivering healthcare. In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use our products.

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines and procedures. In the European Union, member states are facing increased pressure to limit public healthcare spending. There can be no assurance that procedures using our products will be covered for a specific indication, that our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that the third-party payors' reimbursement policies will not adversely affect our ability to sell our products profitably. More and more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement.

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***Healthcare Reform***

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products.

The implementation of the Affordable Care Act, or ACA, in the United States, for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, among other things, provided incentives to programs that increase the federal government's comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment, there have been judicial, executive and political challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. It is unclear how healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact the law or our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments that began in 2019 that are based on various performance measures and physicians' participation in alternative payment models, such as accountable care organizations.

We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

***Data Privacy and Security Laws***

Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the CCPA, the CPRA and the GDPR, govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

In Europe, the GDPR went into effect on May 25, 2018 and introduces strict requirements for processing the personal data of European Union data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the preceding financial year of the noncompliant company, whichever is greater.

Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union.

Further, from January 1, 2021, companies have to comply with the GDPR and also the United Kingdom General Data Protection Regulation, or the UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is also unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term. Currently there is a four- to six-month grace period agreed in the EU and United Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, while the parties discuss an adequacy decision. The European Commission published a draft adequacy decision on February 19, 2021. If adopted, the decision will enable data transfers from EU member states to the United Kingdom for a four-year period, subject to subsequent extensions.

**Environmental Matters**

Based on our current operations, environmental protection requirements do not have a significant financial and operational effect on the capital expenditures, earnings and competitive position of our Company in the current financial year and are not expected to have a significant effect in the reasonably foreseeable future.

**Employees**

As of [●], 2022, we have seven full-time employees.

**Facilities**

Our corporate headquarters are located in Bellevue, Washington, where we lease 5,643 rentable square feet of office space pursuant to a sublease agreement with Wicresoft North America Company Limited. The sublease term commenced on February 1, 2022 and is scheduled to end December 31, 2024. Rent is payable monthly in advance at an annual base rate of $33/rentable square foot, with $1 annual increases thereafter, together with our proportionate share of operating costs. We delivered a security deposit at the beginning of the sublease equal to $49,367, together with one month's rent to be applied to month three following a two-month rent abatement period.

We also lease 2,457 rentable square feet of space in Kent, Washington, from Davis Property & Investment, LLC, which we use for our signal recording and preparation operations and other research and development activities. The five-year term of this lease commenced April 21, 2021 and is scheduled to end on the 36-month anniversary of the commencement date. Over the term of this lease, base rent ranges from $2,880 to $3,055 per month plus our proportionate share of operating costs. We delivered a security deposit at the beginning of the lease equal to $3,055 and one-month's rent equal to $2,880.

**Legal Proceedings**

From time to time, we may be involved in various disputes and litigation matters that arise in the ordinary course of business. We are currently not a party to any material legal proceedings; however, pursuant to an arbitrated settlement in 2016 with two former employees and founders of the Company regarding the severance amounts payable under their respective employment agreements, we are obligated for the payment of a severance amount to these individuals. Payment of the full amount has to date been deferred pursuant to a series of agreements, the most recent of which was executed as of December 31, 2022, for a deferral period ending March 3, 2023, and we remain current in our scheduled payment obligations under these deferral agreements. The unpaid aggregate severance amount as of December 31, 2022 is approximately $6.1 million. We are in discussions with the former employees and founders. The ultimate outcome of this matter cannot be predicted at this time.

**MANAGEMENT**

Our directors were elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will and will have qualified. The following table sets forth the name, age, and position held with respect to our present executive officers and directors.

**Directors and Executive Officers**

The following table sets forth certain information with respect to our directors and executive officers:

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| | | |
|:---|:---|:---|
| **Name** | **Age** | **Position** |
| Chris E. Rivera | 60 | President, Chief Executive Officer and Chairman of the Board |
| Steven Pope | 69 | Corporate Secretary and Sr. VP, General Counsel |
| Kyle Kingma | 38 | Principal Financial and Accounting Officer |
| Bennett M. (Mike) Butters | 72 | Director |
| Andrew Daniels | 65 | Director |
| Richard Henriques | 66 | Director |
| John Kingma | 63 | Director |
| Charles E. McNerney | 66 | Director |

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***Chris E. Rivera, President, Chief Executive Officer and Chairman of the Board***

Chris E. Rivera has been the CEO, President and Chairman of EMulate since the beginning of 2016 and joined the board of directors in 2014. He brings more than 30 years of experience in the biotechnology industry. Chris was the Founder, CEO, and President of Hyperion Therapeutics from 2006 to 2008, which was acquired by Horizon Pharma in 2015, the Senior Vice President and head of Commercial Operations at both Tercica, where he led the cross-licensing transaction between Tercica and Ipsen, and Genzyme Therapeutics, where he built and ran Genzyme's US renal Commercial Operations, he also helped launch Genzyme's renal division globally. Prior to Genzyme, he helped build Cephalon and Centocor's initial commercial infrastructures. Chris founded Hapbee in January 2019 and served as Chairman and President until February 2022.

From 2009 to 2015, Chris was the President and CEO of the Washington Biotechnology and Biomedical Association (WBBA), where he was responsible for building the biotechnology industry in Washington state. While at the WBBA, he oversaw one of Washington's largest and fastest growing economic industries, including mentoring more than 400 life science start-up companies, and co-founding WINGS – Washington's Medical Technology angel network.

He has also been recognized as a state and national leader through his appointments as co-Chair for the Governor's Life Science and Global Health Advisory Committee (Washington state), Governor's Higher Education Task Force, the Washington Global Health Funding Commission, and Chairman, for the National Council of State Bioscience Associations.

Chris joined the board of directors of CV6 Therapeutics (NI) Ltd in 2018. CV6 Therapeutics, based in Belfast, Ireland, is a drug development company focused on the discovery, development and commercialization of novel therapies for the treatment of human diseases.

Chris holds a master's degree from the University of Oklahoma Health Sciences Center; a bachelor's degree from Northwestern Oklahoma State University; and studied marketing and management at the Albers Graduate School of Business and Economics at Seattle University.

***Steven Pope, Corporate Secretary and Senior Vice President, General Counsel***

Steven Pope has been the Senior Vice President, General Counsel and Corporate Secretary of EMulate since September 2010. Steven served as the Governor of EMulate since Feb 2002. He is responsible for overseeing the legal affairs of the Company, including contracts, securities, governance, intellectual property, and employment matters. Steven has over 30 years of experience advising early and late-stage companies regarding these matters. Prior to joining EMulate Therapeutics, Steven was a Partner at Perkins Coie LLP, where he spent over 20 years in private practice. In addition, Steven is an agent of Cellsana Therapeutics Inc. since February 2022 and an agent of Mensana Therapeutics Inc. since November 2021.

Steven received his J.D. cum laude from Seattle University School of Law where he was a member of the Law Review, his M.A. from the University of Oxford, and his B.A. summa cum laude from Gonzaga University.

***Kyle J. Kingma, Principal Financial and Accounting Officer, General Manager – Subsidiaries***

 

Kyle J. Kingma is the Principal Financial and Accounting Officer of EMulate Therapeutics and has been the head of finance for EMulate since 2010. He is responsible for leading and building the Company's finance department, as well as overseeing the development, growth and strategic direction of EMulate's wholly owned subsidiaries: Cellsana Therapeutics (oncology), Mensana Therapeutics (mental health), Indolor Therapeutics (pain management) and all future subsidiaries in his role as General Manager – Subsidiaries. Kyle has over 15 years of experience in the finance sector with over 11 years as the senior finance professional at EMulate Therapeutics. Kyle is accomplished in leading teams and building systems to guide a company from startup stage through an offering readiness. Kyle has designed, implemented, and maintained systems that integrate company goals and objectives into finance, information technology, operations and business development. In his time at EMulate Therapeutics and working with Hapbee, he has managed and directed finances for over $80 million in funds raised, as well as over $5.0 million in non-dilutive financing. As General Manager of EMulate Subsidiaries, Kyle is coordinating outreach to strategic and investment partners in each of EMulate's target sectors, with an initial focus on Cellsana Therapeutics (oncology), Indolor Therapeutics (pain management) and Mensana Therapeutics (mental health). Kyle demonstrated his skills and ability to successfully oversee financial and partnering operations of EMulate's first spin-out company, Hapbee Technologies (HAPB:TSXV). His role in partnering with Hapbee's CFO and leadership team during the formative period of its development was pivotal to the achievement of Hapbee's public listing. Kyle has spearheaded outreach to hundreds of companies, funds and advocacy groups in the past year, which has led to EMulate's first federal grant submission, as well as multiple conversations with potential strategic and funding partners. Kyle began his professional career in the audit practice at KPMG, where he gained wide experience with an array of clients, from startups to multinational public companies. Kyle received his Bachelor of Arts in Accounting and Business Information Technology from Seattle Pacific University.

 

***Bennett M. (Mike) Butters, Director***

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Bennett M. (Mike) Butters has served as a Director, Co-Founder, and Principle Investor of Technology and Director Chair of the Technology Advisory Board of the Company since its inception in February 2002. He led the early concept and design efforts for the development of the Company's platform technology, including production of the system for recording and optimizing the Company's molecular signals known as our Molecular Interrogation and Data System (MIDS), and led the development of the Company's therapeutic medical device and responsible for the acquisition of all *u/RFE* data used in the operation of the company's therapeutic medical device. Mike brings particular technological expertise to the Board's analysis and discussions. He also continues to assist the Company in its operations, having pioneered new concepts in signal acquisition, post signal processing, and signal transduction. His career in health care in both the private and public sectors, together with his background in electronics and radio frequency design and engineering, has provided a valuable multidisciplinary framework for enabling and executing innovation within the Company.

Mike served as the Vice President of Signal Technology from 2002 to 2015. He also serves as a Technical Consultant for Butters Consulting since 2015 and the Principal of BioCom, LLC since 1998.

***Andrew Daniels, Director***

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Andrew Daniels has served as a Director of the Company since August 2017. He is a seasoned business executive and successful entrepreneur, an active angel investor, and serves on multiple governing boards with companies in the areas of venture capital, wealth management agriculture, health care, technology innovation, commodity trading and AI-driven global hedge fund trading. He has invested in dozens of early-stage companies and recently founded Kronus Innovations, a bio-agricultural company specializing in tailored applications using the Company's *ul*RFE technology to improve efficiencies in plant science, animal health and bio-fuels. He serves on the board of directors for Pendleton Square Trust Company in Chattanooga, Tennessee, and Capitalogix Trading in Coppell, Texas, and he serves as a regional board member for St. Jude Children's Research Hospital.

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***Richard Henriques, Director***

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Richard Henriques has served as a Director of the Company since late 2016 He is an experienced financial executive with an extensive background in the large-capitalization pharmaceutical, early-stage biotechnology, and nonprofit industries. He served as Chief Financial Officer of the Bill & Melinda Gates Foundation from 2000 to 2014. Prior to joining the Bill & Melinda Gates Foundation, Richard spent 19 years at Merck & Company. Currently, Richard is also a Senior Fellow at the Center for High Impact Philanthropy and Wharton Social Impact at the University of Pennsylvania and has been a board member at Cabaletta Bio, Inc. since 2019, and a board member of Arbutus Biopharma Corp since 2014.

***John Kingma, Director***

John Kingma has served as a Director and founder of the Company since 2003. He served as the Company's CFO from 2003 to 2012 and was responsible for capital fundraising activities, as well as all other CFO duties. John has more than 35 years of experience in finance and business management and leadership and is a member of the Washington Society of Certified Public Accountants and the American Institute of Certified Public Accountants. John founded the Kingma CPA Firm, PC in 1985 and is a principal.

***Charles E. McNerney, Director***

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Charles E. McNerney has served as a Director of the Company since late 2016 and has served as the Executive Board Member of Security and Compliance since 2016. Charles also served as a director of Hapbee since 2019. He is a seasoned executive with over 24 years of multi-disciplined security, operations and core engineering experience at Microsoft. He has designed, implemented and led the information security organization for a multinational, Fortune 50 technology company to include Physical and Digital Protection globally. He is a respected security leader across the industry and is recognized for his ability to navigate corporate risk through innovative leadership and vision.

As the Chief Information Security Officer for Microsoft Corp and then as Chief Information Security Officer in MSN from 1995 to 2002, Charles was responsible for enterprise-wide information security, compliance and business continuity efforts. This included our Corporate Facilities in addition to creating the Security Plan for the expansion of Microsoft's Digital Assets such as Bing, Hotmail, Xbox and Cloud Infrastructure. Charles led a global team of security professionals with a strategic focus on information protection, assessment, awareness, governance and enterprise business continuity. Charles was responsible for Piracy and Trade in addition to updating Microsoft's CIO and its board of directors on worldwide physical and digital risks.

From November 2019 to March 2022, Charles became Vice President and Chief Information Security Officer for Expedia Group in Seattle Washington responsible for Digital and Physical Security globally. This encompassed Privacy, Risk and Digital Threats to the company along with Risk and Compliance for internal and external audit.

Charles has the proven ability to build robust and successful security programs, leveraging his deep technical background and strong business acumen to align security engineering with executive vision.

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Our directors are elected for a term of one year and until their successors qualified, nominated and elected.

Kyle Kingma, our Principal Financial and Accounting Officer, is the son of John Kingma, a Director. There are no other family relationships between or among any of our executive officers or other directors.

**Role of the Board**

It is the paramount duty of the board to oversee our management in the competent and ethical operation of the company on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their positions, and set standards to ensure that we are committed to business success through maintenance of ambitious standards of responsibility and ethics.

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***Director Terms; Qualifications***

Members of our Board serve until the next annual meeting of stockholders, or until their successors have been duly elected.

When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board to satisfy its oversight responsibilities effectively in light of the Company's business and structure, the Board focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director.

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***Director or Officer Involvement in Certain Legal Proceedings***

There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.

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***Directors and Officers Liability Insurance***

The Company has and plans on maintaining directors' and officers' liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance may also insure the Company against losses, which it may incur in indemnifying its officers and directors. In addition, officers and directors also have indemnification rights under applicable laws, and the Company's Articles of Incorporation and Bylaws.

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***Director Independence***

The listing rules of Nasdaq require that independent directors must comprise a majority of a listed company's board of directors. In addition, the rules of Nasdaq require that, subject to specified exceptions, each member of a listed company's audit, compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of Nasdaq, a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Our Board has undertaken a review of the independence of our directors and considered whether any director has a material relationship with it that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, the Board has determined that each of Richard Henriques, Charles McNerney and Andrew Daniels are "independent" as that term is defined under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of the Company's capital stock by each non-employee director, and any transactions involving them described in the section captioned "Certain Relationships and Related Persons Transactions" and "Management — Director Independence."

**Board Committees**

As of the closing of the offering, our Board will have established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or nominating committee. Each of our independent directors, Richard Henriques, Charles McNerney and Andrew Daniels, will serve on each committee. Our Board will adopt written charters for each of these committees. Upon completion of this Offering, copies of the charters will be available on our website. Our Board may establish other committees as it deems necessary or appropriate from time to time.

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***Audit Committee***

The Audit Committee, among other things, will be responsible for:

● appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor;

● reviewing the internal audit function, including its independence, plans, and budget;

● approving, in advance, audit and any permissible non-audit services performed by our independent auditor;

● reviewing our internal controls with the independent auditor, the internal auditor, and management;

● reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management;

● overseeing our financial compliance system; and

● overseeing our major risk exposures regarding the Company's accounting and financial reporting policies, the activities of our internal audit function, and information technology.

The Board has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rules and Nasdaq listing rules. Effective upon the completion of this offering the Board will adopt a written charter setting forth the authority and responsibilities of the Audit Committee. The Board has affirmatively determined that each member of the Audit Committee is financially literate, and that Richard Henriques meets the qualifications of an Audit Committee financial expert.

The Audit Committee will consist of Richard Henriques, Charles McNerney and Andrew Daniels. Richard Henriques will be the chair of the Audit Committee. We believe that, after consummation of this offering, the functioning of the Audit Committee will comply with the applicable requirements of the rules and regulations of the Nasdaq listing rules and the SEC.

***Compensation Committee***

The Compensation Committee will be responsible for:

● reviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO;

● overseeing and administering the Company's executive compensation plans, including equity-based awards;

● negotiating and overseeing employment agreements with officers and directors; and

● overseeing how the Company's compensation policies and practices may affect the Company's risk management practices and/or risk-taking incentives.

Effective upon the completion of this offering, the Board will adopt a written charter setting forth the authority and responsibilities of the Compensation Committee.

The Compensation Committee will consist of Andrew Daniels, Richard Henriques and Charles McNerney. Charles McNerney will serve as chairman of the Compensation Committee. The Board has affirmatively determined that each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SEC rules and Nasdaq listing rules. The Company believes that, after the consummation of the offering, the composition of the Compensation Committee will meet the requirements for independence under, and the functioning of such Compensation Committee will comply with, any applicable requirements of the rules and regulations of Nasdaq listing rules and the SEC.

***Nominating and Corporate Governance Committee***

The Nominating and Corporate Governance Committee, among other things, will be responsible for:

● reviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues;

● evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole;

● working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee;

● annually presenting to the Board a list of individuals recommended to be nominated for election to the Board;

● reviewing, evaluating, and recommending changes to the Company's Corporate Governance Principles and Committee Charters;

● recommending to the Board individuals to be elected to fill vacancies and newly created directorships;

● overseeing the Company's compliance program, including the Code of Conduct; and

● overseeing and evaluating how the Company's corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, that may affect the Company's major risk exposures.

Effective upon completion of this offering., the Board will adopt a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.

The Nominating and Corporate Governance Committees will consist of Richard Henriques, Charles McNerney and Andrew Daniels. Richard Henriques will serve as chairperson. The Board has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director guidelines of Nasdaq listing rules.

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***Compensation Committee Interlocks and Insider Participation***

None of the Company's executive officers serves, or in the past has served, as a member of the Board or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board or its compensation committee. None of the members of the Company's compensation committee is, or has ever been, an officer or employee of the Company.

**Code of Business Conduct and Ethics**

Prior to the completion of this offering, the Board will adopt a code of business conduct and ethics applicable to its employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of Nasdaq. The code of business conduct and ethics will be publicly available on the Company's website. Any substantive amendments or waivers of the code of business conduct and ethics or code of ethics for senior financial officers may be made only by the Board and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of Nasdaq.

**EXECUTIVE AND DIRECTOR COMPENSATION**

**Executive Officers' Compensation**

***Summary Compensation Table***

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The following table sets forth information concerning the annual and long-term compensation earned by or paid to our Chief Executive Officer and to other persons who served as executive officers during the fiscal years ended December 31, 2020 and December 31, 2021, or who earned compensation exceeding $100,000 during fiscal year 2021 (the "Named Executive Officers"), for services as executive officers for the last two fiscal years.

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position** | **Year** | **Salary ($)** | **Bonus ($)** | **Stock Awards<br> ($)** | **Options Awards ($)** | **Non-Equity Incentive** <br> **Plan Compensation ($)** | **All Other Compensation ($)** | <br>**Total<br> ($)** |
| Chris E. Rivera | 2021 | $882073 | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $– $| 2402608 | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $3284681 |
| Chief Executive Officer | 2020 | $848147 | $- | $– $|  | $- | $- | $848147 |
| Steven Pope | 2021 | $806640 | $- | $– $| 1428840 | $- | $- | $2235480 |
| Corporate Secretary and General Counsel | 2020 | $775616 | $- | $– $|  | $- | $- | $775616 |

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**Outstanding Equity Awards at Fiscal Year-End**

The following table sets forth information regarding equity awards held by the Named Executive Officers as of December 31, 2021:

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Nave of Executive** | **Grant date** | **Number of Securities Underlying Unexercised Options (#) Exercisable** | **Number of Securities Underlying Unexercised Options (#) Unexercisable (1)** | **Option Exercise Price** | **Option Expiration Date** | **Number of Shares that have not Vested (#) (2)** | **Market Value of Shares of Stock that have not Vested ($)** |
| Chris E. Rivera | 12/15/2015 | 14000 | – $| 13.35 | 12/13/2022 | – $|  |
| Chief Executive Officer | 12/7/2016 | 12000 | – $| 13.35 | 12/6/2023 | – $|  |
|  | 5/17/2017 | 75000 | – $| 13.27 | 5/15/2024 | – $|  |
|  | 4/18/2018 | 12000 | – $| 10.12 | 4/16/2025 | – $|  |
|  | 5/18/2018 | 40000 | – $| 10.12 | 5/16/2025 | – $|  |
|  | 5/18/2018 | 75000 | – $| 10.12 | 5/16/2025 | – $|  |
|  | 5/4/2019 | 14000 | – $| 10.12 | 5/2/2026 | – $|  |
|  | 5/4/2019 | 44182 | – $| 10.12 | 5/2/2026 | – $|  |
|  | 5/4/2019 | 75000 | – $| 10.12 | 5/2/2026 | – $|  |
|  | 11/3/2021 | 28000 | – $| 4.09 | 11/3/2028 | – $|  |
|  | 11/3/2021 | 150000 | – $| 4.09 | 11/3/2028 | – $|  |
|  | 11/3/2021 | 176822 | – $| 4.09 | 11/3/2028 | – $|  |
|  | 7/14/2016 | 75000 | – $| 13.35 | 7/13/2023 | – $|  |
|  | 4/27/2016 | 600000 | – $| 13.35 | 4/25/2027 | – $|  |
| Steven Pope | 5/18/2018 | 14667 | – $| 10.12 | 5/16/2025 | – $|  |
| Corporate Secretary and General Counsel | 5/18/2018 | 60000 | – $| 10.12 | 5/16/2025 | – $|  |
|  | 5/4/2019 | 18483 | – $| 10.12 | 5/2/2026 | – $|  |
|  | 5/4/2019 | 60000 | – $| 10.12 | 5/2/2026 | – $|  |
|  | 10/27/2016 | 60000 | – $| 13.35 | 10/26/2023 | – $|  |
|  | 8/20/2017 | 60000 | – $| 13.27 | 8/18/2024 | – $|  |
|  | 11/3/2021 | 91014 | – $| 4.09 | 11/3/2028 | – $|  |
|  | 11/3/2021 | 120000 | – $| 4.09 | 11/3/2028 | – $|  |
|  | 8/20/2015 | 60000 | – $| 13.35 | 8/18/2022 | – $|  |

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(1) All
 awards are stock options granted under the Company's Amended and Restated 2016 Equity Incentive Plan or replaced incentive
 equity plans, all of which vested fully upon grant.

**Amended and Restated 2016 Equity Incentive Plan**

On October 27, 2016, we established the EMulate Therapeutics, Inc. Amended and Restated 2016 Equity Incentive Plan. The purpose of the Plan is to advance the interests of the Company and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. As of December 30, 2022, 306,265 shares of common stock remain available for issuance under the Plan.

The following summary briefly describes the principal features of the Plan and is qualified in its entirety by reference to the full text of the Plan, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Awards that may be granted include: (a) incentive stock options, (b) non-qualified stock options, (c) stock awards, (d) restricted stock, and (e) restricted stock units.

 

*Purpose of the Plan*: The purpose of the Plan is to advance the interests of the Company and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company.

*Administration of the Plan*: The Plan is currently administered by our Board and will be administered by our compensation committee once it is established (which we refer to as the administrator). Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, restrictions and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the Plan.

*Eligible Recipients*: Persons eligible to receive awards under the Plan will be those employees, consultants, and directors of our company and its subsidiaries who are selected by the administrator.

*Shares Available under the Plan*: The maximum number of shares of our Common Stock that may be delivered to participants under the Plan is 7,700,000, of which 5,500,000 shares may be issued pursuant to stock options and 2,200,000 shares may be issued pursuant to awards granted as restricted stock units, stock awards or restricted stock awards. subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan for which the award is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled in cash will not again be made available for grants under the Plan.

*Stock Options*

 

<u>General</u>*.* Subject to the provisions of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option; and (vi) any other terms and conditions as the administrator may determine.

<u>Option Price</u>. The exercise price for stock options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date of grant. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date.

<u>Exercise of Options</u>*.* An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash, by tender to the Company or attestation to the ownership of shares of Common Stock owned by the holder of the option, by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the stock option, or by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law.

<u>Expiration or Termination</u>*.* Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder's service with our company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award.

<u>Incentive and Non-Qualified Options</u>*.* As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the Internal Revenue Code of 1986 (the "Code"), for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution and is exercisable during the holder's lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market value in excess of $100,000, measured at the grant date.

*Stock Awards:* Stock awards can also be granted under the Plan. A stock award is a grant of shares of Common Stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals.

*Restricted Stock*: Restricted Stock is an award of shares of Common Stock, either with payment of a purchase price or without payment of a purchase price, the rights of ownership of which are subject to vesting or similar restrictions prescribed by the Board.

*Restricted Stock Units*: A restricted stock unit is an award denominated in units of shares of Common Stock that represents an unfunded, unsecured right to receive the fair market value of one share of Common Stock for each unit subject to the award in cash, Common Stock or other securities on the date of vesting or settlement.

*Performance Criteria:* Under the Plan, one or more performance criteria will be used by the administrator in establishing performance goals. Any one or more of the performance criteria may be used on an absolute or relative basis to measure the performance of our company, as the administrator may deem appropriate.

*Other Material provisions*: Awards will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board also has the authority, at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award or may terminate the Plan as to further grants, provided that no amendment will, without the approval of our stockholders, to the extent that such approval is required by law or the rules of an applicable exchange, except to (i) increase the number of shares available under the Plan, (ii) change the persons eligible for incentive stock options under the Plan, (iii) other amendment of the Plan that would require approval of the Company's shareholders under any applicable law, regulation or rule.

**Employment Agreements**

*Chris E. Rivera*. On March 15, 2022, we entered into an amended and restated employment agreement with our President and Chief Executive Officer, Chris E. Rivera. Pursuant to the employment agreement, until June 30, 2022, Mr. Rivera receives an annual salary of $188,500. From and after June 30, 2022, Mr. Rivera will receive an annual salary of $881,700. In addition, Mr. Rivera may receive (i) an annual incentive bonus of up to 100% of his base salary determined by the Board based on his achievement of his annual goals, and (ii) an annual award of a stock options or RSUs to be determined by the Board based on his achievement of his annual goals. The annual goals shall be identified by the employee in writing within 60 days following each February 1 and are subject to approval by the Board. Any stock option awards shall vest upon issuance, have an exercise price equal to the fair market value of the Common Stock at the time the option is granted and will expire in seven years after the date of grant. Mr. Rivera's service may be terminated for cause (as defined under the agreement) by the Company, without cause by either the Company or Mr. Rivera, or for good reason (as defined under the agreement) by Mr. Rivera. If the employment agreement terminates for any reason except termination by the Company for cause or a change of control (as defined under the agreement) occurs during the term of the agreement and Mr. Rivera's employment is terminated for any reason prior to the expiration of one year following the date of the change of control, Mr. Rivera will receive a severance payment equal to the total of his annual base salary plus any annual incentive bonus that he is entitled to for the relevant year, subject to the effective and execution of a full settlement agreement and mutual release of claims. In addition, the Company will maintain and effect for five years following the date of any termination of Mr. Rivera's employment all employee health and welfare benefit plans, programs and policies, unless Mr. Rivera is covered by a substantially similar plan, program or policy by another employer during such five-year period. We also provide standard indemnification and directors' and officers' insurance, which will remain in effect for six years following the date of termination.

*Steven Pope*. On March 15, 2022, we entered into an amended and restated employment agreement with our Senior Vice President, General Counsel and Secretary, Steven Pope. Pursuant to the employment agreement, until June 30, 2022, Mr. Pope receives an annual salary of $172,020. From and after June 30, 2022, Mr. Pope will receive an annual salary of $553,800. In addition, Mr. Pope may receive (i) an annual incentive bonus of up to 60% of his base salary determined by the Board based on his achievement of his annual goals, and (ii) an annual award of a stock options or RSUs to be determined by the Board based on his achievement of his annual goals. The annual goals shall be identified by the employee in writing within 60 days following each February 1 and are subject to approval by the Board. Any stock option awards shall vest upon issuance, have an exercise price equal to the fair market value of the Common Stock at the time the option is granted, and will expire in seven years after the date of grant. Mr. Pope's service may be terminated for cause (as defined under the agreement) by the Company, without cause by either the Company or Mr. Pope, or for good reason (as defined under the agreement) by Mr. Pope. If the employment agreement terminates for any reason except termination by the Company for cause or a change of control (as defined under the agreement) occurs during the term of the agreement and Mr. Pope's employment is terminated for any reason prior to the expiration of one year following the date of the change of control, Mr. Pope will receive a severance payment equal to the total of his annual base salary plus any annual incentive bonus that he is entitled to for the relevant year, subject to the effective and execution of a full settlement agreement and mutual release of claims. In addition, the Company will maintain and effect for five years following the date of any termination of Mr. Pope's employment all employee health and welfare benefit plans, programs and policies, unless Mr. Pope is covered by a substantially similar plan, program or policy by another employer during such five-year period. We also provide standard indemnification and directors' and officers' insurance, which will remain in effect for six years following the date of termination.

*David C. Matteson*. On March 15, 2022, we entered into an amended and restated employment agreement with our Vice President and Investors Relations and Education, David Matteson. Pursuant to the employment agreement, until June 30, 2022, Mr. Matteson receives an annual salary of $103,731. From and after June 30, 2022, Mr. Matteson will receive an annual salary of $385,500. In addition, Mr. Matteson may receive (i) an annual incentive bonus of up to 40% of his base salary determined by the Board based on his achievement of his annual goals, and (ii) an annual award of a stock options or RSUs to be determined by the Board based on his achievement of his annual goals. The annual goals shall be identified by the employee in writing within 60 days following each February 1 and are subject to approval by the Board. Any stock option awards shall vest upon issuance, have an exercise price equal to the fair market value of the Common Stock at the time the option is granted, and will expire in seven years after the date of grant. Mr. Matteson's service may be terminated for cause (as defined under the agreement) by the Company, without cause by either the Company or Mr. Matteson, or for good reason (as defined under the agreement) by Mr. Matteson. If the employment agreement terminates for any reason except termination by the Company for cause or a change of control (as defined under the agreement) occurs during the term of the agreement and Mr. Matteson's employment is terminated for any reason prior to the expiration of one year following the date of the change of control, Mr. Matteson will receive a severance payment equal to the total of his annual base salary plus any annual incentive bonus that he is entitled to for the relevant year, subject to the effective and execution of a full settlement agreement and mutual release of claims. In addition, the Company will maintain and effect for five years following the date of any termination of Mr. Matteson's employment all employee health and welfare benefit plans, programs and policies, unless Mr. Matteson is covered by a substantially similar plan, program or policy by another employer during such five-year period.

*Kyle J. Kingma*. On April 18, 2022, we entered into an amended and restated employment agreement with our Principal Financial and Accounting Officer, and General Manager of Subsidiaries, Kyle J. Kingma. Pursuant to the employment agreement, until June 30, 2022, Mr. Kingma receives an annual salary of $160,000. From and after June 30, 2022, Mr. Kingma will receive an annual salary of $332,800. In addition, Mr. Kingma may receive (i) an annual incentive bonus of up to 60% of his base salary determined by the Board based on his achievement of his annual goals, and (ii) an annual award of a stock options or RSUs to be determined by the Board based on his achievement of his annual goals. The annual goals shall be identified by the employee in writing within 60 days following each February 1 and subject to approval by the Board. Any stock option awards shall vest upon issuance, have an exercise price equal to the fair market value of the Common Stock at the time the option is granted, and will expire in seven years after the date of grant. Mr. Kingma's service may be terminated for cause (as defined under the agreement) by the Company, without cause by either the Company or Mr. Kingma, or for good reason (as defined under the agreement) by Mr. Kingma. If the employment agreement terminates for any reason except termination by the Company for cause or a change of control (as defined under the agreement) occurs during the term of the agreement and Mr. Kingma's employment is terminated for any reason prior to the expiration of one year following the date of the change of control, Mr. Kingma will receive a severance payment equal to the total of his annual base salary plus any annual incentive bonus that he is entitled to for the relevant year, subject to the effective and execution of a full settlement agreement and mutual release of claims. In addition, the Company will maintain and effect for five years following the date of any termination of Mr. Kingma's employment all employee health and welfare benefit plans, programs and policies, unless Mr. Kingma is covered by a substantially similar plan, program or policy by another employer during such five-year period. Concurrently with the approval by our Board of Directors to appoint Mr. Kingma to be our Principal Financial and Accounting Officer, Mr. Kingma's employment agreement will be amended to reflect this title change.

**Post-Employment Benefits**

On March 15, 2022, the Company entered into amended and restated employment agreements with several key executive employees. The agreements were established to allow them to be terminated at any time by the Company with or without cause upon written notice to the employee or by the employee for good reason or otherwise. The agreements represent an ongoing termination benefit arrangement, which entitles the employees to nonretirement post-employment benefits, such as severance payment and reimbursement for medical insurance coverage, for five years from date of termination, whether voluntary on the part of the employee or involuntary other than for cause (the Company has an obligation to make payments in either case) and provides for payments to be made under certain conditions related to a change in control of the Company. Messrs. Rivera, Pope, Matteson and Kingma are entitled to these benefits.

**Director Compensation**

Non-employee directors receive annual grants, as determined by the Compensation Committee and the Board, of options to purchase shares of Common Stock for their service on the Board. Such options vest immediately upon issuance, have a fair market value exercise price as determined by the Board, and expire seven years from the grant date.

***Fiscal 2021 Director Compensation Table***

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| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| **Name** | **Fees Earned or Paid in Cash<br> ($)** | **Stock Awards <br> ($)** | **Option Awards ($)** |  | | **All Other Compensation ($)** | **Total <br> ($)** |
| Bennett M. (Mike) Butters | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $162511 | (2) | $| $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- | $162511 |
| Andrew Daniels | $- | $- | $223453 | (3) | $| $- | $223453 |
| Richard Henriques | $- | $- | $189597 | (4) | $| $- | $189597 |
| John Kingma | $- | $- | $223453 | (5) | $| $- | $223453 |
| Charles E. McNerney | $- | $- | $162511 | (6) | $| $- | $162511 |

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| | | |
|:---|:---|:---|
|  |  | Total Option Shares |
|  |  | 12/31/2021 |
| 1) | Mike Butters | 619623 |
| 2) | Andy Daniels | 41000 |
| 3) | Richard Henriques | 68000 |
| 4) | John Kingma | 83000 |
| 5) | Charley McNerney | 63320 |

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**PRINCIPAL STOCKHOLDERS**

The following table sets forth certain information, as of September 30, 2022, respecting the beneficial ownership of our outstanding Common Stock by: (i) any holder of more than 5%; (ii) each of the Named Executive Officers and directors; and (iii) our directors and Named Executive Officers as a group, based on 15,370,766 shares of Common Stock outstanding as of September 30, 2022. Except as otherwise indicated, each stockholder listed below has sole voting and investment power over the shares beneficially owned:

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| | | | |
|:---|:---|:---|:---|
| **Name and Address of Owner<sup>(1)</sup>** | **Shares of Common and Preferred Stock Owned Beneficially, as converted into Common Stock** | **Percent of Class Before the Offering** | **Percent of Class After the Offering** |
| **5% Holders** |  |  |  |
| Nancy S. Nordhoff <sup>(2)</sup> | 2552074 | 12.1% | [●] |
| Bennett M. (Mike) Butters <sup>(3)</sup> | 1200000 | 5.7% | [●] |
| The Butters Family Revocable Trust<sup>(4)</sup> | 2429000 | 11.6% | [●] |
| John Kingma <sup>(5)</sup> | 1841320 | 8.8% | [●] |
| **Officers and Directors** |  |  |  |
| Chris E. Rivera | 13597 | \* | \* |
| Steven Pope | 14925 | \* | \* |
| Kyle J. Kingma | 1222 | \* | \* |
| Bennett M. (Mike) Butters | 1200000 | 5.7% | [●] |
| Andrew Daniels <sup>(6)</sup> | 352818 | 1.7% | [●] |
| Richard Henriques | 2673 | \* | \* |
| John Kingma <sup>(5)</sup> | 1841320 | 8.8% | [●] |
| Charles E. McNerney | 21654 | \* | \* |
| Named Executive Officers and Directors as a group (8 persons) | 3448209 | 16.4% | [●] |

---

\*Less than 1%.

&nbsp;&nbsp;&nbsp;&nbsp;(1) This table excludes an indeterminable number of shares issuable upon conversion of debt which is based on a formula.

(2) Includes 1,225,626 shares of Common Stock, 333,002 shares of Series A-1 Preferred Stock, 793,645 shares
 of Series A Preferred Stock. The address for Ms. Nordhoff is P.O. Box 306 Langley, WA 98260.

(3) The address for Mr. Butters is 3421 Stikes Drive S.E. Lacey, WA 98503.

(4) John T. Butters and Lisa C. Butters, co-founders of the Company, are the trustees and beneficiaries of The Butters Family Revocable
Trust. John Butters is the brother of Bennett Butters. The address for The Butters Family Revocable Trust is P.O. Box 1529 Langley, WA 98260.

(5) Includes 929,119 shares of Common Stock, 27,907 shares of Series A-1 Preferred Stock, 867,550
 shares of Series A Preferred Stock. The address for Mr. Kingma is 1566 Scenic Heights Road Oak Harbor, WA 98277. John Kingma is
 the father of Kyle J. Kingma.

(6) Includes 91,256 shares of Common Stock and 163,476 shares of
Series A-1 Preferred Stock.

**CERTAIN RELATIONSHIPS AND RELATED PERSONS TRANSACTIONS**

SEC rules require us to disclose any transaction since the beginning of our last fiscal year or any currently proposed transaction in which we are a participant in which the amount involved exceeded or will exceed $120,000 and in which any related person has or will have a direct or indirect material interest. A related person is any executive officer, director, nominee for director, or holder of 5% or more of our Common Stock, or an immediate family member of any of those persons.

We have entered into related party transactions with Nancy Nordhoff, John Kingma and Andrew Daniels.

*Promissory and Convertible Notes* 

In March 2022, the Company issued an unsecured promissory note to Nancy Nordhoff, a holder of more than 5% of our Common Stock, in the amount of $300,000 with a maturity date of the later of (a) July 15 2022 or (b) the date by which the Company completes a transaction for the purchase of its equity or debt securities for cash with the principal purpose of raising capital in an amount not less than $2,500,000. The note earns interest at 10% and was outstanding as of September 30, 2022.

In July 2021, the Company issued an unsecured promissory note to John Kingma, a director, in the amount of $150,000. This note is payable on demand. A payment of $85,000 was applied to the principal in October 2021. The note earns interest at 10% and was outstanding as of September 30, 2022.

In July 2021, the Company issued an unsecured promissory note to John Kingma in the amount of $35,000. This note is payable on demand. The note earns interest at 10% and was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to John Kingma in the amount of $142,000, which replaced a $112,000 promissory note and $30,000 accounts payable, with a maturity of December 2022, or upon a deemed liquidation, and at an interest rate of 10% per annum. At any time this note is outstanding prior to its maturity, the note holder may elect to convert the note at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to John Kingma in the amount of $150,000, which replaced a promissory note, with a maturity of December 2022, or upon a deemed liquidation, and at an interest rate of 10% per annum. At any time this note is outstanding prior to its maturity, the note holder may elect to convert the note at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to John Kingma in the amount of $228,000, which replaced a $200,000 promissory note and included an additional $28,000 loaned amount, with a maturity date of December 31, 2022, or, if earlier, upon a deemed liquidation, and at an interest rate of 10% per annum. Prior to maturity, the note holder may elect to convert the note upon a Company financing or at any other time where upon the conversion price would be equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In January 2021, $38,000 in accounts payables due to John Kingma was replaced with an unsecured convertible note, with a maturity of December 2022 or upon a deemed liquidation, and at an interest rate of 3% per annum. At any time this note is outstanding prior to its maturity, the note holder may elect to convert the note at a conversion price equal to 100% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to Andrew Daniels, a director, through his solely owned limited liability company Lucky Good Dog, LLC in the amount of $30,000 with a maturity date of February 2023, or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000,000 is consummated prior to its maturity, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At maturity, the principal and accrued interest under the convertible note will be automatically converted into Common Stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the maturity date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. At any time the note is outstanding prior to its maturity, the note holder may elect to convert the outstanding principal and accrued interest into Common Stock at price equal to the higher of the most recent sale price for common stock or (B) exercise price in a grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and was outstanding as of September 30, 2022.

In July 2021, the Company issued an unsecured convertible note to Andrew Daniels through Lucky Good Dog, LLC in the amount of $600,000, of which $500,000 was converted from a promissory note, with a maturity date of December 2022, or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000,000 is consummated prior to maturity, the note will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the note is outstanding prior to its maturity, the note holder may elect to convert the note at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and was outstanding as of September 30, 2022.

*Director Consulting Agreement*

In 2016, the Company entered into a consulting agreement with Mr. Bennett Butters, a director of our Board, for the performance of services related to ongoing research and intellectual property development. For the years ended December 31, 2021 and December 31, 2020, the Company paid $17,000 and $45,000 in accordance with this agreement, respectively. The agreement expires upon termination by the Company or Mr. Butters.

**DESCRIPTION OF SECURITIES**

**General**

Our Articles of Incorporation, as amended, authorize us to issue up to 50,000,000 shares of capital stock, consisting of 40,000,000 shares of Common Stock, par value $0.001, and 10,000,000 shares of preferred stock, par value $0.001, 1,817,333 of which are designated as Series A Preferred Stock and 2,400,000 of which are designated as Series A-1 Preferred Stock.

As of September 30, 2022, after giving effect to the automatic conversion of all outstanding shares of our Series A Preferred Stock and Series A-1 Preferred Stock into 5,657,219 shares of our common stock in connection with the closing of this offering, there were 4,746,724 shares of Common Stock outstanding (or reserved for issuance).

**Common Stock**

Our Articles of Incorporation authorize the issuance of 40,000,000 shares of Common Stock, par value $0.001. The holders of Common Stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders. Shares of Common Stock do not carry cumulative voting rights and, therefore, a majority of the shares of outstanding Common Stock will be able to elect the entire Board and, if they do so, minority stockholders would not be able to elect any persons to the Board. Our Bylaws provide that a majority of our issued and outstanding shares constitutes a quorum for stockholders' meetings, except respecting certain matters for which a greater percentage quorum is required by statute or the Bylaws.

Our stockholders have no pre-emptive rights to acquire additional shares of Common Stock or other securities. The Common Stock is not subject to redemption and carries no subscription or conversion rights. In the event of our liquidation, the shares of Common Stock are entitled to share equally in corporate assets after satisfaction of all liabilities.

Holders of Common Stock are entitled to receive such dividends as the Board may, from time to time, declare out of funds legally available for the payment of dividends. We seek growth and expansion of our business through the reinvestment of profits, if any, and do not anticipate that we will pay dividends in the foreseeable future.

**Preferred Stock**

Our Articles of Incorporation authorize the issuance of 10,000,000 shares of preferred stock, par value $0.001, We have two series of preferred stock issued and outstanding, Series A Preferred Stock and Series A-1 Preferred Stock. The Board is empowered, without stockholder approval, to designate and issue additional series of preferred stock with dividend, liquidation, conversion, voting, or other rights or restrictions, including the right to issue convertible securities with no limitations on conversion, which could adversely affect the voting power or other rights of the holders of our Common Stock, substantially dilute a Common Stockholder's interest, and depress the price of our Common Stock.

The following table provides details regarding the authorized and outstanding shares of our Series A and Series A-1 preferred stock at September 30, 2022 and at each of our fiscal years ended December 31, 2021 and December 31, 2020.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  |<br>**Authorized**<br>**shares** |<br>**Shares**<br>**outstanding** | **Shares**<br>**issuable upon**<br>**conversion** |<br>**Carrying**<br>**amount** |<br>**Liquidation**<br>**preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 3140 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| Totals | 4217333 | 4217222 | 5657219 | 19236 | 21140 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  |<br>**Authorized**<br>**shares** |<br>**Shares**<br>**outstanding** | **Shares**<br>**issuable upon**<br>**conversion** |<br>**Carrying**<br>**amount** |<br>**Liquidation**<br>**preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 3066 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| Totals | 4217333 | 4217222 | 5657219 | 19236 | 21066 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  |<br>**Authorized**<br>**shares** |<br>**Shares**<br>**outstanding** | **Shares**<br>**issuable upon**<br>**conversion** |<br>**Carrying**<br>**amount** |<br>**Liquidation**<br>**preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 2967 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| Totals | 4217333 | 4217222 | 5657219 | 19236 | 20967 |

---

Each share of Series A preferred stock and Series A-1 preferred stock is convertible, at the option of the holder, into Common Stock at a ratio of 1:1 and 1:1.6, respectively. These ratios will be adjusted for any stock split, dividend, combination or other recapitalization. Further, each share of Series A and Series A-1 preferred stock automatically converts into Common Stock (i) with the affirmative vote, written consent or agreement of the holders of a majority of the then outstanding Series A preferred stock and Series A 1 preferred stock, voting together as a class, (ii) upon the voluntary conversion of a majority of the authorized and issued Series A preferred stock or Series A-1 preferred stock, or (iii) immediately prior to the closing of an underwritten initial public offering of Common Stock.

Holders of Series A and Series A-1 preferred stock have the right to vote for each share of Common Stock into which such preferred stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock.

Cash dividends are payable only when, as and if declared by our Board on the Series A and Series A-1 preferred stock. The Series A-1 preferred stockholders have the right to receive dividends prior and in preference to Series A preferred stockholders and our Common Stock at a rate of $7.50 per share. The Series A preferred stockholders have the right to receive dividends prior and in preference to our common stockholders at a rate of $0.68 per share.

Each series of the Series A and Series A-1 preferred stock has liquidation and dissolution preferences over, and restricts the payment of dividends to, other equity securities, including our Common Stock. In the event of any liquidation, dissolution, or winding up of the Company, the Series A-1 preferred stock has a preference to any distribution of assets to holders of Series A preferred stock and our Common Stock in an amount per share equal to $7.50, plus declared but unpaid dividends, if any. The Series A preferred stock has a preference to any distribution of assets to holders of our Common Stock in an amount per share equal to $0.68, plus an amount equal to 8% per annum on the issue price of the Series A preferred stock, plus declared but unpaid dividends, if any. As of December 31, 2021, and December 31, 2020, the liquidation preference of each share of Series A preferred stock was $1.69 and $1.63, respectively.

**Authority to Issue Stock**

The Board has the authority to issue the authorized but unissued shares of Common Stock without action by the stockholders. The issuance of such shares would reduce the percentage ownership held by current stockholders.

As of September 30, 2022, there were 15,370,766 shares of Common Stock outstanding, and 4,931,735 shares reserved for issuance pursuant to outstanding grants under the Plan. The Company is authorized, without stockholder approval, to issue additional shares of authorized but unissued capital stock.

**Common Stock**

*Dividend Rights*

 

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our Common Stock are entitled to receive dividends out of funds legally available if our Board, in its discretion, determines to declare and pay dividends and then only at the times and in the amounts that our Board may determine.

*Voting Rights*

 

Holders of our Common Stock are entitled to one vote for each share held on all matters properly submitted to a vote of stockholders on which holders of Common Stock are entitled to vote. We have not provided for cumulative voting for the election of directors in our Certificate of Incorporation. The directors are elected by a plurality of the outstanding shares entitled to vote on the election of directors.

*No Pre-emptive or Similar Rights*

 

Our Common Stock is not entitled to pre-emptive rights, and is not subject to conversion, redemption or sinking fund provisions.

*Right of First Refusal and Co-Sale Agreement*

 

On March 22, 2002, the Company entered into a Right of First Refusal and Co-Sale Agreement with John T. Butters, Bennett M. Butters, and Lisa C. Butters (collectively "Founders"), which imposes restrictions on the transfer of our capital stock. The Co-Sale Agreement terminates upon the earlier to occur of (a) the closing of this offering; or (b) a merger, acquisition, share exchange or other transaction or series of transactions in which the shareholders of the Company immediately prior to such transaction or series of transactions do not own a majority of the outstanding shares and a majority of the voting power of the surviving entity after such transaction or transactions or any sale, lease or other disposition of all or substantially all of the assets of the Company or other dissolution, liquidation or winding up of the Company.

*Right to Receive Liquidation Distributions*

 

If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Common Stock and any participating preferred stock outstanding at that time, with preferred stock to be paid first, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

**Preferred Stock**

Our Board is authorized, subject to limitations prescribed by the Washington Business Corporations Act, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix, determine and amend the designation, powers, preferences and rights of the shares of each Series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders, subject to provisions, preferences, voting powers, limitations and relative rights of any series of Preferred Stock then outstanding, the designation, preferences, voting powers, limitations, and relative rights of the shares of any series that is wholly unissued or to be established and to designate the number of shares within that series, before the issuance of any shares of that series. Our Board can also increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding) the number of shares of any series of preferred stock, without any further vote or action by our stockholders. Our Board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our Common Stock or other series of preferred stock. The issuance of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of our company and might adversely affect the market price of our Common Stock and the voting and other rights of the holders of our Common Stock.

**Options**

As of December 31, 2021, options to purchase 4,370,701 shares of our Common Stock were outstanding under our Plan, of which 4,164,535 were exercisable and of which 206,166 were unvested as of that date.

As of September 30, 2022, options to purchase [●] shares of our Common Stock were outstanding under our Plan, of which [●] were exercisable and of which [●] were unvested as of that date.

**Warrants**

As of December 31, 2021, warrants to purchase an aggregate of 644,024 shares of our Common Stock were outstanding, with a weighted average exercise price of $10.07 per share. On October 5, 2021, we issued warrants to a non-related party totaling 10,000 shares with an exercise price of $10.22, in connection with a note financing. If unexercised, these warrants will expire on the 7<sup>th</sup> anniversary of their issuance dates.

As of September 30, 2022, warrants to purchase an aggregate of 465,301 shares of our Common Stock were outstanding, with a weighted average exercise price of $10.02 per share. On January 10, 2022, we issued warrants to a related party totaling 2,000 shares with an exercise price of $3.75, in connection with a note financing. If unexercised, these warrants will expire on the 7<sup>th</sup> anniversary of their issuance dates.

The warrants will expire upon the closing of this offering. The warrants provide that the holder thereof may elect to exercise the warrant on a net "cashless" basis at any time prior to the expiration thereof. Assuming the closing of this offering occurs, the fair market value of one share of our Common Stock in connection with any cashless exercise shall be the closing price or last sale price per share of our Common Stock.

**Anti-Takeover Effects of our Articles of Incorporation, Bylaws and Washington Law**

Our amended and restated Articles of Incorporation (Amended and Restated Articles of Incorporation) and Bylaws will include a number of provisions that may have the effect of delaying, deferring or preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our Board rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

 

*Meetings of Shareholders*

Our Amended and Restated Articles of Incorporation and our Bylaws will provide that only our Board, our Chairman of our Board, our Chief Executive Officer or our President may call special meetings of shareholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of shareholders. Our Bylaws will limit the business that may be conducted at an annual meeting of shareholders to those matters properly brought before the meeting.

 

*Advance Notice Requirements*

Our Bylaws will establish advance notice procedures with regard to shareholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our shareholders. These procedures provide that notice of shareholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the date that our proxy statement was released to shareholders in connection with the previous year's annual meeting. Our Bylaws will specify the requirements as to form and content of all shareholders' notices. These requirements may preclude shareholders from bringing matters before the shareholders at an annual or special meeting.

 

*Amendment to our Articles of Incorporation and Bylaws*

Any amendment of our amended and restated Articles of Incorporation must first be submitted to our shareholders by us or our Board, and the amendment of certain articles or sections, including articles or sections relating to who may call special meetings of the shareholders, our Board, indemnification of our directors and officers, supermajority voting and amendments to our Bylaws, requires the affirmative vote of at least two-thirds of the outstanding shares entitled to vote on the amendment voting together as a single group. Our Bylaws may be amended by our Board, subject to any limitations set forth in our Bylaws, and may also be amended by the affirmative vote of at least two-thirds of the outstanding shares entitled to vote on the amendment voting together as a single group.

 

 

*Washington Anti-Takeover Law*

Washington law imposes restrictions on some transactions between a corporation and significant shareholders. Chapter 23B.19 of the WBCA generally prohibits a target corporation from engaging in specified "significant business transactions" with an "acquiring person." This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage unsolicited attempts to acquire us. An "acquiring person" is generally defined as a person or group of persons that beneficially owns the voting shares entitled to cast votes comprising 10% or more of the voting power of the target corporation. The target corporation may not engage in "significant business transactions," as defined in Chapter 23B.19, for a period of five years after the date of the transaction in which the person became an acquiring person, unless (1) the significant business transaction or the acquiring person's purchase of shares was approved by a majority of the members of the target corporation's Board prior to the share acquisition causing the person to become an "acquiring person," or (2) the significant business transaction was both approved by the majority of the members of the target corporation's Board and authorized at a shareholder meeting by at least two-thirds of the votes entitled to be cast by the outstanding voting shares (excluding the acquiring person's shares or shares over which the acquiring person has voting control) at or subsequent to the acquiring person's share acquisition. "Significant business transactions" include, among other things:

● a merger or share exchange with, disposition of assets to or issuance or redemption of stock to or from, the acquiring person;

● a termination of 5% or more of the employees of the target corporation employed in the State of Washington as a result of the acquiring person's acquisition of 10% or more of the shares, whether at one time or over the five-year period following the share acquisition;

● a transaction in which the acquiring person is allowed to receive a disproportionate benefit as a shareholder; or

● liquidating or dissolving the target corporation.

After the five-year period, a "significant business transaction" may occur, as long as it complies with "fair price" provisions specified in the statute or is approved at a meeting of shareholders by a majority of the votes entitled to be counted within each voting group entitled to vote separately on the transaction, not counting the votes of shares as to which the acquiring person has beneficial ownership or voting control. A corporation may not opt out of this statute.

**Convertible Notes**

*2020 - 2022 Notes*

The Company issued 32 unsecured convertible notes between January 2020 and December 2020 with an aggregate principal amount of $1,950,000 (the "2020 Notes"). Between January 2021 and December 2021, the Company issued and additional 22 unsecured convertible notes with an aggregate principal amount of $1,766,000 (the "2021 Notes"). Between January 2022 and September 2022, the Company issued an additional 21 unsecured convertible notes in an aggregate principal amount of $1.7 million (the "2022 Notes", and together with the 2020 Notes and 2021 Notes, the "2020-2022 Notes"). All 2020 - 2022 Notes have a maturity date of the earlier of February 15, 2023 (except for two notes totaling $201,000 due in August 2023) or consummation of a deemed liquidation and bear interest at an annual rate of 10%. During October, November, and December 2022, 5 unsecured convertible notes were issued with an aggregate principal amount of $600,000.

The 2020 - 2022 Notes include put features, the terms of which are dependent upon the amount invested. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the maturity date, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00, in any case rounded down to the nearest whole share of the Common Stock as of the date of conversion. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the convertible notes are outstanding, the holder may (a) elect to convert the outstanding principal and accrued interest into equity securities. Conversion price equal to the highest cash price paid for the nonqualified equity securities or (b) convertible into common stock at a conversion price equal to the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion.

During the nine months ended September 30, 2022, some of the 2020 - 2022 Notes, in the aggregate amount of approximately $1,952,000, were converted into 462,347 shares of Common Stock, at a price of $4.09 per share.

*Other Notes*

The Company issued an unsecured convertible note in September 2019 with a principal amount of $250,000 and a maturity date of the earlier of February 2022 or consummation of a deemed liquidation, and an annual interest rate of 10%, to a related party.

In June 2019, the Company issued an unsecured convertible note to a related party in the amount of $500,000 with a maturity date of the earlier of February 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The conversion price per share is $9.00. In connection with this convertible note issuance, the Company issued warrants to purchase 27,777 shares of Common Stock at an exercise price of $9.00. In the event this convertible note has not been repaid or converted prior to the maturity date, then upon the maturity date, the outstanding principal and accrued interest shall automatically convert into that number of shares of Common Stock determined by dividing the outstanding principal and accrued interest by $9.00. The convertible note is outstanding as of September 30, 2022.

In January 2020, the Company issued an unsecured convertible note to a related party in the amount of $250,000 with a maturity date earlier of January 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The convertible note was outstanding as of September 30, 2022. On September 3, 2021, the Board extended the maturity date to February 28, 2022. At maturity the principal and accrued interest of convertible note will be automatically converted into Common Stock at the lesser of (1) the fair market value per Share on the maturity date, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In September 2020, the Company issued an unsecured convertible note to a related party in the amount of $250,000 with a maturity date of September 2022 and an annual interest rate of 10%. The convertible note was outstanding as of September 30, 2022. At maturity the principal and accrued interest of convertible notes will be automatically converted into Common Stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the maturity date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In August 2018, the Company issued two unsecured convertible notes in the amount of $63,000 each with maturity dates of August 2020 and an annual interest rate of 10%. The notes have a conversion price equal to the lesser of (1) by dividing the outstanding principal and accrued interest by a conversion price equal to the fair market value per share of Common Stock as of the date of conversion as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to date of conversion, or (B) grant of options to an employee or service provider, or (2) $10.22 per Share. Upon the maturity date, any outstanding principal and accrued interest shall automatically convert to shares of Common Stock determined by the conversion price. The convertible notes were outstanding as of September 30, 2022.

In November 2020, the Company issued an unsecured convertible note to a related party in the amount of $100,000 with a maturity date of December 2022 or upon the consummation of a deemed liquidation and an annual interest rate of 10%. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. The conversion price is equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $150,000 in exchange for a promissory note, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. At any time this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $142,000 in exchange for a $112,000 promissory note and $30,000 accounts payable, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. At any time, this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $228,000 in exchange for a $200,000 promissory note and additional $28,000 in cash, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. Prior to maturity, the related party may elect to convert at conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In January 2021, $38,000 in accounts payables due to a related party was exchanged for an unsecured convertible note with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 3% per annum. At any time, this note may be converted at a conversion price equal to 100% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion.

In February 2021, the Company issued an unsecured convertible note to a related party in the amount of $30,000 with a maturity date of February 2023 or upon the consummation of a deemed liquidation and an interest rate of 10%. per annum. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At maturity the principal and accrued interest of convertible notes will be automatically converted into Common Stock at a price per share equal to the lesser of (1) the fair market value per Share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. At any time, the holder may elect to convert the outstanding principal and accrued interest into Common Stock at the higher of a sale of Common Stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In July 2021, the Company issued an unsecured convertible note to a related party in the amount of $600,000, of which $500,000 was in exchange for a promissory note, with a maturity date of December 2022 or upon the consummation of a deemed liquidation and an interest rate of 10% per annum. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time, this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022

**Transfer Agent and Registrar**

Worldwide Stock Transfer is the Company's transfer agent with respect of our Common Stock. The principal business address of One University Plaza, Suite 505, Hackensack, NJ 07601. Phone: (201) 820-2008.

**SHARES ELIGIBLE FOR FUTURE SALE**

Prior to this offering, there has been no public market for the Company's Common Stock, and a liquid trading market for its Common Stock may not develop or be sustained after this offering. Future sales of substantial amounts of the Company's Common Stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time to time, and could impair the Company's ability to raise capital through sales of equity or equity-related securities.

Only a limited number of shares of the Company's Common Stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below. Nevertheless, sales of a substantial number of shares of the Company's Common Stock in the public market after such restrictions lapse, or the perception that those sales may occur, could materially and adversely affect the prevailing market price of its Common Stock. Although the Company intends to list its Common Stock on the Nasdaq, the Company cannot ensure that there will be an active market for its Common Stock.

Of the shares to be outstanding immediately after the completion of this offering, we expect that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act; these restricted securities may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144 or Rule 701 under the Securities Act.

**Rule 144**

In general, under Rule 144 as currently in effect, once the Company has been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of the Company's affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of its Common Stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than Company affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, the Company's affiliates or persons selling shares of its Common Stock on behalf of its affiliates are entitled to sell upon expiration of the market standoff agreements and lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) 1%
 of the number of shares of the Company's capital stock then outstanding; or

(b) the
 average weekly trading volume of the Company's Common Stock during the four calendar weeks preceding the filing of a notice
 on Form 144 with respect to that sale.

Sales under Rule 144 by the Company's affiliates or persons selling shares of its Common Stock on behalf of its affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company.

**Rule 701**

Rule 701 generally allows a stockholder who purchased shares of the Company's Common Stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of the Company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of the Company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701 and until expiration of the lock-up period described below.

**Lock-Up Agreements**

In connection with this offering, the Company has agreed, or will agree, to a 120-day "lock-up" period and its officers, directors, and the Butters Revocable Family Trust and Nancy Nordhoff stockholders have agreed, or will agree, to a 180-day "lock-up" period from the closing of this offering, with respect to the shares that they beneficially own, including shares issuable upon the exercise of convertible securities and options that are currently outstanding or which may be issued. This means that, for a period of 120 days for the Company and for a period of 180 days for the officers directors and the Butters Revocable Family Trust and Nancy Nordhoff following the closing of this offering, such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of the underwriters. Officers' and directors' 180-day restricted period is subject to extension upon certain events and the terms of the lock-up agreements may be waived at the underwriters' discretion. The lock-up restrictions, specified exceptions and the circumstances under which the lock-up periods may be extended are described in more detail under "Underwriting."

**MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF THE COMPANY'S COMMON STOCK** 

The following is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the ownership and disposition of the Company's Common Stock, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. No ruling on the U.S. federal, state, or local tax considerations relevant to the Company's operations or to the purchase, ownership or disposition of its shares, has been requested from the IRS or other tax authority. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.

This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

● banks, insurance companies or other financial institutions, regulated investment companies or real estate investment trusts;

● persons subject to the alternative minimum tax or Medicare contribution tax on net investment income;

● tax-exempt organizations or governmental organizations;

● controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax;

● brokers or dealers in securities or currencies;

● traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

● persons that own, or are deemed to own, more than five percent of the Company's capital stock (except to the extent specifically set forth below);

● U.S. expatriates and certain former citizens or long-term residents of the United States;

● partnerships or entities classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein);

● persons who hold the Company's Common Stock as a position in a hedging transaction, "straddle," "conversion transaction" or other risk reduction transaction or integrated investment;

● persons who hold or receive the Company's Common Stock pursuant to the exercise of any employee stock option or otherwise as compensation;

● persons who do not hold the Company's Common Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code; or

● persons deemed to sell the Company's Common Stock under the constructive sale provisions of the Internal Revenue Code.

In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds the Company's Common Stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold the Company's Common Stock, and partners in such partnerships, should consult their tax advisors.

**You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of the Company's Common Stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.**

**Non-U.S. Holder Defined**

For purposes of this discussion, you are a non-U.S. holder (other than a partnership) if you are any holder other than:

● an individual citizen or resident of the United States (for U.S. federal income tax purposes);

● a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia, or other entity treated as such for U.S. federal income tax purposes;

● an estate whose income is subject to U.S. federal income tax regardless of its source; or

● a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more "U.S. persons" (within the meaning of Section 7701(a)(30) of the Internal Revenue Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person.

**Distributions**

As described in "Dividend Policy," the Company has never declared or paid cash dividends on its Common Stock and do not anticipate paying any dividends on its Common Stock in the foreseeable future. However, if the Company does make distributions on its Common Stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from the Company's current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed the Company's current and accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in the Company's Common Stock, but not below zero, and then will be treated as gain from the sale of stock as described below under "— Gain on Disposition of Common Stock."

Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend, or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E, or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of the Company's Common Stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder's behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to the Company or its paying agent, either directly or through other intermediaries.

Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by you in the United States) are generally exempt from the withholding tax described above. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that may provide for different rules.

**Gain on Disposition of Common Stock**

Subject to the discussion below regarding backup withholding and foreign accounts, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of the Company's Common Stock unless:

● the gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States);

● you are a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs, and certain other conditions are met; or

● the Company's Common Stock constitutes a United States real property interest by reason of its status as a "United States real property holding corporation," or USRPHC, for U.S. federal income tax purposes at any time within the shorter of (i) the five-year period preceding your disposition of the Company's Common Stock, or (ii) your holding period for its Common Stock.

The Company believes that it is not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether it is a USRPHC depends on the fair market value of its U.S. real property relative to the fair market value of its other business assets, there can be no assurance that the Company will not become a USRPHC in the future. Even if it becomes a USRPHC, however, as long as the Company's Common Stock is regularly traded on an established securities market, such Common Stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded Common Stock at any time during the shorter of (i) the five-year period preceding your disposition of the Company's Common Stock, or (ii) your holding period for the Company's Common Stock.

If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult any applicable income tax or other treaties that may provide for different rules.

**Backup Withholding and Information Reporting**

Generally, the Company must report annually to the IRS, regardless of whether any tax was withheld, the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.

Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current rate of 24% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E, or another appropriate version of IRS Form W-8.

Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

**Foreign Account Tax Compliance**

The Foreign Account Tax Compliance Act, or FATCA, imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of the Company's Common Stock paid to "foreign financial institutions" (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of the Company's Common Stock paid to a "non-financial foreign entity" (as specially defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none, or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends on our Common Stock, and under current transition rules, are expected to apply with respect to the gross proceeds from the sale or other disposition of the Company's Common Stock on or after January 1, 2019. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their own tax advisors regarding the possible implications of this legislation on their investment in the Company's Common Stock.

**Each prospective investor should consult a tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of the Company's Common Stock, including the consequences of any proposed change in applicable laws.**

**UNDERWRITING**

EF Hutton, division of Benchmark Investments, LLC (EF Hutton) is acting as representative of the underwriters (the "Representative"). Subject to the terms and conditions of an underwriting agreement between the Company and the Representative, the Company has agreed to sell to each underwriter named below, and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of common shares listed next to its name in the following table:

---

| | | |
|:---|:---|:---|
| **Name of Representative** | **Number of Common Shares** | **Number of Common Shares** |
| EF Hutton |  | 2,500,000 |

---

The underwriters are committed to purchase all the common shares offered by the Company other than those covered by the option described below, if any, are purchased. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The underwriters are not obligated to purchase the common shares covered by the underwriters' option described below. The underwriters are offering the common shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

**Discounts, Commissions and Other Compensation**

The underwriters propose initially to offer the common shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at those prices less a concession not in excess of $ per common share. If all of the common shares offered by the Company are not sold at the public offering price, the underwriters may change the offering price and other selling terms by means of a supplement to this prospectus.

In addition, we have agreed to issue to the Representative (or its designees) warrants to purchase a number of shares of Common Stock equal to 4.0% of the aggregate number of shares of Common Stock sold in this Offering (including shares of Common Stock sold upon exercise of the over-allotment option). The Representative's warrants may be exercised at any time, and from time to time, in whole or in part, during the four-and-a-half-year period commencing six (6) months from the effective date of the registration statement of which this prospectus is a part at an exercise price of $5.00, per Share, which is the midpoint of the range set forth on the cover page of this prospectus, which is the public offering price per share of Common Stock sold in this Offering. The Representative's warrants and the shares of Common Stock underlying such warrants are registered on the registration statement of which this prospectus is a part.

Pursuant to FINRA Rule 5110(e), the warrants and any shares of Common Stock issued upon exercise of the warrants may not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days beginning on the date of commencement of sales of this Offering, except certain transfers of such securities, including, among others: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; (iii) if the aggregate amount of our securities held by the representative or related persons do not exceed 1% of the securities being offered; (iv) that are beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth above for the remainder of the time period.

The following table shows the public offering price, underwriting discounts and commissions and proceeds before expenses to the Company. The information assumes either no exercise or full exercise of the option the Company granted to the Representative.

---

| | | | |
|:---|:---|:---|:---|
|  | **Per Unit** | **Total Without <br> Exercise of<br> Representative's <br> Option** | **Total With Full<br> Exercise of<br> Representative's <br> Option** |
| Public offering price | $| $| $|
| Underwriting discount | $| $| $|
| Proceeds, before expenses, to us | $| $| $|

---

The Company has agreed to pay the Representative's expenses relating to the offering, (a) all filing fees and expenses relating to the registration of the common shares with the Commission; (b) all fees and expenses relating to the listing of the common shares on a national exchange; (c) all fees, expenses and disbursements relating to the registration or qualification of the common shares under the "blue sky" securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company's "blue sky" counsel, which will be Representative's counsel, not to exceed $15,000) unless such filings are not required in connection with the Company's proposed listing on a national exchange; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of the common shares under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (e) the costs of all mailing and printing of documents related to this offering; (f) transfer and/or stamp taxes, if any, payable upon the transfer of the common shares from the Company to the Representative; and (g) the fees and expenses of the Company's accountants; (h) all filing fees and communication expenses associated with the review of this offering by FINRA; (i) all fees, expenses and disbursements relating to background checks of the Company's directors and officers in an amount not to exceed $15,000; (j) up to $20,000 of the Representative's actual accountable "road show" expenses for this offering; and (k) the $29,500 cost associated with EF Hutton's use of Ipreo's book building, prospectus tracking and compliance software for the offering. Additionally, the Company has provided an expense advance to the Representative of $20,000, which shall be applied towards out-of-pocket accountable expenses and any portion of the advance shall be returned back to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).

The Company estimates that the total expenses of the offering payable by us, excluding the total underwriting discount, will be approximately $1,100,000.

**Option**

The Company has granted the underwriters an option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase up to an additional 375,000 shares of Common Stock. If the underwriters exercise all or part of this option, they will purchase common shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount.

**Discretionary Accounts**

The underwriters do not intend to confirm sales of the common shares offered hereby to any accounts over which they have discretionary authority.

**Lock-Up Agreements**

Pursuant to "lock-up" agreements, the Company and its executive officers and directors, and certain of its stockholders, have agreed, or will agree, without the prior written consent of the Representative not to directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of the Company's common shares or any securities convertible into or exercisable or exchangeable for common shares of the Company (or enter into any transaction or device that is designed to, or could be expected to, result in the transfer or disposition by any person at any time in the future of), enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of the Company's common shares, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any of the Company's common shares or securities convertible into or exercisable or exchangeable for the Company's common shares or any other securities of the Company or publicly disclose the intention to do any of the foregoing, subject to customary exceptions. In the case of the Company, the lock-up restrictions shall be for a period of 120 days from the closing of the offering to which this prospectus relates, and in the case of the Company's executive officers, directors, and shareholders beneficially owning 5% or more of the Company's common shares, the lock-up period shall be for a period of 180 days from the closing of the offering to which this prospectus relates.

**Certain Post Offering Investments**

The Company has agreed to pay EF Hutton an aggregate cash fee of 8.0% of the aggregate gross proceeds received by the Company, up to $50,000,000 in gross proceeds, plus 6.0% of the aggregate gross proceeds received by the Company in excess of $50,000,000, from the sale of any equity, debt and/or equity derivative instruments to any investor actually introduced by the Representative to the Company during the Engagement Period, in connection with such financing that involves the filing of a registration statement (each a "Tail Financing"), and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the expiration or termination of the Engagement Period (the "Tail Period"), *provided* that such Tail Financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party's participation. For the purposes of this paragraph, the term "Engagement Period" means the period beginning December 6, 2021 and ending on the earlier of (i) twelve (12) months thereafter, or (ii) the final closing, if any, of this offering.

**Indemnification**

The Company has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

**Stabilization**

● Stabilizing transactions permit bids to purchase securities so long as the stabilizing bids do not exceed a specified maximum and are engaged in for the purpose of preventing or retarding a decline in the market price of the securities while the offering is in progress.

● Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared with the price at which they may purchase securities through exercise of the option. If the underwriters sell more securities than could be covered by exercise of the option and, therefore, have a naked short position, the position can be closed out only by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the securities in the open market that could adversely affect investors who purchase in the offering.

● Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the securities originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the Company's securities or preventing or retarding a decline in the market price of its securities. As a result, the price of the Company's securities in the open market may be higher than it would otherwise be in the absence of these transactions. Neither the Company nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the Company's securities. These transactions may be effected on The Nasdaq Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

**Passive Market Making**

In connection with this offering, the underwriters and selling group members may also engage in passive market making transactions in the Company's common shares. Passive market making consists of displaying bids limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of the common shares at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time.

**Electronic Offer, Sale and Distribution of Shares**

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of common shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the Representative to underwriters and selling group members that may make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters' websites and any information contained in any other website maintained by the underwriters is not part of this prospectus or the registration statement of which this prospectus forms a part.

**Other Relationships**

From time to time, certain of the underwriters and their affiliates have provided, and may provide in the future, various advisory, investment and commercial banking and other services to the Company in the ordinary course of business, for which they have received and may continue to receive customary fees and commissions. However, except as disclosed in this prospectus, the Company has no present arrangements with any of the underwriters for any further services.

**Market Information**

The public offering price will be determined by discussions between the Company and the Representative. In addition to prevailing market conditions, the factors to be considered in these discussions will include:

● an assessment of the Company's management and the underwriters as to the price at which investors might be willing to participate in this offering;

● the history of, and prospects for, the Company and the industry in which the Company competes;

● the Company's past and present financial information;

● the Company's past and present operations, and the prospects for, and timing of, its future revenues;

● the present state of the Company's development; and

● the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to those of the Company.

An active trading market for the common shares may not develop. It is also possible that after the offering, the common shares will not trade in the public market at or above the public offering price.

**Offer and Sale Restrictions Outside the United States**

Other than in the United States, no action has been taken by the Company or the underwriters that would permit a public offering of the common shares offered by this prospectus in any jurisdiction where action for that purpose is required. The common shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such common shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common shares offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

**LEGAL MATTERS**

The validity of the Common Stock offered by us in this offering will be passed upon for us by Lucosky Brookman LLP, Woodbridge, New Jersey. Certain legal matters will be passed upon for the underwriter by Seward & Kissel LLP, New York, New York.

**EXPERTS**

The financial statements as of December 31, 2021 and 2020, and the two respective fiscal years then ended included in this registration statement have been so included in reliance upon the report of MaloneBailey LLP, Houston, Texas, an independent registered public accounting firm, given on the authority of said firm as an expert in auditing and accounting.

The financial statements as of December 31, 2021 and 2020, and the two respective fiscal years then ended included in this registration statement have been so included in reliance upon the report of Manning Elliott LLP, Vancouver, British Columbia, Canada, an independent registered public accounting firm, given on the authority of said firm as an expert in auditing and accounting.

**WHERE YOU CAN FIND MORE INFORMATION**

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our Common Stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.

We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available on the website of the SEC referred to above. The information contained in, or that can be accessed through, our website is not part of this prospectus, and you should not consider the contents of our website in making an investment decision with respect to our Common Stock.

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
| **EMulate Therapeutics, Inc** | Page |
| **Interim Unaudited Consolidated Financial Statements** |  |
| [Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021](#o_001) | F-2 |
| [Consolidated Statements of Operations for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited)](#o_002) | F-3 |
| [Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited)](#o_003) | F-4 |
| [Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited)](#o_004) | F-5 |
| [Notes to Unaudited Consolidated Financial Statements](#o_005) | F-6 |

---

---

| | |
|:---|:---|
| **EMulate Therapeutics, Inc** | Page |
| **Audited Consolidated Financial Statements** |  |
| [Report of Independent Registered Public Accounting Firm](#noah_023) (PCAOB ID 206) | F-26 |
| [Consolidated Balance Sheets as of December 31, 2021 and 2020](#noah_024) | F-27 |
| [Consolidated Statements of Operations for the years ended December 31, 2021 and 2020](#noah_025) | F-28 |
| [Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the years ended December 31, 2021 and 2020](#noah_026) | F-29 |
| [Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020](#noah_027) | F-30 |
| [Notes to Consolidated Financial Statements](#noah_028) | F-31 |

---

---

| | |
|:---|:---|
| **Hapbee Technologies, Inc.** | Page |
| [Supplemental Financial Information to Investors Regarding Hapbee Technologies, Inc.](#et_001) | F-56 |
| [Interim Unaudited Consolidated Financial Statements](#s_013) | F-57 |
| [Notice of No Auditor Review of Condensed Consolidated Interim Financial Statements](#s_001) | F-58 |
| [Consolidated Statements of Financial Position as of September 30, 2022 (Unaudited) and December 31, 2021](#s_002) | F-59 |
| [Consolidated Statements of Loss and Comprehensive Loss for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited)](#s_003) | F-60 |
| [Consolidated Statements of Changes in Equity for the nine months ended September 30, 2022 and September 30, 2021 (Unaudited)](#s_004) | F-61 |
| [Consolidated Statements of Cash Flows for the three months ended September 30, 2022 and June 30, 2022 (Unaudited)](#s_005) | F-62 |
| [Notes to Unaudited Consolidated Financial Statements](#s_012) | F-63 |

---

---

| | |
|:---|:---|
| **Hapbee Technologies, Inc.** | Page |
| [Independent Auditors' Report](#s_006) | F-88 |
| [Consolidated Statements of Financial Position as of December 31, 2021 and 2020](#s_007) | F-90 |
| [Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2021 and 2020](#s_008) | F-91 |
| [Consolidated Statements of Changes in Equity the years ended December 31, 2021 and 2020](#s_009) | F-92 |
| [Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020](#s_010) | F-93 |
| [Notes to the Consolidated Financial Statements](#s_011) | F-94 |

---

**EMULATE THERAPEUTICS, INC.**

Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share amounts)

---

| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022**  | **December 31,**<br> **2021** |
| **Assets** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $11 | $345 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, related party | 166 |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 65 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 242 | 345 |
| Investments | 1531 | 6688 |
| Property and equipment, net | 116 | 130 |
| Finance lease, net | 220 | 374 |
| Right of use assets, net | 389 |  |
| Restricted cash | 68 | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $2566 | $7737 |
| **Liabilities and Stockholders' Deficit** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $2759 | $2755 |
| &nbsp;&nbsp;&nbsp;Accrued and other current liabilities | 2159 | 14937 |
| &nbsp;&nbsp;&nbsp;Promissory notes payable due to related parties, net of debt discount | 1076 | 576 |
| &nbsp;&nbsp;&nbsp;Current convertible notes payable | 5225 | 4974 |
| &nbsp;&nbsp;&nbsp;Current convertible notes due to related parties, net of debt discount | 2607 | 2503 |
| &nbsp;&nbsp;&nbsp;Current portion of finance lease obligations | 36 | 198 |
| &nbsp;&nbsp;&nbsp;Operating lease obligation, current portion | 177 |  |
| &nbsp;&nbsp;&nbsp;SBA promissory notes | 6 | 9 |
| &nbsp;&nbsp;&nbsp;Deferred compensation and postemployment benefits, current portion | 6320 | 13320 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 20365 | 39272 |
| Deferred compensation and postemployment benefits, net of current portion | 5544 | 14577 |
| Convertible notes payable, net of debt discount |  | 201 |
| Convertible notes due to related parties |  | 30 |
| Promissory notes payable | 380 | 115 |
| SBA promissory notes, net of current | 468 | 465 |
| Long term portion of finance lease obligations, net of current | 226 | 226 |
| Operating lease obligation, net of current portion | 240 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 27223 | 54886 |
| Commitments and contingencies |  |  |
| Stockholders' deficit: |  |  |
| Preferred stock, $0.001 par value. Authorized 10,000,000 shares: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series A convertible preferred stock. Authorized, 1,817,333 shares; issued and outstanding, 1,817,225 shares at September 30, 2022 and December 31, 2021 | 1236 | 1236 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series A-1 convertible preferred stock. Authorized, 2,400,000 shares; issued and outstanding, 2,399,997 shares at September 30, 2022 and December 31, 2021 | 18000 | 18000 |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value. Authorized, 40,000,000 shares; issued and outstanding, 15,370,766 and 14,752,697 shares at September 30, 2022 and December 31, 2021, respectively | 15 | 15 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 142054 | 102109 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (185962) | (168509) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' deficit | (24657) | (47149) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' deficit | $2566 | $7737 |

---

The accompanying footnotes are integral to the unaudited consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share amounts)

---

| | | |
|:---|:---|:---|
|  | **For the** **Nine Months ended**<br> **September 30,** | **For the** **Nine Months ended**<br> **September 30,** |
|  | **2022** | **2021** |
| Royalty revenue, related party | $224 | $224 |
| License revenue, related party |  | 20 |
| Operating expenses |  |  |
| &nbsp;&nbsp;&nbsp;Research and development | 445 | 557 |
| &nbsp;&nbsp;&nbsp;General and administrative | 10149 | 4100 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 10594 | 4657 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from operations | (10370) | (4413) |
| Other income (expense): |  |  |
| &nbsp;&nbsp;&nbsp;Unrealized loss on investment | (5157) | (7440) |
| &nbsp;&nbsp;&nbsp;Other income |  | 318 |
| &nbsp;&nbsp;&nbsp;Interest expense | (1926) | (1962) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other income (expense) | (7083) | (9084) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss | $(17453) | $(13497) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss attributable to EMulate Therapeutics | $(17453) | $(13497) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss per share, basic and diluted | $(1.16) | $(0.97) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weighted-average common shares outstanding, basic and diluted | 15076052 | 13848206 |

---

The accompanying footnotes are integral to the unaudited consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Changes in Stockholders' Deficit (Unaudited)

(In thousands, except share and per share amounts)

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Series A convertible** | **Series A convertible** | **Series A-1 convertible** | **Series A-1 convertible** | | | | | |
|  | **preferred stock** | **preferred stock** | **preferred stock** | **preferred stock** | **Common stock** | **Common stock** | | | |
|  | **Shares** | **Amount** | **Shares** | **Amount** | **Shares** | **Amount** | **Additional**<br>**paid-in**<br>**capital** |<br>**Accumulated**<br>**deficit** | **Total**<br>**stockholders'**<br>**deficit** |
| Balance December 31, 2021 | 1817225 | $1236 | 2399997 | $18000 | 14752697 | $15 | $102109 | $(168509) | $(47149) |
| Proceeds from exercise of common stock warrants |  |  |  |  | 155722 |  | 311 |  | 311 |
| Conversion of convertible note payables and accrued interest to common stock |  |  |  |  | 462347 |  | 1952 |  | 1952 |
| Warrant inducement |  |  |  |  |  |  | 481 |  | 481 |
| Stock-based compensation |  |  |  |  |  |  | 7825 |  | 7825 |
| Forgiveness of related party liabilities |  |  |  |  |  |  | 29376 |  | 29376 |
| Net loss | - | - | - | - | - | - | - | (17453) | (17453) |
| Balance, September 30, 2022 (unaudited) | 1817225 | $1236 | 2399997 | $18000 | 15370766 | $15 | $142054 | $(185962) | $(24657) |
| Balance, December 31, 2020 | 1817225 | $1236 | 2399997 | $18000 | 13738293 | $14 | $92303 | $(146417) | $(34864) |
| Proceeds from exercise of common stock warrants |  |  |  |  | 624612 |  | 918 |  | 918 |
| Exercise of common stock warrants to reduce promissory notes payable |  |  |  |  | 49098 |  | 102 |  | 102 |
| Warrant inducement |  |  |  |  |  |  | 260 |  | 260 |
| Stock-based compensation |  |  |  |  |  |  | 494 |  | 494 |
| Net loss | - | - | - | - | - | - | - | (13497) | (13497) |
| Balance, September 30, 2021 (unaudited) | 1817225 | $1236 | 2399997 | $18000 | 14412003 | $14 | $94077 | $(159914) | $(46587) |

---

The accompanying footnotes are integral to the unaudited consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **For the Nine Months Ended <br> September 30,** | **For the Nine Months Ended <br> September 30,** |
|  | **2022** | **2021** |
| Cash flows from operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(17453) | $(13497) |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized loss on investment | 5157 | 7440 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 175 | 291 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 7825 | 494 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of discounts on promissory notes payable and convertible notes | 74 | 634 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inducement expense | 481 | 260 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Right of use operating lease expense | 108 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on PPP loan forgiveness |  | (314) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (166) | 15 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | (65) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 57 | (74) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Right of use operating lease liability | (80) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued and other current liabilities | 670 | 925 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation and postemployment benefits | (78) | 1470 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities | $(3295) | $(2356) |
| Cash flows from financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;Payments on finance lease obligations | (162) | (175) |
| &nbsp;&nbsp;&nbsp;Borrowings on convertible notes payable | 1715 | 1441 |
| &nbsp;&nbsp;&nbsp;Borrowings on convertible notes payable, related party |  | 158 |
| &nbsp;&nbsp;&nbsp;Borrowings on promissory notes payable - related party | 500 | 185 |
| &nbsp;&nbsp;&nbsp;Proceeds from SBA PPP loan |  | 314 |
| &nbsp;&nbsp;&nbsp;Borrowings on promissory notes payable | 465 |  |
| &nbsp;&nbsp;&nbsp;Proceeds from exercise of common stock warrants | 311 | 918 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities | $2829 | $2841 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net increase (decrease) in cash and restricted cash for the period | (466) | 485 |
| Cash and restricted cash at beginning of the year | 545 | 317 |
| Cash and restricted cash at end of the period | $79 | $802 |
| Supplemental Information |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $- | $- |
| &nbsp;&nbsp;&nbsp;Cash paid for income taxes | $- | $- |
| Non-cash investing and financing activities |  |  |
| &nbsp;&nbsp;&nbsp;Forgiveness of related party liabilities | $29376 | $- |
| Right of use asset and operating lease obligation recognized under Topic 842 | $497 | $- |
| &nbsp;&nbsp;&nbsp;Conversion of convertible notes and accrued interest into common stock | $1952 | $- |
| &nbsp;&nbsp;&nbsp;Conversion of promissory notes and accounts payable into convertible notes payable | $- | $1029 |
| &nbsp;&nbsp;&nbsp;Reduction in promissory notes for the exercise of warrants | $- | $102 |

---

The accompanying footnotes are integral to the unaudited consolidated financial statements

**EMulate Therapeutics, Inc.**

**Notes to the Consolidated Financial Statements (Unaudited)**

**For the nine months ended September 30, 2022 and 2021**

**(in thousands, except for share and per share amounts)**

&nbsp;&nbsp;&nbsp;&nbsp;**(1)** **Nature of Business and Basis of Presentation** 

---

| | |
|:---|:---|
| ***(a)*** | ***Nature of Business*** |
|  | EMulate Therapeutics, Inc. (the "Company") was incorporated in Washington State on February 7, 2002. EMulate Therapeutics, Inc. is a clinical stage therapeutic device company developing noninvasive therapies for cancers and other serious diseases. |
|  | As of the date of this report, the Company was a holding company owning 100% of the following non-operating subsidiaries: Cellsana Therapeutics, Inc., Indolor Therapeutics, Inc. and Mensana Therapeutics, Inc. |
|  | In March 2020, the World Health Organization declared COVID-19 a global pandemic. The global status of the COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic may impact our business and clinical studies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing guidelines, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease. The response to the pandemic may result in permanent changes to the environment in which we operate as described above in ways we are unable to predict. The COVID-19 pandemic may also have the effect of heightening many of the other risks described herein. |
|  | In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. The specific impact on our financial condition, results of operations and cash flows resulting from this conflict is not determinable as of the date hereof. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could result in conditions or circumstances that have a material adverse effect on our financial condition, results of operations, and cash flows. |
| ***(b)*** | ***Basis of Presentation*** |
|  | The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021 and 2020 filed herein. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures herein have been omitted. |
| ***(c)*** | ***Principles of Consolidation*** |
|  | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of September 30, 2022 and 2021. Significant intercompany balance and transaction have been eliminated. |
|  | The accompanying consolidated financial statements include Cellsana Therapeutics, Inc., Mensana Therapeutics, Inc. and Indolor Therapeutics, Inc., which are wholly-owned subsidiaries of the Company. These entities are currently non-operating and do not have any operations, assets, liabilities, or contributed equity. |

---

 ****

 ****

---

| | |
|:---|:---|
| ***(d)*** | ***Going Concern and Liquidity*** |
|  | As of September 30, 2022 the Company had cash and restricted cash of $79, insufficient revenue to meet its ongoing operating expenses, liabilities of $27,223 accumulated losses of $185,962, and a shareholders' deficit of $24,657. The Company has generated minimal revenues through its license agreements with Hapbee Technologies. The Company received $224 in royalty revenues from a related party during the nine months ended September 30, 2022. |
|  | The financial statements for the nine months ended September 30, 2022 have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and, or, the sale of common stock, and seeking licensing opportunities for its technology in medical and non-medical industries. There is no assurance that this series of events will be satisfactorily completed. |
|  | The financial statements do not include any adjustments related to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. |

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&nbsp;&nbsp;&nbsp;&nbsp;**(2)** **Summary of Significant Accounting Policies** 

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| | |
|:---|:---|
| ***(a)*** | ***Use of Estimates*** |
|  | The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the estimated fair value of the Company's common stock; the recoverability of deferred tax assets; stock based compensation to employees as well as equity based transactions with nonemployees; and other contingencies. |
| ***(b)*** | ***Cash Equivalents and Restricted Cash*** |
|  | The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with a maturity of three months or less at the date of purchase. There were no cash equivalents held by the Company at September 30, 2022 and December 31, 2021. |
|  | The following table provides a reconciliation of cash and restricted cash reported within the accompanying balance sheets that sum to the total of the same such amounts shown in the accompanying statements of cash flows: |

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| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31, 2021** |
| Cash | $11 | $345 |
| Restricted cash included in other long-term assets | 68 | 200 |
| &nbsp;&nbsp;&nbsp;Total cash and restricted cash shown in the consolidated statements of cash flows | $79 | $545 |

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| | |
|:---|:---|
|  | Restricted cash included in other long term assets on the accompanying balance sheets represents a deposit placed in a bank account controlled by the Company whose use is restricted based on the terms of the Company's operating lease for its headquarter facilities in Bellevue, Washington as the lessor required a reserve account be established. |
| ***(c)*** | ***Concentration of Credit Risk*** |
|  | The Company places the majority of its cash in one financial institution. At times, cash may be in excess of the FDIC insurance limit. To date, there have been no losses in such accounts. |
| ***(d)*** | ***Property and Equipment*** |
|  | Property and equipment are recorded at cost, less accumulated depreciation and amortization. Equipment originally acquired under capital leases is stated at the present value of future minimum lease payments at inception of the lease less accumulated amortization. Equipment held under capital leases is amortized on a straight line basis over the shorter of the lease term or estimated useful life of the asset. Leasehold improvements are recorded at cost and are depreciated over the shorter of the remaining lease term or their estimated useful lives. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the financial statements, and any resulting gain or loss is recognized as a component of research and development or general and administrative expenses in the statements of operations for the period depending on the nature of the equipment. The majority of the Company's equipment is used for research and development. |
|  | Depreciation and amortization is computed using the straight line method over the estimated useful lives of the assets as follows: |

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---

| | |
|:---|:---|
| Laboratory and office equipment, furniture and fixtures | 5 to 10 years |
| Leasehold improvements | Shorter of estimated improvement life or lease term |
| Software and electronic equipment | 3 years |

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| | |
|:---|:---|
|  | Long lived assets, such as equipment, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No other triggering events were identified during the nine months ended September 30, 2022 and 2021. |
| ***(e)*** | ***Finance Leases*** |
|  | The Company leases certain equipment under finance leases. Finance leases are recorded at the present value of the future minimum lease payments at the inception of the lease. As of September 30, 2022 and December 31, 2021 there was $262 and $424 in total financing lease liability, and $220 and $374 in lease financing assets, respectively. |
| ***(f)*** | ***Investment in Hapbee Technologies, Inc.*** The Company accounts for investments in less than 50% owned and more than 20% owned entities using the equity method of accounting. In accordance with ASC 825-10-15, the Company has elected the fair value option for these investments, with unrealized holding gains and losses during the period included in earnings. |
| ***(g)*** | ***Revenue Recognition*** |
|  | The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, *Revenue from Contracts with Customers,* adopted on January 1, 2018 using the modified retrospective method. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Central to the revenue recognition framework is a five-step revenue recognition model that requires the Company to: |

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1) Identify the contract,

2) Identify the performance obligations of the contract,

3) Determine the transaction price of the contract,

4) Allocate the transaction price to the performance obligations, and

5) Recognize revenue upon the Company satisfying each performance obligation

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| | |
|:---|:---|
|  | The Company's primary source of revenue is from royalty and distribution fees under license agreements. There are no performance obligations by the Company and the revenues for the nine months ended September 30, 2022 and 2021 were nominal. |
| ***(h)*** | ***Operating Leases*** |
|  | Leases are reviewed by management based on the provisions of ASC Topic 842, *Leases* ("ASC 842") and examined to see if they are required to be categorized as an operating lease or a finance lease, see note 5(a). The Company leases office space under operating lease agreements. For these operating leases, the company recognizes a lease liability equal to the present value of the lease payments and a right of use asset representing its right to use the underlying asset for the lease term. Minimum rent including tenant improvement allowances, rent holidays and rent escalation clauses on operating leases is expensed on a straight-line basis over the term of the lease. See Note 5(a) for more information on finance leases. |

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| | |
|:---|:---|
| **(3)** | **Financial Instruments** |
|  | Fair value measurements are determined based on the assumption that market participants would use in pricing an asset or liability. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels: |

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● Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3 – Significant unobservable inputs which reflect a reporting entity's own assumptions about the assumptions that market participants would use for pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted cash flow model.

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| | |
|:---|:---|
|  | The recorded amounts of financial instruments, including cash equivalents, accounts payable, and promissory notes approximate their market values as of September 30, 2022 and December 31, 2021 due to the intended short-term maturities of these financial instruments. |
| **(4)** | **Investment in Unconsolidated Affiliate** |
|  | As of September 15, 2020, the Company no longer holds a majority of the board seats of Hapbee and therefore was no longer the primary beneficiary. Concurrently, Hapbee completed a forward stock split on a 1-for-4.5 basis resulting in the total common shares outstanding increasing to 60,547,500 and the Company then holding 28,125,000 common shares post-split (6,250,000 x 4.5). Hapbee amended its articles of incorporation to include multiple voting shares, of which the Company exchanged its 28,125,000 common shares for 281,250 multiple voting shares. The Company was required to remeasure it's retained interest in Hapbee at fair value and include any resulting adjustments as part of a gain or loss recognized on deconsolidation. The Company shares are 100% held by the Company and escrowed for a period of 36 months. The shares are released from escrow at a rate of 10% upon Listing Date, and 15% every nine months thereafter over the period of 36 months. As of September 30, 2022 154,688 multiple voting shares had been released from Escrow. The Company held approximately 23.5% of the outstanding shares of Hapbee as of September 30, 2022 and December 31, 2021. |
|  | The fair value of the Company's investment in Hapbee was determined using the market price of Hapbee's publicly-traded shares which are quoted on the TSX Venture Exchange ("TSXV"). The quoted stock price at September 30, 2022, December 31, 2021, and September 30, 2021 was $0.05, $0.24, and $0.26, respectively. The following table sets forth the change in fair value of the Company's investment in Hapbee for the nine months ended September 30, 2022 and the year ended December 31, 2021: |

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| | |
|:---|:---|
| Investment in Hapbee, as of December 31, 2020 | $14777 |
| Change in fair value | (7440) |
| Investment in Hapbee, 28,125,000 voting shares at September 30, 2021 | 7337 |
| Investment in Hapbee, 28,125,000 voting shares at December 31, 2021 | 6688 |
| Change in fair value | (5157) |
| Investment in Hapbee, 28,125,000 at September 30, 2022 | $1531 |

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&nbsp;&nbsp;&nbsp;&nbsp;**(5)** **Property and Equipment** 

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| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31, 2021** |
| Property, Plant, & Equipment | $1001 | 994 |
| Financed Lease Assets | 1186 | 1186 |
| Leasehold improvements | 611 | 611 |
| Less accumulated depreciation and amortization | (2462) | (2287) |
|  | $336 | 504 |

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Depreciation and amortization expense on property and equipment was $175 and $291 for the nine months ended September 30, 2022 and 2021, respectively

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Finance Leases** 

The Company leases recorded at the present value of the future minimum lease payments at the inception of the lease. Equipment capitalized under finance leases as of September 30, 2022 and December 31, 2021 totaled $1,186. Due to the coronavirus epidemic, the Company negotiated deferral agreements, extending lease terms for specific agreements 1-3 months in 2020. As of September 30, 2022, future minimum lease payments under finance leases were as follows for the years ending December 31:

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| | |
|:---|:---|
| 2022 | $56 |
| 2023 | 179 |
| 2024 | 65 |
| Total minimum lease payments | 300 |
| Less imputed interest | 38 |
|  | $262 |

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| | |
|:---|:---|
| **(6)** | **Debt** |
|  | The Company has issued debt to related and non-related parties of the Company. In connection with certain of these notes the Company also issued warrants with a legal life of seven years to purchase common stock. The Company recognizes the cost of warrants issued with the debt as debt discounts in the financial statements, which is recorded at the warrants relative fair value measured based on the grant date fair value of the award. The Company estimates the fair value of each warrant at the grant date by using the Black-Scholes option pricing model. See note 10 for assumptions used to value the warrants. The Company amortizes the discount under the effective interest method over the term of the respective note. The Company evaluated the promissory notes that were converted into convertible notes and determined there was no accounting impact as a result of the modifications. The Company analyzed the conversion options in the convertible note payables for derivative accounting consideration under ASC 815 and determined that the transactions do not qualify for derivative treatment. As of September 30, 2022, future minimum lease payments of the Company's debt were as follows for the years ending December 31: |

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| | |
|:---|:---|
| 2022 | $8914 |
| 2023 | 380 |
| 2024 |  |
| 2025 and thereafter | 468 |
| Total | $9762 |

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***(a) Notes payable due to related parties as of September 30, 2022 and December 31, 2021:***

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| | | |
|:---|:---|:---|
|  | ***September 30,*** | **December 31,** |
|  | **2022** | **2021** |
| In May 2016, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of October 2016 and an annual interest rate of 9%. In May 2021, September 2021 and August 2021, a total of $21 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is past due and payable upon demand as of September 30, 2022. | $79 | $79 |
| In August 2017, the Company issued an unsecured promissory note to a related party in the amount of $200 with a maturity date of August 2019 and an annual interest rate of 8%. The promissory note is past due and payable upon demand as of September 30, 2022. | 200 | 200 |
| In May 2018, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of May 2019 and an annual interest rate of 9%. In connection with the promissory note issuance the Company issued warrants to purchase 4,892 shares of common stock at an exercise price of $10.22. The Company recorded a discount related to the warrants in the amount of $25. The promissory note is past due and payable upon demand as of September 30, 2022. | 100 | 100 |
| In July 2018, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of July 2019 and an annual interest rate of 9%. In August 2021, $3 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is past due and payable upon demand as of September 30, 2022. | 97 | 97 |
| In July 2021, the Company issued an unsecured promissory note to a related party in the amount of $150 with a maturity date due on demand but no earlier than September 30, 2021. A payment of $85 was applied to the principal in October 2021. The note earns interest at 10% and is past due and payable on demand as of September 30, 2022. | 65 | 65 |
| In July 2021, the Company issued an unsecured promissory note to a related party in the amount of $35 with a maturity date due on demand but no earlier than September 30, 2021. The note earns interest at 10% and is past due and payable on demand as of September 30, 2022. | 35 | 35 |
| In March 2022, the Company issued an unsecured promissory note to a related party in the amount of $300 with a maturity date of (a) July 2022 or (b) the date by which the Company completes a transaction for the purchase of its equity or debt securities for cash with the principal purpose of raising capital in an amount not less than $2,500, The note earns interest at 10% and is outstanding as of September 30, 2022. | 300 |  |
| In June 2022, the Company issued an unsecured promissory note in the amount of $100 with a maturity date of (a) September 2022 or (b) the date by which the Company receives immediately available funds sufficient for such payment in connection with the closing of an underwritten initial public offering, The note earns interest at 3.33% per month and is outstanding as of September 30, 2022. | 100 |  |
| In June 2022, the Company issued an unsecured promissory note in the amount of $100 with a maturity date of (a) December 2022 or (b) the date by which the Company receives immediately available funds sufficient for such payment in connection with the closing of an underwritten initial public offering, The note earns interest at 3.33% per month and is outstanding as of September 30, 2022. | 100 | - |
| Notes payable due to related parties | $1076 | $576 |
| **Total notes payable due to related parties** | $1076 | $576 |

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***(b) Note payable due as of September 30, 2022 and December 31, 2021:***

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| | | |
|:---|:---|:---|
|  | **September 30,**<br>**2022** | **December 31,**<br>**2021** |
| In December 2017 the Company entered into an unsecured promissory note for $150, bearing interest at a rate of 10% per annum, with a maturity date of July 2022. As per the monthly payment terms of the agreement which were not paid and $34 is due as of September 30, 2022 and December 31, 2021 and included in accounts payable. In August 2021, $78 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is outstanding as of September 30, 2022. | $15 | $15 |
| In September 2018 the Company entered into an unsecured promissory note for $100, bearing interest at a rate of 10% per annum, with a maturity date of October 2023. The promissory note is outstanding as of September 30, 2022. | 100 | 100 |
| In November 2020, the Company entered into an unsecured loan agreement with the Small Business Association via the Economic Injury and Disaster Loan program (EIDL) for $160, bearing interest at a rate of 3.75% per annum, with a maturity date of November 2050. The loan has a general security interest in the Company's collateral. | 160 | 160 |
| In March 2021, the Company entered into an unsecured loan agreement with Union Bank for $314 pursuant to the Paycheck Protection Program (PPP) with the Small Business Association. The loan has a maturity date of March 2, 2026 and bears interest at 1% per annum. The PPP loan is eligible for forgiveness under the terms of the CARES Act, wherein each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. No assurance is provided that any Borrower will obtain forgiveness under any relevant PPP Loan in whole or in part. | 314 | 314 |
| In July and August 2022, the Company entered into five unsecured promissory notes totaling $465, with maturity dates of (a) January 2023 or (b) the date by which the Company receives immediately available funds sufficient for such payment in connection with the closing of an underwritten initial public offering. The notes earn interest at 3.33% per month and four outstanding as of September 30, 2022. One of these notes totaling $200 was converted into a convertible note during September 2022 | 265 | - |
| **Total notes and SBA loan payables** | $854 | $589 |
| **Less notes and SBA loan payables – current** | (6) | (9) |
| **Total notes and SBA loan payables, net of current** | $848 | $580 |

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**(c) Convertible notes due as of September 30, 2022 and December 31, 2021:**

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| | | |
|:---|:---|:---|
|  | **September 30,**<br>**2022** | **December 31,**<br>**2021** |
| During 2019, the Company opened a round of unsecured convertible note financing. The round has a Maturity Date of September 6, 2021 with an interest component of 10%. On September 3, 2021 the Board extended the Maturity Date to the earlier of a) February 28, 2022 b) upon the consummation of deemed liquidation. In February 2022, the Board extended the Maturity date of these notes to September 1, 2022. The round includes Put Features for subscribers, the terms of which are dependent upon the amount invested. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00, in any case rounded down to the nearest whole share of the common stock as of the date of conversion. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the Notes are outstanding prior to the Maturity Date, the Holder may (a) elect to convert the outstanding principal and accrued interest into Equity Securities. Conversion price equal to the highest cash price paid for the Nonqualified Equity Securities or (b) Convertible into common stock at a conversion price equal to the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion |  |  |
| Included in this round, the Company issued an unsecured convertible note in September 2019 in the amount of $250 with a maturity date of the earlier of February 2022 or consummation of a deemed liquidation and an annual interest rate of 10% to a related party. In connection with the convertible note issuance the Company issued warrants to purchase 12,916 shares of common stock at an exercise price of $10.22. The Company recorded a discount related to the warrants in the amount of $65. The Company also recognized a beneficial conversion feature of $64 that will be amortized over the life of the note using the effective interest method. The convertible note is outstanding as of September 30, 2022. | $250 | $250 |
| Included in the round, the Company issued 15 unsecured convertible notes between January 2021 – September 2021 for an aggregate amount of $1,148. Between January 2022 – September 2022, the Company issued 21 unsecured convertible notes for an aggregate total of $1,704. All convertible notes have a maturity date of the earlier of September 1, 2022 or consummation of a Deemed Liquidation and an annual interest rate of 10%, except for two notes totaling $201 due in August 2023. In connection with the 2020 convertible note the Company issued warrants to purchase 25,000 shares of common stock at an exercise price of $10.22. The warrants were offered as a subscription incentive. The Company recorded a discount related to the warrants in the amount of $3. The Company also recognized a beneficial conversion feature of $3 that will be amortized over the life of the note using the effective interest method. Beneficial conversion feature of $18 was in excess of the convertible debt proceeds and therefore was not recognized. The number of warrants granted to each convertible note holder was dependent upon the principal amount of the investor's note. Total funds in convertible notes issued during the nine months ended September 30, 2022 and 2021 were $1,715 and $1,684, respectively. | 5219 | 5050 |
| In September 2019, the Company issued an unsecured convertible note to a related party in the amount of $500 with a maturity date of the earlier of February 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The conversion price per share is $9.00. In connection with the convertible note issuance the Company issued warrants to purchase 27,777 shares of common stock at an exercise price of $9.00. The Company recorded a discount related to the warrants in the amount of $139. The Company also recognized a beneficial conversion feature of $139 that will be amortized over the life of the note using the effective interest method. In the event the Note has not been repaid or converted prior to the Maturity Date, then upon the Maturity Date, the outstanding principal and accrued interest shall automatically convert into that number of shares of Common Stock determined by dividing the outstanding principal and accrued interest by the Conversion Price, $9.00. The convertible note is outstanding as of September 30, 2022. | 500 | 500 |
| In January 2020, the Company issued an unsecured convertible note to a related party in the amount of $250 with a maturity date earlier of January 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The convertible note is outstanding as of September 30, 2022. On September 3, 2021 the Board extended the Maturity Date to February 28, 2022. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of (A) common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. | 250 | 250 |
| In September 2020, the Company issued an unsecured convertible note to a related party in the amount of $250 with a maturity date of September 2022 and an annual interest rate of 10%. The convertible note is outstanding as of September 30, 2022. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00.If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion | 250 | 250 |
| In August 2018, the Company issued two unsecured convertible notes in the amount of $63 each with a maturity date of August 2020 and an annual interest rate of 10% The notes have a conversion price equal to the lesser of (1) by dividing the outstanding principal and accrued interest by a conversion price equal to the fair market value per share of Common Stock as of the date of conversion as determined by the higher of the price per share for the most recent (A) sale of common stock to a third party investor by the Company on or prior to date of conversion, or (B) grant of options to an employee or service provider, or (2) $10.22 per share. Upon the maturity date, any outstanding principal and accrued interest shall automatically convert to shares of common stock determined by the conversion price. The convertible notes are outstanding as of September 30, 2022. | 75 | 125 |
| In November 2020, the Company issued an unsecured convertible note to a related party in the amount of $100 with a maturity date of December 2022 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of September 30, 2022. | 100 | 100 |
| In February 2021, the Company issued an unsecured convertible note to a related party of $150 which was converted from a promissory note (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note is outstanding as of September 30, 2022. | 150 | 150 |
| In February 2021, the Company issued an unsecured convertible note to a related party of $142 which was converted from a $112 promissory note and $30 accounts payable (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note is outstanding as of September 30, 2022. | 142 | 142 |
| In February 2021, the Company issued an unsecured convertible note to a related party of $228 which was converted from a $200 promissory note and additional $28 principal (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. Prior to maturity, the related party may elect the conversion upon a Company Financing or as a Voluntary Conversion wherein the conversion price would be equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. | 228 | 228 |
| In January 2021, $38 in accounts payables due to a related party was transferred into an unsecured convertible note, with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 3% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 100% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. | 38 | 38 |
| In February 2021, the Company issued an unsecured convertible note to a related party in the amount of $30 with a maturity date of February 2023 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of September 30, 2022. | 30 | 30 |
| In July 2021, the Company issued an unsecured convertible note to a related party in the amount of $600, of which $500 was converted from a promissory note (Refer to table (a)), with a maturity date of December 2022 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of September 30, 2022. | 600 | 600 |
| Total convertible notes payable | $7832 | $7713 |
| Less discounts |  | (5) |
| Less current portion of convertible notes to third parties | (5225) | (4974) |
| Less current portion of convertible notes to related parties | (2607) | (2503) |
| **Total convertible note payables, net of current portion** | $- | $231 |

---

During the nine months ended September 30, 2022, the Company amended the maturity date conversion price per share to a price per share equal to the lesser of (1) the fair market value per share of common Stock on the maturity Date, as determined by the higher of the price per share for the most recent (A) sale of common stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase common stock on or prior to the maturity date, or (2) $4.09. As a result, a total of $1,952 in principal and accrued interest were converted into 462,347 shares of common stock under the amended conversion terms of the notes. The remaining convertible promissory notes had their maturity dates extended to September 1, 2022. These extended notes will continue to accrue interest under the original terms of the notes.

&nbsp;&nbsp;&nbsp;&nbsp;**(7)** **Deferred Compensation and Postemployment Benefits** 

As of September 30, 2022 and December 31, 2021, the Company had accrued for the following on the accompanying balance sheets:

---

| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31,**<br> **2021** |
| Deferred Executive Compensation | $91 | $6582 |
| Postemployment benefits, current | 6229 | 6738 |
| &nbsp;&nbsp;&nbsp;Total deferred compensation and postemployment benefits, current | 6320 | 13320 |
| Deferred compensation, noncurrent |  | 9100 |
| Postemployment benefits, noncurrent | 5544 | 5477 |
| &nbsp;&nbsp;&nbsp;Total deferred compensation and postemployment benefits | $11864 | $27897 |

---

***Deferred Compensation***

The Company has established deferred cash compensation arrangements with certain of the Company's current or former executive officers through individual employment or related severance agreements. Authoritative guidance for compensation indicates that if elements of both current and future services are present in a deferred compensation plan, only the portion applicable to the current services shall be accrued. The Company had accrued a total of $91 and $15,862 as of September 30, 2022 and December 31, 2021, respectively, relating to these deferred compensation arrangements. The majority of the accrued balance at September 30, 2022 is associated with services provided by participants prior to December 31, 2014, when the Company was in its early clinical development stage. Deferred compensation is not discounted because at the end of each reporting period, the aggregate amount of deferred compensation accrued equals the then present value of the benefit expected to be paid to the participants, as required by authoritative guidance.

Payment of accrued deferred compensation amounts relating to current or past services is contingent on the Company having sufficient funds to pay deferred compensation amounts such that payment does not jeopardize the Company's ability to continue as a going concern, as determined by the Company's board of directors, and as outlined in the respective employment or related severance agreements with each participant. At such time as the Company may have sufficient liquid assets in the future to pay accrued deferred compensation and, such that payment of deferred compensation would not jeopardize the Company's ability to continue as a going concern, it is expected that these liabilities will be settled. Amounts that the Company anticipates will be settled within one year of September 30, 2022 primarily relating to the terms outlined in specific severance agreements with former executive officers are classified as current liabilities, with the remaining amounts classified as long-term liabilities on the accompanying balance sheets.

Payments of the noncurrent deferred compensation balance outstanding at September 30, 2022 are contingent on the Company having sufficient funds as disclosed.

***Postemployment Benefits***

On September 30, 2016 the Company entered into employment agreements with several key executive employees. The agreements were established to allow them to be terminated at any time by the Company with or without cause upon written notice to the employee or by the employee for good reason or otherwise. The agreements represent an ongoing termination benefit arrangement, which entitles the employees to nonretirement postemployment benefits, such as wages and other benefits, from date of termination, whether voluntary on the part of the employee or involuntary (the Company has an obligation to make payments in either case), and also provide for payments to be made under certain conditions related to a change in control of the Company. Pursuant to authoritative guidance, an employer that provides contractual termination benefits shall recognize a liability when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability shall include the amount of any lump-sum payments and the present value of any expected future payments.

The Company has recorded accruals for nonretirement postemployment benefits based on annual salaries and bonuses that would be paid in the event of voluntary terminations by key executive employees as of September 30, 2022 and December 31, 2021 totaling $10 and $12,215, respectively. The liabilities have not been discounted. On August 1, 2017 payments under the original agreement were not made. Beginning on March 5, 2018 and through June 1, 2020, the Company and key executives entered into multiple deferral agreements primarily through an arbitration process that resulted in adjustments to scheduled payments of principal and interest (12% on outstanding principal and accrued interest). The deferral agreements were triggered due to non-payment. Nominal amounts of principal were paid during the nine months ended September 30, 2022 and 2021. Amounts that the Company anticipates will be settled within one year of September 30, 2022, primarily relating to the terms outlined in specific severance agreements with former executive officers, are classified as current liabilities, with the remaining amounts classified as long-term liabilities on the accompanying balance sheets. Payments to be made under these agreements are not due until one year after the effective termination date of the employees entitled to these benefits and are settled over a period of time not to exceed three years from the effective termination dates via lump sum payments.

The Company has not recorded any accruals for postemployment benefits that would be payable in the event of involuntary terminations because such amounts are not considered probable as of September 30, 2022. The Company has also not recorded any accruals for postemployment benefits for medical coverage to be paid in some circumstances up to five years after the effective termination dates of certain key executive employees as such amounts are not currently probable and cannot be estimated as of September 30, 2022

During the nine months ended September 30, 2022, the Company amended executive employment agreements with four officers or employees of the Company. The amended employment agreements, among other matters, forgave certain outstanding amounts owed to these individuals totaling $13,149. Other former officers and employees agreed to forgive a total of $2,857 in outstanding amounts owed to them. The forgiveness is presented in additional paid in capital.

&nbsp;&nbsp;&nbsp;&nbsp;**(8)** **Commitments and Contingencies** 

The Company has or is subject to the following commitments and contingencies:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(a)***  ***Employment Agreements*** 

 ****

In addition to the terms of the employment agreements described in note 7 associated with deferred compensation and postemployment benefits, executive employment agreements with key executives outline compensation to be paid in exchange for services including salaries, annual incentive bonuses and stock option grants. As of December 31, 2021, an executive officer of the Company had earned $12,560 in four of four guaranteed annual bonuses payable in years 2017 through 2020, and elected to defer those amounts due to be paid. In March 15, 2022, that executive officer agreed to a revised employment agreement that forgave all guaranteed bonuses totaling $13,370. This forgiveness amount is presented in additional paid in capital. A balance of $10 and $13,380 owed to four individuals was included in accrued and other current liabilities on the accompanying balance sheets at September 30, 2022 and December 31, 2021, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(b)***  ***CEO Common Stock Bonus in the Event of an Offering*** 

At December 31, 2021, the employment agreement with the Company's CEO included a potential one time equity bonus to be paid by granting a variable number of shares of common stock in the event of a future offering of the Company's stock. To receive the equity bonus the CEO must have been employed at the time of an offering, and the Company's initial market capitalization at the time of the offering must have been greater than or equal to $1 billion for any equity bonus to be paid. The ultimate number of shares to have been granted was also dependent on several factors, including the CEO's total annual compensation at the time as well as the average total annual compensation at that time of three CEOs of other publicly traded, similarly situated biotechnology companies with equivalent market capitalizations. The number of shares to be received by the CEO increased as a factor of his total annual compensation depending on the size of the initial offering market capitalization, up to a market capitalization of at least $5 billion.

The potential bonus to have been paid in a variable number of shares was treated as a cash bonus award to be settled in shares of the Company's stock (a share-settled liability) subject to the authoritative guidance in ASC Topic 450, *Contingencies*, and ASC Topic 710, *Compensation*. No compensation expense or accrual would have been recognized in the Company's financial statements for this cash bonus award until and if an offering meeting all of the conditions outlined in the employment agreement triggering the payment of this share-settled liability occurred.

On March 15, 2022, the Company's CEO agreed to a revised employment agreement that waived all guaranteed stock bonuses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(c)***  ***Collaborative Agreements*** 

A collaborative arrangement is a contractual arrangement that involves a joint operating activity. A contract with a collaborator or a partner is in the scope of ASC 606 if the counterparty meets the definition of a customer for part or all of the arrangement. If the counterparty is not considered a customer, these arrangements follow the guidance in ASC Topic 808, Collaborative Arrangements, or other authoritative literature. Arrangements accounted for under ASC 808 can involve two or more parties who are considered collaborators but not customers, and are both: (i) active participants in the activity; and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity.

The Company enters into collaborative arrangements from time to time for the research and development, manufacture and/or commercialization of its products and/or product candidates.

To date the Company's collaborative arrangements have included any development and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. The Company's collaboration agreements to date have been performed with no guarantee of either technological or commercial success and each is unique in nature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(d)***  ***Exclusive License Agreement*** 

In 2017 the Company entered into an exclusive patent license agreement for use of the Company's technology in a specific territory and in a specific field by a third party. The Company received a $3,000 up-front payment under the agreement. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. The agreement also included further payments the Company could receive contingent on meeting certain milestones. Under the agreement the Company can receive royalties for use of the patents in certain products sold. There were no revenues during the nine months ended September 30, 2022 and 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(e)***  ***Exclusive Distribution Agreement*** 

In 2019 the Company entered into an exclusive distribution agreement with a seven-year term and an automatic annual renewal after the initial term, unless terminated prior to renewal, where the Company can earn revenues as a supplier for the third party's exclusive distribution of the licensed technology in the respective territory. The agreement included an up-front payment to the Company of $50 with further payments contingent on meeting certain milestones. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. There were no revenues during the nine months ended September 30, 2022 and 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(f)***  ***Exclusive License Agreements*** 

In 2019, the Company entered into multiple exclusive license agreements with their former subsidiary, Hapbee for use of the technology. The license agreements required upfront payments of $1,530 and royalties based on Hapbee sales of product utilizing the licensed technology. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. The license agreements have an initial term of twenty years.

In 2021, the Company entered into two exclusive license agreements with Hapbee for the use of the technology. The license agreements required an upfront payment of $10 each and royalties based on Hapbee sales of product utilizing the licensed technology. The license agreements have an initial term of twenty years. $10 in revenues from one of these agreements was included in license revenue on the accompanying statements of operations as of September 30, 2021. There was $0 in license revenue during the year ended September 30, 2022.

*Royalty Revenues*

 

In accordance with two licensing agreements with a related party, the Company has collected royalty revenues in the amount of $224 and $224 during the nine months ended September 30, 2022 and 2021, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(g)***  ***Consulting Agreements*** 

In 2016, the Company entered into a consulting agreement with a director of the Company for the performance of services related to ongoing research and intellectual property development. During the nine months ended September 30, 2022 and September 30, 2021, no payments were made in accordance with this agreement. A balance of $89 owed to the director was included in accounts payable on the accompanying balance sheet at September 30, 2022 and December 31, 2021

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(h)***  ***Legal Matters and Arbitration*** 

The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its financial position, results of operations or cash flows.

&nbsp;&nbsp;&nbsp;&nbsp;**(9)** **Leases** 

The Company is party to lease agreements for headquarters and research facilities located in Seattle, Washington that are classified as operating leases in accordance with ASC 842. The Company has irrevocable standby letters of credit with a bank issued to the Company's landlord. The letter of credit is secured by $200 in cash funds controlled by the Company and is classified as other long term assets on the accompanying balance sheets as of December 31, 2021. The letter of credit expired on January 31, 2022.

In January 2022, the Company entered into a sublease agreement to lease office space in Bellevue, Washington under a non-cancelable lease which commenced in February 2022. The lease agreement expires in December 2024. This resulted in the Company recognizing $497 as a right of use asset and operating lease obligation upon commencement of the lease.

The table below presents the lease related assets and liabilities recorded on the Company's consolidated balance sheets as of September 30, 2022 and December 31, 2021.

---

| | | |
|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31,**<br> **2021** |
| **Assets** |  |  |
| Right of use assets, net | $389 | $— |
| Total lease assets | 389 |  |
| **Liabilities** |  |  |
| Current liabilities |  |  |
| Operating lease obligation, current portion | $177 | $— |
| Noncurrent liabilities |  |  |
| Operating lease liability | 240 |  |
| Total lease liability | $417 | $— |

---

As of September 30, 2022, future minimum lease payments under operating leases were as follows:

---

| | |
|:---|:---|
| 2022 | $43 |
| 2023 | 180 |
| 2024 | 194 |
| Total | $417 |

---

Net rent expense for facilities under operating leases was $178 and $256 for the nine months ended September 30, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of lease liabilities was $80 and $0 for the nine months ended September 30, 2022 and 2021, respectively. Due to the coronavirus epidemic, the Company negotiated deferral agreements with two leaseholders in 2020.

&nbsp;&nbsp;&nbsp;&nbsp;**(10)** **Convertible Preferred Stock** 

The Company's amended articles of incorporation provide that it has authorized for issuance 10,000,000 shares of classes of preferred stock, with a par value of $0.001 per share. Shares of preferred stock may be issued in one or more series, with designations, preferences, and limitations established by the Company's board of directors.

The Company's Series A convertible preferred stock consists of 1,817,333 authorized shares and cannot be increased or decreased. As of September 30, 2022 and December 31, 2021 the Company had issued 1,817,225 of Series A convertible preferred stock in exchange for cash or the conversion of promissory notes.

The Series A-1 convertible preferred stock consists of 2,400,000 authorized shares and cannot be increased or decreased. As of both September 30, 2022 and December 31, 2021, the Company had issued approximately 2,400,000 shares of Series A-1 convertible preferred stock in exchange for cash or the conversion of promissory notes.

The Company did not incur any significant financing costs with respect to the issuance of its Series A or Series A-1 convertible preferred stock.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  | **Authorized shares** | **Shares outstanding** | **Shares issuable upon conversion** | **Carrying amount** | **Liquidation preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 3140 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| &nbsp;&nbsp;&nbsp;Totals | 4217333 | 4217222 | 5657219 | 19236 | 21140 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Authorized shares** | **Shares outstanding** | **Shares issuable upon conversion** | **Carrying amount** | **Liquidation preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 3066 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| Totals | 4217333 | 4217222 | 5657219 | 19236 | 21066 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Ranking** 

Each series of preferred stock has liquidation and dissolution preferences over, and restricts the payment of dividends to, other equity securities of the Company including its common stock. The Series A-1 convertible preferred stock has liquidation and dissolution preferences over Series A convertible preferred stock and common stock. Series A convertible preferred stock has liquidation and dissolution preferences over common stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b)** **Dividends** 

Cash dividends are payable only when, as and if declared by the Company's board of directors on the Series A and Series A-1 convertible preferred stock. Any such dividends shall not be cumulative.

The Series A-1 convertible preferred stockholders hold a dividend preference over other holders. The Series A-1 convertible preferred stock dividend preference gives the Series A-1 convertible preferred stockholders the right to receive dividends prior and in preference to declaration or payment of any dividend on the Series A convertible preferred stock or the Company's common stock, at a rate of $7.50 per share.

The Series A convertible preferred stockholders hold a dividend preference over certain other holders. The Series A dividend preference gives the Series A convertible preferred stockholders the right to receive dividends prior and in preference to declaration or payment of any dividend on the Company's common stock, at a rate of $0.68 per share.

The Series A and Series A-1 convertible preferred stock and convertible preferred stock dividend preferences are not cumulative. This right is received only when, as and if declared by the board of directors. The Series A and A-1 convertible preferred stock dividend preferences shall be deemed waived upon conversion of the Series A and Series A-1 convertible preferred stock into common stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c)** **Redemption** 

The Series A and Series A-1 convertible preferred stock do not contain mandatory redemption features.

Any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, constitutes a liquidation, including a deemed liquidation including the sale of all or substantially all of the Company's assets or the acquisition of the Company by means of a merger, consolidation, share exchange, or reorganization that transfers voting control in excess of fifty percent (50%) of the Company's voting power. This triggers the payment of liquidation preference amounts under the terms of the preferred stock designations. These liquidation characteristics do not require classification of any outstanding series of convertible preferred stock outside of the shareholders' equity/deficit section of the accompanying balance sheets as there are no factors associated with a liquidation considered to be outside the control of the Company. As such, the Series A and Series A-1 convertible preferred stock are classified as a component of stockholders' equity/deficit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d)** **Liquidation Preference** 

In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, the holders of Series A-1 convertible preferred stock shall receive, prior and in preference to any distribution of the assets to holders of the Company's Series A convertible preferred stock and common stock an amount per share equal to $7.50, plus declared but unpaid dividends, if any. If the assets and funds are insufficient to pay this liquidation preference, then the entire assets or funds of the Company will be distributed evenly to holders of Series A-1 convertible preferred stock.

Holders of Series A convertible preferred stock shall receive, prior and in preference to any distribution of the assets to holders of the Company's common stock an amount per share equal to $0.68, plus an amount equal to 8% per annum on the issue price plus declared but unpaid dividends, if any. As of September 30, 2022 and December 31, 2021, the liquidation preference of each share of Series A convertible preferred stock is $1.73 and $1.69, respectively. If the assets and funds are insufficient to pay this liquidation preference, then the entire assets or funds of the Company will be distributed evenly to holders of Series A convertible preferred stock.

Once all of the above has occurred, the remaining assets will be distributed to holders of the Company's common stock on a pro rata basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(e)** **Voting Rights** 

Holders of shares of each of the series of convertible preferred stock shall have the right to vote for each share of common stock into which such preferred stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, and shall be entitled, together with the holders of common stock, with respect to any question upon which holders of common stock have the right to vote.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(f)** **Conversion Rights** 

Each share of Series A and Series A-1 convertible preferred stock shall be convertible, at the option of the holder thereof, into common stock as determined at a ratio of 1:1 and 1:1.6, respectively. These ratios will be adjusted for payment of all or any portion of any stock split, dividend, combination, or other recapitalization as defined.

Further, each share of Series A and Series A-1 convertible preferred stock shall automatically be converted into common stock (i) with the approval, by affirmative vote, written consent or agreement, of the holders of a majority of the then outstanding Series A convertible preferred stock or Series A 1 convertible preferred stock, voting together as a class, (ii) upon the prior voluntary conversion of a majority of the Series A or A-1 convertible preferred stock, or (iii) immediately prior to the closing of an underwritten initial public offering of common stock.

&nbsp;&nbsp;&nbsp;&nbsp;**(11)** **Common Stock** 

The Company's amended articles of incorporation provide for authorization to issue 40,000,000 shares of common stock, with a par value of $0.001 per share. Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the outstanding series of convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company. The holders of shares of common stock are entitled to one vote for each share held.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Proceeds from Issuance of Common Stock** 

There were no cash proceeds from the sale of common stock received during the nine months ended September 30, 2022 and 2021.

During the nine months ended September 30, 2022, 15 convertible notes reached maturity on February 28, 2022 and 15 notes were exercised on September 1, 2022 triggered the conversion of the outstanding notes, including accrued interest plus an additional . These notes converted at a total of $1,952 into 462,347 shares of Common Stock.

During the nine months ended September 30, 2022, 155,722 warrants were exercised for cash proceeds of $311.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b)** **Shares Reserved for Issuance** 

The following shares of common stock were reserved for issuance at September 30, 2022 and December 31, 2021:

---

| | | |
|:---|:---|:---|
|  | **Shares** | **Shares** |
|  | **September 30,**<br> **2022** | **December 31,<br> 2021** |
| Series A convertible preferred stock issued and outstanding | 1817225 | 1817225 |
| &nbsp;&nbsp;&nbsp;Series A-1 convertible preferred stock issued and outstanding | 3839994 | 3839994 |
| Stock options approved to be issued from 2016 Stock Incentive Plan | 4931735 | 4370701 |
| Common stock warrants issued and outstanding | 465301 | 644024 |
|  | 11054255 | 10671944 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c)** **Stockholder Agreements** 

The Company, the founding stockholders, and other stockholders are party to a Right of First Refusal and Co Sale Agreement that provide for certain restrictions on the transfer of Company stock. The Company has the right of first refusal if any stockholder owning stock wishes to dispose of their stock; the founding stockholders have the right of second refusal on such shares in their pro rata share of ownership.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d)** **Common Stock Warrants** 

During the nine months ended September 30, 2022, the Company issued warrants for services totaling 2,000 at an exercise price of $3.75 with an expiration term of 7 years. The Company calculated the fair value using the Black Scholes option pricing model totaling $15, the amount is included in stock-based compensation expense in the accompanying statements of operations.

In 2022, the Company offered to two warrant holders an inducement to exercise all or a portion of their warrant for reduced exercise prices ranging from $9.00 to $10.22 per share to $2.00 per share. The warrant holders accepted the inducement offers in January 2022 and subsequently exercised 82,338 shares under the warrant agreements. The inducement resulted in a modification to the award. The Company calculated the fair value of the inducement using the Black-Scholes option pricing model and recognized expense for the difference in fair value of the modified warrant and the fair value of the warrant immediately before modification of $481, which has been recorded as an inducement expense during the nine months ended September 30, 2022. Assumptions used in the Black-Scholes option pricing model are consistent with those used in its stock based compensation calculations disclosed in Note 11(a).

The fair market value of warrants issued during the nine months ended September 30, 2022 and 2021 was determined using the Black-Scholes option pricing model. The assumptions are the same as those used to value the Company's stock option awards.

A summary of the warrants as of September 30, 2022 and December 31, 2021 and the changes during the nine months ended September 30, 2022 and the year ended December 31, 2021 are presented below:

---

| | | | |
|:---|:---|:---|:---|
|  |<br>**Number**<br>**of warrants** | **Weighted**<br>**average**<br>**exercise**<br>**price** | **Weighted**<br>**average**<br>**contractual**<br>**life in years** |
| Balance at December 31, 2020 | 1778617 | 9.07 | 5.00 |
| Granted | 10000 | 10.22 |  |
| Exercised | (995343) | 9.11 |  |
| Expired | (149250) | 3.92 |  |
| Balance at December 31, 2021 | 644024 | 10.07 | 4.02 |
| Granted | 2000 | 3.75 |  |
| Exercised | (155723) | 9.63 |  |
| Expired | (25000) | 13.35 |  |
| Balance at September 30, 2022 | 465301 | 10.02 | 3.34 |

---

As of September 30, 2022 and December 31, 2021, there is $1 and $0 intrinsic value of the outstanding stock warrants, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;**(12)** **Stock Based Compensation** 

 

*Equity Incentive Plan*

 

As of September 30, 2022, the Company's equity incentive plan included the 2002 Stock Incentive Plan as amended (the "2002 Plan"), the Company's 2016 Stock Option Plan (the "2016 Plan"), and the Amended and Restated 2016 Equity Incentive Plan (the "Restated 2016 Plan") (together, the "Plans"), and provide for the granting of incentive stock options, nonqualified stock options and restricted stock units.

Options granted under the Plans generally vest either immediately or over a period of one year from the date of grant with certain options granted in 2022 and 2021 vest over four years, and generally expire seven years from date of grant. Restricted stock units are subject to time-vesting and liquidity event vesting.

As of September 30, 2022 and December 31, 2021, there were no shares available for grant under the 2002 Plan. As of September 30, 2022 and December 31, 2021, there were 568,265 and 1,129,299 shares available for the Company to grant under the 2016 Plan of 5,500,000 shares. Restricted stock units are subject to time-vesting and liquidity event vesting.

The grant date fair value of each option award is estimated on the date of grant using the Black Scholes Merton option pricing model. The options granted have a contractual term of 7 years. The Company uses the contractual term to determine the expected term of employee and nonemployee grants. The Company uses comparable peer group public company data to estimate the expected volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company accounts for forfeitures as they occur; as such, the Company does not estimate forfeitures at the time of grant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Stock Option Awards** 

The table below sets forth the assumptions used on the date of grant for estimating the fair value of options granted to employees and non-employees during the nine months ended September 30, 2022. There were no options granted during the nine months ended September 30, 2021.

---

| | | |
|:---|:---|:---|
|  | **September 30,<br> 2022** | **December 31,<br> 2021** |
| Weighted average expected term (years) | 7.00 | 7.00 |
| Risk-free interest rate | 1.71-2.16% | 1.32-1.46% |
| Dividend yield | 0 | 0 |
| Volatility | 70% | 70% |

---

*Employees*

 

The Company recognized $4,716 and $494 in stock-based compensation expense to employees in the accompanying statements of operations for the nine months ended September 30, 2022 and September 30, 2021, respectively.

As of September 30, 2022, the total unrecognized compensation expense related to unvested stock options granted to employees is $338 which is expected to be recognized over a period of 4 years.

*Non-employees*

 

The Company recognized $676 and $0 in stock-based compensation expense to nonemployees in the accompanying statements of operations for the nine months ended September 30, 2022 and September 30, 2021 respectively. There is no remaining unrecognized expense for nonemployee options as of September 30, 2022.

The following table summarizes the Company's stock option activity for the nine months ended September 30, 2022 and the year ended December 31, 2021:

---

| | | | |
|:---|:---|:---|:---|
|  |<br>**Number**<br>**of shares** | **Weighted**<br>**average**<br>**exercise**<br>**price** | **Weighted**<br>**average**<br>**contractual**<br>**life in years** |
| Balance at December 31, 2020 | 3728869 | 12.24 | 3.55 |
| Granted | 1044833 | 4.09 |  |
| Exercised |  |  |  |
| Forfeited | (305101) | 11.25 |  |
| Expired | (97900) | 7.50 | - |
| Balance at December 31, 2021 | 4370701 | 10.46 | 3.61 |
| Granted | 823034 | 4.09 |  |
| Exercised |  |  |  |
| Forfeited |  |  |  |
| Expired | (262000) | 12.86 | - |
| Balance at September 30, 2022 | 4931735 | 9.27 | 3.63 |

---

As of September 30, 2022 and December 31, 2021, there is $0 and $5,163 intrinsic value of the outstanding stock options, respectively.

As of September 30, 2022, total stock options exercisable is 4,593,532.

There were 823,034 options granted to employees and non-employees during the nine months ended September 30, 2022.

The following tables reflects the components of stock-based compensation expense recognized in the accompanying statements of operations for the nine months ended September 30:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| <br>**September 30, 2021** | **Stock**<br>**options –**<br>**employees** | **Stock**<br>**options –**<br>**nonemployees** | **Common stock**<br>**warrants –**<br>**employees** | **Common stock**<br>**warrants –**<br>**nonemployees** |<br>**Total** |
| Research & Development | 148 |  |  |  | 148 |
| General & Administrative | 346 |  |  |  | 346 |
|  | 494 |  |  |  | 494 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| <br>**September 30, 2022** | **Stock**<br> **options –**<br>**employees** | **Stock**<br> **options –**<br>**nonemployees** | **Common stock**<br> **warrants –**<br>**employees** | **Common stock**<br> **warrants –**<br>**nonemployees** | **Restricted stock awards**<br>**employees** |<br>**Total** |
| Research & Development | 269 | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- |  |  | 7 | 276 |
| General & Administrative | 4447 | 676 |  | 16 | 2409 | 7548 |
|  | 4716 | 676 |  | 16 | 2416 | 7824 |

---

The weighted average grant date fair value of options granted during the nine months ended September 30, 2022 and 2021 was $6.46 and $10.12, respectively. There were no options exercised during the nine months ended September 30, 2022 and 2021.

*Restricted Stock Units*

 

During the nine months ended September 30, 2022, the Company authorized the issuance of restricted stock units (RSU) totaling 2,200,000 shares of common stock of which 1,524,343 shares were granted in April 2022 at a price of $4.09. These time-based RSU's vest 50% on the one year anniversary of the grant date, with 1/8th of the award vesting each quarter thereafter. The RSU's will also vest upon a liquidity event, as defined in the RSU agreement as an offering, merger or acquisition. During the nine months ended September 30, 2022, there was $2,416 in stock based compensation recognized in the accompanying consolidated statement of operations related to the vesting of these RSU's.

As of September 30, 2022, 1,524,343 RSU's were both outstanding and unvested, and the total unrecognized stock compensation expense related to these awards was $3,819.

&nbsp;&nbsp;&nbsp;&nbsp;**(13)** **Net Income (Loss) Per Share** 

Net income (loss) per share is presented in conformity with the two-class method required for multiple classes of common stock and participating securities. The participating securities include Series A and Series A-1 convertible preferred stock, as the holders of these series of preferred stock are entitled to receive a noncumulative dividend in preference to the common stockholders in the event that a dividend is declared on common stock. No dividend was declared on common stock in 2022 and 2021; therefore, there was no allocation of earnings to these participating securities for the nine months ended September 30, 2022 and 2021. The holders of Series A and Series A-1 preferred stock do not have a contractual obligation to share in the losses. As such, net income (loss) for the nine months ended September 30, 2022 and September 30, 2021 were not allocated to these participating securities.

Basic income (loss) per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares such as stock options, warrants, convertible notes, and convertible preferred stock. Diluted income (loss) per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock options, warrants, convertible notes, and convertible preferred stock.

The following table sets forth the reconciliation of the numerator and denominator utilized in the computation of basic and diluted net income (loss) per share attributable to common stockholders during the periods presented:

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2021** |
| **Numerator** |  |  |
| Net income (loss) | $(17453) | $(13497) |
| Participating securities: |  |  |
| Income allocated to participating securities | - | - |
| Net income (loss) attributable to common stockholders, for basic and diluted | $(17453) | $(13497) |
| **Denominator** |  |  |
| Weighted-average common shares outstanding, for basic computation | 15076052 | 13848206 |
| Assumed exercise of warrants, net of shares assumed reacquired under the treasury stock method |  |  |
| Assumed conversion of preferred stock under the if-converted method | - | - |
| Weighted average shares outstanding for diluted computation | 15076052 | 13848206 |
| Net income(loss) per share attributable to common stockholders, basic and diluted | $(1.16) | (0.97) |

---

The following potentially dilutive shares of convertible preferred stock, convertible notes payable, and common stock options and warrants were not included in the calculation of diluted shares above as the effect would have been anti-dilutive:

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2021** |
| Convertible preferred stock | 5657219 | 5657219 |
| Convertible notes payable | 2254626 | 659674 |
| Common stock options and warrants | 1869867 | 1310831 |
| Total | 9781712 | 7627724 |

---

For the nine months ended September 30, 2022, common stock equivalents of 463,301 and 3,063,868, respectively, related to warrants and stock options were excluded from diluted earnings per share as the exercise price of these instruments was greater than the average price of the Company's common stock price throughout the period. For the nine months ended September 30, 2021, common stock equivalents of 330,523 and 2,441,188, respectively, related to warrants and stock options were excluded from diluted earnings per share as the exercise price of these instruments was greater than the average price of the Company's common stock price throughout the period.

&nbsp;&nbsp;&nbsp;&nbsp;**(14)** **Subsequent Events** 

The Company has evaluated subsequent events and transactions through January 3, 2023, the date the financial statements were available for issuance and identified the below transactions that need to be reported.

In October, November, and December 2022, the Company issued five convertible notes to shareholders totaling $600 with maturity dates of February 15, 2023. These notes include Put Features for subscribers, the terms of which are dependent upon the amount invested. At maturity the principal and accrued interest of the notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00, in any case rounded down to the nearest whole share of the common stock as of the date of conversion. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the notes are outstanding prior to the Maturity Date, the Holder may (a) elect to convert the outstanding principal and accrued interest into Equity Securities. Conversion price equal to the highest cash price paid for the Nonqualified Equity Securities or (b) Convertible into common stock at a conversion price equal to the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion.

In October 2022, the Company entered into a new deferral agreement with two former employees and founders of the Company. The agreement defers the full payment of severance amounts until January 3, 2023 and continues the current scheduled payment obligations under those deferral agreements until December 29, 2022.

In December 2022, the Company issued two unsecured promissory notes to shareholders totaling $307 with a maturity date of December 2023. The note earns interest at 8% per annum and allows for early repayment.

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Shareholders and Board of Directors of

EMulate Therapeutics, Inc

***Opinion on the Financial Statements***

We have audited the accompanying consolidated balance sheets of EMulate Therapeutics, Inc. and its subsidiaries (collectively, the "Company") as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

***Going Concern Matter***

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

***Basis for Opinion***

 ****

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

*/s/ MaloneBailey, LLP*

<u>www.malonebailey.com</u>

We have served as the Company's auditor since 2020.

Houston, Texas

May 6, 2022

**EMULATE THERAPEUTICS, INC.**

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2021** | **2020** |
| **Assets** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $345 | $117 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets |  | 166 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 345 | 283 |
| Investments | 6688 | 14777 |
| Property and equipment, net | 130 | 282 |
| Capital lease financing, net | 374 | 601 |
| Restricted cash | 200 | 200 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $7737 | $16143 |
| **Liabilities and Stockholders' Deficit** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $2755 | $2820 |
| &nbsp;&nbsp;&nbsp;Accrued and other current liabilities | 14937 | 14710 |
| &nbsp;&nbsp;&nbsp;Promissory notes payable due to related parties, net of debt discount | 576 | 1662 |
| &nbsp;&nbsp;&nbsp;Current convertible notes payable | 4974 | 3037 |
| &nbsp;&nbsp;&nbsp;Current convertible notes due to related parties, net of debt discount | 2503 | 952 |
| &nbsp;&nbsp;&nbsp;Current portion of capital lease obligations | 198 | 210 |
| &nbsp;&nbsp;&nbsp;SBA promissory notes | 9 |  |
| &nbsp;&nbsp;&nbsp;Deferred compensation and postemployment benefits, current portion | 13320 | 11964 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 39272 | 35355 |
| Deferred compensation and postemployment benefits, net of current portion | 14577 | 14369 |
| Convertible notes payable, net of debt discount | 201 |  |
| Convertible notes due to related parties | 30 | 100 |
| Promissory notes payable | 115 | 194 |
| SBA promissory notes, net of current | 465 | 474 |
| Long term portion of capital lease obligations, net of current | 226 | 440 |
| Other liabilities |  | 75 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 54886 | 51007 |
| Commitments and contingencies |  |  |
| Stockholders' deficit: |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock, $0.001 par value. Authorized 10,000,000 shares: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series A convertible preferred stock. Authorized, 1,817,333 shares; issued and outstanding, 1,817,225 shares at December 31, 2021 and December 31, 2020 | 1236 | 1236 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Series A-1 convertible preferred stock. Authorized, 2,400,000 shares; issued and outstanding, 2,399,997 shares at December 31, 2021 and December 31, 2020 | 18000 | 18000 |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value. Authorized, 40,000,000 shares; issued and outstanding, 14,752,697 and 13,738,293 shares at December 31, 2021 and December 31, 2020, respectively | 15 | 14 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 102109 | 92303 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (168509) | (146417) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' deficit | (47149) | (34864) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' deficit | $7737 | $16143 |

---

The accompanying footnotes are integral to the Consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Operations

(In thousands, except share and per share amounts)

---

| | | |
|:---|:---|:---|
|  | **Years ended December 31,** | **Years ended December 31,** |
|  | **2021** | **2020** |
| Royalty revenue, related party | $221 | $113 |
| License revenue, related party | 20 |  |
| Operating expenses |  |  |
| &nbsp;&nbsp;&nbsp;Research and development | 1536 | 2064 |
| &nbsp;&nbsp;&nbsp;General and administrative | 10033 | 8685 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 11569 | 10749 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from operations | (11328) | (10636) |
| Other income (expense): |  |  |
| &nbsp;&nbsp;&nbsp;Unrealized gain (loss) on investment | (8089) | 14777 |
| &nbsp;&nbsp;&nbsp;Other income | 318 |  |
| &nbsp;&nbsp;&nbsp;Interest expense | (2993) | (1521) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other income (expense) | (10764) | 13256 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) | $(22092) | $2620 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Net loss attributable to noncontrolling interest |  | (837) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) attributable to EMulate Therapeutics | $(22092) | $3457 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) per share, basic | $(1.61) | $0.26 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) loss per share, diluted | $(1.61) | $0.18 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weighted-average common shares outstanding, basic | 13744737 | 13479379 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weighted-average common shares outstanding, diluted | 13744737 | 19692595 |

---

The accompanying footnotes are integral to the Consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Changes in Stockholders' Deficit<br>

(In thousands, except share and per share amounts)

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Series A convertible** | **Series A convertible** | **Series A-1 convertible** | **Series A-1 convertible** | | | | | | |
|  | **preferred stock** | **preferred stock** | **preferred stock** | **preferred stock** | **Common stock** | **Common stock** | | | | |
|  | **Shares** | **Amount** | **Shares** | **Amount** | **Shares** | **Amount** |<br>**Additional**<br>**paid-in capital** |<br>**Accumulated<br> deficit** |<br>**Noncontrolling<br> Interest** |<br>**Total**<br>**stockholders'<br> deficit** |
| Balance, December 31, 2019 | 1817225 | $1236 | 2399997 | $18000 | 13650116 | $14 | $87800 | $(149874) | $108 | $(42716) |
| Proceeds from exercise of common stock options and warrants |  |  |  |  | 240 |  | 3 |  |  | 3 |
| Conversion of convertible note payables and |  |  |  |  | 87937 |  | 898 |  |  | 898 |
| accrued interest to common stock |  |  |  |  |  |  |  |  |  |  |
| Stock-based compensation |  |  |  |  |  |  | 3602 |  |  | 3602 |
| Deconsolidation of Hapbee Technologies, Inc. |  |  |  |  |  |  |  |  | 729 | 729 |
| Net Income |  |  |  |  |  |  |  | 3457 | (837) | 2620 |
| Balance, December 31, 2020 | 1817225 | $1236 | 2399997 | $18000 | 13738293 | $14 | $92303 | $(146417) | $— | $(34864) |
| Proceeds from exercise of common stock warrants |  |  |  |  | 965306 | 1 | 1637 |  |  | 1638 |
| Exercise of common stock warrants to reduce promissory notes payable |  |  |  |  | 49098 |  | 102 |  |  | 102 |
| Warrant inducement |  |  |  |  |  |  | 831 |  |  | 831 |
| Stock-based compensation |  |  |  |  |  |  | 6038 |  |  | 6038 |
| Options granted to reduce accrued bonus and deferred compensation |  |  |  |  |  |  | 1198 |  |  | 1198 |
| Net loss |  |  |  |  |  |  |  | (22092) |  | (22092) |
| Balance, December 31, 2021 | 1817225 | $1236 | 2399997 | $18000 | 14752697 | $15 | $102109 | $(168509) | $— | $(47149) |

---

The accompanying footnotes are integral to the Consolidated financial statements

**EMULATE THERAPEUTICS, INC.**

Consolidated Statements of Cash Flows

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2021** | **2020** |
| Cash flows from operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Net income (loss) | $(22092) | $2620 |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized (gain) loss on investment | 8089 | (14777) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 379 | 389 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on disposal of property and equipment, net |  | 109 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 6038 | 3602 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of discounts on promissory notes payable and convertible notes | 665 | 205 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on PPP loan forgiveness | (314) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inducement expense | 831 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable and prepaid expenses | 166 | (28) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 2 | 485 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued and other current liabilities | 1192 | 1036 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred compensation and postemployment benefits | 1722 | 2341 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in operating activities | (3322) | (4018) |
| Cash flows from financing activities: |  |  |
| &nbsp;&nbsp;&nbsp;Payments on finance lease obligations | (226) | (162) |
| &nbsp;&nbsp;&nbsp;Borrowings on convertible notes payable | 1766 | 1950 |
| &nbsp;&nbsp;&nbsp;Borrowings on convertible notes payable - related party | 158 | 600 |
| &nbsp;&nbsp;&nbsp;Borrowings on promissory notes payable - related party | 185 |  |
| &nbsp;&nbsp;&nbsp;Repayment of promissory notes payable - related party | (285) | (100) |
| &nbsp;&nbsp;&nbsp;Proceeds from SBA PPP Loan | 314 | 474 |
| &nbsp;&nbsp;&nbsp;Proceeds from exercise of common stock warrants | 1638 | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities | 3550 | 2765 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net increase (decrease) in cash and restricted cash for the period | 228 | (1253) |
| Cash and restricted cash at beginning of the year | 317 | 1570 |
| Cash and restricted cash at end of the period | $545 | $317 |
| Supplemental Information |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $— | $70 |
| &nbsp;&nbsp;&nbsp;Cash paid for income taxes | $— | $— |
| Non-cash investing and financing activities |  |  |
| &nbsp;&nbsp;&nbsp;Options granted to reduce accrued bonus and deferred compensation | $1198 | $— |
| &nbsp;&nbsp;&nbsp;Conversion of convertible notes and accrued interest into common stock | $— | $898 |
| &nbsp;&nbsp;&nbsp;Conversion of promissory notes and accounts payable into convertible notes payable | $1029 | $— |
| &nbsp;&nbsp;&nbsp;Reduction in promissory notes for the exercise of warrants | $102 | $— |

---

The accompanying footnotes are integral to the Consolidated financial statements

**EMulate Therapeutics, Inc.**

**Notes to the Consolidated Financial Statements**

**December 31, 2021 and 2020**

**(in thousands, except for share and per share amounts)**

&nbsp;&nbsp;&nbsp;&nbsp;**(1)** **Nature of Business and Basis of Presentation** 

---

| | |
|:---|:---|
| ***(a)*** | ***Nature of Business*** |
|  | EMulate Therapeutics, Inc. (the "Company") was incorporated in Washington State on February 7, 2002. EMulate Therapeutics, Inc. is a clinical stage therapeutic device company developing noninvasive therapies for cancers and other serious diseases. |
|  | As of the date of this report, the Company was a holding company owning 100% of the following non-operating subsidiaries: Cellsana Therapeutics, Inc., Indolor Therapeutics, Inc., Mensana Therapeutics, Inc. and Zoesana Animal Health, Inc. |
|  | In March 2020, the World Health Organization declared COVID-19 a global pandemic. The global status of the COVID-19 pandemic continues to rapidly evolve. The extent to which the pandemic may impact our business and clinical studies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing guidelines, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease. The response to the pandemic may result in permanent changes to the environment in which we operate as described above in ways we are unable to predict. The COVID-19 pandemic may also have the effect of heightening many of the other risks described herein. |
|  | In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. The specific impact on our financial condition, results of operations and cash flows resulting from this conflict is not determinable as of the date hereof. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such action could result in conditions or circumstances that have a material adverse effect on our financial condition, results of operations, and cash flows. |
| ***(b)*** | ***Basis of Presentation*** |
|  | The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). |
| ***(c)*** | ***Principles of Consolidation*** |
|  | The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of December 31, 2021 and 2020. Significant intercompany balance and transaction have been eliminated. |
|  | In January 2019, the Company formed Hapbee, formerly Elevation Technologies, Inc., in order to utilize the Company's technology for non-regulated applications. Hapbee was incorporated in Canada and is a Canadian operation. Multiple license agreements, as amended, were entered into between the Company and Hapbee for use of the technology. |
|  | Upon formation, Hapbee was a wholly-owned subsidiary of the Company. The Board of Directors of Hapbee consisted of three members, two of whom are also members of our Board. Subsequent to the formation, Hapbee initiated a round of financing offering 5 million shares of Hapbee common stock at $1.00 per share. |
|  | While the Company held 48% of the outstanding common shares of Hapbee as of December 31, 2019, or 6,250,000 shares, the Company consolidated Hapbee as the Company was determined to be the primary beneficiary under ASC 810, *Consolidation*, through its holding 2 of Hapbee's 3 board seats, with a noncontrolling interest recorded by the Company for the interest in Hapbee held by third parties. |
|  | According to ASC 810, the Company has determined that application of the variable interest entity (VIE) is accorded to the Company's ownership interest in Hapbee, as the Company holds a power component over Hapbee through Board Members, and as the Company has the right of benefits, but is not subject to loss absorption obligations, the Company would be deemed to having a controlling interest. |

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---

| |
|:---|
| On June 15, 2020, the shareholders of Hapbee elected a new board consisting of six members, of which only two are also members of our Board. As a result, the Company no longer holds a majority of the board seats of Hapbee and therefore no longer the primary beneficiary. Under ASC 810, this resulted in the Company deconsolidating Hapbee. Through deconsolidation, the Company recorded $262 of net assets in Hapbee as a gain on the income statement. Additionally, the deconsolidation resulted in the removal of the non-controlling interest totaling $729 as of June 15, 2020. |
| As the Company still held 25% as of December 31, 2021 and 46% as of December 31, 2020 of the outstanding shares of Hapbee after deconsolidation and therefore is presumed to have significant influence, the investment in Hapbee is accounted for using the fair value election option as an equity method investment. See Note (4). |
| The accompanying consolidated financial statements include Cellsana Therapeutics, Inc., Mensana Therapeutics, Inc., Indolor Therapeutics, Inc. and Zoesana Animal Health, Inc., which are wholly-owned subsidiaries of the Company. These entities are currently non-operating and do not have any operations, assets, liabilities, or contributed equity. |

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 ****

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| | |
|:---|:---|
| ***(d)*** | ***Going Concern and Liquidity*** |
|  | As of December 31, 2021 the Company had cash and restricted cash of $545, insufficient revenue to meet its ongoing operating expenses, liabilities of $54,886 accumulated losses of $168,509, and a shareholders' deficit of $47,149. The Company has generated minimal revenues through its license agreements with Hapbee Technologies. The Company received $221 in royalty revenues from a related party during the year ended December 31, 2021. |
|  | The financial statements for the year ended December 31, 2021 have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Company's ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans from directors and, or, the sale of common stock, and seeking licensing opportunities for its technology in medical and non-medical industries. There is no assurance that this series of events will be satisfactorily completed. |
|  | The financial statements do not include any adjustments related to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern. |

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&nbsp;&nbsp;&nbsp;&nbsp;**(2)** **Summary of Significant Accounting Policies** 

 ****

---

| | |
|:---|:---|
| ***(a)*** | ***Use of Estimates*** |
|  | The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the estimated fair value of the Company's common stock; the recoverability of deferred tax assets; stock based compensation to employees as well as equity based transactions with nonemployees; and other contingencies. |
| ***(b)*** | ***Cash Equivalents and Restricted Cash*** |
|  | The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with a maturity of three months or less at the date of purchase. There were no cash equivalents held by the Company at December 31, 2021 and December 31, 2020. |
|  | The following table provides a reconciliation of cash and restricted cash reported within the accompanying balance sheets that sum to the total of the same such amounts shown in the accompanying statements of cash flows: |

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---

| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
| Cash | $345 | $117 |
| Restricted cash included in other long-term assets | 200 | 200 |
| &nbsp;&nbsp;&nbsp;Total cash and restricted cash shown in the consolidated statements of cash flows | $545 | $317 |

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Restricted cash included in other long term assets on the accompanying balance sheets represents a deposit placed in a bank account controlled by the Company whose use is restricted based on the terms of the Company's operating lease for its headquarter facilities in Bellevue, Washington as the lessor required a reserve account be established.

 ****

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| | |
|:---|:---|
| ***(c)*** | ***Concentration of Credit Risk*** |
|  | The Company places the majority of its cash in one financial institution. At times, cash may be in excess of the FDIC insurance limit. To date, there have been no losses in such accounts. |
| ***(d)*** | ***Property and Equipment*** |
|  | Property and equipment are recorded at cost, less accumulated depreciation and amortization. Equipment originally acquired under capital leases is stated at the present value of future minimum lease payments at inception of the lease less accumulated amortization. Equipment held under capital leases is amortized on a straight line basis over the shorter of the lease term or estimated useful life of the asset. Leasehold improvements are recorded at cost and are depreciated over the shorter of the remaining lease term or their estimated useful lives. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the financial statements, and any resulting gain or loss is recognized as a component of research and development or general and administrative expenses in the statements of operations for the period depending on the nature of the equipment. The majority of the Company's equipment is used for research and development. |
|  | Depreciation and amortization is computed using the straight line method over the estimated useful lives of the assets as follows: |

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---

| | |
|:---|:---|
| Laboratory and office equipment, furniture and fixtures | 5 to 10 years |
| Leasehold improvements | Shorter of estimated improvement life or lease term |
| Software and electronic equipment | 3 years |

---

---

| | |
|:---|:---|
|  | Long lived assets, such as equipment, are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In 2020, the Company sold equipment that was not being used and determined there was obsolete equipment, which was written off. The Company incurred a loss of $109 due to these activities. No other triggering events were identified during the years ended December 31, 2021 and December 31, 2020. |
| ***(e)*** | ***Capital Leases*** |
|  | The Company leases certain equipment under capital leases. Capital leases are recorded at the present value of the future minimum lease payments at the inception of the lease. As of December 31, 2021 and December 31, 2020 there was $424 and $650 in total capital lease liability, and $374 and $601 in capital lease financing assets, respectively. |
| ***(f)*** | ***Income Taxes*** |
|  | Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Authoritative guidance requires the Company to classify all deferred tax liabilities and assets as noncurrent in the financial statements. |
|  | The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. At December 31, 2021 and December 31, 2020, the Company has recorded a full valuation allowance against the net deferred tax assets related to temporary differences and operating losses because there is significant uncertainty as to the realizability of the deferred tax assets. |

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| | |
|:---|:---|
|  | The Company follows authoritative guidance in accounting for uncertain tax positions and has evaluated its tax positions taken for all open tax years. The Company is subject to income tax examination by federal tax authorities for tax years beginning in 2017; however, to the extent allowed by law, the tax authorities may have the right to examine prior periods where NOLs and tax credits were generated and carried forward, make adjustments up to the amount of the carryforwards. |
| ***(g)*** | ***Investment in Hapbee Technologies, Inc.*** The Company accounts for investments in less than 50% owned and more than 20% owned entities using the equity method of accounting. In accordance with ASC 825-10-15, the Company has elected the fair value option for these investments, with unrealized holding gains and losses during the period included in earnings. |
| ***(h)*** | ***Revenue Recognition*** |
|  | The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, *Revenue from Contracts with Customers,* adopted on January 1, 2018 using the modified retrospective method. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Central to the revenue recognition framework is a five-step revenue recognition model that requires the Company to: |

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1) Identify the contract,

2) Identify the performance obligations of the contract,

3) Determine the transaction price of the contract,

4) Allocate the transaction price to the performance obligations, and

5) Recognize revenue upon the Company satisfying each performance obligation

The Company's primary source of revenue is from royalty and distribution fees under license agreements. There are no performance obligations by the Company and the revenues for the years ended December 31, 2021 and 2020 were nominal.

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| | |
|:---|:---|
| ***(i)*** | ***General and Administrative Expenses*** |
|  | General and administrative expenses consist primarily of salaries, benefits, and related compensation costs, including stock based compensation, for employees not directly involved in research and development activities. General and administrative expenses also include an allocation of rent expense on leased facilities, as well as third party professional services, including any equity based transactions in exchange for services. |
| ***(j)*** | ***Operating Leases*** |
|  | Leases are reviewed by management based on the provisions of ASC 840 and examined to see if they are required to be categorized as an operating lease, a capital lease, or a financing transaction, see note 5(a). The Company leases office space under operating lease agreements. Minimum rent including tenant improvement allowances, rent holidays and rent escalation clauses on operating leases is expensed on a straight-line basis over the term of the lease. See Note 5(a) for more information on capital leases. |
| ***(k)*** |  ***Stock Based Compensation*** |
|  | The Company accounts for all employee and non-employee stock based compensation expense in accordance with the authoritative guidance included in ASC Topic 718, Compensation – Stock Based Compensation ("ASC 718"). Authoritative guidance requires that all stock based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. |

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Compensation expense recognized includes the estimated expense for stock options or common stock warrants granted to employees, founders and certain advisors of the Company, based on the grant date fair value estimated in accordance with the provisions of ASC 718, which includes use of the Black Scholes option pricing model to estimate grant date fair value, and is recognized on a straight line basis over the applicable vesting period for each award. Forfeitures are recorded for employee share based awards as incurred. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. See note 11 for more information on stock based compensation.

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| | |
|:---|:---|
| ***(l)*** | ***Deferred Financing Costs*** |
|  | Costs with respect to issuance of common stock, warrants, stock options or debt instruments by the Company are initially deferred and ultimately offset against the proceeds from such equity transactions or amortized as debt discount over the term of any debt funding if successful or expensed if the proposed equity or debt transaction is unsuccessful. |
| ***(m)*** | ***Research and Development Costs*** |
|  | Costs incurred in research and development activities are listed separately and expensed as incurred. |
| ***(n)*** | ***New Accounting Pronouncements*** |
|  | In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right of use asset for substantially all leases. This guidance is expected to be adopted beginning January 1, 2022. The Company analyzed the potential impact of the adoption and determined there was no material impact due to adoption. |
|  | On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation–Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor has paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The Company has adopted the guidance as of January 1, 2020 and there was no material impact due to the adoption. |
|  | In August 2020, the FASB issued ASU No. 2020-06, *Debt-Debt with Conversion Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity's Own Equity (Subtopic 815-40),* which simplifies the accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The Company early adopted ASU 2020-06 on January 1, 2021. Accordingly, the Company will no longer account for convertible notes with beneficial conversion features as separate liability and equity components. In accordance with ASU 2020-06, the Company will account for convertible notes as a single liability instrument. The adoption of ASU 2020-06 under the modified retrospective method had no impact on the Company's financial statements. |
|  | In May 2021, the FASB issued ASU 2021-04, *Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options*. Among other things, the amendments affect (i) the accounting for freestanding equity-classified written call option modifications or exchanges which remain equity classified after the modification or exchange and (ii) the recognition and measurement of earnings per share for certain modifications or exchanges. The Company early adopted ASU 2021-04 effective January 1, 2021 and applied it prospectively to applicable transactions, including the warrant inducement in Note 10 (d). The Company treated the inducement as a modification and recognized expense for the difference in fair value of the modified warrant and the fair value of the warrant immediately before modification. See Note 10 (d). |

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| | |
|:---|:---|
| **(3)** | **Financial Instruments** |
|  | Fair value measurements are determined based on the assumption that market participants would use in pricing an asset or liability. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels: |

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● Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3 – Significant unobservable inputs which reflect a reporting entity's own assumptions about the assumptions that market participants would use for pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted cash flow model.

The recorded amounts of financial instruments, including cash equivalents, accounts payable, and promissory notes approximate their market values as of December 31, 2021 and December 31, 2020 due to the intended short-term maturities of these financial instruments.

&nbsp;&nbsp;&nbsp;&nbsp;**(4)** **Investment in Unconsolidated Affiliate** 

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| |
|:---|
| On June 15, 2020, the Company no longer holds a majority of the board seats of Hapbee and therefore was no longer the primary beneficiary (note 1c). Concurrently, Hapbee completed a forward stock split on a 1-for-4.5 basis resulting in the total common shares outstanding increasing to 60,547,500 and the Company then holding 28,125,000 common shares post-split (6,250,000 x 4.5). Hapbee amended its articles of incorporation to include multiple voting shares, of which the Company exchanged its 28,125,000 common shares for 281,250 multiple voting shares. The Company was required to remeasure it's retained interest in Hapbee at fair value and include any resulting adjustments as part of a gain or loss recognized on deconsolidation. The Company shares are 100% held by the Company and escrowed for a period of 36 months. The shares are released from escrow at a rate of 10% upon Listing Date, and 15% every six months thereafter over the period of 36 months. As of December 31, 2021, 112,500 multiple voting shares had been released from Escrow. The Company held 25% and 46% of the outstanding shares of Hapbee as of December 31, 2021 and December 31, 2020, respectively |
| The fair value of the Company's investment in Hapbee was determined using the market price of Hapbee's publicly-traded shares which are quoted on the TSXV. The quoted stock price at December 31, 2021 and December 31, 2020 was $0.24 and $0.53, respectively. The following table sets forth the change in fair value of the Company's investment in Hapbee for the years ended December 31, 2021 and 2020: |

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---

| | |
|:---|:---|
| Investment in Hapbee, as of December 31, 2019 | $- |
| Retained Interest June 15, 2020 | 6250 |
| Change in fair value | 8527 |
| Investment in Hapbee, 28,125,000 voting shares at December 31, 2020 | 14777 |
| Change in fair value | (8089) |
| Investment in Hapbee, 28,125,000 at December 31, 2021 | $6688 |

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&nbsp;&nbsp;&nbsp;&nbsp;**(5)** **Property and Equipment** 

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| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
| Laboratory and office equipment, furniture and fixtures | $994 | $994 |
| Capital Leased equipment | 1186 | 1186 |
| Leasehold improvements | 611 | 611 |
|  | 2791 | 2791 |
| Less accumulated depreciation and amortization | (2287) | (1908) |
|  | $504 | $883 |

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Depreciation and amortization expense on property and equipment was $379 and $389 for the years ended December 31, 2021 and December 31, 2020.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Capital Leases** 

The Company leases certain equipment under capital leases. Equipment financed and used for collateral include only the physical units; the software and signals loaded on the controller units are not included in the financing agreements. Capital Leases are recorded at the present value of the future minimum lease payments at the inception of the lease. Equipment capitalized under capital leases as of December 31, 2021 and December 31, 2020 totaled $1,186 and $1,186, respectively. Due to the coronavirus epidemic, the Company negotiated deferral agreements, extending lease terms for specific agreements 1-3 months in 2020. Future minimum lease payments under capital leases were as follows for the years ending December 31:

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| | |
|:---|:---|
| 2022 | $230 |
| 2023 | 179 |
| 2024 | 65 |
| Total minimum lease payments | 474 |
| Less imputed interest | 50 |
|  | $424 |

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&nbsp;&nbsp;&nbsp;&nbsp;**(6)** **Debt** 

The Company has issued debt to related and non-related parties of the Company. In connection with certain of these notes the Company also issued warrants with a legal life of seven years to purchase common stock. The Company recognizes the cost of warrants issued with the debt as debt discounts in the financial statements, which is recorded at the warrants relative fair value measured based on the grant date fair value of the award. The Company estimates the fair value of each warrant at the grant date by using the Black-Scholes option pricing model. See note 10 for assumptions used to value the warrants. The Company amortizes the discount under the effective interest method over the term of the respective note. The Company evaluated the promissory notes that were converted into convertible notes and determined there was no accounting impact as a result of the modifications. The Company analyzed the conversion options in the convertible note payables for derivative accounting consideration under ASC 815 and determined that the transactions do not qualify for derivative treatment.

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| | |
|:---|:---|
| Five-year Minimum Payments |  |
| 2022 | $8308 |
| 2023 | 100 |
| 2024 |  |
| 2025 and thereafter | 465 |
| Total | $8873 |

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(a) Notes payable due to related parties as of December 31, 2021 and December 31, 2020:

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| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2021** | **December 31,**<br>**2020** |
| In May 2016, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of October 2016 and an annual interest rate of 9%. In May 2021, June 2021 and August 2021, a total of $21 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is past due and payable upon demand as of December 31, 2021. | $79 | $100 |
| In August 2017, the Company issued an unsecured promissory note to a related party in the amount of $200 with a maturity date of August 2019 and an annual interest rate of 8%. The promissory note is past due and payable upon demand as of December 31, 2021. | 200 | 200 |
| In April 2018, the Company issued an unsecured promissory note to a related party in the amount of $500 with a maturity date of May 2018 and an annual interest rate of 9%. In connection with the note issuance the Company issued warrants to purchase 14,677 shares of common stock at an exercise price of $10.22. The Company recorded a discount related to the warrants in the amount of $84. In May 2018 the Company issued additional warrants to purchase 4,892 shares of common stock at an exercise price of $10.22. In July 2021, an agreement was signed converting the promissory note into a convertible note. Refer to table (c). |  | 500 |

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| | | |
|:---|:---|:---|
| In May 2018, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of May 2019 and an annual interest rate of 9%. In connection with the promissory note issuance the Company issued warrants to purchase 4,892 shares of common stock at an exercise price of $10.22. The Company recorded a discount related to the warrants in the amount of $25. The promissory note is past due and payable upon demand as of December 31, 2021. | 100 | 100 |
| In June 2018, the Company issued an unsecured promissory note to a related party in the amount of $150 with a maturity date of June 2019 and an annual interest rate of 9%. An amendment was signed, extending the maturity date to October 2020. In February 2021, an agreement was signed converting the promissory note into a convertible note. Refer to table (c) |  | 150 |
| In July 2018, the Company issued an unsecured promissory note to a related party in the amount of $100 with a maturity date of July 2019 and an annual interest rate of 9%. In August 2021, $3 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is past due and payable upon demand as of December 31, 2021. | 97 | 100 |
| In December 2018, the Company issued an unsecured promissory note to a related party in the amount of $155 with a maturity date of April 2020 and an annual interest rate of 9%. As per the monthly payment terms of the agreement were not paid and $30 is due as of December 31, 2020, and included in accounts payable. In February 2021, an agreement was signed converting the promissory note and accounts payable into a convertible note. Refer to table (c) |  | 112 |
| In October 2019, the Company issued an unsecured promissory note to a related party in the amount of $200 with a maturity date of October 2020 and an annual interest rate of 10%. In February 2021, an agreement was signed converting the promissory note into a convertible note. Refer to table (c) |  | 200 |
| In December 2019, the Company issued an unsecured promissory note to a related party in the amount of $300 with a maturity date of March 2020 and an annual interest rate of 10%. In October 2021, the remainder due on the promissory note was fully repaid. |  | 200 |
| In July 2021, the Company issued an unsecured promissory note to a related party in the amount of $150 with a maturity date due on demand but no earlier than September 30, 2021. A payment of $85 was applied to the principal in October 2021. The note earns interest at 10% and is outstanding as of December 31, 2021. | 65 |  |
| In July 2021, the Company issued an unsecured promissory note to a related party in the amount of $35 with a maturity date due on demand but no earlier than September 30, 2021. The note earns interest at 10% and is outstanding as of December 31, 2021. | 35 | - |
| Notes payable due to related parties | $576 | $1662 |
| **Total notes payable due to related parties** | $576 | $1662 |

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***(b) Note payable due as of* December 31*, 2021 and December 31, 2020:***

 ****

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| | | |
|:---|:---|:---|
|  | <br>**December 31,**<br>**2021** | <br>**December 31,**<br>**2020** |
| In December 2017 the Company entered into an unsecured promissory note for $150, bearing interest at a rate of 10% per annum, with a maturity date of July 2022. As per the monthly payment terms of the agreement which were not paid and $34 is due as of December 31, 2021 and 2020 and included in accounts payable. In August 2021, $78 was reduced for payment of warrants exercised in lieu of cash proceeds (see note 10(a)). The promissory note is outstanding as of December 31, 2021. | $15 | $94 |
| In September 2018 the Company entered into an unsecured promissory note for $100, bearing interest at a rate of 10% per annum, with a maturity date of October 2023. The promissory note is outstanding as of December 31, 2021. | 100 | 100 |
| In May 2020, the Company entered into an unsecured loan agreement with Union Bank for $314 pursuant to the Paycheck Protection Program (PPP) with the Small Business Association. The loan has a maturity date of May 2022 and bears interest at 1% per annum. In September 2021, the Company received full forgiveness for the outstanding loan. The gain on the forgiveness is included in other income on the income statement. |  | 314 |
| In November 2020, the Company entered into an - secured loan agreement with the Small Business Association via the Economic Injury and Disaster Loan program (EIDL) for $160, bearing interest at a rate of 3.75% per annum, with a maturity date of November 2050. The loan has a general security interest in the Company's collateral. | 160 | 160 |
| In March 2021, the Company entered into an unsecured loan agreement with Union Bank for $314 pursuant to the Paycheck Protection Program (PPP) with the Small Business Association. The loan has a maturity date of March 2, 2026 and bears interest at 1% per annum. The PPP loan is eligible for forgiveness under the terms of the CARES Act, wherein each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. No assurance is provided that any Borrower will obtain forgiveness under any relevant PPP Loan in whole or in part. | 314 | - |
| **Total notes and SBA loan payables** | $589 | $668 |
| **Less notes and SBA loan payables – current** | (9) |  |
| **Total notes and SBA loan payables, net of current** | $580 | $668 |

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**(c) Convertible notes due as of December 31, 2021 and December 31, 2020:**

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| | | |
|:---|:---|:---|
|  | *<br>***December 31*,*** | <br>**December 31,** |
|  | **2021** | **2020** |
| During 2019, the Company opened a round of unsecured convertible note financing. The round has a Maturity Date of September 6, 2021 with an interest component of 10%. On September 3, 2021 the Board extended the Maturity Date to the earlier of a) February 28, 2022 b) upon the consummation of deemed liquidation. The round includes Put Features for subscribers, the terms of which are dependent upon the amount invested. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00, in any case rounded down to the nearest whole share of the common stock as of the date of conversion. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the Notes are outstanding prior to the Maturity Date, the Holder may (a) elect to convert the outstanding principal and accrued interest into Equity Securities. Conversion price equal to the highest cash price paid for the Nonqualified Equity Securities or (b) Convertible into common stock at a conversion price equal to the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion |  |  |
| Included in this round, the Company issued an unsecured convertible note in September 2019 in the amount of $250 with a maturity date of the earlier of February 2022 or consummation of a deemed liquidation and an annual interest rate of 10% to a related party. In connection with the convertible note issuance the Company issued warrants to purchase 12,916 shares of common stock at an exercise price of $10.22. The Company recorded a discount related to the warrants in the amount of $65. The Company also recognized a beneficial conversion feature of $64 that will be amortized over the life of the note using the effective interest method. The convertible note is outstanding as of December 31, 2021. | $250 | $250 |
| Included in the round, the Company issued 32 unsecured convertible notes between January 2020 - December 2020 for an aggregate amount of $1,950. Between January 2021 – December 2021, the Company issued 22 unsecured convertible notes for an aggregate total of $1,766. All convertible notes have a maturity date of the earlier of February 2022 or consummation of a Deemed Liquidation and an annual interest rate of 10%, except for two notes totaling $201 due in August 2023. In connection with the 2020 convertible note the Company issued warrants to purchase 25,000 shares of common stock at an exercise price of $10.22. The warrants were offered as a subscription incentive. The Company recorded a discount related to the warrants in the amount of $3. The Company also recognized a beneficial conversion feature of $3 that will be amortized over the life of the note using the effective interest method. Beneficial conversion feature of $18 was in excess of the convertible debt proceeds and therefore was not recognized. The number of warrants granted to each convertible note holder was dependent upon the principal amount of the investor's note. Total funds in convertible notes issued during the year ended December 31, 2021 and December 31, 2020 were $1,766 and $1,950, respectively. | 5050 | 3284 |
| In June 2019, the Company issued an unsecured convertible note to a related party in the amount of $500 with a maturity date of the earlier of February 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The conversion price per share is $9.00. In connection with the convertible note issuance the Company issued warrants to purchase 27,777 shares of common stock at an exercise price of $9.00. The Company recorded a discount related to the warrants in the amount of $139. The Company also recognized a beneficial conversion feature of $139 that will be amortized over the life of the note using the effective interest method. In the event the Note has not been repaid or converted prior to the Maturity Date, then upon the Maturity Date, the outstanding principal and accrued interest shall automatically convert into that number of shares of Common Stock determined by dividing the outstanding principal and accrued interest by the Conversion Price, $9.00. The convertible note is outstanding as of December 31, 2021. | 500 | 500 |
| In January 2020, the Company issued an unsecured convertible note to a related party in the amount of $250 with a maturity date earlier of January 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The convertible note is outstanding as of December 31, 2021. On September 3, 2021 the Board extended the Maturity Date to February 28, 2022. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of (A) common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. | 250 | 250 |

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| | |
|:---|:---|
| In September 2020, the Company issued an unsecured convertible note to a related party in the amount of $250 with a maturity date of September 2022 and an annual interest rate of 10%. The convertible note is outstanding as of December 31, 2021 At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00.If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion | 250.0 |
| In August 2018, the Company issued two unsecured convertible notes in the amount of $63 each with a maturity date of August 2020 and an annual interest rate of 10% The notes have a conversion price equal to the lesser of (1) by dividing the outstanding principal and accrued interest by a conversion price equal to the fair market value per share of Common Stock as of the date of conversion as determined by the higher of the price per share for the most recent (A) sale of common stock to a third party investor by the Company on or prior to date of conversion, or (B) grant of options to an employee or service provider, or (2) $10.22 per share. Upon the maturity date, any outstanding principal and accrued interest shall automatically convert to shares of common stock determined by the conversion price. The convertible notes are outstanding as of December 31, 2021. | 125.0 |
| In November 2020, the Company issued an unsecured convertible note to a related party in the amount of $100 with a maturity date of December 2022 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of December 31, 2021. | 100.0 |

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| | |
|:---|:---|
| In February 2021, the Company issued an unsecured convertible note to a related party of $150 which was converted from a promissory note (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note is outstanding as of December 31, 2021. | 150.0 |
| In February 2021, the Company issued an unsecured convertible note to a related party of $142 which was converted from a $112 promissory note and $30 accounts payable (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note is outstanding as of December 31, 2021. | 142.0 |
| In February 2021, the Company issued an unsecured convertible note to a related party of $228 which was converted from a $200 promissory note and additional $28 principal (Refer to table (a)), with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 10% per annum. Prior to maturity, the related party may elect the conversion upon a Company Financing or as a Voluntary Conversion wherein the conversion price would be equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. | 228.0 |
| In January 2021, $38 in accounts payables due to a related party was transferred into an unsecured convertible note, with a maturity of December 2022, or upon a deemed liquidation and an interest rate of 3% per annum. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 100% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. | 38.0 |

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| | | |
|:---|:---|:---|
| In February 2021, the Company issued an unsecured convertible note to a related party in the amount of $30 with a maturity date of February 2023 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $9.00. At any time the note is outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of a sale of common stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of December 31, 2021. | 30 |  |
| In July 2021, the Company issued an unsecured convertible note to a related party in the amount of $600, of which $500 was converted from a promissory note (Refer to table (a)), with a maturity date of December 2022 or upon the consummation of a deemed liquidation. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time this Note is outstanding prior to the Maturity by a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note earns interest at 10% and is outstanding as of December 31, 2021. | 600 | - |
| Total convertible notes payable | $7713 | $4759 |
| Less discounts | (5) | (670) |
| Less current portion of convertible notes to third parties | (4974) | (3037) |
| Less current portion of convertible notes to related parties | (2503) | (952) |
| **Total convertible note payables, net of current portion** | $231 | $100 |

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&nbsp;&nbsp;&nbsp;&nbsp;**(7)** **Deferred Compensation and Postemployment Benefits** 

As of December 31, 2021 and December 31, 2020, the Company had accrued for the following on the accompanying balance sheets:

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| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
| Deferred Executive Compensation | $6582 | $5319 |
| Deferred compensation, current |  |  |
| Postemployment benefits, current | 6738 | 6645 |
| &nbsp;&nbsp;&nbsp;Total deferred compensation and postemployment benefits, current | 13320 | 11964 |
| Deferred compensation, noncurrent | 9100 | 9100 |
| Postemployment benefits, noncurrent | 5477 | 5269 |
| &nbsp;&nbsp;&nbsp;Total deferred compensation and postemployment benefits | $27897 | $26333 |

---

As of December 31, 2021, the Company scheduled payments of the balances of deferred compensation and postemployment benefits over the following years:

---

| | | |
|:---|:---|:---|
|  | **Deferred Compensation** | **Post-employment benefits** |
| 2022 | $6582 | $6738 |
| 2022 |  |  |
| 2023 |  |  |
| 2024 |  |  |
| Thereafter | 9100 | 5477 |
| &nbsp;&nbsp;&nbsp;Total | $15682 | $12215 |

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**Deferred Compensation**

The Company has established deferred cash compensation arrangements with certain of the Company's current or former executive officers through individual employment or related severance agreements. Authoritative guidance for compensation indicates that if elements of both current and future services are present in a deferred compensation plan, only the portion applicable to the current services shall be accrued. The Company had accrued a total of $15,682 and $14,419 as of December 31, 2021 and December 31, 2020, respectively, relating to these deferred compensation arrangements. The majority of the accrued balance at December 31, 2021 and December 31, 2020 is associated with services provided by participants prior to December 31, 2014, when the Company was in its early clinical development stage. Deferred compensation is not discounted because at the end of each reporting period, the aggregate amount of deferred compensation accrued equals the then present value of the benefit expected to be paid to the participants, as required by authoritative guidance.

Payment of accrued deferred compensation amounts relating to current or past services is contingent on the Company having sufficient funds to pay deferred compensation amounts such that payment does not jeopardize the Company's ability to continue as a going concern, as determined by our Board, and as outlined in the respective employment or related severance agreements with each participant. At such time as the Company may have sufficient liquid assets in the future to pay accrued deferred compensation and, such that payment of deferred compensation would not jeopardize the Company's ability to continue as a going concern, it is expected that these liabilities will be settled. Amounts that the Company anticipates will be settled within one year of December 31, 2021 primarily relating to the terms outlined in specific severance agreements with former executive officers are classified as current liabilities, with the remaining amounts classified as long-term liabilities on the accompanying balance sheets.

Payments of the noncurrent deferred compensation balance outstanding at December 31, 2021 are contingent on the Company having sufficient funds as disclosed.

 

**Postemployment Benefits**

On September 30, 2016 the Company entered into employment agreements with several key executive employees. The agreements were established to allow them to be terminated at any time by the Company with or without cause upon written notice to the employee or by the employee for good reason or otherwise. The agreements represent an ongoing termination benefit arrangement, which entitles the employees to nonretirement postemployment benefits, such as wages and other benefits, from date of termination, whether voluntary on the part of the employee or involuntary (the Company has an obligation to make payments in either case), and also provide for payments to be made under certain conditions related to a change in control of the Company. Pursuant to authoritative guidance, an employer that provides contractual termination benefits shall recognize a liability when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability shall include the amount of any lump-sum payments and the present value of any expected future payments.

The Company has recorded accruals for nonretirement postemployment benefits based on annual salaries and bonuses that would be paid in the event of voluntary terminations by key executive employees as of December 31, 2021 and December 31, 2020 totaling $12,215 and $11,914, respectively. The liabilities have not been discounted. On August 1, 2017 payments under the original agreement were not made. Beginning on March 5, 2018 and through June 1, 2020, the Company and key executives entered into multiple deferral agreements primarily through an arbitration process that resulted in adjustments to scheduled payments of principal and interest (12% on outstanding balances). The deferral agreements were triggered due to non-payment. Nominal amounts of principal were paid during the years ended December 31, 2021 and December 31, 2020. In accordance with the Deferral Agreement on June 1, 2020, all payments to the two former executive employees were retroactively applied to interest and not principal. Amounts that the Company anticipates will be settled within one year of December 31, 2021, primarily relating to the terms outlined in specific severance agreements with former executive officers, are classified as current liabilities, with the remaining amounts classified as long-term liabilities on the accompanying balance sheets. Payments to be made under these agreements are not due until one year after the effective termination date of the employees entitled to these benefits and are settled over a period of time not to exceed three years from the effective termination dates via lump sum payments.

The Company has not recorded any accruals for postemployment benefits that would be payable in the event of involuntary terminations because such amounts are not considered probable as of December 31, 2021. The Company has also not recorded any accruals for postemployment benefits for medical coverage to be paid in some circumstances up to five years after the effective termination dates of certain key executive employees as such amounts are not currently probable and cannot be estimated as of December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;**(8)** **Commitments and Contingencies** 

The Company has or is subject to the following commitments and contingencies:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(a)***  ***Employment Agreements*** 

 ****

In addition to the terms of the employment agreements described in note 7 associated with deferred compensation and postemployment benefits, executive employment agreements with key executives outline compensation to be paid in exchange for services, including salaries, annual incentive bonuses and stock option grants. As of December 31, 2021, an executive officer of the Company has earned $12,560 in four of four guaranteed annual bonuses payable in years 2017 through 2020, and elected to defer those amounts due to be paid. The Company also accrued $520 in 2021 and 2020 for bonus arrangements with certain employees relating to the successful licensing of its intellectual property and other key milestones in the future. A balance of $13,380 and $13,900 owed to four individuals was included in accrued and other current liabilities on the accompanying balance sheets at December 31, 2021 and December 31, 2020, respectively.

In November 2021, the Company settled outstanding bonuses and deferred compensation of $1,198 with certain employees, granting them options totaling $2,350 in aggregate, see note 11(a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(b)***  ***CEO Common Stock Bonus in the Event of an Offering*** 

The employment agreement with the Company's CEO includes a potential one time equity bonus to be paid by granting a variable number of shares of common stock in the event of a future offering of the Company's stock. To receive the equity bonus the CEO must be employed at the time of an offering, and the Company's initial market capitalization at the time of the offering must greater than or equal to $1 billion for any equity bonus to be paid. The ultimate number of shares to be granted is also dependent on several factors including the CEO's total annual compensation at the time as well as the average total annual compensation at that time of three CEOs of other publicly traded, similarly situated biotechnology companies with equivalent market capitalizations. The number of shares to be received by the CEO increases as a factor of his total annual compensation depending on the size of the initial offering market capitalization, up to a market capitalization of at least $5 billion.

The potential bonus to be paid in a variable number of shares is treated as a cash bonus award to be settled in shares of the Company's stock (a share-settled liability) subject to the authoritative guidance in ASC Topic 450, *Contingencies*, and ASC Topic 710, *Compensation*. No compensation expense or accrual will be recognized in the Company's financial statements for this cash bonus award until and if an offering meeting all of the conditions outlined in the employment agreement triggering the payment of this share-settled liability occurs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(c)***  ***Leases*** 

The Company is party to lease agreements for headquarters and research facilities located in Seattle, Washington that are classified as operating leases. The Company has irrevocable standby letters of credit with a bank issued to the Company's landlord. The letter of credit is secured by $200 in cash funds controlled by the Company and is classified as other long term assets on the accompanying balance sheets as of December 31, 2021 and 2020. The letter of credit is renewable annually and expired on January 31, 2022.

Rental expense for facilities under operating leases was $399 and $523 for the years ended December 31, 2021 and December 31, 2020, respectively. Due to the coronavirus epidemic, the Company negotiated deferral agreements with two leaseholders in 2020. The accrued liability of $270 due the two leaseholders is current and outstanding as of December 31, 2021 and reported within accounts payable in the balance sheet.

Future minimum lease payments are as follows for the years ending December 31:

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| | |
|:---|:---|
|  | **Operating leases** |
| 2022 | 206 |
| 2023 | 229 |
| 2024 | 198 |
| &nbsp;&nbsp;&nbsp;Total | $633 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(d)***  ***Collaborative Agreements*** 

A collaborative arrangement is a contractual arrangement that involves a joint operating activity. A contract with a collaborator or a partner is in the scope of ASC 606 if the counterparty meets the definition of a customer for part or all of the arrangement. If the counterparty is not considered a customer, these arrangements follow the guidance in ASC Topic 808, Collaborative Arrangements, or other authoritative literature. Arrangements accounted for under ASC 808 can involve two or more parties who are considered collaborators but not customers, and are both: (i) active participants in the activity; and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity.

The Company enters into collaborative arrangements from time to time for the research and development, manufacture and/or commercialization of its products and/or product candidates.

To date the Company's collaborative arrangements have included any development and commercial performance milestone payments, cost sharing, royalty payments and/or profit sharing. The Company's collaboration agreements to date have been performed with no guarantee of either technological or commercial success and each is unique in nature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(e)***  ***Exclusive License Agreement*** 

In 2017 the Company entered into an exclusive patent license agreement for use of the Company's technology in a specific territory and in a specific field by a third party. The Company received a $3,000 up-front payment under the agreement. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. The agreement also included further payments the Company could receive contingent on meeting certain milestones. Under the agreement the Company can receive royalties for use of the patents in certain products sold. There were no revenues in 2021 and 2020.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(f)***  ***Exclusive Distribution Agreement*** 

In 2019 the Company entered into an exclusive distribution agreement with a seven-year term and an automatic annual renewal after the initial term, unless terminated prior to renewal, where the Company can earn revenues as a supplier for the third party's exclusive distribution of the licensed technology in the respective territory. The agreement included an up-front payment to the Company of $50 with further payments contingent on meeting certain milestones. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. There were no revenues during the years ending December 31, 2021 or 2020.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(g)***  ***Exclusive License Agreement*** 

In 2019, the Company entered into multiple exclusive license agreements with their former subsidiary, Hapbee for use of the technology. The license agreements required upfront payments of $1,530 and royalties based on Hapbee sales of product utilizing the licensed technology. Upfront fees are non-refundable and non-cancellable. The Company evaluated the license agreement under ASC 606-10-55-62 and concluded that neither of the criteria exist. During 2020, the Company received $702 from Hapbee Technologies, the remainder due from the $1,530 upfront license agreement fee, signed in 2019. The license agreements have an initial term of twenty years.

In 2021, the Company entered into two exclusive license agreements with Hapbee for the use of the technology. The license agreements required an upfront payment of $10 each and royalties based on Hapbee sales of product utilizing the licensed technology. The license agreements have an initial term of twenty years. The $20 in revenues was included in license revenue on the accompanying statements of operations at December 31, 2021.

*Royalty Revenues*

 

In accordance with two licensing agreements with a related party, the Company has collected royalty revenues in the amount of $221 and $113, during the years ended December 31, 2021 and December 31, 2020, respectively.

 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(h)***  ***Consulting Agreements*** 

In 2016, the Company entered into a consulting agreement with a director of the Company for the performance of services related to ongoing research and intellectual property development. During the years ended December 31, 2021 and December 31, 2020, the Company paid $17 and $45 in accordance with this agreement, respectively. A balance of $89 and $83 owed to the director was included in accounts payable on the accompanying balance sheet at December 31, 2021 and December 31, 2020, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(i)***  ***Legal Matters and Arbitration*** 

The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its financial position, results of operations or cash flows.

&nbsp;&nbsp;&nbsp;&nbsp;**(9)** **Convertible Preferred Stock** 

The Company's amended articles of incorporation provide that it has authorized for issuance 10,000,000 shares of classes of preferred stock, with a par value of $0.001 per share. Shares of preferred stock may be issued in one or more series, with designations, preferences, and limitations established by our Board.

The Company's Series A convertible preferred stock consists of 1,817,333 authorized shares and cannot be increased or decreased. As of both December 31, 2021 and December 31, 2020 the Company had issued 1,817,225 of Series A convertible preferred stock in exchange for cash or the conversion of promissory notes.

The Series A-1 convertible preferred stock consists of 2,400,000 authorized shares and cannot be increased or decreased. As of both December 31, 2021 and December 31, 2020, the Company had issued approximately 2,400,000 shares of Series A-1 convertible preferred stock in exchange for cash or the conversion of promissory notes.

The Company did not incur any significant financing costs with respect to the issuance of its Series A or Series A-1 convertible preferred stock.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Authorized shares** | **Shares outstanding** | **Shares issuable upon conversion** | **Carrying amount** | **Liquidation preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 3066 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| &nbsp;&nbsp;&nbsp;Totals | 4217333 | 4217222 | 5657219 | 19236 | 21066 |

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **Authorized shares** | **Shares outstanding** | **Shares issuable upon conversion** | **Carrying amount** | **Liquidation preference** |
| Series A | 1817333 | 1817225 | 1817225 | 1236 | 2967 |
| Series A-1 | 2400000 | 2399997 | 3839994 | 18000 | 18000 |
| &nbsp;&nbsp;&nbsp;Totals | 4217333 | 4217222 | 5657219 | 19236 | 20967 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Ranking** 

Each series of preferred stock has liquidation and dissolution preferences over, and restricts the payment of dividends to, other equity securities of the Company including its common stock. The Series A-1 convertible preferred stock has liquidation and dissolution preferences over Series A convertible preferred stock and common stock. Series A convertible preferred stock has liquidation and dissolution preferences over common stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b)** **Dividends** 

Cash dividends are payable only when, as and if declared by the Company's board of directors on the Series A and Series A-1 convertible preferred stock. Any such dividends shall not be cumulative.

The Series A-1 convertible preferred stockholders hold a dividend preference over other holders. The Series A-1 convertible preferred stock dividend preference gives the Series A-1 convertible preferred stockholders the right to receive dividends prior and in preference to declaration or payment of any dividend on the Series A convertible preferred stock or the Company's common stock, at a rate of $7.50 per share.

The Series A convertible preferred stockholders hold a dividend preference over certain other holders. The Series A dividend preference gives the Series A convertible preferred stockholders the right to receive dividends prior and in preference to declaration or payment of any dividend on the Company's common stock, at a rate of $0.68 per share.

The Series A and Series A-1 convertible preferred stock and convertible preferred stock dividend preferences are not cumulative. This right is received only when, as and if declared by the board of directors. The Series A and A-1 convertible preferred stock dividend preferences shall be deemed waived upon conversion of the Series A and Series A-1 convertible preferred stock into common stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c)** **Redemption** 

The Series A and Series A-1 convertible preferred stock do not contain mandatory redemption features.

Any dissolution, liquidation, or winding up of the Company, whether voluntary or involuntary, constitutes a liquidation, including a deemed liquidation including the sale of all or substantially all of the Company's assets or the acquisition of the Company by means of a merger, consolidation, share exchange, or reorganization that transfers voting control in excess of fifty percent (50%) of the Company's voting power. This triggers the payment of liquidation preference amounts under the terms of the preferred stock designations. These liquidation characteristics do not require classification of any outstanding series of convertible preferred stock outside of the shareholders' equity/deficit section of the accompanying balance sheets as there are no factors associated with a liquidation considered to be outside the control of the Company. As such, the Series A and Series A-1 convertible preferred stock are classified as a component of stockholders' equity/deficit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d)** **Liquidation Preference** 

In the event of any liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, the holders of Series A-1 convertible preferred stock shall receive, prior and in preference to any distribution of the assets to holders of the Company's Series A convertible preferred stock and common stock an amount per share equal to $7.50, plus declared but unpaid dividends, if any. If the assets and funds are insufficient to pay this liquidation preference, then the entire assets or funds of the Company will be distributed evenly to holders of Series A-1 convertible preferred stock.

Holders of Series A convertible preferred stock shall receive, prior and in preference to any distribution of the assets to holders of the Company's common stock an amount per share equal to $0.68, plus an amount equal to 8% per annum on the issue price plus declared but unpaid dividends, if any. As of December 31, 2021 and December 31, 2020, the liquidation preference of each share of Series A convertible preferred stock is $1.69 and $1.63, respectively. If the assets and funds are insufficient to pay this liquidation preference, then the entire assets or funds of the Company will be distributed evenly to holders of Series A convertible preferred stock.

Once all of the above has occurred, the remaining assets will be distributed to holders of the Company's common stock on a pro rata basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(e)** **Voting Rights** 

Holders of shares of each of the series of convertible preferred stock shall have the right to vote for each share of common stock into which such preferred stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock, and shall be entitled, together with the holders of common stock, with respect to any question upon which holders of common stock have the right to vote.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(f)** **Conversion Rights** 

Each share of Series A and Series A-1 convertible preferred stock shall be convertible, at the option of the holder thereof, into common stock as determined at a ratio of 1:1 and 1:1.6, respectively. These ratios will be adjusted for payment of all or any portion of any stock split, dividend, combination, or other recapitalization as defined.

Further, each share of Series A and Series A-1 convertible preferred stock shall automatically be converted into common stock (i) with the approval, by affirmative vote, written consent or agreement, of the holders of a majority of the then outstanding Series A convertible preferred stock or Series A 1 convertible preferred stock, voting together as a class, (ii) upon the prior voluntary conversion of a majority of the Series A or A-1 convertible preferred stock, or (iii) immediately prior to the closing of an underwritten initial public offering of common stock.

&nbsp;&nbsp;&nbsp;&nbsp;**(10)** **Common Stock** 

The Company's amended articles of incorporation provide for authorization to issue 40,000,000 shares of common stock, with a par value of $0.001 per share. Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the outstanding series of convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company. The holders of shares of common stock are entitled to one vote for each share held.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Proceeds from Issuance of Common Stock** 

No cash proceeds from the sale of common stock were received during the years ended December 31, 2021 and December 31, 2020.

During the year ended December 31, 2020, 240 options were exercised for cash proceeds of $3. No options were exercised during the year ended December 31, 2021. During the year ended December 31, 2021, 837,556 warrants were exercised for cash proceeds of $1,638 and 127,750 warrants were exercised on a cashless basis. During the year ended December 31, 2021, 49,098 warrants exercised for the reduction in debt $102 in lieu of cash proceeds. (see note 6(a)). No warrants were exercised in 2020.

During the year ended December 31, 2020, one convertible note reached maturity on August 12, 2020 and triggered the conversion of the outstanding note, including accrued interest. This note converted at a total of $898 into 87,937 shares of Common Stock. No convertible notes were converted during the year ended December 31, 2021.

During year ended 2019, the Company's subsidiary, Hapbee, received cash proceeds of $2,900 net of $24 issuance cost for the sale of 13,050,000 common stock shares to investors. The CEO of Hapbee was issued 16,875,000 shares of common stock. The shares were retroactively adjusted at a 4.5:1 forward split effective on June 15, 2020 from their original issuance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b)** **Shares Reserved for Issuance** 

The following shares of common stock were reserved for issuance at December 31:

---

| | | |
|:---|:---|:---|
|  | **Shares** | **Shares** |
|  | **December 31, 2021** | **December 31, 2020** |
| Series A convertible preferred stock issued and outstanding | 1817225 | 1817225 |
| &nbsp;&nbsp;&nbsp; Series A-1 convertible preferred stock issued and outstanding | 3839994 | 3839994 |
| Stock options approved to be issued from 2016 Stock Incentive Plan | 4370701 | 3045246 |
| Common stock warrants issued and outstanding | 644024 | 1778617 |
|  | 10671944 | 10481082 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c)** **Stockholder Agreements** 

The Company, the founding stockholders, and other stockholders are party to a Right of First Refusal and Co Sale Agreement that provide for certain restrictions on the transfer of Company stock. The Company has the right of first refusal if any stockholder owning stock wishes to dispose of their stock; the founding stockholders have the right of second refusal on such shares in their pro rata share of ownership.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d)** **Common Stock Warrants** 

During the year ended December 31, 2020, the Company issued warrants in connections with certain debt issuances totaling 25,000. See note 6 for identification of warrants respective terms issued and applied debt discounts (see note 6).

During the year ended December 31, 2020, the Company issued warrants for services totaling 250,000 at an exercise price of $2.00 with an expiration term of 7 years. The Company calculated the fair value using the Black Scholes option pricing model totaling $2,231, the amount is included in stock based compensation expense in the accompanying statements of operations.

During the year ended December 31, 2021, the Company issued warrants for services totaling 10,000 at an exercise price of $10.22 with an expiration term of 7 years. The Company calculated the fair value using the Black Scholes option pricing model totaling $65, the amount is included in stock based compensation expense in the accompanying statements of operations.

In July 2021, the Company offered to a warrant holder an inducement to exercise all or a portion of their warrant for a reduced exercise price from $13.35 per share to $2.00 per share. The warrant holder accepted the inducement offer in August 2021 and subsequently exercised 120,000 shares under the warrant agreement. The inducement resulted in a modification to the award. The Company calculated the fair value of the inducement using the Black-Scholes option pricing model and recognized expense for the difference in fair value of the modified warrant and the fair value of the warrant immediately before modification of $831, which has been recorded as an inducement expense during the year ended December 31, 2021. Assumptions used in the Black-Scholes option pricing model are consistent with those used in its stock based compensation calculations disclosed in Note 11(a).

The fair market value of warrants issued during the years ended December 31, 2021 and December 31, 2020 was determined using the Black-Scholes option pricing model. The assumptions are the same as those used to value the Company's stock option awards. The Company recognized $2,406 in stock-based compensation expense for non-employee warrants in the accompanying statements of operations for the year ended December 31, 2020. See note 11.

A summary of the warrants as of December 31, 2021 and December 31, 2020 and the changes during the years ended December 31, 2021 and December 31, 2020 are presented below:

---

| | | | |
|:---|:---|:---|:---|
|  |<br>**Number**<br>**of warrants** | **Weighted**<br>**average**<br>**exercise**<br>**price** | **Weighted**<br>**average**<br>**contractual**<br>**life in years** |
| Balance at December 31, 2019 | 1507373 | 10.19 | 5.78 |
| Granted | 286700 | 5.00 | 5.83 |
| Exercised |  |  |  |
| Expired | (15456) | 1.48 |  |
| Balance at December 31, 2020 | 1778617 | 9.07 | 5.00 |
| Granted | 10000 | 2.00 |  |
| Exercised | (995343) | 9.11 |  |
| Expired | (149250) | 3.92 |  |
| Balance at December 31, 2021 | 644024 | 10.07 | 4.02 |

---

At December 31, 2021 and December 31, 2020 there was $0 and $2,888 intrinsic value of the outstanding stock warrants, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;**(11)** **Stock Based Compensation** 

 

*Equity Incentive Plan*

 

As of December 31, 2021, the Company's equity incentive plan included the 2002 Stock Incentive Plan as amended (the "2002 Plan"), the Company's 2016 Stock Option Plan (the "2016 Plan"), and the Amended and Restated 2016 Equity Incentive Plan (the "Restated 2016 Plan") (together, the "Plans"), and provide for the granting of incentive stock options, nonqualified stock options and restricted stock units.

Options granted under the Plans generally vest either immediately or over a period of one year from the date of grant with certain options granted in 2021 vest over four years, and generally expire seven years from date of grant. Options granted in November 2021 has an exercise price of $4.09 and the estimated fair value of the Company's common stock at that time is $9.0. Restricted stock units are subject to time-vesting and liquidity event vesting.

As of December 31, 2021 and December 31, 2020, there were no shares available for grant under the 2002 Plan. As of December 31, 2021 and December 31, 2020, respectively, there were 1,129,299 and 1,771,131 shares available for the Company to grant under the 2016 Plan of 5,500,000 shares. Restricted stock units are subject to time-vesting and liquidity event vesting.

The grant date fair value of each option award is estimated on the date of grant using the Black Scholes Merton option pricing model. The options granted have a contractual term of 7 years. The Company uses the contractual term to determine the expected term of employee and nonemployee grants. The Company uses comparable peer group public company data to estimate the expected volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company accounts for forfeitures as they occur; as such, the Company does not estimate forfeitures at the time of grant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a)** **Stock Option Awards** 

The table below sets forth the assumptions used on the date of grant for estimating the fair value of options granted to employees and non-employees during the years ended December 31, 2021 and December 31, 2020:

---

| | | |
|:---|:---|:---|
|  | **December 31,<br> 2021** | **December 31, 2020** |
| Weighted average expected term (years) | 7.00 | 7.00 |
| Risk-free interest rate | 1.32-1.46% | 1.71-1.72% |
| Dividend yield |  |  |
| Volatility | 70% | 70% |

---

*Employees*

 

The Company recognized $5,011 and $1,109 in stock-based compensation expense to employees in the accompanying statements of operations for the years ended December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, the total unrecognized compensation expense related to unvested stock options granted to employees is $526 which is expected to be recognized over a period of 4 years.

*Non-employees*

 

The Company recognized $962 and $86 in stock-based compensation expense to nonemployees in the accompanying statements of operations for the years ended December 31, 2021 and December 31, 2020 respectively. There is no remaining unrecognized expense for nonemployee options as of December 31, 2021.

The following table summarizes the Company's stock option activity for the years ended December 31, 2021 and December 31, 2020:

---

| | | | |
|:---|:---|:---|:---|
|  |<br>**Number**<br>**of shares** | **Weighted**<br>**average**<br>**exercise**<br>**price** | **Weighted**<br>**average**<br>**contractual**<br>**life in years** |
| Balance at December 31, 2019 | 3950319 | 12.08 | 4.31 |
| Granted |  |  |  |
| Exercised | (240) | 13.35 |  |
| Forfeited |  |  |  |
| Expired | (221210) | 9.40 |  |
| Balance at December 31, 2020 | 3728869 | 12.24 | 3.55 |
| Granted | 1044833 | 4.09 |  |
| Exercised |  |  |  |
| Forfeited | (305101) | 11.25 |  |
| Expired | (97900) | 7.50 |  |
| Balance at December 31, 2021 | 4370701 | 10.46 | 3.61 |

---

As of December 31, 2021 and December 31, 2020, there is $5,163 and $374 intrinsic value of the outstanding stock options, respectively.

As of December 31, 2021, total stock options exercisable is 4,164,535.

There were no options granted to employees or non-employees in 2020 and 1,044,833 options granted to employees and non-employees during the year ended December 31, 2021. In addition, 347,101 options granted in 2021 were to reduce accrued bonus of $1,040 and deferred compensation of $158 with certain officers and employees.

The following tables reflects the components of stock-based compensation expense recognized in the accompanying statements of operations for the years ended December 31:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| <br>**December 31, 2020** | **Stock**<br>**options –**<br>**employees** | **Stock**<br>**options –**<br>**nonemployees** | **Common stock**<br>**warrants –**<br>**employees** | **Common stock**<br>**warrants –**<br>**nonemployees** |<br>**Total** |
| Research and Development | 269 |  |  |  | 269 |
| General and Administrative | 841 | 86 |  | 2406 | 3333 |
|  | 1110 | 86 |  | 2406 | 3602 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| <br>**December 31, 2021** | **Stock**<br>**options –**<br>**employees** | **Stock**<br>**options –**<br>**nonemployees** | **Common stock**<br>**warrants –**<br>**employees** | **Common stock**<br>**warrants –**<br>**nonemployees** |<br>**Total** |
| Research and Development | 918 |  |  |  | 918 |
| General and Administrative | 4093 | 962 |  | 65 | 5120 |
|  | 5011 | 962 |  | 65 | 6038 |

---

The weighted average grant date fair value of options granted during 2021 and 2020 was $6.73 and $10.12, respectively. There were 240 options exercised during 2020 and no options were exercised during the year ended December 31, 2021.

*Subsidiary Shares*

 

During 2019, the Company's former subsidiary, Hapbee Technologies, issued 200,000 stock options as part of an advisory agreement with a consultant. The options were granted with an exercise price of $1.00, but not approved until January 2020.

&nbsp;&nbsp;&nbsp;&nbsp;**(12)** **Net Income (Loss) Per Share** 

Net income (loss) per share is presented in conformity with the two-class method required for multiple classes of common stock and participating securities. The participating securities include Series A and Series A-1 convertible preferred stock, as the holders of these series of preferred stock are entitled to receive a noncumulative dividend in preference to the common stockholders in the event that a dividend is declared on common stock. No dividend was declared on common stock in 2021 and 2020; therefore, there was no allocation of earnings to these participating securities for the year ended December 31, 2021 and 2020. The holders of Series A and Series A-1 preferred stock do not have a contractual obligation to share in the losses. As such, net income (loss) for the years ended December 31, 2021 and December 31, 2020 were not allocated to these participating securities.

Basic income (loss) per share is computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of common stock equivalent shares such as stock options, warrants, convertible notes, and convertible preferred stock. Diluted income (loss) per share is computed using the weighted average number of common shares outstanding and potentially dilutive common stock options, warrants, convertible notes, and convertible preferred stock.

The following table sets forth the reconciliation of the numerator and denominator utilized in the computation of basic and diluted net income (loss) per share attributable to common stockholders during the periods presented:

---

| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
| **Numerator** | | |
| Net income (loss) | $(22092) | $3457 |
| Participating securities: |  |  |
| Income allocated to participating securities | - | - |
| Net income (loss) attributable to common stockholders, for basic and diluted | $(22092) | $3457 |
| **Denominator** |  |  |
| Weighted-average common shares outstanding, for basic computation | 13744737 | 13479379 |
| Assumed exercise of warrants, net of shares assumed reacquired under the treasury stock method |  | 555997 |
| Assumed conversion of preferred stock under the if-converted method | - | 5657219 |
| Weighted average shares outstanding for diluted computation | 13744737 | 19692595 |
| Net income(loss) per share attributable to common stockholders, basic | $(1.61) | $0.26 |
| Net income(loss) per share attributable to common stockholders, diluted | $(1.61) | $0.18 |

---

The following potentially dilutive shares of convertible preferred stock, convertible notes payable, and common stock options and warrants were not included in the calculation of diluted shares above as the effect would have been anti-dilutive:

---

| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
| Convertible preferred stock | 5657219 | 5657219 |
| Convertible notes payable | 654093 | 423734 |
| Common stock options and warrants | 551628 | 1159264 |
| Total | 6862940 | 7240217 |

---

For the year ended December 31, 2021, common stock equivalents of 330,521 and 3,303,868, respectively, related to warrants and stock options were excluded from diluted earnings per share as the exercise price of these instruments was greater than the average price of the Company's common stock price throughout the period. For the year ended December 31, 2020, common stock equivalents of 939,554 and 1,923,065, respectively, related to warrants and stock options were excluded from diluted earnings per share as the exercise price of these instruments was greater than the average price of the Company's common stock price throughout the period.

&nbsp;&nbsp;&nbsp;&nbsp;**(13)** **Income Taxes** 

The Company's income tax (benefit) expense was primarily comprised of tax at statutory rates offset by a full valuation allowance in the United States.

The Company's effective income tax rate differs from the statutory federal income tax rate for the following reasons:

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Tax computed at the federal statutory rate of 21% | $(4639) | $685 |
| Credits | (13) | (49) |
| Nondeductible expenses and other | 3389 | 448 |
| Uncertain tax positions | 3 | 12 |
| Valuation allowance | 1260 | (1096) |
| Income tax expense / (benefit) | - | - |

---

Significant components of the Company's deferred tax assets at December 31, 2021 and 2020 are shown below:

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| **Deferred tax assets:** |  |  |
| Net operating loss carryforwards | $16957 | $15860 |
| Research and development credits | 1701 | 1695 |
| Intangible assets | 1356 | 1255 |
| Deferred stock compensation | 2920 | 4551 |
| Deferred compensation and post-employment benefits | 8668 | 8743 |
| Reserves, accrued expenses, and other, net | 126 | 99 |
| &nbsp;&nbsp;&nbsp;Total deferred tax assets | 31728 | 32203 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Fixed assets | (7) | (42) |
| &nbsp;&nbsp;&nbsp;Unrealized Equity Investment Gain | (1404) | (3103) |
| Valuation allowance for deferred income tax assets | (30317) | (29058) |
| &nbsp;&nbsp;&nbsp;Net deferred tax assets | - | - |

---

The change in the valuation allowance for deferred tax assets for the years ended December 31, 2021 and 2020 was an increase of $1,259 and a decrease of $1,403 respectively.

The Company has incurred losses from operations for the past three years. Due to the impact of these losses, expectation of income tax losses in the near term and the unpredictability of future forecasted results, along with other negative factors, the Company recorded a full valuation allowance in its deferred tax assets.

Pursuant to Internal Revenue Code Section 382 and 383, use of the Company's net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period.

As of December 31, 2021, the Company had federal net operating loss carryforwards of approximately $80.7 million. The federal net operating losses will begin to expire in 2022, unless utilized. There are approximately $18.6 million of federal net operating losses that may be carried forward indefinitely. The Company also has federal research tax credit carryforwards of approximately $2.3 million, which will begin to expire in 2022, unless utilized.

Management has evaluated tax positions in accordance with FASB ASC 740. As of December 31, 2021 and 2020, the total amount of unrecognized tax benefits were $567 and $564, respectively. The Company does not anticipate any significant changes to the unrecognized tax benefits to occur in the next 12 months. The amount of unrecognized tax benefits are carried on the balance sheet as a reduction to the Company's deferred tax assets. No interest or penalties are accrued related to the unrecognized tax benefits.

The Company files income tax returns in the United States and is no longer subject to examination for tax years ending before 2017. However, to the extent allowed by law, the tax authority may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforwards. At December 31, 2021 we were not under examination by the tax authority.

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act allows net operating losses from the 2018, 2019 and 2020 tax years to be carried back up to five years, provided for an increased interest deduction for tax years 2019 and 2020, as well as the deferral of the employer portion of social security taxes. The Company has determined that the impact of the CARES Act is immaterial to the financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;**(14)** **Subsequent Events** 

The Company has evaluated subsequent events and transactions through May 6, 2022, the date the financial statements were available for issuance and identified the below transactions that need to be reported.

In February 2022, the Company amended the maturity date conversion price per share to a price per share equal to the lesser of (1) the fair market value per share of common Stock on the maturity Date, as determined by the higher of the price per share for the most recent (A) sale of common stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase common stock on or prior to the maturity date, or (2) $4.09. As a result, a total of $921 in principal and accrued interest were converted into 225,200 shares of common stock under the amended conversion terms of the notes. The remaining convertible promissory notes had their maturity dates extended to September 1 2022. These extended notes will continue to accrue interest under the original terms of the notes.

In 2022, the Company issued convertible promissory notes ("2022 Notes") to unrelated parties totaling $685. The maturity date of the 2022 Notes is September 1, 2022. At maturity, principal and accrued interest under the 2022 Notes will be automatically converted into common stock at an exercise price per share equal to the lesser of (1) the fair market value per share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the Maturity Date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the Maturity Date, or (2) $4.09. At any time, the Notes are outstanding prior to the maturity date, the holder may elect to convert the outstanding principal and accrued interest into common stock at the higher of the most recent sale of common stock or grant of stock options or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. If a financing with proceeds of at least $10,000 is consummated prior to the maturity date, the 2022 Notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. The 2022 Notes accrue interest at 10.0% per annum.

In March 2022, the Company issued an unsecured promissory note to a related party in the amount of $300 with a maturity date of (a) July 2022 or (b) the date by which the Company completes a transaction for the purchase of its equity or debt securities for cash with the principal purpose of raising capital in an amount not less than $2,500, The note has a 10% interest rate.

In 2021, the Company offered warrant holders an inducement to exercise, or commit to do so, on or before December 23, 2021, all or a portion of their warrants for a reduced exercise price from the exercise price on the face of the warrant to $2.00 per share. The inducement resulted in a modification to the award. In January 2022, cash proceeds of $164 were received related to the exercise of warrants for 82,338 warrant shares.

In March 2022, the Company authorized for issuance stock options to certain officers and employees totaling 394,500 shares of common stock. The options were granted with an exercise price of $4.09. In addition, 428,534 options granted in 2022 were to reduce accrued bonus and deferred compensation of $1,753 with certain officers and employees. Of the total options granted 690,997 vested immediately, 99,037 vested on December 31, 2022, and the balance of 33,000 vest over 3 years.

In March 2022, the Company authorized the issuance of restricted stock units (RSU) totaling 2,200,000 shares of common stock of which 1,524,343 shares were granted in April 2022. The RSU's vest 50% on the one year anniversary of the grant date, with 1/8th of the award vesting each quarter thereafter. The RSU's will also vest upon a liquidity event, as defined in the RSU agreement as an offering, merger or acquisition.

In March and April 2022, the Company amended executive employment agreements with four officers or employees of the Company. The amended employment agreements, among other matters, settled certain outstanding amounts owed to these individuals totaling $26,495 Other former officers and employees agreed to forgive a total of $2,858 in outstanding amounts owed to them.

In January 2022, the Company entered into a sublease agreement to lease office space in Bellevue, Washington under a non-cancelable lease which commenced in February 2022. The lease agreement expires in December 2024 and provides for aggregate future lease payments totaling $560.

**HAPBEE TECHNOLOGIES, INC.**

*Consolidated Financial Statements*

We are providing the supplemental information to the investors in accordance with Staff Accounting Bulletin Topic 6-K, Interpretations of Accounting Series Releases ("SAB Topic 6"), so that potential investors can understand the financial statements of a significant investee of ours, Hapbee Technologies, Inc. ("Hapbee").

Hapbee is a publicly traded company on the TSX Venture Exchange (TSVX: "HAPB"). We own approximately 23.5% of Hapbee, representing 59.7% of our assets as of September 30, 2022, and 86.4% and 91.5% of our assets as of December 31, 2021 and 2020, respectively.

In accordance with paragraph (b) of SAB Topic 6, we are providing Hapbee's unaudited interim financial statement for the three- and nine-month periods ended September 30, 2022 and its audited financial statements for the years ended December 31, 2021 and 2020.

The Hapbee financial statements were audited under Canadian Auditing Standards ("CAS") using International Financial Reporting Standards ("IFRS"). Accordingly, Hapbee's financial statements were not prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and are not directly comparable to financial statements prepared in accordance with GAAP. Hapbee meets the requirements of a "foreign issuer" under SEC rules and, as such, Hapbee is eligible to use financial statements prepared in accordance with CAS and IFRS in SEC filings. Dollar amounts in Hapbee's financial statements are expressed in U.S. dollars.

**HAPBEE TECHNOLOGIES, INC.**

Condensed Consolidated Interim Financial Statements

Three- and Nine-Month Periods Ended September 30, 2022

**NOTICE OF NO AUDITOR REVIEW OF CONDENSED**

**CONSOLIDATED INTERIM FINANCIAL STATEMENTS**

The accompanying unaudited condensed consolidated interim financial statements of Hapbee Technologies, Inc. for the 3- and 9-Month periods ended September 30, 2022 have been prepared by the management of the Company and approved by the Company's Audit Committee and the Company's Board of Directors.

Under National Instrument 51-102, Part 4, subsection 4.3 (3) (a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice indication that an auditor has not reviewed the condensed consolidated interim financial statements. Manning Elliot considered the information in these consolidated interim financial statements prior to issuing its consent.

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these condensed consolidated interim financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of the condensed consolidated interim financial statements by an entity's auditor.

**NOTICE TO READER**

The interim financial statements for the period ending September 30, 2022 include Notes to the Condensed Consolidated Interim Financial Statements. Other than adding the Notes, the Condensed Consolidated Interim Financial Statement are unchanged from those filed with SEDAR on December 12, 2022.

**Hapbee Technologies, Inc.**

**Condensed Consolidated Interim Statements of Financial Position**

**As at September 30, 2022 and December 31, 2021**

---

| | | |
|:---|:---|:---|
| *Expressed in U.S. dollars* |  |  |
|  | **September 30, 2022**<br> (Unaudited) | **December 31, 2021**<br> (Audited) |
| **Assets** |  |  |
| Current assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash |  |  |
| &nbsp;&nbsp;&nbsp;Receivables |  |  |
| &nbsp;&nbsp;&nbsp;Inventory (note 4) |  |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses |  |  |
| Intangible assets (note 5) |  |  |
| **Total assets** |  |  |
| **Liabilities** |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities (note 7) |  |  |
| &nbsp;&nbsp;&nbsp;Product warranty liability |  |  |
| &nbsp;&nbsp;&nbsp;Unearned revenue |  |  |
| Total current liabilities |  |  |
| Warrant liability (note 13) |  |  |
| **Total liabilities** |  |  |
| **Equity** |  |  |
| Share capital (note 9) |  |  |
| Reserves |  |  |
| Accumulated other comprehensive income |  |  |
| Accumulated deficit |  |  |
| **Total shareholders' equity** |  |  |
| **Total liabilities and shareholders' equity** |  |  |

---

Nature of operations and going concern (note 1)

Basis of presentation (note 2)

Commitments and contingencies (note 17)

Subsequent events (note 18)

Approved on behalf of the Board of Directors on December 8, 2022.

*<u>"Michael Matysik"</u>* <u>"*Robert Dzisiak*"</u> <br> Director Director

**Hapbee Technologies, Inc.**

**Condensed Consolidated Interim Statements of Financial Position**

**As at September 30, 2022 and December 31, 2021**

---

| |
|:---|
| *Expressed in U.S. dollars* |
| **Revenues** |
| Sales on products |
| Cost of goods sold |
| Royalty fees |
| **Other income** |
| Advertising and other income |
| **Expenses** |
| Amortization of intangible assets |
| Consulting |
| General and administrative (note 17) |
| Payroll and staff benefits |
| Product development costs |
| Professional fees |
| Royalty fees |
| Share-based compensation (note 10) |
| Total operating expenses |
| **Operating loss before other item**  |
| **Other item:** |
| Change in fair value of warrant liability (note 13) |
| **Net loss for the period** |
| Other comprehensive income / (loss) |
| **Net loss and comprehensive loss for the period** |
| Loss per share – basic and diluted (note 12) |
| <br>|
| Weighted-average number of shares outstanding - basic and diluted |

---

**Hapbee Technologies, Inc.**

**Condensed Consolidated Interim Statements of Changes in Equity**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| *Expressed in U.S. dollars* | <br>**Number of** | **Number**<br> **of** | **Accumulated** |  |  |  |
|  | **Subordinated**<br> **Voting** | **Multiple**<br> **Voting** | **Other Comprehensive** |  |  | <br>**Total** |
|  | **Shares** | **Shares** | **Income** | **Reserves** | **Deficit** | **(Unaudited)** |
|  |  |  | $— |  |  |  |
| **Balance, January 1, 2021** | **46938056** | **450000** |  |  |  |  |
| Share-based compensation |  |  |  |  |  |  |
| Exercise of warrants | 1588277 |  |  |  |  |  |
| Net loss and comprehensive loss for the period | - | - |  |  |  |  |
| **Balance, September 30, 2021** | 48526333 | 450000 |  |  |  |  |
| **Balance, January 1, 2022** | **69040956** | **450000** |  |  |  |  |
| Issuance of shares for non-brokered private placement | **5307894** |  |  |  |  |  |
| Issuance of finder shares (private placement) | **70000** |  |  |  |  |  |
| Share issuance cost |  |  |  |  |  |  |
| Exercise of RSUs | **225000** |  |  |  |  |  |
| Share-based compensation | **54000** | **-** |  |  |  |  |
| Exercise of warrants (note 11) |  |  |  |  |  |  |
| Net loss and comprehensive loss for the period | - | - |  |  |  |  |
| **Balance, September 30, 2022** | 74697850 | 450000 |  |  |  |  |

---

**Hapbee Technologies, Inc.**

**Condensed Consolidated Interim Statements of Changes in Cash Flows**

**For the three months ended September 30, 2022 and June 30, 2022 (Unaudited)**

---

| | | |
|:---|:---|:---|
| *Expressed in U.S. dollars* | **Three months ended September 30, 2022**<br> (Unaudited) | **Three months ended**<br> **June 30, 2022**<br> (Unaudited) |
| **Operating activities** |  |  |
| &nbsp;&nbsp;&nbsp;Net loss for the year |  |  |
| Item not involving cash: |  |  |
| &nbsp;&nbsp;&nbsp;Amortization of Intangible Assets |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in FV of warrant liability |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in non-cash working capital balances: |  |  |
| &nbsp;&nbsp;&nbsp;Decrease / (Increase) in receivable |  |  |
| &nbsp;&nbsp;&nbsp;Decrease / (Increase) in inventory |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease / (Increase) in prepaid expenses |  |  |
| &nbsp;&nbsp;&nbsp;Warranty Liability |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in accounts payable and accrued liabilities |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in unearned revenue |  |  |
| &nbsp;&nbsp;&nbsp;**Net cash used in operating activities** |  |  |
| **Investing activities** |  |  |
| License fees |  |  |
| &nbsp;&nbsp;&nbsp;Development costs incurred |  |  |
| &nbsp;&nbsp;&nbsp;**Net cash used in investing activities** |  |  |
| **Financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from subordinated voting shares issuances (private placement) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share issuance cost |  |  |
| &nbsp;&nbsp;&nbsp;Exercise of RSUs |  |  |
| &nbsp;&nbsp;&nbsp;**Net cash provided by financing activities** |  |  |
| **Effect of foreign exchange** |  |  |
| Increase (decrease) in cash during the period |  |  |
| Cash, beginning of the period |  |  |
| **Cash, end of the period** |  |  |

---

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**1.** **NATURE OF OPERATIONS AND GOING CONCERN** 

Hapbee Technologies, Inc. (formerly known as Elevation Technologies, Inc.) (the "Company") is a company incorporated on January 3, 2019 under the Business Corporations Act (British Columbia). Its registered and record office and corporate office is located at 700 West Georgia Street, Suite 2500, Vancouver, BC V7Y 1B3. The Company's principal business activity is to commercialize consumer digital products that will deliver one or more ultra-low radio frequency energy signals to produce mood-altering effects. On June 15, 2021, the Company completed a forward stock split of its common shares on a 1 for 4.5 basis. The Company had 13,455,000 common shares issued and outstanding and the resulting post stock split common shares outstanding are 60,547,500. The numbers of common shares issuable pursuant to all share capital have been retrospectively adjusted in accordance with the stock split ratio. On the same day, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value. On June 16, 2021, the Company completed an amalgamation with Zander Capital Ltd. ("Zander"), refer to Note 6 for details. During the year ended December 31, 2021 60,547,500 common shares previously issued were cancelled and replaced by 60,547,500 Subordinated Voting Shares. During the year ended December 31, 2021, 45,000,000 Subordinated Voting Shares owned by EMulate Therapeutics Inc. and Scott Donnell were exchanged for 450,000 Multiple Voting Shares.

The Company's operations have been financed through the sale of Subordinated Voting Shares, Multiple Voting Shares and issuance of debt. The Company has incurred a significant operating loss since inception and has an accumulated deficit of $15,468,794 as at September 30, 2022.

These condensed consolidated financial statements have been prepared on a going-concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due. For the nine months period ended September 30, 2022, the Company incurred a net loss of

$4,731,707.

The outbreak and spread of a novel coronavirus (COVID-19), declared a pandemic by the World Health Organization, has already had significant human, political, and economic consequences around the world. The coronavirus is still evolving, and its full impact remains to be determined. However, its wide-ranging effects include financial market volatility, interest rate cuts, disrupted movement of people and goods, and diminished consumer confidence. The effects of the coronavirus may be difficult to assess or predict with meaningful precision both generally and as an industry-or issuer-specific basis. This is an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of the Company.

The Company's ability to continue as a going concern is dependent upon its ability to fund its working capital and operating requirements and eventually to generate positive cash flows from operations. These condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and statement of financial position classifications that would be necessary were the going concern assumption determined to be inappropriate and these adjustments could be material.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**2.** **BASIS OF PRESENTATION** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a)** **Statement of Compliance** 

These condensed consolidated interim financial statements, including comparatives, have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. These condensed consolidated interim financial statements should be read in conjunction with the Company's financial statements for the year ended December 31, 2021.

These unaudited condensed consolidated interim financial statements are expressed in US dollars and have been prepared on a historical cost basis except for financial instruments that have been measured at fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting on a going concern basis. The accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated interim financial statements as if the policies have always been in effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**b)** **Basis of Preparation** 

These financial statements have been prepared on a historical cost basis, except for certain financial instruments measured at fair value through profit or loss, which are stated at their fair value. In addition, these financial statements have been prepared using the accrual basis of accounting, except for certain cash flow information. The financial statements, unless otherwise specified, are presented in US dollars, which is the functional currency of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**c)** **Functional and presentation currency** 

These condensed consolidated interim financial statements are presented in US dollars, unless otherwise noted, which is the functional currency of the parent and its wholly owned subsidiaries, 1253596 B.C. Ltd., which was incorporated in British Columbia, Canada and Hapbee Technologies USA, Inc. which was incorporated in the State of Washington, USA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**d)** **Basis of consolidation** 

These condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the condensed consolidated financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**e)** **Approval of the Financial Statements** 

The condensed consolidated financial statements of the Company for the period ended September 30, 2022 were approved and authorized for issue by the Board of Directors on November 29, 2022.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**3.** **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** 

The accounting policies set out below have been applied consistently to all periods presented in these condensed consolidated financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a)** **Critical accounting judgments and estimates** 

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical accounting judgments and estimates in applying accounting policies that have the most significant impact on the amounts recognized in the consolidated financial statements are outlined below.

*Share-based payments and warrant liability*

 

The Company makes certain estimates and assumptions when calculating the estimated fair values of stock options granted and warrants issued. The significant assumptions used include estimates of expected volatility, expected life, expected dividend rate and expected risk-free rate of return. Changes in these assumptions may result in a material change to the expense recorded for grants of stock options and the issuance of warrants. Certain warrants issued during the year ended December 31, 2021 are accounted for as derivative liabilities (see note 13).

*Deferred income taxes*

 

The Company is periodically required to estimate the tax base of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the consolidated financial statements. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of changes.

Each period, the Company evaluates the likelihood of whether some portion or all of each deferred tax asset will not be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, the market price for commodities, production costs, quantities of proven and probable reserves, interest rates, and foreign currency exchange rates.

*Going concern*

 

The determination of the Company's ability to continue as a going concern requires the Company to make certain judgements about whether the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

3. SUMMARY
 OF SIGNIFICANT ACCOUNTING POLICIES (continued)

*Intangible assets*

 

Management is required to use judgement in determining the economic useful lives of identifiable intangible assets and the capitalization of costs for internally generated intangible assets is subject to judgment including the technical feasibility, timeframe to commercialization, assessment of availability of resources to complete the project, and if economic benefits will be generated form its use. Management is required to use judgement in determining the economic useful lives of identifiable intangible assets. Judgement is also required in identifying indicators of impairment of the Company's intangible assets.

At each financial position reporting date, the carrying amounts of the Company's intangible assets, are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. This requires management to make certain estimates and judgements which could be materiality different than actual results.

*Revenue recognition*

 

The Company's revenue is comprised of sales of its products which consists of its wearable device and annual/monthly subscription. As a result, the Company is required to allocate the transaction prices amongst the multiple elements of its packaged products. This requires that management make judgements and estimates related to the allocation which are subjective and could result in material differences if changed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**b)** **Financial Instruments** 

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets and financial liabilities are initially measured at fair value. Financial assets are classified into one of the following specified categories: amortized cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"). Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified as FVTPL) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in the statement of loss and comprehensive loss.

The Company's financial instruments are classified as follows:

---

| | |
|:---|:---|
| **Financial instrument** | **Measurement** |
| Cash | FVTPL |
| Receivables | Amortized cost |
| Accounts payable | Amortized cost |
| Unearned revenue | Amortized cost |

---

<u>Financial Assets</u>

Subsequent to initial recognition, financial assets classified and measured at amortized cost using the effective interest method.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

3. SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES (continued)

<u>Financial Assets</u> (continued)

Financial assets classified as FVTPL are recognized initially at fair values less transaction costs and are subsequently carried at fair value, with changes in the fair value recorded in comprehensive income. The fair value measurements are based on level 1 inputs, being quoted prices in active markets for identical instruments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**c)** **Impairment of financial assets at amortized cost** 

The Company recognizes an allowance using the expected credit losses ("ECL") model on financial assets classified as amortized cost. The Company has elected to use the simplified approach for measuring ECL by using a lifetime expected loss allowance for all accounts receivable. Under this model, impairment provisions are based on credit risk characteristics and days past due. When there is no reasonable expectation of collection, financial assets classified as amortized cost are written off. Indications of credit risk arise based on failure to pay and other factors. Should objective events occur after an impairment loss is recognized, a reversal of impairment is recognized in the statement of loss and comprehensive loss.

<u>Financial Liabilities</u>

Financial liabilities are classified as and are measured at amortized cost subsequent to initial measurement at fair value.

<u>Offsetting financial instruments</u>

Financial assets and financial liabilities are offset and the net amount reported on the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**d)** **Cash** 

Cash is comprised of cash held in current operating bank accounts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**e)** **Inventory** 

Inventory includes products held for resale in the ordinary course of business (finished goods) and is measured at the lower of cost and net realizable value. The cost of inventory is determined generally on a first-in and first-out basis.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

3. SUMMARY OF
 SIGNIFICANT ACCOUNTING POLICIES (continued)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**f)** **Revenue recognition** 

The Company's revenues are derived from both the sale of hardware as well as subscriptions fees related to the use of its products.

Sales of hardware is recognized upon the transfer of control of the promised product to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products.

Subscription fees are comprised of fees that provide customers with access to its software and application over the contract term without taking possession of the software. Revenue from subscription fees are recognized over the term of the contract.

The Company also collects advance payments from its customers which are recorded as unearned revenue. Recognition of the unearned revenue for subscription fees is over the term of the contract. For sale of hardware, recognition of unearned revenue is based on control of products transferring to customers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**g)** **Research and development expenditures** 

Research expenditures are recorded in the period incurred. Product development expenditures are expensed in the period incurred unless the product candidate meets specific criteria related to technical, market and financial feasibility for deferral and amortization. The Company's policy is to amortize deferred product development expenditures over the expected future life of the product once product revenues are recorded. The future life of the product is estimated to be 8 years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**h)** **Share-based payments** 

The Company has a share-based compensation plan. Awards of options under this plan are expensed or recorded as additions to resource properties based on the estimated fair value of the options at the grant date, with a corresponding credit to contributed surplus in shareholders' equity. Fair value is estimated using the Black-Scholes pricing model. If the options are subject to a vesting period, the estimated fair value is recognized over this period on a graded vesting basis, based on the Company's estimate of the shares that will eventually vest.

Equity-settled share-based payment transactions with parties other than employees and those providing similar services are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the estimated fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Cash consideration received on exercise of options is credited to share capital together with the amounts originally recorded as share-based compensation related to the exercised options.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**3.** **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**i)** **Income taxes** 

*Current income taxes*

 

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on taxable income for the year. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, at the reporting date in the countries where the Company operates and generates taxable income.

Income tax is recognized in the statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity. Current income tax relating to items recognized directly in equity is recognized in the statements of changes in equity and not in the statements of loss and comprehensive loss.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.

*Deferred income taxes*

 

Deferred income taxes are calculated using the liability method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:

---

| |
|:---|
| when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and |
| in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. |

---

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses, can be utilized.

Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted, or substantively enacted, at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**3.** **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**i)** **Income taxes (continued)** 

Deferred tax relating to items recognized outside of profit or loss is recognized outside of profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive loss or directly in equity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**j)** **Loss per share** 

Loss per share is calculated based on the weighted average number of shares outstanding during the year. The Company follows the treasury method of calculating diluted earnings per share. This method assumes that any proceeds from the exercise of stock options and other dilutive instruments would be used to purchase common shares at the average market price during the year. Diluted loss per share is equal to loss per share since the exercise of all options and warrants is anti-dilutive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**k)** **Provisions** 

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. There were no material provisions recorded within the condensed consolidated interim financial statements as at September 30, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**l)** **Foreign currency translation** 

Foreign currency transactions are translated as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*(i)* monetary
 assets and liabilities denominated in currencies other than the functional currency are translated
 into the functional currency at the exchange rate prevailing at the statement of financial
 position date; and

*(ii)* non-monetary
 assets and liabilities denominated in foreign currencies and measured in terms of historic
 costs are translated using exchange rates at the transaction dates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**m)** **Related party transactions** 

Unless otherwise disclosed herein, all transactions with related parties are in the normal course of business and are measured at the exchange amount (note 14).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**n)** **Intangible assets - Licenses** 

Upon acquisition, intangible assets with finite useful lives are recorded at fair value and are carried at cost less accumulated amortization and impairment losses. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives of the Company's licenses is 20 years.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**3.** **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**o)** **Intangible assets – Development costs** 

Development expenditures can be capitalized only where a development project meets certain conditions, including technical feasibility of the intangible asset, intention to complete the project, ability to sell the intangible asset, probability that the intangible asset can produce future economic benefits, availability of resources to complete the project, and ability to reliably measure the expenditure attributable to the intangible asset. Development projects are reviewed as they arise and on an on-going basis to assess whether all conditions have been met. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**p)** **Adoption of new pronouncements** 

A number of amendments to standards and interpretations applicable to the Company are not yet effective for the year ended December 31, 2021 and have not been applied in preparing these consolidated financial statements nor does the Company expect these amendments to have a significant effect on its consolidated financial statements.

**4.** **INVENTORY** 

---

| | | | |
|:---|:---|:---|:---|
|  | **September 30,**<br> **2022** | **December 31,**<br> **2021** | **December 31,**<br> **2021** |
|  |  | $— | $|
| Finished goods |  |  | 283596 |

---

**5.** **INTANGIBLE ASSETS** 

The Company capitalized the acquisition costs of licenses and development costs related to the design and development of the device prototype.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a)** **Licenses** 

<u>License Agreement for certain sensory technologies</u>

On March 29, 2019, the Company acquired a license from EMulate Therapeutics Inc. ("EMulate"). The Company paid an up-front fee of USD $1,500,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**5.** **INTANGIBLE ASSETS (CONTINUED)** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a)** **Licenses (continued)** 

On October 30, 2019, an amended and restated exclusive license agreement with EMulate was signed by the Company. The effective date of the original licensing agreement was changed to October 30, 2019. All other terms remained the same. On January 24, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was changed to January 24, 2021, all other terms remained the same. On June 1, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was changed to June 1, 2021. All other terms remained the same. On October 26, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was changed to October 26, 2021. All other terms remained the same.

<u>License Agreement for certain sensory technologies</u>

<u> </u>

On October 30, 2019, the Company acquired another license from EMulate. The Company paid an up- front fee of USD $30,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

On October 31, 2019, an amended and restated exclusive license agreement with EMulate was signed by the Company. The effective date of the original licensing agreement was amended to October 31, 2019. All other terms remained the same. On January 24, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to January 24, 2021. All other terms remained the same. On June 1, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to June 1, 2021. All other terms remained the same. On October 26, 2021, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to October 26, 2021. All other terms remained the same.

On April 21, 2021, the Company acquired another license from EMulate. The Company paid an up- front fee of USD $10,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate bedtime signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**5.** **INTANGIBLE ASSETS (CONTINUED)** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**b)** **Licenses (continued)** 

On July 29, 2021, the Company acquired another license from EMulate. The Company paid an up-front fee of USD $10,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate bedtime signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

Sensory technologies include the human senses of happiness, sleepiness, focus, alertness, calmness and relaxation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a)** **Development Costs** 

During the nine months ended September 30, 2022, the Company incurred development costs of $729,508 (year ended December 31, 2021: $266,698) related to the developing an augmentative wearable product that emulates normal molecular interactions in the body through small, specific magnetic fields. These costs have met the criteria for capitalization under IAS 38.

The following table outlines the Company's intangible assets as at September 30, 2022:

---

| |
|:---|
| License Agreement for certain sensory technologies |
| License Agreement for certain sensory technologies |
| License Agreement for certain sensory technologies |
| Development costs capitalized |
| Amortization of intangible assets - license fees) |
| Amortization of intangible assets - development costs |

---

**6.** **ACQUISITION TRANSACTION** 

During May 2020, the Company entered into a definitive agreement with Zander to complete a transaction structured as a three-cornered amalgamation ("Amalgamation" or "Transaction") with Zander and the Company's wholly-owned subsidiary, 1245802 B.C. Ltd ("802"). As consideration for the Amalgamation, each outstanding common share of the Zander was exchanged for one Subordinated Voting Share of the Company. Pursuant to the amalgamation agreement, an aggregate of 8,724,401 of the Company's Subordinated Voting Shares have been issued to the shareholders of Zander. The transaction resulted in Zander becoming a wholly-owned subsidiary of the Company on June 16, 2020. The entity after the amalgamation of 802 and Zander was named 1253596 B.C. Ltd.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

The transaction was accounted for using the acquisition method of accounting whereby the assets acquired, and liabilities assumed were recorded at their estimated fair value at the acquisition date. The acquisition was not assessed to be a business combination and is therefore treated as an asset acquisition under the scope of IFRS 2 – Share Based Payments. The Company valued the subordinated voting shares using share prices used in recent equity and debt financings which were considered to be the fair value of the shares issued. The allocation of the purchase price is as follows:

---

| | |
|:---|:---|
| Subordinated Voting shares of the Company issued | 8724401 |
| Fair value of consideration received ($0.22 per share) | $1938755 |
| Identifiable assets acquired | $474273 |
| Identifiable liabilities assumed | (1952) |
| Net | 472321 |
| Share-based compensation related to services, knowledge and expertise of the Zander team | 1466434 |
| Total purchase price | $1938755 |

---

In exchange for 8,724,401 Subordinated Voting Shares of the Company, the Company received $472,321 in net assets and the remaining consideration was allocated to share-based payments. The share-based payments represent the services and knowledge related to the expertise that the Zander team brought to the Company. The Zander team is able to assist the Company in understanding the Canadian marketplace and introduce strategic partners to assist with future financings and business negotiations. The Company recorded the shared based-compensation in the year on the consolidated statement of loss and comprehensive loss.

**7.** **ACCOUNTS PAYABLE AND ACCRUED LIABILITIES** 

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **December 31, 2021** |
|  | $ | $ |
| Trade accounts payable and accrued liabilities | 1272376 | 666103 |
| Amounts payable to related parties (note 14) | 287161 | 279764 |
|  | 1559537 | **945867** |

---

**8.** **CONVERTIBLE DEBENTURES** 

On June 25, 2020, the Company closed a non-brokered private placement of secured convertible debentures ("Convertible Debentures"), in the principal amount of $4,483,594 (C$6,116,773). The Convertible Debentures will mature on June 25, 2022. The Company filed a listing application for its Subordinated Voting Shares to be listed on TSX Venture Exchange (the "Listing"). If the Listing was completed on or before October 30, 2020, there would not be any interest to be paid or accrued on the Convertible Debenture. If the Listing was completed after October 30, 2020, there would be eight percent (8%) coupon interest rate to be paid and accrued retroactively from the day of issuance of the Convertible Debentures. The total amount of the principal and the total amount of accrued and unpaid interest, if any, would be automatically converted into units (the "Convertible Debenture Units") of the Company prior to or concurrent to the receipt of the final receipt of the Final Prospectus, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price"). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the "Convertible Debenture Share") and one half of one (1/2) Subordinated Voting Share purchase warrant (each a "Convertible Debenture Warrant"). Each whole Convertible Debenture Warrant entitles the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.37 (C$0.50) per share for a period of two (2) years from the issuance date of the Convertible Debenture Warrant.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

For accounting purposes, the Convertible Debentures are separated into their components using the residual method. The fair value of the liability component at the time of issue was determined to be $3,331,378. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 25.1%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 20,389,216 units (the "Convertible Debenture Units") of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price") with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

On July 13, 2020, the Company closed a non-brokered private placement of secured convertible debentures ("Convertible Debentures"), in the principal amount of $280,098 (C$380,000). The Convertible Debentures will mature on July 13, 2022. The Company filed a listing application for its Subordinated Voting Shares to be listed on TSX Venture Exchange (the "Listing"). If the Listing was completed on or before October 30, 2020, there would not be any interest to be paid or accrued on the Convertible Debenture. If the Listing was completed after October 30, 2020, there would be eight percent (8%) coupon interest rate to be paid and accrued retroactively from the day of issuance of the Convertible Debentures. The total amount of the principal and the total amount of accrued and unpaid interest, if any, would be automatically converted into units (the "Convertible Debenture Units") of the Company prior to or concurrent to the receipt of the final receipt of the Final Prospectus, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price"). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the "Convertible Debenture Share") and one half of one (1/2) Subordinated Voting Share purchase warrant (each a "Convertible Debenture Warrant"). Each whole Convertible Debenture Warrant entitles the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.37 (C$0.50) per share for a period of two (2) years from the issuance date of the Convertible Debenture Warrant.

For accounting purposes, the Convertible Debentures are separated into their liability components using the residual method. The fair value of the liability component at the time of issue was determined to be $225,635. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 20.17%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 1,266,666 units (the "Convertible Debenture Units") of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price") with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**9.** **SHARE CAPITAL** 

On June 15, 2020, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value.

**Authorized**

The Company's authorized capital consists of (i) an unlimited number of Subordinated Voting Shares, and (ii) an unlimited number of Multiple Voting Shares. The holders of Subordinated Voting Shares are entitled to one vote for each Subordinated Voting share held. The holders of Multiple Voting Shares are entitled to 100 votes for each Multiple Voting Share held.

**Voting Rights**

All holders of Subordinated Voting Shares and Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (*British Columbia*). A quorum for the transaction of business at any meeting of shareholders is two persons present at the meeting, each of whom is entitled to vote at the meeting, and who hold or represent by proxy in the aggregate not less than 5% of the outstanding shares of the Company entitled to vote at the meeting.

On all matters upon which shareholders the Company are entitled to vote:

● each Subordinated Voting Share is entitled to one vote per Subordinated Voting Share; and

● each Multiple Voting Share is entitled to 100 votes per Multiple Voting Share.

Unless a different majority is required by law or the articles of the Company, resolutions to be approved by shareholders require approval by a simple majority of shareholders.

**Conversion Rights and Conditions**

The issued and outstanding Multiple Voting Shares, including fractions thereof, may at any time, subject to the FPI Condition (as defined below), at the option of the holder, be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. Further, the board of directors of the Company may determine in the future that it is no longer advisable to maintain the Multiple Voting Shares as a separate class of shares and may cause all of the issued and outstanding Multiple Voting Shares to be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. The right of the Multiple Voting Shares to convert into Subordinated Voting Shares is subject to certain conditions in order to maintain the status of the Company as a "foreign private issuer" under United States securities laws (the "FPI Condition").

At September 30, 2022, the Company has 74,697,850 Subordinated Voting Shares issued and outstanding and 450,000 Multiple Voting Shares issued and outstanding.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

<u>Share issuance:</u>

**FISCAL YEAR 2021**

● During the year ended December 31, 2021, the Company issued total 1,588,277 Subordinated Voting Shares of the Company for the exercise of warrants.

● On November 24, 2021, the Company closed a non-brokered private placement of 20,308,963 units at $C0.30 per unit for total proceeds of $4,805,913 ($C6,092,689). Each unit consisted of one subordinate voting share and one subordinate voting share purchase warrant, and each warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 36 months from the closing date. The Company may, in its sole discretion, provide notice to warrant holders to shorten the warrant expiry date to 60 days from the notice date if the daily volume weighted average closing price of the Company's subordinate voting share is greater than $C1.00 for the 10 consecutive trading days preceding the notice date. In connection with the private placement, the Company paid finders' fees of $89,816 ($C115,052) in cash, and issued 205,660 finder's shares and 589,166 non transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date. The fair value of finder's warrants $41,049 was estimated on the dates of award using the Black-Scholes Option Pricing Model.

● As the warrants are exercisable in a currency different than the Company's functional currency, a resulting derivative exists, and the Company allocated the fair value of the warrants of $2,883,137 on the date of issuance as a warrant liability and the residual of $1,922,776 was allocated to the share capital.

Fiscal Year 2022

● On January 28, 2022, the Company closed a non-brokered private placement of 5,307,894 units at $C0.30 per unit for total proceeds of $1,246,824 ($C1,592,368). Each unit consisted of one subordinate voting share and one subordinate voting share purchase warrant, and each warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 36 months from the closing date. The Company may, in its sole discretion, provide notice to warrant holders to shorten the warrant expiry date to 60 days from the notice date if the daily volume weighted average closing price of the Company's subordinate voting share is greater than $C1.00 for the 10 consecutive trading days preceding the notice date. In connection with the private placement, the Company paid finders' fees of $26,309 ($C33,600) in cash, and issued 70,000 finder's shares and 182,000 non-transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date. The fair value of finder's warrants $24,646 was estimated on the dates of award using the Black-Scholes Option Pricing Model.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**10.** **STOCK OPTIONS AND RESTRICTED SHARE UNITS** 

The Company has adopted a stock option plan on November 6, 2019, providing the Board of Directors with the discretion to issue an equivalent number of options of up to 7,515,000 Subordinated Voting Shares of the Company. Stock options are granted with an exercise price of not less than the closing share price the date preceding the date of grant.

During the year ended December 31, 2021, Company granted 970,000 (2020: 7,866,875) stock options to its directors, officers and consultants with a value of $264,879 (2020: $2,332,752) or $0.27 (2020: $0.33) per option. The details are as follows:

On January 20, 2020, the Company granted 3,600,000 incentive stock options to officers, directors and consultants of the Company. The options are exercisable at the price of $0.22 per share until January 20, 2028.

On August 12, 2020, the Company replace its Old Plan with a new 10% rolling stock option plan (the "New Plan") and adopted a 10% fixed restricted share unit plan (the "RSU Plan"), which were subsequently approved by the TSX Venture Exchange upon the Listing.

On November 12, 2020, the Company granted 4,266,875 incentive stock options to officers, directors and consultants of the Company pursuant to the Company's New Plan. The options are all exercisable at the price of $0.56 (C$0.73) per share until November 12, 2028, subject to earlier termination in accordance with the New Plan.

The fair value of share options awarded to officers, directors and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

---

| | | |
|:---|:---|:---|
|  | Options granted on November 12, 2020 | Options granted on January 20, 2020 |
| Dividend yield | 0% | 0% |
| Risk-free interest rate | 0.63% | 1.57% |
| Estimated volatility | 100% | 100% |
| Expected life in years | 8 | 8 |
| Fair value at grant date | $0.61 | $0.19 |

---

On February 17, 2021, the Company signed an agreement with Octagon Media Corp. ("Octagon") where Octagon is engaged to provide marketing services to the Company for a period of 6 months ending August 16, 2021. The Company agreed to pay $125,000 upfront and granted 600,000 options at an exercise price of $0.63 (C$0.80) to Octagon in return for marketing services.

On March 5, 2021, the Company granted 40,000 stock options exercisable to purchase up to an aggregate of 40,000 shares to a consultant. The options are exercisable at the price of $0.53 (C$0.67) per share until March 5, 2029.

On June 1, 2021, the Company granted 330,000 stock options exercisable to purchase up to an aggregate of 330,000 shares to an entity owned by the new CEO of the Company. The options are exercisable at the price of $0.40 (C$0.48) per share until June 1, 2029.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

The fair value of share options awarded to officers, directors and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

---

| | | | |
|:---|:---|:---|:---|
|  | Options<br> granted on <br>June 1, 2021 | Options<br> granted on <br>March 5, 2021 | Options<br> granted on <br>February 17, 2021 |
| Dividend yield | 0% | 0% | 0% |
| Risk-free interest rate | 1.23% | 1.37% | 0.15% |
| Estimated volatility | 110% | 110% | 94% |
| Expected life in years | 7 | 8 | 1 |
| Fair value at grant date | $0.37 | $0.52 | $0.29 |

---

The stock options outstanding and exercisable as at September 30, 2022 is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Expiry date | Number of <br>options | Exercise price ($) |
| Outstanding at December 31, 2020 |  | 7866875 | 0.40 |
| **Exercisable at December 31, 2020** |  | **7030625** | **0.39** |
| Granted | February 17, 2022 | 600000 | 0.63 |
| Granted | March 5, 2029 | 40000 | 0.53 |
| Granted | June 1, 2029 | 330000 | 0.40 |
| **Outstanding at December 31, 2021** |  | **8836875** | **0.44** |
| **Exercisable at December 31, 2021** |  | **8041250** | **0.43** |
| Expired |  | (600000) | 0.63 |
| **Outstanding at September 30, 2022** |  | **8236875** | **0.40** |
| **Exercisable at September 30, 2022** |  | **7551250** | **0.40** |

---

The number of options exercisable as at September 30, 2022 was 7,551,250 (2021 – 8,041,250). The weighted average life remaining for these options were 6.0 years and weighted average exercise price was $0.40 per option.

**Restricted Stock Units**

During the year ended December 31, 2021, the Company granted an aggregate of 6,817,875 restricted stock units (the "RSU") to officers, directors, key employees and consultants pursuant to the Company's RSU Plan with a value of $248,400 or $0.45 per option. The RSUs will be subject to vesting provisions. Each vested RSU entitles the holder to receive one Subordinated Voting Share in the capital of the Company. The grant of RSUs is subject to regulatory approval.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

On March 5, 2021, the Company granted 100,000 RSU to a consultant with a fair value of $0.53 per RSU. The RSU will be vested 1/2 on the 12- and 24-months' anniversary. These units are exercisable until March 5, 2024.

On June 1, 2021, the Company granted 1,072,000 RSU to an entity owned by the new CEO of the Company, with a fair value of $0.38 per RSU. The RSU will be vested 1/2 on the 12- and 24-months' anniversary. These units are exercisable until June 1, 2024.

On September 29, 2021, the Company granted total 179,000 RSU to two consultants with a fair value of $0.26 per RSU. Out of these units, 62,333 RSU are vested on the grant date; 58,333 RSU on December 31, 2021 and 58,334 RSU on March 9, 2022. These units are exercisable until September 30, 2022, December 31, 2022 and March 9, 2023 respectively.

The fair value of RSUs awarded to officers, directors, key employees and consultants was estimated on the dates of award using the fair market value of the Company share price.

As at September 30, 2022 the Company has 6,592,875 RSUs issued and outstanding and 3,106,711 RSUs exercisable.

**11.** **WARRANTS** 

On June 25, 2020, the Company issued 976,543 non-transferrable finder's warrants. Each finder's warrant entitles the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The broker's warrants were valued at $152,876 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.30%; dividend yield of 0%; expected volatility of 100% and expected life of 2 years.

On July 31, 2020, the Company issued 223,073 warrants to a consultant (the "Consultant") pursuant to the consulting agreement with the Consultant. Each Consultant's warrant entitles the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The Consultant's warrants were valued at $35,541 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.23%; dividend yield of 0%; expected volatility of 100% and expected life of 2 years.

On October 27, 2020, the Company issued 10,827,941 Convertible Debenture Warrants upon conversion of the Convertible Debentures. Out of these issued Convertible Debenture Warrants, a total of 93,916 warrants were exercised during the fiscal year.

In connection with the private placement closed during 2021, the Company issued 589,166 non-transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date. The fair value of finder's warrants was valued at $41,049 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.81%; dividend yield of 0%; expected volatility of 110% and expected life of 1 year.

During the year ended December 31, 2021, a total of 1,588,277 warrants were exercised and converted into Subordinated Voting Shares.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

During the six months ended June 30, 2022, no warrants were exercised and converted into Subordinated Voting Shares.

The warrants outstanding and exercisable as at September 30, 2022 are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | Expiry date | Number of <br>warrants outstanding | Number of <br>warrants exercisable | Exercise Price <br>($) |
| **Balance December 31, 2020** |  | **11933618** | **11933618** | 0.36 |
| Exercised | June 25, 2022 | (259112) | (259112) | 0.22 |
| Exercised | October 27, 2022 | (1329165) | (1329165) | 0.37 |
| Granted | November 24, 2022 | 589166 | 589166 | 0.39 |
| Granted | November 24, 2024 | 20308963 | 20308963 | 0.39 |
| **Balance December 31, 2021** |  | **31243470** | **31243470** | 0.38 |
| Granted | January 28, 2023 | 182000 | 182000 | 0.50 |
| Granted | January 25, 2028 | 5307894 | 5307894 | 0.50 |
| Expired |  | (1462101) | (1462101) | 0.30 |
| **Balance September 30, 2022** |  | **35271263** | **35271263** | 0.50 |

---

As at September 30, 2022, the weighted average remaining contractual life of warrants outstanding was 2.97 years.

**12.** **INCOME (LOSS) PER SHARE** 

The weighted average number of shares outstanding as at September 30, 2022 was 74,697,850. The Company included both weighted average subordinated voting shares outstanding and weighted average multiple voting shares outstanding to the loss per share calculation.

**13.** **WARRANT LIABILITY** 

The Company's warrant liability arises as a result of the issuance of warrants exercisable in Canadian dollars ("CAD"). As the denomination currency is different from the US dollar functional currency of the entity issuing the underlying warrants, the Company recognizes a derivative liability for these warrants and re-measures the liability at the end of each reporting period using the Black-Scholes model. Changes in respect of the Company's warrant liability are as follows:

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **December 31, 2021** |
|  | $ | $ |
| Balance at beginning of the period / year |  |  |
| Additions |  |  |
| Fair value adjustment) |  |  |
| Exercise of warrants) |  |  |
| Other |  |  |
| Balance at the end of the period / year |  |  |

---

For the continuity of warrants during the period, please refer to Note 11.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**14.** **RELATED PARTY TRANSACTIONS** 

The aggregate value of transactions recorded relating to key management personnel and entities which they have control or significant influence were as follows:

---

| | | |
|:---|:---|:---|
|  | **Nine months ended September 30, 2022** | **Nine months ended September 30, 2021** |
| EMulate Therapeutics Inc. – License Fees (a) |  | $10000 |
| EMulate Therapeutics Inc. – Royalty Fees (b) | $133988 | $223805 |
| Scott Donnell / Donnell Holdings LLC (c) | $16000 | $96000 |
| Les Consultants Shtern Inc. (d) | $420000 | $133336 |
| 4114566 Canada Inc (e) | $257913 |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) During
 the interim period ended September 30, 2022, EMulate Therapeutics Inc., an entity which has
 significant influence on the Company charged license fees.

(b) EMulate
 Therapeutics Inc., an entity which has significant influence on the Company charged royalty
 fees.

(c) Scott
 Donnell, the former Chief Executive Officer ("CEO"), and Donnell Holdings LLC,
 an entity controlled by Scott Donnell, charged consulting fees to the Company.

(d) Les
 Consultants Shtern Inc., an entity owned by Yona Shtern, the new CEO, charged consulting
 fees to the Company. Only $220,000 of the above amount was paid during the 9-months ended
 September 30, 2022. The balance was deferred.

(e) 4114566
 Canada Inc, an entity controlled by Kenneth Adessky, the Company's Secretary. charged
 consulting fees to the Company.

The following table outlines the Company's related party payables:

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022**<br> **$** | **December 31, 2021**<br> **$** |
| EMulate Therapeutics Inc. | 133988 | 57928 |
| Les Consultants Shtern | 200000 |  |
| 4114566 Canada Inc. | 22495 | - |
|  | 287161 | 57928 |

---

**15.** **CAPITAL MANAGEMENT** 

The Company's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other shareholders. The Company considers the items included in shareholders' equity as capital. The Company manages the capital structure and makes adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Company intends to raise additional funds through equity or debt financing. The Company is not subject to any externally imposed capital requirements. There were no changes in the Company's approach to capital management.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**16.** **FINANCIAL INSTRUMENTS AND RISK MANAGEMENT** 

The Company's financial instruments consist of cash, receivables, accounts payable and convertible debentures. The fair values of the Company's cash and accounts payable approximate their carrying values, due to their short-term natures. The Company's cash is measured at fair value under the fair value hierarchy based on level one quoted prices in active markets for identical assets or liabilities. The Company's financial instruments are exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest rate risk and price risk.

**Credit risk**

 ****

Credit risk is the risk of loss due to the counterparty's inability to meet its obligations. The Company's exposure to credit risk is on its cash. Risk associated with cash is managed through the use of major banks which are high credit quality financial institutions as determined by rating agencies. Credit risk is assessed as low.

**Liquidity risk**

 ****

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations when they become due. The Company aims to ensure that there is sufficient capital in order to meet short-term operating requirements, after taking into account the Company's holdings of cash. The Company believes that the capital sources will be sufficient to cover the expected cash requirements by obtaining financing through the issuance of debt or shares. Liquidity risk is assessed as high.

**Market risk**

 ****

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, commodity and equity prices, and foreign exchange rates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Interest
 rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not currently exposed to interest rate risk.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Price
 risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potentially adverse impact on the Company's ability to obtain equity financing due to movements in individual equity prices or general movements in the level of the stock market. The Company is not exposed to price risk as it has no instruments in publicly held securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Foreign
 currency risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to foreign exchange risk as all of its operations are in the United States of America, except of cash held in Canadian Dollars which amounted to $163,095 Canadian Dollars as at September 30, 2022 (December 31, 2021 - $4,105,712), accounts receivable which amounted to $Nil Canadian Dollars at September 30, 2022 (December 31, 2021 - $Nil) and accounts payable which amounted to $411,274 Canadian Dollars at September 30, 2022 (December 31, 2021 -$382,847).

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**17.** **COMMITMENTS AND CONTINGENCIES** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) On
 March 29, 2019, the Company entered into an exclusive license agreement with EMulate Therapeutics
 Inc. ("EMulate"), which is subsequently amended and restated on October 30, 2019,
 January 24, 2020, June 1, 2020 and October 26, 2020. The agreement will be in effect for
 20 years. Based on the agreement, the Company will obtain from EMulate certain exclusive
 rights and licenses to develop, use, import, and commercialize consumer digital products
 using EMulate's technology. In exchange, the Company will pay EMulate an upfront non-refundable,
 non-creditable payment of $1,500,000 by the earlier of April 30, 2020 or the date by which
 the Company has raised aggregated amounts of $5 million or more by equity financing. The
 Company will also pay to EMulate royalties on the quarterly net income from sales, lease
 or rental of the authorized product in the territory multiplied by a percentage royalty rate
 of 20%. During the period ended June 30, 2022, the Company has paid license fees of $Nil
 (2021 - $Nil).

b) On
 October 30, 2019, the Company entered into an exclusive license agreement with EMulate, which
 is subsequently amended and restated on January 24, 2020 and June 1, 2020 and October 26,
 2020. The agreement will be in effect for 20 years. Based on the agreement, the Company will
 obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize
 consumer digital products using EMulate's technology. In exchange, the Company will
 pay EMulate an upfront non-refundable, non-creditable payment of $10,000 for each cognate
 designated by and provided to the Company. The Company will also pay to EMulate royalties
 on the quarterly new income from sales, lease or rental of the authorized product in the
 territory multiplied by a percentage royalty rate of 20%. During the period ended June 30,
 2022, the royalty fees payable to Emulate of $107,161 (2021 - $151,805).

c) On
 April 21, 2021, the Company entered into an exclusive license agreement with Emulate. The
 agreement will be in effect for 20 years. Based on the agreement, the Company will obtain
 from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize
 consumer digital products using EMulate's technology. In exchange, the Company will
 pay EMulate an upfront non-refundable, non-creditable payment of $10,000 for the cognate
 designated by and provided to the Company. The Company will also pay to EMulate royalties
 on the quarterly new income from sales, lease or rental of the authorized product in the
 territory multiplied by a percentage royalty rate of 20%. As at Septemer 30, 2022, the royalty
 fees payable to Emulate equal $133,988 (2021 - $151,805).

d) On
 July 29, 2021, the Company entered into an exclusive license agreement with Emulate. The
 agreement will be in effect for 20 years. Based on the agreement, the Company will obtain
 from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize
 consumer digital products using EMulate's technology. In exchange, the Company will
 pay EMulate an upfront non-refundable, non-creditable payment of $10,000 for the cognate
 designated by and provided to the Company. The Company will also pay to EMulate royalties
 on the quarterly new income from sales, lease or rental of the authorized product in the
 territory multiplied by a percentage royalty rate of 20%. During the period ended June 30,
 2022, the royalty fees payable to Emulate of $107,161- (2021—$151,805Nil).

e) The
 Company has entered into a supply agreement with its supplier and committed to purchasing
 25,000 units of its primary product with an estimated cost of $2,500,000.

**Hapbee Technologies, Inc.**

**Notes to the Condensed Consolidated Interim Financial Statements**

**For the nine months ended September 30, 2022 and 2021 (Unaudited)**

**18.** **SUBSEQUENT EVENTS** 

The Company raised net proceeds of approximately $1,119,023 in November 2022 via an equity financing, issuing 22,380,459 units at a price of $0.07 CDN per unit which consisted in the issuance of 22,380,459 subordinate voting shares of the Company ("Shares") and 22,380,459 Share purchase warrants ("Warrants") with each Warrant entitling the holder thereof to acquire one Share at a price of CAD $0.15 per Share for a period of 2 years from the closing date of the Offering.

The table below summarizes the expected use of funds at December 8, 2022. The Company is expecting to use the funds throughout 2022-2023 to increase sales and scale the business.

---

| | |
|:---|:---|
| <br>**Use of Proceeds** | **November 2022 Expected**<br> **Use of Proceeds**<br>**Approximate <br>Amount (USD$)** |
| Sales and marketing | 750000 |
| Inventory | 116.758 |
| Research and development | 69291 |
| General and administration | 182974 |
| **Total** | $**1119023** |

---

*Consolidated Financial Statements of*

 

**HAPBEE TECHNOLOGIES, INC.**

For the years ended December 31, 2021 and 2020

(Expressed in U.S. dollars)

**Management's Report**

The accompanying consolidated financial statements of Hapbee Technologies, Inc. (the "Company") have been prepared by the Company's management. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and contain estimates based on management's judgment. Internal control systems are maintained by management to provide reasonable assurances that assets are safeguarded and financial information is reliable.

The Board of Directors of the Company is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements and the accompanying management discussion and analysis. The Board carries out this responsibility principally through its Audit Committee.

The Audit Committee is appointed by the Board of Directors and a majority of its members are independent directors. It meets with the Company's management and auditors and reviews internal control and financial reporting matters to ensure that management is properly discharging its responsibilities before submitting the consolidated financial statements to the Board of Directors for approval.

Manning Elliott LLP, appointed as the Company's auditors by the shareholders, has examined these consolidated financial statements and their report follows.

(signed) "Yona Shtern"

Chief Executive Officer

![](hapbeedec_003.jpg)

**INDEPENDENT AUDITORS' REPORT**

To the Shareholders and Directors of Hapbee Technologies, Inc.

**Opinion**

We have audited the consolidated financial statements of Hapbee Technologies, Inc. (the "Company") which comprise the consolidated statements of financial position as at December 31, 2021 and 2020 and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the years then ended, and the related notes comprising a summary of significant accounting policies and other explanatory information (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

**Basis for Opinion**

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the *Auditors' Responsibilities for the Audit of the Financial Statements* section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

**Material Uncertainty Related to Going Concern**

We draw attention to Note 1 of the accompanying consolidated financial statements, which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

**Other Information**

Management is responsible for the other information, which comprises the information included in the Company's Management Discussion & Analysis to be filed with the relevant Canadian securities commissions.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

**Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements**

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

**Auditors' Responsibilities for the Audit of the Consolidated Financial Statements**

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

● Identify and assess the
 risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit
 procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
 The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
 involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Obtain an understanding
 of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not
 for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

● Evaluate the appropriateness
 of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

● Conclude on the appropriateness
 of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material
 uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as
 a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report
 to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
 Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or
 conditions may cause the Company to cease to continue as a going concern.

● Evaluate the overall presentation,
 structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial
 statements represent the underlying transactions and events in a manner that achieves fair presentation.

● Obtain sufficient appropriate
 audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion
 on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We
 remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditors' report is Waseem Javed.

![](hapbeedec_001.jpg)

CHARTERED PROFESSIONAL ACCOUNTANTS

Vancouver, British Columbia

May 2, 2022

**Hapbee Technologies, Inc.** 

**Consolidated Statements of Financial Position** 

**As at December 31, 2021 and 2020**

---

| | | |
|:---|:---|:---|
| *Expressed in U.S. dollars* |  |  |
|  | **2021** | **2020** |
|  | **$** | **$** |
| **Assets** |  |  |
| Current assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash |  |  |
| &nbsp;&nbsp;&nbsp;Receivables |  |  |
| &nbsp;&nbsp;&nbsp;Inventory (note 4) |  |  |
| &nbsp;&nbsp;&nbsp;Prepaid expenses |  |  |
| Intangible assets (note 5) |  |  |
| **Total assets** |  |  |
| **Liabilities** |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities (note 7) |  |  |
| &nbsp;&nbsp;&nbsp;Product warranty liability (note 8) |  |  |
| &nbsp;&nbsp;&nbsp;Unearned revenue (note 9) |  |  |
| Total current liabilities |  |  |
| Warrant liability (note 15) |  |  |
| **Total liabilities** |  |  |
| **Equity** |  |  |
| Share capital (note 11) |  |  |
| Reserves |  |  |
| Accumulated other comprehensive income |  |  |
| Accumulated deficit |  |  |
| **Total shareholders' equity** |  |  |
| **Total liabilities and shareholders' equity** |  |  |

---

Nature of operations and going concern (note 1)

Basis of presentation (note 2)

Commitments and contingencies (note 21)

Subsequent events (note 22)

Approved on behalf of the Board of Directors on May 2, 2022.

<u>*"Michael Matysik"*</u> <u>"*Robert Dzisiak*"</u> <br> Director Director

*The accompanying notes are an integral part of these consolidated financial statements.*

 

**Hapbee Technologies, Inc.** 

**Consolidated Statements of Loss and Comprehensive Loss** 

**For the years ended December 31, 2021 and 2020**

 

---

| |
|:---|
| *Expressed in U.S. dollars* |
| **Revenues** |
| Sales on products |
| Cost of goods sold |
| **Other revenue** |
| Shipping income |
| **Expenses** |
| Amortization of intangible assets (note 5) |
| Consulting |
| General and administrative (note 20) |
| Interest accretion and expense on convertible debentures |
| Product development costs |
| Professional fees |
| Salaries and wages |
| Share-based compensation (note 12) |
| Share-based compensation - Zander acquisition (note 6) |
| **Total operating expenses** |
| **Operating loss before other item** |
| **Other item:** |
| Change in fair value of warrant liability (note 15) |
| **Net loss for the year** |
| Other comprehensive income |
| **Net loss and comprehensive loss for the year** |
| <br>Loss per share– basic and diluted (note 14) |
| Weighted-average number of shares outstanding – basic and diluted |

---

 

*The accompanying notes are an integral part of these consolidated financial statements.*

**Hapbee Technologies, Inc.**

**Consolidated Statements of Changes in Equity** 

**For the years ended December 31, 2021 and 2020**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| *Expressed in U.S. dollars* |  |  |  |  |  |  |  |  |
|  | **Number of Subordinated Voting Shares** | **Subordinated Voting Shares** | **Number of Multiple Voting Shares** | **Multiple Voting Shares** | **Accumulated Other Comprehensive Income** | **Reserves** | **Deficit** | **Total** |
|  |  | **$** |  | **$** | **$** | **$** | **$** | **$** |
| **Balance, January 1, 2020** | **58050000** |  | **-** | **-** | **-** |  |  |  |
| Issuance of shares for non-brokered private placement (note 11) | 2497500 |  |  |  |  |  |  |  |
| Conversion to multiple voting shares | (45000000) |  | 450000 | 39 |  |  |  |  |
| Issuance of shares as compensation | 200000 |  |  |  |  |  |  |  |
| Issuance of shares for amalgamation (note 6) | 8724401 |  |  |  |  |  |  |  |
| Issuance of shares for finder's fee (note 11) | 716357 |  |  |  |  |  |  |  |
| Share issuance cost (note 11) |  |  |  |  |  |  |  |  |
| Share-based compensation (note 12) |  |  |  |  |  |  |  |  |
| Conversion of convertible debentures (note 11) | 21655882 |  |  |  |  |  |  |  |
| Exercise of warrants (note 11) | 93916 |  |  |  |  |  |  |  |
| Fair value of finder's warrants (note 11) |  |  |  |  |  |  |  |  |
| Net loss and comprehensive loss for the year | - |  | - | - | 29520 |  |  |  |
| **Balance, December 31, 2020** | **46938056** |  | **450000** | **39** | **29520** |  |  |  |
| Issuance of shares for non-brokered private placement (note 11) | 20308963 |  |  |  |  |  |  |  |
| Issuance of finder's shares (note 11) | 205660 |  |  |  |  |  |  |  |
| Share issuance cost (note 11) |  |  |  |  |  |  |  |  |
| Share-based compensation |  |  |  |  |  |  |  |  |
| Exercise of warrants (note 11) | 1588277 |  |  |  |  |  |  |  |
| Net loss and comprehensive loss for the year | - |  | - | - | 3651 |  |  |  |
| **Balance, December 31, 2021** | **69040956** |  | **450000** | **39** | **33171** |  |  |  |

---

*The accompanying notes are an integral part of these consolidated financial statements.*

 

**Hapbee Technologies, Inc.** 

**Consolidated Statements of Cash Flows** 

**For the years ended December 31, 2021 and 2020**

 

---

| | | |
|:---|:---|:---|
| *Expressed in U.S. dollars* |  |  |
|  | **2021** | **2020** |
|  | **$** | **$** |
| **Operating activities** |  |  |
| Net loss for the year |  |  |
| Items not involving cash: |  |  |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets |  |  |
| &nbsp;&nbsp;&nbsp;Finders' warrants |  |  |
| &nbsp;&nbsp;&nbsp;Finders' shares |  |  |
| &nbsp;&nbsp;&nbsp;Share-based compensation |  |  |
| &nbsp;&nbsp;&nbsp;Share-based - Zander acquisition |  |  |
| &nbsp;&nbsp;&nbsp;Change in fair value of warrant liability |  |  |
| Changes in non-cash working capital balances: |  |  |
| &nbsp;&nbsp;&nbsp;Decrease / (increase) in receivables |  |  |
| &nbsp;&nbsp;&nbsp;Decrease / (increase) in prepaid expenses |  |  |
| &nbsp;&nbsp;&nbsp;Increase in inventory |  |  |
| &nbsp;&nbsp;&nbsp;Increase in accounts payable and accrued liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Increase in product warranty liability |  |  |
| &nbsp;&nbsp;&nbsp;Increase in unearned revenue |  |  |
| **Net cash used in operating activities** |  |  |
| ***Investing activities*** |  |  |
| &nbsp;&nbsp;&nbsp;License fees paid |  |  |
| &nbsp;&nbsp;&nbsp;Development costs incurred |  |  |
| &nbsp;&nbsp;&nbsp;Cash acquired on amalgamation (note 6) |  |  |
| **Net cash used in investing activities** |  |  |
| **Financing activities** |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from subordinated voting shares issuances |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from convertible debenture issuances |  |  |
| &nbsp;&nbsp;&nbsp;Exercise of warrants |  |  |
| &nbsp;&nbsp;&nbsp;Share issuance costs |  |  |
| **Net cash provided by financing activities** |  |  |
| *Effect of foreign exchange on cash* |  |  |
| Increase in cash during the year |  |  |
| Cash, beginning of the year |  |  |
| **Cash, end of the year** |  |  |

---

 

*The accompanying notes are an integral part of these consolidated financial statements.*

 

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

1. NATURE OF OPERATIONS AND GOING CONCERN

Hapbee Technologies, Inc. (the "Company") was incorporated on January 3, 2019 under the Business Corporations Act (British Columbia). Its registered and record office and corporate office is located at 700 West Georgia Street, Suite 2500, Vancouver, BC V7Y 1B3. The Company's principal business activity is to commercialize consumer digital products that will deliver one or more ultra-low radio frequency energy signals to produce mood-altering effects. On June 16, 2020, the Company completed an amalgamation with Zander Capital Ltd. ("Zander"), refer to Note 6 for details.

The Company's operations have been financed to date through the sale of equity instruments and issuance of debt. The Company has incurred a significant operating loss since inception and has an accumulated deficit of $17,469,059 as at December 31, 2021.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. The Company's ability to continue as a going concern depends upon its ability to generate sufficient cash flows from the issuance of debt and equity instruments and generate profitable operations in the future. There is a material uncertainty related to these conditions that casts doubt about the Company's ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business.

The outbreak and spread of a novel coronavirus (COVID-19), declared a pandemic by the World Health Organization, has already had significant human, political, and economic consequences around the world. The coronavirus is still evolving, and its full impact remains to be determined. However, its wide-ranging effects include financial market volatility, interest rate cuts, disrupted movement of people and goods, and diminished consumer confidence. The effects of the coronavirus may be difficult to assess or predict with meaningful precision both generally and as an industry-or issuer-specific basis. This is an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of the Company. To date the impact on the Company's operations has been minimal.

2. BASIS OF PRESENTATION

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Statement of Compliance

These consolidated financial statements, including comparatives, have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Reclassification of prior year amounts

The Company has reclassified certain items on the comparative consolidated statements of loss and comprehensive loss and cash flows to conform with current year's presentation

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Basis of Preparation

These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments measured at fair value through profit or loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for certain cash flow information. The consolidated financial statements, unless otherwise specified, are presented in US dollars, which is the functional currency of the Company.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

2. BASIS OF PRESENTATION (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) Functional and presentation currency

These consolidated financial statements are presented in US dollars, unless otherwise noted, which is the functional currency of the parent and its wholly owned subsidiaries, 1253596 B.C. Ltd, which was incorporated in British Columbia, Canada, and Hapbee Technologies USA, Inc., which was incorporated in the State of Washington, USA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e) Basis of consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;f) Approval of the Consolidated Financial Statements

The consolidated financial statements of the Company for the year ended December 31, 2021 were approved and authorized for issue by the Board of Directors on May 2, 2022.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Critical accounting judgments and estimates

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical accounting judgments and estimates in applying accounting policies that have the most significant impact on the amounts recognized in the consolidated financial statements are outlined below.

*Share-based payments and warrant liability*

The Company makes certain estimates and assumptions when calculating the estimated fair values of stock options granted and warrants issued. The significant assumptions used include estimates of expected volatility, expected life, expected dividend rate and expected risk-free rate of return. Changes in these assumptions may result in a material change to the expense recorded for grants of stock options and the issuance of warrants. Certain warrants issued during the year are accounted for as derivative liabilities (see Note 15).

*Deferred income taxes*

The Company is periodically required to estimate the tax base of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the consolidated financial statements. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of changes.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Critical accounting judgments and estimates (continued)

Each period, the Company evaluates the likelihood of whether some portion or all of each deferred tax asset will not be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, the market price for commodities, production costs, quantities of proven and probable reserves, interest rates, and foreign currency exchange rates.

*Going concern*

 

The determination of the Company's ability to continue as a going concern requires the Company to make certain judgements about whether the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

*Intangible assets*

 

Management is required to use judgement in determining the economic useful lives of identifiable intangible assets and the capitalization of costs for internally generated intangible assets is subject to judgment including the technical feasibility, timeframe to commercialization, assessment of availability of resources to complete the project, and if economic benefits will be generated form its use. Judgement is also required in identifying indicators of impairment of the Company's intangible assets.

At each financial position reporting date, the carrying amounts of the Company's intangible assets, are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the CGU to which the asset belongs. This requires management to make certain estimates and judgements which could be materiality different than actual results.

*Revenue recognition*

The Company's revenue is comprised of sales of its products which consists of its wearable device and annual/monthly subscription. As a result, the Company is required to allocate the transaction prices amongst the multiple elements of its packaged products. This requires that management make judgements and estimates related to the allocation which are subjective and could result in material differences if changed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Financial Instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets and financial liabilities are initially measured at fair value. Financial assets are classified into one of the following specified categories: amortized cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"). Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified as FVTPL) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Financial Instruments (continued)

assets or financial liabilities classified as FVTPL are recognized immediately in the statement of loss and comprehensive loss.

The Company's financial instruments are classified as follows:

---

| | |
|:---|:---|
| **Financial instrument** | **Measurement** |
| Cash | FVTPL |
| Receivables | Amortized cost |
| Accounts payable | Amortized cost |

---

<u>Financial Assets</u>

Subsequent to initial recognition, financial assets classified and measured at amortized cost using the effective interest method.

Financial assets classified as FVTPL are recognized initially at fair values less transaction costs and are subsequently carried at fair value, with changes in the fair value recorded in comprehensive income. The fair value measurements are based on level 1 inputs, being quoted prices in active markets for identical instruments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Impairment of financial assets at amortized cost

The Company recognizes an allowance using the ECL model on financial assets classified as amortized cost. The Company has elected to use the simplified approach for measuring ECL by using a lifetime expected loss allowance for all accounts receivable. Under this model, impairment provisions are based on credit risk characteristics and days past due. When there is no reasonable expectation of collection, financial assets classified as amortized cost are written off. Indications of credit risk arise based on failure to pay and other factors. Should objective events occur after an impairment loss is recognized, a reversal of impairment is recognized in the statement of loss and comprehensive loss.

<u>Financial Liabilities</u>

Financial liabilities are classified as and are measured at amortized cost subsequent to initial measurement at fair value.

<u>Offsetting financial instruments</u>

Financial assets and financial liabilities are offset and the net amount reported on the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) Cash

Cash is comprised of cash held in current operating bank accounts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e) Inventory

Inventory includes products held for resale in the ordinary course of business (finished goods) and is measured at the lower of cost and net realizable value. The cost of inventory is determined generally on a first-in and first-out basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;f) Product warranty liability

During the years ended December 31, 2021 and 2020, the Company provided a one month money-back satisfaction guarantee on the Company's Hapbee devices. A customer is able to receive a refund for a Hapbee device within one month of the purchase date. Provisions are recognized when as a consequence of a past event that the Company has a legal or constructive obligation and it is probable that there will be an outflow of the Company's resources to settle the obligation.

Provisions are measured at management's best estimate of the costs required to settle the obligation. Discounting is applied where relevant. Actual warranty costs are charged against the income statement when incurred. The product warranty liability on the balance sheet represents the Company's estimated cost of the outstanding warranty upon recognition of the sale of the product. The costs are estimated based on actual historical costs incurred and on estimated future costs related to current sales, and are updated periodically.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;g) Revenue recognition

The Company's revenues are derived from both the sale of hardware as well as subscriptions fees related to the use of its products.

Sales of hardware is recognized upon the transfer of control of the promised product to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products.

Subscription fees are comprised of fees that provide customers with access to its software and application over the contract term without taking possession of the software. Revenue from subscription fees are recognized over the term of the contract.

The Company also collects advance payments from its customers which are recorded as unearned revenue. Recognition of the unearned revenue for subscription fees is over the term of the contract. For sale of hardware, recognition of unearned revenue is based on control of products transferring to customers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;h) Research and development expenditures

Research expenditures are recorded in the period incurred. Product development expenditures are expensed in the period incurred unless the product candidate meets specific criteria related to technical, market and financial feasibility for deferral and amortization. The Company's policy is to amortize deferred product development expenditures over the expected future life of the product once product revenues are recorded. The future life of the product is estimated to be 8 years.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i) Share-based payments

The Company has a share-based compensation plan. Awards of options under this plan are expensed or recorded as additions to resource properties based on the estimated fair value of the options at the grant date, with a corresponding credit to contributed surplus in shareholders' equity. Fair value is estimated using the Black-Scholes pricing model. If the options are subject to a vesting period, the estimated fair value is recognized over this period on a graded vesting basis, based on the Company's estimate of the shares that will eventually vest.

Equity-settled share-based payment transactions with parties other than employees and those providing similar services are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the estimated fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

Cash consideration received on exercise of options is credited to share capital together with the amounts originally recorded as share-based compensation related to the exercised options.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;h) Share capital

Subordinated voting shares and multiple voting shares are classified as equity. Incremental costs directly attributable to the issuance of new equity instruments are taken to equity as a deduction, net of tax, from the proceeds. When units consisting shares and warrants are issued in private placements, the Company allocates the proceeds to the shares and warrants on a residual basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i) Share issue costs

Professional, consulting, regulatory and other costs directly attributable to financing transactions are recorded as deferred share issue costs until the financing transactions are completed, if the completion of the transaction is considered likely; otherwise they are expensed as incurred. Share issue costs are charged to share capital when the related shares are issued. Deferred share issue costs related to financing transactions that are not completed are charged to expenses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;j) Income taxes

*Current income taxes*

 

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities based on taxable income for the year. The tax rates and tax laws used to compute the amount are those that are enacted, or substantively enacted, at the reporting date in the countries where the Company operates and generates taxable income.

Income tax is recognized in the statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity. Current income tax relating to items recognized directly in equity is recognized in the statements of changes in equity and not in the statements of loss and comprehensive loss.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;j) Income taxes (continued)

*Deferred income taxes*

 

Deferred income taxes are calculated using the liability method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:

---

| |
|:---|
| when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and |
| in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. |

---

Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses, can be utilized.

Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted, or substantively enacted, at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Deferred tax relating to items recognized outside of profit or loss is recognized outside of profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive loss or directly in equity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;k) Loss per share

Loss per share is calculated based on the weighted average number of shares outstanding during the year. The Company follows the treasury method of calculating diluted earnings per share. This method assumes that any proceeds from the exercise of stock options and other dilutive instruments would be used to purchase common shares at the average market price during the year. Diluted loss per share is equal to loss per share since the exercise of all options and warrants is anti-dilutive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;l) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. There were no material provisions recorded within the consolidated financial statements as at December 31, 2021.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;m) Foreign currency translation

Foreign currency transactions are translated as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) monetary assets
 and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the exchange
 rate prevailing at the statement of financial position date; and

(ii) non-monetary assets and
 liabilities denominated in foreign currencies and measured in terms of historic costs are translated using exchange rates at the
 transaction dates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;n) Related party transactions

Unless otherwise disclosed herein, all transactions with related parties are in the normal course of business and are measured at the exchange amount (note 17).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o) Intangible assets - Licenses

Upon acquisition, intangible assets with finite useful lives are recorded at fair value and are carried at cost less accumulated amortization and impairment losses. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives of the Company's licenses are 20 years.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;p) Intangible assets – Development costs

Development expenditures can be capitalized only where a development project meets certain conditions, including technical feasibility of the intangible asset, intention to complete the project, ability to sell the intangible asset, probability that the intangible asset can produce future economic benefits, availability of resources to complete the project, and ability to reliably measure the expenditure attributable to the intangible asset. Development projects are reviewed as they arise and on an on-going basis to assess whether all conditions have been met. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;q) Adoption of new pronouncements

A number of amendments to standards and interpretations applicable to the Company are not yet effective for the year ended December 31, 2021 and have not been applied in preparing these consolidated financial statements nor does the Company expect these amendments to have a significant effect on its consolidated financial statements.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

4. INVENTORY

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
|  | $ | $ |
| Finished goods | 283596 | 29829 |

---

During the year ended December 31, 2021, the Company recognized $661,110 (2020: $275,707) of inventory as cost of goods sold.

5. INTANGIBLE ASSETS

The Company capitalized the acquisition costs of licenses and development costs related to the design and development of the device prototype.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Licenses

<u>License Agreement for certain sensory technologies</u>

On March 29, 2019, the Company acquired a license from EMulate Therapeutics Inc. ("EMulate"). The Company paid an up-front fee of USD $1,500,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

Pursuant to amendments to the License Agreement with Emulate, the effective date of the License Agreement was changed to October 26, 2020. All other terms remain unchanged.

<u>License Agreement for certain sensory technologies</u>

On October 30, 2019, the Company acquired another license from EMulate. The Company paid an up- front fee of USD $30,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date.

Pursuant to amendments to the License Agreement with Emulate, the effective date of the License Agreement was changed to October 26, 2020. All other terms remain unchanged.

On April 21, 2021, the Company acquired another license from EMulate. The Company paid an up- front fee of USD $10,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate bedtime signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date of April 21, 2021.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

5. INTANGIBLE ASSETS (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Licenses (continued)

On July 29, 2021, the Company acquired another license from EMulate. The Company paid an up-front fee of USD $10,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate bedtime signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's technology. The license has a term of 20 years from the effective date of July 29, 2021.

Sensory technologies include the human senses of happiness, sleepiness, focus, alertness, calmness and relaxation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Development Costs

During the year, the Company incurred development costs of $nil (2020: $314,983) related to the developing an augmentative wearable device that emulates normal molecular interactions in the body through small, specific magnetic fields. These costs have met the criteria for capitalization under IAS 38.

The following table outlines the Company's intangible assets as at December 31, 2021:

---

| |
|:---|
| License Agreement for certain sensory technologies |
| License Agreement for certain sensory technologies |
| License Agreement for certain sensory technologies |
| Development costs capitalized |
| Amortization of intangible assets - license fees) |
| Amortization of intangible assets - development costs |

---

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

6. ACQUISITION TRANSACTION

During May 2020, the Company entered into a definitive agreement with Zander to complete a transaction structured as a three-cornered amalgamation ("Amalgamation" or "Transaction") with Zander and the Company's wholly-owned subsidiary, 1245802 B.C. Ltd ("802"). As consideration for the Amalgamation, each outstanding common share of the Zander was exchanged for one Subordinated Voting Share of the Company. Pursuant to the amalgamation agreement, an aggregate of 8,724,401 of the Company's Subordinated Voting Shares have been issued to the shareholders of Zander. The Transaction resulted in Zander becoming a wholly-owned subsidiary of the Company on June 16, 2020. The amalgamated entity after the amalgamation of 802 and Zander was renamed 1253596 B.C. Ltd.

The Transaction was accounted for using the acquisition method of accounting whereby the assets acquired, and liabilities assumed were recorded at their estimated fair value at the acquisition date. The Transaction was not assessed to be a business combination and is therefore treated as an asset acquisition under the scope of IFRS 2 – Share Based Payments. The Company valued the subordinated voting shares using share prices used in recent equity and debt financings which were considered to be the fair value of the shares issued. The allocation of the purchase price is as follows:

---

| |
|:---|
| Fair value of consideration issued (8,724,401 Subordinated voting shares of $0.22 per share) |
| Identifiable assets acquired |
| Identifiable liabilities assumed |
| Net |
| Share-based compensation related to services, knowledge and expertise of the Zander team |
| Total purchase price |

---

In exchange for 8,724,401 Subordinated Voting Shares of the Company, the Company received $472,321 in net assets and the remaining consideration was allocated to share-based payments. The share-based payments represented the services and knowledge related to the expertise that the Zander team bought to the Company. The Zander team will be able to assist the Company in understanding the Canadian marketplace and will be able to introduce strategic partners to assist with future financings and business negotiations. The Company recorded the shared based-compensation in the year on the consolidated statement of loss and comprehensive loss.

**7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
|  | $ | $ |
| Trade accounts payable and accrued liabilities | 666103 | 387012 |
| Amounts payable to related parties (note 17) | 279764 | 219744 |
|  | 945867 | 606756 |

---

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

**8. PRODUCT WARRANTY LIABILITY**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
|  | $ | $ |
| Product warranty liability | 52805 |  |

---

**9. UNEARNED REVENUE**

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
|  | $ | $ |
| Unearned revenue | 579352 | 188391 |

---

The Company records unearned revenue pertaining to the unearned portions of the subscriptions collected from customers.

10. CONVERTIBLE DEBENTURES

On June 25, 2020, the Company closed a non-brokered private placement of secured convertible debentures ("Convertible Debentures"), in the principal amount of $4,483,594 (C$6,116,773). The Convertible Debentures will mature on June 25, 2022. The Company filed a listing application for its Subordinated Voting Shares to be listed on TSX Venture Exchange (the "Listing"). If the Listing was completed on or before October 30, 2020, there would not be any interest to be paid or accrued on the Convertible Debenture. If the Listing was completed after October 30, 2020, there would be eight percent (8%) coupon interest rate to be paid and accrued retroactively from the day of issuance of the Convertible Debentures. The total amount of the principal and the total amount of accrued and unpaid interest, if any, would be automatically converted into units (the "Convertible Debenture Units") of the Company prior to or concurrent to the receipt of the final receipt of the Final Prospectus, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price"). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the "Convertible Debenture Share") and one half of one (1/2) Subordinated Voting Share purchase warrant (each a "Convertible Debenture Warrant"). Each whole Convertible Debenture Warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.37 (C$0.50) per share for a period of two (2) years from the issuance date of the Convertible Debenture Warrant.

For accounting purposes, the Convertible Debentures are separated into their components using the residual method. The fair value of the liability component at the time of issue was determined to be $3,331,378. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 25.1%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 20,389,242 units (the "Convertible Debenture Units") of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price") with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

On July 13, 2020, the Company closed a non-brokered private placement of secured convertible debentures ("Convertible Debentures"), in the principal amount of $280,098 (C$380,000). The Convertible Debentures will mature on July 13, 2022. The terms of the Convertible Debentures were identical to those described above as issued on June 25, 2020.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

10. CONVERTIBLE DEBENTURES (CONTINUED)

For accounting purposes, the Convertible Debentures are separated into their liability components using the residual method. The fair value of the liability component at the time of issue was determined to be $225,635. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 20.17%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 1,266,640 units (the "Convertible Debenture Units") of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price") with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

11. SHARE CAPITAL

On June 15, 2020, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value.

**Authorized**

The Company's authorized capital consists of (i) an unlimited number of Subordinated Voting Shares, and (ii) an unlimited number of Multiple Voting Shares. The holders of Subordinated Voting Shares are entitled to one vote for each Subordinated Voting share held. The holders of Multiple Voting Shares are entitled to 100 votes for each Multiple Voting Share held.

**Voting Rights**

All holders of Subordinated Voting Shares and Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). A quorum for the transaction of business at any meeting of shareholders is two persons present at the meeting, each of whom is entitled to vote at the meeting, and who hold or represent by proxy in the aggregate not less than 5% of the outstanding shares of the Company entitled to vote at the meeting.

On all matters upon which shareholders the Company are entitled to vote:

● each Subordinated Voting Share is entitled to one vote per Subordinated Voting Share; and

● each Multiple Voting Share is entitled to 100 votes per Multiple Voting Share.

Unless a different majority is required by law or the articles of the Company, resolutions to be approved by shareholders require approval by a simple majority of shareholders.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

11. SHARE CAPITAL (CONTINUED)

**Conversion Rights and Conditions**

The issued and outstanding Multiple Voting Shares, including fractions thereof, may at any time, subject to the FPI Condition (as defined below), at the option of the holder, be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. Further, the board of directors of the Company may determine in the future that it is no longer advisable to maintain the Multiple

Voting Shares as a separate class of shares and may cause all of the issued and outstanding Multiple Voting Shares to be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. The right of the Multiple Voting Shares to convert into Subordinated Voting Shares is subject to certain conditions in order to maintain the status of the Company as a "foreign private issuer" under United States securities laws (the "FPI Condition").

At December 31, 2021, the Company has 69,040,956 Subordinated Voting Shares issued and outstanding and 450,000 Multiple Voting Shares issued and outstanding.

<u>Shares Issuance</u>

Fiscal Year 2020

● During the period from January 1, 2020 to June 4, 2020, the Company completed a private placement of an aggregate of 2,497,500 common shares at a price of $0.22 per share for aggregate gross proceeds of $555,000.

● On June 15, 2020, the Company completed a forward stock split of its shares on a 1 for 4.5 basis. Particulars of the share consolidation were approved by the shareholders at the Company's AGM on June 15, 2020. The Company had 13,455,000 common shares issued and outstanding and the resulting post share split shares outstanding are 60,547,500. All share information was updated to reflect this stock split. The exercise price and number of common shares issuable pursuant to all share capital have been adjusted in accordance with the stock split ratio.

● On June 15, 2020, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value. 60,547,500 common shares previously issued were cancelled and replaced by 60,547,500 Subordinated Voting Shares.

● On June 15, 2020, the Company exchanged 45,000,000 Subordinated Voting Shares owned by EMulate Therapeutics Inc. and Scott Donnell for 450,000 Multiple Voting Shares.

● On June 16, 2020, the Company issued 8,724,401 Subordinated Voting Shares upon the completion of the amalgamation with Zander, refer to Note 6 for details.

● On June 16, 2020, the Company issued 200,000 Subordinated Voting Shares to a director of the Company at a deemed price of $0.22 per share.

● On June 25, 2020, the Company issued 716,357 Subordinated Voting Shares to a finder of the Convertible Debentures (Note 10).

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

11. SHARE CAPITAL (CONTINUED)

● On October 27, 2020, the principal amounts of Convertible Debentures, which were issued on June 25, 2020 and July 13, 2020, have automatically converted into 21,655,882 units (the "Convertible Debenture Units") of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the "Conversion Price"). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the "Convertible Debenture Share") and one half of one (1/2) Subordinated Voting Share purchase warrant (each a "Convertible Debenture Warrant") (Note 10).

● On October 30, 2020, the Company's Subordinate Voting Shares were listed on the TSX Venture Exchange.

Fiscal Year 2021

● During the year ended December 31, 2021, the Company issued total 1,588,277 Subordinated Voting Shares of the Company for the exercise of warrants.

● On November 24, 2021, the Company closed a non-brokered private placement of 20,308,963 units at $C0.30 per unit for total proceeds of $4,805,913 ($C6,092,689). Each unit consisted of one subordinate voting share and one subordinate voting share purchase warrant, and each warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 36 months from the closing date. The Company may, in its sole discretion, provide notice to warrant holders to shorten the warrant expiry date to 60 days from the notice date if the daily volume weighted average closing price of the Company's subordinate voting share is greater than $C1.00 for the 10 consecutive trading days preceding the notice date. In connection with the private placement, the Company paid finders' fees of $89,816 ($C115,052) in cash, and issued 205,660 finder's shares and 589,166 non-transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date. The fair value of finder's warrants $41,049 was estimated on the dates of award using the Black-Scholes Option Pricing Model.

As the warrants are exercisable in a currency different than the Company's functional currency, a resulting derivative exists and the Company allocated the fair value of the warrants of $2,883,137 on the date of issuance as a warrant liability and the residual of $1,922,776 was allocated to the share capital.

12. STOCK OPTIONS AND RESTRICTED SHARE UNITS

Stock Options

The Company has adopted a stock option plan on November 6, 2019, providing the Board of Directors with the discretion to issue an equivalent number of options of up to 7,515,000 Subordinated Voting Shares of the Company. Stock options are granted with an exercise price of not less than the closing share price the date preceding the date of grant.

During the year ended December 31, 2021, Company granted 970,000 (2020: 7,866,875) stock options to its directors, officers and consultants with a value of $264,879 (2020: $2,332,752) or $0.27 (2020: $0.33) per option. The details are as follows:

● On January 20, 2020, the Company granted 3,600,000 incentive stock options to officers, directors and consultants of the Company. The options are exercisable at the price of $0.22 per share until January 20, 2028.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

12. STOCK OPTIONS AND RESTRICTED SHARE UNITS (CONTINUED)

● On August 12, 2020, the Company replace its Old Plan with a new 10% rolling stock option plan (the "New Plan") and adopted a 10% fixed restricted share unit plan (the "RSU Plan"), which were subsequently approved by the TSX Venture Exchange upon the Listing.

● On November 12, 2020, the Company granted 4,266,875 incentive stock options to officers, directors and consultants of the Company pursuant to the Company's New Plan. The options are all exercisable at the price of $0.56 (C$0.73) per share until November 12, 2028, subject to earlier termination in accordance with the New Plan.

● The fair value of share options awarded to officers, directors and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

---

| | | |
|:---|:---|:---|
|  | Options granted on <br>November 12, 2020 | Options granted on <br>January 20, 2020 |
| Dividend yield | 0% | 0% |
| Risk-free interest rate | 0.63% | 1.57% |
| Estimated volatility | 150% | 150% |
| Expected life in years | 8.00 | 8.00 |
| Fair value at grant date | $0.61 | $0.19 |

---

○ On February 17, 2021, the Company signed an agreement with Octagon Media Corp. ("Octagon") where Octagon is engaged to provide marketing services to the Company for a period of 6 months ending August 16, 2021. The Company agreed to pay $125,000 upfront and granted 600,000 options at an exercise price of $0.63 (C$0.80) to Octagon in return for marketing services. The options vested immediately are exercisable unit February 17, 2022

○ On March 5, 2021, the Company granted 40,000 stock options exercisable to purchase up to an aggregate of 40,000 shares to a consultant. The options vested immediately are exercisable at the price of $0.53 (C$0.67) per share until March 5, 2029.

○ On June 1, 2021, the Company granted 330,000 stock options exercisable to purchase up to an aggregate of 330,000 shares to an entity owned by the new CEO of the Company. The options will be vested 1/3 on the 12, 24 and 36 months' anniversary. The options are exercisable at the price of $0.40 (C$0.48) per share until June 1, 2029.

○ The fair value of share options awarded to officers, directors and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

---

| | | | |
|:---|:---|:---|:---|
|  | Options granted on <br>June 1, 2021 | Options granted on <br>March 5, 2021 | Options granted on <br>February 17, 2021 |
| Dividend yield | 0% | 0% | 0% |
| Risk-free interest rate | 1.23% | 1.37% | 0.15% |
| Estimated volatility | 110% | 110% | 94% |
| Expected life in years | 7 | 8 | 1 |
| Fair value at grant date | $0.37 | $0.52 | $0.29 |

---

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

12. STOCK OPTIONS AND RESTRICTED SHARE UNITS (CONTINUED)

The stock options outstanding and exercisable as at December 31, 2021 is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Expiry date | Number of options | Exercise price ($) |
| Outstanding at December 31, 2019 |  |  |  |
| Granted | January 20, 2028 | 3600000 | 0.22 |
| Granted | November 12, 2028 | 4266875 | 0.56 |
| **Outstanding at December 31, 2020** |  | **7866875** | **0.40** |
| **Exercisable at December 31, 2020** |  | **7030625** | **0.39** |
| Granted | February 17, 2022 | 600000 | 0.63 |
| Granted | March 5, 2029 | 40000 | 0.53 |
| Granted | June 1, 2029 | 330000 | 0.40 |
| **Outstanding at December 31, 2021** |  | **8836875** | **0.44** |
| **Exercisable at December 31, 2021** |  | **8041250** | **0.43** |

---

The number of options exercisable as at December 31, 2021 was 8,041,250 (2020 – 7,030,625). The weighted average life remaining for these options was 6.10 years and weighted average exercise price was $0.43 per option.

Restricted Stock Units

During the year ended December 31, 2020, the Company granted an aggregate of 5,466,875 restricted stock units (the "RSU") to officers, directors, key employees and consultants pursuant to the Company's RSU Plan with a fair value of $0.58 per RSU. The RSU will be vested 1/2 on the 12 and 24 months' anniversary. These units are exercisable until November 12, 2023.

On March 5, 2021, the Company granted 100,000 RSU to a consultant with a fair value of $0.53 per RSU. The RSU will be vested 1/2 on the 12 and 24 months' anniversary. These units are exercisable until March 5, 2024.

On June 1, 2021, the Company granted 1,072,000 RSU to an entity owned by the new CEO of the Company, with a fair value of $0.38 per RSU. The RSU will be vested 1/2 on the 12 and 24 months' anniversary. These units are exercisable until June 1, 2024.

On September 29, 2021, the Company granted total 179,000 RSU to two consultants with a fair value of $0.26 per RSU. Out of these units, 62,333 RSU are vested on the grant date; 58,333 RSU on December 31, 2021 and 58,334 RSU on March 9, 2022. These units are exercisable until September 30, 2022, December 31, 2022 and March 9, 2023 respectively.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

12. STOCK OPTIONS AND RESTRICTED SHARE UNITS (CONTINUED)

The fair value of RSUs awarded to officers, directors, key employees and consultants was estimated on the dates of award using the fair market value of the Company share price.

As at December 30, 2021, the Company has 6,817,875 RSUs issued and outstanding; and 2,854,104 RSUs exercisable.

13. WARRANTS

On June 25, 2020, the Company issued 976,543 non-transferrable finder's warrants. Each finder's warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The broker's warrants were valued at $152,876 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.30%; dividend yield of 0%; expected volatility of 150% and expected life of 2 years (Note 8).

On July 31, 2020, the Company issued 223,073 (2019 – nil) warrants to a consultant (the Consultant") pursuant to the consulting agreement with the Consultant. Each Consultant's warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The Consultant's warrants were valued at $35,541 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.23%; dividend yield of 0%; expected volatility of 150% and expected life of 2 years.

On October 27, 2020, the Company issued 10,827,938 Convertible Debenture Warrants upon conversion of the Convertible Debentures (Note 10). Out of these issued Convertible Debenture Warrants, a total of 93,916 units were exercised during the fiscal year.

In connection with the private placement closed during the year, the Company issued 589,166 non- transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date. The fair value of finder's warrants was valued at $41,049 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.81%; dividend yield of 0%; expected volatility of 110% and expected life of 1 year.

During the year ended December 31, 2021, a total of 1,588,277 warrants were exercised and converted into Subordinated Voting Shares.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

13. WARRANTS (CONTINUED)

The warrants outstanding and exercisable as at December 31, 2021 are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | Expiry date | Number of warrants <br>outstanding | Number of warrants <br>exercisable | Exercise Price <br>($) |
| Balance December 31, 2019 |  |  |  |  |
| Granted | June 25, 2022 | 976523 | 976523 | 0.22 |
| Granted | July 31, 2022 | 223073 | 223073 | 0.22 |
| Granted | October 27, 2022 | 10827938 | 10827938 | 0.37 |
| Exercised | October 27, 2022 | (93916) | (93916) | 0.37 |
| **Balance December 31, 2020** |  | **11933618** | **11933618** | 0.36 |
| Exercised | June 25, 2022 | (259112) | (259112) | 0.22 |
| Exercised | October 27, 2022 | (1329165) | (1329165) | 0.37 |
| Granted | November 24, 2022 | 589166 | 589166 | 0.39 |
| Granted | November 24, 2024 | 20308963 | 20308963 | 0.39 |
| **Balance December 31, 2021** |  | **31243470** | **31243470** | 0.38 |

---

As at December 31, 2021, the weighted average remaining contractual life of warrants outstanding was 2.2 years.

14. LOSS PER SHARE

The weighted average number of shares outstanding for the year ended December 31, 2021 was 50,722,011. The Company included both weighted average subordinated common shares outstanding and weighted average multiple voting shares outstanding to the loss per share calculation.

15. WARRANT LIABILITY

The Company's warrant liability arises as a result of the issuance of warrants exercisable in Canadian dollars ("CAD"). As the denomination currency of the exercise price is different from the US dollar functional currency of the entity issuing the underlying warrants, the Company recognizes a derivative liability for these warrants and re-measures the liability at the end of each reporting period using the Black- Scholes model. Changes in respect of the Company's warrant liability are as follows:

---

| | |
|:---|:---|
|  | **December 31, 2021** |
|  | $ |
| Balance at beginning of the year |  |
| Additions |  |
| Fair value adjustment) |  |
| Exercise of warrants) |  |
| Other |  |
| Balance at the end of the year |  |

---

Continuity of the underlying warrants during the year is as follows:

---

| | | |
|:---|:---|:---|
|  | Underlying <br>warrants | Weighted Average <br>Exercise Price |
| Warrants outstanding and exercisable, December 31, 2020 | 10827938 | $0.37 |
| &nbsp;&nbsp;&nbsp;Granted | 20308963 | $0.38 |
| &nbsp;&nbsp;&nbsp;Exercised | (1329165) | $0.33 |
| &nbsp;&nbsp;&nbsp;Expired | - | - |
| Warrants outstanding and exercisable, December 31, 2021 | 29807736 | $0.38 |

---

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

15. WARRANT LIABILITY (CONTINUED)

As at December 31, 2021, the weighted average remaining contractual life of warrants outstanding was 2.2 years.

Valuation of the warrant liability requires the use of highly subjective estimates and assumptions including the expected stock price volatility. The expected volatility used in valuing warrants is based on volatility observed in historical periods and comparative companies' historical information. Changes in the underlying assumptions can materially affect the fair value estimates. The fair value of the warrant liability was calculated using the Black-Scholes model with the following weighted average assumptions and resulting fair values:

---

| | | |
|:---|:---|:---|
|  | December 31, 2021 | December 31, 2020 |
| Risk-free interest rate | 1.13% | 0.20% |
| Expected dividend yield | 0% | 0% |
| Expected warrant life (years) | 2.90 | 1.82 |
| Estimated stock price volatility | 110% | 100% |
| Fair value | $0.17 | $0.31 |

---

16. INCOME TAXES

The provision for income taxes reported differs from the amounts computed by applying the applicable income tax rates to the net loss before tax provision due to the following:

---

| | |
|:---|:---|
|  | **2020** |
|  | **$** |
| Loss before income taxes) | (10335544) |
| Statutory rate | 27% |
| Tax recovery at statutory rate) | (2790597) |
| Change in unrecognized deductible temporary differences | 575949 |
| Permanent differences | 2214648 |
| Income tax recovery | - |

---

---

| |
|:---|
| Deferred income tax assets |
| &nbsp;&nbsp;&nbsp;Losses carried forward |
| &nbsp;&nbsp;&nbsp;Share issuance costs |
| &nbsp;&nbsp;&nbsp;Intangible assets |
| &nbsp;&nbsp;&nbsp;Capitalized development cost |
| Deferred income tax liabilities |
| Unrecognized deferred income tax assets |
| Net deferred income tax assets |

---

*Non-capital losses*

 

As at December 31, 2021, the Company has estimated non-capital losses for Canadian income tax purposes of $10,766,000 that may be carried forward to reduce taxable income derived in future years. These losses begins expiring in 2039.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

17. RELATED PARTY TRANSACTIONS

The aggregate value of transactions recorded relating to key management personnel and entities which they have control or significant influence were as follows:

---

| | | |
|:---|:---|:---|
|  | **2021**<br> **($)** | **2020**<br> **($)** |
| EMulate Therapeutics Inc. – License Fees (a) | 20000 | 697496 |
| EMulate Therapeutics Inc. – Development Costs (b) | 84242 | 111701 |
| EMulate Therapeutics Inc. – Royalty Fees (c) | 278588 | 113362 |
| Shares issued to Emulate Therapeutics Inc. (d) |  | 1 |
| Scott Donnell / Donnell Holdings LLC (e) | 120000 | 176000 |
| Les Consultants Shtern Inc. (f) | 250004 |  |
| Shares issued to Scott Donnell (g) |  | 38 |
| Shares issued to Robert Dzisiak (h) |  | 44256 |
| Premier CFO LLC (i) | 60000 |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;(a) EMulate
Therapeutics Inc., an entity which has significant influence on the Company charged license fees. See note 5.

(b) EMulate Therapeutics Inc.,
 an entity which has significant influence on the Company charged development costs. See note 5.

(c) EMulate Therapeutics Inc.,
 an entity which has significant influence on the Company charged royalty fees. See note 5.

(d) During the year ended December
 31, 2019, 28,125,000 common shares were issued to Emulate Therapeutics Inc. for gross proceeds of $1. During June 2020, these 28,125,000
 common shares were cancelled and replaced by 281,250 Multiple Voting Shares.

(e) Scott Donnell, the former
 Chief Executive Officer ("CFO"), and Donnell Holdings LLC, an entity controlled by Scott Donnell charged consulting fees
 to the Company.

(f) Les Consultants Shtern
 Inc., an entity owned by Yona Shtern, the new CEO charged consulting fees to the Company.

(g) During the year ended December
 31, 2019, 16,875,000 common shares were issued to Scott Donnell for gross proceeds of $38. During June 2020, these 16,875,000 common
 shares were cancelled and replaced by 168,750 Multiple Voting Shares.

(h) During June 2020, 200,000
 Subordinated Voting Shares were issued to Robert Dzisiak, a director of the Company as compensation.

(i) Premier CFO LLC, an entity
 controlled by the Company's Chief Financial Officer, charged consulting fees to the Company.

The following table outlines the Company's related party payables:

---

| | | |
|:---|:---|:---|
|  | **2021**<br> **$** | **2020**<br> **$** |
| Scott Donnell |  | 54069 |
| EMulate Therapeutics Inc. | 57928 | 165675 |
|  | 57928 | 219744 |

---

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

18. CAPITAL MANAGEMENT

The Company's objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other shareholders. The Company considers the items included in shareholders' equity as capital. The Company manages the capital structure and makes adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Company intends to raise additional funds through equity or debt financing. The Company is not subject to any externally imposed capital requirements. There were no changes in the Company's approach to capital management.

19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company's financial instruments consist of cash, receivables, accounts payable and convertible debentures. The fair values of the Company's cash and accounts payable approximate their carrying values, due to their short-term natures. The Company's cash is measured at fair value under the fair value hierarchy based on level one quoted prices in active markets for identical assets or liabilities. The Company's financial instruments are exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest rate risk and price risk.

**Credit risk**

 ****

Credit risk is the risk of loss due to the counterparty's inability to meet its obligations. The Company's exposure to credit risk is on its cash and accounts receivable. Risk associated with cash is managed through the use of major banks which are high credit quality financial institutions as determined by rating agencies. Credit risk is assessed as low.

**Liquidity risk**

 ****

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations when they become due. The Company aims to ensure that there is sufficient capital in order to meet short-term operating requirements, after taking into account the Company's holdings of cash. The Company believes that the capital sources will be sufficient to cover the expected cash requirements by obtaining financing through the issuance of debt or shares. Liquidity risk is assessed as high.

**Market risk**

 ****

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, commodity and equity prices, and foreign exchange rates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**a) Interest rate risk**

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not currently exposed to interest rate risk.

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Price risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potentially adverse impact on the Company's ability to obtain equity financing due to movements in individual equity prices or general movements in the level of the stock market. The Company is not exposed to price risk as it has no instruments in publicly held securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Foreign currency risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to foreign exchange risk as all of its operations are in the United States of America, except of cash held in Canadian Dollars which amounted to $4,105,712 Canadian Dollars as at December 31, 2021 (2020: $3,803,311 – December 31, 2020), accounts receivable which amounted to $Nil Canadian Dollars at December 31, 2021 (2020: $3,619) and accounts payable which amounted to $382,847 Canadian Dollars at December 31, 2021 (2020: $8,770).

20. GENERAL AND ADMINISTRATIVE EXPENSES

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
|  | $ | $ |
| Foreign exchange recovery) |  |  |
| Marketing and selling |  |  |
| Office |  |  |
| Travel and entertainment |  |  |

---

**21. COMMITMENTS AND CONTINGENCIES**

&nbsp;&nbsp;&nbsp;&nbsp;a) On March 29, 2019, the Company entered into an exclusive license
agreement with EMulate Therapeutics Inc. ("EMulate"), which is subsequently amended and restated on October 30, 2019, January
24, 2020, June 1, 2020 and October 26, 2020. The agreement will be in effect for 20 years. Based on the agreement, the Company will obtain
from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate's
technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable payment of $1,500,000 by the earlier
of April 30, 2020 or the date by which the Company has raised aggregated amounts of $5 million or more by equity financing. The Company
will also pay to EMulate royalties on the quarterly net income from sales, lease or rental of the authorized product in the territory
multiplied by a percentage royalty rate of 20%. During the year ended December 31, 2021, the Company has paid or accrued license fees
of $Nil (2020 - $Nil).

**Hapbee Technologies, Inc.** 

**Notes to the Consolidated Financial Statements** 

**For the years ended December 31, 2021 and 2020**

21. COMMITMENTS AND CONTINGENCIES (CONTINUED)

&nbsp;&nbsp;&nbsp;&nbsp;b) On October
 30, 2019, the Company entered into an exclusive license agreement with EMulate, which is subsequently amended and restated on January
 24, 2020 and June 1, 2020 and October 26, 2020. The agreement will be in effect for 20 years. Based on the agreement, the Company
 will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products
 using EMulate's technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable payment of
 $10,000 for each cognate designated by and provided to the Company. The Company will also pay to EMulate royalties on the quarterly
 new income from sales, lease or rental of the authorized product in the territory multiplied by a percentage royalty rate of 20%.
 During the year ended December 31, 2021, the Company has accrued royalty fees to Emulate of $278,588 (2020 - $Nil).

c) On April 21, 2021, the
 Company entered into an exclusive license agreement with Emulate. The agreement will be in effect for 20 years. Based on the agreement,
 the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer
 digital products using EMulate's technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable
 payment of $10,000 for the cognate designated by and provided to the Company. The Company will also pay to EMulate royalties on the
 quarterly new income from sales, lease or rental of the authorized product in the territory multiplied by a percentage royalty rate
 of 20%. During the year ended December 31, 2021, the Company has paid or accrued royalty fees to Emulate of $Nil.

d) On July 29, 2021, the Company
 entered into an exclusive license agreement with Emulate. The agreement will be in effect for 20 years. Based on the agreement, the
 Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital
 products using EMulate's technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable payment
 of $10,000 for the cognate designated by and provided to the Company. The Company will also pay to EMulate royalties on the quarterly
 new income from sales, lease or rental of the authorized product in the territory multiplied by a percentage royalty rate of 20%.
 During the year ended December 31, 2021, the Company has paid or accrued royalty fees to Emulate of $Nil.

e) The Company has entered
 into a supply agreement with its supplier and committed to purchasing 25,000 units of its primary product with an estimated cost
 of $2,500,000.

22. SUBSEQUENT EVENTS

On January 28, 2022, the Company closed a non-brokered private placement of 5,307,894 units at $C0.30 per unit for total proceeds of $1,246,824 ($C1,592,368). Each unit consisted of one subordinate voting share and one subordinate voting share purchase warrant, and each warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 36 months from the closing date. The Company may, in its sole discretion, provide notice to warrant holders to shorten the warrant expiry date to 60 days from the notice date if the daily volume weighted average closing price of the Company's subordinate voting share is greater than $C1.00 for the 10 consecutive trading days preceding the notice date. In connection with the private placement, the Company paid finders' fees of $26,309 ($C33,600) in cash, and issued 70,000 finder's shares and 182,000 non- transferrable warrants. Each finder's warrant entitles the holder thereof to purchase one additional subordinate voting share of the Company at a price of $C0.50 per share for a period of 12 months from the closing date.

**2,500,000 Shares of Common Stock**

![](forms-1a_001.jpg)

**EMULATE THERAPEUTICS, INC.**

**PROSPECTUS**

*Sole Bookrunner*

**EF Hutton, division of Benchmark Investments, LLC**

, 2023

**Through and including , 2023 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this Offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.**

**PART II**

**INFORMATION NOT REQUIRED IN PROSPECTUS**

**Item 13. Other Expenses of Issuance and Distribution.**

The following is an estimate of the expenses (all of which are to be paid by the Company) that we may incur in connection with the securities being registered hereby.

---

| | |
|:---|:---|
| **Offering Expenses** |  |
| SEC registration fee | $1446 |
| FINRA filing fee | $5000 |
| Nasdaq listing and filing fees | $5000 |
| Printing expenses | $7000 |
| Legal fees and expenses | $1000000 |
| Accounting fees and expenses | $70000 |
| Miscellaneous | $11554 |
| Total | $1100000 |

---

**Item 14. Indemnification of Directors and Officers.**

RCW 23B.08.320 permits a Washington corporation to, through its articles of corporation, eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for conduct as a director, except for the following:

i. acts or omissions that involve intentional misconduct by a director or a knowing violation of law by a director;

ii. conduct violating RCW 23B.08.310 relating to unlawful distributions;

iii. any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled; and

iv. any act or omission occurring prior to the date when the provision in the articles of incorporation eliminating or limiting liability becomes effective.

RCW 23B.08.510 authorizes a Washington corporation to indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:

i. the individual acted in good faith; and

ii. the individual reasonably believed (a) in the case of conduct in the individual's official capacity with the corporation, that the individual's conduct was in its best interests, and (b) in all other cases, that the individual's conduct was at least not opposed to its best interests; and

iii. in the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful.

Notwithstanding the forgoing, a Washington corporation may not indemnify a director under RCW 23B.08.510 in connection with (a) a proceeding by or on behalf of the corporation in which the director RCW 23B.08.320 permits a Washington corporation to, through its articles of corporation, eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for conduct as a director, except for the following:

i. acts or omissions that involve intentional misconduct by a director or a knowing violation of law by a director;

ii. conduct violating RCW 23B.08.310 relating to unlawful distributions;

iii. any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled; and

iv. any act or omission occurring prior to the date when the provision in the articles of incorporation eliminating or limiting liability becomes effective.

In addition, our Bylaws provide that:

● we are required to indemnify our directors and executive officers to the fullest extent not prohibited by Washington law or any other applicable law, subject to limited exceptions;

● we may indemnify our other officers, employees and other agents as set forth in Washington law or any other applicable law;

● we are required to advance expenses to our directors and executive officers as incurred in connection with legal proceedings against them for which they may be indemnified; and

● the rights conferred in the amended and restated Bylaws are not exclusive.

**Item 15. Recent Sales of Unregistered Securities.**

The following information relates to all securities issued or sold by us within the past three years and not registered under the Securities Act. All dollar amounts below are stated in thousands, except per share amounts.

The Company issued 32 unsecured convertible notes between January 2020 and December 2020 with an aggregate principal amount of $1,950,000. Between January 2021 and December 2021, the Company issued and additional 22 unsecured convertible notes with an aggregate principal amount of $1,766,000. Between January 2022 and September 2022, the Company issued an additional 21 unsecured convertible notes in an aggregate principal amount of $1,704,000. All convertible notes have a maturity date of the earlier of September 2022 (except for two notes totaling $201,000 due in August 2023) or consummation of a deemed liquidation and bear interest at an annual rate of 10%. In connection with the sale of these convertible notes, the Company issued warrants to purchase 25,000 shares of Common Stock at an exercise price of $10.22.

The convertible notes include put features, the terms of which are dependent upon the amount invested. At maturity the principal and accrued interest of convertible notes will be automatically converted into common stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the maturity date, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00, in any case rounded down to the nearest whole share of the Common Stock as of the date of conversion. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time the convertible notes are outstanding, the holder may (a) elect to convert the outstanding principal and accrued interest into equity securities. Conversion price equal to the highest cash price paid for the nonqualified equity securities or (b) convertible into common stock at a conversion price equal to the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion.

During the nine months ended September 30, 2022, some of the convertible notes, in the aggregate amount of approximately $1,952,000, were converted into 462,347 shares of Common Stock, at a price of $4.09 per share.

In January 2020, the Company issued an unsecured convertible note to a related party in the amount of $250,000 with a maturity date earlier of January 2022 or consummation of a deemed liquidation and an annual interest rate of 10%. The convertible note was outstanding as of September 30, 2022. On September 3, 2021, the Board extended the maturity date to February 28, 2022. At maturity the principal and accrued interest of convertible note will be automatically converted into Common Stock at the lesser of (1) the fair market value per Share on the maturity date, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In September 2020, the Company issued an unsecured convertible note to a related party in the amount of $250,000 with a maturity date of September 2022 and an annual interest rate of 10%. The convertible note was outstanding as of September 30, 2022. At maturity the principal and accrued interest of convertible notes will be automatically converted into Common Stock at a price per share equal to the lesser of (1) the fair market value per share of Common Stock on the maturity date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00.If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In November 2020, the Company issued an unsecured convertible note to a related party in the amount of $100,000 with a maturity date of December 2022 or upon the consummation of a deemed liquidation and an annual interest rate of 10%. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. The conversion price is equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $150,000 in exchange for a promissory note, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. At any time this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $142,000 in exchange for a $112,000 promissory note and $30,000 accounts payable, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. At any time, this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per Share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. The convertible note was outstanding as of September 30, 2022.

In February 2021, the Company issued an unsecured convertible note to a related party of $228,000 in exchange for a $200,000 promissory note and additional $28,000 in cash, with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 10% per annum. Prior to maturity, the related party may elect to convert at conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors.

In January 2021, $38,000 in accounts payables due to a related party was exchanged for an unsecured convertible note with a maturity of December 2022 or upon a deemed liquidation and an interest rate of 3% per annum. At any time, this note may be converted at a conversion price equal to 100% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion.

In February 2021, the Company issued an unsecured convertible note to a related party in the amount of $30,000 with a maturity date of February 2023 or upon the consummation of a deemed liquidation and an interest rate of 10%. per annum. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At maturity the principal and accrued interest of convertible notes will be automatically converted into Common Stock at a price per share equal to the lesser of (1) the fair market value per Share of Common Stock on the Maturity Date, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the maturity date or (B) grant of options or other similar equity awards to an employee or service provider of the Company to purchase Common Stock on or prior to the maturity date, or (2) $9.00. At any time, the holder may elect to convert the outstanding principal and accrued interest into Common Stock at the higher of a sale of Common Stock or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This convertible note was outstanding as of September 30, 2022.

In July 2021, the Company issued an unsecured convertible note to a related party in the amount of $600,000, of which $500,000 was in exchange for a promissory note, with a maturity date of December 2022 or upon the consummation of a deemed liquidation and an interest rate of 10% per annum. If a financing with proceeds of at least $10,000,000 is consummated prior to the maturity date, the notes will automatically convert at a conversion price equal to 85% of the highest cash price paid for the securities sold in the financing to other investors. At any time, this note may be converted at a conversion price equal to 85% of the fair market value per share of Common Stock as of date of conversion, as determined by the higher of the price per share for the most recent (A) sale of Common Stock to a third party investor by the Company on or prior to the date of conversion, or (B) grant of options to purchase Common Stock or similar equity awards to an employee or service provider of the Company on or prior to the date of conversion. This was outstanding as of September 30, 2022.

In connection with one of the 2020 and 2021 notes, the Company issued warrants to purchase 25,000 shares of Common Stock at an exercise price of $10.22. During 2022, the Company issued additional warrants to purchase 2,000 shares of Common Stock at an exercise price of $3.75.

During 2022, the Company issued an aggregate of 823,034 options to purchase shares of our common stock to employees under the Company's Amended and Restated 2016 Equity Incentive Plan (the "Plan"). The options vest between March 2022 and December 2025, have an exercise price of $4.09 per share, and expire seven years after the grant date.

During 2021, the Company issued an aggregate of 1,044,833 options to purchase shares of our common stock to employees under the Plan. The options vest between November 2021 and November 2025, have an exercise price of 4.09 per share, and expire seven years after the grant date.

Unless otherwise stated above, the issuances of these securities were made in reliance upon exemptions provided by Section 3(a)(9) of the Securities Act, Section 4(a)(2) of the Securities Act, Regulation D promulgated thereunder, or Securities Act Rule 701 for the offer and sale of securities not involving a public offering.

No underwriter was engaged in connection with the foregoing sales of securities. The Company has reason to believe that all of the foregoing purchasers were familiar with or had access to information concerning the operations and financial conditions of the Company, and all of those individuals purchasing securities represented that they were accredited investors, acquiring the shares for investment and without a view to the distribution thereof. At the time of issuance, all of the foregoing securities were deemed to be restricted securities for purposes of the Securities Act and the certificates representing such securities bore legends to that effect**.** 

**Item 16. Exhibits and Financial Statement Schedules**

---

| | |
|:---|:---|
| **Exhibit**<br>**Number** | <br>**Exhibit Description** |
| 1.1 | [Form of Underwriting Agreement](ex1-1.htm) |
| 3.1 | [Amended and Restated Articles of Incorporation of EMulate Therapeutics, Inc., filed June 10, 2014](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex3-1.htm) |
| 3.2 | [Articles of Amendment to Amended and Restated Articles of Incorporation of EMulate Therapeutics, Inc., filed February 27, 2019](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex3-2.htm) |
| 3.3 | [Amended and Restated Bylaws of EMulate Therapeutics, Inc.](ex3-3.htm) |
| 4.1 | [Specimen certificate evidencing shares of Common Stock](ex4-1.htm) |
| 4.2 | [Form of Representative's Warrant](ex4-2.htm) |
| 5.1\* | Legal opinion of Lucosky Brookman LLP |
| 10.1 | [Distribution Agreement, dated October 10, 2019, by and between EMulate Therapeutics, Inc. and Sayre Therapeutics Private Limited](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-1.htm) |
| 10.2 | [Exclusive License Agreement, dated April 1, 2017, by and between EMulate Therapeutics, Inc. and Teijin Limited](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-2.htm) |
| 10.3 | [Exclusive License Agreement, dated April 21, 2021, by and between EMulate Therapeutics, Inc. and Hapbee Technologies, Inc.](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-3.htm) |
| 10. 4 | [License Agreement, dated July 29, 2021, by and between EMulate Therapeutics, Inc. and Hapbee Technologies, Inc.](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-4.htm) |
| 10. 5 | [Amended and Restated Exclusive License Agreement, dated October 26, 2020, by and between EMulate Therapeutics, Inc. and Hapbee Technologies, Inc.](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-5.htm) |
| 10. 6 | [Amendment to Exclusive License Agreement, dated October 26, 2020, by and between EMulate Therapeutics, Inc. and Hapbee Technologies, Inc.](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-6.htm) |
| 10.7 | [Right of First Refusal and Co-sale Agreement, dated March 22, 2002, by and between EMulate Therapeutics, Inc. and John T. Butters, Bennett M. Butters, and Lisa C. Butters](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-7.htm) |
| 10. 8† | [Amended and Restated Employment Agreement between EMulate Therapeutics, Inc. and Chris E. Rivera, dated as of March 15, 2022](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-8.htm) |
| 10. 9† | [Amended and Restated Employment Agreement between EMulate Therapeutics, Inc. and Steven E. Pope, dated as of March 15, 2022](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-9.htm) |
| 10. 10† | [Amended and Restated Employment Agreement between EMulate Therapeutics, Inc. and David C. Matteson, dated as of March 15, 2022](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-10.htm) |
| 10. 11† | [Amended and Restated Employment Agreement between EMulate Therapeutics, Inc. and Kyle J. Kingma, dated as of April 18, 2022](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-11.htm) |
| 10. 12† | [EMulate Therapeutics, Inc. Amended and Restated 2016 Equity Incentive Plan](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-12.htm) |
| 10. 13† | [Form of Stock Option Agreement for EMulate Therapeutics, Inc. 2016 Equity Incentive Plan](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-13.htm) |

---

---

| | |
|:---|:---|
| 10.14 | [Promissory Note issued to Nancy Nordhoff, dated March 14, 2022](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-14.htm) |
| 10.15 | [Promissory Note issued to John Kingma, dated July 6, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-15.htm) |
| 10.16 | [Promissory Note issued to John Kingma, dated July 15, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-16.htm) |
| 10.17 | [Convertible Note issued to John Kingma, dated February 5, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-17.htm) |
| 10.18 | [Convertible Note issued to John Kingma, dated February 5, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-18.htm) |
| 10.19 | [Convertible Note issued to John Kingma, dated February 5, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-19.htm) |
| 10.20 | [Convertible Note issued to John Kingma, dated January 31, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-20.htm) |
| 10.21 | [Convertible Note issued to Lucky Good Dog, LLC, dated February 23, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-21.htm) |
| 10.22 | [Convertible Note issued to Lucky Good Dog, LLC, dated July 20, 2021](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex10-22.htm) |
| 14.1 | [Code of Ethics and Business Conduct](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex14-1.htm) |
| 21.1 | [Subsidiaries of the Registrant](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex21-1.htm) |
| 23.1 | [Consent of MaloneBailey LLP](ex23-1.htm) |
| 23.2 | [Consent of Manning Elliott LLP](ex23-2.htm) |
| 23.3\* | Consent of Lucosky Brookman LLP (reference is made to Exhibit 5.1) |
| 24.1 | [Power of Attorney (included on the signature page hereto)](#poa_01) |
| 99.1 | [Audit Committee Charter](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex99-1.htm) |
| 99.2 | [Compensation Committee Charter](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex99-2.htm) |
| 99.3 | [Nominating and Corporate Governance Committee Charter](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex99-3.htm) |
| 99.4 | [Insider Trading Policy](ex99-4.htm) |
| 101.PRE | XBRL Instance Document |
| 101.INS | XBRL Taxonomy Extension Schema Document |
| 101.SCH | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.CAL | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Label Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Presentation Linkbase Document] |
| 107 | [Filing Fee Table](https://www.sec.gov/Archives/edgar/data/1254348/000149315222023239/ex107.htm) |

---

\* To be filed by amendment

† Executive compensation plan or arrangement

**Item 17. Undertakings.**

The undersigned registrant hereby undertakes:

&nbsp;&nbsp;&nbsp;&nbsp;(1) That,
 for the purpose of determining any liability under the Securities Act of 1933, each
 such post-effective amendment will be deemed to be a new registration statement
 relating to the securities offered therein, and the offering of such securities at that
 time will be deemed to be the initial bona fide offering thereof.

&nbsp;&nbsp;&nbsp;&nbsp;(2) To
 remove from registration by means of a post-effective amendment any of the securities being
 registered which remain unsold at the termination of the offering.

&nbsp;&nbsp;&nbsp;&nbsp;(3) That,
 for the purpose of determining liability of the registrant under the Securities Act of 1933
 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration
 statement relating to an offering, other than registration statements relying on Rule 430B
 or other than prospectuses filed in reliance on Rule 430A, will be deemed to be part of and
 included in the registration statement as of the date it is first used after effectiveness. <u>Provided</u>, <u>however</u>, that no statement made in a registration statement or prospectus
 that is part of the registration statement or made in a document incorporated or deemed incorporated
 by reference into the registration statement or prospectus that is part of the registration
 statement will, as to a purchaser with a time of contract of sale prior to such first use,
 supersede or modify any statement that was made in the registration statement or prospectus
 that was part of the registration statement or made in any such document immediately prior
 to such date of first use.

&nbsp;&nbsp;&nbsp;&nbsp;(4) That,
 for the purpose of determining liability of the registrant under the Securities Act of 1933
 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Any
 preliminary prospectus or prospectus of the undersigned registrant relating to the offering
 required to be filed pursuant to Rule 424;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Any
 free writing prospectus relating to the offering prepared by or on behalf of the undersigned
 registrant or used or referred to by the undersigned registrant;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The
 portion of any other free writing prospectus relating to the offering containing material
 information about the undersigned registrant or its securities provided by or on behalf of
 the undersigned registrant; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Any
 other communication that is an offer in the offering made by the undersigned registrant to
 the purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

**SIGNATURES**

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bellevue, State of Washington, on January 26, 2023.

---

| | |
|:---|:---|
| **EMulate Therapeutics, Inc.** | **EMulate Therapeutics, Inc.** |
| By: | */s/ Chris E. Rivera* |
|  | Chris E. Rivera |
|  | Chief Executive Officer |

---

KNOW ALL PERSONS BY THESE PRESENT that each individual whose signature appears below constitutes and appoints Chris E. Rivera and Steven Pope his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or his their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | **Title** | **Date** |
| */s/ Chris E. Rivera* | Chief Executive Officer | January 26, 2023 |
|  | (principal executive officer) and Director |  |
| */s/ Kyle Kingma* | Principal Financial and Accounting Officer | January 26, 2023 |
| */s/ Bennett M. Butters* | Director | January 26, 2023 |
| */s/ Andrew Daniels*  | Director | January 26, 2023 |
| */s/ Richard Henriques*  | Director | January 26, 2023 |
| */s/ John Kingma*  | Director | January 26, 2023 |
| */s/ Charles E. McNerney* | Director | January 26, 2023 |

---

## Exhibit 1.1

**Exhibit 1.1**

**UNDERWRITING AGREEMENT**

**between**

**EMULATE THERAPUETICS, INC.**

**and**

**EF HUTTON, division of Benchmark Investments, LLC, as Representative of the Several Underwriters**

**EMULATE THERAPEUTICS, INC.**

**UNDERWRITING AGREEMENT**

New York, New York

[●], 2022

EF Hutton,

division of Benchmark Investments, LLC

as Representative of the several Underwriters named on Schedule 1 attached hereto

590 Madison Avenue, 39<sup>th</sup> Floor

New York, New York 10022

Ladies and Gentlemen:

The undersigned, EMulate Therapeutics, Inc., a corporation formed under the laws of the State of Washington (collectively with its subsidiaries and affiliates, including, without limitation, all entities disclosed or described in the Registration Statement (as hereinafter defined) as being subsidiaries, the "**Company**"), hereby confirms its agreement (this "**Agreement**") with EF Hutton, division of Benchmark Investments, LLC (hereinafter referred to as "you" (including its correlatives) or the "**Representative**"), and with the other underwriters named on <u>Schedule 1</u> hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the "**Underwriters**" or, individually, an "**Underwriter**") as follows:

1. PURCHASE AND SALE OF SHARES.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.1. Firm Shares**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1.1. <u>Nature and Purchase of Firm Shares</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, an aggregate of [●] authorized but unissued shares (the "**Firm Shares**") of common stock of the Company, par value $0.001 per share (the "**Common Stock**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Shares set forth opposite their respective names on <u>Schedule 1</u> attached hereto and made a part hereof, at a purchase price of $[●] per Firm Share ([●]% of the public offering price for each Firm Share). The Firm Shares are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1.2. <u>Payment and Delivery of Firm Shares</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Delivery and payment for the Firm Shares shall be made at 10:00 a.m., Eastern time, on the second (2<sup>nd</sup>) Business Day following the effective date (the "**Effective Date**") of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3<sup>rd</sup>) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Seward & Kissel LLP, One Battery Park Plaza, New York, New York 10004, ("**Representative Counsel**"), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Shares is called the "**Closing Date**."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Payment for the Firm Shares shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Shares (or through the facilities of the Depository Trust Company ("**DTC**")) for the account of the Underwriters. The Firm Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Shares except upon tender of payment by the Representative for all of the Firm Shares. The term "**Business Day**" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to "stay-at-home," "shelter-in-place," "non-essential employee" or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.2. Option**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2.1. <u>Option Shares</u>. The Company hereby grants to the Underwriters an option to purchase up to [●] additional shares of Common Stock (the "**Option Shares**"), representing fifteen percent (15%) of the Firm Shares sold in the Offering, from the Company (the "**Option**"). The purchase price to be paid per Option Share shall be equal to the price per Firm Share set forth in Section 1.1.1 hereof. The Firm Shares and the Option Shares are hereinafter referred to together as the "**Public Securities**." The offering and sale of the Public Securities is herein referred to as the "**Offering**."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2.2. <u>Exercise of Option</u>. The Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Shares within 45 days after the Effective Date. The Underwriters shall not be under any obligation to purchase any Option Shares prior to the exercise of the Option. The Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Shares to be purchased and the date and time for delivery of and payment for the Option Shares (the "**Option Closing Date**"), which shall not be later than one (1) Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Shares does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Option with respect to all or any portion of the Option Shares, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Shares specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Shares then being purchased as set forth in <u>Schedule 1</u> opposite the name of such Underwriter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2.3. <u>Payment and Delivery</u>. Payment for the Option Shares shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to the Representative of certificates (in form and substance satisfactory to the Underwriters) representing the Option Shares (or through the facilities of DTC) for the account of the Underwriters. The Option Shares shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Shares except upon tender of payment by the Representative for applicable Option Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.3. Representative's Warrants**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3.1. <u>Purchase Warrants</u>. The Company hereby agrees to issue to the Representative (and/or its designees) on the Closing Date or the Option Closing Date, as applicable, one or more warrants ("**Representative's Warrants**") for the purchase of an aggregate of [●] shares of Common Stock, representing 4% of the number of Firm Shares and Option Shares sold on the Closing Date or the Option Closing Date, as applicable. The agreement(s) representing the Representative's Warrants, in the form attached hereto as <u>Exhibit A</u> (the "**Representative's Warrant Agreement**"), shall be exercisable, in whole or in part, commencing on a date which is six (6) months after the Effective Date and expiring on the five-year anniversary of the Effective Date at an initial exercise price per share of Common Stock of $[●], which is equal to 100% of the initial public offering price of the Firm Shares. The Representative's Warrant Agreement and the shares of Common Stock issuable upon exercise thereof are hereinafter referred to together as the "**Representative's Securities**." The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative's Warrant Agreement and the underlying shares of Common Stock during the 180 days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative's Warrant Agreement, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of 180 days following the Effective Date to anyone other than [(i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3.2. <u>Delivery</u>. Delivery of the Representative's Warrant Agreement shall be made on the Closing Date or the Option Closing Date(s), as applicable, and shall be issued in the name or names and in such authorized denominations as the Representative may request.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.1. Filing of Registration Statement**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1.1. <u>Pursuant to the Securities Act</u>. The Company has filed with the U.S. Securities and Exchange Commission (the "**Commission**") a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-266924), including any related prospectus or prospectuses, for the registration of the Public Securities and the Representative's Securities under the Securities Act of 1933, as amended (the "**Securities Act**"). Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A (the "**Rule 430A Information**") of the rules and regulations of the Commission promulgated thereunder (the "**Securities Act Regulations**"), is referred to herein as the "**Registration Statement**." If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term "**Registration Statement**" shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.

Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "**Preliminary Prospectus**." The Preliminary Prospectus, subject to completion, dated [●], 2022, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the "**Pricing Prospectus**." The final prospectus in the form first furnished to the Underwriters for use in the Offering, that includes the Rule 430A Information, is hereinafter called the "**Prospectus**." Any reference to the "most recent Preliminary Prospectus" shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.

"**Applicable Time**" means [●] [a.m.][p.m.], Eastern time, on the date of this Agreement.

"**Issuer Free Writing Prospectus**" means any "issuer free writing prospectus," as defined in Rule 433 of the Securities Act Regulations ("**Rule 433**"), including without limitation any "free writing prospectus" (as defined in Rule 405 of the Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii) a "road show that is a written communication" within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company's records pursuant to Rule 433(g).

"**Issuer General Use Free Writing Prospectus**" means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a "*bona fide* electronic road show," as defined in Rule 433 (the "**Bona Fide Electronic Road Show**")), as evidenced by its being specified in <u>Schedule 2-B</u> hereto.

"**Issuer Limited Use Free Writing Prospectus**" means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

"**Knowledge**" means the actual knowledge, after due inquiry, of the Company's chief executive officer, general counsel and/or principal financial and accounting officer.

"**Pricing Disclosure Package**" means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on <u>Schedule 2-A</u> hereto, all considered together.

"**Testing-the-Waters Communication**" means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act. Each such communication is listed on <u>Exhibit E</u> hereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1.2. <u>Pursuant to the Exchange Act</u>. The Company has filed with the Commission a Form 8-A (File Number 001-[●]) providing for the registration of the Common Stock pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the "**Exchange Act**"). The registration of the Common Stock under the Exchange Act has been declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.2. Stock Exchange Listing**. The Common Stock has been approved for listing on the Nasdaq Capital Market (the "**Exchange**"), subject only to official notice of issuance, and the Company has taken no action designed to, or likely to have the effect of, delisting the Common Stock from the Exchange, nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.3. No Stop Orders, etc**. Neither the Commission nor, to the Company's knowledge, any state regulatory authority has issued any order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company's knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.4. Disclosures in Registration Statement**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.1. <u>Compliance with Securities Act and 10b-5 Representation</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with the Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's EDGAR filing system ("**EDGAR**"), except to the extent permitted by Regulation S-T promulgated under the Securities Act ("**Regulation S-T**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict in any material respect with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the following disclosure contained in the "Underwriting" section of the Prospectus including, but not limited to, the names of the Underwriters and the information in the table under the subheading titled "Discounts, Commissions and Other Compensation" (the "**Underwriters' Information**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters' Information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.2. <u>Disclosure of Agreements</u>. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company's business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company's knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company's knowledge, any other party is in default thereunder and, to the Company's knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. To the Company's knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law (including, without limitation, common law), statute, rule, regulation, judgment, order, decree, injunction or ordinance of any governmental or regulatory agency, authority, body, entity or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a "**Governmental Entity**" and collectively, "**Governmental Entities**"), including, without limitation, those relating to environmental laws and regulations..

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.3. <u>Reserved.</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.4. <u>Regulations</u>. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign laws, rules and regulations relating to the Offering and the Company's business as currently conducted or contemplated are correct and complete in all material respects and no other such laws, rules or regulations are required under the Securities Act and the Securities Act Regulations to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.5. <u>No Other Distribution of Offering Materials</u>. The Company has not, directly or indirectly, distributed and will not distribute any offering material in connection with the Offering other than any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus and other materials, if any, permitted under the Securities Act and consistent with Section 3.2 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4.6 <u>Prior Securities Transactions</u>. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Preliminary Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5. Changes After Dates in Registration Statement**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.1. <u>No Material Adverse Change</u>. Since the date of the most recent financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company or its Subsidiaries taken as a whole, nor any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company or its Subsidiaries taken as a whole (a "**Material Adverse Change**"); (ii) there have been no material transactions entered into by the Company or its Subsidiaries, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5.2. <u>Recent Securities Transactions, etc</u>. Since the date of the most recent financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.6. Reserved**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.7. Independent Accountants**. MaloneBailey LLP (the "**Auditor**"), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.8. Financial Statements, etc**. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("**GAAP**"), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding "non-GAAP financial measures" (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company's financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) since the date of the last balance sheet included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its direct and indirect subsidiaries, including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being a subsidiary of the Company (each, a "**Subsidiary**" and collectively, the "**Subsidiaries**"), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or its Subsidiaries, or, other than in the ordinary course of business, any grants under any stock compensation plan, and (d) there has not been any material adverse change in the Company's long-term or short-term debt. The Company represents that it has no direct or indirect subsidiaries other than those listed in Exhibit 21.1 to the Registration Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.9. Authorized Capital; Options, etc**. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued shares of Common Stock of the Company or any security convertible or exercisable into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities. The information set forth under the caption "Capitalization" in the Registration Statement and the Prospectus (and any similar section or information contained in the Pricing Disclosure Package) is true and correct. All of the Public Securities conform to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The form of certificates for the Public Securities conforms to U.S. federal and applicable state laws and to any requirements of the Company's organizational documents. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein or in this Agreement, the Company has not: (A) issued any securities; (B) incurred any liability or obligation, direct or contingent, for borrowed money; or (C) declared or paid any dividend or made any other distribution on or in respect to its capital stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.10. Valid Issuance of Securities, etc**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10.1. <u>Outstanding Securities</u>. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or the ability to force the Company or its Subsidiaries to repurchase such securities with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights, rights of first refusal or rights of participation of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized shares of Common Stock conform to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding shares of Common Stock, options, warrants and other outstanding securities convertible into or exercisable for shares of Common Stock, were at all relevant times either registered under the Securities Act and the applicable state securities or "blue sky" laws or, based in part on the representations and warranties of the purchasers of such shares of Common Stock, exempt from such registration requirements. The description of the Company's stock option, stock bonus and other related plans or arrangements, and options and/or other rights granted thereunder, as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, accurately and fairly present the information required to be shown with respect to such plans, arrangements, options and rights.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10.2. <u>Securities Sold Pursuant to this Agreement</u>. The Public Securities and Representative's Securities have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Public Securities and Representative's Securities are and will be free from all preemptive rights of any holders of any security of the Company, or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative's Securities has been duly and validly taken. The Representative's Warrant Agreement, when issued and paid for pursuant to this Agreement, will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the underlying shares of Common Stock. The Public Securities and Representative's Securities conform to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be taken for the authorization, issuance and sale of the Representative's Warrant Agreement has been duly and validly taken; the shares of Common Stock issuable upon exercise of the Representative's Warrant have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when paid for and issued in accordance with the Representative's Warrant and the Representative's Warrant Agreement, such shares of Common Stock will be validly issued, fully paid and nonassessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; and such shares of Common Stock are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11. Registration Rights of Third Parties**. There are no holders of any securities of the Company or any options, warrants, rights or other securities exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in the Registration Statement or any other registration statement to be filed by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.12. Validity and Binding Effect of Agreements**. The execution, delivery and performance of this Agreement, the Representative's Warrants and the Representative's Warrant Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.13. No Conflicts, etc**. The execution, delivery and performance by the Company of this Agreement, the Representative's Warrants, the Representative's Warrant Agreement, and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a breach of, or conflict with any of the terms and provisions of, or constitute a default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to which the Company is a party or as to which any property of the Company is a party except breaches, conflicts or defaults that would not reasonably be expected to result in a Material Adverse Change; (ii) result in any violation of the provisions of the Company's Articles of Incorporation (as the same have been amended or restated from time to time, the "**Charter**") or the bylaws of the Company; or (iii) violate in any material respect any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof having jurisdiction over the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.14. No Defaults; Violations**. No default exists in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not in violation of any term or provision of its Charter, bylaws or other organizational documents, or in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.15. Corporate Power; Licenses; Consents**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15.1. <u>Conduct of Business</u>. The Company has all requisite corporate power and authority, and has all consents, authorizations, approvals, licenses, certificates, clearances, permits and orders and supplements and amendments thereto (each an "**Authorization**", and collectively, "**Authorizations**") of and from all Governmental Entities that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15.2. <u>Transactions Contemplated Herein</u>. The Company has all corporate power and authority to enter into this Agreement and the Representative's Warrants and to carry out the provisions and conditions hereof and thereof, and all Authorizations required in connection therewith have been obtained. No Authorization of, and no filing with, any Governmental Entity, the Exchange or another body is required for the valid issuance, sale and delivery of the Public Securities and the Representative's Securities and the consummation of the transactions and agreements contemplated by this Agreement and the Representative's Warrant Agreement and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable Securities Act and Securities Act Regulations, the necessary filings and approvals from the Exchange to list the Public Securities and Representative's Securities, state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. ("**FINRA**"), such consents and approvals as have been obtained and are in full force and effect, and such consents, approvals, orders, authorizations and filings, the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.16. D&O Questionnaires**. All information contained in the questionnaires (the "**Questionnaires**") completed by each of the Company's directors and officers immediately prior to the Offering (the "**Insiders**") as supplemented by all information concerning the Insiders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreements (as defined in Section 2.25 below) provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.17. Litigation; Governmental Proceedings**. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company's knowledge, threatened against, or involving the Company or, to the Company's knowledge, any executive officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or in connection with the Company's listing application for the listing of the Public Securities on the Exchange.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.18. Good Standing**. The Company has been duly incorporated and is validly existing as a corporation and is in good standing under the laws of the State of Washington as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.19. Insurance**. The Company carries or is entitled to the benefits of insurance (including, without limitation, as to directors and officers insurance coverage), with reputable insurers, in such amounts and covering such risks which the Company believes are adequate as are customary for companies engaged in similar business, and to the Company's knowledge all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not reasonably be expected to result in a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.20. Transactions Affecting Disclosure to FINRA**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20.1. <u>Finder's Fees</u>. There are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder's, consulting or origination fee by the Company or any Insider with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or, to the Company's knowledge, any of its stockholders that may affect the Underwriters' compensation, as determined by FINRA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20.2. <u>Payments Within Twelve (12) Months</u>. The Company has not made any direct or indirect payments in connection with the Offering (in cash, securities or otherwise) to: (i) any person, as a finder's fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided hereunder in connection with the Offering.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20.3. <u>Use of Proceeds</u>. The Company will use the net proceeds received by it from the Offering in the manner specified in the Prospectus under "Use of Proceeds." None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20.4. <u>FINRA Affiliation</u>. There is no (i) officer or director of the Company, (ii) beneficial owner (other than officers or directors of the Company) of 5% or more of any class of the Company's securities to the Company's knowledge, or (iii) beneficial owner (other than officers and directors of the Company) of the Company's unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA) to the Company's knowledge.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.20.5. <u>Information</u>. All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel in connection with its public offering system filings (and related disclosure) with FINRA is true, correct and complete in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.21. Anti-Corruption Laws**. The Company and its Subsidiaries and, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of, and with authority from, the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any Governmental Entity (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company, and are in compliance with the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder, the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions, the UK Bribery Act of 2010 and any other applicable anti-corruption laws (collectively, the "**Anti-Corruption Laws**"). The Company and its Subsidiaries have instituted and maintain, and will continue to institute and maintain, policies and procedures reasonably designed to ensure continued compliance with the Anti-Corruption Laws. The Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute, or otherwise make available such proceeds in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of the Anti-Corruption Laws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.22. Compliance with Sanctions**. None of the Company, its Subsidiaries , any director and officer and to the Company's knowledge, any agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of, and with authority from, the Company and its Subsidiaries , is an individual or entity that is, or is owned or controlled by an individual or entity that are: (i) the subject of any economic or trade sanctions by the U.S. (including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury ("**OFAC**")), United Nations Security Council, European Union, Her Majesty's Treasury, or other relevant sanctions authorities (collectively, **"Sanctions**"), or (ii) located, organized, or resident in a country or territory that is the subject of Sanctions (currently, Crimea, Cuba, Iran, North Korea, and Syria). In addition, the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity: (i) for the purpose of financing the activities of any individual or entity, or in any country or territory, that, at the time of such financing, is the subject of any Sanctions, or (ii) in any other manner that would result in a violation of Sanctions. The Company has instituted and maintain, and will continue to institute and maintain, policies and procedures reasonably to ensure continued compliance with applicable Sanctions. Finally, the Company and its Subsidiaries, their respective directors and officers and to the knowledge of the Company, employees, are in compliance with all applicable Sanctions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.23. Money Laundering Laws**. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the "**Money Laundering Laws**"); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.24. Officers' Certificate**. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel on the Closing Date or on the Option Closing Date shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.25. Lock-Up Agreements**. <u>Schedule 3</u> hereto contains a complete and accurate list of the Company's officers, directors and each owner of 5% or more of the Company's outstanding shares of Common Stock (or securities convertible or exercisable into shares of Common Stock) (collectively, the "**Lock-Up Parties**"). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement, in a form substantially similar to that attached hereto as <u>Exhibit B</u> (the "**Lock-Up Agreement**"), prior to the execution of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.26. Subsidiaries**. All subsidiaries of the Company are listed in <u>Exhibit D</u> hereto. Each Subsidiary of the Company is duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business or operations of the Company taken as a whole. The Company's ownership and control of the Subsidiaries is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.27. Related Party Transactions**. Except as set forth in "Certain Relationships and Related Persons Transactions" in the Prospectus, there are no material business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required under the Securities Act and the Securities Act Regulations. There are no outstanding loans, advances (except advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company or, to the knowledge of the Company, any affiliate of the Company to or for the benefit of any of the officers or directors of the Company or any affiliate of the Company or any of their respective family members.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.28. Board of Directors**. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned "Management." The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the rules and regulations of the Commission promulgated thereunder (the "**Exchange Act Regulations**"), the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the "**Sarbanes-Oxley Act**") applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an "audit committee financial expert," as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as "independent," as defined under the listing rules of the Exchange.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.29. Sarbanes-Oxley Compliance**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.29.1. <u>Disclosure Controls</u>. The Company has developed and currently maintains disclosure controls and procedures that comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company's Exchange Act filings and other public disclosure documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.29.2. <u>Compliance</u>. The Company is and at the Applicable Time and on the Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company's future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.30. Accounting Controls**. The Company and its Subsidiaries maintain systems of "internal control over financial reporting" (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal controls. The Auditor and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company's management and that have adversely affected or are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company's management, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls over financial reporting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.31. No Investment Company Status**. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an "investment company," as defined in the Investment Company Act of 1940, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.32. No Labor Disputes**. No labor dispute with the employees of the Company or its Subsidiaries exists or, to the knowledge of the Company, is imminent. The Company is not aware that any officer, key employee or significant group of employees of the Company plans to terminate employment with the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.33. Intellectual Property Rights**. The Company (formerly known as Nativis, Inc. or WavBank, Inc.) and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights ("**Intellectual Property Rights**") and necessary for the conduct of the business of the Company and each of its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. Neither the Company nor its Subsidiaries has received any notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change: (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (D) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim; and (E) to the Company's knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee's employment with the Company, or actions undertaken by the employee while employed with the Company. To the Company's knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the Intellectual Property or technology (including information technology and outsourced arrangements) employed by the Company or the Subsidiaries has been obtained or is being used by the Company or the Subsidiaries in violation of any contractual obligation binding on the Company or any of the Subsidiaries or any of their respective officers, directors or employees or otherwise in violation of the rights of any persons. The Company and the Subsidiaries own or have a valid right to access and use all computer systems, networks, hardware, software, databases, websites, and equipment used to process, store, maintain and operate data, information, and functions used in connection with the business of the Company and the Subsidiaries (the "**Company IT Systems**"). The Company IT Systems are adequate for, and operate and perform in all material respects as required in connection with, the operation of the business of the Company and the Subsidiaries as currently conducted. The Company and the Subsidiaries have implemented commercially reasonable backup, security and disaster recovery technology consistent in all material respects with applicable regulatory standards and customary industry practices.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.34. Taxes**. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiaries except those that are being contested in good faith or as would not have, individually or in the aggregate, result in a Material Adverse Change. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no material issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries . To the Company's knowledge, there are no tax liens against the assets, properties or business of the Company or its Subsidiaries. The term "taxes" means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term "**returns**" means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.35. ERISA Compliance**. The Company and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "**ERISA**")) established or maintained by the Company or its "ERISA Affiliates" (as defined below) are in compliance with ERISA. "**ERISA Affiliate**" means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "**Code**") of which the Company is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" established or maintained by the Company or any of its ERISA Affiliates. No "employee benefit plan" established or maintained by the Company or any of its ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.36. Compliance with Laws**. Each of the Company and its Subsidiaries: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the business of the Company as currently conducted ("**Applicable Laws**"), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any Governmental Entity alleging or asserting noncompliance with any Applicable Laws or any Authorizations; (C) possesses all Authorizations and such Authorizations are valid and in full force and effect and are not in violation of any term of any such Authorizations; (D) has not received notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any activity conducted by the Company is in violation of any Applicable Laws or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (E) has not received notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity is considering such action; and (F) has filed, obtained, maintained or submitted all reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission), except where the failure to be so in compliance would not, individually or in the aggregate, result in a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.37. Reserved**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.38. Environmental Laws**. The Company is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses ("**Environmental Laws**"), except where the failure to comply would not, singularly or in the aggregate, result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or, to the Company's knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission, or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.39. Title to Property**. The Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are, to the Company's knowledge, in full force and effect, and neither the Company nor any Subsidiaries has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiaries under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any Subsidiaries to the continued possession of the leased or subleased premises under any such lease or sublease.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.40. Contracts Affecting Capital**. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company's or its Subsidiaries' liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described as required.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.41. Loans to Directors or Officers**. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries, or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.42. Ineligible Issuer**. At the time of filing the Registration Statement and any post-effective amendment thereto, at the Effective Date and at the time of any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the Effective Date, the Company was not and is not an "ineligible issuer," as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.43. Smaller Reporting Company**. As of the time of filing of the Registration Statement, the Company was a "smaller reporting company," as defined in Rule 12b-2 of the Exchange Act Regulations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.44. Industry Data**. The statistical, industry-related and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company's good faith estimates that are made on the basis of data derived from such sources.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.45. Electronic Road Show**. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any "road show" (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.46. Margin Securities**. The Company owns no "margin securities" as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the "**Federal Reserve Board**"), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Public Securities to be considered a "purpose credit" within the meanings of Regulation T, U or X of the Federal Reserve Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.47. Dividends and Distributions.** (i) No Subsidiaries of the Company are currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiaries' capital stock (to the extent that any such prohibition or restriction on dividends and/or distributions would have a material effect to the Company), from repaying to the Company any loans or advances to such Subsidiaries from the Company or from transferring any of such Subsidiaries' property or assets to the Company or any other Subsidiaries of the Company, except as may otherwise be provided in current loan or mortgage-related documents and (ii) except as set forth in the section "Description of Securities" in the Prospectus, the Company is not prohibited, directly or indirectly, from paying any dividends, from making any other distribution, from repaying any loans or advances or from transferring any of its property or assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.48. Forward-Looking Statements**. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.49. Reserved**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.50. Integration**. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.51. Confidentiality and Non-Competition**. No director, officer, key employee or consultant of the Company or any of its Subsidiaries is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the Company or such Subsidiaries or be expected to result in a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.52. Corporate Records**. The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes of all material meetings and actions of the Board of Directors (including each board committee) and stockholders of the Company, and (ii) reflect all material transactions referred to in such minutes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.53. Diligence Materials**. The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material respects to the diligence request submitted to the Company or Company Counsel by the Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.54. Stabilization**. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Representative) has taken, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.55. Lending Relationship**. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.56. Immunity from Jurisdiction**. Neither the Company nor any Subsidiaries or any of their respective properties or assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution or otherwise) under the laws of the United States.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.57. Submission to Jurisdiction**. The Company has the power to submit, and pursuant to Section 9.6 of this Agreement has legally, validly, effectively and irrevocably submitted, to the jurisdiction of the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.58. Testing-the-Waters Communications**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.58.1. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.58.2. The Company has not alone engaged in any Testing-the-Waters Communications other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Act or institutions that are accredited investors within the meaning of Rule 501 under the Act. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communication, other than those listed on Exhibit E hereto. "Written Testing-the-Waters Communication" means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act. Each individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus, complied with the Act, and when taken together with the Registration Statement, the Pricing Disclosure Package and the Prospectus as of the Applicable Time, did not, and as of the Closing Date and as of the Option Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.59. Licenses and Permits**. The Company and its Subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its Subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course. The Company and its subsidiaries (i) are, and at all times have been, in compliance with all statutes, rules and regulations applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, storage, import, export or disposal of any product manufactured or distributed by the Company or its subsidiaries, or Applicable Laws, except where such noncompliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (ii) have not received any U.S. Food and Drug Administration ("FDA") Form 483, written notice of adverse finding, warning letter, untitled letter or other correspondence or written notice from any court or arbitrator or governmental or regulatory authority alleging or asserting non-compliance with (x) any Applicable Laws or (y) any licenses, exemptions, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.60. Clinical Trials**. The clinical and pre-clinical trials conducted by or on behalf of or sponsored by the Company or its Subsidiaries, or in which the Company or its Subsidiaries have participated, that are described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or the results of which are referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as applicable, were, and if still pending are, being conducted in accordance with standard medical and scientific research standards and procedures for products or product candidates comparable to those being developed by the Company and all applicable statutes and all applicable rules and regulations of the FDA and comparable regulatory agencies outside of the United States to which they are subject (collectively, the "Regulatory Authorities") and current Good Clinical Practices and Good Laboratory Practices; the descriptions in the Registration Statement, the Pricing Disclosure Package or the Prospectus of the results of such studies and tests are accurate and complete descriptions and fairly present the data derived therefrom; the Company has no knowledge of any other trials not described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the results of which are inconsistent with or call into question the results described or referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus; the Company and its subsidiaries have operated at all times and are currently in compliance with all applicable statutes, rules and regulations of the Regulatory Authorities; neither the Company nor any of its subsidiaries have received any written notices, correspondence or other communications from the Regulatory Authorities or any other governmental agency requiring or threatening the termination, material modification or suspension of any clinical or pre-clinical trials that are described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or the results of which are referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, other than ordinary course communications with respect to modifications in connection with the design and implementation of such trials, and, to the Company's best knowledge, there are no reasonable grounds for the same.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.61. Regulatory Filings**. The Company has not failed to file with any Regulatory Authority any required filing, declaration, listing, registration, report or submission with respect to the Company's product candidates that are described or referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus; all such filings, declarations, listings, registrations, reports or submissions were in compliance with applicable laws when filed; and no deficiencies regarding compliance with applicable law have been asserted by any applicable regulatory authority with respect to any such filings, declarations, listings, registrations, reports or submissions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.62. Statistical and Market Data**. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and believed to be accurate in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.63. Emerging Growth Company**. From the time of the initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly in or through any Person authorized to act on its behalf in any Testing-the Waters Communication) through the date hereof, the Company has been and is an "emerging growth company," as defined in Section 2(a) of the Securities Act. "Testing-the-Waters Communication" means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

3. COVENANTS OF THE COMPANY.

The Company covenants and agrees as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.1. Amendments to Registration Statement**. The Company shall deliver to the Representative, at least one (1) Business Day (or such shorter time mutually agreed by the parties hereto) prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.2. Federal Securities Laws**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.1. <u>Compliance</u>. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of its receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative's Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement; or (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative's Securities. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its reasonable best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.2. <u>Continued Compliance</u>. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations ("**Rule 172**"), would be) required by the Securities Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of Representative Counsel or Company Counsel, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser; or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement; and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative Counsel shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or Representative Counsel shall reasonably object.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.3. <u>Exchange Act Registration</u>. For a period of three (3) years after the date of this Agreement, the Company shall use its reasonable best efforts to maintain the registration of the Common Stock under the Exchange Act. For a period of two (2) years after the date of this Agreement, the Company shall not deregister the Common Stock under the Exchange Act without the prior written consent of the Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.4. <u>Free Writing Prospectuses</u>. The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a "free writing prospectus," or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus set forth in <u>Schedule 2-B</u>. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representative as an "issuer free writing prospectus," as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.5. <u>Testing-the-Waters Communications</u>. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2.6. <u>Filing Amendments and Exchange Act Documents</u>. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or new registration statement relating to the Securities or any amendment, supplement or revision to either any preliminary prospectus (including any prospectus included in the Registration Statement or amendment thereto at the time it became effective) or to the Prospectus, whether pursuant to the Securities Act, the Exchange Act or otherwise, and the Company will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object. The Company has given the Representatives notice of any filings containing material information about the Company or its business made pursuant to the Exchange Act or Exchange Act Regulations within 48 hours prior to the execution of this Agreement; the Company will give the Representatives notice of its intention to make any such filing from the execution of this Agreement to the Closing Date and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.3. Delivery to the Underwriters of Registration Statements**. The Company has delivered or made available or shall deliver or make available to the Representative and Representative Counsel, without charge, conformed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to each Underwriter, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) upon receipt of a written request therefor from such Underwriter. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.4. Delivery to the Underwriters of Prospectuses**. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.5. Effectiveness and Events Requiring Notice to the Representative**. The Company shall use its reasonable best efforts to cause the Registration Statement to remain effective with a current prospectus through and including the expiration date of the Representative's Warrants (or the date that all of the Representative's Warrants have been exercised, if earlier), and shall notify the Representative promptly and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities or the Representative's Securities, as applicable, for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall use its commercially reasonable efforts to obtain promptly the lifting of such order.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.6. Review of Financial Statements**. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company's financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7. Listing.** The Company shall use its reasonable best efforts to maintain the listing of the shares of Common Stock on the Exchange until at least three (3) years from the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.8. Financial Public Relations**. Within six (6) months from the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.9. Reports to the Representative**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9.1. <u>Periodic Reports, etc</u>. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also promptly furnish to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; (v) a copy of each report or other communication furnished to stockholders and (vi) such additional documents and information with respect to the Company and the affairs of any future subsidiary of the Company as the Representative may from time to time reasonably request. Documents filed with the Commission pursuant to its EDGAR system or press releases shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1. Any documents not filed with the Commission pursuant to its EDGAR system shall be delivered to jrallo@efhuttongroup.com, with a copy to dboral@efhuttongroup.com.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9.2. <u>Transfer Agent; Transfer Sheets</u>. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the "**Transfer Agent**") and shall furnish to the Representative at the Company's sole cost and expense such transfer sheets of the Company's securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. Worldwide Stock Transfer is acceptable to the Representative to act as Transfer Agent for the shares of Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9.3. <u>Trading Reports</u>. For a period of three (3) years after the date of this Agreement, during such time as any of the Public Securities are listed on the Exchange, the Company shall provide to the Representative, at the Company's expense, such reports published by the Exchange relating to price trading of the Public Securities, as the Representative shall reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.10. Payment of Expenses**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.10.1. <u>General Expenses Related to the Offering</u>. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses related to the Offering, unless otherwise agreed, including, but not limited to: (a) all filing fees and expenses relating to the registration of the securities with the Commission; (b) all fees and expenses relating to the listing of the Common Stock on a national exchange, if applicable; (c) all fees, expenses and disbursements relating to the registration or qualification of the securities under the "blue sky" securities laws of such states and other jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company's "blue sky" counsel, which will be the Representative's counsel, not to exceed $15,000) unless such filings are not required in connection with the Company's proposed listing on a national exchange, if applicable; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of the securities under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (e) the costs of all mailing and printing of the Offering documents; (f) transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to EF Hutton; (g) the fees and expenses of the Company's accountants; (h) all filing fees and communication expenses associated with the review of the Offering by FINRA; (i) all fees, expenses and disbursements relating to background checks of the Company's directors and officers in an amount not to exceed $15,000 in the aggregate; (j) up to $20,000 of EF Hutton's actual accountable road show expenses for the Offering; and (k) the $29,500 cost associated with EF Hutton's use of Ipreo's book building, prospectus tracking and compliance software for the offering. Additionally, the Company will provide an expense advance to the Representative of $20,000, due upon the execution of this Agreement. The advance shall be applied towards out-of-pocket accountable expense set forth herein and any portion of the advance shall be returned back to the Company to the extent not actually incurred. The Representative may deduct from the net proceeds of the Offering payable to the Company on the date of Closing, or the closing of the Option, if any, the expenses set forth herein to be paid by the Company to the underwriters.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.11. Application of Net Proceeds**. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption "Use of Proceeds" in the Registration Statement, the Pricing Disclosure Package and the Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.12. Delivery of Earnings Statements to Security Holders**. The Company shall timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth (15<sup>th</sup>) full calendar month following the date of this Agreement, an earnings statement (which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.13. Stabilization**. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.14. Internal Controls**. The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.15. Accountants**. As of the date of this Agreement, the Company has retained an independent registered public accounting firm, as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board, reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that MaloneBailey LLP is acceptable to the Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16. FINRA**. For a period of 90 days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company's securities or (iii) any beneficial owner of the Company's unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.17. No Fiduciary Duties**. The Company acknowledges and agrees that the Underwriters' responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.18. Company Lock-Up Agreements**. During the period commencing on and including the date hereof and continuing through and including the 120th day following the date of the Prospectus (such period, as extended as described below, being referred to herein as the "**Lock-up Period**"), the Company will not, without the prior written consent of the Representative (which consent may be withheld in its sole discretion), directly or indirectly: (i) sell, offer to sell, contract to sell or lend any shares of Common Stock or Related Securities (as defined below); (ii) effect any short sale, or establish or increase any "put equivalent position" (as defined in Rule 16a-1(h) under the Exchange Act) or liquidate or decrease any "call equivalent position" (as defined in Rule 16a-1(b) under the Exchange Act) of any shares of Common Stock or Related Securities; (iii) pledge, hypothecate or grant any security interest in any shares of Common Stock or Related Securities; (iv) in any other way transfer or dispose of any shares of Common Stock or Related Securities; (v) enter into any swap, hedge or similar arrangement or agreement that transfers, in whole or in part, the economic risk of ownership of any shares of Common Stock or Related Securities, regardless of whether any such transaction is to be settled in securities, in cash or otherwise; (vi) announce the offering of any shares of Common Stock or Related Securities; (vii) submit or file any registration statement under the Securities Act in respect of any shares of Common Stock or Related Securities (other than as contemplated by this Agreement with respect to the Offering); (viii) effect a reverse stock split, recapitalization, share consolidation, reclassification or similar transaction affecting the outstanding shares of Common Stock; or (ix) publicly announce the intention to do any of the foregoing; provided, however, that the Company may (A) effect the transactions contemplated hereby and (B) issue shares of Common Stock or options to purchase shares of Common Stock, or issue shares of Common Stock upon exercise of options, pursuant to any stock option, stock bonus, employee stock purchase plan, or other stock plan or arrangement described in the Registration Statement, the Pricing Prospectus and the Prospectus, but only if the holders of such shares of Common Stock or options, as applicable, agree in writing with the Underwriters not to sell, offer, dispose of or otherwise transfer any such shares of Common Stock or options during such Lock-up Period without the prior written consent of the Representative (which consent may be withheld in its sole discretion), (C) issue shares of Common Stock or Related Securities pursuant to the exercise or settlement of Related Securities, or upon the conversion of convertible securities outstanding on the date hereof that are described in the Registration Statement, the Pricing Prospectus and the Prospectus, (D) file one or more registration statements on Form S-8 to register shares of Common Stock or Related Securities issued or issuable pursuant to any plans or programs described in (B), and (E) issue shares of Common Stock, or enter into an agreement to issue shares of Common Stock or Related Securities, in connection with any merger, joint venture, strategic alliances, or other collaborative or strategic transaction, or the acquisition or license of the business, property, technology or other assets of another individual or entity or the assumption of an employee benefit plan in connection with a merger or acquisition; provided that the aggregate number of shares of Common Stock or Related Securities (on an as-converted or as-exercised basis, as the case may be) that the Company may issue or agree to issue pursuant to this clause (E) shall not exceed 5% of the total number of shares of common stock of the Company immediately following the completion of the transactions contemplated by this Agreement and that each recipient thereof provides to the Representative a signed Lock-up Agreement substantially in the form of Exhibit B hereto. For purposes of the foregoing, "Related Securities" shall mean any options or warrants or other rights to acquire shares of Common Stock or any securities exchangeable or exercisable for or convertible into shares of Common Stock, or to acquire other securities or rights ultimately exchangeable or exercisable for, or convertible into, shares of Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.19. Release of D&O Lock-up Period**. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.25 hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three (3) Business Days before the Effective Date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of <u>Exhibit C</u> hereto through a major news service at least two (2) Business Days before the Effective Date of the release or waiver.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.20. Blue Sky Qualifications**. The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.21. Reporting Requirements**. The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.22. Press Releases**. Prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative, such press release or communication is required by law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.23. Sarbanes-Oxley**. For a period of one (1) year after the date of this Agreement, the Company shall at all times comply with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.24. IRS Forms**. If requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly completed and executed Internal Revenue Service ("IRS") Form W-9 or an IRS Form W-8, as appropriate, together with all required attachments to such form.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.25. Emerging Growth Company**. The Company will promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Public Securities within the meaning of the Securities Act and (ii) completion of the Lock-Up Period.

4. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.

The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.1. Regulatory Matters**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.1. <u>Effectiveness of Registration Statement; Rule 430A Information</u>. The Registration Statement has become effective not later than 5:30 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto shall have been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been issued and no proceedings for any of those purposes shall have been instituted or are pending or, to the Company's knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) under the Securities Act Regulations (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A under the Securities Act Regulations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.2. <u>FINRA Clearance</u>. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.3. <u>Exchange Clearance</u>. On the Closing Date, the Common Stock shall have been approved for listing on the Exchange, subject only to official notice of issuance. On the first Option Closing Date (if any), the Common Stock (including the Option Shares) shall have been approved for listing on the Exchange, subject only to official notice of issuance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.2. Opinion Matters**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.1. <u>Closing Date Opinion of Counsel</u>. On the Closing Date, the Representative shall have received (i) the favorable opinion and negative assurance letter of Lucosky Brookman LLP ("**Company Counsel**"), counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance satisfactory to the Representative, (ii) the favorable opinion of Hyman, Phelps and McNamara, P.C., special regulatory counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative, and (iii) the favorable opinion of Perkins Coie, Washington State counsel to the Company, dated the Closing Date and addressed to the Representative, in form and substance reasonably satisfactory to the Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.2. <u>Option Closing Date Opinions of Counsel</u>. On the Option Closing Date, if any, the Representative shall have received the favorable opinion and negative assurance letter of Company Counsel listed in Section 4.2.1, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel in its opinion delivered on the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.3. <u>Reliance</u>. The opinion of Lucosky Brookman LLP and any opinion relied upon by Lucosky Brookman LLP shall include a statement to the effect that it may be relied upon by Representative Counsel in its opinion delivered to the Underwriters.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.4. <u>Closing Date Opinion of Representative Counsel</u>. On the Closing Date, the Representative shall have received the favorable negative assurance letter of Seward & Kissel LLP, as Representative Counsel, dated the Closing Date and addressed to the Representative, in form and substance satisfactory to the Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.5. <u>Option Closing Date Opinion of Representative Counsel</u>. On the Option Closing Date, if any, the Representative shall have received a negative assurance letter of Representative Counsel listed in Section 4.2.4, dated the Option Closing Date, addressed to the Representative and in form and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel in its negative assurance letter delivered on the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.3. Comfort Letters**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.1. <u>Comfort Letter</u>. At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements and information of the type customarily included in accountants' comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to the Representative and to Representative Counsel from the Auditor, dated as of the date of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.2. <u>Bring-down Comfort Letter</u>. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1 except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.4. Officers' Certificates**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4.1. <u>Officers' Certificate</u>. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer or President, and its Chief Financial Officer stating that on behalf of the Company and not in an individual capacity that (i) such officers have examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto after the Effective Date, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto after the Effective Date, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the Effective Date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure Package, a Material Adverse Change.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4.2. <u>Secretary's Certificate</u>. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, certifying on behalf of the Company and not in an individual capacity: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company's Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.5. No Material Changes**. Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.6. No Material Misstatement or Omission**. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of Representative Counsel, is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.7. Corporate Proceedings**. All corporate proceedings and other legal matters incident to the authorization, form and validity of each of this Agreement, the Public Securities, the Registration Statement, the Pricing Disclosure Package, each Issuer Free Writing Prospectus, if any, and the Prospectus and all other legal matters relating to this Agreement, the Representative's Warrant Agreement, and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to Representative Counsel, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.8. Lock-Up Agreements**. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements from each of the persons listed in <u>Schedule 3</u> hereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.9. Representative's Warrants**. On the Closing Date, the Company shall have delivered to the Representative executed copies of the Representative's Warrants.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.10. Additional Documents**. At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and Representative's Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.

5. INDEMNIFICATION.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.1. Indemnification of the Underwriters**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.1. <u>General</u>. The Company shall indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the "**Underwriter Indemnified Parties**," and each an "**Underwriter Indemnified Party**"), against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or any Issuer Free Writing Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any "road show" or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Section 5, collectively called "**application**") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public Securities and the Representative's Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters' Information. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Pricing Disclosure Package, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party (a) is based on the Underwriters' Information, (b) results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Public Securities to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.3 hereof, or (c) is found in a final, non-appealable judgment of a court of competent jurisdiction to have resulted primarily from the willful misconduct or gross negligence of such Underwriter Indemnified Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1.2. <u>Procedure</u>. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter Indemnified Party) and payment of actual expenses. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter Indemnified Party unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to have charge of the defense of such action, or (iii) the action includes both the Company and the indemnified party as defendants and such indemnified party or parties shall have been advised by its counsel that there may be defenses available to it or them which are different from or additional to those available to the Company which makes it impossible or inadvisable for the Company and such indemnified party to be represented in the action by the same counsel (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by the Underwriter Indemnified Parties who are party to such action (in addition to local counsel) shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if any Underwriter Indemnified Party shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement of such action, which approval shall not be unreasonably withheld.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.2. Indemnification of the Company, Directors and Officers**. Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to such losses, liabilities, claims, damages and expenses (or actions in respect thereof) which arise out of or are based upon untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, the Underwriters' Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus or any Issuer Free Writing Prospectus.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.3. Contribution**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.1. <u>Contribution Rights</u>. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total proceeds from the Offering purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discount and commissions received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of any Underwriter for use in any Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters' Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 5.3.1 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage, expense, liability, action, investigation or proceeding referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section 5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, preparing to defend or defending against or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense, liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1 no Underwriter shall be required to contribute any amount in excess of the total discount and commission received by such Underwriter in connection with the Offering less the amount of any damages which such Underwriter has otherwise paid or becomes liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3.2. <u>Contribution Procedure</u>. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party ("contributing party"), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available. The Underwriters' obligations to contribute as provided in this Section 5.3 are several and in proportion to their respective underwriting obligation, and not joint.

6. DEFAULT BY AN UNDERWRITER.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.1. Default Not Exceeding 10% of Firm Shares or Option Shares**. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Shares or the Option Shares, if the Option is exercised hereunder, and if the number of the Firm Shares or Option Shares with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Shares or Option Shares that all Underwriters have agreed to purchase hereunder, then such Firm Shares or Option Shares to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.2. Default Exceeding 10% of Firm Shares or Option Shares**. In the event that the default addressed in Section 6.1 relates to more than 10% of the number of Firm Shares or Option Shares, the Representative may in its discretion arrange for itself or for another party or parties to purchase such Firm Shares or Option Shares to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the number of Firm Shares or Option Shares, the Representative does not arrange for the purchase of such Firm Shares or Option Shares, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to the Representative to purchase said Firm Shares or Option Shares on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Shares or Option Shares to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Shares, this Agreement will not terminate as to the Firm Shares; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.3. Postponement of Closing Date**. In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Firm Shares or Option Shares.

7. ADDITIONAL COVENANTS.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7.1. Board Composition and Board Designations**. The Company shall ensure that: (i) the qualifications of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act, the Exchange Act and the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event the Company seeks to have its Public Securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable, at least one member of the Audit Committee of the Board of Directors qualifies as an "audit committee financial expert," as such term is defined under Regulation S-K and the listing rules of the Exchange.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7.2. Prohibition on Press Releases and Public Announcements**. The Company shall not issue press releases or engage in any other publicity, without the Representative's prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1<sup>st</sup>) Business Day following the fortieth (40<sup>th</sup>) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company's business.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7.3. Tail Period**. Notwithstanding any other provision of this Agreement, in the event that the Offering is not consummated by the Underwriters as contemplated herein, the Company agrees to pay the Representative a cash fee equal to eight percent (8.0%) of the aggregate gross proceeds received by the Company, up to $50,000,000 in gross proceeds, plus six percent (6.0%) of the aggregate gross proceeds received by the Company in excess of $50,000,000, from the sale of any equity, debt and/or equity derivative instruments to any investor actually introduced by the Representative to the Company during the Engagement Period, in connection with such financing that involves the filing of a registration statement (as defined below) (the "**Tail Financing**"), and such Tail Financing is consummated at any time during the Engagement Period or within the twelve (12) month period following the expiration of the Engagement Period, provided that such financing is by a party actually introduced to the Company in an offering in which the Company has direct knowledge of such party's participation and not a party that the Company can demonstrate was already known to the Company. In addition, unless (x) the Company terminates this Agreement for "Cause" (as defined below), or (y) the Representative fails to provide the underwriting services provided in this Agreement, upon termination of this Agreement, if the Company subsequently completes a public or private financing with any investors introduced to the Company by the Representative during the twelve (12) month period following such termination, the Representative shall be entitled to receive the same compensation to be paid to the Representative in connection with the Offering. "**Cause**", for the purpose of this Agreement, shall mean, as determined by a court of competent jurisdiction, willful misconduct, gross negligence or a material breach of this Agreement by the Representative. In the event that the Company believes that the Representative has engaged in conduct constituting Cause, the Company must first notify the Representative in writing of the facts and circumstances supporting such an assertion(s), and the Representative shall have twenty (20) days to cure such alleged conduct. "**Engagement Period**" shall mean the period beginning on December 6, 2021, and ending on the earlier of (i) twelve (12) months from the date of such date or (ii) the final closing, if any, of the Offering.

8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.1. Effective Date**. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.2. Termination**. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative's opinion will in the immediate future materially disrupt, general securities markets in the United States or would in the Representatives' judgment materially impair the investment quality of the Shares; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the delivery of the Firm Shares or Option Shares; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) in the event of a Material Adverse Change, or an adverse material change in general market conditions as in the Representative's judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts made by the Underwriters for the sale of the Public Securities; or (ix) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in the Representatives' opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company; or (x) any downgrading, or placement on any watch list for possible downgrading, in the rating of any of the Company's debt securities or preferred stock by any "nationally recognized statistical rating organization" (within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act) or any public announcement by such organization that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities or preferred stock (other than an announcement with positive implications of a possible upgrading); or (xi) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in the Representatives' opinion has a material adverse effect on the securities markets in the United States.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.3. Expenses**. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel) up to $[84,500], inclusive of the $20,000 advance for accountable expenses previously paid by the Company to the Representative (the "Advance"), and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement.

Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.4. Indemnification**. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8.5. Representations, Warranties, Agreements to Survive**. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Public Securities.

9. MISCELLANEOUS.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.1. <u>Notices</u>**. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), emailed, personally delivered or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or emailed and confirmed (which may be by email) or if mailed, two (2) days after such mailing.

If to the Representative:

EF Hutton

590 Madison Avenue, 39<sup>th</sup> Floor

New York, New York 10022

Attn: Joseph T. Rallo

with a copy (which shall not constitute notice) to:

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Keith Billotti

Email: billotti@sewkis.com

If to the Company:

EMulate Therapeutics, Inc.

13810 SE Eastgate Way, Suite 560

Bellevue, Washington 98005

Attn: Chris Rivera

Email: crivera@emulatetx.com

with a copy (which shall not constitute notice) to:

Lucosky Brookman LLP

101 Wood Avenue South

5th Floor

Iselin, NJ 08830

Attn: Joseph M. Lucosky, Esq.

Email: jlucosky@lucbro.com

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.2. Headings**. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.3. Amendment**. This Agreement may only be amended by a written instrument executed by each of the parties hereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.4. Entire Agreement**. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.5. Binding Effect**. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.6. Governing Law; Consent to Jurisdiction; Trial by Jury**. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.7. Execution in Counterparts**. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9.8. Waiver, etc**. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

**[Signature Page Follows]**

If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.

---

| |
|:---|
| Very truly yours, |
| EMULATE THERAPEUTICS, INC. |
| By: |
| Name: |
| Title: |

---

Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on <u>Schedule 1</u> hereto:

EF HUTTON,

division of Benchmark Investments, LLC

By:   <br> Name: <br> Title:

*[Signature Page to Underwriting Agreement]* 

**<u>SCHEDULE 1</u>**

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| | | |
|:---|:---|:---|
| **Underwriter** | **Total Number of**<br> **Firm Shares** <br> **to be**<br> **Purchased** | **Number of Additional**<br> **Option Shares to be Purchased if**<br> **the Option**<br> **is Fully Exercised** |
| EF Hutton, division of Benchmark Investments, LLC | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[●] | [●] |
| **TOTAL** | [●] | [●] |

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**<u>SCHEDULE 2-A</u>**

**PRICING INFORMATION**

Number of Firm Shares: [●]

Number of Option Shares: [●]

Public Offering Price per Firm Share: $[●]

Public Offering Price per Option Share: $[●]

Underwriting Discount per Firm Share: $[●]

Underwriting Discount per Option Share: $[●]

Proceeds to Company per Firm Share (before expenses): $[●]

Proceeds to Company per Option Share (before expenses): $[●]

**<u>SCHEDULE 2-B</u>**

**ISSUER GENERAL USE FREE WRITING PROSPECTUSES**

None.

**<u>SCHEDULE 3</u>**

**LIST OF LOCK-UP PARTIES**

**<u>Officers and Directors</u>**

**Chris E. Rivera**

**Steven Pope**

**Kyle J. Kingma**

**Bennett M. (Mike) Butters**

**Andrew Daniels**

**Richard Henriques**

**John Kingma**

**Charles E. McNerney**

**<u>5% Holders</u>**

**The Butters Family Revocable Trust**

**Nancy Nordhoff**

Bennett M. Butters

John and Tamera Kingma

**<u>EXHIBIT A</u>**

**Form of Representative's Warrant Agreement**

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [**DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING**]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [**DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING**].

**COMMON STOCK PURCHASE WARRANT**

For the Purchase of [__] Shares of Common Stock

of

EMULATE THERAPEUTICS, INC.

1. <u>Purchase Warrant</u>. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of EF Hutton, division of Benchmark Investments, LLC ("**Holder**"), as registered owner of this Purchase Warrant, EMulate Therapeutics, Inc., a Washington corporation (the "**Company**"), Holder is entitled, at any time or from time to time from [________________] [**DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING**] (the "**Commencement Date**"), and at or before 5:00 p.m., Eastern time, [____________] [**DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING**] (the "**Expiration Date**"), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [__] shares of common stock of the Company, par value $0.001 per share (the "**Shares**"), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[__] per Share; <u>provided</u>, <u>however</u>, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term "**Exercise Price**" shall mean the initial exercise price or the adjusted exercise price, depending on the context. The term "**Effective Date**" shall mean [ ], 2022, the date on which the Registration Statement on Form S-1 (File No. 333-[●]) of the Company was declared effective by the Securities and Exchange Commission.

2. <u>Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <u>Exercise Form</u>. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <u>Cashless Exercise</u>. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

X = <u>Y(A-B)</u> <br> A

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| | | | |
|:---|:---|:---|:---|
| Where, |  |  |  |
|  | X | = | The number of Shares to be issued to Holder; |
|  | Y | = | The number of Shares for which the Purchase Warrant is being exercised; |
|  | A | = | The fair market value of one Share; and |
|  | B | = | The Exercise Price. |

---

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) if
 the Company's common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange
 prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or

(ii) if
 the Company's common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price prior
 to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market,
 the value shall be the fair market value thereof, as determined in good faith by the Company's Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <u>Legend</u>. Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the "Securities Act"):

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE."

3. <u>Transfer</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <u>General Restrictions</u>. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or the securities issuable hereunder for a period of one hundred eighty (180) days following the Effective Date to anyone other than: (i) EF Hutton, division of Benchmark Investments, LLC ("**EF Hutton**") or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of EF Hutton or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(e)(1), or (b) for a period of one hundred eighty (180) days following the Effective Date, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after one hundred eighty (180) days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <u>Restrictions Imposed by the Securities Act</u>. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Seward & Kissel LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the "**Commission**") and compliance with applicable state securities law has been established.

4. <u>Registration Rights</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <u>Demand Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.1 <u>Grant of Right</u>. The Company, upon written demand (a "**Demand Notice**") of the Holders of at least 51% of the Purchase Warrants and/or the underlying Shares, agrees to register, on one (1) occasion, all or any portion of the Shares underlying the Purchase Warrants (collectively, the "**Registrable Securities**"). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; <u>provided</u>, <u>however</u>, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.2 <u>Terms</u>. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holders; <u>provided</u>, <u>however</u>, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <u>"Piggy-Back" Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.1 <u>Grant of Right</u>. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than seven (7) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4 or any equivalent form); <u>provided</u>, <u>however</u>, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of common stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; <u>provided</u>, <u>however</u>, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.2 <u>Terms</u>. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days' written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the "piggy-back" rights provided for herein by giving written notice within ten (10) days of the receipt of the Company's notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; <u>provided</u>, <u>however</u>, that such registration rights shall terminate on the fifth anniversary of the Commencement Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <u>General Terms</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.1 <u>Indemnification</u>. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [___________], 2022. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.2 <u>Exercise of Purchase Warrants</u>. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.3 <u>Documents Delivered to Holders</u>. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the Effective Date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a "cold comfort" letter dated the Effective Date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or the Auditor and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and the Auditor, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.4 <u>Underwriting Agreement</u>. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.5 <u>Documents to be Delivered by Holders</u>. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.6 <u>Damages</u>. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <u>Termination of Registration Rights</u>. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form S-1 or Form S-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder within a 90 day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I no. 201.04 (April 2, 2007) or similar interpretive guidance).

5. <u>New Purchase Warrants to be Issued</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <u>Partial Exercise or Transfer</u>. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <u>Lost Certificate</u>. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

6. <u>Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <u>Adjustments to Exercise Price and Number of Securities</u>. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.1 <u>Share Dividends; Split Ups</u>. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.2 <u>Aggregation of Shares</u>. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the Effective Date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.3 <u>Replacement of Securities upon Reorganization, etc</u>. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.4 <u>Changes in Form of Purchase Warrant</u>. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <u>Substitute Purchase Warrant</u>. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <u>Elimination of Fractional Interests</u>. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

7. <u>Reservation and Listing</u>. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

8. <u>Certain Notice Requirements</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <u>Holder's Right to Receive Notice</u>. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <u>Events Requiring Notice</u>. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <u>Notice of Change in Exercise Price</u>. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change ("Price Notice"). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company's Chief Executive Officer or Chief Financial Officer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 <u>Transmittal of Notices</u>. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to the following address or to such other address as the Company may designate by notice to the Holders:

If to the Holder:

EF Hutton

590 Madison Avenue, 39<sup>th</sup> Floor

New York, New York 10022

Attn: Joseph T. Rallo

with a copy (which shall not constitute notice) to:

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Keith Billotti

Email: billotti@sewkis.com

If to the Company:

EMulate Therapeutics, Inc.

13810 SE Eastgate Way, Suite 560

Bellevue, Washington 98005

Attn: Chris Rivera

Email: crivera@emulatetx.com

with a copy (which shall not constitute notice) to:

Lucosky Brookman LLP

101 Wood Avenue South

5th Floor

Iselin, NJ 08830

Attn: Joseph M. Lucosky, Esq.

Email: jlucosky@lucbro.com

9. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <u>Amendments</u>. The Company and EF Hutton may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EF Hutton may deem necessary or desirable and that the Company and EF Hutton deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <u>Headings</u>. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 <u>Entire Agreement</u>. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 <u>Binding Effect</u>. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5 <u>Governing Law; Submission to Jurisdiction; Trial by Jury</u>. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.6 <u>Waiver, etc</u>. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.7 <u>Execution in Counterparts</u>. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.8 <u>Exchange Agreement</u>. As a condition of the Holder's receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and EF Hutton enter into an agreement ("Exchange Agreement") pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

**[*Signature Page Follows*]**

IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2022.

EMULATE THERAPEUTICS, INC.

By:   <br> Name: <br> Title:

[*Form to be used to exercise Purchase Warrant*]

Date: __________, 20___

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ shares of common stock, par value $0.001 per share (the "**Shares**"), of [_________], a [_________] corporation (the "**Company**"), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

or

The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:

X = <u>Y(A-B)</u> <br> A

---

| | | | |
|:---|:---|:---|:---|
| Where, |  |  |  |
|  | X | = | The number of Shares to be issued to Holder; |
|  | Y | = | The number of Shares for which the Purchase Warrant is being exercised; |
|  | A | = | The fair market value of one Share which is equal to $_____; and |
|  | B | = | The Exercise Price which is equal to $______ per share |

---

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.

Signature

Signature Guaranteed  

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name:   <br> (Print in Block Letters)

Address:

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

[Form to be used to assign Purchase Warrant]

ASSIGNMENT

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto the right to purchase shares of common stock, par value $0.001 per share, of EMulate Therapeutics, Inc., a Washington corporation (the "**Company**"), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

Dated: __________, 20__

Signature

Signature Guaranteed  

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

**<u>EXHIBIT B</u>**

**Form of Lock-Up Agreement**

**Lock-Up Agreement**

____________, 2022

EF Hutton,

division of Benchmark Investments, LLC

as Representative of the Underwriters

590 Madison Avenue, 39<sup>th</sup> Floor

New York, New York 10022

Ladies and Gentlemen:

The undersigned understands that EF Hutton, division of Benchmark Investments, LLC (the "**Representative**") proposes to enter into an Underwriting Agreement (the "**Underwriting Agreement**") with EMulate Therapeutics, Inc., a Washington corporation (the "**Company**"), providing for the public offering (the "**Public Offering**") of shares of common stock of the Company, par value $0.001 per share (the "**Common Stock**" or the "**Securities**").

To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending 120 days (or 180 days in the case of the executive officers or directors of the Company) after the date of the final prospectus (the "**Prospectus**") relating to the Public Offering (the "**Lock-Up Period**"), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Securities or any securities convertible into or exercisable or exchangeable for the Securities, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the "**Lock-Up Securities**"); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; <u>provided</u> that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the "**Exchange Act**"), or other public announcement shall be required or shall be voluntarily made during the Lock-Up Period in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a *bona fide* gift, by will or intestacy or to a family member or trust for the benefit of a family member (for purposes of this lock-up agreement, "family member" means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; or (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited liability company or other business entity, any transfers of Lock-Up Securities to any shareholder, partner or member of, or owner of similar equity interests in, the undersigned, as the case may be; <u>provided</u> that in the case of any transfer pursuant to the foregoing clauses (b), (c) or (d), (i) it shall be a condition to any such transfer that (i) the transferee/donee agrees to be bound by the terms of this lock-up agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee/donee were a party hereto; (ii) each party (donor, donee, transferor or transferee) shall not be required by law (including without limitation the disclosure requirements of the Securities Act of 1933, as amended (the "**Securities Act**"), and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer or disposition prior to the expiration of the Lock-Up Period; and (iii) the undersigned notifies the Representative at least two (2) business days prior to the proposed transfer or disposition.

In addition, the foregoing restrictions shall not apply to (i) the exercise or vesting of stock options or other equity awards granted pursuant to the Company's equity incentive plans; provided that it shall apply to any of the undersigned's Common Stock issued upon such exercise, (ii) the conversion or exercise of convertible debt or warrants; provided that it shall apply to any of the undersigned's Common Stock issued upon such exercise, or (iii) the establishment of any new plan (a "**Plan**") that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the undersigned's Securities shall be made pursuant to such new Plan prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof), and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof).

The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of the undersigned's securities subject to this this lock-up agreement except in compliance with this this lock-up agreement.

If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any Securities that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the Effective Date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the Effective Date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.

The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned's heirs, legal representatives, successors and assigns.

The undersigned understands that, if the Underwriting Agreement does not become effective, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Securities to be sold thereunder, the undersigned shall be released from all obligations under this lock-up agreement.

This lock-up agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

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| |
|:---|
| Very truly yours, |
| (Name - Please Print) |
| (Signature) |
| (Name of Signatory, in the case of entities - Please Print) |
| (Title of Signatory, in the case of entities - Please Print) |

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Address:

**<u>EXHIBIT C</u>**

**Form of Press Release**

EMULATE THERAPEUTICS, INC.

**[Date]**

EMulate Therapeutics, Inc. (the "Company") announced today that EF Hutton, division of Benchmark Investments, LLC, acting as representative for the underwriters in the Company's recent public offering of _______ shares of the Company's Common Stock is [waiving] [releasing] a lock-up restriction with respect to _______ shares of Common Stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on _______, 20___, and such shares of Common Stock may be sold on or after such date.

**This press release is not an offer or sale of the securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.**

**<u>EXHIBIT D**<sup>1</sup>**</u>**

**Subsidiaries**

Cellsana Therapeutics, Inc.

Indolor Therapeutics, Inc.

Mensana Therapeutics, Inc.

Zoesana Animal Health, Inc.

<sup>1</sup> Emulate to confirm

**<u>EXHIBIT E</u>**

**Testing-The-Waters Communications**

Investor Presentation dated September 2022.

## Exhibit 3.3

**Exhibit 3.3**

**AMENDED AND RESTATED BYLAWS** 

**OF** 

**EMULATE THERAPEUTICS, INC.** 

**Adopted October ____, 2022** 

**TABLE OF CONTENTS** 

---

| | |
|:---|:---|
|  | **Page** |
| SECTION 1. OFFICES | 1 |
| SECTION 2. SHAREHOLDERS | 1 |
| &nbsp;&nbsp;&nbsp;2.1 Annual Meeting | 1 |
| &nbsp;&nbsp;&nbsp;2.2 Special Meetings | 1 |
| &nbsp;&nbsp;&nbsp;2.3 Meetings by Communication Equipment | 1 |
| &nbsp;&nbsp;&nbsp;2.4 Date, Time and Place of Meeting | 1 |
| &nbsp;&nbsp;&nbsp;2.5 Notice to Shareholders | 1 |
| &nbsp;&nbsp;&nbsp;2.6 Business for Shareholders' Meetings | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6.1 Business at Annual Meetings | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6.2 Business at Special Meetings | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6.3 Notice to Corporation | 4 |
| &nbsp;&nbsp;&nbsp;2.7 Fixing of Record Date for Determining Shareholders Entitled to Notice of or to Vote at a Meeting or to Receive Payment of a Dividend | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7.1 Record Date for Meeting of Shareholders | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7.2 Record Date to Receive Payment of Dividend or Distribution | 4 |
| &nbsp;&nbsp;&nbsp;2.8 Voting Record | 4 |
| &nbsp;&nbsp;&nbsp;2.9 Quorum | 4 |
| &nbsp;&nbsp;&nbsp;2.10 Manner of Acting | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10.1 Matters Other Than the Election of Directors | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10.2 Election of Directors | 5 |
| &nbsp;&nbsp;&nbsp;2.11 Proxies | 5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11.1 Authorization | 5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11.2 Effectiveness of Appointment of Proxy | 5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11.3 Revocability of Proxy | 5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11.4 Death or Incapacity of Shareholder Appointing a Proxy | 5 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11.5 Acceptance of Proxy's Vote or Action | 5 |
| &nbsp;&nbsp;&nbsp;2.12 Voting of Shares | 5 |
| &nbsp;&nbsp;&nbsp;2.13 Voting for Directors | 5 |
| SECTION 3. BOARD OF DIRECTORS | 5 |
| &nbsp;&nbsp;&nbsp;3.1 General Powers | 5 |
| &nbsp;&nbsp;&nbsp;3.2 Number and Tenure | 6 |
| &nbsp;&nbsp;&nbsp;3.3 Nomination and Election | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.1 Nomination | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.2 Election | 6 |
| &nbsp;&nbsp;&nbsp;3.4 Annual and Regular Meetings | 7 |
| &nbsp;&nbsp;&nbsp;3.5 Special Meetings | 7 |
| &nbsp;&nbsp;&nbsp;3.6 Meetings by Communications Equipment | 7 |
| &nbsp;&nbsp;&nbsp;3.7 Notice of Special Meetings | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.1 Personal Delivery | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.2 Delivery by Mail | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.3 Delivery by Private Carrier | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.4 Delivery by Electronic Mail | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7.5 Oral Notice | 7 |

---

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;3.8 Waiver of Notice | 8.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8.1 In Writing | 8.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8.2 By Attendance | 8.0 |
| &nbsp;&nbsp;&nbsp;3.9 Quorum | 8.0 |
| &nbsp;&nbsp;&nbsp;3.10 Manner of Acting | 8.0 |
| &nbsp;&nbsp;&nbsp;3.11 Presumption of Assent | 8.0 |
| &nbsp;&nbsp;&nbsp;3.12 Action by Board or Committees Without a Meeting | 8.0 |
| &nbsp;&nbsp;&nbsp;3.13 Resignation | 8.0 |
| &nbsp;&nbsp;&nbsp;3.14 Removal | 8.0 |
| &nbsp;&nbsp;&nbsp;3.15 Vacancies | 8.0 |
| &nbsp;&nbsp;&nbsp;3.16 Executive and Other Committees | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.1 Creation of Committees | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.2 Authority of Committees | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.3 Quorum and Manner of Acting | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.4 Minutes of Meetings | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.5 Resignation | 9.0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16.6 Removal | 9.0 |
| &nbsp;&nbsp;&nbsp;3.17 Compensation | 10.0 |
| SECTION 4. OFFICERS | 10.0 |
| &nbsp;&nbsp;&nbsp;4.1 Appointment and Term | 10.0 |
| &nbsp;&nbsp;&nbsp;4.2 Resignation | 10.0 |
| &nbsp;&nbsp;&nbsp;4.3 Removal | 10.0 |
| &nbsp;&nbsp;&nbsp;4.4 Contract Rights of Officers | 10.0 |
| &nbsp;&nbsp;&nbsp;4.5 Chair of the Board and Vice Chair of the Board | 10.0 |
| &nbsp;&nbsp;&nbsp;4.6 Chief Executive Officer | 10.0 |
| &nbsp;&nbsp;&nbsp;4.7 President | 11.0 |
| &nbsp;&nbsp;&nbsp;4.8 Vice Presidents | 11.0 |
| &nbsp;&nbsp;&nbsp;4.9 Secretary | 11.0 |
| &nbsp;&nbsp;&nbsp;4.10 Treasurer | 11.0 |
| &nbsp;&nbsp;&nbsp;4.11 Salaries | 11.0 |
| SECTION 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER | 11.0 |
| &nbsp;&nbsp;&nbsp;5.1 Issuance of Shares | 11.0 |
| &nbsp;&nbsp;&nbsp;5.2 Certificates for Shares | 11.0 |
| &nbsp;&nbsp;&nbsp;5.3 Issuance of Shares Without Certificates | 11.0 |
| &nbsp;&nbsp;&nbsp;5.4 Stock Records | 12.0 |
| &nbsp;&nbsp;&nbsp;5.5 Transfer of Shares | 12.0 |
| &nbsp;&nbsp;&nbsp;5.6 Lost or Destroyed Certificates | 12.0 |
| SECTION 6. BOOKS AND RECORDS | 12.0 |
| SECTION 7. ACCOUNTING YEAR | 12.0 |
| SECTION 8. SEAL | 12.0 |
| SECTION 9. INDEMNIFICATION | 13.0 |
| &nbsp;&nbsp;&nbsp;9.1 Right to Indemnification | 13.0 |
| &nbsp;&nbsp;&nbsp;9.2 Restrictions on Indemnification | 13.0 |
| &nbsp;&nbsp;&nbsp;9.3 Advancement of Expenses | 13.0 |
| &nbsp;&nbsp;&nbsp;9.4 Right of Indemnitee to Bring Suit | 13.0 |
| &nbsp;&nbsp;&nbsp;9.5 Procedures Exclusive | 14.0 |
| &nbsp;&nbsp;&nbsp;9.6 Nonexclusivity of Rights | 14.0 |
| &nbsp;&nbsp;&nbsp;9.7 Insurance, Contracts and Funding | 14.0 |
| &nbsp;&nbsp;&nbsp;9.8 Indemnification of Employees and Agents of the Corporation | 14.0 |
| &nbsp;&nbsp;&nbsp;9.9 Persons Serving Other Entities | 14.0 |
| SECTION 10. AMENDMENTS | 14.0 |
| SECTION 11. EXCLUSIVE FORUM | 14.0 |

---

**AMENDED AND RESTATED BYLAWS** 

**OF** 

**EMULATE THERAPEUTICS, INC.** 

**SECTION 1. OFFICES** 

The principal office of the corporation shall be located at the principal place of business or such other place as the Board of Directors ("***Board***") may designate. The corporation may have such other offices, either within or without the State of Washington, as the Board may designate or as the business of the corporation may require from time to time.

**SECTION 2. SHAREHOLDERS** 

**2.1 Annual Meeting** 

The annual meeting of shareholders shall be held at such place and time and on such date as determined by the Board for the purpose of electing directors and transacting such other business as may properly come before the meeting.

**2.2 Special Meetings** 

The Chair of the Board, the Chief Executive Officer, the President or the Board may call special meetings of the shareholders for any purpose. Further, a special meeting of shareholders may be called by the shareholders to the extent permitted by the Washington Business Corporation Act and the Articles of Incorporation by executing, dating and delivering to the Secretary, one or more written demands for such meeting, describing the purpose or purposes for which it is to be held. The Board, by unanimous vote, may postpone or reschedule any previously scheduled special meeting.

**2.3 Meetings by Communication Equipment** 

Shareholders may participate in any meeting of the shareholders by any means of remote communication as permitted by the Washington State Business Corporation Act. Participation by such means shall constitute presence in person at a meeting.

**2.4 Date, Time and Place of Meeting** 

Except as otherwise provided herein, all meetings of shareholders, including those held pursuant to demand by shareholders as provided herein, shall be held on such date and at such time and place, within or without the State of Washington, designated by or at the direction of the Board.

**2.5 Notice to Shareholders** 

Any notice to shareholders required or permitted under these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act shall be provided in accordance with this Section 2.5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.1 Type of Notice**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a) Notice Provided in a Tangible Medium.** Notice may be provided in a tangible medium and may be transmitted by mail, private carrier, personal delivery, telephone or wire or wireless equipment that transmits a facsimile of the notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b) Notice Provided in an Electronic Transmission.** Notice may be provided in an electronic transmission and be electronically transmitted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(1) Notice by Electronic Mail or Other Electronic Transmission.** Notice or other communications to shareholders may be given by electronic mail or other electronic transmission. If the corporation previously gave notices to a shareholder only by mail or other methods of delivery not involving electronic transmission, the corporation will notify the shareholder that it intends to give notices to the shareholder by electronic transmission before the corporation first commences giving notice to the shareholder by electronic transmission. The inadvertent failure to give this notice will not invalidate any meeting or other corporate action.

Notice provided in an electronic mail or other electronic transmission includes material required or permitted to accompany the notice by the Washington Business Corporation Act or other applicable statute or regulation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(2) Objection or Inability to Receive Notice by Electronic Mail or Other Electronic Transmission.** The corporation may not continue to give notice by electronic mail or other electronic transmission after the shareholder notifies the corporation in writing of an objection to receiving notice by electronic mail or other electronic transmission. The corporation may not continue to give notice by electronic mail or other electronic transmission after the corporation is unable to deliver two consecutive notices by electronic mail or other electronic transmission to the electronic mail address, network, or processing system for the shareholder, and this inability becomes known to the Secretary, the transfer agent or any other person responsible for giving the notice or other communications. The inadvertent failure by the corporation to discover this inability does not invalidate any meeting or other action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(3) Posting Notice on an Electronic Network.** Notice to shareholders, unless the shareholder has previously notified the corporation in writing of an objection to receiving notice by electronic mail or other electronic transmission, may be provided by posting the notice on an electronic network and delivering to the shareholder a separate record of the posting, together with comprehensible instructions regarding how to obtain access to the posting on the electronic network.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.2 Effectiveness of Notice**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a) Notice by Mail.** Notice given by mail is effective when deposited in the United States mail, first-class postage prepaid, properly addressed to the shareholder at the shareholder's address as it appears in the corporation's current record of shareholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b) Notice by Facsimile Equipment.** Facsimile equipment that transmits a facsimile of the notice is effective when dispatched to the shareholder's address, telephone number or other number appearing on the records of the corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(c) Notice by Air Courier.** Notice given by air courier is effective when dispatched, if prepaid and properly addressed to the shareholder at the shareholder's address as it appears in the corporation's current record of shareholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(d) Notice by Ground Courier or Other Personal Delivery.** Notice given by ground courier or other personal delivery is effective when received by a shareholder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(e) Notice by Electronic Transmission.** Notice provided in an electronic transmission, if in comprehensible form, is effective when it (1) is electronically transmitted to an address, location or system, electronic mail address or another similar destination to which documents are delivered designated by the recipient for that purpose or (2) has been posted on an electronic network and a separate record of the posting has been delivered to the recipient together with comprehensible instructions regarding how to obtain access to the posting on the electronic network.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(f) Notice by Publication.** Notice given by publication is effective five days after first publication.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.3 Notice of Meetings**

Notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be provided in the form of a record by or at the direction of the Board, the Chair of the Board, the Chief Executive Officer, the President or the Secretary to each shareholder entitled to notice of or to vote at the meeting, as provided below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.3.1 Number of Days' Notice**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(a) Normal Business.** Except as provided in Section 2.5.3.1(b), notice of the meeting shall be provided not less than 10 or more than 60 days before the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(b) Amendment to Articles of Incorporation; Merger or Share Exchange; Sale of Assets or Dissolution.** Notice of a meeting held for the purpose of considering (1) an amendment to the Articles of Incorporation, (2) a plan of merger or share exchange, (3) the sale, lease, exchange or other disposition of all or substantially all of the corporation's assets other than in the regular course of business or (4) the dissolution of the corporation shall be provided not less than 20 or more than 60 days before the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.3.2 Adjourned Meetings**

If an annual or special meeting of shareholders is adjourned to a different date, time or place, no notice of the new date, time or place is required if this information is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed, notice of the adjourned meeting must be provided to persons who, as of the new record date, are shareholders entitled to notice of or to vote as of the new record date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.4 Waiver of Notice**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.4.1 Waiver by Delivery of a Record**

A shareholder may waive any notice required by these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act before or after the date and time of the meeting that is the subject of the notice. The waiver must be (a) delivered by the shareholder entitled to notice to the corporation for inclusion in the minutes or filing with the corporate records, and (b) set forth either in an executed and dated written record or, if the corporation has designated an address, location or system to which the waiver may be electronically transmitted and the waiver is electronically transmitted to the designated address, location or system, in an executed and dated electronically transmitted record.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.4.2 Waiver by Attendance**

Notice of the time, place and purpose of any meeting will be waived by any shareholder by attendance in person or by proxy unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5.4.3 Waiver of Objection**

A shareholder waives objection to consideration of a particular matter at a meeting that is not within the purpose or purposes described in the notice of the meeting unless the shareholder objects to considering the matter when it is presented.

**2.6 Business for Shareholders' Meetings** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.6.1 Business at Annual Meetings**

In addition to the election of directors, other proper business may be transacted at an annual meeting of shareholders, provided that such business is properly brought before such meeting. To be properly brought before an annual meeting, business must be brought (a) by or at the direction of the Board or (b) before the meeting by a shareholder pursuant to written notice thereof, in accordance with Section 2.6.3 hereof, and received by the Secretary not fewer than 90 or more than 120 days prior to the anniversary date of the prior year's annual meeting; provided that if the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year's annual meeting, notice by the shareholder, in order to be considered timely, must be so delivered not later than the close of business on the later of (i) the 120th day prior to such annual meeting or (ii) the 10th day following the day on which the notice of the date of the annual meeting was made in accordance with Section 2.5. Any shareholder notice shall set forth (1) the name and address of the shareholder proposing such business; (2) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (3) a representation that the shareholder intends to appear in person or by proxy at the meeting to propose such business; (4) as to each matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, the language of the proposal (if appropriate), and any material interest of the shareholder in such business; and (5) any other information as reasonably requested by the corporation relating to the foregoing. No business shall be conducted at any annual meeting of shareholders except in accordance with this Section 2.6.1. If the facts warrant, the Board, or the chairman of an annual meeting of shareholders, may determine and declare that (A) a proposal does not constitute proper business to be transacted at the meeting or (B) business was not properly brought before the meeting in accordance with the provisions of this Section 2.6.1; if, in either case, it is so determined, any such business not properly brought before the meeting shall not be transacted. In addition to the procedures set forth in this Section 2.6.1, shareholders desiring to include a proposal in the corporation's proxy statement must also comply with the requirements set forth in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as amended, or any successor provision.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.6.2 Business at Special Meetings**

At any special meeting of the shareholders, only such business as is specified in the notice of such special meeting given by or at the direction of the person or persons calling such meeting, in accordance with Section 2.5 hereof, shall come before such meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.6.3 Notice to Corporation**

Any written notice required to be delivered by a shareholder to the corporation pursuant to Section 2.5, 2.6.1 or 2.6.2 hereof must be given, either by personal delivery or by registered or certified mail, postage prepaid, to the Secretary at the corporation's executive offices.

**2.7 Fixing of Record Date for Determining Shareholders Entitled to Notice of or to Vote at a Meeting or to Receive Payment of a Dividend** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.7.1 Record Date for Meeting of Shareholders**

For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment of a meeting, the Board may fix a future date as the record date for the determination. The record date shall be not less than 10 or more than 70 days prior to the date of the meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting, the record date shall be the day immediately preceding the date on which notice of the meeting is first given to shareholders. The determination of the record date shall apply to any adjournment of the meeting unless the Board fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.7.2 Record Date to Receive Payment of Dividend or Distribution**

For the purpose of determining shareholders entitled to receive payment of any dividend or distribution (including a dividend or distribution in connection with a stock split), the Board may fix a future date as the record date for the dividend or distribution. The record date shall be not more than 70 days prior to the date on which the dividend or distribution is payable. If no record date is set for the determination of shareholders entitled to receive payment of any stock dividend or distribution (other than one involving a purchase, redemption or other acquisition of the corporation's shares), the record date shall be the date the Board authorizes the stock dividend or distribution.

**2.8 Voting Record** 

At least 10 days before each meeting of shareholders, an alphabetical list of the shareholders entitled to notice of such meeting shall be made, arranged by voting group and by each class or series of shares therein, with the address of and number of shares held by each shareholder. This record shall be kept at the principal office of the corporation for 10 days prior to such meeting, and shall be made available at such meeting, for inspection by any shareholder or any shareholder's agent.

**2.9 Quorum** 

A majority of the votes entitled to be cast on a matter by the holders of shares that, pursuant to the Articles of Incorporation or the Washington Business Corporation Act, are entitled to vote and be counted collectively upon such matter, represented in person or by proxy, shall constitute a quorum of such shares at a meeting of shareholders. If less than a quorum of such votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice if the new date, time or place is announced at the meeting before adjournment. Any business may be transacted at a reconvened meeting that might have been transacted at the meeting as originally called, provided a quorum is present or represented thereat. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business thereat, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof (unless a new record date is or must be set for the adjourned meeting), notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

**2.10 Manner of Acting** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.10.1 Matters Other Than the Election of Directors**

If a quorum is present, action on a matter other than the election of directors shall be approved if the votes cast in favor of the action by shares entitled to vote on the matter exceed the votes cast against the action by shares entitled to vote thereon, unless the Articles of Incorporation or the Washington Business Corporation Act requires a greater number of affirmative votes or approval by separate voting groups.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.10.2 Election of Directors**

Directors shall be elected in the manner set forth in Section 2.13.

**2.11 Proxies** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11.1 Authorization**

A shareholder or the shareholder's agent or attorney-in-fact may appoint a proxy to vote or otherwise act for the shareholder by executing an appointment form, or by an electronic transmission. An electronic transmission must contain or be accompanied by information from which the recipient can determine the date of the transmission and that the transmission was authorized by the sender or the sender's agent or attorney-in-fact.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11.2 Effectiveness of Appointment of Proxy**

An appointment of a proxy is effective when an executed appointment form or electronic transmission of the appointment is received by the inspectors of election or the officer or agent of the corporation authorized to tabulate votes. An appointment is valid for the term provided in the appointment form or electronic transmission, and, if no term is provided, is valid for 11 months unless the appointment is irrevocable. A proxy with respect to a specified meeting shall entitle its holder to vote at any reconvened meeting following adjournment of the meeting but shall not be valid after the final adjournment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11.3 Revocability of Proxy**

An appointment of a proxy is revocable by the shareholder unless the appointment for or electronic transmission states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of a pledgee, a person who purchased or agreed to purchase the shares, a creditor of the corporation who extended it credit under terms requiring the appointment, an employee of the corporation whose employment contract requires the appointment or a party to a voting agreement created under RCW 23B.07.310. An appointment made irrevocable is revoked when the interest with which it is coupled is extinguished. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if the transferee did not know of its existence when the transferee acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11.4 Death or Incapacity of Shareholder Appointing a Proxy**

The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the officer or agent of the corporation authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.11.5 Acceptance of Proxy's Vote or Action**

Subject to RCW 23B.07.240 and to any express limitation on the proxy's authority stated in the appointment form or electronic transmission, the corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.

**2.12 Voting of Shares** 

Except as provided in the Articles of Incorporation, each outstanding share entitled to vote with respect to a matter submitted to a meeting of shareholders shall be entitled to one vote upon such matter.

**2.13 Voting for Directors** 

Each shareholder entitled to vote at an election of directors may vote, in person or by proxy, the number of shares owned by such shareholder for as many persons as there are directors to be elected and for whose election such shareholder has a right to vote.

**SECTION 3. BOARD OF DIRECTORS** 

**3.1 General Powers** 

All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board, except as may be otherwise provided in these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act.

**3.2 Number and Tenure** 

The Board shall be composed of not less than three or more than eleven directors, the specific number to be set by resolution of the Board or the shareholders, provided that, to be effective, any resolution of the shareholders establishing the specific number must be approved by the affirmative vote of at least two-thirds (2/3) of the outstanding shares entitled to vote on such resolution. The number of directors may be changed from time to time by amendment to these Bylaws, provided that, to be effective, any amendment by shareholders must be approved by the affirmative vote of at least two-thirds (2/3) of the outstanding shares entitled to vote on such resolution. A director's term shall be three years, and each director shall serve for the term for which he or she was elected, or until his or her successor shall have been elected and qualified, or until his or her death, resignation or removal from office; provided, however, that a director shall continue to serve until his or her successor is elected or until there is a decrease in the authorized number of directors. Directors need not be shareholders of the corporation or residents of the State of Washington.

**3.3 Nomination and Election** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.3.1 Nomination**

Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations for the election of directors may be made (a) by or at the direction of the Nominating and Corporate Governance Committee or the Board or (b) by any shareholder of record entitled to vote for the election of directors at such meeting; provided, however, that a shareholder may nominate persons for election as directors only if written notice (in accordance with Section 2.6.3 hereof) of such shareholder's intention to make such nominations is received by the Secretary (i) with respect to an election to be held at an annual meeting of the shareholders, not fewer than 90 or more than 120 days prior to the date specified pursuant to Section 2.1 hereof for such annual meeting (or if less than 60 days' notice or prior public disclosure of the date of the annual meeting is given or made to the shareholders, not later than the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made); and (ii) with respect to an election to be held at a special meeting of the shareholders for the election of directors, the close of business on the 7th business day following the date on which notice of such meeting is first given to shareholders. Any such shareholder's notice shall set forth (1) the name and address of the shareholder who intends to make a nomination; (2) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (3) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (4) as to each person the shareholder proposes to nominate for election or reelection as a director, (i) the name and address of such person and such other information regarding such nominee as would be required in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board and (ii) a description of any arrangements or understandings between the shareholder and such nominee and any other persons (including their names) pursuant to which the nomination is to be made; (5) the consent of each such nominee to serve as a director if elected; and (6) any other information as reasonably requested by the corporation relating to the foregoing. If the facts warrant, the Board, or the chairman of a shareholders' meeting at which directors are to be elected, shall determine and declare that a nomination was not made in accordance with the foregoing procedure and, if it is so determined, the defective nomination shall be disregarded. The right of shareholders to make nominations pursuant to the foregoing procedure is subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation. The procedures set forth in this Section 3.3 for nominations for the election of directors by shareholders are in addition to, and not in limitation of, any procedures now in effect or hereafter adopted by or at the direction of the Board or any committee thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.3.2 Election**

Except as provided in Section 3.15, a nominee for director shall be elected if the votes cast for such nominee's election exceed the votes cast against such nominee's election. The following shall not be votes cast: (a) a share whose ballot is marked as abstain; (b) a share otherwise present at the meeting but for which there is an abstention; and (c) a share otherwise present at the meeting as to which a shareholder gives no authority or direction. Notwithstanding the foregoing, the directors shall be elected by a plurality of the votes cast (a "contested election") at any meeting of shareholders for which (i) the Secretary of the corporation receives a notice that a shareholder has nominated a person for election to the Board in compliance with the advance notice requirements for shareholder nominees for director set forth in Section 3.3.1, and (ii) such nomination has not been withdrawn by such shareholder on or prior to the time fixed in Section 3.3.1 for submitting nominations. A nominee for director in an election other than a contested election who does not receive the requisite votes for election but who was a director at the time of the election shall continue to serve as a director for a term that shall terminate on the date that is the earlier of (1) 90 days from the date on which the voting results of the election are certified, (2) the date on which an individual is selected by the Board to fill the office held by such director (which selection shall be deemed to constitute the filling of a vacancy by the Board, or (3) the date the director resigns.

**3.4 Annual and Regular Meetings** 

An annual Board meeting may be held without notice immediately after and at the same place as the annual meeting of shareholders. The Board or any committee thereof may fix the time and place either within or without the State of Washington for holding regular meetings thereof without notice.

**3.5 Special Meetings** 

Special meetings of the Board or any committee designated by the Board may be called by or at the request of the Chair of the Board, the Chief Executive Officer, the President, the Secretary or, in the case of special Board meetings, any two directors and, in the case of any special meeting of any committee designated by the Board, by the Chair thereof. The person or persons authorized to call special meetings may fix any place either within or without the State of Washington as the place for holding any special Board or committee meeting called by them.

**3.6 Meetings by Communications Equipment** 

Members of the Board or any committee designated by the Board may participate in a meeting of such Board or committee by, or conduct the meeting through the use of, any means of communication by which all directors participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

**3.7 Notice of Special Meetings** 

Notice of a special Board or committee meeting stating the place, day and hour of the meeting shall be given to a director in writing or orally. Neither the business to be transacted at any special meeting nor the purpose thereof needs to be specified in the notice of such meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7.1 Personal Delivery**

If notice is given by personal delivery, the notice shall be effective if delivered to a director at least two days before the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7.2 Delivery by Mail**

If notice is deposited into the official government mail, such notice shall be effective upon the earlier of (a) when received; and (b) five days after its deposit, if properly addressed to a Director at his or her address shown on the records of the corporation, with postage thereon prepaid.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7.3 Delivery by Private Carrier**

If notice is given by private carrier, the notice shall be deemed effective when dispatched to a director, at his or her address shown on the records of the corporation, at least two days before the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7.4 Delivery by Electronic Mail**

If notice is delivered by electronic mail, the notice shall be deemed effective when it is directed to the recipient's electronic mail address, at least two days before the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7.5 Oral Notice**

If notice is delivered orally, by telephone or in person, the notice shall be deemed effective if personally given to the director at least one day before the meeting.

**3.8 Waiver of Notice** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.8.1 In Writing**

Whenever any notice is required to be given to any director under the provisions of these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice and delivered to the corporation, whether before or after the date and time of the meeting, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at any regular or special meeting of the Board or any committee designated by the Board nor the purpose thereof needs to be specified in the waiver of notice of such meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.8.2 By Attendance**

A director's attendance at or participation in a Board or committee meeting shall constitute a waiver of notice of such meeting, unless the director objects, at the beginning of the meeting or promptly upon his or her arrival, to holding the meeting or transacting business thereat and does not thereafter vote for or assent to corporate action at the meeting.

**3.9 Quorum** 

A majority of the members of the Board then holding office shall constitute a quorum for the transaction of business at any Board meeting, but, if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.

**3.10 Manner of Acting** 

If a quorum is present when the vote is taken, the act of the majority of the directors present at a Board or committee meeting shall be the act of the Board or committee, unless the vote of a greater number is required by these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act.

**3.11 Presumption of Assent** 

A director of the corporation who is present at a Board or committee meeting at which any action is approved shall be deemed to have assented to the corporate action unless (a) the director objects, at the beginning of the meeting or promptly upon the director's arrival, to holding the meeting or transacting any business thereat; (b) the director's dissent or abstention from the corporate action is entered in the minutes of the meeting; or (c) the director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the corporate action.

**3.12 Action by Board or Committees Without a Meeting** 

**3.13 Resignation** 

Any director may resign at any time by delivering written notice to the Chair of the Board, the Chief Executive Officer, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof unless the notice of resignation specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective unless otherwise specified in the notice of resignation.

**3.14 Removal** 

At a meeting of shareholders called expressly for the purpose of removing one or more members of the Board, one or more members of the Board, including the entire Board, may be removed with or without cause (unless the Articles of Incorporation permit removal for cause only) by the holders of the shares entitled to elect the director or directors whose removal is sought if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.

**3.15 Vacancies** 

Unless the Articles of Incorporation provide otherwise, any vacancy occurring on the Board may be filled by the shareholders, by the Board or, if the directors in office constitute fewer than a quorum, by the affirmative vote of a majority of the remaining directors. Any vacant office held by a director elected by the holders of one or more classes or series of shares entitled to vote and be counted collectively thereon shall be filled only by the vote of the holders of such class or series of shares. A director elected to fill a vacancy shall serve only until the next election of directors by the shareholders.

**3.16 Executive and Other Committees** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.1 Creation of Committees**

The Board, by resolution adopted by the greater of a majority of the directors then in office and the number of directors required to take action in accordance with these Bylaws, may create standing or temporary committees, including an Executive Committee, and appoint members thereto from its own number and invest such committees with such powers as it may see fit, subject to such conditions as may be prescribed by the Board, these Bylaws and applicable law. Each committee must have two or more members, who shall serve at the pleasure of the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.2 Authority of Committees**

Each committee shall have and may exercise all of the authority of the Board to the extent provided in the resolution of the Board creating the committee and any subsequent resolutions pertaining thereto and adopted in like manner, except that no such committee shall have the authority to: (a) authorize or approve a distribution except according to a general formula or method prescribed by the Board; (b) approve or propose to shareholders actions or proposals required by the Washington Business Corporation Act to be approved by shareholders; (c) fill vacancies on the Board or any committee thereof; (d) adopt, amend or repeal Bylaws; (e) amend the Articles of Incorporation pursuant to RCW 23B.10.020; (f) approve a plan of merger not requiring shareholder approval; or (g) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares except that the Board may authorize a committee or a senior executive officer of the corporation to do so within limits specifically prescribed by the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.3 Quorum and Manner of Acting**

A majority of the number of directors composing any committee of the Board, as established and fixed by resolution of the Board, shall constitute a quorum for the transaction of business at any meeting of such committee, but, if less than a quorum are present at a meeting, a majority of such directors present may adjourn the meeting from time to time without further notice. Except as may be otherwise provided in the Washington Business Corporation Act, if a quorum is present when the vote is taken, the act of a majority of the members present shall be the act of the committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.4 Minutes of Meetings**

All committees shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.5 Resignation**

Any member of any committee may resign at any time by delivering written notice thereof to the Chair of the Board, the Chief Executive Officer, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof unless the notice of resignation specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.6 Removal**

The Board may remove any member of any committee elected or appointed by it but only by the affirmative vote of the greater of a majority of the directors then in office and the number of directors required to take action in accordance with these Bylaws.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.7 Audit/Finance Committee**

In addition to any committees appointed pursuant to this Section 3, there shall be an Audit/Finance Committee consisting of at least three directors who are not members of management. The Audit/Finance Committee shall have the responsibilities set out in its charter and such other responsibilities as may from time to time be assigned to it by the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.8 Compensation Committee**

In addition to any committees appointed pursuant to this Section 3, there shall be a Compensation Committee consisting of at least three directors who are not members of management. The Compensation Committee shall have the responsibilities set out in its charter and such other responsibilities as may from time to time be assigned to it by the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.16.9 Nominating and Corporate Governance Committee**

In addition to any committees appointed pursuant to this Section 3, there shall be a Nominating and Corporate Governance Committee consisting of at least three directors who are not members of management. The Nominating and Corporate Governance Committee shall have the responsibilities set out in its charter and such other responsibilities as may from time to time be assigned to it by the Board.

**3.17 Compensation** 

By Board resolution, directors and committee members may be paid (a) their expenses, if any, of attendance at each Board or committee meeting, (b) a fixed sum for attendance at each Board or committee meeting, (c) a stated salary as a director or a committee member, or (d) a combination of the foregoing. No such payment shall preclude any director or committee member from serving the corporation in any other capacity and receiving compensation therefor.

**SECTION 4. OFFICERS** 

**4.1 Appointment and Term** 

The officers of the corporation shall be those officers appointed from time to time by the Board or by any other officer empowered to do so. The Board shall have sole power and authority to appoint executive officers and prescribe the respective terms of office, authority and duties of executive officers. As used herein, the term "executive officer" shall mean the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, whether designated as Executive Vice President, Senior Vice President or Vice President, who is in charge of a principal business unit, division or function or any other officer who performs a policy-making function. The Board or the Chief Executive Officer may appoint such other officers and assistant officers to hold office for such period, to have such authority and to perform such duties as may be prescribed. The Board may delegate to any other officer the power to appoint any subordinate officers and to prescribe their respective terms of office, authority and duties. Any two or more offices may be held by the same person. Unless an officer dies, resigns or is removed from office, he or she shall hold office until his or her successor is appointed.

**4.2 Resignation** 

Any officer may resign at any time by delivering written notice thereof to the corporation. Any such resignation is effective upon delivery thereof unless the notice of resignation specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective unless otherwise specified in the notice of resignation.

**4.3 Removal** 

Any officer may be removed by the Board at any time, with or without cause. An officer or assistant officer, if appointed by another officer, may be removed by any officer authorized to appoint officers or assistant officers.

**4.4 Contract Rights of Officers** 

The appointment of an officer does not itself create contract rights.

**4.5 Chair of the Board and Vice Chair of the Board** 

If appointed, the Chair of the Board shall perform such duties as shall be assigned to such person by the Board from time to time and shall preside over meetings of the Board and shareholders unless another officer is appointed or designated by the Board as Chair of such meetings. The Chair may be appointed or removed at any time only by action of a majority of the members of the Board then in office.

If appointed, the Vice Chair of the Board shall perform such duties as shall be assigned to such person by the Board from time to time.

**4.6 Chief Executive Officer** 

If appointed, the Chief Executive Officer shall be the chief executive officer of the corporation unless some other officer is so designated by the Board, shall preside over meetings of the Board and shareholders in the absence of a Chair of the Board, and, subject to the Board's control, shall supervise and control all of the assets, business and affairs of the corporation

**4.7 President** 

If appointed, the President shall report to the Chief Executive Officer unless the same person holds both offices. In general, the President shall perform such other duties as are prescribed by the Board from time to time. If no Secretary has been appointed, the President shall have responsibility for the preparation of minutes of meetings of the Board and shareholders and for authentication of the records of the corporation.

**4.8 Vice Presidents** 

Vice Presidents, Senior Vice Presidents and Executive Vice Presidents shall perform such other duties as from time to time may be assigned to them by the Chief Executive Officer or the President or by or at the direction of the Board.

**4.9 Secretary** 

If appointed, the Secretary shall (a) be responsible for preparation of minutes of the meetings of the Board and shareholders, maintenance of the corporation records and stock registers, and authentication of the corporation's records; and (b) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to such person by the Chief Executive Officer or the President or by or at the direction of the Board. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary.

**4.10 Treasurer** 

If appointed, the Treasurer shall (a) have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in banks, trust companies or other depositories selected in accordance with the provisions of these Bylaws; and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to such person by the Chief Executive Officer or the President or by or at the direction of the Board. In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer shall give a bond for the faithful discharge of his or her duties in such amount and with such surety or sureties as the Board shall determine.

**4.11 Salaries** 

The salaries of the officers shall be fixed from time to time by the Board or by any person or persons to whom the Board has delegated such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation.

**SECTION 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER** 

**5.1 Issuance of Shares** 

No shares of the corporation shall be issued unless authorized by the Board or by a committee designated by the Board to the extent such committee is empowered to do so.

**5.2 Certificates for Shares** 

Certificates representing shares of the corporation shall be signed, either manually or in facsimile, by the Chief Executive Officer, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary and shall include on their face written notice of any restrictions which may be imposed on the transferability of such shares. All certificates shall be consecutively numbered or otherwise identified.

**5.3 Issuance of Shares Without Certificates** 

Notwithstanding any other provisions herein, the Board may authorize the issuance of some or all of the shares of any or all of the corporation's classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a record containing the information required on certificates by applicable Washington law.

**5.4 Stock Records** 

The stock transfer books for registered shareholders shall be kept at the principal office of the corporation or at the office of the corporation's transfer agent or registrar. The name and address of each person to whom certificates for shares are issued, together with the class and number of shares represented by each such certificate and the date of issue thereof, shall be entered on the stock transfer books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

**5.5 Transfer of Shares** 

The transfer of shares of the corporation shall be made only on the stock transfer books of the corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and cancelled.

**5.6 Lost or Destroyed Certificates** 

In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board may prescribe.

**SECTION 6. BOOKS AND RECORDS** 

The corporation shall:

(a) Keep as permanent records minutes of all meetings of its shareholders and the Board, a record of all actions taken by the shareholders or the Board without a meeting, and a record of all actions taken by a committee of the Board exercising the authority of the Board on behalf of the corporation.

(b) Maintain appropriate accounting records.

(c) Maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares, showing the number and class of shares held by each; provided, however, such record may be maintained by an agent of the corporation.

(d) Maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(e) Keep a copy of the following records at its principal office:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. the
 Articles of Incorporation and all amendments thereto as currently in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. the
 Bylaws and all amendments thereto as currently in effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. the
 minutes of all meetings of shareholders and records of all action taken by shareholders without a meeting, for the past three years;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. the
 financial statements described in Section 23B.16.200(1) of the Washington Business Corporation Act, for the past three years;

5. all
 written communications to shareholders generally within the past three years;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. a
 list of the names and business addresses of the current directors and officers; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. the
 most recent annual report delivered to the Washington Secretary of State.

**SECTION 7. ACCOUNTING YEAR** 

The accounting year of the corporation shall be the calendar year, provided that if a different accounting year is at any time selected by the Board for purposes of federal income taxes or any other purpose, the accounting year shall be the year so selected.

**SECTION 8. SEAL** 

The Board may provide for a corporate seal which shall consist of the name of the corporation, the state of its incorporation and the year of its incorporation.

**SECTION 9. INDEMNIFICATION** 

**9.1 Right to Indemnification** 

Each person who was, is or is threatened to be made a named party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the corporation or that, being or having been such a director or officer or an employee of the corporation, he or she is or was serving at the request of an executive officer of the corporation as a director, officer, partner, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise (hereinafter an "indemnitee"), whether the basis of a proceeding is alleged action in an official capacity as such a director, officer, partner, trustee, employee or agent or in any other capacity while serving as such a director, officer, partner, trustee, employee or agent, shall be indemnified and held harmless by the corporation against all expense, liability and loss (including counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, partner, trustee, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. Except as provided in Section 9.4 with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if a proceeding (or part thereof) was authorized or ratified by the Board. The right to indemnification conferred in this Section 9 shall be a contract right.

**9.2 Restrictions on Indemnification** 

No indemnification shall be provided to any such indemnitee (a) for acts or omissions of the indemnitee finally adjudged to be intentional misconduct or a knowing violation of law, (b) for conduct of the indemnitee finally adjudged to be in violation of Section 23B.08.310 of the Washington Business Corporation Act, for (c) any transaction with respect to which it was finally adjudged that such indemnitee personally received a benefit in money, property or services to which the indemnitee was not legally entitled; or (d) if the corporation is otherwise prohibited by applicable law from paying such indemnification, except that if Section 23B.08.560 or any successor provision of the Washington Business Corporation Act is hereafter amended, the restrictions on indemnification set forth in this Section 9.2 shall be as set forth in such amended statutory provision.

**9.3 Advancement of Expenses** 

The right to indemnification conferred in this Section 9 shall include the right to be paid by the corporation the expenses incurred in defending any proceeding in advance of its final disposition (hereinafter an "advancement of expenses"). An advancement of expenses shall be made upon delivery to the corporation of (a) a written affirmation of such indemnitee's good faith belief that the indemnitee has met the standard of conduct required to be eligible for indemnification, and (b) an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined, by final judicial decision from which there is no further right to appeal, that such indemnitee is not entitled to be indemnified for such expenses under this Section 9.3.

**9.4 Right of Indemnitee to Bring Suit** 

If a claim under Section 9.1 or 9.3 is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful, in whole or in part, in any such suit or in a suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to also be paid the expense of prosecuting or defending such suit. The indemnitee shall be presumed to be entitled to indemnification under this Section 9 upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required affirmation and undertaking has been tendered to the corporation), and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is so entitled.

**9.5 Procedures Exclusive** 

Pursuant to Section 23B.08.560(2) or any successor provision of the Washington Business Corporation Act, the procedures for indemnification and advancement of expenses set forth in this Section 9 are in lieu of the procedures required by Section 23B.08.550 or any successor provision of the Washington Business Corporation Act.

**9.6 Nonexclusivity of Rights** 

The right to indemnification and the advancement of expenses conferred in this Section 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or Bylaws of the corporation, general or specific action of the Board, contract or otherwise.

**9.7 Insurance, Contracts and Funding** 

The corporation may maintain insurance, at its expense, to protect itself and any director, officer, partner, trustee, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may enter into contracts with any director, officer, partner, trustee, employee or agent of the corporation in furtherance of the provisions of this Section 9 and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section 9.

**9.8 Indemnification of Employees and Agents of the Corporation** 

The corporation may, by action of the Board, grant rights to indemnification and advancement of expenses to employees and agents or any class or group of employees and agents of the corporation (a) with the same scope and effect as the provisions of this Section 10 with respect to the indemnification and advancement of expenses of directors and officers of the corporation; (b) pursuant to rights granted pursuant to or provided by, the Washington Business Corporation Act; or (c) as are otherwise consistent with law.

**9.9 Persons Serving Other Entities** 

Any person who, while a director, officer or employee of the corporation, is or was serving (a) as a director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its directors is held by the corporation or (b) as a partner, trustee or otherwise in an executive or management capacity in a partnership, joint venture, trust or other enterprise of which the corporation or a wholly owned subsidiary of the corporation is a general partner or has a majority ownership shall be deemed to be so serving at the request of an executive officer of the corporation and entitled to indemnification and advancement of expenses under Section 9.1 and 9.3.

**SECTION 10. AMENDMENTS** 

These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board, except that the Board may not repeal or amend any Bylaw that the shareholders have expressly provided, in amending or repealing such Bylaw, may not be amended or repealed by the Board. The shareholders may also alter, amend and repeal these Bylaws or adopt new Bylaws; provided, however, that, to be effective, any amendment to change or eliminate a specified vote requirement of shareholders provided for in these Bylaws must be approved by the same vote as the specified vote requirement proposed to be amended.

**SECTION 11. EXCLUSIVE FORUM** 

The Superior Court of King County of the State of Washington shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the corporation; (b) any action asserting a claim of breach of fiduciary duty owed by any director or officer of the corporation to the corporation or the corporation's shareholders; (c) any action asserting a claim against the corporation arising under or pursuant to, or based on, any provision of the Washington Business Corporation Act or the corporation's Articles of Incorporation or Bylaws; or (d) any action asserting a claim against the corporation governed by the internal affairs doctrine.

The foregoing Amended and Restated Bylaws were adopted by the Board of Directors on October ___, 2022.

## Exhibit 4.1

**Exhibit 4.1**

![](ex4-1_001.jpg)

## Exhibit 4.2

**Exhibit 4.2**

**Form of Representative's Warrant Agreement**

THE REGISTERED HOLDER OF THIS PURCHASE WARRANT BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE WARRANT EXCEPT AS HEREIN PROVIDED AND THE REGISTERED HOLDER OF THIS PURCHASE WARRANT AGREES THAT IT WILL NOT SELL, TRANSFER, ASSIGN, PLEDGE OR HYPOTHECATE THIS PURCHASE WARRANT FOR A PERIOD OF ONE HUNDRED EIGHTY DAYS FOLLOWING THE EFFECTIVE DATE (DEFINED BELOW) TO ANYONE OTHER THAN (I) EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR AN UNDERWRITER OR A SELECTED DEALER IN CONNECTION WITH THE OFFERING, OR (II) A BONA FIDE OFFICER OR PARTNER OF EF HUTTON, DIVISION OF BENCHMARK INVESTMENTS, LLC OR OF ANY SUCH UNDERWRITER OR SELECTED DEALER.

THIS PURCHASE WARRANT IS NOT EXERCISABLE PRIOR TO [________________] [**DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING**]. VOID AFTER 5:00 P.M., EASTERN TIME, [___________________] [**DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING**].

**COMMON STOCK PURCHASE WARRANT**

For the Purchase of [__] Shares of Common Stock

of

EMULATE THERAPEUTICS, INC.

1. <u>Purchase Warrant</u>. THIS CERTIFIES THAT, in consideration of funds duly paid by or on behalf of EF Hutton, division of Benchmark Investments, LLC ("**Holder**"), as registered owner of this Purchase Warrant, EMulate Therapeutics, Inc., a Washington corporation (the "**Company**"), Holder is entitled, at any time or from time to time from [________________] [**DATE THAT IS SIX MONTHS FROM THE EFFECTIVE DATE OF THE OFFERING**] (the "**Commencement Date**"), and at or before 5:00 p.m., Eastern time, [____________] [**DATE THAT IS FIVE YEARS FROM THE EFFECTIVE DATE OF THE OFFERING**] (the "**Expiration Date**"), but not thereafter, to subscribe for, purchase and receive, in whole or in part, up to [__] shares of common stock of the Company, par value $0.001 per share (the "**Shares**"), subject to adjustment as provided in Section 6 hereof. If the Expiration Date is a day on which banking institutions are authorized by law to close, then this Purchase Warrant may be exercised on the next succeeding day which is not such a day in accordance with the terms herein. During the period ending on the Expiration Date, the Company agrees not to take any action that would terminate this Purchase Warrant. This Purchase Warrant is initially exercisable at $[__] per Share; <u>provided</u>, <u>however</u>, that upon the occurrence of any of the events specified in Section 6 hereof, the rights granted by this Purchase Warrant, including the exercise price per Share and the number of Shares to be received upon such exercise, shall be adjusted as therein specified. The term "**Exercise Price**" shall mean the initial exercise price or the adjusted exercise price, depending on the context. The term "**Effective Date**" shall mean [ ], 2022, the date on which the Registration Statement on Form S-1 (File No. 333-[●]) of the Company was declared effective by the Securities and Exchange Commission.

2. <u>Exercise</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <u>Exercise Form</u>. In order to exercise this Purchase Warrant, the exercise form attached hereto must be duly executed and completed and delivered to the Company, together with this Purchase Warrant and payment of the Exercise Price for the Shares being purchased payable in cash by wire transfer of immediately available funds to an account designated by the Company or by certified check or official bank check. If the subscription rights represented hereby shall not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date, this Purchase Warrant shall become and be void without further force or effect, and all rights represented hereby shall cease and expire.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <u>Cashless Exercise</u>. If at any time after the Commencement Date there is no effective registration statement registering, or no current prospectus available for, the resale of the Shares by the Holder, then in lieu of exercising this Purchase Warrant by payment of cash or check payable to the order of the Company pursuant to Section 2.1 above, Holder may elect to receive the number of Shares equal to the value of this Purchase Warrant (or the portion thereof being exercised), by surrender of this Purchase Warrant to the Company, together with the exercise form attached hereto, in which event the Company shall issue to Holder, Shares in accordance with the following formula:

X = <u>Y(A-B)</u> <br> A

---

| | | | |
|:---|:---|:---|:---|
| Where, |  |  |  |
|  | X | = | The number of Shares to be issued to Holder; |
|  | Y | = | The number of Shares for which the Purchase Warrant is being exercised; |
|  | A | = | The fair market value of one Share; and |
|  | B | = | The Exercise Price. |

---

For purposes of this Section 2.2, the fair market value of a Share is defined as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) if
 the Company's common stock is traded on a securities exchange, the value shall be deemed to be the closing price on such exchange
 prior to the exercise form being submitted in connection with the exercise of the Purchase Warrant; or

(ii) if
 the Company's common stock is actively traded over-the-counter, the value shall be deemed to be the closing bid price prior
 to the exercise form being submitted in connection with the exercise of the Purchase Warrant; if there is no active public market,
 the value shall be the fair market value thereof, as determined in good faith by the Company's Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <u>Legend</u>. Each certificate for the securities purchased under this Purchase Warrant shall bear a legend as follows unless such securities have been registered under the Securities Act of 1933, as amended (the "Securities Act"):

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE LAW. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE LAW WHICH, IN THE OPINION OF COUNSEL TO THE COMPANY, IS AVAILABLE."

3. <u>Transfer</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <u>General Restrictions</u>. The registered Holder of this Purchase Warrant agrees by his, her or its acceptance hereof, that such Holder will not: (a) sell, transfer, assign, pledge or hypothecate this Purchase Warrant or the securities issuable hereunder for a period of one hundred eighty (180) days following the Effective Date to anyone other than: (i) EF Hutton, division of Benchmark Investments, LLC ("**EF Hutton**") or an underwriter or a selected dealer participating in the Offering, or (ii) a bona fide officer or partner of EF Hutton or of any such underwriter or selected dealer, in each case in accordance with FINRA Conduct Rule 5110(e)(1), or (b) for a period of one hundred eighty (180) days following the Effective Date, cause this Purchase Warrant or the securities issuable hereunder to be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of this Purchase Warrant or the securities hereunder, except as provided for in FINRA Rule 5110(e)(2). On and after one hundred eighty (180) days after the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws. In order to make any permitted assignment, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with the Purchase Warrant and payment of all transfer taxes, if any, payable in connection therewith. The Company shall within five (5) business days transfer this Purchase Warrant on the books of the Company and shall execute and deliver a new Purchase Warrant or Purchase Warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the aggregate number of Shares purchasable hereunder or such portion of such number as shall be contemplated by any such assignment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <u>Restrictions Imposed by the Securities Act</u>. The securities evidenced by this Purchase Warrant shall not be transferred unless and until: (i) the Company has received the opinion of counsel for the Holder that the securities may be transferred pursuant to an exemption from registration under the Securities Act and applicable state securities laws, the availability of which is established to the reasonable satisfaction of the Company (the Company hereby agreeing that the opinion of Seward & Kissel LLP shall be deemed satisfactory evidence of the availability of an exemption), or (ii) a registration statement or a post-effective amendment to the Registration Statement relating to the offer and sale of such securities has been filed by the Company and declared effective by the U.S. Securities and Exchange Commission (the "**Commission**") and compliance with applicable state securities law has been established.

4. <u>Registration Rights</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <u>Demand Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.1 <u>Grant of Right</u>. The Company, upon written demand (a "**Demand Notice**") of the Holders of at least 51% of the Purchase Warrants and/or the underlying Shares, agrees to register, on one (1) occasion, all or any portion of the Shares underlying the Purchase Warrants (collectively, the "**Registrable Securities**"). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; <u>provided</u>, <u>however</u>, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 4.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holders to all other registered Holders of the Purchase Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1.2 <u>Terms</u>. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 4.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such states as are reasonably requested by the Holders; <u>provided</u>, <u>however</u>, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 4.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 4.1.2, the Holder shall be entitled to a demand registration under this Section 4.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Effective Date in accordance with FINRA Rule 5110(g)(8)(C).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <u>"Piggy-Back" Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.1 <u>Grant of Right</u>. In addition to the demand right of registration described in Section 4.1 hereof, the Holder shall have the right, for a period of no more than seven (7) years from the Effective Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or Form S-4 or any equivalent form); <u>provided</u>, <u>however</u>, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of shares of common stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; <u>provided</u>, <u>however</u>, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.2 <u>Terms</u>. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 4.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days' written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the "piggy-back" rights provided for herein by giving written notice within ten (10) days of the receipt of the Company's notice of its intention to file a registration statement. Except as otherwise provided in this Purchase Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 4.2.2; <u>provided</u>, <u>however</u>, that such registration rights shall terminate on the fifth anniversary of the Commencement Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <u>General Terms</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.1 <u>Indemnification</u>. The Company shall indemnify the Holders of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriters contained in Section 5.1 of the Underwriting Agreement between the Underwriters and the Company, dated as of [___________], 2022. The Holders of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.2 <u>Exercise of Purchase Warrants</u>. Nothing contained in this Purchase Warrant shall be construed as requiring the Holders to exercise their Purchase Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.3 <u>Documents Delivered to Holders</u>. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the Effective Date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a "cold comfort" letter dated the Effective Date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or the Auditor and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and the Auditor, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.4 <u>Underwriting Agreement</u>. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 4, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Shares and their intended methods of distribution.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.5 <u>Documents to be Delivered by Holders</u>. Each of the Holders participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3.6 <u>Damages</u>. Should the registration or the effectiveness thereof required by Sections 4.1 and 4.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holders shall, in addition to any other legal or other relief available to the Holders, be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <u>Termination of Registration Rights</u>. The registration rights afforded to the Holders under this Section 4 shall terminate on the earliest date when all Registrable Securities of such Holder either: (i) have been publicly sold by such Holder pursuant to a Registration Statement, (ii) have been covered by an effective Registration Statement on Form S-1 or Form S-3 (or successor form), which may be kept effective as an evergreen Registration Statement, or (iii) may be sold by the Holder within a 90 day period without registration pursuant to Rule 144 or consistent with applicable SEC interpretive guidance (including CD&I no. 201.04 (April 2, 2007) or similar interpretive guidance).

5. <u>New Purchase Warrants to be Issued</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <u>Partial Exercise or Transfer</u>. Subject to the restrictions in Section 3 hereof, this Purchase Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon surrender of this Purchase Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay any Exercise Price and/or transfer tax if exercised pursuant to Section 2.1 hereto, the Company shall cause to be delivered to the Holder without charge a new Purchase Warrant of like tenor to this Purchase Warrant in the name of the Holder evidencing the right of the Holder to purchase the number of Shares purchasable hereunder as to which this Purchase Warrant has not been exercised or assigned.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <u>Lost Certificate</u>. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Purchase Warrant and of reasonably satisfactory indemnification or the posting of a bond, the Company shall execute and deliver a new Purchase Warrant of like tenor and date. Any such new Purchase Warrant executed and delivered as a result of such loss, theft, mutilation or destruction shall constitute a substitute contractual obligation on the part of the Company.

6. <u>Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <u>Adjustments to Exercise Price and Number of Securities</u>. The Exercise Price and the number of Shares underlying the Purchase Warrant shall be subject to adjustment from time to time as hereinafter set forth:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.1 <u>Share Dividends; Split Ups</u>. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is increased by a stock dividend payable in Shares or by a split up of Shares or other similar event, then, on the effective day thereof, the number of Shares purchasable hereunder shall be increased in proportion to such increase in outstanding Shares, and the Exercise Price shall be proportionately decreased.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.2 <u>Aggregation of Shares</u>. If, after the date hereof, and subject to the provisions of Section 6.3 below, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, on the Effective Date thereof, the number of Shares purchasable hereunder shall be decreased in proportion to such decrease in outstanding Shares, and the Exercise Price shall be proportionately increased.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.3 <u>Replacement of Securities upon Reorganization, etc</u>. In case of any reclassification or reorganization of the outstanding Shares other than a change covered by Section 6.1.1 or 6.1.2 hereof or that solely affects the par value of such Shares, or in the case of any share reconstruction or amalgamation or consolidation of the Company with or into another corporation (other than a consolidation or share reconstruction or amalgamation in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding Shares), or in the case of any sale or conveyance to another corporation or entity of the property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the Holder of this Purchase Warrant shall have the right thereafter (until the expiration of the right of exercise of this Purchase Warrant) to receive upon the exercise hereof, for the same aggregate Exercise Price payable hereunder immediately prior to such event, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, share reconstruction or amalgamation, or consolidation, or upon a dissolution following any such sale or transfer, by a Holder of the number of Shares of the Company obtainable upon exercise of this Purchase Warrant immediately prior to such event; and if any reclassification also results in a change in Shares covered by Section 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to Sections 6.1.1, 6.1.2 and this Section 6.1.3. The provisions of this Section 6.1.3 shall similarly apply to successive reclassifications, reorganizations, share reconstructions or amalgamations, or consolidations, sales or other transfers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1.4 <u>Changes in Form of Purchase Warrant</u>. This form of Purchase Warrant need not be changed because of any change pursuant to this Section 6.1, and Purchase Warrants issued after such change may state the same Exercise Price and the same number of Shares as are stated in the Purchase Warrants initially issued pursuant to this Agreement. The acceptance by any Holder of the issuance of new Purchase Warrants reflecting a required or permissive change shall not be deemed to waive any rights to an adjustment occurring after the Commencement Date or the computation thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <u>Substitute Purchase Warrant</u>. In case of any consolidation of the Company with, or share reconstruction or amalgamation of the Company with or into, another corporation (other than a consolidation or share reconstruction or amalgamation which does not result in any reclassification or change of the outstanding Shares), the corporation formed by such consolidation or share reconstruction or amalgamation shall execute and deliver to the Holder a supplemental Purchase Warrant providing that the holder of each Purchase Warrant then outstanding or to be outstanding shall have the right thereafter (until the stated expiration of such Purchase Warrant) to receive, upon exercise of such Purchase Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or share reconstruction or amalgamation, by a holder of the number of Shares for which such Purchase Warrant might have been exercised immediately prior to such consolidation, share reconstruction or amalgamation, sale or transfer. Such supplemental Purchase Warrant shall provide for adjustments which shall be identical to the adjustments provided for in this Section 6. The above provision of this Section shall similarly apply to successive consolidations or share reconstructions or amalgamations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 <u>Elimination of Fractional Interests</u>. The Company shall not be required to issue certificates representing fractions of Shares upon the exercise of the Purchase Warrant, nor shall it be required to issue scrip or pay cash in lieu of any fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up or down, as the case may be, to the nearest whole number of Shares or other securities, properties or rights.

7. <u>Reservation and Listing</u>. The Company shall at all times reserve and keep available out of its authorized Shares, solely for the purpose of issuance upon exercise of the Purchase Warrants, such number of Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Purchase Warrants and payment of the Exercise Price therefor, in accordance with the terms hereby, all Shares and other securities issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable and not subject to preemptive rights of any stockholder. As long as the Purchase Warrants shall be outstanding, the Company shall use its commercially reasonable efforts to cause all Shares issuable upon exercise of the Purchase Warrants to be listed (subject to official notice of issuance) on all national securities exchanges (or, if applicable, on the OTC Bulletin Board or any successor trading market) on which the Shares issued to the public in the Offering may then be listed and/or quoted.

8. <u>Certain Notice Requirements</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <u>Holder's Right to Receive Notice</u>. Nothing herein shall be construed as conferring upon the Holders the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Purchase Warrants and their exercise, any of the events described in Section 8.2 shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of the closing of the transfer books, as the case may be. Notwithstanding the foregoing, the Company shall deliver to each Holder a copy of each notice given to the other stockholders of the Company at the same time and in the same manner that such notice is given to the stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <u>Events Requiring Notice</u>. The Company shall be required to give the notice described in this Section 8 upon one or more of the following events: (i) if the Company shall take a record of the holders of its Shares for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (ii) the Company shall offer to all the holders of its Shares any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or share reconstruction or amalgamation) or a sale of all or substantially all of its property, assets and business shall be proposed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <u>Notice of Change in Exercise Price</u>. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 6 hereof, send notice to the Holders of such event and change ("Price Notice"). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company's Chief Executive Officer or Chief Financial Officer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 <u>Transmittal of Notices</u>. All notices, requests, consents and other communications under this Purchase Warrant shall be in writing and shall be deemed to have been duly made when hand delivered or mailed by express mail or private courier service: (i) if to the registered Holder of the Purchase Warrant, to the address of such Holder as shown on the books of the Company, or (ii) if to the Company, to the following address or to such other address as the Company may designate by notice to the Holders:

If to the Holder:

EF Hutton

590 Madison Avenue, 39<sup>th</sup> Floor

New York, New York 10022

Attn: Joseph T. Rallo

with a copy (which shall not constitute notice) to:

Seward & Kissel LLP

One Battery Park Plaza

New York, New York 10004

Attn: Keith Billotti

Email: billotti@sewkis.com

If to the Company:

EMulate Therapeutics, Inc.

13810 SE Eastgate Way, Suite 560

Bellevue, Washington 98005

Attn: Chris Rivera

Email: crivera@emulatetx.com

with a copy (which shall not constitute notice) to:

Lucosky Brookman LLP

101 Wood Avenue South

5th Floor

Iselin, NJ 08830

Attn: Joseph M. Lucosky, Esq.

Email: jlucosky@lucbro.com

9. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 <u>Amendments</u>. The Company and EF Hutton may from time to time supplement or amend this Purchase Warrant without the approval of any of the Holders in order to cure any ambiguity, to correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder that the Company and EF Hutton may deem necessary or desirable and that the Company and EF Hutton deem shall not adversely affect the interest of the Holders. All other modifications or amendments shall require the written consent of and be signed by the party against whom enforcement of the modification or amendment is sought.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 <u>Headings</u>. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Purchase Warrant.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 <u>Entire Agreement</u>. This Purchase Warrant (together with the other agreements and documents being delivered pursuant to or in connection with this Purchase Warrant) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 <u>Binding Effect</u>. This Purchase Warrant shall inure solely to the benefit of and shall be binding upon, the Holder and the Company and their permitted assignees, respective successors, legal representative and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Purchase Warrant or any provisions herein contained.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5 <u>Governing Law; Submission to Jurisdiction; Trial by Jury</u>. This Purchase Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Purchase Warrant shall be brought and enforced in the New York Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 8 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company and the Holder agree that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys' fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.6 <u>Waiver, etc</u>. The failure of the Company or the Holder to at any time enforce any of the provisions of this Purchase Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Purchase Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Purchase Warrant. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Purchase Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.7 <u>Execution in Counterparts</u>. This Purchase Warrant may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Such counterparts may be delivered by facsimile transmission or other electronic transmission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.8 <u>Exchange Agreement</u>. As a condition of the Holder's receipt and acceptance of this Purchase Warrant, Holder agrees that, at any time prior to the complete exercise of this Purchase Warrant by Holder, if the Company and EF Hutton enter into an agreement ("Exchange Agreement") pursuant to which they agree that all outstanding Purchase Warrants will be exchanged for securities or cash or a combination of both, then Holder shall agree to such exchange and become a party to the Exchange Agreement.

**[*Signature Page Follows*]**

IN WITNESS WHEREOF, the Company has caused this Purchase Warrant to be signed by its duly authorized officer as of the ____ day of _______, 2022.

EMULATE THERAPEUTICS, INC.

By:   <br> Name: <br> Title:

[*Form to be used to exercise Purchase Warrant*]

Date: __________, 20___

The undersigned hereby elects irrevocably to exercise the Purchase Warrant for ______ shares of common stock, par value $0.001 per share (the "**Shares**"), of [_________], a [_________] corporation (the "**Company**"), and hereby makes payment of $____ (at the rate of $____ per Share) in payment of the Exercise Price pursuant thereto. Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been exercised.

or

The undersigned hereby elects irrevocably to convert its right to purchase ___ Shares of the Company under the Purchase Warrant for ______ Shares, as determined in accordance with the following formula:

X = <u>Y(A-B)</u> <br> A

---

| | | | |
|:---|:---|:---|:---|
| Where, |  |  |  |
|  | X | = | The number of Shares to be issued to Holder; |
|  | Y | = | The number of Shares for which the Purchase Warrant is being exercised; |
|  | A | = | The fair market value of one Share which is equal to $_____; and |
|  | B | = | The Exercise Price which is equal to $______ per share |

---

The undersigned agrees and acknowledges that the calculation set forth above is subject to confirmation by the Company and any disagreement with respect to the calculation shall be resolved by the Company in its sole discretion.

Please issue the Shares as to which this Purchase Warrant is exercised in accordance with the instructions given below and, if applicable, a new Purchase Warrant representing the number of Shares for which this Purchase Warrant has not been converted.

Signature

Signature Guaranteed  

INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name:   <br> (Print in Block Letters)

Address:

NOTICE: The signature to this form must correspond with the name as written upon the face of the Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

 

*[Form to be used to assign Purchase Warrant]*

 

ASSIGNMENT

(To be executed by the registered Holder to effect a transfer of the within Purchase Warrant):

FOR VALUE RECEIVED, __________________ does hereby sell, assign and transfer unto the right to purchase shares of common stock, par value $0.001 per share, of EMulate Therapeutics, Inc., a Washington corporation (the "**Company**"), evidenced by the Purchase Warrant and does hereby authorize the Company to transfer such right on the books of the Company.

Dated: __________, 20__

Signature

Signature Guaranteed  

NOTICE: The signature to this form must correspond with the name as written upon the face of the within Purchase Warrant without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange.

## Exhibit 23.1

**Exhibit 23.1**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the inclusion in this Registration Statement on Form S-1/A of our report dated May 6, 2022, with respect to the audited consolidated financial statements of EMulate Therapeutics, Inc. for the years ended December 31, 2021, and 2020. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern.

We also consent to the references to us under the heading "Experts" in such Registration Statement.

---

| |
|:---|
| */s/ MaloneBailey, LLP* |
| www.malonebailey.com |
| Houston, Texas |
| January 25, 2023 |

---

## Exhibit 23.2

**Exhibit 23.2**

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the inclusion in this Registration Statement on Form S-1/A of our report dated May 6, 2022, with respect to the audited consolidated financial statements of Hapbee Technologies, Inc. for the years ended December 31, 2021, and 2020. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern.

We also consent to the references to us under the heading "Experts" in such Registration Statement.

---

| |
|:---|
| */s/ Manning Elliott LLP* |
| Vancouver, British Columbia |
| January 25, 2023 |

---

## Exhibit 99.4

**Exhibit 99.4**

**EMULATE THERAPEUTICS, INC.**

**POLICY ON INSIDER TRADING**

This Insider Trading Policy ("Policy") sets forth the policies of EMulate Therapeutics, Inc. (the "Company") on trading and causing the trading of securities while in possession of confidential information.

**Purpose**

The Board of Directors of the Company has adopted this Policy to provide guidance to the Company's directors, officers, and employees about trading in the Company's securities and the securities of any publicly traded companies with whom the Company has a business relationship.

This Policy is designed to (i) promote compliance with applicable securities laws in order to preserve the Company's reputation for integrity and ethical conduct, (ii) provide guidelines for transactions in the securities of the Company, and (iii) provide guidelines for the handling of confidential information about the Company and any companies with which the Company does business.

**Scope**

The policy applies to the following "Covered Persons": (i) all directors of the Company; and (ii) all officers of the Company and its subsidiaries.

Sections 1 through 3 and Section 5 apply to the following "Associated Person(s)": members of your immediate family and persons sharing your household; it also covers venture capital funds and other entities (such as partnerships, trusts and corporations) that are affiliated or associated with such person(s). Affiliated means directly or indirectly controlled or controlled by, or under common control with, such person(s). Associated means (1) a corporation or organization (other than the Company or a majority-owned subsidiary of the Company) of which such person(s) is an officer or partner or is directly or indirectly the beneficial owner of 10% or more of any class of equity securities or (2) any trust in which such person(s) has a substantial beneficial interest or as to which such person serves as trustee or in a similar capacity.

**1.** **The Basic Policy—No Trading or Causing Trading While in Possession of Material Non-Public Information** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) No person associated with the Company may purchase or sell any security, whether or not issued by the Company, while in possession of material non-public information concerning the security. (The terms "material" and non-public" are defined in Section 2 below.)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) No person associated with the Company who knows of material non-public information may communicate that information to any other person if he or she has reason to believe that the information may be improperly used in connection with securities trading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Covered Persons and Associated Persons must "preclear" all trading in securities of the Company in accordance with the procedures set forth in Section 4 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) This Policy applies to all transactions in the Company's equity securities, including common stock and any other type of securities that the Company may issue, such as preferred stock, notes, bonds, convertible debentures and warrants, and exchange-traded options (including puts and calls) and other derivative securities. This Policy applies to sales, purchases, gifts, exchanges, pledges, options, hedges, puts, calls and short sales.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) This Policy does not apply to a surrender of shares to the Company or the retention and withholding from delivery to the applicable officer, director or employee of shares by the Company (i.e., a so-called "net settlement") upon vesting of restricted stock in satisfaction of any tax withholding obligations in a manner permitted by the applicable equity award agreement or the Company plan pursuant to which the restricted stock was granted.

**2.** **The Law Against "Insider Trading"** 

One of the principal purposes of the federal securities laws is to prohibit so-called insider trading. In recent years this has become a major focus of the enforcement program of the Securities and Exchange Commission and of criminal prosecutions brought by United States Attorneys.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Application to Non-Insiders and to Securities Other Than Securities of the Company</u> 

Prohibitions against "insider trading" apply to trades, tips, and recommendations by any person—including all persons associated with the Company —if the information involved is "material" and "non-public." Thus, for example, the prohibitions would apply if you trade on the basis of material non-public information you obtain regarding the Company, its borrowers, customers, suppliers, or other corporations with which the Company has contractual relationships or may be negotiating transactions. For compliance purposes, you should never trade, tip, or recommend securities (or otherwise cause the purchase or sale of securities) while in possession of information that you have reason to believe is material and non-public unless you first consult with, and obtain the advance approval of, the Company's Chief Compliance Officer (the "Compliance Officer"). The current Compliance Officer referred to herein is the General Counsel of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Materiality

Insider trading restrictions come into play if the information you possess is "material." Materiality, however, involves a low threshold.

Information is generally regarded as "material" if it has market significance, that is, if its public dissemination is likely to affect the market price of securities, or if it otherwise is information that a reasonable investor would want to know before making an investment decision. Information dealing with the following subjects is reasonably likely to be found material in particular situations:

● Significant changes in the Company's prospects;

● Significant write-downs in assets or increases in reserves;

● Developments regarding significant litigation or government agency investigations;

● Liquidity problems;

● Changes in earnings estimates or unusual gains or losses in major operation;

● Major changes in management;

● Changes in dividends;

● Extraordinary borrowings;

● Award or loss of a significant contract;

● Changes in debt ratings;

● Proposals, plans, or agreements, even if preliminary in nature, involving mergers, acquisitions, divestitures, recapitalizations, strategic alliances, licensing arrangements, or purchases or sales of substantial assets;

● Public offerings; and

● Pending statistical reports (e.g., consumer price index, money supply and retail figures, or interest rate developments).

Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition, or introduction of a new product, the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a company's operations or stock price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be material even if the possibility that the event will occur is small. When in doubt about whether particular non-public information is material, exercise caution. Consult the Compliance Officer before making a decision to disclose such information (other than to persons who need to know it) or to trade in or recommend securities to which that information relates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Non-Public Information</u> 

Insider trading prohibitions come into play when you possess information that is material and "non-public." The fact that information has been disclosed to a few members of the public does not make it public for insider trading purposes. To be "public" the information must have been disseminated in a manner designed to reach investors generally. Even after public disclosure of information regarding the Company, you must wait two full business days for the information to be absorbed by public investors before you can treat the information as public.

Non-public information may include:

● Information available to a select group of analysts or brokers or institutional investors;

● Undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and

● Information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has elapsed for the market to respond to a public announcement of the information (two full business days).

As with questions of materiality, when in doubt about whether information is non-public, call the designated Compliance Officer or assume that the information is "non-public" and, therefore, treat it as confidential.

**3.** **Severe Penalties for Violating Insider Trading Laws** 

Penalties for trading on or communicating material non-public information are severe, both for individuals involved in such unlawful conduct and their employers and supervisors. A person who violates the insider trading laws can be sentenced to a substantial jail term and required to pay a penalty of several times the amount of profits gained or losses avoided.

Moreover, Congress has passed insider trading legislation that, in a significant departure from prior law, explicitly empowers the Securities and Exchange Commission to seek substantial penalties from any person who, at the time of an insider trading violation, "directly or indirectly controlled the person who committed such violation." Such persons may be held liable for up to the greater of $1 million or three times the amount of the profit gained or loss avoided. Thus, even for violations that result in a small or no profit, the Securities and Exchange Commission can seek a minimum of $1 million from the Company and various management and supervisory personnel.

Given the severity of the potential penalties, compliance with the policies set forth in Section 1 of this Statement is absolutely mandatory, and noncompliance is a ground for dismissal. Exceptions to these policies, if any, may only be granted by the Compliance Officer and must be provided before any activity contrary to the above policies takes place.

**4.** **Preclearance of Securities Transactions** 

Because Covered Persons are likely to obtain material non-public information on a regular basis, the Company requires all such persons to preclear all purchases and sales of the Company's securities in accordance with the following procedures:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Subject to the exemption in part "(d)"
 below, no Covered Person may, directly or indirectly, purchase or sell any security issued by the Company
 without first obtaining prior approval from the Compliance Officer. These procedures also apply to transactions by such person's
 spouse, other persons living in such person's household and minor children, and to transactions by entities over which such
 person exercises control.

(b) The Compliance Officer shall record the
 date each request is received and the date and time each request is approved or disapproved. Unless revoked, a grant of permission
 will normally remain valid until the close of trading two business days following the day on which it was granted.

(c) Requests are most likely to be approved
 for trading that is to occur in the following "window periods":

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Commencing at the close of trading on the second full business day following the date of public disclosure of the financial results for a particular fiscal quarter or year and continuing until the eleventh business day of the third month of the next fiscal quarter. For example, if public disclosure occurs on Monday, May 14th, trading requests would likely be approved from Thursday, May 17th through Thursday, June 14th; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Following the wide dissemination of information on the status of the Company and current results.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Preclearance is not required for purchases
 and sales of securities under a preexisting written plan, contract, instruction, or arrangement that is adopted pursuant to Securities
 and Exchange Commission Rule 10b5-1(c) (17 C.F.R. § 240.10b5-1(c)) and approved in writing by the Compliance Officer or such
 other person as the Board of Directors may designate from time to time (the "Authorizing Officer"). Generally, Rule 10b5-1(c)
 trading plans are developed in consultation with individual counsel and not the responsibility of the Compliance Officer. For more
 information about Rule 10b5-1 trading plans, see Section 5 below.

**5.** **Rule 10B5-1 Trading Plans, Section 16 and Rule 144** 

&nbsp;&nbsp;&nbsp;&nbsp;**A.** **Rule 10b5-1 Trading Plans** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) <u>Overview.</u> 

Rule 10b5-1 will protect directors, officers and employees from insider trading liability under Rule 10b5-1 for transactions under a previously established contract, plan or instruction to trade in the Company's stock (a "Trading Plan") entered into in good faith and in accordance with the terms of Rule 10b5-1 and all applicable state laws and will be exempt from the trading restrictions set forth in this Policy. The initiation of, and any modification to, any such Trading Plan will be deemed to be a transaction in the Company's securities, and such initiation or modification is subject to all limitations and prohibitions relating to transactions in the Company's securities. Each such Trading Plan, and any modification thereof, must be submitted to and pre-approved by the Compliance Officer, or such other Authorizing Officer, who may impose such conditions on the implementation and operation of the Trading Plan as the Authorizing Officer deems necessary or advisable. However, compliance of the Trading Plan to the terms of Rule 10b5-1 and the execution of transactions pursuant to the Trading Plan are the sole responsibility of the person initiating the Trading Plan, not the Company or the Authorizing Officer.

**Trading Plans do not exempt individuals from complying with Section 16 short swing profit rules or liability.**

Rule 10b5-1 presents an opportunity for insiders to establish arrangements to sell (or purchase) Company stock without the restrictions of trading windows and black-out periods, even when there is undisclosed material information. A Trading Plan may also help reduce negative publicity that may result when key executives sell the Company's stock. Rule 10b5- 1 only provides an "affirmative defense" in the event there is an insider trading lawsuit. It does not prevent someone from bringing a lawsuit.

A director, officer or employee may enter into a Trading Plan only when he or she is not in possession of material, non-public information, and only during a trading window period outside of the trading black-out period. Although transactions effected under a Trading Plan will not require further pre-clearance at the time of the trade, any transaction (including the quantity and price) made pursuant to a Trading Plan of a Section 16 reporting person must be reported to the Company promptly on the day of each trade to permit the Company's Securities Counsel to assist in the preparation and filing of a required Form 4. Such reporting may be oral or in writing (including by e-mail) and should include the identity of the reporting person, the type of transaction, the date of the transaction, the number of shares involved and the purchase or sale price. However, the ultimate responsibility, and liability, for timely filing remains with the Section 16 reporting person.

The Company reserves the right from time to time to suspend, discontinue or otherwise prohibit any transaction in the Company's securities, even pursuant to a previously approved Trading Plan, if the Authorizing Officer or the Board of Directors, in its discretion, determines that such suspension, discontinuation or other prohibition is in the best interests of the Company. Any Trading Plan submitted for approval hereunder should explicitly acknowledge the Company's right to prohibit transactions in the Company's securities. Failure to discontinue purchases and sales as directed shall constitute a violation of the terms of this Section 5 and result in a loss of the exemption set forth herein.

Officers, directors and employees may adopt Trading Plans with brokers that outline a pre-set plan for trading of the Company's stock, including the exercise of options. Trades pursuant to a Trading Plan generally may occur at any time. However, the Company requires a cooling-off period of 30 days between the establishment of a Trading Plan and commencement of any transactions under such plan. An individual may adopt more than one Trading Plan. Please review the following description of how a Trading Plan works.

Pursuant to Rule 10b5-1, an individual's purchase or sale of securities will not be "on the basis of" material, non-public information if:

● First, before becoming aware of the information, the individual enters into a binding contract to purchase or sell the securities, provides instructions to another person to sell the securities or adopts a written plan for trading the securities (i.e., the Trading Plan).

● Second, the Trading Plan must either:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;● specify the amount of securities
 to be purchased or sold, the price at which the securities are to be purchased or sold and the date on which the securities are to
 be purchased or sold;

● include a written formula
 or computer program for determining the amount, price and date of the transactions; or

● prohibit the individual from exercising any
 subsequent influence over the purchase or sale of the Company's stock under the Trading Plan in question.

● Third, the purchase or sale must occur pursuant to the Trading Plan and the individual must not enter into a corresponding hedging transaction or alter or deviate from the Trading Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) <u>Revocation of and Amendments to Trading Plans</u> 

Revocation of Trading Plans should occur only in unusual circumstances. Effectiveness of any revocation or amendment of a Trading Plan will be subject to the prior review and approval of the Authorizing Officer. Revocation is effected upon written notice to the broker. Once a Trading Plan has been revoked, the participant should wait at least 30 days before trading outside of a Trading Plan and 180 days before establishing a new Trading Plan.

A person acting in good faith may amend a prior Trading Plan so long as such amendments are made outside of a quarterly trading black-out period and at a time when the Trading Plan participant does not possess material, non-public information. Plan amendments must not take effect for at least 30 days after the plan amendments are made.

Under certain circumstances, a Trading Plan *must* be revoked. This may include circumstances such as the announcement of a merger or the occurrence of an event that would cause the transaction either to violate the law or to have an adverse effect on the Company. The Authorizing Officer is authorized to notify the broker in such circumstances, thereby insulating the insider in the event of revocation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) <u>Discretionary Plans</u> 

Although non-discretionary Trading Plans are preferred, discretionary Trading Plans, where the discretion or control over trading is transferred to a broker, are permitted if pre-approved by the Authorizing Officer.

The Authorizing Officer of the Company must pre-approve any Trading Plan, arrangement or trading instructions, etc., involving potential sales or purchases of the Company's stock or option exercises, including but not limited to, blind trusts, discretionary accounts with banks or brokers, or limit orders. The actual transactions effected pursuant to a pre-approved Trading Plan will not be subject to further pre-clearance for transactions in the Company's stock once the Trading Plan or other arrangement has been pre-approved.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) <u>Reporting (if Required)</u> 

If required, an SEC Form 144 will be filled out and filed by the individual/brokerage firm in accordance with the existing rules regarding Form 144 filings. A footnote at the bottom of the Form 144 should indicate that the trades "are in accordance with a Trading Plan that complies with Rule 10b5-1 and expires <u>_____</u>." For Section 16 reporting persons, Form 4s should be filed before the end of the second business day following the date that the broker, dealer or plan administrator informs the individual that a transaction was executed, provided that the date of such notification is not later than the third business day following the trade date. A similar footnote should be placed at the bottom of the Form 4 as outlined above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) <u>Options</u> 

Exercises of options for cash may be executed at any time. "Cashless exercise" option exercises through a broker are subject to trading windows. However, the Company will permit same day sales under Trading Plans. If a broker is required to execute a cashless exercise in accordance with a Trading Plan, then the Company must have exercise forms attached to the Trading Plan that are signed, undated and with the number of shares to be exercised left blank.

Once a broker determines that the time is right to exercise the option and dispose of the shares in accordance with the Trading Plan, the broker will notify the Company in writing and the Authorizing Officer will fill in the number of shares and the date of exercise on the previously signed exercise form. The insider should not be involved with this part of the exercise.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) <u>Trades Outside of a Trading Plan</u> 

During an open trading window, trades differing from Trading Plan instructions that are already in place are allowed as long as the Trading Plan continues to be followed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) <u>Public Announcements</u> 

The Company may make a public announcement that Trading Plans are being implemented in accordance with Rule 10b5-1. It will consider in each case whether a public announcement of a particular Trading Plan should be made. It may also make public announcements or respond to inquiries from the media as transactions are made under a Trading Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) <u>Prohibited Transactions</u> 

The transactions prohibited under <u>Section V</u> of this Policy, including among others short sales and hedging transactions, may not be carried out through a Trading Plan or other arrangement or trading instruction involving potential sales or purchases of the Company's securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) <u>Limitation on Liability</u> 

None of the Company, the Compliance Officer, the Authorizing Officer or the Company's other employees will have any liability for any delay in reviewing, or refusal of, a Trading Plan submitted pursuant to this <u>Section 5</u> or a request for pre-clearance submitted pursuant to <u>Section 5</u> of this Policy. Notwithstanding any review of a Trading Plan pursuant to this <u>Section</u> 5 or pre-clearance of a transaction pursuant to <u>Section 5</u> of this Policy, none

of the Company, the Compliance Officer, the Authorizing Officer or the Company's other employees assumes any liability for the legality or consequences of such Trading Plan or transaction to the person engaging in or adopting such Trading Plan or transaction.

&nbsp;&nbsp;&nbsp;&nbsp;**B.** **Section 16: Insider Reporting Requirements, Short-Swing Profits and Short Sales** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) <u>Reporting Obligations Under Section 16(a): SEC Forms 3, 4 and 5</u> 

Section 16(a) of the 1934 Act generally requires all officers, directors and 10% stockholders ("insiders"), within 10 days after the insider becomes an officer, director or 10% stockholder, to file with the SEC an "Initial Statement of Beneficial Ownership of Securities" on SEC Form 3 listing the amount of the Company's stock, options and warrants which the insider beneficially owns. Following the initial filing on SEC Form 3, changes in beneficial ownership of the Company's stock, options and warrants must be reported on SEC Form 4, generally within two business days after the date on which such change occurs, or in certain cases on Form 5, within 45 days after fiscal year end. A Form 4 must be filed even if, as a result of balancing transactions, there has been no net change in holdings. In certain situations, purchases or sales of Company stock made within six months prior to the filing of a Form 3 must be reported on Form 4. Similarly, certain purchases or sales of Company stock made within six months after an officer or director ceases to be an insider must be reported on Form 4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) <u>Recovery of Profits Under Section 16(b)</u> 

For the purpose of preventing the unfair use of information which may have been obtained by an insider, any profits realized by any officer, director or 10% stockholder from any "purchase" and "sale" of Company stock during a six-month period, so called "short- swing profits," may be recovered by the Company. When such a purchase and sale occurs, good faith is no defense. The insider is liable even if compelled to sell for personal reasons, and even if the sale takes place after full disclosure and without the use of any inside information.

The liability of an insider under Section 16(b) of the 1934 Act is only to the Company itself. The Company, however, cannot waive its right to short swing profits, and any Company stockholder can bring suit in the name of the Company. Reports of ownership filed with the SEC on Form 3, Form 4 or Form 5 pursuant to Section 16(a) (discussed above) are readily available to the public, and certain attorneys carefully monitor these reports for potential Section 16(b) violations. In addition, liabilities under Section 16(b) may require separate disclosure in the Company's annual report to the SEC on Form 10-K or its proxy statement for its annual meeting of stockholders. No suit may be brought more than two years after the date the profit was realized. However, if the insider fails to file a report of the transaction under Section 16(a), as required, the two-year limitation period does not begin to run until after the transactions giving rise to the profit have been disclosed. Failure to report transactions and late filing of reports require separate disclosure in the Company's proxy statement.

Officers and directors should consult the attached "Short-Swing Profit Rule Section 16(b) Checklist" attached hereto as "Attachment A" in addition to consulting the Compliance Officer prior to engaging in any transactions involving the Company's securities, including without limitation, the Company's stock, options or warrants.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) <u>Short Sales Prohibited Under Section 16(c)</u> 

Section 16(c) of the 1934 Act prohibits insiders absolutely from making short sales of the Company's equity securities. Short sales include sales of stock which the insider does not own at the time of sale, or sales of stock against which the insider does not deliver the shares within 20 days after the sale. Under certain circumstances, the purchase or sale of put or call options, or the writing of such options, can result in a violation of Section 16(c). Insiders violating Section 16(c) face criminal liability.

The Compliance Officer should be consulted if you have any questions regarding reporting obligations, short-swing profits or short sales under Section 16.

&nbsp;&nbsp;&nbsp;&nbsp;**C.** **Rule 144** 

Rule 144 provides a safe harbor exemption to the registration requirements of the Securities Act of 1933, as amended, for certain resales of "restricted securities" and "control securities." "Restricted securities" are securities acquired from an issuer, or an affiliate of an issuer, in a transaction or chain of transactions not involving a public offering. "Control securities" are *any* securities owned by directors, executive officers or other "affiliates" of the issuer, including stock purchased in the open market and stock received upon exercise of stock options. Sales of Company restricted and control securities must comply with the requirements of Rule 144, which are summarized below:

●  ***Holding Period*** . Restricted securities must be held for at least six months before they may be sold in the market.

●  ***Current Public Information.*** The Company must have filed all SEC-required reports during the last 12 months or such shorter period that the Company was required to file such reports.

●  ***Volume Limitations.*** For affiliates, total sales of Company common stock for any three-month period may not exceed the *greater* of: (i) 1% of the total number of outstanding shares of Company common stock, as reflected in the most recent report or statement published by the Company, or (ii) the average weekly reported volume of such shares traded during the four calendar weeks preceding the filing of the requisite Form 144.

●  ***Method of Sale.*** For affiliates, the shares must be sold either in a "broker's transaction" or in a transaction directly with a "market maker." A "broker's transaction" is one in which the broker does no more than execute the sale order and receive the usual and customary commission. Neither the broker nor the selling person can solicit or arrange for the sale order. In addition, the selling person or Board member must not pay any fee or commission other than to the broker. A "market maker" includes a specialist permitted to act as a dealer, a dealer acting in the position of a block positioner, and a dealer who holds himself out as being willing to buy and sell Company common stock for his own account on a regular and continuous basis.

●  ***Notice of Proposed Sale.*** For affiliates, a notice of the sale (a Form 144) may be required to be filed with the SEC at the time of the sale. Brokers generally have internal procedures for executing sales under Rule 144 and will assist you in completing the Form 144 and in complying with the other requirements of Rule 144.

If you are subject to Rule 144, you must instruct your broker who handles trades in Company securities to follow the brokerage firm's Rule 144 compliance procedures in connection with all trades.

**6.** **Prohibited Activities** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Prohibitions**.** Except for limited exceptions described below, the following activities are prohibited under this Policy:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) No Covered Person may purchase, sell, transfer or effectuate any other transaction in Company securities while in possession of material nonpublic information concerning the Company or its securities. This prohibition includes sales of shares received upon exercise of stock options or upon vesting of Restricted Stock Units and Awards.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) No Covered Person may "tip" or disclose material nonpublic information concerning the Company or its securities to any outside person (including family members, affiliates, analysts, investors, members of the investment community and news media). Should a Covered Person inadvertently disclose such information to an outsider, the Covered Person must promptly inform the Compliance Officer regarding this disclosure. The Company will take steps necessary to preserve the confidentiality of the information, including requiring the outsider to agree in writing to comply with the terms of this Policy and/or sign a confidentiality agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) No Covered Person may purchase Company securities on margin, hold Company securities in a margin account, or otherwise pledge Company securities as collateral for a loan because, in the event of a margin call or default on the loan, the broker or lender could sell the shares at a time when the Covered Person is in possession of material nonpublic information, resulting in liability for insider trading. In addition, pledging of securities by Covered Persons, including margin arrangements, can be perceived to undermine the alignment of their interests and incentives with the long-term interests of other stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Short-term and speculative trading in Company securities, as well as hedging and other derivative transactions involving Company securities, can create the appearance of impropriety and may become the subject of an SEC investigation, particularly if the trading occurs before a major Company announcement or is followed by unusual activity or price changes in the Company's stock. These types of transactions can also result in inadvertent violations of insider trading laws and/or liability for short-swing profits under Section 16(b) of the Securities Exchange Act of 1934.<sup>1</sup> Therefore, it is the Company's policy to prohibit the following activities, even if you are not in possession of material nonpublic information:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. No Covered Person may trade
 in any interest or position relating to the future price of Company securities, such as put or call options or other derivatives, or
 short sale of Company securities.

2. No Covered Person may hedge
 Company securities. A "hedge" is a transaction designed to offset or reduce the risk of a decline in the market value of
 an equity security, and can include, but is not limited to, prepaid variable forward contracts, equity swaps, collars, and exchange
 funds.

3. Covered Persons may not trade
 in securities of the Company on an active basis, including short term
 speculation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) No Covered Person may trade in securities of another company if the Covered Person is in possession of material nonpublic information about that other company which the Covered Person learned in the course of their work for the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) "Quiet" Periods. The Company's announcement of its quarterly financial results has the potential to have a material effect on the market for the Company's securities. Therefore, to avoid even the appearance of trading on the basis of material non-public information, Covered Persons who are subject to the pre-clearance procedure set forth above may not, except as expressly permitted under this Policy, carry out any transaction in the Company's securities during the period beginning on the 15th day of the last month of each quarter (March, June, September, December) and ending on the third business day following the release of the Company's earnings for that quarter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) Event-Specific Quiet Periods. The Company reserves the right to close any open window period at any time if the Compliance Officer, or his or her designee, determines, in his or her sole discretion, that there may be material non-public information with respect to the Company. If the Company closes an open window, it will not pre- clear any transaction that is not expressly permitted by this Policy during the period that such open window is closed.

The Company may on occasion issue interim earnings guidance or other potentially material information by means of a press release, Current Report on Form 8-K, or other means designed to achieve widespread dissemination of the information. Covered Persons should anticipate that trading will be prohibited while the Company is in the process of assembling the information to be released and until the information has been released and absorbed by the market.

From time to time, an event may occur that is material to the Company and is known by only a few directors, executives, or other employees. So long as the event remains material and non-public, the persons who are aware of the event, as well as all Designated Persons, may not trade in the Company's securities.

The existence of an event-specific quiet period will not be announced, other than to those who are aware of the event giving rise to the quiet period. If, however, a person whose trades are subject to the pre-clearance requirements set forth above desires to effect a transaction during an event-specific quiet period, the Compliance Officer may refuse to grant permission to carry out the transaction and will have no obligation to disclose to the person the reason for the refusal or the reason for the event-specific quiet period. Any person who becomes aware of the existence of an event-specific quiet period shall not disclose the existence of the quiet period to any other person. The failure of the Compliance Officer to inform a person that they are subject to an event-specific quiet period will not relieve that person of the obligation not to trade while aware of material non- public information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Exceptions to Prohibited Activities. Prohibitions in trading securities under this Policy do not include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The exercise of vested employee stock options where no Company stock is sold to fund the option exercise.<sup>1</sup>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) The receipt of Company stock upon vesting of Restricted Stock Units and Awards, as well as the withholding of Company stock by the Company in payment of tax obligations.

<sup>1</sup> While vested employee stock options may be exercised at any time under this Policy, the sale of any stock acquired through such exercise is subject to this Policy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Company securities purchased or sold under a Company authorized Rule 10b5-1 Trading Plan (see Section 4(d) above).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Transfers of Company stock by a Covered Person into a trust for which the Covered Person is a trustee, or from the trust back into the name of the Covered Person.

**7.** **Blackout Periods Applicable to Covered Persons** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) No Trading During Blackout Periods. No Covered Person may trade or effectuate any other transactions in Company securities during regular blackout periods or during any special blackout periods designated by the Compliance Officer (except for the limited exceptions described in Section 5(b) above). Remember that even during an open trading window, you may not trade in Company securities if you are in possession of material nonpublic information concerning the Company or its securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Regular Blackout Periods Defined. Subject to obtaining trading pre-approval from the Compliance Officer, Covered Persons may not trade in Company securities during the period beginning on the 15<sup>th</sup> day of the last month of each quarter (March, June, September, December) and ending on the third business day following the release of the Company's earnings for that quarter. To provide clarity, the Compliance Officer will notify Covered Persons, in advance of each quarter end, of the date on which the blackout period begins and ends. Trades made pursuant to an approved 10b5-1 Trading Plan (see Section 4(d) above) are exempted from this restriction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Special Blackout Periods. From time to time, the Compliance Officer may determine that trading in Company securities is inappropriate during an otherwise open trading window due to the existence of material nonpublic information. Accordingly, the Compliance Officer may prohibit trading at any time by announcing a special blackout period. The Compliance Officer will provide notice of any modification of the trading blackout policy or any additional prohibition on trading during the period when trading is otherwise permitted under this Policy. The existence of a special blackout period should be considered confidential information and Covered Persons are prohibited from communicating the existence of a special blackout period to anyone who is not a Covered Person.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Hardship Trading Exceptions. The Compliance Officer may, on a case-by-case basis, authorize trading in Company securities during a trading blackout period due to financial or other hardship. Any person wanting to rely on this exception must first notify the Compliance Officer in writing of the circumstance of the hardship and the amount and nature of the proposed trade. Such person will also be required to certify to the Compliance Officer in writing no earlier than two business days prior to the proposed trade that he or she is not in possession of material nonpublic information concerning the Company or its securities. Upon authorization from the Compliance Officer, the person may trade, although such person will be responsible for ensuring that any such trade complies in all other respects with this Policy.

**8.** **Inquiries** 

If you have any questions regarding any of the provisions of this Policy, please contact the Compliance Officer at spope@emulatetx.com.

**9.** **Acknowledgment and Certification** 

The undersigned does hereby acknowledge receipt of the Company's Policy On Insider Trading regarding trading on material non-public information. The undersigned has read and understands (or has had explained to them by someone who understands) such Policy and agrees to be governed by such Policy at all times in connection with the purchase and sale of securities and the confidentiality of non-public information. The undersigned understands that if the undersigned is a Covered Person, the entire policy applies to them. The undersigned understands that if the undersigned is not a Covered Person, Sections 1 through 3 and Section 5 applies to them.

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| | |
|:---|:---|
| **_____________________________________** |  |
| (Signature) |  |
| **_____________________________________** | **_____________________________________** |
| (Please print name) | Title/Relationship to the Company |
| Date: **__________________________________** |  |

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**<u>ATTACHMENT A</u>**

<u>SHORT-SWING PROFIT RULE SECTION 16(B) CHECKLIST</u>

Note: ANY combination of PURCHASE AND SALE or SALE AND PURCHASE within six months of each other by an officer, director or 10% stockholder (or any family member living in the same household or certain affiliated entities) results in a violation of Section 16(b), and the "profit" must be recovered by EMulate Therapeutics, Inc. (the "***Company***"). It makes no difference how long the shares being sold have been held or, for officers and directors, that you were an insider for only one of the two matching transactions. The highest priced sale will be matched with the lowest priced purchase within the six-month period.

**Sales**

If a sale is to be made by an officer, director or 10% stockholder (or any family member living in the same household or certain affiliated entities):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Have there been any purchases
 by the insider (or family members living in the same household or certain
 affiliated entities) within the past sixmonths?

2. Have there been any option
 grants or exercises not exempt under Rule 16b-3 within the past six
 months?

3. Are any purchases (or non-exempt
 option exercises) anticipated or required within the next six months?

4. Has a Form 4 been prepared?

Note: If a sale is to be made by an affiliate of the Company, has a Form 144 been prepared and has the broker been reminded to sell pursuant to Rule 144?

**Purchases and Option Exercises**

If a purchase or option exercise for Company stock is to be made:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Have there been any sales by the insider
 (or family members living in the same household or certain affiliated entities) within the past sixmonths?

2. Are any sales anticipated or required within
 the next six months (such as tax- related or year-end transactions)?

3. Has a Form 4 been prepared?

Before proceeding with a purchase or sale, consider whether you are aware of material, non-public information which could affect the price of the Company stock. All transactions in the Company's securities by officers and directors must be <u>pre-cleared</u> by contacting the Company's Compliance Officer.