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| PART I | | |
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| Item 1. Business | | 6 |
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| Item 1A. Risk Factors | | 18 |
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| Item 1B. Unresolved Staff Comments | | 43 |
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| Item 1C. Cybersecurity | | 43 |
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| Item 2. Properties | | 43 |
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| Item 3. Legal Proceedings | | 43 |
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| Item 4. Mine Safety Disclosures | | 44 |
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| PART II | | |
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| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | 44 |
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| Item 6. Reserved | | 44 |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 44 |
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| Item 7A. Quantitative and Qualitative Disclosures About Market Risk | | 54 |
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| Item 8. Financial Statements and Supplementary Data | | 55 |
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| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | 79 |
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| Item 9A. Controls and Procedures | | 79 |
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| Item 9B. Other Information | | 80 |
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| Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | | 81 |
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| PART III | | |
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| Item 10. Directors, Executive Officers and Corporate Governance | | 81 |
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| Item 11. Executive Compensation | | 86 |
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| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | 92 |
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| Item 13. Certain Relationships and Related Transactions, and Director Independence | | 96 |
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| Item 14. Principal Accountant Fees and Services | | 99 |
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| PART IV | | |
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| Item 15. Exhibit and Financial Statement Schedules | | 100 |
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| Item 16. Form10-K Summary | | 103 |
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SPECIAL NOTE
As used in this Annual Report on Form 10-K (“Annual Report”), unless the context otherwise requires, the terms the “Company,” “iSpecimen,” “we,” “us,” and “our” refer to iSpecimen Inc., a Delaware corporation. Each reference to a fiscal year in this Annual Report refers to the fiscal year ending in the calendar year indicated (for example, fiscal 2023 refers to the fiscal year ended December 31, 2023).
CAUTIONARY STATEMENT
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in this Annual Report. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. You should consult all of the information set forth in this Annual Report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Act and the Exchange Act, including our reports on Forms 10-Q and 8-K.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
| Ø | our ability to enter into contracts with healthcare providers to gain access to specimens, subjects, and data on favorable terms; |
| Ø | our ability to obtain new customers and keep existing customers; |
| Ø | development of our technology to adequately keep pace to support expansion of our existing line of business or our entry into new lines of businesses; |
| Ø | market adoption rate of our marketplace technology; |
| Ø | our ability to continue to expand outside of the United States in compliance with local laws and regulations; |
| Ø | acceptance of the products and services that we market; |
| Ø | the viability of our current intellectual property; |
| Ø | government regulations and our ability to comply with government regulations; |
| Ø | our ability to retain key employees; |
| Ø | adverse changes in general market conditions for biospecimens; |
| Ø | our ability to generate cash flow and profitability and continue as a going concern; |
| Ø | our future financing plans; and |
| Ø | our ability to adapt to changes in market conditions which could impair our operations and financial performance. |
These forward-looking statements involve numerous risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate could be materially different from our expectations. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Annual Report. If
one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Annual Report and the documents that we reference in this Annual Report and have filed with the SEC thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Our business, operating results or financial condition could be materially adversely affected by any of the following risks associated with any one of our businesses, as well as the other risks highlighted elsewhere in this Annual Report. The trading price of our common stock could decline due to any of these risks.
Our business is subject to numerous risks as described in this section. Some of these risks include:
Risks Related to Our Business
| Ø | We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability; |
| Ø | There is substantial doubt about our ability to continue as a going concern; |
| Ø | During the year ended December 31, 2023, we identified a material weakness in our internal control over financial reporting, and we may identify material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate this material weakness or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected; |
| Ø | We may likely require additional capital in the future and an inability to meet future capital needs could adversely impact our ability to operate; |
| Ø | Our revenue trend is not predictive which can lead to difficulty in accurately forecasting future results; |
| Ø | Sustainable future revenue growth is dependent upon the development of technology solutions that enable scale and address new markets; |
| Ø | If our security measures are breached, or if our services are subject to attacks that degrade or deny the ability of users to access our platforms, our platforms and applications may be perceived as not being secure, customers and suppliers may curtail or stop using our services, and we may incur significant legal and financial exposure; |
| Ø | Our growth strategy may not prove viable and we may not realize expected results; |
| Ø | We rely upon relatively few customers for a significant portion of revenue and do not have a recurring revenue business model. A loss of large customers could affect our ability to operate; |
| Ø | Customers and customer prospects may be averse to using a self-service marketplace to procure specimens and may continue to require iSpecimen personnel in the procurement process, impacting our scalability and profitability; |
| Ø | We have entered into contracts with U.S. government agencies and contractors which subjects us to federal contract and audit risk; |
| Ø | Potential adverse effects from changes in the healthcare industry, including consolidations and regulatory changes, could affect access to subjects, samples, and data and affect our growth; |
| Ø | Our supply chain may not provide adequate resources to quickly respond to requests for specimens and delays in the procurement process can affect our reputation, revenue, and profitability; |
| Ø | Reliance of relatively few supply partners for significant supplies and services could affect our ability to operate and grow; |
| Ø | Specimen collection from human subjects, including the possible occurrence of adverse events during or after tissue collection, could provide exposure to claims and litigation; |
| Ø | Our senior management team has limited experience managing a public company; |
| Ø | We may lose business to competitors which have or develop their own biorepositories and/or collection centers that can meet customers’ needs; and |
| Ø | We have incurred losses from sales tax obligations owed to various jurisdictions by us because we did not collect taxes on taxable sales in prior years, and we may never be able to recover the prior sales taxes from the customers. |
Risks Related to Regulatory Environment
| Ø | Failure to comply with federal and state data protection regulations could result in fines, penalties, and litigation, and have a material adverse effect upon our business; |
| Ø | Failure to comply with international laws related to data protection, such as the General Data Protection Regulation (“GDPR”) could result in fines, penalties, and litigation, and have a material adverse effect upon the Company’s business; |
| Ø | Failure to comply with laws and regulations related to the protection of research subjects could result in fines, penalties, and litigation, and have a material adverse effect upon our business; |
| Ø | Product safety and product liability, including bio-hazard risks, could provide exposure to claims and litigation; |
| Ø | Failure to comply with federal and state laws around environmental, health and safety, biohazards and dangerous goods, and imports/exports could result in fines, penalties, and litigation, and have a material adverse effect upon our business; and |
| Ø | Failure to comply with other international laws around environmental, health and safety, biohazards and dangerous goods, imports/exports, and other regulations could result in fines, penalties, and litigation, and have a material adverse effect upon our business. |
Risks Related to Our Securities
| Ø | If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market LLC, our common stock could be delisted from Nasdaq; |
| Ø | The sale of substantial shares of our common stock may depress our stock price; |
| Ø | Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders; |
| Ø | Our bylaws, as amended, designate certain courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees; and |
| Ø | Limitations on director and officer liability and indemnification of our officers and directors by us may discourage stockholders from bringing suit against an officer or director. |
