ITEM 1A. Risk Factors
Risks Relating to Our Business and Operations
We are an early-stage company with a history
of losses. We have not been profitable historically and may not be able to achieve profitability in the future.
We are a development-stage
medical device company with a limited operating history. In recent years, we have focused almost exclusively on developing our lead
product candidate, the Acclaim CI. We have funded our operations to date primarily through the issuance of our equity securities and convertible
debt.
We have a limited operating
history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated
an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving
fields, particularly in the medical device industry. To date, we have not generated any revenue from the sale of the Acclaim CI. See Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information. We have
incurred losses in each year since our inception, including net losses of approximately $20.8 million and $29.9 million for
the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, we had an accumulated deficit of
approximately $284.7 million and $257.3 million, respectively. Substantially all of our operating losses in such years resulted
from costs incurred in connection with the development of the Acclaim CI and from general and administrative costs associated with our
operations.
We will incur significant
expenses related to clinical trials to obtain approval of the FDA to market the Acclaim CI. If we obtain FDA marketing approval for the
Acclaim CI we will likely incur significant sales, marketing, and outsourced manufacturing expenses, as well as continued research and
development expenses. Furthermore, now that the Business Combination has been completed, we expect to incur additional costs associated
with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable
future. Because of the numerous risks and uncertainties associated with developing a medical device, we are unable to predict the extent
of any future losses or when we will become profitable, if at all.
We expect to continue to
incur significant losses until we receive the necessary regulatory approvals to commercialize the Acclaim CI in the United States, which
we may not be successful in achieving. We anticipate that our expenses will increase substantially if and as we:
● seek to maintain, protect, and expand our intellectual property portfolio;
● seek to identify, hire, and retain skilled personnel;
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The amount of any future
operating losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt
financings, strategic collaborations, or grants. Even if we obtain regulatory approvals to market the Acclaim CI or any future product
candidates, our future revenue will depend upon the size of any markets in which our products and product candidates receive approval
and our ability to achieve sufficient market acceptance, pricing and reimbursement from third-party payors for our products and product
candidates. Further, the operating losses that we incur may fluctuate significantly from quarter-to-quarter and year to year, such that
a period-to-period comparison of our results of operations may not be a good indication of our future performance. Other unanticipated
costs may also arise. If we continue to generate operating losses, there will be an adverse effect on our results of operations, financial
condition, and the market price of our Class A Common Stock.
We have generated limited revenue from product
sales and may never be profitable.
While we have historically
obtained revenue from our legacy Esteem FI-AMEI product, such revenue has been limited, and we have not generated any revenue from
sales of the Acclaim CI. Our ability to generate revenue and achieve profitability mainly depends on our ability to obtain FDA approval
for the Acclaim CI and, if we obtain such approval, to successfully scale up production and market the device. We do not know when, or
if, we will generate any such revenue. Our ability to generate future revenue from product sales will depend heavily on our success in
many areas, including but not limited to:
● completing our pivotal clinical study in the United States successfully;
● obtaining FDA approval for the Acclaim CI;
● identifying, assessing, acquiring and/or developing new product candidates;
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● attracting, hiring and retaining qualified personnel.
We anticipate incurring significant
incremental costs associated with commercializing the Acclaim CI. Our expenses could increase beyond expectations if we are required by
the FDA, or other domestic or foreign regulatory agencies, to change our product design or manufacturing processes or to perform studies
in addition to those that we currently anticipate. Even if we are successful in obtaining regulatory approvals to market the Acclaim CI,
our revenue earned from such product candidate will be dependent in part upon the size of the markets in the territories for which we
gain regulatory approval for such product candidate, the accepted price for such product candidate, our ability to obtain reimbursement
for such product candidate at any price, and the expenses associated with manufacturing and marketing such product candidate for such
markets. Therefore, we may not generate significant revenue from the sale of the Acclaim CI, even if we obtain FDA approval. Further,
if we are not able to generate significant revenue from the sale of our approved products, we may be forced to curtail or cease our operations,
in which case our investors may lose the full amount of their investment in us. Due to the numerous risks and uncertainties involved in
product development, it is difficult to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve
or maintain profitability.
If the Acclaim CI contains design or manufacturing
defects, our business and financial results could be harmed.
To date, we have completed
initial patient implants of the Acclaim CI as part of our early feasibility study, and we received approval from the FDA to begin our
pivotal trial, which we began in the first quarter of 2025. As the Acclaim CI has no history of commercial operation, we have a limited
frame of reference from which to evaluate its long-term performance. There can be no assurance that we will be able to detect and fix
any defects in the Acclaim CI in time to maintain our FDA trial schedule. Once we have commenced with implantation in additional patients,
we may discover latent defects in design, manufacture or construction that may cause our systems not to perform as expected or to cause
side effects. The Acclaim CI also requires software to operate, which may need to be modified and updated over time.
There can be no assurance
that we will be able to detect and fix any defects in the hardware or software of the Acclaim CI on the timescale necessary to maintain
our clinical trial schedule, or at all. Further, such defects may not become apparent until our systems are implanted in patients and
may cause adverse effects that cause harm to patients and require redesign of the Acclaim CI, which may result in great expense, harm
to our reputation, and harm to our results of operations, financial condition, and the trading price of the Class A Common Stock.
We expect that we will need to raise substantial
additional funding, which may not be available on acceptable terms, or at all. Failure to obtain funding on acceptable terms and on a
timely basis may require us to curtail, delay or discontinue our product development efforts or other operations.
The expenses we were obligated
to pay in relation to the Business Combination were substantial. As result, we will require substantial additional capital to commercialize
the Acclaim CI. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may
need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including but not limited
to:
● the cost, timing and outcomes of regulatory review of the Acclaim CI;
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Any additional fundraising
efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
the Acclaim CI. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable
to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our securities and
the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the value of our
securities to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree
to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
If we are unable to obtain
funding on a timely basis, we may be required to significantly curtail, delay or discontinue our research and development program or the
development or commercialization, if any, of the Acclaim CI or be unable to expand our operations or otherwise capitalize on our business
opportunities, as desired, which could materially and adversely affect our business, financial condition, results of operations and value
of our securities.
Raising additional capital would cause dilution
to our existing stockholders, which may adversely affect the rights of existing stockholders.
We may seek additional capital
through a combination of private and public equity offerings, debt financings and collaborations, and strategic and licensing arrangements.
To the extent that we raise additional capital through the issuance of equity or otherwise, including through additional preferred stock
or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that
adversely affect your rights as a stockholder. Future sales of our Class A Common Stock or of securities convertible into our Class A
Common Stock, or the perception that such sales may occur, could cause immediate dilution and adversely affect the value of our Class
A Common Stock.
Failure of a key information technology
system, process or site could have an adverse effect on our business.
We rely extensively on information
technology systems to conduct our business. These systems affect, among other things, ordering and managing materials from suppliers,
summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, data security, and other processes
necessary to manage our business. Our information technology systems and those of our third-party service providers, vendors, strategic
partners and other contractors or consultants are vulnerable to damage or interruption from computer viruses and malware (e.g., ransomware),
natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social
engineering schemes, malicious code, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated
nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access
to systems inside our organization. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion,
including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication
of attempted attacks and intrusions from around the world have increased and evolved. As a result of the COVID-19 pandemic, we and our
third-party service providers and partners may also face increased cybersecurity risks due to our reliance on internet technology and
the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
Although we have implemented cybersecurity protections to safeguard our data, including our patient and subject data, we can provide no
assurances that these protections will prevent all cybersecurity breaches. We primarily use common off-the-shelf software systems, such
as Microsoft 365, which receive frequent security updates from the software providers. We also utilize a third-party vendor to maintain
our IT system networks, and as a result of limited internal IT resources, we are only able to perform limited due diligence on our third-party
IT vendors. We receive periodic security monitoring from our cybersecurity insurance provider.
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However, because the techniques
used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a
target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may experience security breaches
that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents
or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and
to remove or obfuscate forensic evidence. Our third-party service providers and partners are also subject to these heightened risks. If
our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to
security breaches, and our business continuity plans do not effectively compensate on a timely basis, we may experience interruptions
in our operations, which could have an adverse effect on our business.
We and certain of our service
providers are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant
system failure, accident or security breach to date, if such an event were to occur, it could lead to unauthorized access, disclosure
and use of non-public information, including information from the patient information we create, receive, maintain or transmit, which
are governed by HIPAA and other laws. Any such access, disclosure, or other loss of information could result in legal claims or proceedings,
liability under laws that protect the privacy of personal information, and damage to our reputation, which would, in turn, materially
and adversely affect our results of operations, financial condition, liquidity, and the value of our securities.
Unfavorable global economic conditions could
adversely affect our business, financial condition or results of operations.
Our results of operations
could be adversely affected by general conditions in the global economy and in the global financial markets. The global financial crisis
caused extreme volatility and disruptions in the capital and credit markets. Factors such as geopolitical events (including the ongoing
war in Ukraine and the military conflict in Israel and Gaza), inflationary pressures, impacts from the COVID-19 pandemic, and the U.S.
election cycles have contributed to this volatility. Recently, among other effects, volatile economic conditions have caused high levels
of inflation, increases in interest rates by central banks with the intent of slowing inflation, and a reduction of available capital
following increased interest rates. These global economic conditions could result in a variety of risks to our business, including difficulty
in raising funding from capital markets and increased interest rates on loans used to finance our business. Such impacts would materially
and adversely affect our financial condition, liquidity and the value of our securities.
Our primary exposures to
inflationary pressures to date have been through increases in the market cost of employee compensation, third-party vendor pricing, and
component procurement. In particular, since 2022, we have had to increase employee salaries and benefits to aid employee retention and
to compete for new employees. If labor costs in our market continue to rise, we expect we will need to continue to increase our compensation
levels. We have also seen an increase in pricing from third-party vendors such as advisors, attorneys, and consultants. The per part pricing
of components has also increased, and, in many instances, without advanced warning. If we increase production of the Acclaim CI for clinical
trials and, if the Acclaim CI obtains FDA approval, eventual commercialization, we will also have greater exposure to rising costs of
components if inflation rates remain high. These increases in expenses could materially and adversely affect our financial condition,
liquidity and the trading price of our securities.
Recent increases in interest
rates may also affect our ability to finance the continued development of the Acclaim CI, the cost of FDA trials, and additional costs
of commercializing the Acclaim CI. In recent years, we have financed our operations through convertible loans from a related party, which
we believe to have been favorable to us at below market interest rates. However, we expect that loans on such favorable terms will no
longer be available to us now that the Business Combination has been consummated, and increased interest rates would make borrowing more
expensive and may reduce the availability of equity financing. Our inability to raise additional funds on favorable terms, or at all,
would materially and adversely affect our results of operations, financial condition, liquidity, the trading price of our securities,
and our growth prospects.
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As we have begun producing
additional units of our Acclaim CI for the clinical trial process, we are exposed to the risk of supply chain disruptions from events
such as tariffs and trade wars, the ongoing war in Ukraine and the military conflict in Israel and Gaza, and other global, national, regional,
and local events that cannot yet be predicted. Our supply chain risk will be increased if we are able to obtain FDA approval for the Acclaim
CI and begin commercial scale production. Supply constraints resulting from such events may also cause or exacerbate inflation. If such
events prevent us from obtaining necessary components for production of Acclaim CI devices, or substantially raise the prices for such
components, we may be delayed in the FDA trial process, or we may be unable to produce sufficient Acclaim CI devices to meet demand, which
would materially and adversely affect our results of operations and financial condition.
We have identified material weaknesses in
our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting, we may not be
able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in
us and the value of our common stock.
As a privately held company,
we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded
companies required by Section 404(a) of the Sarbanes-Oxley Act. As a public company, we are required to provide management’s
attestation on internal control over financial reporting. If we are unable to establish or maintain appropriate internal control over
financial reporting or implement these additional requirements in a timely manner or with adequate compliance, it could result in material
misstatements in our consolidated financial statements, failure to meet our reporting obligations on a timely basis, increases in compliance
costs, and subject us to adverse regulatory consequences, all of which may adversely affect investor confidence in us and the value of
our Class A Common Stock.
In connection with the preparation
and audit of our consolidated financial statements as of and for the years ended December 31, 2024, 2023 and 2022, material
weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies,
in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial
statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:
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The material weaknesses related
to the insufficient complement of personnel and formal accounting policies, and the lack of procedures and controls resulted in adjustments
to several accounts and disclosures. The information technology deficiencies did not result in a material misstatement to the consolidated
financial statements; however, the deficiencies, when aggregated, could result in potential misstatements that would not be prevented
or detected. Each of these material weaknesses could result in a material misstatement to the annual or interim consolidated financial
statements that would not be prevented or detected.
We have begun implementation
of a plan to remediate these material weaknesses. These remediation measures are ongoing and include the following steps:
While we are designing and
implementing measures to remediate our existing material weaknesses, we cannot predict the success of such measures or the outcome of
its assessment of these measures at this time. Our current controls and any new controls that we develop may become inadequate because
of changes in conditions in our business, personnel, information technology systems and applications, or other factors. If we fail to
remediate our existing material weaknesses or identify new material weaknesses in our internal control over financial reporting, if we
are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to conclude
that our internal control over financial reporting is effective, it is possible that a material misstatement of our financial statements
would not be prevented or detected on a timely basis, investors may lose confidence in the accuracy and completeness of our financial
reports, and the value of our securities could be materially and adversely affected.
Our financial statements contain an explanatory
paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing
on reasonable terms or at all.
As described in our accompanying
financial statements, our audited financial statements as of December 31, 2024 contain an explanatory paragraph regarding substantial
doubt about our ability to continue as a going concern. This going concern opinion could materially limit our ability to raise additional
funds through the issuance of equity or debt securities or otherwise. Future financial statements may include an explanatory paragraph
with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy
our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable
terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans
for, or commercialization efforts with respect to our products. This continues to raise substantial doubt about our ability to continue
as a going concern.
We are a development-stage
company and are subject to all of the risks inherent in the establishment of a new product. We may not receive, or may be delayed in receiving,
the necessary approval or clearance for the Acclaim CI.
Furthermore, even if our
technology receives the necessary regulatory approvals and becomes commercially viable, our business models may not generate sufficient
revenue necessary to support our business. If we are unable to address any issues mentioned above, or encounter other problems, expenses,
difficulties, complications, and delays in connection with the establishment and expansion of our business, our entire business may fail,
in which case you may lose part of, or your entire investment.
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We have a history of net
losses and negative cash flow from operations since our inception and we expect such losses and negative cash flows from operations to
continue in the foreseeable future. We anticipate our losses will continue to increase from current levels because we expect to incur
additional costs related to developing our business, including research and development costs, manufacturing costs, employee-related costs,
costs of complying with government regulations, intellectual property development and prosecution costs, marketing and promotion costs,
capital expenditures, general and administrative expenses, and costs associated with operating as a public company.
Our ability to generate revenue
from our operations and, ultimately, achieve profitability will depend on, among other factors, whether we can complete the development
and commercialization of our product candidate, whether we can manufacture the Acclaim CI on a commercial scale in such amounts and at
such costs as we anticipate, and whether we can achieve market acceptance of our products, services and business models. We may never
generate any revenue or operate on a profitable basis. Even if we achieve profitability, we may not be able to sustain it. If we are unable
to achieve sustainable profitability, our financial condition and the price of our securities will be materially and adversely affected.
The FDA trial process is uncertain. Clinical
failure can occur at any stage of clinical development. Our clinical experience to date does not necessarily predict future results and
may not have revealed certain potential limitations of the technology or potential complications from the Acclaim CI and may require further
clinical validation. Any product version we advance through clinical trials may not have favorable results in later clinical trials or
receive regulatory approval. We cannot predict the timing of clinical trial results, availability of regulatory personnel, or delays,
constraints or outcomes of any regulatory submissions or approvals.
Clinical failure can occur
at any stage of clinical development. We have received approval from the FDA to begin our pivotal trial, which we began in the first quarter
of 2025. As we have limited clinical experience, our ability to identify potential problems and/or inefficiencies concerning current and
future versions of the Acclaim CI in advance of its use in general and expanded groups of patients may be limited, and we cannot assure
you that actual clinical performances will be satisfactory to support proposed indications and regulatory approvals and clinical acceptance
and adoption, or that its use will not result in unanticipated complications. If the results of our feasibility study are not satisfactory,
our U.S. pivotal study could be delayed or may not occur. Furthermore, there can be no assurance that the implementation of our plan will
be successful. In addition, the results of our clinical trials are subject to human analyses and interpretation of the data accumulated,
which could be affected by various errors due to, among other factors, lack of sufficient clinical experience with the Acclaim CI, assumptions
used in the statistical analysis of results, interpretation errors in the analysis of the clinical trials results, or uncertainty in the
actual efficacy of the Acclaim CI in its current clinical stage. Therefore, the safety and efficacy of the Acclaim CI and the clinical
results to date will require further independent professional validation and clinical study. If the Acclaim CI does not function as expected
over time, we may not be able to develop the Acclaim CI at the rate or to the stage we desire, we could be subject to liability claims,
our reputation may be harmed, the Acclaim CI may not achieve regulatory clearances, and the Acclaim CI may not be widely adopted by healthcare
providers and patients. If the Acclaim CI is not widely adopted, our business, financial condition, and results of operations will be
materially and adversely affected.
The FDA’s policies
may change, and additional government laws, regulations, and policies may be enacted that could prevent, limit, or delay regulatory approval
of our product candidates, limit the marketability of our product candidates, or impose additional regulatory obligations on us. The current
U.S. presidential administration has proposed significant changes to the structure, operations, and staffing of the federal regulatory
agencies, including the FDA. Although the proposals are for more efficient review and less regulation, it is possible that reductions
and turnover in staffing, reductions in funding, changes to policy and procedure, and general uncertainty regarding the status of agencies,
their staff, and their funding will cause delays in clinical trials for the Acclaim CI or result in the Acclaim CI not receiving FDA approval
for commercialization. Any such delays will cause us significant expense by extending our time to commercialization if FDA approval is
obtained, if we are able to obtain it at all.
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The successful commercialization of the
Acclaim CI, if it receives FDA approval, will depend in part on the extent to which governmental authorities and health insurers establish
coverage, adequate reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement
for our product candidates could limit our ability to market those products and decrease our ability to generate revenue.
The availability of coverage
and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other
third-party payors will be essential for most patients to be able to afford the Acclaim CI. Our ability to achieve coverage and acceptable
levels of reimbursement for our products by third-party payors will affect our ability to successfully commercialize the Acclaim CI. Even
if we obtain coverage for the Acclaim CI by a third-party payor, the resulting reimbursement payment rates may not be adequate. We can
provide no assurance that coverage and reimbursement in the United States, the European Union, or elsewhere will be available for any
product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
There is significant uncertainty
related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including
private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which
new products will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices before they will
reimburse healthcare providers who use such therapies. Although we are confident that the Acclaim CI will be eligible for reimbursement,
we cannot guarantee what third-party payors will decide with respect to the coverage and reimbursement for the Acclaim CI, if approved.
Obtaining and maintaining reimbursement
status is time consuming, costly and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors
and other governmental payors develop their coverage and reimbursement policies for drugs and medical devices. However, no uniform policy
for coverage and reimbursement for such products exists among third-party payors in the United States. Therefore, coverage and reimbursement
for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and
costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with
no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules
and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and
regulations are likely.
Outside the United States,
our international operations will generally be subject to extensive governmental price controls and other market regulations, and we believe
the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing
and usage of our products. In many countries, the prices of medical products are subject to varying price control mechanisms as part of
national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company
profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge
for our product candidates, if approved. Accordingly, in markets outside the United States, the reimbursement for our product candidates
may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts
by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations
to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate
payment for our products. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to
the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has
become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
If we are unable to obtain
reimbursement coverage or adequate reimbursement levels, our results of operations, financial condition, the value of our securities,
and our future prospects will be materially and adversely affected.
We operate in a very competitive business
environment, and if we are unable to compete successfully against our existing or potential competitors, our business, financial condition
and results of operations may be adversely affected.
The Acclaim CI will be subject
to intense competition. The industry in which we operate is competitive, subject to change and sensitive to the introduction of new products,
procedures or other market activities of industry participants. We will compete with large, diversified medical device companies, including
Sonova, Demant, Cochlear, and others. We also compete with smaller companies similar to us.
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At any time, these competitors
and other potential market entrants may develop new products, procedures or treatment alternatives that could render our products obsolete
or uncompetitive. In addition, one or more of such competitors may gain a market advantage by developing and patenting competitive products,
procedures or treatment alternatives earlier than we can, obtaining regulatory clearances or approvals more rapidly than we can or selling
competitive products at prices lower than ours. If medical research were to lead to the discovery of alternative therapies or technologies
that better treat or cure hearing loss, our profitability could suffer through a reduction in sales or a loss in market share to a competitor.
Many of our current and potential competitors have substantially greater sales and financial resources than we do. These competitors may
also have more established distribution networks, a broader offering of products, entrenched relationships with physicians and distributors
or greater experience in launching, marketing, distributing and selling products or treatment alternatives. Similarly, we cannot currently
anticipate whether or how artificial intelligence may cause significant change in our industry, but our competitors will likely have greater
resources than us to implement proprietary artificial intelligence solutions in their businesses, which may give them significant competitive
advantages.
We also compete with our competitors
to engage the services of independent sales agents, both those presently working with us and those with whom we hope to work as we expand.
In addition, we compete with our competitors to acquire technologies and technology licenses complementary to our products or procedures
or advantageous to our business. If we are unable to compete successfully against our existing or potential competitors, our business,
financial condition and results of operations will be adversely affected, and we may not be able to grow at our expected rate, if at all.
We expect to derive most of our revenues
from sales of the Acclaim CI. Our inability to successfully commercialize this product candidate or any subsequent decline in demand for
this product candidate, could severely harm our ability to generate revenues.
We are currently dependent
on the successful commercialization of the Acclaim CI to generate revenues. As a result, factors adversely affecting our ability to successfully
commercialize, or the pricing of or demand for, this product could have a material adverse effect on our financial condition and results
of operations. If we are unable to successfully commercialize or create market demand for the Acclaim CI, we will have limited ability
to generate revenues.
Furthermore, we may be vulnerable
to fluctuations in demand for the Acclaim CI, and a reduction in demand for the Acclaim CI would have a material adverse effect on our
results of operations and financial condition. Such fluctuations in demand may be due to many factors, many of which are beyond our control,
including, among others:
● market acceptance of the clinical safety and performance of the Acclaim CI;
● development of similarly cost-effective products by our competitors;
● development delays of the Acclaim CI;
● changes in regulatory policies toward hearing loss technologies;
● third-party claims of intellectual property infringement;
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● responses from certain of our competitors to the offering of the Acclaim CI.
If healthcare professionals do not recommend
our product to their patients, the Acclaim CI may not achieve market acceptance and we may not become profitable.
If healthcare professionals,
including physicians, do not recommend or prescribe our product to their patients, the Acclaim CI may not achieve market acceptance and
we may not become profitable. In addition, physicians have historically been slow to change their medical diagnostic and treatment practices
because of perceived liability risks arising from the use of new products. Delayed adoption of the Acclaim CI by healthcare professionals
could lead to a delayed adoption by patients. Healthcare professionals may not recommend the Acclaim CI until certain conditions have
been satisfied, including, among others:
We cannot predict when, if
ever, healthcare professionals and patients will adopt the use of the Acclaim CI on a large scale. Even if favorable data is obtained
from clinical studies for the regulatory approval of the Acclaim CI, there can be no assurance that prominent physicians would endorse
it for use by their patients. If the Acclaim CI does not achieve an adequate level of acceptance by patients, healthcare professionals,
and government and private third-party payors, we may not generate significant product revenues, we may not become profitable, in which
case our results of operations, cash flows and the value of our securities will be materially and adversely affected.
We will be dependent upon contract manufacturing
organizations and material suppliers, making us vulnerable to supply shortages and problems, increased costs and quality or compliance
issues, any of which could harm our business.
Our production of Acclaim CI
devices is currently limited to production of prototype devices and devices for our early feasibility study. As a result, our purchases
of supplies and components are limited to date.
However, we expect that we
will need to significantly increase our production rates to meet the supply of Acclaim CI devices needed for our clinical trials and,
if the Acclaim CI obtains FDA approval, for eventual commercialization, which we are targeting to obtain in late 2027/early 2028. We also
expect that some of the critical materials and components used in manufacturing the Acclaim CI may be sourced from single suppliers, which
may expose us to greater risks as we increase production of Acclaim CI devices than if our supplier base were more diversified. For example,
our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to follow specific
protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction and environmental
factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual property rights, any of
which could delay or impede their ability to meet our increased requirements. An interruption in the supply of a key component could significantly
delay our production of the Acclaim CI or increase our production costs.
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When we increase production,
our reliance on these third-party suppliers will also subject us to other risks that could harm our business, including:
We may not be able to quickly
establish additional or alternative suppliers if necessary, in part because we may need to undertake additional activities to establish
such suppliers as required by the regulatory approval process. Any interruption or delay in obtaining products from our third-party suppliers,
or our inability to obtain products from qualified alternate sources at acceptable prices in a timely manner, could materially impair
our ability to meet the demand of our customers and cause them to switch to competing products. Given our reliance on a limited number
of suppliers, we may be susceptible to supply shortages while looking for alternate suppliers, which could materially and adversely affect
our business, financial condition, results of operations and the trading price of our securities.
Our business plan relies on certain assumptions
about the market for our product; however, the size and expected growth of our addressable market has not been established with precision
and may be smaller than we estimate, and even if the addressable market is as large as we have estimated, we may not be able to capture
market share.
Our estimates of the addressable
market for the Acclaim CI are based on a number of internal and third-party estimates and assumptions. While we believe our assumptions
and the data underlying our estimates are reasonable, these assumptions and our estimates may not be correct. As a result, the projected
demand for our products could materially differ from actual demand if our assumptions regarding these trends and acceptance of our products
by the medical community prove to be incorrect or do not materialize, or if non-surgical treatments gain more widespread acceptance. In
addition, even if the Acclaim CI gains acceptance, technological or medical advances could provide alternatives to address hearing loss
that are less invasive or offer other benefits over Acclaim CI. As a result, our estimates of the addressable market for our current or
future products and procedures may prove to be incorrect. If the addressable market is not as large as we believe, our business, financial
condition and results of operations and business prospects would be materially and adversely affected.
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We depend on third parties to manage our
pre-clinical studies and clinical trials, perform related data collection and analysis, and to enroll patients for our clinical trials,
and, as a result, we may face costs and delays that are beyond our control.
We rely upon third-party vendors,
including Contract Research Organization (“CROs”), to monitor and manage data for our ongoing clinical trial. We also
rely on CROs for execution of our clinical trial. Although we control only certain aspects of their activities, we are and will be responsible
for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards,
and our reliance on the vendors and CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are
required to comply with good clinical practice (“GCP”), cGMP, the Helsinki Declaration, the International Conference
on Harmonization Guideline for Good Clinical Practice, applicable European Commission Directives on Clinical Trials, laws and regulations
applicable to clinical trials conducted in other territories, and good laboratory practices, which are regulations and guidelines enforced
by the FDA, the Competent Authorities of the Member States of the EEA, and comparable foreign regulatory authorities for all of our product
candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal
investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, including
GCP and cGMP regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, European Medicines
Agency (“EMA”), or comparable foreign regulatory authorities may require us to perform additional clinical trials before
approving our marketing applications. Our failure to comply with these regulations may require us to repeat clinical trials, which would
delay the regulatory approval process.
If any of our relationships
with third-party CROs or vendors terminate, we may not be able to enter into arrangements with alternative CROs or vendors or do so on
commercially reasonable terms. In addition, our CROs are not our employees, and, except for remedies available to us under our agreements
with such CROs, we cannot control whether they devote sufficient time and resources to our ongoing clinical programs. If our CROs do not
successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality
or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements
or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval
for or successfully commercialize our product candidates. Our CROs may also generate higher costs than anticipated, which could adversely
affect our results of operations and the commercial prospects for our product candidate, increase our costs and delay our ability to generate
revenue.
Replacing or finding additional
CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO
commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.
Though we carefully manage our relationships with our CROs, we may encounter similar challenges or delays in the future, which could have
a material adverse effect on our business, financial condition and prospects.
We have been and in the future may become
a defendant in one or more stockholder derivative, class-action, and other litigation, and any such lawsuits may adversely affect our
business, financial condition, results of operations and cash flows.
We and certain of our officers
and directors have been and may in the future become defendants in one or more stockholder derivative actions or other class-action lawsuits.
For example:
See Part I, Item 3. Legal
Proceedings for more information on these lawsuits.
These lawsuits can divert our
management’s attention and resources from our ordinary business operations, and we would likely incur significant expenses associated
with their defense (including, without limitation, substantial attorneys’ fees and other fees of professional advisors and potential
obligations to indemnify current and former officers and directors who are or may become parties to such actions). In connection with
these lawsuits, we may be required to pay material damages, consent to injunctions on future conduct and/or suffer other penalties, remedies
or sanctions, or issue additional shares upon the exercise of certain warrants, which may cause additional dilution. In addition, any
such future lawsuits could adversely impact our reputation and/or ability to launch and commercialize our products, thereby harming our
ability to generate revenue. Accordingly, the ultimate resolution of these matters and any future matters could have a material adverse
effect on our business, financial condition, results of operation and cash flow and, consequently, could negatively impact the trading
price of our Class A Common Stock.
39
We are highly dependent on key members of
our executive management team. Our inability to retain these individuals could impede our business plan and growth strategies, which could
have a negative impact on our business and the value of your investment.
Our ability to implement our
business plan depends on the continued services of key members of our senior management. In particular, and to a critical extent, we are
dependent on the continued efforts and services of the members of our management team. If we lose the services of such key members of
our management team, we would likely be forced to expend significant time and money in the pursuit of replacement individuals, which may
result in a delay in the implementation of our business plan and plan of operations. We may not be able to find satisfactory replacements
on terms that would not be unduly expensive or burdensome to us. We do not currently carry a key-man life insurance policy that would
assist us in recouping our costs in the event of the death or disability of our management team. The loss of members of our management
team, or our inability to attract or retain other qualified individuals, could have a material adverse effect on our business, results
of operations and financial condition.
Certain of our directors and/or officers
may have interests that are different from holders of our Class A Common Stock.
Certain of our directors and
officers may have different interests than other holders of Class A Common Stock.
As of March 24, 2025, Mr. Taylor,
a member of the Board, holds approximately 48.2% of the currently outstanding shares of Class A Common Stock and approximately 24.2%
of the outstanding shares of our Series A Preferred Stock. As a result of these holdings, Mr. Taylor has the ability to exert significant
influence over matters submitted to a vote of our shareholders. Mr. Lucas, a member of the Board and the Chief Executive Officer,
has interest in continued employment with the Company that is different from other holders of Class A Common Stock.
For additional information
regarding related party transactions and potential conflicts of interest, see Item 13. Certain Relationships and Related Transactions,
and Director Independence.
Our management team has limited experience
managing a public company.
The members of our management
team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly
complex laws pertaining to public companies in the United States. Our management team may not successfully or efficiently manage our transition
to being a public company subject to significant regulatory oversight and reporting obligations under the U.S. federal securities laws
and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention
from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely
affect our business, financial condition, results of operations and prospects.
Risks Relating to Our Intellectual Property
If we are unable to obtain significant patent
protection for our products, or if our patents and other intellectual property rights do not adequately protect our products, we may be
unable to gain significant market share and be unable to operate our business profitably.
We rely on patents, trade secrets,
copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect
our products. These legal means, however, afford only limited protection and may not completely protect our rights.
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As of March 10, 2025, we had
rights to 35 issued U.S. patents, which are estimated to expire between 2025 and 2043 assuming all required fees are paid, 13 pending
U.S. patent applications, 33 issued foreign patents and 32 pending foreign and international patent applications. We cannot assure you
that our intellectual property position will not be challenged or that all patents for which we have applied will be granted. The validity
and breadth of claims in patents involve complex legal and factual questions and, therefore, may be highly uncertain. Uncertainties and
risks that we face include the following:
● our patents may not be held valid or enforceable if subsequently challenged;
The patent prosecution process
is expensive and time-consuming, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent
applications at a reasonable cost or in a timely manner, or in all jurisdictions. We may choose not to seek patent protection for certain
innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents
or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable
aspects of our developments before it is too late to obtain patent protection.
In addition, the laws of foreign
jurisdictions may not protect our rights to the same extent as the laws of the United States. For example, most countries outside of the
United States do not allow patents for methods of treating the human body. This may preclude us from obtaining method patents outside
of the United States having similar scope to those we have obtained or may obtain in the future in the United States. Changes in either
the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or
narrow the scope of our patent protection.
Moreover, we may be subject
to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office (the “USPTO”) or patent
offices in foreign jurisdictions, or become involved in opposition, derivation, reexamination, inter partes review, post-grant
review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such
submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize
our technology and compete directly with us, without payment to us.
The issuance of a patent is
not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices
in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed,
invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar
or identical products and techniques, or limit the duration of the patent protection of our technology.
While we are aware of several
third-party patents of interest, we do not believe that any of our products infringe any valid claims of patents or other proprietary
rights held by others. However, there can be no assurances that we do not infringe any patents or other proprietary rights held by third
parties. If our products were found to infringe any proprietary right of another party, we could be required to pay significant damages
or license fees to such party and/or cease production, marketing and distribution of those products.
We also rely on trade secrets
and other unpatented proprietary technology. There can be no assurances that we can meaningfully protect our rights in our unpatented
proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise
gain access to our proprietary technology. We seek to protect our trade secrets and proprietary know-how, in part, with confidentiality
agreements with employees and consultants that include customary intellectual property assignment obligations. Litigation may also be
necessary to defend infringement claims of third parties or to enforce patent rights we hold or to protect trade secrets or techniques
we own. There can be no assurances, however, that the agreements will not be breached, adequate remedies for any breach would be available
or competitors will not discover our trade secrets or independently develop comparable intellectual property. If we are unable to successfully
protect our intellectual property, our business, financial condition, and results of operations will be materially and adversely affected.
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Obtaining and maintaining patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign
governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during
the patent application process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other government fees on
issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent and/or applications and any
patent rights we may obtain in the future. While an unintentional lapse of a patent or patent application can in many cases be cured by
payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result
in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure
to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents.
If we fail to maintain the patents and patent applications covering our products, we may not be able to stop a competitor from marketing
products that are the same as or similar to our products, which would have a material adverse effect on our business.
We may become a party to lawsuits or administrative
proceedings involving patents or other intellectual property. If we were to lose any future intellectual property lawsuits, a court could
require us to pay significant damages and/or prevent us from selling our products.
We may become a party to
lawsuits or administrative proceedings involving patents or other intellectual property, including interference proceedings, post grant
review and inter partes review before the USPTO or the equivalent foreign patent authority. A legal proceeding, regardless
of the outcome, could drain our financial resources and divert the time and effort of our management. Protracted litigation to defend
or prosecute our intellectual property rights could result in our customers or potential customers deferring or limiting their purchase
or use of the affected products until resolution of the litigation.
If we are found to infringe
a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue selling,
developing and marketing our products and techniques. However, we may not be able to obtain any required license on commercially reasonable
terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same
technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product.
In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have
willfully infringed a patent. A finding of infringement could force us to cease some of our business operations, which could materially
harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar
negative impact on our business. Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes
the value of our securities to decline.
Because competition in our