ITEM 1A. RISK FACTORS
Summary of Risk Factors
The risk factors summarized and detailed below
could materially harm our business, operating results and financial condition, impair our future prospects and cause the price of our
common stock to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe
are immaterial may also affect our business if they occur. Material risks that may affect our business, operating results and financial
condition include, but are not necessarily limited to, those relating to:
● we may be adversely affected by the effects of inflation;
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● the price of our Common Stock might fluctuate significantly.
Risks Related to Our Business
We have incurred significant operating losses
since inception and cannot assure you that we will ever achieve or sustain profitability.
We have incurred losses since inception, and as
of September 30, 2025, we had an accumulated deficit of $78.6 million primarily as a result of expenses incurred in connection with our
operations and from our research and development programs. We expect to continue to incur significant expenses and increasing operating
costs resulting in net losses for the foreseeable future, and management has raised substantial doubt about our ability to continue as
a going concern. There was also substantial doubt about the Company’s ability to continue as a going concern as of and for the year
ended September 30, 2025. To date, we have financed our operations primarily through debt and equity financings, and our primary activities
have been limited to, and our limited resources have been dedicated to, performing business and financial planning, raising capital, recruiting
personnel, negotiating with business partners and the licensors of our intellectual property and conducting development activities.
To implement our business strategy we need to,
among other things, continue to develop all-in-one diagnostic and therapeutic solution, gain approval for other brain or motor related
disorders such as Parkinson’s with the therapeutic technologies developed for epilepsy, convince physicians and patients that our
technology represents an improvement over existing diagnostic or treatment options, hire direct experienced sales representatives to market
our technology, and engage in beneficial partnerships that can leverage our core technology. We have never been profitable and do not
expect to be profitable in the foreseeable future. We expect our expenses to increase significantly as we pursue our objectives. The extent
of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring significant expenses
and operating losses over the next several years. Our prior losses have had, and will continue to have, an adverse effect on our stockholders’
equity and working capital. Any additional operating losses may have an adverse effect on our stockholders’ equity, and we cannot
assure you that we will ever be able to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our Company and could
impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals or continue our
operations.
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We have a limited operating history, making
it difficult for you to evaluate our business and your investment.
We are an early-stage medical technology company which continues to
develop and commercialize comprehensive neuromodulation sEEG monitoring, ablation, and stimulation solutions to diagnose and treat patients
with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic back pain and other related neurological disorders. Our
operations are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to the
absence of an operating history, lack of fully-developed or commercialized products, insufficient capital, expected substantial and continual
losses for the foreseeable future, limited experience in dealing with regulatory issues, lack of manufacturing and marketing experience,
need to rely on third parties for the development and commercialization of our proposed products, a competitive environment characterized
by well-established and well-capitalized competitors and reliance on key personnel.
From our inception through September 30, 2025,
we have generated limited revenue from the commercial sales of our products. Because we have generated limited revenues from commercialization,
our operations to date have been principally financed through public and private offerings of our Common Stock and convertible debt and
exercises of options and warrants.
Investors are subject to all the risks incident
to the creation and development of a new business and each investor should be prepared to withstand a complete loss of his, her or its
investment. Furthermore, the accompanying financial statements have been prepared assuming that we will continue as a going concern. However,
the factors included above raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our Company has limited experience in medical
device development and may not be able to successfully develop any device or therapy. Our ability to become profitable depends primarily
on: our ability to further develop our cortical strip, grid electrode and depth electrode technology, our successful completion of all
necessary pre-clinical testing and clinical trials on such technology, our ability to obtain clearance or approval for such technology
and successfully commercialize such technology, our ongoing research and development efforts, the timing and cost of clinical trials,
our ability to identify personnel with the necessary skill sets or enter into favorable alliances with third-parties who can provide substantial
capabilities in clinical development, regulatory affairs, sales, marketing and distribution and our ability to obtain and maintain necessary
intellectual property rights to such technology. Our limited experience in medical device development may make it more difficult for us
to complete these tasks.
Even if we successfully develop and market such
technology, we may not generate sufficient or sustainable revenue to achieve or sustain profitability, which could cause us to cease operations
and cause you to lose all of your investment.
Zimmer has exclusive global rights to distribute our Evo Cortical,
Evo sEEG, and OneRF Ablation System in the brain. We are reliant on Zimmer to drive the commercialization and sales of these products.
Zimmer’s failure to timely develop or commercialize these products, or to achieve certain milestones, would have a material adverse
effect on our business and operating results.
The Company granted Zimmer an exclusive global right to distribute
our Evo Cortical, Evo sEEG, and OneRF Ablation System in the brain. We are reliant on Zimmer to drive the commercialization and sales
of these products until 2034 under the Zimmer Amended and Restated Distribution Agreement for the exclusive distribution, marketing and
sales license provided to Zimmer. The collaboration with Zimmer may not be successful due to several factors, including the following:
● Zimmer may fail to effectively commercialize our products; or
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Any of the foregoing could adversely impact the
likelihood and timing of any payments we are eligible to receive under the Zimmer Amended and Restated Distribution Agreement. If Zimmer
does not perform its obligations under the Zimmer Amended and Restated Distribution Agreement, sales would be substantially delayed and
could result in a material adverse effect on our business, results of operations and prospects and would likely cause our stock price
to decline.
Our ability to continue our operations requires
that we raise additional capital and our operations could be curtailed if we are unable to obtain the additional funding as or when needed.
Our independent registered public accounting firm
included an explanatory paragraph in the report on our financial statements as of and for the years ended September 30, 2025 and 2024,
respectively, noting the existence of substantial doubt about our ability to continue as a going concern. The Company has incurred losses
since inception, negative cash flows from operations, and an accumulated deficit of $78.6 million as of September 30, 2025. To date, the
Company’s revenues have not been sufficient to cover its full operating costs, and as such, it has been dependent on funding operations
through the issuance of debt and sale of equity securities. At September 30, 2025, we had cash and cash equivalents in the aggregate of
approximately $6.6 million. Our existing cash, cash equivalents and short-term investments will not be sufficient to fund our operating
expenses. To continue to fund operations, we will need to secure additional funding. We may obtain additional financing in the future
through the issuance of our Common Stock, through other equity or debt financings or through collaborations or partnerships with other
companies. We may not be able to raise additional capital on terms acceptable to us, or at all.
We may be adversely affected by the effects
of inflation.
Inflation has the potential to adversely affect
our business, results of operations, financial position and liquidity by increasing our overall cost structure, particularly if we are
unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has the potential
to result in higher interest rates and capital costs, supply shortages, increased costs of labor and other similar effects. As a result
of inflation, we may experience increases in the costs of labor, materials, and other inputs, such as engineering consultants. Although
we may take measures to mitigate the impact of this inflation, if these measures are not effective our business, results of operations,
financial position and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference
between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred.
We will need to raise substantial additional
funds in the future, and these funds may not be available on acceptable terms or at all. A failure to obtain this necessary capital when
needed could force us to delay, limit, scale back or cease some or all operations.
The continued growth of our business, including
the development, regulatory approval and commercialization of our cortical strip, grid electrode and depth electrode technology, will
significantly increase our expenses going forward. As a result, we will be required to seek substantial additional funds in the future.
Our future capital requirements will depend on many factors, including:
● any change in our development priorities;
● the cost of ongoing compliance with regulatory requirements;
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● the costs to develop additional intellectual property;
● anticipated or unanticipated capital expenditures; and
● unanticipated general and administrative expenses.
As a result of these and other factors, we do
not know whether and the extent to which we may be required to raise additional capital. We may in the future seek additional capital
from public or private offerings of our capital stock, borrowings under credit lines or other sources.
We may not be able to raise additional capital
on terms acceptable to us, or at all. Any failure to raise additional capital could compromise our ability to execute on our business
plan, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation or dissolution
could be significantly lower than the values reflected in our financial statements.
If we issue additional equity or debt securities
to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences
and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing,
joint ventures, strategic alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable
rights to our potential future products or proprietary technologies or grant licenses on terms that are not favorable to us.
An inability to obtain a supply of components
and raw material products could have a material adverse effect on our business, financial condition and results of operations.
Supply of components and raw material products
are generally available in quantities to meet the needs of the Company’s business. We are dependent on third-party manufacturers
for the medical products that develops. An inability to obtain such components and raw material products could have a material adverse
impact on our business, financial condition and results of operations.
We depend on a limited number of third-party
suppliers for the components of our cortical strip, grid electrode and depth electrode technology, and the loss of any of these suppliers,
or their inability to provide us with an adequate supply of materials, could harm our business.
We rely on third-party suppliers to supply and
manufacture the components of our cortical strip, grid electrode and depth electrode technology. For our business strategy to be successful,
our suppliers must be able to provide us with components in sufficient quantities, in compliance with regulatory requirements and quality
control standards, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. Future increases in sales
of our cortical strip and sheet electrode technology, if approved, whether expected or unanticipated, could strain the ability of our
suppliers to deliver an increasingly large supply of components and our cortical strip, grid electrode and depth electrode technology
in a manner that meets these various requirements.
Production of therapeutic products may require
raw materials for which the sources and amount of supply are limited, or may be hindered by quality or scheduling issues in respect of
the third party suppliers over which the Company has limited control. An inability to obtain adequate supplies of raw materials could
significantly delay the development, regulatory approval and sales and marketing of a product.
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We use a small number of suppliers of components
for our products. Depending on a limited number of suppliers exposes us to risks, including limited control over pricing, availability,
quality and delivery schedules. We may not have long term supply agreements with our suppliers and, in many cases, we may make our purchases
on a purchase order basis. Our ability to purchase adequate quantities of components or our products may be limited and we may not be
able to convince suppliers to make components and products available to us. Additionally, our suppliers may encounter problems that limit
their ability to supply components or manufacture products for us, including financial difficulties, damage to their manufacturing equipment
or facilities, product discontinuations, or complications due to worldwide economic and social instability. As a result, there is a risk
that certain components could be discontinued and no longer available to us. We may be required to make significant “last time”
purchases of component inventory that is being discontinued by the supplier to ensure supply continuity. If we fail to obtain sufficient
quantities of high quality components to meet demand for our products in a timely manner or on terms acceptable to us, we would have to
seek alternative sources of supply. Because of factors such as the proprietary nature of our products, our quality control standards and
regulatory requirements, we may not be able to quickly engage additional or replacement suppliers for some of our critical components.
Failure of any supplier to deliver components at the level our business requires could disrupt the manufacturing of our products and,
if approved, limit our ability to meet our sales commitments, which could harm our reputation and adversely affect our business.
We may not procure volumes sufficient to receive
favorable pricing, which could impact our gross margins if we are unable to pass along price differences to our customers. Recent global
economic cost inflation trends could unfavorably impact pricing from our suppliers.
Furthermore, vandalism, terrorism or a natural
or other disaster, such as an earthquake, fire or flood, could damage or destroy equipment, our inventory of component supplies or finished
products, cause substantial delays in development or our operations, result in the loss of key information, and cause us to incur additional
expenses. We maintain liability insurance and property casualty insurance, but it may not be adequate to fully cover our losses in any
particular case. In addition, regardless of the level of insurance coverage, damage to our or our suppliers’ facilities could harm
our business, financial condition and operating results.
We may also have difficulty obtaining
similar components from other suppliers that are acceptable to the FDA or other regulatory agencies, and the failure of any supplier
to comply with strictly enforced regulatory requirements could expose us to regulatory action including warning letters, product
recalls, and termination of distribution, product seizures or civil penalties. It could also require us to cease using the
components, seek alternative components or technologies and modify our products to incorporate alternative components or
technologies, which could result in a requirement to seek additional regulatory approvals. Any disruption of this nature or
increased expenses could harm our development, approval or commercialization efforts and adversely affect our operating results.
Changes in the configuration of our technology
under development may result in additional costs or delay.
As new products are developed through pre-clinical
testing and clinical trials towards approval and commercialization, it is common that various aspects of the development program, such
as manufacturing methods and configuration, are altered along the way in an effort to optimize processes and results. Any changes we make
carry the risk that they will not achieve the intended objectives. Any of these changes could cause our products to perform differently
and affect the results of planned clinical trials or other future clinical trials conducted with the altered device. Such changes may
also require additional testing, regulatory notification or regulatory approval. This could delay completion of pre-clinical testing or
clinical trials, increase costs, delay approval of our future products and jeopardize our ability to commence sales and generate revenue.
We have four products which have each received
510(k) clearance from the FDA. If we are unable to successfully develop and receive regulatory clearance/approval for our other products
under development, or if we experience significant delays in doing so, our business will be harmed.
Four of our products have received 510(k) clearance
from the FDA: our Evo® Cortical, Evo® sEEG, OneRF® Ablation System, and OneRF®
TN Ablation System. None of our other products have received clearance or approval for commercial sale. Our ability to generate revenue
from our developed products, if any, will depend heavily on their successful development and regulatory approval for commercialization.
For our current products under development clinical
studies in humans may be required, clinical testing is expensive, difficult to design and implement, can take many years to complete and
is inherently uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Further, the outcomes
of completed clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do
not necessarily predict final results. Clinical data is often susceptible to varying interpretations and analyses, and many companies
that have believed their products performed satisfactorily in clinical trials have nonetheless failed to obtain marketing clearance or
approval. We have limited resources to complete the expensive process of medical device development, pre-clinical testing and clinical
trials, putting us at a disadvantage, particularly compared to some of our larger and established competitors, and we may not have sufficient
resources to commercialize our products under development in a timely fashion, if ever.
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We may experience numerous unforeseen events during
or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our products,
including:
● the cost of clinical trials of our products may be greater than we anticipate;
If we are required to conduct additional clinical
trials or other testing of our cortical strip/grid electrode system, depth electrode system, RF probes and/or RF generator ablation system
technology under development beyond those that we contemplate, if we are unable to successfully complete clinical trials, if the results
of these trials or tests are not favorable or if there are safety concerns, we may:
● not obtain marketing approval at all;
● be subject to additional post-marketing testing requirements; or
Our development costs will also increase if we
experience delays in testing or marketing clearance/approvals. We do not know whether any of our clinical trials will begin as planned,
will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could allow our competitors
to bring innovative products to market before we do and impair our ability to successfully commercialize our products.
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Even if we obtain regulatory clearance and/or
approval for all of our products, we will remain subject to extensive regulatory scrutiny and compliance obligations.
Both before and after a product is
commercially released, we will have ongoing responsibilities under FDA regulations. We will also be subject to periodic inspections
by the FDA and comparable foreign authorities to determine compliance with regulatory requirements, such as the QSR, of the FDA,
medical device reporting regulations and regulations regarding notification, corrections, and recalls. These inspections can result
in observations or reports, warning letters or other similar notices or forms of enforcement action. If the FDA concludes that we
are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable
health risk, it could ban these products, suspend or cancel our marketing authorizations, impose “stop-sale” and
“stop-import” orders, detain or seize adulterated or misbranded products, order a recall, repair, replacement,
correction or refund of such products, or require us to notify health providers and others that the products present unreasonable
risks of substantial harm to the public health. Discovery of previously unknown problems with our product’s design or
manufacture may result in restrictions on use, restrictions placed on us or our suppliers, or withdrawal of an existing regulatory
clearance. The FDA may also impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining to
medical devices, assess civil or criminal penalties against our officers, employees or us, or recommend criminal prosecution of our
Company. Adverse regulatory action may restrict us from effectively marketing and selling our products. In addition, negative
publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our
business, financial condition, and operating results.
In addition, even though we have obtained FDA
clearance to market four of our products, and even if we obtain the proper regulatory approval or clearance to market any additional products
under development, the FDA has the power to require us to conduct post-market surveillance studies, which are designed to identify adverse
events, device malfunctions or complaints from patients implanted with the device during a specified period after the commencement of
commercial use in the U.S. The FDA may also require us to conduct post-approval studies to further monitor the safety and/or effectiveness
of our products. Failure to conduct required surveillance or studies in a timely manner could result in the revocation of the approved
PMA product that is subject to such a requirement and could also result in the recall or withdrawal of the product, which would prevent
us from generating sales from that product in the United States.
Potential complications from our technologies
that are currently unknown may come to light.
Based on our industry experience and the experience
of the physicians that use products similar to our cortical strip /grid electrode system, depth electrode system, RF probes and RF generator
ablation system technology may result in the following complications:
● from use of our cortical strip/grid electrode and depth electrode technology
post-operative hemorrhage, infection,
brain inflammation, brain tissue necrosis, inability to accurately localize the epileptogenic focus (the area of the cerebral cortex responsible
for causing epileptic seizures), neurologic deficit (abnormal function of a body area due to weaker function of the brain, spinal cord,
muscles or nerves, such as abnormal reflexes, inability to speak and decreased sensation) and extra axial fluid collections (fluid that
occurs in the brain after surgery).
● from use of our RF probes and RF generator ablation technology
temporary motor deficit, post-operative pain, skin burns
hemorrhage, infection.
for Trigeminal nerve ablation, masseter weakness, paresthesias,
diplopia, keratitis, corneal reflex impairment, anesthesia dolorosa, and vasomotor rhinorrhea.
If these or unanticipated complications or side-effects
result from the use of our cortical strip/grid electrode system, depth electrode system, RF probes and RF generator ablation system technology,
our product development may be delayed, we may not be able to obtain regulatory clearance or approval for certain products, we could be
subject to liability and, even for cleared/approved products, our technology would not be widely adopted. We cannot assure you that use,
even for a limited time, would not result in unanticipated complications, even after the device is removed.
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Undetected errors or defects in our cortical
strip/grid electrode system, depth electrode system, RF probes and RF generator ablation system technologies under development or future
versions thereof could harm our reputation, decrease the market acceptance of cortical strip/grid electrode system, depth electrode system,
RF probes and RF generator ablation system technology or expose us to product liability claims adversely affecting our financial condition
and results of operations or liquidity.
Our cortical strip/grid electrode system, depth
electrode system, RF probes and RF generator ablation system technologies may contain undetected errors or defects. As a result, we may
be subject to warranty and liability claims for damages related to errors or defects in such products. A material liability claim or
other occurrence that harms our reputation or decreases market acceptance of our cortical strip/grid electrode and depth electrode technology
could harm our business and operating results. This risk exists even if a device is cleared or approved for commercial sale and manufactured
in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products are designed to affect, and
any future products will be designed to affect, important bodily functions and processes. Any side effects, manufacturing defects, misuse
or abuse associated with our cortical strip/grid electrode system, depth electrode system, RF probes and RF generator ablation system
technology or future versions thereof could result in patient injury or death. The medical device industry has historically been subject
to extensive litigation over product liability claims, and we cannot offer any assurance that we will not face product liability lawsuits.
Our clinical and commercial product liability insurance coverage may not be sufficient to cover claims that may be made against us. In
addition, we may not be able to maintain insurance coverage at a reasonable cost, or in sufficient amounts or scope, to protect us against
losses. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management team and
other resources, and adversely impact or eliminate the prospects for commercialization of the product candidate, or sale of the product,
which that is the subject of any such claim.
The sale and use of our cortical strip/grid electrode
system, depth electrode system, RF probes and RF generator ablation system technology or future versions thereof could lead to the filing
of product liability claims if someone were to allege that our cortical strip/grid electrode system, depth electrode system, RF probes
and RF generator ablation system technology or one of our products contained a design or manufacturing defect. A product liability claim
could result in substantial damages and be costly and time consuming to defend, either of which could materially harm our business or
financial condition. Product liability claims may be brought against us by patients, healthcare providers or others selling or otherwise
coming into contact with our products, among others. If we cannot successfully defend ourselves against product liability claims, we will
incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may
result in:
● litigation;
● distraction of management’s attention from our primary business;
● decreased demand;
● damage to our business reputation;
● product recalls or withdrawals from the market;
● withdrawal of clinical trial participants;
● substantial monetary awards or settlements to patients or other claimants; or
● loss of revenue.
Product liability lawsuits and claims, safety
alerts or product recalls, with or without merit, could cause us to incur substantial costs, delay our product development efforts, place
a significant strain on our financial resources, divert the attention of management from our core business, harm our reputation, increase
our product liability insurance rates, once we obtain such insurance, or prevent us from securing such insurance coverage in the future
and adversely affect our ability to attract and retain customers, if approved, any of which could harm our business, financial condition
and operating results.
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We currently maintain commercial product liability
insurance with an aggregate limit of $5,000,000. We cannot be assured that such insurance would adequately protect our assets from the
financial impact of defending a product liability claim because these policies typically have substantial deductibles. Product liability
claims in excess of applicable insurance coverage would negatively impact our business, financial condition and operating results. Insurance
coverage varies in cost and can be difficult to obtain, and we cannot guarantee that we will be able to obtain insurance coverage in the
future on terms acceptable to us or at all.
We may not be successful in commercializing
our technology.
We anticipate that we will derive nearly all of
our revenue from the sales of our cortical strip, grid electrode and depth electrode technology or future versions thereof.
Moreover, we expect the revenue opportunity for
additional uses of our technology to be greater than the technology and uses that have currently been cleared by the FDA, and so we believe
our ability to generate significant revenue in the future will be dependent upon the receipt of additional FDA clearances.
Our revenue will be dependent, in part, upon the
size of the markets in which we gain regulatory approval, the accepted price for the product, the ability to obtain coverage and reimbursement,
and whether we own the commercial rights for that territory. If the number of people we target is not as significant as we estimate or
the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue
from sales of such products, even if approved.
The success of any products that we develop will
depend on several factors, including:
The continuing development and commercialization
of our products depends upon us maintaining strong relationships with academic and healthcare institutions and professionals.
If we fail to maintain our strong working relationships
with healthcare and academic institutions and their professionals, many of our products may not be developed and marketed in line with
the needs and expectations of the professionals who use and support our products, which could cause a decline in our earnings and profitability.
The development, marketing and sales of many of our products depends on our maintaining working relationships with healthcare institutions
and professionals. We rely on these professionals to provide us with considerable knowledge and experience regarding the development,
marketing and sale of our products. If we are unable to maintain strong relationships with these institutions and professionals, the development
and marketing of our products could suffer, which could have a material adverse effect on our business, results of operations, financial
condition, and cash flows.
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Our success depends on our ability to continue
to develop, commercialize and gain market acceptance for our products and technology.
Our current business strategy is highly dependent on developing and
commercially launching our products and technology and achieving and maintaining market acceptance. In order for us to sell cortical strip,
grid electrode and depth electrode technology to people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic
pain due to failed back surgeries and other related neurological disorders, we must convince them, their caregivers and healthcare providers
that our technology offers meaningful advantages over existing solutions for neuromodulation, cEEG and sEEG recording, ablation, and stimulation.
Key challenges include overcoming physician preference for established competitive products and demonstrating superior clinical outcomes.
Several factors could negatively impact market acceptance, including: failure to gain support from key opinion leaders, insufficient clinical
evidence supporting our technology’s benefits, perceived risks associated with the technology, introduction of competitive products,
adverse clinical trial results, loss of regulatory approvals, or adverse publicity. Healthcare providers typically adopt new technologies
slowly due to liability concerns and reimbursement uncertainties.
In addition, people with such medical conditions,
their caregivers or healthcare providers may perceive our products and technology to be more complicated or less effective than current
technology, and people may be unwilling to change their current regimens. Moreover, we believe that healthcare providers tend to be slow
to change their medical treatment practices because of perceived liability risks arising from the use of new products and the uncertainty
of third-party reimbursement. Accordingly, healthcare providers may not recommend our cortical strip, grid electrode and depth electrode
technology until, if ever, there is sufficient evidence to convince them to alter the treatment methods they typically recommend, such
as receiving recommendations from prominent healthcare providers or other key opinion leaders in the community.
If we fail to convince patients, caregivers, and
healthcare providers of our technology’s benefits or cannot achieve widespread market acceptance, our sales potential and strategic
objectives would be compromised, adversely affecting our business, financial condition, and operating results.
Failure to secure or retain coverage or
adequate reimbursement for our cortical strip, grid electrode and depth electrode technology or future versions thereof, including the
implantation procedures, by third-party payors could adversely affect our business, financial condition and operating results.
We plan to derive nearly all of our revenue from
sales of our cortical strip, grid electrode and depth electrode technology, in the United States and expect to do so for the next several
years. We anticipate a substantial portion of the purchase price of our cortical strip, grid electrode and depth electrode technology
will be paid for by third-party payors, including private insurance companies, preferred provider organizations and other managed care
providers. Patients who receive treatment for their medical conditions and their healthcare providers generally rely on third-party payors
to reimburse all or part of the costs associated with their medical treatment, including healthcare providers’ services. Coverage
and adequate reimbursement from third-party payors, including governmental healthcare programs, such as Medicare and Medicaid, and commercial
payors, is critical to new product acceptance. Future sales of our cortical strip, grid electrode and depth electrode technology will
be limited unless people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries
and other related neurological disorders can rely on third-party payors to pay for all or part of the cost to purchase our cortical strip,
grid electrode and depth electrode technology. Access to adequate coverage and reimbursement for our cortical strip, grid electrode and
depth electrode technology by third-party payors is essential to the acceptance of our products by people with epilepsy, Parkinson’s
disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders.
In the United States, a third-party
payor’s decision to provide coverage for our products does not imply that an adequate reimbursement rate will be obtained.
Further, one third-party payor’s decision to cover our products does not assure that other payors will also provide coverage
for the products or will provide coverage at an adequate reimbursement rate. Healthcare providers may choose not to order a product
unless third-party payors pay a substantial portion of the product. Within and outside the United States, reimbursement is obtained
from a variety of sources, including government-sponsored and private health insurance plans. These third-party payors determine
whether to provide coverage and reimbursement for specific products and procedures. Coverage determinations and reimbursement levels
of both our products and the healthcare provider’s performance of the insertion and removal procedures are critical to the
commercial success of our product, and if we are not able to secure positive coverage determinations and reimbursement levels for
our products or the insertion and removal procedures, our business would be materially adversely affected.
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In addition, there may be significant delays in
obtaining reimbursement, and coverage may be more limited than the purposes for which the product is cleared by the FDA or other foreign
regulatory authorities. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a
rate that covers our costs, including research, development, manufacture, sale and distribution. Payment rates may vary according to the
use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already
reimbursed, and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts
or rebates required by government healthcare programs or third-party payors and by any future relaxation of laws that presently restrict
imports of products from countries where they may be sold at lower prices than in the United States.
Because there is generally no separate reimbursement
for medical devices and other supplies used in such procedures, including our cortical strip, grid electrode and depth electrode technology,
and because we believe that our cortical strip, grid electrode and depth electrode technology, if approved, would be adequately described
by existing DRG and ICD-9 codes for epilepsy surgery, some of our target customers may be unwilling to adopt our cortical strip, grid
electrode and depth electrode technology over more established or lower cost therapeutic alternatives already available or subsequently
become available. Further, any decline in the amount payors are willing to reimburse our customers for procedures using our cortical strip,
grid electrode and depth electrode technology could make it difficult for new customers to adopt our cortical strip, grid electrode and
depth electrode technology and could create additional pricing pressure for us, which could adversely affect our ability to invest in
and grow our business.
Third-party payors, whether governmental or commercial,
are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy
of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore, coverage and reimbursement
for medical device products and services can differ significantly from payor to payor. In addition, payors continually review new technologies
for possible coverage and can, without notice, deny coverage for these new products and procedures. As a result, the coverage determination
process is often a time-consuming and costly process that will 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 obtained, or maintained if obtained.
If sufficient coverage and reimbursement is not
available for our any product we develop, in the United States, the demand for our products and our revenues will be adversely affected.
Reimbursement by Medicare is highly regulated
and subject to change.
Medicare program is administered by CMS, which
imposes extensive and detailed requirements on medical services providers, including, but not limited to, rules that govern how we structure
our relationships with physicians, and how and where we provide our solutions. Our failure to comply with applicable Medicare rules could
result in discontinuing the ability for physicians to receive reimbursement as they will likely utilize our cortical strip, grid electrode
and depth electrode technology under the Medicare payment program, civil monetary penalties, and/or criminal penalties, any of which could
have a material adverse effect on our business and revenues.
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NeuroOne Medical Technologies Corporation
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If our competitors are better able to develop
and market products for the diagnosis and treatment of epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain
due to failed back surgeries and other related neurological disorders that are safer, more effective, less costly, easier to use or otherwise
more attractive than our cortical strip, grid electrode and depth electrode technology, our business will be adversely impacted.
The medical device industry is highly competitive and subject to technological
change. Our success depends, in part, upon our ability to establish a competitive position in the market for the diagnosis and treatment
of epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological
disorders by securing broad market acceptance of our cortical strip, grid electrode and depth electrode technology. Any product we develop
that achieves regulatory clearance or approval will have to compete for market acceptance and market share. We believe that the primary
competitive factors of our cortical strip, grid electrode and depth electrode technology will be: reduced infections, ability to record
additional brain activity, minimally invasive surgical procedure, ease of use and cost effectiveness. We face significant competition
in the United States and internationally, which we believe will intensify. For example, our major competitors are: (i) in the market for
diagnosis, Ad-Tech Medical Instrument Corporation, PMT Corporation and Dixi Medical, (ii) in the market for neuro-ablation, Medtronic
and Monteris Medical and (iii) in the market for trigeminal neuralgia, Boston Scientific and Avanos RF ablation systems. Each of the foregoing
competitors has systems approved in the United States and certain foreign jurisdictions and has been established for several years. We
face a particular challenge overcoming the long-standing practices by some physicians of using the existing technology of our larger,
more established competitors. Physicians may be reluctant to try new products from a source with which they are less familiar. If these
physicians do not try to subsequently adopt our product, then we may never achieve profitability and such failure to adopt our product
could have a material adverse effect on our business, financial condition and operating results.
In addition to facing competition from major competitors
and potentially our development partner, we may also face competition from other emerging competitors or smaller companies with active
development programs that may emerge in the future.
Many of the companies developing or marketing
competing products enjoy several advantages over us, including:
● more experienced sales forces;
● greater name recognition;
● more established sales and marketing programs and distribution networks;
● long established relationships with physicians and hospitals;
● the ability to acquire and integrate our competitors and/or their technology;
● established history of product reliability, safety and durability;
Our competitors may develop and patent
processes or products earlier than us, obtain patents that may apply to us at any time, obtain regulatory clearance or approvals for
competing products more rapidly than us or develop more effective or less expensive products or technologies that render our
technology or products obsolete or less competitive. Furthermore, the frequent introduction by competitors of products that are, or
claim to be, superior to our products may create market confusion that may make it difficult to differentiate the benefits of our
products over competitive products. In addition, the entry of multiple new products may lead some of our competitors to employ
pricing strategies that could adversely affect the pricing of any product we may develop and commercialize. We also face fierce
competition in recruiting and retaining qualified sales, scientific, and management personnel, establishing clinical trial sites and
enrolling patients in clinical studies. If our competitors are more successful than us in these matters, our business may be
harmed.
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NeuroOne Medical Technologies Corporation
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The size and future growth in the market
for our cortical strip, grid electrode and depth electrode technology and for other future products and technology under development have
not been established with precision and may be smaller than we estimate, possibly materially. If our estimates and projections overestimate
the size of these markets, our sales growth may be adversely affected.
The size and future growth potential of the market
for our cortical strip, grid electrode and depth electrode technology and other future products and technology under development may be
materially smaller than our estimates. Our market projections are based on internal and third-party studies, current treatment patterns,
and our belief that the incidence of targeted neurological disorders (including epilepsy, Parkinson’s disease, dystonia, essential
tremors, and chronic pain from failed back surgeries) is increasing in the United States and worldwide.
While we believe these factors provide reliable
tools for market estimation, the underlying assumptions and conditions may change, affecting their predictive accuracy. If our assumptions
about disease incidence rates or potential market demand prove incorrect, the actual market size and growth potential could be materially
different from our projections. Any overestimation of the market opportunity could adversely impact our projected sales growth and overall
business performance.
We depend on our partnership with Mayo to
license certain know how for the development and commercialization of our technology. Termination of this partnership would harm our business,
and even if this partnership continues, it may not be successful.
We have entered into the Mayo Development Agreement
to (i) exclusively license worldwide certain Mayo improvements for the development and commercialization of products, methods and processes
related to flexible circuit technology for the recording and stimulation of tissue and (ii) license, on a non-exclusive basis, worldwide
Mayo thin film electrode technology know-how for the development and commercialization of products, methods and processes related to flexible
circuit technology for the recording and stimulation of tissue. Mayo has agreed to assist the Company by providing access to the Mayo
Principal Investigators in developing a minimally invasive device/delivery system and procedure for a minimally invasive approach for
the implantation of any flexible circuit technology developed by the Company, including prototype development, animal testing, protocol
development for human and animal use, abstract development and presentation and access to and license of any intellectual property that
the Mayo Principal Investigators develop relating to the procedure. See “Business-Mayo Foundation for Medical Education and Research
License and Development Agreement” for additional information regarding our agreement with Mayo.
The Mayo Development Agreement generally will
expire in October 2034, unless the Mayo know-how and improvements under the Mayo Development Agreement remain in use, and the Mayo Development
Agreement may be terminated by Mayo for cause or under certain circumstances. Mayo and the Company may not be successful in their efforts
to develop any product, method, process, device, delivery system or minimally invasive approach by such expiration date or termination,
if at all. If no such minimally invasive device or delivery system and procedure for minimally invasive approach is developed, the Company
may never receive regulatory approval of its cortical strip, grid electrode and depth electrode technology under development or the market
may never accept such technology, if approved.
Disputes may arise between us and Mayo regarding
intellectual property subject to the Mayo Development Agreement or other matters, including with respect to: the scope of rights granted
under the agreement and other interpretation-related issues; the amount and timing of payments; the rights and obligations of Mayo under
the license agreement; and the ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by Mayo and us.
Any disputes with Mayo may prevent or impair
our ability to maintain our current arrangement. We depend on the intellectual property licensed from and development assistance from
Mayo to develop our cortical strip, grid electrode and depth electrode technology. We cannot assure you that we will be able to continue
to comply with the Mayo Development Agreement. In fact, the original license and development agreement entered into with Mayo in 2014
required that, upon the Merger with the LLC, we make certain payments and issue shares of Common Stock to Mayo, which we failed to do
at such time.
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NeuroOne Medical Technologies Corporation
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We contract with third parties for the manufacture
of our cortical strip, grid electrode and depth electrode technology and for our future products and technology under development, and
expect to continue to do so for clinical trials and commercialization. Risks associated with the manufacturing of our products could reduce
our gross margins and negatively affect our operating results.
We currently rely, and expect to continue to rely,
on third parties for the manufacture of our cortical strip, grid electrode and depth electrode technology. Therefore, our business strategy
depends on our third-party manufacturers’ ability to manufacture our cortical strip, grid electrode and depth electrode technology
and future generations thereof in sufficient quantities and on a timely basis so as to meet consumer demand, while adhering to product
quality standards, complying with regulatory requirements and managing manufacturing costs. To date, we have only manufactured small quantities
of our cortical electrodes. As a result, we currently have limited data and experience regarding the quality, reliability and timeliness
of our third-party manufacturers.
We are subject to numerous risks relating to the
manufacturing capabilities of our third-party manufacturers, including:
● quality or reliability defects;
● failure to increase production to meet demand;
● inability to manufacture product components cost-effectively;
● transportation and import and export risk;
These risks are likely to be exacerbated by our
limited experience with our cortical strip, grid electrode and depth electrode technology and its manufacturing process. As demand for
our products increases, our third-party suppliers will need to invest additional resources to purchase components, hire and train employees,
and enhance their manufacturing processes. If our manufacturers fail to increase production capacity efficiently, our sales may not increase
in line with our expectations and our operating margins could fluctuate or decline. In addition, manufacturing any future versions of
our cortical strip, grid electrode and depth electrode technology may require the modification of production lines, the identification
of new manufacturers for specific components, or the development of new manufacturing technologies. It may not be possible for us to
manufacture these products at a cost or in quantities sufficient to make any future versions of our cortical strip, grid electrode and
depth electrode technology commercially viable.
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NeuroOne Medical Technologies Corporation
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Potential complications from our cortical
strip, grid electrode and depth electrode technology that are currently unknown may come to light.
Based on our industry experience and the experience
of the physicians that use products similar to our cortical strip, grid electrode and depth electrode technology, complications from use
of our cortical strip, grid electrode and depth electrode technology may include post-operative hemorrhage, infection, brain inflammation,
brain tissue necrosis, inability to accurately localize the epileptogenic focus (the area of the cerebral cortex responsible for causing
epileptic seizures), neurologic deficit (abnormal function of a body area due to weaker function of the brain, spinal cord, muscles or
nerves, such as abnormal reflexes, inability to speak and decreased sensation) and extra axial fluid collections (fluid that occurs in
the brain after surgery). If these or unanticipated complications or side-effects result from the use of our cortical strip, grid electrode
and depth electrode technology, our product development may be delayed, we may not be able to obtain regulatory clearance or approval
for certain products, we could be subject to liability and, even for cleared/approved products, our technology would not be widely adopted.
We cannot assure you that use, even for a limited time, would not result in unanticipated complications, even after the device is removed.
Undetected errors or defects in our cortical
strip, grid electrode and depth electrode technology under development or future versions thereof could harm our reputation, decrease
the market acceptance of our cortical strip, grid electrode and depth electrode technology or expose us to product liability claims adversely
affecting our financial condition and results of operations or liquidity.
Our cortical strip, grid electrode and depth electrode
technology may contain undetected errors or defects. As a result, we may be subject to warranty and liability claims for damages related
to errors or defects in such products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance
of our cortical strip, grid electrode and depth electrode technology could harm our business and operating results. This risk exists even
if a device is cleared or approved for commercial sale and manufactured in facilities licensed and regulated by the FDA or an applicable
foreign regulatory authority. Our products are designed to affect, and any future products will be designed to affect, important bodily
functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our cortical strip, grid electrode and
depth electrode technology or future versions thereof could result in patient injury or death. The medical device industry has historically
been subject to extensive litigation over product liability claims, and we cannot offer any assurance that we will not face product liability
lawsuits. Our clinical and commercial product liability insurance coverage may not be sufficient to cover claims that may be made against
us. In addition, we may not be able to maintain insurance coverage at a reasonable cost, or in sufficient amounts or scope, to protect
us against losses. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management
team and other resources, and adversely impact or eliminate the prospects for commercialization of the product candidate, or sale of the