Can I do this?
Yes, of course. You might expose yourself to patent infringement liability later on, but you can certain attempt to improve the product.
If so am I required to file a Uility Patent?
Nope. You're never required
to file an application for a patent. You can always opt-out of the patent system.
Just a brief elaboration on the above:
"Patent pending" means there is a patent application pending (or at least there was one at the time the product was made -- those labels, stamps, etc. don't self-update when the patent issues). An application, in and of itself, provides no rights to exclude others from making, using, selling anything.
So, until a patent issues from that pending application, you have nothing to worry about. Well, there are always exceptions, but the one applicable here isn't applicable unless you've actually been shown the published patent application in question.
Has the patent issued? You probably don't know. Is the a problem? Maybe. This is all just part of the uncertainty and risk associated with doing business.
And, while you're not required to file an application for a utility patent, you might want to. That's a business decision that you make based on the value of any patents you might get weighted by the respective probabilities of getting them relative to the cost of acquiring them -- sometimes referred to as "cost-benefit analysis". Patent practitioners can only help with some of the variables. It's the business owner's job to assemble all the variables and make the final analysis and decision.
Hope that helps....