ITEM 1. BUSINESS
Overview
Corporate Overview of NeuroOne Medical Technologies
Corporation
We were originally incorporated as Original Source
Entertainment, Inc. under the laws of the State of Nevada on August 20, 2009. Prior to the closing of the Acquisition, as defined below,
we completed a series of steps contemplated by a Plan of Conversion pursuant to which we, among other things, changed our name to NeuroOne
Medical Technologies Corporation, increased our authorized number of shares of Common Stock from 45,000,000 to 100,000,000, increased
our authorized number of shares of preferred stock from 5,000,000 to 10,000,000 and reincorporated in Delaware. On July 20, 2017, we acquired
NeuroOne, Inc. (the “Acquisition”). Immediately following the closing of the Acquisition, the business of NeuroOne, Inc. became
our sole focus.
Corporate Overview and History of NeuroOne,
Inc.
NeuroOne, Inc. was incorporated under the laws
of the State of Delaware on October 7, 2016. Its predecessor entity, NeuroOne LLC (the “LLC”), was formed on December 13,
2013 and operated as a limited liability company until it was merged with and into NeuroOne, Inc. on October 27, 2016, with NeuroOne,
Inc. as the surviving entity (the “Merger”). As a result of the Merger, all of the properties, rights, privileges and powers
of the LLC vested in NeuroOne, Inc., and all debts, liabilities and duties of the LLC became the debts, liabilities and duties of NeuroOne,
Inc., except for the Exclusive Start-up Company License Agreement, dated as of October 1, 2014, as amended on February 22, 2017, March
30, 2019 and September 18, 2019 (the “Original WARF License”), with the Wisconsin Alumni Research Foundation (“WARF”),
which was not legally transferred until May 2017. The purposes of the Merger were to: change the jurisdiction of incorporation from Minnesota
to Delaware; change the ownership of the LLC’s underlying assets; and convert from a limited liability company to a corporation.
In December 2019, NeuroOne, Inc. was merged with and into the Company, with the Company remaining as the surviving entity.
We are a medical technology company focused on
the development and commercialization of thin film electrode technology for continuous electroencephalogram (cEEG) and stereoelectrocencephalography
(sEEG) recording, spinal cord stimulation, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s
disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. Additionally,
we are investigating the potential applications of our technology associated with artificial intelligence. Members of our management team
have held senior leadership positions at a number of medical technology and biopharmaceutical companies, including Boston Scientific,
St. Jude Medical, Stryker Instruments, C.R. Bard, A-Med Systems, Sunshine Heart, Empi, Don-Joy and PMT.
We are developing our cortical, strip, grid and
depth electrode technology to provide solutions for diagnosis through cEEG recording and sEEG recording and treatment through brain stimulation
and ablation, all in one product. A cEEG is a continuous recording of the electrical activity of the brain that identifies the location
of irregular brain activity, which information is required for proper treatment. cEEG recording involves an invasive surgical procedure,
referred to as a craniotomy. sEEG involves a less invasive procedure whereby doctors place electrodes in targeted brain areas by drilling
small holes through the skull. Both methods of seizure diagnosis are used to identify areas of the brain where epileptic seizures originate
in order to precisely locate the seizure source for therapeutic treatment if possible.
Deep brain stimulation, or DBS, therapies involve
activating or inhibiting the brain with electricity that can be given directly by electrodes on the surface or implanted deeper in the
brain via depth electrodes. Introduced in 1987, this procedure involves implanting a power source referred to as a neurostimulator, which
sends electrical impulses through implanted depth electrodes, to specific targets in the brain for the treatment of disorders such as
Parkinson’s disease, essential tremors, dystonia, and chronic pain. The effects of DBS as a potential treatment for Alzheimer’s
is also being evaluated by researchers. Unlike ablative technologies, the effects of DBS are reversible.
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Radio frequency (RF) ablation is a procedure that
uses radiofrequency under the electrode contacts which is directed to the site of the brain tissue that is targeted for ablation. The
process involves delivering energy to the contacts, thereby heating them and creating a lesion in the brain tissue. The ablation does
not remove the tissue. Rather, it is left in place and typically scar tissue (lesion) forms in the place where the ablation occurs. This
procedure is also known as brain lesioning as it causes irreversible lesions. In August 2021, the Company announced a strategic partnership
with RBC Medical Innovations to develop a RF ablation generator. The following month, our RF ablation technology was tested by representatives
from Emory University in Atlanta Georgia in an animal study. The product remains in development.
Our cortical strip, grid electrode and depth electrode
technology has been tested over the years by both WARF, the owners of our licensed patents, and Mayo Clinic located in Rochester, Minnesota,
in both pre-clinical models as well as through an institutional review board (“IRB”) approval at Mayo Clinic for clinical
research. In December 2020, we announced the first human commercial use of our Evo cortical electrode in a procedure performed at the
Mayo Clinic. Regarding our ablation electrode, the Cleveland Clinic and representatives from Emory University have performed testing in
bench top models and pre-clinical (or animal testing) models. These pre-clinical tests have demonstrated that the technology is capable
of recording, monitoring, ablation and acute stimulation, although our ablation electrode technology remains in product development (meaning
that additional testing will be needed prior to it being submitted for clearance for commercial distribution by the U.S. Food and Drug
Administration (the “FDA”) for recording (or diagnostic) and therapeutic modalities.
We received 510(k) FDA clearance for our Evo cortical
technology in November 2019,in September 2021 we received FDA clearance to market our Evo sEEG electrode technology for temporary (less
than 24 hours) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical
signals at the subsurface level of the brain, and in October 2022 we received FDA clearance to market our Evo sEEG electrode technology
for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation
of electrical signals at the subsurface level of the brain.
Our Market Opportunity
Epilepsy Market
We expect to initially target the diagnosis and
treatment of epilepsy. Epilepsy can be caused by a variety of conditions that affect a person’s brain, some of which are: stroke,
brain tumor, traumatic brain injury and central nervous system infections. According to the Centers for Disease Control and Prevention
(the “CDC”) and Citizens United for Research in Epilepsy (“CURE”), there are approximately 3,000,000 patients
annually suffering with epilepsy in the United States, with an additional 200,000 diagnosed every year. The CDC and CURE also estimate
that epilepsy costs the United States $15.5 billion per year. Approximately 720,000 of these patients are not receptive to pharmaceutical
treatment and therefore are appropriate for surgical treatment of this disorder. In addition to poor quality of life, epilepsy also is
associated with fairly high mortality rates. Sudden Unexpected Death in Epilepsy has an annual incidence of 1.16/1000 in epilepsy patients.
Despite the large market opportunity, it is estimated that there are only less than 5K epilepsy surgeries performed each year in the
United States.1
These numbers represent an underpenetrated market
due to the invasiveness of diagnostic procedures. After the diagnostic procedure, a second therapeutic procedure is required and at times
even a third surgery if the seizures persist. We believe patients are unwilling to proceed due to the long diagnostic and treatment procedure
times (one to four weeks in the hospital after a potential craniotomy for diagnosis). As detailed above, after the diagnosis is completed,
if successful, the patient must undergo an additional procedure to have the affected area of brain tissue ablated or removed. The average
cost for the diagnostic technology per procedure could be >$10,000, with ablation devices costing >$15,000. We believe our technology,
once developed, will offer an all-in-one solution with diagnostic and therapeutic capabilities.
1 | Epilepsy surgery in the United States: Analysis of data from
the National Association of Epilepsy Centers 2015 Epilepsy Research |
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Many leading neurologists believe that the limits
of today’s current technologies are the reason the exact affected area of the brain causing epileptic seizures is not well-determined.
We believe our technology, which has been developed to date by physicians at WARF and Mayo Clinic, will provide a number of advantages
over the current commercially available technologies, including the following:
| ● | Our proprietary thin film technology under development has a smaller footprint with many more electrodes. |
| ● | We expect that our technology will eventually be able to be implanted using a minimally invasive procedure
utilizing a dime sized burr hole rather than a full craniotomy. |
| ● | Our technology may provide more accurate detection of irregular brain activity over currently available
technology. In limited clinical testing, doctors at Mayo Clinic have documented pre-seizure activity (micro-seizures) during their clinical
research with their patients using our cEEG technology. |
We expect our technology can ablate through the
electrodes as well as perform brain recording, monitoring and stimulation, allowing for diagnosis and treatment through the same product
and in the same procedure.
Parkinson’s Disease
The Parkinson’s Disease Foundation estimates
that as many as 1,000,000 patients in the United States live with Parkinson’s disease with an additional 60,000 patients diagnosed
per year. Over 10,000,000 patients worldwide are living with Parkinson’s disease. There have not been any drugs introduced that
have been effective at treating all patients with Parkinson’s disease. The average onset is over 60 years old but some people have
been diagnosed as young as 40 years old. Parkinson’s is a disorder of the central nervous system caused by loss of brain cells throughout
various regions of the brain.
Today’s primary treatment for Parkinson’s
disease involves medications that have not proven to be curative but rather ease symptoms. One of the potential treatments for Parkinson’s
patients is Deep Brain Stimulation (DBS). According to the Michael J. Fox Parkinson’s Disease Research Foundation website, patients
that seem to do best with DBS are those that have had the disease for at least four years and have benefited from taking medications prescribed
to control the disease. In addition, DBS seems to help with reducing the issues with motor functions such as tremors, stiffness and slowness
but not for balance issues.
Essential Tremors
Essential tremors are thought to be due to electrical
irregularities in the brain that send abnormal signals to the muscles. It is a progressive condition that worsens over time and is linked
to genetic disorders that typically appear in people who are over 40. Essential tremors usually occur alone and without any other neurological
symptoms or signs. The tremors usually occur when the hands are raised and primarily affect the hands. Muscles in the trunk, face and
neck may also experience symptoms. Sometimes misdiagnosed as Parkinson’s disease, essential tremors are an involuntary rhythmic
shaking of the hands that is not present at rest. It is apparent during activities such as drinking, writing and eating. Symptoms can
worsen due to stress, anxiety, smoking, caffeine, fatigue, etc. Genetics Home Reference estimates that as many as 10,000,000 people in
the United States are affected by the disease. Treatments for the disease include medical therapy, and DBS. DBS, which unlike other therapies,
is reversible and programmable, helping to adjust the settings to maximize patient benefit. Similar to Parkinson’s disease, the
ability to detect this irregular brain activity before it causes a tremor is highly desirable.
Dystonia
Dystonia is a neurological condition recognized
as a motion disorder that involves over activity of a variety of different muscles simultaneously that work against each other. It presents
itself in a variety of symptoms but typically involves repetitive, patterned and often twisting involuntary muscle contractions resembling
tremors. According to the Dystonia Medical Research Foundation, over 300,000 people are affected in the United States and Canada alone.
Dystonia is the third most common problem seen in movement disorder clinics. Because it has many different manifestations, it is often
misdiagnosed. In addition, similar to Parkinson’s disease, there are no specific tests that can positively diagnose dystonia. A
doctor typically will evaluate patient and family history, potentially do genetic testing, EEG testing, blood and urine tests. There are
several treatment options (including medication and Botox) for patients depending on the type of dystonia. DBS may be also an alternative
for certain patient sub-types.
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Spinal Cord Stimulation
Chronic back pain is one of the most prevalent
chronic conditions in the world. According to the CDC, “in 2016, an estimated 20.4% of U.S. adults had chronic pain and 8.0% of
U.S. adults had high-impact chronic pain. Chronic pain has been linked to numerous physical and mental conditions and contributes to high
health care costs and lost productivity”. Failed back surgery syndrome (“FBSS”) is one of leading causes for chronic
lower back/leg pain due to one or more failed back surgeries. Typically, it is related to patients that suffer with pain after surgery
of the lumbar spine for degenerative disc disease. Re-operations are usually not recommended for these patients due to low success rates.
These patients experience greater levels of pain, a lower quality of life, varying levels of disability and higher rate of unemployment.
Spinal cord stimulation works by placing an electrode(s) in a targeted area of the spine which is then connected to an implantable pulse
generator that sends electrical stimulation to the electrode to block the pain signals from reaching the brain.
The back pain market includes the following indications:
FBSS, Ischemic Limb Pain, and Complex Regional Pain Syndrome. Over half of this market is comprised of patients with FBSS. Studies have
indicated a benefit for some patients suffering from chronic back and lower limb pain when they have been treated with electrical stimulation.
Prior to the patient receiving an implant, they undergo a trial period that allows them to determine if they are receiving relief from
the therapy while preventing a surgery to implant the pulse generator that provides the stimulation. If the trial period is successful,
then the device is implanted in a follow-up procedure.
Artificial Intelligence
The brain consists of approximately 100 billion
nerve cells, which are small wires that pass electrical signals to control all of its functions. There have been a number of successful
clinical trials in which small metal wires, known as electrodes, are implanted in the brain to correct nerve damage using wireless communication
between implanted wires to simulate functional nerve cells. In addition to correcting damaged nerve cells, certain scientists have theorized
that if millions of wires could be implanted in the brain, these electrodes could present an opportunity to use artificial intelligence
to create infrared sight, increase hearing or perfect memory recall. However, there currently is no commercially available manufacturing
platform capable of making thousands of wires that can be placed within or on the brain and work reliably for the lifetime of a subject,
and are soft enough to match the tissue of the brain, that avoid damage to the brain.
Limitations of Currently Available Therapies
There are a limited number of currently available
products for diagnosis and treatment for people with neurological disorders such as epilepsy. Although the currently available systems
provide diagnosis and treatment for patients, they have certain inherent limitations and shortcomings that we believe limit their use
and validate the need for improved technology in the market. These limitations include:
| ● | Lengthy diagnostic times: It takes several months for patients to go through the various phases
of diagnostic methods, including imaging and non-invasive EEGs. If the source of seizures are still unknown, Patients spend one to four
weeks in the hospital after interventional diagnostic procedures (cortical and/or SEEG implants) waiting to have seizures that will allow
doctors to determine where the seizures are occurring. |
| ● | Lower Accuracy: Historically, clinical electrode manufacturers primarily provided electrodes that
sample brain tissue at approximately centimeter spatial scales. Advances in digital EEG acquisition have made recordings at sub-millimeter
spatial scales possible, but high-spatial resolution EEG has been slow to impact clinical practice. Existing, higher spatial scales increase
the potential for missing data that may be critical in the removal of brain tissue causing the irregular activity. |
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| ● | Need to perform a full craniotomy (invasiveness): Currently available cortical electrode technology
is typically placed after a craniotomy, which may require removing the top part of the cranium and is a very painful and invasive procedure.
Procedural times for a craniotomy can be as high as eight hours. A variety of complications can occur when a full craniotomy is performed,
including but not limited to: stroke, bleeding, infection, seizures, swelling of the brain (which may require a second craniotomy), nerve
damage, which may cause muscle paralysis or weakness, cerebrospinal fluid (CSF) leak, which may require repair, loss of mental functions
and permanent brain damage with associated disabilities. The invasiveness, procedural times and possible surgical complications have limited
the growth of surgical treatment of epilepsy. |
| ● | Requirement for multiple devices for diagnostic and therapeutic procedures: Today both interventional
diagnostic and treatment procedures may require different device implants, surgeries and even hospitalizations for each procedure. This
causes significant patient inconvenience, use of precious hospital resources and tremendous cost to the system. |
| ● | Limited number of contacts on an electrode: Paddle electrodes currently are available in a variety
of sizes and number of contacts. Physicians increasingly want to explore greater number of contacts on the same electrode in order to
be able to be more precise in stimulating targeted areas. |
Our Solution
As a result of the inherent limitations and inconvenience
of existing systems, we believe that there is a significant unmet need among people with neurological disorders for cortical strip, grid
and depth electrodes that provide diagnostic capabilities through cEEG and sEEG recording in addition to therapeutic modalities, such
as brain stimulation and ablation, offered as an all-in-one product. In comparison to currently available technologies, we are continuing
to develop applications of our strip, grid and depth electrodes with the goal of providing the following expected advantages:
| ● | Reduced time for diagnosis and treatment: By offering a minimally invasive procedure and developing
an all-in-one solution, we expect our technology will reduce overall procedural times. While our pre-clinical and clinical experience
to date is limited, our cortical grid technology has demonstrated the ability to provide high fidelity recordings that have allowed physicians
to identify the affected brain tissue causing seizures. This may provide the potential for meaningful cost savings for hospitals and patients
and improved quality of life for patients. |
| ● | Improved accuracy of diagnostic technologies: Because we believe our thin film technology is capable
of recording at higher fidelity than current technologies used in EEG recording, we believe our technology may be able to more precisely
determine the brain tissue causing seizures. In December 2020, we announced the first human commercial use of our Evo cortical electrode
to perform recording, functional mapping, monitoring and stimulation of the brain. In the procedure, performed at the Mayo Clinic, our
electrodes were used to record evidence of pre-seizure activity, which may be critical in developing treatments to prevent the onset of
seizures. Since then, several institutions around the country have successfully tried and adopted our devices for diagnostic procedures. |
| ● | Implantation via minimally invasive procedure with fewer post-procedure complications: We are currently
developing approaches to deliver the electrodes by minimizing the invasiveness of the procedures. We expect that patients who have qualified
for diagnostic or treatment procedures will be more accepting of a minimally-invasive procedure. Such procedures may potentially reduce
the patient’s pain, bleeding and other adverse events. For example, our cortical electrode technology is expected to also have fewer
wires, also referred to as tails, exiting the patient’s head, which can also reduce the potential for infections. Furthermore, the
material we currently use in our cortical electrodes has shown in pre-clinical evaluations to cause less inflammation than current electrode
substrates as it appears more compatible with brain tissue. As discussed under “Our Strategy” below, our technology has been
and will be implanted via a full craniotomy until such time, if ever, as we are able to develop our minimally invasive procedure. |
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| ● | All-in-one diagnostic and therapeutic technology solution: Due to the expected recording and treatment
capabilities of some of our technology under development, we have received feedback from physicians that they will attempt to perform
the diagnosis and treatment in a single procedure, thereby potentially eliminating the need for a second surgical procedure, reducing
the likelihood of patient infection, risks associated with surgical procedures and minimizing the diagnostic, procedural and hospital
costs. As discussed under “Our Strategy” below, our initial product offering offers diagnostic-only capabilities while we
advance the development of our all-in-one approach. Currently, we are developing a combination recording, stimulation and RF ablation
technology that will perform both diagnostic and therapeutic functions. |
| ● | Percutaneous placement of spinal cord stimulation paddle electrodes with scalability options: Due
to the thin film nature of our electrode technology, we believe that it may allow for percutaneous placement of “paddle” (flat)
shaped electrodes, thereby preventing the need to use more invasive surgical approaches to place the electrodes. Minimally invasive and
percutaneously placed technologies have become almost a requirement for adoption with patients and physicians. In addition, our technology
in the future offers the ability to increase the number of contacts on a film that traditionally offers fewer contacts. Increasing the
number of contacts may allow for more precise stimulation in the spine, potentially improving the therapeutic outcomes. |
Our Strategy
Our goal is to be the global leader in cEEG and
sEEG recording, monitoring, deep brain stimulation and ablation, owning the procedure from diagnosis through treatment.
The key elements of our strategy include:
| ● | Introduce cortical strip and grid electrodes for the diagnosis of epilepsy in United States: In
December 2019, we announced that we received FDA 510(k) clearance to market our thin film cortical electrode technology for temporary
(less than 30 days) recording, monitoring, and stimulation on the surface of the brain. Our initial product offering has initially been
and will be placed through traditional surgical means involving a craniotomy until such time, if any, that we launch our minimally invasive
procedure. In July 2020, we entered into a development relationship with Zimmer, pursuant to which we granted Zimmer exclusive global
rights to distribute the cortical strip and grid electrodes, and Zimmer will use commercially reasonable efforts to promote, market and
sell the strip and grid electrodes. We believe, due to physician feedback, that our technology represents a major improvement over existing
cortical electrodes for the recording of brain activity. We are initially targeting epilepsy as we believe this is a clinical area of
great need and a market that is underserved with a quick path to commercialization. We believe the largest and quickest-to-market geography
for our cortical strip and grid technology under development is the United States for a number of reasons, including the following: (i)
many industry sources believe there is a large underserved U.S. market, (ii) healthy procedural reimbursement exist for centers and physicians,
(iii) average selling prices are robust, and (iv) there is substantial physician enthusiasm for our technology under development. To date,
several institutions around the country have successfully tried and adopted our cortical electrode technology for diagnostic procedures. |
| ● | Launch depth electrodes for sEEG recording: In September 2021, we announced that we received FDA
510(k) clearance to market our Evo sEEG electrode technology for temporary (less than 24 hours) use with recording, monitoring, and stimulation
equipment for recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. We filed for 510(k) clearance
to expand the duration of use up to less than 30 days in November 2021. On October 20, 2022, the Company received an FDA clearance to
market its Evo sEEG Electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for
the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. Given the reluctance of patients
to undergo epilepsy surgery due to its invasiveness, a number of epilepsy centers have adopted the use of depth electrodes, which are
placed by drilling small holes into the patient’s cranium, thereby avoiding a craniotomy. We believe our technology offers advantages
compared to current depth electrode technology in the market and will also enable us to offer a therapeutic solution using this same technology
in the future. As we continue to develop our technology, we plan to release further information about the expected advantages of our technology
over currently available therapies. |
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| ● | Utilize these core technologies to develop all-in-one diagnostic and therapeutic solutions with the initial
focus on a combination diagnostic and ablation electrode: For many patients who currently undergo one surgical procedure for diagnosis,
a second and different procedure or surgery is then required to treat the patient. There is strong physician/surgeon interest to be able
to perform both the diagnostic and therapeutic procedure with the same implanted devices. We are developing our technology with the goal
of being able to offer this benefit although there can be no assurance that we will be able to do so. We are pursuing cortical grid, strip
and depth electrode technology that can record brain activity (diagnose) and also provide both acute and long term stimulation as well
as depth electrode technology that can ablate brain tissue. The technology has demonstrated these functions in acute and short term animal
models; however, additional development is required to offer a device that has long term therapeutic application. These therapeutic technologies
are expected to require more robust regulatory approvals for the United States, ranging from a 510(k) to potential for pre-market approvals
(“PMAs”) with human clinical data. We will engage the FDA at the proper time to determine the most efficient regulatory path. |
| ● | Develop percutaneous placed electrodes for spinal cord stimulation with scalable contact configurations:
Given that many surgically placed technologies have become less invasive due to patient and physician demands, we believe that our
flexible thin film technology will allow for percutaneous placement of “paddle” shaped electrodes, thus potentially eliminating
the need to make a more invasive surgical procedure. Spinal cord clinical literature over the years have shown that “paddle”
electrodes (flat shaped) require less energy for stimulation (thus saving neurostimulator battery life) and may be associated with lower
revision rates over time. Even then, “paddle” shaped electrodes are used less often due to the more invasive surgical procedure
that is required for placement. But we hope to change that paradigm by creating “paddle” electrodes that can be implanted
percutaneously (less invasively) through a “needle hole incision”. By leveraging our existing FDA cleared cortical electrode
and sEEG technology, we may also be able to offer the ability to improve precision of where the stimulation is delivered. NeuroOne’s
platform thin film technology has the capability to increase the number of contacts in a similar footprint that has fewer contacts. |
| ● | Gain clearance for other brain or motor related disorders such as Parkinson’s with the therapeutic
technologies developed for epilepsy: While we are developing our technology for the diagnosis and treatment of epilepsy, we believe that
our technology has strong application and utilization for other brain or motor related disorders such as Parkinson’s disease, dystonia,
essential tremors and facial pain as these diseases are currently treated with DBS if medications are not effective. As previously mentioned,
we are actively evaluating the potential to offer electrodes that can be implanted for long term stimulation applications, but such use
will require that we pursue additional approvals from the FDA and any international regulatory bodies where we seek to commercialize our
technology. |
| ● | Explore partnerships with other companies that leverage our core technology: Given that our technology
enables, complements and/or competes with a number of companies that are in the market or attempting to enter the market with diagnostic
or therapeutic technologies to treat brain related disorders, we believe there may be opportunities to establish mutually beneficial relationships.
In addition, our technology may have application in cardiovascular, orthopedic and pain related indications that could benefit from a
high fidelity thin film electrode product that can provide stimulation and/or ablation therapies. |
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| ● | Investigate the potential applications associated with Artificial Intelligence: We have been informed
by some of our corporate advisors that the ability to offer scale-able electrode technology that can provide thousands of electrodes in
the brain may be helpful in treating medical conditions that may benefit from using artificial intelligence. The Company has formed an
advisory board that will provide guidance to the Company as we continue to explore the opportunities in this exciting field. |
Our Technology
Epilepsy Mapping and Monitoring
Epileptic seizures occur when the neurons in the
brain miscommunicate. This miscommunication typically results in involuntary muscle seizure activities and/or periods of perceptual disconnect
where the individual appears frozen. Modern medical science has advanced the treatment of epileptic seizures by mapping the electrical
communication activity of neurons and understanding their special orientation in the brain. This mapping is accomplished by access to
the cranium (through a craniotomy) and placing conductive contacts on the brain directly. The craniotomy procedure is very invasive, traumatic
to the surrounding tissue, results in high patient down time, and increases the risk of infection.
We seek to leverage scale-able technology and
produce ultra-thin, or paper-thin electrodes that allow for high-resolution and high-definition recordings, which would improve mapping
resolution and signal acquisition. If the Company is able to leverage scale-able technology, it would mean that our technology would be
able to incorporate smaller electrodes and thereby increase the number of electrodes on a given surface area. We expect that this would
increase the imaging resolution so that brain activity is displayed in greater definition. We also believe that the electrodes’
unique thinness and flexibility will provide a less invasive approach to electrode placement. The electrodes would be able to be placed
through a small quarter size hole instead of by an invasive full craniotomy procedure.
The images under “Cortical Electrode,”
from bottom to top, are images of our cortical electrode strip, our grid electrode, and the placement of the grid electrode on the brain,
respectively. The images under “High Density Interconnect” are both images of our product that connects our electrodes to
the head box, which is a piece of hardware that connects to electrodes to acquire, amplify, display, store and archive electrophysiological
signals, and is integrated as part of our manufactured electrode product. The images under “Head Box” and “Signal Monitoring
and Mapping” are images of the device which processes information received through the high density interconnect, and a sample output
of data acquisition, respectively, neither of which is one of the Company’s products.
Our technology consists of three primary types
of cortical electrodes: grid electrodes, strip electrodes and dual-sided electrodes. These electrodes have a patented design that utilizes
proprietary processing and materials technology, which we believe will allow the electrodes to have improved features over the current
industry standard recording electrodes.
What sets our technology apart from others is
the integration of state of the art design leveraging the latest in flexible printed circuit technology. We believe our patented designs
will provide the surgeon a higher tactile perspective on electrode placement allowing for ultra-precise neuron recording. We expect the
benefits of our electrode designs to include the ability to detect better defined margins between healthy tissue and resect-able tissue,
less immune-response from the brain and surrounding tissue, better signal acquisition due to superior conformability of the electrode
over the brain, improved flexibility that physicians have requested, which we expect will enable a minimally invasive approach and the
electrodes unique thinness that is unmatched by current products being used.
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The Future of Neurology Mapping with
NeuroOne
We seek to develop superior “scale-able”
technology for future product system iterations in higher density contact placement. This will open the doors to other brain related disease
recording procedures by providing high fidelity, more accurate diagnostic capabilities and also the ability to provide an all-in-one therapy
capable of diagnosis, ablation and/or stimulation. Beyond the brain, we believe our technology under development has applications in other
neurological signal recording disease states related to voluntary or involuntary motor neuron abnormalities, understanding sensory neuro
behavior (pain), limb prosthetics and degenerative muscle disease.
Clinical Development and Regulatory Pathway
Clinical Experience, Future Development
and Clinical Trial Plans
Our Evo cortical electrode technology has received
510(k) clearance from the FDA for recording, monitoring, and stimulating brain tissue for less than 30 days on the surface of the brain.
Our Evo sEEG electrode technology has received FDA 510(k) clearance from the FDA for use (less than 30 days) with recording, monitoring,
and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. Our
other products have not received any clearance for commercialization by any U.S. or foreign regulatory body. To date, the Company has
performed a number of bench top (which includes feasibility testing) and pre-clinical tests (which include animal testing of device placement,
ergonomics, performance, ease of use, and other tests required by FDA regulations). As described in “-Government Regulation”
below, the Company will be required to perform additional testing of its technology in connection with seeking additional regulatory clearances
or approvals.
We intend to expand our product offerings to include
less invasive means and all-in-one solutions, thus providing both patients and physicians better options to treat epilepsy, Parkinson’s
disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. While we expect
to make modifications to our initial system, we believe that most of our future product development initiatives will involve unique and
transformational next generation technology that should drive further appeal of our products with both physicians and patients.
We are utilizing a number of resources to develop
these technologies. We license three critical patents from WARF that are the foundation of the technology and we are developing and intend
to commercialize and benefit from the thin film technology know-how of Mayo Clinic doctors through our license and development agreement.
WARF, Mayo Clinic (cortical electrodes) and Cleveland Clinic (sEEG electrodes) have been responsible for all pre-clinical studies of our
technology under development to date. See “-WARF License” and “-Mayo Foundation for Medical Education and Research License
and Development Agreement” below. We announced in December 2020, Mayo Clinic doctors used our technology in the first human commercial
application of our Evo cortical electrode technology to perform recording, functional mapping and stimulation of the brain on a human
patient. And more recently, in July 2022, we announced the first clinical case using the Evo sEEG electrode was performed by Dr. Robert
Gross at Emory University. Dr. Gross selected the Evo sEEG electrode for intraoperative brain mapping at the subsurface level of the brain.
NeuroOne Medical Technologies Corporation
FORM 10-K
Below we have summarized, for each component of
our technology, the current stage of development or commercial production, the pre-clinical testing done to date by WARF, the Cleveland
Clinic or Mayo Clinic on such component, if any, our plans for further testing or clinical trials and our expectations regarding the requirements
for regulatory clearance or approval and timing of regulatory submissions.
Technology |
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Stage of Development and Pre-Clinical Testing to Date |
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Additional Expected Steps for Regulatory
Clearance or Approval |
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Cortical strip and grid electrodes for the diagnosis of epilepsy |
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The Company has finalized the design for the product
and there are no further expected changes to the device (“design freeze”).
Pre-clinical testing and clinical testing on the
final design has been conducted by Mayo Clinic and WARF (as described in “Mayo Clinic Studies” below). The product is in commercial
production. |
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The Company received FDA 510(k) clearance in the
fourth calendar quarter of 2019.
Commercial launch commenced utilizing Zimmer, our
distribution partner.
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Depth electrodes for recording (diagnostic) purposes |
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We have frozen this design and the product is in
commercial production.
No clinical testing was required in order to obtain
FDA clearance. |
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The Company filed for FDA 510(k) marketing clearance for sEEG electrodes in May 2021 and received a 510(k) clearance from FDA for recording, monitoring and stimulation of brain tissue for less than 24 hours in September 2021. The Company filed for 510(k) clearance to expand the duration of use up to less than 30 days in November 2021. On October 20, 2022, the Company received an FDA clearance to market its Evo sEEG Electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. Zimmer has indicated its desire to distribute this product. |
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NeuroOne Medical Technologies Corporation
FORM 10-K
Depth electrode diagnostic and ablation devices |
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No design freeze. We expect to conclude the design
phase by the end of 2022.
Pre-clinical testing, including benchtop and animal
testing, has been conducted on near-final designs. Very early testing at the Cleveland Clinic was completed in the second calendar quarter
of 2020.
Pre-clinical (animal) feasibility testing was conducted
in September 2021 with representatives from Emory University in Atlanta Georgia. We plan to do further pre-clinical animal testing of
our near-final and final designs in the coming months.
The Company announced a partnership with RBC Medical
Systems in August 2021 to develop an RF generator that will be used with the Company’s diagnostic and ablation electrode.
No animal or human clinical testing is anticipated
for FDA submission since 510K predicate devices did not perform such clinical testing. |
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Once the design is finalized, we will be required
to conduct additional pre-clinical testing, which may include additional benchtop or even animal testing for safety and performance.
We anticipate filing a 510(k) submission in the second
calendar quarter of 2023. We expect that we will need to demonstrate design verification, biocompatibility, electrical safety and sterilization
validation and adoption, all of which we estimate will require >$300K to complete. It is estimated the RF generator will cost approximately
$1.5 million to complete.
Future testing requirements for regulatory clearance
will continue to be evaluated as we develop the design and regulatory strategy for this product. |
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Spinal cord stim electrodes |
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No design freeze.
We performed pre-clinical in-house bench top testing
in August 2020.
In 2021/early 2022, we performed bench top testing
of prototypes to demonstrate chronic performance and longevity.
In 2023, we will continue to refine our chronic spinal
cord electrode design based on SCS customer feedback and do additional pre-clinical bench and/or animal tests to further validate our
value proposition.
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This device is in early stages of development.
Once the design is finalized, we will be required
to conduct additional pre-clinical testing, which may include additional benchtop or animal testing for safety and performance. Additionally,
the FDA may require that we conduct human clinical studies.
No FDA feedback has been sought or received by us
to date on the regulatory/clinical process that may be required for spinal cord stimulation indication, but we expect regulatory PMA approval
will require a more robust clinical process, human clinical data for a PMA (implanted system), depending on proposed indications for use.
Future pre-clinical and clinical testing requirements
for regulatory submission will continue to be evaluated as we develop the design of this product.
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NeuroOne Medical Technologies Corporation
FORM 10-K
Depth electrode chronic stimulation devices |
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No design freeze.
Bench top testing were successfully performed in
2021 and early 2022. We announced the results of these studies in the first quarter of 2022.
While this device remains in early development, we
expect to work with clinicians to further refine our designs and continue testing in 2023.
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Following a design freeze, we will be required to
conduct additional pre-clinical testing, which may include additional benchtop or animal testing for safety and performance. Additionally,
FDA-approved human clinical studies will most likely be required.
No FDA feedback has been sought or received by us
to date on the clinical process that will be required for chronic stimulation, but we expect regulatory approval for chronic stimulation
may require a more robust clinical process, which could include a PMA with human clinical data. Because we have not yet met with the FDA,
we cannot yet determine what clinical data and testing we will need to complete or what the testing will need to demonstrate. However,
we believe, based on the experience of competitors for similar technology, that we will need to conduct clinical trials, which we estimate
will require an investment of over $2,000,000.
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Mayo Clinic and University of Wisconsin-Madison
Studies
Our cortical technology for the diagnosis of epilepsy
has been tested by doctors at Mayo Clinic in multiple pre-clinical tests conducted from 2012 to 2017. In pre-clinical models, doctors
examined the biological impact on mammalian brains. Polyimide substrate electrodes (NeuroOne technology) were implanted on the pig’s
brain for one week alongside standard competitive electrodes. The tissue underneath the two types of electrodes was removed, fixed, stained,
and examined for immunological responses. The results of a histological (evaluation of brain tissue under a microscope) analysis showed
reduced immunological reaction to prolonged polyimide substrate implants (NeuroOne technology) compared to standard silicone substrate
clinical electrodes. Electrophysiological recordings showed data obtained from polyimide electrodes which demonstrated the feasibility
of high fidelity multi-scale electrophysiology while also displaying easier deployment of polyimide electrodes (NeuroOne technology) through
minimally invasive burr holes.
Additionally, doctors implanted our polyimide
thin film electrodes on five human patients who were undergoing surgery to remove brain tissue for drug resistant epilepsy. Electrophysiological
recordings from the polyimide thin film technology displayed in each of these patients demonstrated micro-seizure activity due to the
high fidelity multi-scale electrophysiology. In December 2020, we announced the first human commercial use of our Evo cortical electrode
to perform recording, functional mapping and stimulation of the brain. In the procedure, performed at the Mayo Clinic, our electrodes
were used to record evidence of pre-seizure activity which may be critical in developing treatments to prevent the onset of seizures.
Conclusions reached by the physicians at Mayo
Clinic were that thin, flexible polyimide electrodes (NeuroOne technology) provided recordings similar to standard clinical electrodes
with reduced immunological response. In addition, Mayo Clinic physicians observed that the flexibility of polyimide electrodes may reduce
pain and swelling associated with implantation of the device, and the single wire exiting the skull may reduce infection risk. The ability
to record micro-seizure and single neuron brain activity may also provide additional useful clinical data. Combined, these properties
suggest that the replacement of current competitive silicone electrodes with polyimide substrate electrodes (NeuroOne technology) for
recording brain activity for epilepsy could provide enhanced clinical value with reduced cost, reduced infection risk, and improved patient
comfort.
In addition, our thin film cortical implant technology
has been tested by researchers at the University of Wisconsin-Madison in multiple pre-clinical animal studies conducted from 2006 to 2016,
which included mice, rats and primates. In these studies, our technology was able to record brain activity from different areas of the
brain, was implanted in a minimally invasive fashion, electrically provided brain stimulation and tissue ablation, and had increased flexibility
compared to existing commercially available technology, which allowed the grids to conform more easily to the brain surface (and may have
reduced pain and swelling, compared to less flexible devices).
NeuroOne Medical Technologies Corporation
FORM 10-K
Sales and Marketing
Zimmer Development Agreement
Based on the size and maturity of the U.S. market
and our initial commercial focus, on July 20, 2020, we entered into an exclusive development and distribution agreement (the “Development
Agreement”) with Zimmer, pursuant to which we granted Zimmer exclusive global rights to distribute NeuroOne’s strip and grid
cortical electrodes (the “Strip/Grid Products”) and electrode cable assembly products (the “Electrode Cable Assembly
Products”), including to approximately 188 Level 4 epilepsy centers. Additionally, we granted Zimmer the exclusive right and license
to distribute certain depth electrodes developed by the Company (“SEEG Products”, and together with the Strip/Grid Products
and Electrode Cable Assembly Products, the “Products”). The parties have agreed to collaborate with respect to development
activities under the Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer
and the Company.
Under the terms of the Development Agreement,
we are responsible for all costs and expenses related to developing the Products, and Zimmer is responsible for all costs and expenses
related to the commercialization of the Products. In addition to the Development Agreement, Zimmer and the Company have entered into a
manufacturing and supply agreement (the “MS Agreement”) and a supplier quality agreement (the “Quality Agreement”)
with respect to the manufacturing and supply of the Products.
Except as otherwise provided in the Development
Agreement, we are responsible for performing all development activities, including non-clinical and clinical studies directed at obtaining
regulatory approval of each Product. Zimmer has agreed to use commercially reasonable efforts to promote, market and sell each Product
following the “Product Availability Date” (as defined in the Development Agreement) for such Product.
Pursuant to the Development Agreement, Zimmer
made an upfront payment of $2.0 million to the Company in August 2020.
In August 2022, we entered into an amendment to
the Development Agreement with Zimmer that provided us with a $3.5 million accelerated payment relating to certain milestone events. In
addition, Zimmer received a Warrant to purchase 350,000 shares of our Common Stock, with an exercise price of $3.00 per share.
The Development Agreement will expire on the tenth
anniversary of the date of the first commercial sale of the last of the Products to achieve a first commercial sale, unless terminated
earlier pursuant to its terms. Either party may terminate the Development Agreement (x) with written notice for the other party’s
material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer
may terminate the Development Agreement for any reason with 90 days’ written notice, and we may terminate the Development Agreement
if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company.
We will investigate markets outside of the U.S.
with the assistance of Zimmer and formulate a plan to enter those markets with the support of Zimmer.
For more information regarding the Development
Agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Overview-Collaborations
Revenue” and “Note 7 - Zimmer Development Agreement” included in “Item 8 - Financial Statements and Supplementary
Data” in this Report.
NeuroOne Medical Technologies Corporation
FORM 10-K
Reimbursement
Coverage in the United States
Reimbursement from private third-party healthcare
payors and, to a lesser extent, Medicare will be an important element of our success. Although the Centers for Medicare and Medicaid Services
(“CMS”) and third-party payors have adopted coverage policies for our targeted indications, there is no guarantee this will
continue at the same levels or at all in the future. Current Procedural Terminology, or CPT, is a medical code set that is used to report
medical, surgical and diagnostic procedures and services to entities such as physicians, health insurance companies and accreditation
organizations.
Applicable diagnostic CPT codes for mapping (diagnosing)
the brain for diagnostic procedures are as follows:
| ● | 61531 Subdural implantation of strip electrodes through one or more burr or trephine (saw) hole(s) for
long-term seizure monitoring; |
| ● | 61533 Craniotomy with elevation of bone flap: for subdural implantation of an electrode array, for long
term seizure monitoring; |
| ● | 61535 Craniotomy with elevation of bone flap; for removal of epidural or subdural electrode array, without
excision of cerebral tissue (separate procedure); and |
| ● | 61760 Stereotactic implantation of depth electrodes into the cerebrum for long term seizure monitoring. |
Regarding ICD-10 codes, the International Classification
of Diseases, Tenth Edition (ICD-10) is a clinical cataloging system that went into effect for the U.S. healthcare industry on October
1, 2015, after a series of lengthy delays. Accounting for modern advances in clinical treatment and medical devices, ICD-10 codes offer
many more classification options compared to those found in its predecessor, ICD-9. Within the healthcare industry, providers, coders,
IT professionals, insurance carriers, government agencies and others use ICD codes to properly note diseases on health records, to track
epidemiological trends and to assist in medical reimbursement decisions.
ICD-10 codes for epilepsy are as follows:
| ● | G40.0 Localization-related (focal) (partial) idiopathic epilepsy and epileptic syndromes with seizures
of localized onset; |
| ● | G40.1 Localization-related (focal) (partial) symptomatic epilepsy and epileptic syndromes with simple
partial seizures; |
| ● | G40.2 Localization-related (focal) (partial) symptomatic epilepsy and epileptic syndromes with complex
partial seizures; |
| ● | G40.3 Generalized idiopathic epilepsy and epileptic syndromes; |
| ● | G40.A Absence epileptic syndrome; |
| ● | G40.4 Other generalized epilepsy and epileptic syndromes; |
| ● | G40.50 Epileptic seizures related to external causes, not intractable; |
| ● | G40.80 Other epilepsy; and |
| ● | G40.82 Epileptic spasms. |
NeuroOne Medical Technologies Corporation
FORM 10-K
We believe that many of the indications we are
pursuing with our technologies are currently reimbursed on a widespread basis by Medicare, Medicaid and private insurance companies.
Medicare, Medicaid, health maintenance organizations
and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement
of new medical devices, and, as a result, their coverage policies may be restrictive, or they may not cover or provide adequate payment
for our products. In order to obtain reimbursement arrangements, we may have to agree to a net sales price lower than the net sales price
we might charge in other sales channels. Our revenue may be limited by the continuing efforts of government and third-party payors to
contain or reduce the costs of healthcare through various increasingly sophisticated means, such as requiring prospective reimbursement
and second opinions, purchasing in groups, or redesigning benefits. Our future dependence on the commercial success of our technologies
makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, if government and other third-party payors
do not provide adequate coverage and reimbursement for our products and the related insertion and removal procedures, our financial performance
will be negatively impacted.
Manufacturing, Supply and Quality Assurance
We currently outsource the supply and manufacture
of all components of our prototypes of our technology under development. We plan to continue with an outsourced manufacturing arrangement
for the foreseeable future. Our third-party manufacturers are recognized in their field for their competency to manufacture the respective
portions of our system and have quality systems established that meet FDA requirements. We believe the manufacturers we currently utilize
have sufficient capacity to meet our requirements; however, see “Risk Factors-Risks Related to Our Business-The COVID-19 pandemic
has adversely impacted, and may continue to impact, our business”. We believe that as we increase our demand in the future, our
per-unit costs will decrease materially. We have also identified capable second source manufacturers and suppliers in the event of disruption
from any of our primary vendors.
Our suppliers meet the latest ISO 13485 certification,
which includes design control requirements. As a medical device developer, the facilities of our sterilization and other critical suppliers
are subject to periodic inspection by the FDA and corresponding state and foreign agencies. We believe that our quality systems and those
of our suppliers are robust and achieve high product quality. We plan to audit our suppliers periodically to ensure conformity with the
specifications, policies and procedures for our devices.
Research and Development
Our research and development team, which includes
our Director of Electrode Development, utilizes advice from leading experts in the neurotech field on our scientific advisory board and
is focused on the development of thin film cortical grid and strip electrodes and depth electrodes for recording, ablation and chronic
stimulation for brain related disorders as well as stimulation for spinal cord stimulation for back related pain. Our research and development
expenses were $4.9 million and $3.9 million for the years ended September 30, 2022 and 2021, respectively.
Competition
In the market for Epilepsy diagnosis, our cortical
strip, grid and depth electrode technology will likely compete with Integra Life Science’s Integra Epilepsy Strip, Grid and depth
electrodes, which provide a similar function to our diagnostic technologies. These products are well established in the marketplace and
Integra has greater resources than us, which could allow them to innovate faster. Ad-Tech Medical Instrument Corporation’s Epilepsy/LTM
(subdural grid, strip and depth) electrodes, which have become the market leaders for diagnostic mapping in epilepsy, and PMT’s
Cortac Strips and grid electrodes and Depthalon depth electrodes are used for recording brain activity similar to other competitive technologies.
In addition, Dixie Medical has launched a product line of depth electrodes and CorTec has launched a cortical electrode product line called
AirRay. Today’s success rates for seizure free post-operative conditions remain at 50%, which has limited patients’ willingness
to undergo the currently highly invasive surgical procedure. We will also compete against other companies in early stages of development
of thin film technologies.
In the neuro-ablation market, we expect to compete
with Medtronic’s Visualase guided-laser ablation technology and Monteris Medical’s NeuroBlate technology, which use MRI guided
laser surgical ablation for use to ablate, necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine
and surgery in the discipline of neurosurgery with 1064 nm lasers. Their website claims it is used for ablation in the brain for soft
tissue and tumors. We believe there are other laser-based systems in development that will compete with these technologies.
NeuroOne Medical Technologies Corporation
FORM 10-K
In the neurostimulation market, we expect to compete
with NeuroPace’s RNS system approved for epilepsy, Medtronic’s Activa system approved for Parkinson’s disease, Boston
Scientific Vercise (indicated for Parkinson’s, dystonia and essential tremors), Abbott/St. Jude Medical’s Infinity DBS system
(approved for Parkinson’s disease and essential tremors), Liva Nova/Cyberonic’s VNS therapy intended for patients suffering
with epilepsy.
Although we will face potential competition from
many different sources, we believe that our technology, knowledge, experience and scientific resources will provide us with competitive
advantages. For a discussion of the key competitive factors that we believe will impact the success of our cortical strip, grid electrodes
under development, if successfully developed and approved, see “Our Solution” above.
Many of the companies against which we may compete
in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the
pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of
our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary
to, or necessary for, our development.
WARF License
In January 2020, we entered into the Amended and
Restated Exclusive Start-Up Company License Agreement, dated as of January 21, 2020, as amended on June 15, 2020 (the “WARF License”)
with WARF, which amended and restated in full the Original WARF License. Pursuant to the WARF License, WARF has granted to us an exclusive
license to make, use and sell, in the United States only, products that employ certain licensed patents for a neural probe array or thin-film
micro electrode array and method. We have agreed to pay WARF a royalty equal to a single-digit percentage of our product sales pursuant
to the WARF License, with a minimum annual royalty payment of $50,000 for calendar year 2020, $100,000 for calendar year 2021 and $150,000
for calendar year 2022 and each calendar year thereafter that the WARF License is in effect. The minimum annual royalty payment for calendar
year 2020 in the amount of $50,000 was paid in January 2021. If we or any of our sublicensees contest the validity of any licensed patent,
the royalty rate will be doubled during the pendency of such contest and, if the contested patent is found to be valid and would be infringed
by us if not for the WARF License, the royalty rate will be tripled for the remaining term of the WARF License.
WARF may terminate this license on 30 days’
written notice, if we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our
development plan or breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain
bankruptcy events involving us. WARF may also terminate the WARF License (i) on 90 days’ notice if we had failed to have commercial
sales of one or more FDA-approved products under the WARF License by June 30, 2021 or (ii) if, after royalties earned on sales begin to
be paid, such earned royalties cease for more than four calendar quarters. The first commercial sale occurred on December 7, 2020, prior
to the June 30, 2021 deadline. The WARF License otherwise expires by its terms on the date that no valid claims on the patents licensed
thereunder remain. We expect the latest expiration of a licensed patent to occur in 2030.
In addition, WARF reserves the right to grant
non-profit research institutions and government agencies non-exclusive licenses to practice and use the inventions of the licensed patents
for non-commercial research purposes, and we grant WARF a non-exclusive, sub licensable, royalty-free right and license for non-commercial
research purposes to use improvements to the licensed patents. In the event that we discontinue use or commercialization of the licensed
patents or improvements thereon, we must grant WARF an option to obtain a non-exclusive, sub-licensable, royalty-bearing license to use
the improvements for commercial purposes.
NeuroOne Medical Technologies Corporation
FORM 10-K
See “Risk Factors- Risks Related to Our
Business-We depend on intellectual property licensed from WARF for our technology, including our technology under development, and the
termination of this license would harm our business” for additional information regarding the WARF License.
Mayo Foundation for Medical Education and
Research License and Development Agreement
In May 2017, we entered into the Amended and Restated
License and Development Agreement, dated as of May 25, 2017 (the “Mayo Development Agreement”), with Mayo Foundation for Medical
Education and Research (“Mayo”) to license worldwide (i) certain know how for the development and commercialization of products,
methods and processes related to flexible circuit thin film technology for the recording of tissue and (ii) the products developed therefrom,
and to partner with Mayo to assist the Company in the investigation, research application, development and improvement of such technology.
Mayo has agreed to assist us by providing access to certain individuals at Mayo (the “Mayo Principal Investigators”), in developing
our cortical thin film flexible circuit technology, 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.
We have agreed to pay Mayo a royalty equal to
a single-digit percentage of our product sales pursuant to the Mayo Development Agreement. Mayo may purchase any developed products licensed
under the Mayo Development Agreement at the best price offered by us to the end user in the prior year. 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.
For additional information regarding the Mayo
Development Agreement, see “Risk Factors- Risks Related to Our Business-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.”
Intellectual Property
Protection of our intellectual property is a strategic
priority for our business. We rely on a combination of patents, trademarks, copyrights, and trade secrets as well as nondisclosure and
assignment of invention agreements, material transfer agreements, confidentiality agreements and other measures to protect our intellectual
property and other proprietary rights.
Patents
As of September 30, 2022, our patent estate consists
of three issued United States patents licensed from WARF covering a neural probe array and thin-film micro electrode array and method,
a pending U.S. patent application filed by us and published in 2018 covering our applications and additional devices used during the diagnostic
and therapeutic ablation and stimulation procedures, a U.S. patent issued in October 2022 and pending European patent application filed
by us and published in 2020 relating to improved neural depth electrodes, a pending U.S. patent application filed by us and published
in 2020 relating to agent-delivering neural electrodes, pending U.S. and European patent applications published in 2020 relating to minimally
invasive electrodes, pending U.S. and European patent applications published in 2021 relating to spinal cord stimulation systems and devices,
a pending U.S. patent application (and corresponding PCT application) published in 2022 relating to methods of making electrode probes,
a pending U.S. patent application (and corresponding PCT application) filed in 2021 relating to devices having temperature sensors, a
pending U.S. patent application filed in 2022 relating to deformable spinal cord stimulation devices, a pending U.S. patent application
filed in 2022 relating to spinal cord stimulation device implantation methods, and a pending U.S. patent application filed in 2022 relating
to ablation probe and temperature sensing device systems. The licensed issued patents expire between 2025 and 2030, subject to any patent
extensions that may be available for such patents. The issued patent owned by NeuroOne expires in 2041. If a patent or patents are issued
on our additional pending patent applications, the resulting patents are projected to expire between 2038 and 2043.
NeuroOne Medical Technologies Corporation
FORM 10-K
Our patent applications may not result in issued
patents, and any patents that have been issued or may be issued in the future may not protect the commercially important aspects of our
technology. Furthermore, the validity and enforceability of our issued patents may be challenged by third parties and our patents could
be invalidated or modified by the issuing governmental authority. Third parties may independently develop technology that is not covered
by our patents that is similar to, or competes with, our technology. In addition, our intellectual property may be infringed or misappropriated
by third parties, particularly in foreign countries where the laws and governmental authorities may not protect our proprietary rights
as effectively as those in the United States.
The medical device industry in general, and the
recording, ablation and neurostimulation sector of this industry in particular, are characterized by the existence of a large number of
patents and frequent litigation based on assertions of patent infringement. We are aware of numerous patents issued to third parties that
may relate to the technology used in our business, including the design and manufacture of electrodes and pulse generators, as well as
methods for device placement. Each of these patents contains multiple claims, any one of which may be independently asserted against us.
The owners of these patents may assert that the manufacture, use, sale or offer for sale of our cortical strip and grid electrodes infringe
one or more claims of their patents. Furthermore, there may be additional patents issued to third parties of which we are presently unaware
that may relate to aspects of our technology that such third parties could assert against us and materially and adversely affect our business.
In addition, because patent applications can take many years to issue, there may be patent applications that are currently pending and
unknown to us, which may later result in issued patents that third parties could assert against us and materially and adversely affect
our business.
Any adverse determination in litigations, post
grant trial proceedings, at the Patent Office relating to intellectual property to which we are or may become a party could subject us
to significant liabilities to third parties or require us to seek licenses from third parties, and result in the cancellation and/or invalidation
of our intellectual property. Furthermore, if a court finds that we have willfully infringed a third party’s intellectual property,
we could be required to pay treble damages and/or attorney fees for the prevailing party, in addition to other penalties. Although intellectual
property disputes in the medical device area are often settled through licensing or similar arrangements, costs associated with such arrangements
can be substantial and often require ongoing royalty payments. We may be unable to obtain necessary licenses on satisfactory terms, if
at all. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement; if we are able to redesign
our products to avoid infringement, we may not receive FDA approval in a timely manner. Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our products, which could have a significant
adverse impact on our business.
Trademarks
We have registered U.S. trademarks for the trademarks
“NEUROONE” and “EVO.” The document(s) updating the owner’s name were filed with the U.S. Trademark Office
on November 30, 2021, with an effective date of December 30, 2019. We have a pending U.S. trademark application for the trademark OneRF.
We also have pending trademark applications in the United Kingdom and the European Union for the trademark OneRF.
Trade Secrets
We also rely on trade secrets, technical know-how
and continuing innovation to develop and maintain our competitive position. We seek to protect such intellectual property and proprietary
information by generally requiring our employees, consultants, contractors, scientific collaborators and other advisors to execute non-disclosure
and assignment of invention agreements upon the commencement of their employment or engagement as the case may be. Our agreements with
our employees prohibit them from providing us with any intellectual property or proprietary information of third parties. We also generally
require confidentiality agreements or material transfer agreements with third parties that receive or have access to our confidential
information, data or other materials. Notwithstanding the foregoing, there can be no assurance that our employees and third parties that
have access to our confidential proprietary information will abide by the terms of their agreements. Despite the measures that we take
to protect our intellectual property and confidential information, unauthorized third parties may copy aspects of our products or obtain
and use our proprietary information.
NeuroOne Medical Technologies Corporation
FORM 10-K
Government Regulation
Our cortical strip, grid and depth electrodes
are medical devices subject to extensive and ongoing regulation by the FDA and the U.S. CMS. Regulations cover virtually every critical
aspect of a medical device company’s business operations, including research activities, product development, quality, manufacturing,
supplier management and risk management, contracting, reimbursement, medical communications, and sales and marketing. In the United States,
the Federal Food, Drug and Cosmetic Act (“FDCA”), and the implementing regulations of the FDA (specifically, 21 Code of Regulations
(21 CFR Parts 801- labeling, 803 - medical device reporting, 807 - registration and listing, subpart E premarket notification 510k, 812
- investigational device exemption, 814 - premarket approval and 820 - quality system regulation) and applicable FDA issued guidance’s
govern product design and development, pre-clinical and clinical testing, premarket clearance or approval, risk management, product manufacturing,
quality systems, import and export, product labeling, product storage, recalls and field safety corrective actions, advertising and promotion,
product sales and distribution, and post-market clinical surveillance. Our business is subject to federal, state, local and harmonized
standards, such as ISO 13485, ISO 14971, and FDA’s Quality System Regulation (“QSR”) contained in 21 CFR Part 820.
Regulatory Framework in the United
States
Device classification
The FDA characterizes medical devices into one
of three classes, Class I, II, and III. Regulatory control increases from Class I to Class III. The device classification regulation defines
the regulatory requirements for a general device type. Most Class I devices are exempt from Premarket Notification under 510(k); most
Class II devices require Premarket Notification under 510(k); and most Class III devices require Premarket Approval.
Class I devices are subject to general controls
including labeling. However, most such devices are exempt from pre-market notification. If a device
is exempted from any of the general controls, such exemption is stated in the classification regulation for that device. This pertains
to manufacturers’ methods and documentation of the design, testing, production, control quality assurance, labeling, packaging,
sterilization, storage and shipping of products. Class II devices are subject to the same general controls but may be subject to special
controls such as performance standards, post-market surveillance, FDA guidance, or particularized labeling, and may also require clinical
testing prior to clearance. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely
through general or special controls, including devices that support or sustain human life, are of substantial importance in preventing
impairment of human health, or which present a potential, unreasonable risk of illness or injury. Premarket Approval is required for most
Class III devices.
Some Class I and Class II devices are exempted
by regulation from the pre-market notification requirement under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, but
must meet the requirement of compliance with substantially all of the QSR. However, a pre-market approval (“PMA application”)
is required for devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or certain implantable devices,
or those that are “not substantially equivalent” either to a device previously cleared through the 510(k) process or to a
“preamendment” Class III device in commercial distribution before May 28, 1976 when PMA applications were not required. The
PMA approval process is more comprehensive than the 510(k) clearance process and typically takes multiple years to complete.
Based on FDA classifications, we believe our diagnostic
cortical strip, grid and depth electrode and RF ablation technology will be categorized by the FDA as Class II devices that do not require
clinical testing and can be filed as a 510(k), similar to existing competitive technology. The Company expects that indications for treating
epilepsy, Parkinson’s and other patients suffering from motor related neurological deficiencies via a permanent implant for chronic
treatment will require a PMA process to commercially distribute in the United States.
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The 510(k) clearance process
Under the 510(k) clearance process, the manufacturer
must submit to the FDA a premarket notification, demonstrating that the device is “substantially equivalent” to a legally
marketed predicate device. A predicate device is a legally marketed device that is not subject to a PMA, i.e., a device that was legally
marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class
III to Class II or I, or a device that was previously found substantially equivalent through the 510(k) process. To be “substantially
equivalent,” the proposed device must have the same intended use, indications for use as the predicate device, and either have the
same technological characteristics as the predicate device or have different technological characteristics and not raise different questions
of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence.
After a 510(k) premarket notification is submitted,
the FDA determines whether to accept it for substantive review. If it lacks necessary information for substantive review, the FDA will
refuse to accept the 510(k) notification. If it is accepted for filing, the FDA begins a substantive review. The FDA goal is to complete
its review of a 510(k) notification within 90 calendar days of receiving the 510(k) notification. As a practical matter, clearance often
takes longer, and clearance is never assured. Although many 510(k) premarket notifications are cleared without clinical data, the FDA
may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly
prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market
the device.
If the FDA determines that the device is not “substantially
equivalent” to a predicate device, or if the device is automatically classified into Class III, the device sponsor must then fulfill
the more rigorous premarketing requirements of the PMA approval process, or seek reclassification of the device through the De Novo process.
The De Novo request provides a marketing pathway to classify novel medical devices for which general controls alone, or general and special
controls, provide reasonable assurance of safety and effectiveness for the intended use, but for which there is no legally marketed predicate
device. De Novo classification is a risk-based classification process. The De Novo classification process is an alternate pathway to classify
medical devices that are automatically classified into Class III but which are low to moderate risk. A manufacturer can submit a Pre-submission
(Q-Sub) for De Novo review if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of
the device presents a moderate or low risk.
After a device receives 510(k) clearance, any
modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended
use, will require a new 510(k) clearance or, depending on the modification, could require a De Novo device application and potentially
a PMA application. The FDA requires each manufacturer to determine whether the proposed change requires a new submission in the first
instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are
accomplished by a letter-to-file in which the manufacture documents the change in an internal letter-to-file based on adherence to FDA
guidance on changes to an existing 510(k) device. The letter-to-file is in lieu of submitting a new 510(k) to obtain clearance for such
change. The FDA can always review these letters to file in an inspection. If the FDA disagrees with a manufacturer’s determination
regarding whether a new premarket submission is required for the modification of an existing 510(k)-cleared device, the FDA can require
the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a De Novo or PMA application
is obtained. In addition, in these circumstances, the FDA can impose significant regulatory fines or penalties for failure to submit the
requisite application(s).
The PMA approval process
Following receipt of a PMA application, the FDA
conducts an administrative review to determine whether the application is sufficiently complete to permit a substantive review. If it
is not, the agency will refuse to file the PMA. If it is, the FDA will accept the application for filing and begin its review. The FDA
has 180 days to review a filed PMA application, although the review of an application more often occurs over a significantly longer period
of time. During this review period, the FDA may request additional information or clarification of information already provided, and the
FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by the
FDA.
Before approving or denying a PMA, an FDA advisory
committee may review the PMA at a public meeting and provide the FDA with the committee’s recommendation on whether the FDA should
approve the submission, approve it with specific conditions, or not approve it. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions.
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Prior to approval of a PMA, the FDA may conduct
inspections of the clinical trial data and clinical trial sites, as well as inspections of the manufacturing facility and processes. Overall,
the FDA review of a PMA application generally takes between one and three years, but may take significantly longer. The FDA can delay,
limit or deny approval of a PMA application for many reasons, including:
| ● | the device may not be safe, effective, reliable or accurate to the FDA’s satisfaction; |
| ● | the data from pre-clinical studies and clinical trials may be insufficient to support approval; |
| ● | the manufacturing process or facilities may not meet applicable requirements; and |
| ● | changes in FDA approval policies or adoption of new regulations may require additional data. |
If an FDA evaluation of a PMA application is favorable,
the FDA will either issue an approval letter, or approvable letter, which usually contains a number of conditions that must be met in
order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency
will issue a PMA approval letter authorizing commercial marketing of a device, subject to the conditions of approval and the limitations
established in the approval letter. If the FDA’s evaluation of a PMA application or manufacturing facilities is not favorable, the
FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may determine that additional tests or clinical trials
are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and data is submitted
in an amendment to the PMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has
been sought by other companies have never been approved by the FDA for marketing.
New PMA applications or PMA supplements may be
required for modifications to the manufacturing process, labeling, device specifications, materials or design of a device that has been
approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application,
except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application
and may or may not require as extensive technical or clinical data or the convening of an advisory panel.
Clinical Trials
Clinical trials are typically required to support
a PMA application and are sometimes required for a 510(k) clearance. These trials generally require submission of an application for an
Investigational Device Exemption (“IDE”), to the FDA. The IDE application must be supported by appropriate data, such as animal
and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound.
The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant
risk device and eligible for abbreviated IDE requirements. Generally, clinical trials for a significant risk device may begin once the
IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate institutional review boards
at the clinical trial sites. The FDA’s approval of an IDE allows clinical testing to go forward, but it does not bind the FDA to
accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success
criteria. All clinical trials must be conducted in accordance with the FDA’s IDE regulations that govern investigational device
labeling, prohibit promotion, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study
investigators. Clinical trials must further comply with the FDA’s regulations for institutional review board approval and for informed
consent and other human subject protections. Required records and reports are subject to inspection by the FDA. The results of clinical
testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient
for the FDA to grant approval or clearance of a product. Clinical trials must be entered into the clinical trials registry at clinicaltrials.gov.
The commencement or completion of any clinical
trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons, including, but not limited
to, the following:
| ● | the FDA or other regulatory authorities do not approve a clinical trial protocol or a clinical trial,
or place a clinical trial on hold; |
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| ● | patients do not enroll in clinical trials at the rate expected; |
| ● | patients, sponsor (NeuroOne) or study sites do not comply with trial protocols; |
| ● | patient follow-up is not at the rate expected; |
| ● | patients experience unanticipated adverse event; |
| ● | the data safety monitoring board determines the study should be placed on hold: |
| ● | patients die during a clinical trial, even though their death may not be related to the products that
are part of our trial; |
| ● | institutional review boards and third-party clinical investigators may delay or reject the trial protocol; |
| ● | third-party clinical investigators decline to participate in a trial or do not perform a trial on the
anticipated schedule or consistent with the clinical trial protocol, good clinical practices or other FDA requirements; |
| ● | the sponsor (NeuroOne) or third-party organizations do not perform data collection, monitoring and analysis
in a timely or accurate manner or consistent with the clinical trial protocol or investigational or statistical plans; |
| ● | third-party clinical investigators have significant financial interests related to the sponsor (NeuroOne)
or the study that the FDA deems to make the study results unreliable, or the company or investigators fail to disclose such interests; |
| ● | regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things,
require us to undertake corrective action or suspend or terminate our clinical trials; |
| ● | changes in governmental regulations or administrative actions; |
| ● | the interim or final results of the clinical trial are inconclusive or unfavorable as to safety or efficacy;
and |
| ● | the FDA concludes that our trial design is inadequate to demonstrate safety and efficacy. |
Other Regulatory Requirements
Even after a device receives clearance or approval
and is placed in commercial distribution, numerous regulatory requirements apply. These include:
| ● | establishment registration and device listing; |
| ● | QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, testing,
risk management, production control, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures
during all aspects of the manufacturing process; |
| ● | labeling regulations that prohibit the promotion of products for uncleared, unapproved or “off-label”
uses, and impose other restrictions on labeling, advertising and promotion; |
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| ● | MDR regulations, which require that manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury
if the malfunction were to recur; |
| ● | voluntary and mandatory device recalls to address problems when a device is mislabeled or does not meet
specifications and could be a risk to health; and |
| ● | corrections and removals reporting regulations, which require that manufacturers report to the FDA field
corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the
FDCA that may present a risk to health. |
Also, the FDA may require us to conduct post-market
surveillance studies or establish and maintain a system for tracking our products through the chain of distribution to the patient level.
The FDA enforces regulatory requirements by conducting periodic, unannounced inspections and market surveillance. Inspections may include
the manufacturing facilities of our subcontractors.
Failure to comply with applicable regulatory requirements
can result in enforcement actions by the FDA and other regulatory agencies. These may include any of the following sanctions or consequences:
| ● | warning letters or untitled letters that require corrective action; |
| ● | fines and civil penalties; |
| ● | unanticipated expenditures; |
| ● | delays in approving or refusal to approve future products; |
| ● | FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; |
| ● | suspension or withdrawal of FDA clearance or approval; |
| ● | product recall or seizure; interruption of production; |
Our contract manufacturers, specification developers
and some suppliers of components or device accessories, also are required to manufacture our products in compliance with current good
manufacturing practice requirements set forth in the QSR. The QSR requires a quality system for the design, risk management, manufacture,
packaging, labeling, storage, installation and servicing of marketed devices, and it includes extensive requirements with respect to quality
management and organization, device design, buildings, equipment, purchase and handling of components or services, production and process
controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping.
The FDA evaluates compliance with the QSR through periodic unannounced inspections that may include the manufacturing facilities of our
subcontractors. If the FDA believes that any of our contract manufacturers or regulated suppliers are not in compliance with these requirements,
it can shut down such manufacturing operations, require a recall of our products, refuse to approve new marketing applications, institute
legal proceedings to detain or seize products, enjoin future violations or assess civil and criminal penalties against us or our officers
or other employees.
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The Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and Similar Foreign and State Laws and Regulations Affecting the Transmission, Security
and Privacy of Health Information
We may also be subject to data privacy and security
regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements
relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s
security standards directly applicable to business associates, defined as service providers of covered entities that create, receive,
maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH
also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages
or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal
civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which
differ from HIPAA and each other in significant ways and may not have the same effect.
Fraud and Abuse Laws
In addition to FDA restrictions, there are numerous
U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws. Our
relationships with healthcare providers and other third parties are subject to scrutiny under these laws. Violations of these laws are
punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and
state healthcare programs, including the Medicare, Medicaid and Veterans Administration health programs.
Federal Anti-Kickback and Self-Referral
Laws
The federal Anti-Kickback Statute (the “Anti-Kickback
Statute”) prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration (including any
kickback, bribe or rebate), directly or indirectly, overtly or covertly, to induce either the referral of an individual, or the furnishing,
recommending, or arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and
Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of
value, including such items as gifts, discounts, the furnishing of supplies or equipment, credit arrangements, waiver of payments and
providing anything at less than its fair market value. Although there are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration
that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify
for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory
safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be
evaluated on a case-by-case basis based on a review of all its relevant facts and circumstances. Several courts have interpreted the statute’s
intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of (or purchases, or
recommendations related to) federal healthcare covered business, the Anti-Kickback Statute has been implicated and potentially violated.
The penalties for violating the Anti-Kickback
Statute include imprisonment for up to five years, fines of up to $25,000 per violation and possible exclusion from federal healthcare
programs such as Medicare and Medicaid. Many states have adopted prohibitions similar to the Anti-Kickback Statute, some of which do not
have the same exceptions and apply to the referral of patients for healthcare services reimbursed by any source, not only by the Medicare
and Medicaid programs. Further, the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act (“ACA”).
Specifically, as noted above, under the Anti-Kickback Statute, the government must prove the defendant acted “knowingly” to
prove a violation occurred. The ACA added a provision to clarify that with respect to violations of the Anti-Kickback Statute, “a
person need not have actual knowledge” of the statute or specific intent to commit a violation of the statute. This change effectively
overturns case law interpretations that set a higher standard under which prosecutors had to prove the specific intent to violate the
law. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (the “False Claims Act”).
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We plan to provide the initial training to providers
and patients necessary for appropriate use of our technology either through our own educators or by contracting with outside educators
that have completed an appropriate training course. Outside educators are reimbursed for their services at fair market value.
Noncompliance with the Anti-Kickback Statute could
result in our exclusion from Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions,
and civil and criminal penalties.
The federal Physician Self-Referral Prohibition,
commonly known as the “Stark Law,” prohibits a physician from ordering “designated health services,” including
durable medical equipment, for Medicare and Medicaid patients from entities with which the physician (or an immediate family member) has
a “financial relationship.” Financial relationships include both compensation arrangements and investment and ownership interests.
Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement,
civil penalties, and exclusion from Medicare, Medicaid or other governmental programs. We believe that we have structured our provider
arrangements to comply with current Stark Law requirements.
Nevertheless, a determination of liability under
such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Additionally, as some of these laws are still
evolving, we lack definitive guidance as to the application of certain key aspects of these laws as they relate to our arrangements with
providers with respect to patient training. We cannot predict the final form that these regulations will take or the effect that the final
regulations will have on us. As a result, our provider and training arrangements may ultimately be found to be not in compliance with
applicable federal law.
False Claims Act
The False Claims Act provides, in part, that the
federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false
or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim
approved. In addition, amendments in 1986 to the False Claims Act have made it easier for private parties to bring “qui tam”
whistleblower lawsuits against companies under the False Claims Act. Penalties include fines ranging from $5,500 to $11,000 for each false
claim, plus three times the amount of damages that the federal government sustained because of the act of that person. Qui tam actions
have increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a false claim action,
pay fines or be excluded from Medicare, Medicaid or other federal or state healthcare programs as a result of an investigation arising
out of such action.
There are other federal anti-fraud laws that prohibit,
among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing
a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services.
Additionally, HIPAA established two federal crimes
related to making false statements in relation to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing
a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in
fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.
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Civil Monetary Penalties Law
In addition to the Anti-Kickback Statute and the
False Claims Act, the federal government has the authority to seek civil monetary penalties, or CMPs, assessments, and exclusion against
an individual or entity based on a wide variety of prohibited conduct. For example, the Civil Monetary Penalties Law authorizes the imposition
of substantial CMPs against an entity that engages in activities including, but not limited to: (1) knowingly presenting or causing to
be presented, a claim for services not provided as claimed or which is otherwise false or fraudulent in any way; (2) knowingly giving
or causing to be given false or misleading information reasonably expected to influence the decision to discharge a patient; (3) offering
or giving remuneration to any beneficiary of a federal health care program likely to influence the receipt of reimbursable items or services;
(4) arranging for reimbursable services with an entity which is excluded from participation from a federal health care program; (5) knowingly
or willfully soliciting or receiving remuneration for a referral of a federal health care program beneficiary; or (6) using a payment
intended for a federal health care program beneficiary for another use. The government is authorized to seek different amounts of CMPs
and assessments based on underlying violation. For false or fraudulent claims, the government may seek a penalty of up to $10,000 for
each item or service improperly claimed, and an assessment of up to three times the amount improperly claimed. For kickback violations,
the government may seek a penalty of up to $50,000 for each improper act and damages of up to three times the amount of remuneration at
issue.
State Fraud and Abuse Provisions
Many states have also adopted some form of anti-kickback
and anti-referral laws and a false claims act. We believe that we are in conformance to such laws. Nevertheless, a determination of liability
under such laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Physician Payment Sunshine Act
Transparency laws regarding payments or other
items of value provided to healthcare providers and teaching hospitals may also impact our business practices. The federal Physician Payment
Sunshine Act requires most medical device manufacturers to report annually to the Secretary of Human Health Services financial arrangements,
payments, or other transfers of value made by that entity to physicians and teaching hospitals. The payment information is made publicly
available in a searchable format on a CMS website. Over the next several years, we will need to dedicate significant resources to establish
and maintain systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements can result
in significant civil monetary penalties. Similar laws have been enacted or are under consideration in foreign jurisdictions.
Human Capital
As of September 30, 2022, we had 15 employees,
all of whom are full-time, seven of whom are engaged in research and development activities, and all of whom are located in the United
States. As of September 30, 2022, we also retained the services of approximately seven regular consultants. None of our employees are
represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
During our 2022 fiscal year, we did not experience any turnover among our employees.
Corporate Information
Our principal
executive offices are located at 7599 Anagram Drive, Eden Prairie, Minnesota 55344, and our telephone number is 952-426-1383. Our website
address is www.n1mtc.com. Information on our website is not part of this Annual Report.
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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 have incurred significant operating losses since inception and cannot assure you that we will ever
achieve or sustain profitability; |
| ● | 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; |
| ● | the COVID-19 pandemic has adversely impacted and will likely continue to adversely impact our business,
including through component shortages, including of our primary component, polyimide film, due to supply chain shortages attributed to
COVID related issues, supply chain disruptions, including related to staffing availability, and delays in product availability and delivery,
impacts on pre-clinical and clinical trials and regulatory clearances/approvals; |
| ● | 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; |
| ● | medical device development involves a lengthy and expensive process, with an uncertain outcome. We may
incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization
of any product; |
| ● | changes in the configuration of our cortical strip, grid electrode and depth electrode technology under
development may result in additional costs or delay; |
| ● | if we are unable to successfully develop, receive regulatory clearance/approval for and commercialize
our technology and other products under development, or if we experience significant delays in doing so, our business will be harmed; |
| ● | 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; |
| ● | 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 size and future growth in the market for our cortical strip, grid electrode and depth electrode technology
under development has not been established with precision and may be smaller than we estimate, possibly materially; |
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| ● | we depend on intellectual property licensed from WARF for our technology under development, and the termination
of this license would harm our business; |
| ● | 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; |
| ● | even if we have our cortical strip, grid electrode and depth electrode technology approved for commercial
sale, if we are unable to expand our sales and marketing infrastructure, we may not be successful in commercializing our cortical strip,
grid electrode and depth electrode technology in the United States; |
| ● | we contract with third parties for the manufacture of our cortical strip, grid electrode and depth electrode
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; |
| ● | if we or our third-party suppliers or manufacturers fail to comply with the FDA’s good manufacturing
practice regulations, this could impair our ability to market our products in a cost-effective and timely manner; |
| ● | potential complications from our cortical strip, grid electrode and depth electrode technology that are
currently unknown may come to light; |
| ● | if there are significant disruptions in our information technology systems, our business, financial condition
and operating results could be adversely affected; |
| ● | we have entered into, and may enter into collaborations, in-licensing arrangements, joint ventures, strategic
alliances or partnerships with third-parties that may not result in the development of commercially viable products or the generation
of significant future revenues; |
| ● | our future success depends on our ability to retain key executives and to attract, retain and motivate
qualified personnel; |
| ● | our ability to protect our intellectual property and proprietary technology is uncertain; |
| ● | we may be subject to damages resulting from claims that we, or our employees, have wrongfully used or
disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors; |
| ● | our products and operations are subject to extensive governmental regulation, and failure to comply with
applicable requirements could cause our business to suffer; |
| ● | the price of our Common Stock might fluctuate significantly, and you could lose all or part of your investment;
and |
| ● | we intend to issue more shares to raise capital, which will result in substantial dilution. |
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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, 2022, we had an accumulated deficit of $50.8 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, 2021 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, develop an all-in-one diagnostic and therapeutic solution, successfully complete the necessary testing and clinical
trials required for regulatory approval of our technology for ablation and stimulation therapies, 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, if approved, 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.
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
developing comprehensive neuromodulation cEEG and sEEG monitoring, ablation, and brain stimulation solutions to diagnose and treat patients
with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries 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, 2022,
we have generated limited revenue from the commercial sales of our products. Because we have generated very 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.
NeuroOne Medical Technologies Corporation
FORM 10-K
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.
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, 2022
and 2021, respectively, noting the existence of substantial doubt about our ability to continue as a going concern. At September 30,
2022, we had cash, cash equivalents and short-term investments in the aggregate of approximately $11.1 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.
The COVID-19 pandemic has adversely
impacted, and may continue to impact, our business.
Since the beginning of the COVID-19 pandemic,
governments, public institutions, and other organizations have taken and are continuing to take certain preventative or protective measures
to combat the transmission of the virus, including implementation of travel restrictions or bans, vaccination mandates, closures of non-essential
businesses, limitations of public gatherings, other social distancing and shelter-in-place measures, and delays or cancellations of elective
surgeries. The Company, our employees, contractors, suppliers, and other partners may be prevented from conducting business activities
for an indefinite period of time due to shutdowns or other regulatory requirements that may be requested or mandated by state and federal
governmental authorities.
NeuroOne Medical Technologies Corporation
FORM 10-K
We have experienced, and will likely continue
to experience, disruptions that could negatively or severely impact our business and planned clinical trials, including:
| ● | delays or difficulties in conducting pre-clinical and clinical trials; |
| ● | interruption in global manufacturing and shipping, including testing equipment and personal protective
equipment used at our facilities; |
| ● | material shortages for manufacturing, including those the Company is currently experiencing related to
its primary component, polyimide film, due to supply chain shortages attributed to COVID related issues; |
| ● | delays in timelines for product availability and delivery from vendors, including related to staffing
shortages, both generally and due to employee illness, and due to increases in demand from other larger or more longstanding customers
of our suppliers placing large orders due to concerns with supply chain disruption and the impact of COVID-19; |
| ● | changes in local regulations as part of a response to the COVID-19 pandemic, which may require us to change
the way in which clinical trials are conducted and may result in unexpected costs; and |
| ● | delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion
of their efforts and attention to approval of other therapeutics or other activities related to COVID-19. |
In addition, COVID-19 could disrupt our operations
due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees
who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19
illness could also impact members of our Board and its ability to hold meetings.
As the COVID-19 pandemic continues to adversely
affect our operating and financial results, it may also have the effect of heightening many of the other risks described in the risk factors
in this Report. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known
to us or that we currently do not expect to present significant risks to our operations or financial results, particularly if the COVID-19
pandemic and its associated impacts reoccur in successive waves in the coming months.
NeuroOne Medical Technologies Corporation
FORM 10-K
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:
| ● | the cost of further developing our cortical strip, grid electrode and depth electrode technology; |
| ● | obtaining and maintaining regulatory clearance or approval for our cortical strip, grid electrode and
depth electrode technology; |
| ● | the costs associated with commercializing our cortical strip, grid electrode and depth electrode technology; |
| ● | any change in our development priorities; |
| ● | the revenue generated by sales of our cortical strip, grid electrode and depth electrode technology; |
| ● | the costs associated with expanding our sales and marketing infrastructure for commercialization of our
cortical strip grid electrode and depth electrode technology; |
| ● | any change in our plans regarding the manner in which we choose to commercialize any approved product
in the United States; |
| ● | the cost of ongoing compliance with regulatory requirements; |
| ● | expenses we incur in connection with potential litigation or governmental investigations; |
| ● | expenses and costs we incur in connection with changes in the economy and regulatory process in connection
with the COVID-19 pandemic; |
| ● | 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.
NeuroOne Medical Technologies Corporation
FORM 10-K
Changes in the configuration of our
cortical strip, grid electrode and depth electrode technology under development may result in additional costs or delay.
As 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 two products, our cortical
strip and grid electrodes and our sEEG electrode technology, 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.
Two of our products have received 510(k) clearance
from the FDA. Our Evo cortical electrode technology has received 510(k) clearance from the FDA for recording, monitoring, and stimulating
brain tissue on the surface of the brain for less than 30 days, and our Evo sEEG electrode technology has received 510(k) clearance from
the FDA for use (less than 30 days) with recording, monitoring, and stimulation equipment for recording, monitoring, and stimulation of
electrical signals at the subsurface level of the brain. 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.
Before obtaining marketing clearance or approval
from regulatory authorities for the sale of our cortical strip, grid electrode and depth electrode technology under development in the
United States for certain indications, we must complete all pre-clinical testing, clinical trials and other regulatory requirements necessitated
by the FDA and demonstrate the performance and safety of our technology. 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.
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:
| ● | regulators may not authorize us or our investigators to commence a clinical trial or conduct a clinical
trial at a prospective trial site; |
| ● | the failure to successfully complete pre-clinical testing requirements required by the FDA; |
| ● | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts
with third parties or clinical trial protocols with prospective trial sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different trial sites; |
NeuroOne Medical Technologies Corporation
FORM 10-K
| ● | clinical trials of our cortical strip, grid electrode and depth electrode technology may produce negative
or inconclusive results, including failure to demonstrate statistical significance, and we may decide, or regulators may require us, to
conduct additional clinical trials or abandon our development programs; |
| ● | the number of people with brain related disorders required for clinical trials may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate or people may drop out of these clinical trials or fail to return
for post-treatment follow-up at a higher rate than we anticipate; |
| ● | our products may have unanticipated adverse events, undesirable side effects or other unexpected characteristics,
causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials; |
| ● | our third-party contractors conducting the clinical trials may fail to comply with regulatory requirements
or meet their contractual obligations to us in a timely manner, or at all; |
| ● | regulators may require that we or our investigators suspend or terminate clinical development for various
reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health
risks; |
| ● | the cost of clinical trials of our products may be greater than we anticipate; |
| ● | the supply or quality of our products or other materials necessary to conduct clinical trials of our products
may be insufficient or inadequate; |
| ● | the COVID-19 pandemic may cause delays and disruptions in the supply chain, clinical trials, clinical
development, and regulatory approval process; and |
| ● | delays from our suppliers and manufacturers could impact clinical trial completion and impact revenue. |
If we are required to conduct additional clinical
trials or other testing of our cortical strip, grid electrode and depth electrode 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 delayed in obtaining marketing approval for our cortical strip, grid electrode and depth electrode
technology under development in a jurisdiction; |
| ● | be subject to additional post-marketing testing requirements; or |
| ● | have our cortical strip, grid electrode and depth electrode technology removed from the market after obtaining
marketing approval. |
Our development costs will also increase if we
experience delays in testing or marketing approvals, including, but not limited to, the COVID-19 pandemic. 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.
NeuroOne Medical Technologies Corporation
FORM 10-K
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 Quality System Regulation, or 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 two 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.
We may not be successful in commercializing
our cortical strip, grid electrode and depth electrode.
We anticipate that we will derive nearly all of
our U.S. 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:
| ● | receipt of timely commercialization approvals from applicable regulatory authorities; |
| ● | our ability to procure and maintain suppliers and manufacturers of the components of our current cortical
strip, grid electrode and depth electrode technology and future versions; |
NeuroOne Medical Technologies Corporation
FORM 10-K
| ● | launching commercial sales of our cortical strip, grid electrode and depth electrode technology, if approved
for marketing; |
| ● | market acceptance of our cortical strip, grid electrode and depth electrode technology, if approved, by
people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related
neurological disorders, the medical community and third-party payors; |
| ● | our success in educating healthcare providers and people with epilepsy, Parkinson’s disease, dystonia,
essential tremors, chronic pain due to failed back surgeries and other related neurological disorders about the benefits, administration
and use of our cortical strip, grid electrode and depth electrode technology and future versions; |
| ● | the prevalence and severity of adverse events, including, but not limited to, events related to the COVID-19
pandemic; |
| ● | the perceived advantages, cost, safety, convenience and accuracy of alternative therapies; |
| ● | obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for
our cortical strip, grid electrode and depth electrode technology and otherwise protecting our rights in our intellectual property portfolio; |
| ● | maintaining compliance with regulatory requirements, including current good manufacturing practices; and |
| ● | obtaining and maintaining a continued acceptable performance and safety profile of our cortical strip,
grid electrode and depth electrode technology following approval. |
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 such as the Mayo Clinic, the Cleveland Clinic and Emory University,
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.
Our success depends on our ability
to continue to develop, commercialize and gain market acceptance for our cortical strip, grid electrode and depth electrode technology.
Our current business strategy is highly dependent
on developing and commercially launching our cortical strip, grid electrode and depth electrode 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 cortical strip, grid electrode and depth electrode technology is an attractive alternative
to competitive products for neuromodulation cEEG and sEEG recording, ablation, and brain stimulation. Market acceptance and adoption of
our cortical strip, grid electrode and depth electrode technology depend on educating people with epilepsy, Parkinson’s disease,
dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders, as well as their caregivers
and healthcare providers, and other perceived benefits of our cortical strip, grid electrode and depth electrode technology as compared
to competitive products. We may face challenges convincing physicians, many of whom have extensive experience with competitors’
products and established relationships with other companies, to appreciate the benefits of our cortical strip, grid electrode and depth
electrode technology and, in particular, our ability to successfully diagnose and treat epilepsy, Parkinson’s disease, dystonia,
essential tremors, chronic pain due to failed back surgeries and other related neurological disorders in a way that is superior to and
differentiated from currently available technology, and adopt it for treatment of their patients.
NeuroOne Medical Technologies Corporation
FORM 10-K
Achieving and maintaining market acceptance of
cortical strip, grid electrode and depth electrode technology could be negatively impacted by many factors, including:
| ● | the failure of our cortical strip, grid electrode and depth electrode technology to achieve wide acceptance
among people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other
related neurological disorders, their caregivers, healthcare providers, third-party payors and key opinion leaders in the community; |
| ● | lack of evidence supporting the performance criteria or other perceived benefits of our cortical strip,
grid electrode and depth electrode technology over competitive products or other currently available technology; |
| ● | perceived risks associated with the use of our cortical strip, grid electrode and depth electrode technology
or similar products or technologies generally; |
| ● | the introduction of competitive products and the rate of acceptance of those products as compared to our
cortical strip, grid electrode and depth electrode technology; |
| ● | adverse results of clinical trials relating to our cortical strip, grid electrode and depth electrode
technology or similar competitive products; and |
| ● | loss of regulatory clearance or approval for our cortical strip, grid electrode and depth electrode technology,
adverse publicity or other adverse events including any product liability lawsuits. |
In addition, our cortical strip, grid electrode
and depth electrode technology may be perceived by people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic
pain due to failed back surgeries and other related neurological disorders, their caregivers or healthcare providers 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 are not successful in convincing people
with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological
disorders of the benefits of our cortical strip, grid electrode and depth electrode technology, or if we are unable to achieve the support
of caregivers and healthcare providers or widespread market acceptance for our cortical strip, grid electrode and depth electrode technology,
then our sales potential, strategic objectives and profitability could be negatively impacted, which would adversely affect 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.
NeuroOne Medical Technologies Corporation
FORM 10-K
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.
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.
NeuroOne Medical Technologies Corporation
FORM 10-K
Reimbursement by Medicare is highly
regulated and subject to change.
The Medicare program is administered by the Centers
for Medicare and Medicaid Services, or 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.
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, PMT, Ad-Tec Medical and Integra Lifesciences, (ii) in the market for neuro-ablation, Medtronic and
Monteris Medical and (iii) in the market for neurostimulation, Medtronic, Boston Scientific, NeuroPace Biotronik and Abbott. 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; |
NeuroOne Medical Technologies Corporation
FORM 10-K
| ● | earlier regulatory clearance or approval in the United States or foreign jurisdictions; |
| ● | long established relationships with physicians and hospitals; |
| ● | significant patent portfolios, including issued U.S. and foreign patents and pending patent applications,
as well as the resources to enforce patents against us or any of our third-party suppliers and distributors; |
| ● | the ability to acquire and integrate our competitors and/or their technology; |
| ● | demonstrated ability to develop product enhancements and new product offerings; |
| ● | established history of product reliability, safety and durability; |
| ● | the ability to offer rebates or bundle multiple product offerings to offer greater discounts or incentives; |
| ● | greater financial and human resources for product development, sales, and marketing; and |
| ● | greater experience in and resources for conducting research and development, clinical studies, manufacturing,
preparing regulatory submissions, obtaining regulatory clearance or approval for products and marketing approved products. |
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.
The size and future growth in the
market for our cortical strip, grid electrode and depth electrode technology under development has not been established with precision
and may be smaller than we estimate, possibly materially. If our estimates and projections overestimate the size of this market, our sales
growth may be adversely affected.
Our estimates of the size and future growth in
the market for our cortical strip, grid electrode and depth electrode technology under development, including the number of people with
epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological
disorders who may benefit from and be amenable to using cortical strip, grid electrode and depth electrode technology for diagnosis and
treatment, is based on a number of internal and third-party studies, reports and estimates. In addition, our internal estimates are based
in large part on current treatment patterns by healthcare providers using current generation technology and our belief is that the incidence
of epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological
disorders in the United States and worldwide is increasing. While we believe these factors have historically provided and may continue
to provide us with effective tools in estimating the total market for cortical strip, grid electrode and depth electrode technology, these
estimates may not be correct and the conditions supporting our estimates may change at any time, thereby reducing the predictive accuracy
of these underlying factors. The actual incidence of brain related disorders, and the actual demand for our products or competitive products,
could differ materially from our projections if our assumptions are incorrect. As a result, our estimates of the size and future growth
in the market for cortical strip, grid electrode and depth electrode technology may prove to be incorrect. If the actual number of people
with brain related disorders who would benefit from cortical strip, grid electrode and depth electrode technology and the size and future
growth in the market for cortical strip, grid electrode and depth electrode technology is smaller than we have estimated, it may impair
our projected sales growth and have an adverse impact on our business.
NeuroOne Medical Technologies Corporation
FORM 10-K
We depend on intellectual property
licensed from WARF for our technology, including our technology under development, and the termination of this license would harm our
business.
WARF has granted us the WARF License, to make,
use and sell, in the United States only, products that employ certain licensed patents for a neural probe array or thin-film micro electrode
array and method. See “Business - WARF License” for additional information regarding our license agreement with WARF.
WARF may terminate this license in the event that
we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our development plan or
breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain bankruptcy events
involving us. WARF may also terminate this license if, after royalties earned on sales begin to be paid, such earned royalties cease for
more than four calendar quarters. The WARF License otherwise expires by its terms on the date that no valid claims on the patents licensed
thereunder remain.
Disputes may arise between us and WARF regarding
intellectual property subject to this agreement, including with respect to: the scope of rights granted under the WARF License and other
interpretation-related issues; whether and the extent to which our technology and processes infringe on intellectual property of WARF
that is not subject to the WARF License; the amount and timing of milestones and royalty payments; the rights of WARF under the license;
our right to sublicense; and the ownership of inventions and know-how resulting from the WARF License. For example, if we or any of our
sublicensees for any reason contest the validity of any patent licensed under the WARF License, the royalty rate will be doubled during
the pendency of such contest and, if the contested patent is found to be valid and would be infringed by us if not for the WARF License,
the royalty rate will be tripled for the remaining term of the WARF License.
Any disputes with WARF may prevent or impair our
ability to maintain our current licensing arrangement. We depend on the intellectual property licensed from WARF to develop our cortical
strip, grid electrode and depth electrode technology. The original license agreement entered into with WARF in 2014 required that we meet
certain milestones and make certain payments to WARF. We failed to do so and were in default under the original license agreement. Furthermore,
the LLC was not able to transfer the rights and obligations under the 2014 WARF Agreement to us at the time of the Merger without the
consent of WARF. As a result, in February 2017, we signed an amendment to the WARF License which, among other things, modified and removed
certain previous milestones and provided WARF’s consent to such transfer. Because of this past breach, WARF may be less likely to
waive future defaults or breaches or further amend the WARF License in the future, to the extent we request any waiver or amendment. See
“Note 4-Commitments and Contingencies” included in “Item 8 - Financial Statements and Supplementary Data” in this
Report.
Termination of our license could result in the
loss of significant rights and would harm our ability to further develop our cortical strip, grid electrode and depth electrode technology.
In addition, WARF reserves the right to grant non-profit research institutions and government agencies non-exclusive licenses to practice
and use the inventions of the licensed patents for non-commercial research purposes, and we grant WARF a non-exclusive, sub-licensable,
royalty-free right and license for non-commercial research purposes to use improvements to the licensed patents. In the event that we
discontinue use or commercialization of the licensed patents or improvements thereon, we must grant WARF an option to obtain a non-exclusive,
sub-licensable royalty-bearing license to use the improvements for commercial purposes. Such rights, if exercised by WARF, could harm
our ability to develop and commercialize our cortical strip, grid electrode and depth electrode technology.
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.
NeuroOne Medical Technologies Corporation
FORM 10-K
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.
We signed the Mayo Development Agreement in May 2017, which, among other things, modified or removed certain provisions of the original
agreement, including those we breached. In addition, pursuant to the Mayo Development Agreement signed in May 2017, we agreed to pay Mayo
a cash payment of approximately $92,000 on the earlier of September 30, 2017 or the date we raise a minimum amount of financing. We did
not make this payment by September 30, 2017 and breached this provision of the Mayo Development Agreement. Mayo granted us an extension
of this deadline to December 31, 2017, and we made this payment within such extended deadline. Because of our past breach, Mayo may be
less likely to waive future defaults or breaches or further amend the Mayo Development Agreement in the future, to the extent we request
any waiver or amendment. Termination of the Mayo Development Agreement could result in the loss of significant rights and would harm our
ability to further develop our technology.
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.
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 arising in connection with the COVID-19 pandemic. 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.
NeuroOne Medical Technologies Corporation
FORM 10-K
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.
See “-The COVID-19 pandemic has adversely
impacted, and may continue to impact, our business” above.
We contract with third parties for
the manufacture of our cortical strip, grid electrode and depth electrode technology, including our 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; |
| ● | inability to secure product components in a timely manner, in sufficient quantities or on commercially
reasonable terms; |
| ● | failure to increase production to meet demand; |
| ● | inability to modify production lines to enable us to efficiently produce future products or implement
changes in current products in response to regulatory requirements; |
NeuroOne Medical Technologies Corporation
FORM 10-K
| ● | difficulty identifying and qualifying alternative manufacturers in a timely manner; |
| ● | inability to manufacture product components cost-effectively; |
| ● | inability to establish agreements with future third-party manufacturers or to do so on acceptable terms; |
| ● | potential damage to or destruction of our manufacturers’ equipment or facilities; |
| ● | failure to complete sterilization on time or in compliance with the required regulatory standards; |
| ● | transportation and import and export risk; |
| ● | delays in analytical results or failure of analytical techniques that we will depend on for quality control
and release of products; |
| ● | natural disasters, labor disputes, financial distress, raw material availability, issues with facilities
and equipment or other forms of disruption to business operations affecting our manufacturers or suppliers; or |
| ● | latent defects that may become apparent after products have been released and that may result in a recall
of such products. |
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.
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.
NeuroOne Medical Technologies Corporation
FORM 10-K
The sale and use of our cortical strip, grid electrode
and depth electrode 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 and depth electrode 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:
| ● | distraction of management’s attention from our primary business; |
| ● | the inability to commercialize our cortical strip, grid electrode and depth electrode technology; |
| ● | 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 |
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.
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 depend on sophisticated information
technology systems, and any breach or disruption affecting these systems could adversely affect our business, financial condition and
operating results.
The efficient operation of our business depends
on our information technology systems, which we use to manage product development tasks, research and development data and accounting
and financial functions. In the future, we may rely on our information technology systems for inventory management and technical support
functions. Our information technology systems are vulnerable to damage or interruption from earthquakes, fires, floods, other natural
disasters, terrorist attacks, attacks by computer viruses or hackers, power losses, and computer system or data network failures.
NeuroOne Medical Technologies Corporation
FORM 10-K
In addition, our data management application and
a variety of our software systems are hosted by third-party service providers whose security and information technology systems are subject
to similar risks. If our, or our third-party service provider’s, security systems are breached or fail, unauthorized persons may
be able to obtain access to sensitive data.
To the extent that any disruption or security
breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability. The failure of our or our service providers’ information technology systems or our transmitter’s
software to perform as we anticipate or our failure to effectively implement new information technology systems could disrupt our entire
operation, adversely affect our products, or result in delays in our product development, clinical trial or commercialization efforts,
increased overhead costs and damage our reputation. Any of these results could negatively affect our business, financial condition and
operating results.
Zimmer has exclusive global rights
to distribute our strip and grid cortical electrodes and electrode cable assembly products. Zimmer’s failure to timely develop or
commercialize these products would have a material adverse effect on our business and operating results. Further, our inability to agree
with Zimmer on dates of completion for product development, regulatory clearance and commercialization milestones on which various fee
payments to the Company are based under the Zimmer Development Agreement could have a material adverse impact on our financial and operating
results.
The Company granted Zimmer an exclusive global
right to distribute our strip and grid cortical electrodes and electrode cable assembly products. Additionally, we granted Zimmer the
exclusive right and license to distribute certain depth electrodes developed by the Company. The collaboration with Zimmer may not be
successful due to several factors, including the following:
| ● | Zimmer may not be able to obtain from us or manufacture our products in a timely or cost-effective manner; |
| ● | Zimmer may not timely perform its obligations under the Zimmer Development Agreement; |
| ● | Zimmer may fail to effectively commercialize our products; or |
| ● | contractual disputes or other disagreements between us and Zimmer, including those regarding the development,
manufacture, and commercialization of our products, interpretation of the Zimmer Development Agreement, and ownership of proprietary rights. |
Any of the foregoing could adversely impact the
likelihood and timing of any payments we are eligible to receive under the Zimmer Development Agreement. FDA clearance is one condition
of the Product Availability Date. The Company is reliant on Zimmer to drive the commercialization and sales of our products. If Zimmer
does not perform its obligations under the Zimmer Development Agreement, we may be forced to incur material expenses to build a sales
organization and infrastructure to market our products which 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.
We have entered into, and may enter
into additional collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third-parties that
may not result in the development of commercially viable products or the generation of significant future revenues.
In the ordinary course of our business, we may
enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships or other arrangements to develop
products and to pursue new markets. Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures,
strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater
financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may
not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms
or at all. We have limited institutional knowledge and experience with respect to these business development activities, and we may also
not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the
development of products that achieve commercial success or result in significant revenues and could be terminated prior to developing
any products.
NeuroOne
Medical Technologies Corporation
FORM 10-K
Additionally,
we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which could create the
potential risk of creating impasses on decisions, and our future collaborators may have economic or business interests or goals that
are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators,
such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement,
such as those related to financial obligations or the ownership or control of intellectual property developed during the collaboration.
If any conflicts arise with any future collaborators, they may act in their self-interest, which may be adverse to our best interest,
and they may breach their obligations to us. In addition, we may have limited control over the amount and timing of resources that any
future collaborators devote to our or their future products. Disputes between us and our collaborators may result in litigation or arbitration
which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements will be contractual
in nature and will generally be terminable under the terms of the applicable agreements and, in such event, we may not continue to have
rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium.
If
we enter into in-bound intellectual property license agreements, we may not be able to fully protect the licensed intellectual property
rights or maintain those licenses. Future licensors could retain the right to prosecute and defend the intellectual property rights licensed
to us, in which case we would depend on the ability of our licensors to obtain, maintain and enforce intellectual property protection
for the licensed intellectual property. These licensors may determine not to pursue litigation against other companies or may pursue
such litigation less aggressively than we would. Further, entering into such license agreements could impose various diligence, commercialization,
royalty or other obligations on us. Future licensors may allege that we have breached our license agreement with them, and accordingly
seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects.
Risks
Related to our Intellectual Property
Our
ability to protect our intellectual property and proprietary technology is uncertain.
The
medical device market in which we operate is largely technology driven. We rely primarily on patent, trademark and trade secret laws,
as well as confidentiality and non-disclosure agreements, to protect our intellectual property and proprietary technologies. We continue
to review new technological developments in order to make decisions about what additional filings would be the most appropriate for us.
We also plan to seek patent protection for our proprietary technology in select countries internationally. If we fail to timely file
a patent application in any jurisdiction, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any
patent application will be approved in a timely manner or at all. The rights granted to us under our patents, and the rights we are seeking
to have granted in our pending patent applications, may not be meaningful or provide us with any commercial advantage. In addition, those
rights could be opposed, contested or circumvented by our competitors, or be declared invalid or unenforceable in judicial or administrative
proceedings. The failure of our patents to adequately protect our technology might make it easier for our competitors to offer the same
or similar products or technologies. Even if we are successful in receiving patent protection for certain products and processes, our
competitors may be able to design around our patents or develop products that provide outcomes which are comparable to ours without infringing
on our intellectual property rights. Due to differences between foreign and U.S. patent laws, our patented intellectual property rights
may not receive the same degree of protection in foreign countries as they would in the United States. Even if patents are granted outside
the United States, effective enforcement in those countries may not be available.
We
rely on our trademarks and trade names to distinguish our products from the products of our competitors, and have registered or
applied to register many of these trademarks. For example, we have a registered U.S. trademark for the “EVO” trademark.
We cannot assure you that our trademark applications will be approved in a timely manner or at all. Third parties also may oppose
our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully
challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to
devote additional resources to marketing new brands. Further, we cannot assure you that competitors will not infringe upon our
trademarks, or that we will have adequate resources to enforce our trademarks.
NeuroOne
Medical Technologies Corporation
FORM 10-K
We
also rely on trade secrets, know-how and technology, which are not protectable by patents, to maintain our competitive position. We try
to protect this information by entering into confidentiality agreements and intellectual property assignment agreements with our officers,
employees, temporary employees and consultants regarding our intellectual property and proprietary technology. In the event of unauthorized
use or disclosure or other breaches of those agreements, we may not be provided with meaningful protection for our trade secrets or other
proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To
the extent that our commercial partners, collaborators, employees and consultants use intellectual property owned by others in their
work for us, disputes may arise as to the rights in the related or resulting know-how and inventions. If any of our trade secrets, know-how
or other technologies not protected by a patent were to be disclosed to or independently developed by a competitor, our business, financial
condition and results of operations could be materially adversely affected.
If
a competitor infringes upon one of our patents, trademarks or other intellectual property rights, enforcing those patents, trademarks
and other rights may be difficult and time-consuming. Patent law relating to the scope of claims in the industry in which we operate
is subject to rapid change and constant evolution and, consequently, patent positions in our industry can be uncertain. Even if successful,
litigation to defend our patents and trademarks against challenges or to enforce our intellectual property rights could be expensive
and time consuming and could divert management’s attention from managing our business. Moreover, we may not have sufficient resources
or desire to defend our patents or trademarks against challenges or to enforce our intellectual property rights. Litigation also puts
our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we
may provoke third-parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies
awarded, if any, may not be commercially valuable. The occurrence of any of these events may harm our business, financial condition and
operating results.
There
is limited market awareness of our technology, and we may not be able to establish or strengthen our brand.
There
is currently limited market awareness of our technology. We believe that establishing and strengthening our brand is critical to achieving
widespread acceptance of our cortical strip, grid electrode and depth electrode technology. Promoting and positioning our brand, and
increasing market awareness of our technology, will depend largely on the success of our marketing efforts and our ability to provide
physicians with a reliable product for successful treatment of brain-related disorders. Additionally, we believe the quality and reliability
of our product is critical to building physician support in the United States, and any negative publicity regarding the quality or reliability
of our cortical strip, grid electrode and depth electrode technology could significantly damage our reputation in the market. Further,
given the established nature of our competitors, it is likely that our future marketing efforts will require us to incur significant
additional expenses. These brand promotion activities may not yield increased sales and, even if they do, any sales increases may not
offset the expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial
expenses in an unsuccessful attempt to promote and maintain our brand, our cortical strip, grid electrode and depth electrode technology
may not be accepted by physicians, which would adversely affect our business, results of operations and financial condition.
We
could become subject to patent litigation that could be costly, result in the diversion of management’s time and efforts, stop
our development and commercialization measures or require us to pay damages.
Our
success will depend in part on not infringing the patents or violating the other proprietary rights of third-parties. Significant litigation
regarding patent rights exists in our industry. Our competitors in both the United States and abroad, many of which have substantially
greater resources and have made substantial investments in competing technologies, may have applied for or obtained or may in the future
apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and sell our products. The large
number of patents, the rapid rate of new patent issuances, and the complexities of the technology involved increase the risk of patent
litigation.
NeuroOne
Medical Technologies Corporation
FORM 10-K
In
the future, we could receive communications from various industry participants alleging our infringement of their intellectual property
rights. Any potential intellectual property litigation could force us to do one or more of the following:
| ● | stop
selling our products or using technology that contains the allegedly infringing intellectual
property; |
| ● | incur
significant legal expenses; |
| ● | pay
substantial damages to the party whose intellectual property rights we are allegedly infringing; |
| ● | redesign
those products that contain the allegedly infringing intellectual property; or |
| ● | attempt
to obtain a license to the relevant intellectual property from third-parties, which may not
be available on reasonable terms or at all, and if available, may be non-exclusive, thereby
giving our competitors access to the same technology. |
Patent
litigation can involve complex factual and legal questions, and its outcome is uncertain. Any litigation or claim against us, even those
without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention
of management from our core business and harm our reputation. Further, as the number of participants in the neurostimulation market increases,
the possibility of intellectual property infringement claims against us increases.
We
may be subject to damages resulting from claims that we, or our employees, have wrongfully used or disclosed alleged trade secrets of
our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Some
of our current or future employees may have previously been employed at other medical device companies, including those that are our
direct competitors or could potentially be our direct competitors. We may be subject to claims that we, or our employees, have inadvertently
or otherwise used or disclosed trade secrets or other proprietary information of these former employers or competitors. In addition,
we may in the future be subject to allegations that we caused an employee to breach the terms of his or her non-competition or non-solicitation
agreement. Litigation may be necessary to defend against these claims.
We
are currently subject to litigation with the former employer of a current employee of NeuroOne, which is described in more detail under
“Note 4-Commitments and Contingencies” included in “Item 8 - Financial Statements and Supplementary Data” in
this Annual Report.
Even
if we successfully defend against these claims, litigation could result in substantial costs place a significant strain on our financial
resources, divert the attention of management from our core business and harm our reputation. If our defense to those claims fails, in
addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. There can be no assurance that this
type of litigation will not occur, and any future litigation or the threat thereof may adversely affect our ability to hire additional
employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our cortical strip, grid
electrode and depth electrode technology or future versions thereof, which could have an adverse effect on our business, financial condition
and operating results.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations,
and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| ● | others
may be able to make devices that are the same as or similar to our cortical strip, grid electrode
and depth electrode technology but that are not covered by the claims of the patents that
we own; |
NeuroOne
Medical Technologies Corporation
FORM 10-K
| ● | we
or any collaborators might not have been the first to make the inventions covered by the
issued patents or pending patent applications that we own; |
| ● | we
might not have been the first to file patent applications covering certain of our inventions; |
| ● | others
may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights; |
| ● | it
is possible that our pending patent applications will not lead to issued patents; |
| ● | issued
patents that we own may not provide us with any competitive advantages, or may be held invalid
or unenforceable as a result of legal challenges; |
| ● | we
might enforce our patent rights or defend a challenge to our issued patents or pending application,
putting the patents and patent applications at risk of being invalidated or interpreted narrowly; |
| ● | our
competitors might conduct research and development activities in the United States and other
countries that provide a safe harbor from patent infringement claims for certain research
and development activities, as well as in countries where we do not have patent rights, and
then use the information learned from such activities to develop competitive products for
sale in our major commercial markets; and |
| ● | we
may not develop additional proprietary technologies that are patentable. |
Risks
Related to our Legal and Regulatory Environment
Our
products and operations are subject to extensive governmental regulation, and any adverse regulatory action may materially adversely
affect our financial condition and business operations.
Our
medical devices and technologies and business activities, including marketing, manufacturing, sales and development processes, are subject
to regulation by the FDA, U.S. Department of Justice, Health and Human Services - Office of Inspector General, and other federal and
state, governmental authorities. These governmental authorities enforce laws and regulations that are meant to assure product safety
and effectiveness, including the regulation of, among other things:
| ● | product
design and development; |
| ● | pre-clinical
studies and clinical trials; |
| ● | establishment
registration and product listing; |
| ● | labeling,
content and language of instructions for use and storage; |
| ● | marketing,
manufacturing, sales and distribution; |
| ● | pre-market
clearance or approval; |
| ● | servicing
and post-market surveillance; |
| ● | record-keeping
procedures; |
| ● | product
import and export; |
NeuroOne
Medical Technologies Corporation
FORM 10-K
| ● | advertising
and promotion; and |
| ● | recalls
and field safety corrective actions. |
The
regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in
restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated revenues.
Failure
to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as fines,
civil penalties, injunctions, warning letters, recalls of products, delays in the introduction of products into the market, refusal of
the regulatory agency or other regulators to grant future clearances or approvals, and the suspension or withdrawal of existing approvals
by such regulatory agencies. Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and
harm our reputation, business, financial condition and operating results.
A
recall of our products, or the discovery of serious safety issues with our products, could have a significant negative impact on us.
The
FDA has the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or
manufacture or in the event that a product poses an unacceptable risk to health. Our third-party suppliers may, under their own initiative,
recall a product if any material deficiency in a device is found. A government-mandated or voluntary recall by us or one of our third-party
distributors, if any, could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or
labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and
have an adverse effect on our reputation, financial condition and operating results, which could impair our ability to produce our products
in a cost-effective and timely manner.
Further,
under the FDA’s medical device reporting regulations, we are required to report to the FDA any incident in which our product may
have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur,
would likely cause or contribute to death or serious injury. Repeated product malfunctions may result in a voluntary or involuntary product
recall, which could divert managerial and financial resources, impair our ability to manufacture our products in a cost-effective and
timely manner and have an adverse effect on our reputation, financial condition and operating results.
Any
adverse event involving our products could result in future voluntary corrective actions, such as recalls or customer notifications,
or regulatory agency action, which could include inspection, mandatory recall or other enforcement action. Any corrective action, whether
voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business and may
harm our reputation and financial results.
We
are subject to additional federal, state and foreign laws and regulations relating to our healthcare business; our failure to comply
with those laws could have an adverse impact on our business.
Although
we will not provide healthcare services, submit claims for third-party reimbursement, or receive payments directly from government health
insurance programs or other third-party payors for our cortical strip, grid electrode and depth electrode technology, we are subject
to healthcare fraud and abuse regulation and enforcement by federal, state and foreign governments, which could adversely impact our
business. Healthcare fraud and abuse and health information privacy and security laws potentially applicable to our operations include,
but are not limited to:
| ● | the
Anti-Kickback Statute, which will apply to our marketing practices, educational programs,
pricing policies and relationships with healthcare providers, by prohibiting, among other
things, soliciting, receiving, offering or providing remuneration intended to induce the
purchase or recommendation of an item or service reimbursable under a federal healthcare
program, such as the Medicare or Medicaid programs. A person or entity does not need to have
actual knowledge of this statute or specific intent to violate it to have committed a violation; |
NeuroOne
Medical Technologies Corporation
FORM 10-K
| ● | federal
civil and criminal false claims laws and civil monetary penalty laws, including civil whistleblower
or qui tam actions that prohibit, among other things, knowingly presenting, or causing to
be presented, claims for payment or approval to the federal government that are false or
fraudulent, knowingly making a false statement material to an obligation to pay or transmit
money or property to the federal government or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay or transmit money or property to the federal
government. The government may assert that a claim including items or services resulting
from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the false claims statutes; |
| ● | HIPAA,
and its implementing regulations, which created federal criminal laws that prohibit, among
other things, executing a scheme to defraud any healthcare benefit program or making false
statements relating to healthcare matters. A person or entity does not need to have actual
knowledge of these statutes or specific intent to violate them; |
| ● | HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act of 2009,
and their implementing regulations, also imposes certain regulatory and contractual requirements
regarding the privacy, security and transmission of individually identifiable health information; |
| ● | federal
“sunshine” requirements imposed by the ACA on device manufacturers regarding
any “transfer of value” made or distributed to physicians and teaching hospitals.
Failure to submit required information may result in civil monetary penalties of up to an
aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing
failures”), for all payments, transfers of value or ownership or investment interests
that are not timely, accurately, and completely reported in an annual submission. Manufacturers
must submit reports by the 90th day of each subsequent calendar year; |
| ● | federal
consumer protection and unfair competition laws, which broadly regulate marketplace activities
and activities that potentially harm consumers; |
| ● | state
law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws that may apply to items or services reimbursed by any third-party payor, including commercial
insurers; state laws that require device companies to comply with the industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government
or otherwise restrict payments that may be made to healthcare providers; state laws that
require device manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures; and state
laws governing the privacy and security of certain health information, many of which differ
from each other in significant ways and often are not preempted by HIPAA; and |
The
risk of our being found in violation of these laws and regulations is increased by the fact that the scope and enforcement of these laws
is uncertain, many of them have not been fully interpreted by the regulatory authorities or the courts, their provisions are open to
a variety of interpretations, or they vary country by country. We are unable to predict what additional federal, state or foreign legislation
or regulatory initiatives may be enacted in the future regarding our business or the healthcare industry in general, or what effect such
legislation or regulations may have on us. Federal, state or foreign governments may (i) impose additional restrictions or adopt interpretations
of existing laws that could have a material adverse effect on us or (ii) challenge our current or future activities under these laws.
Any of these challenges could impact our reputation, business, financial condition and operating results.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us
now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement of profits,
exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our financial results. Any
federal, state or foreign regulatory review to which we may become subject, regardless of the outcome, would be costly and time-consuming.
NeuroOne
Medical Technologies Corporation
FORM 10-K
For
example, to enforce compliance with the federal laws, the U.S. Department of Justice, or DOJ, has recently increased its scrutiny of
interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions
and settlements in the healthcare industry. Dealing with investigations can be time and resource consuming and can divert management’s
attention from our core business. Additionally, if we settle an investigation with law enforcement or other regulatory agencies, we may
be forced to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement.
Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
We
may be liable if the FDA or another regulatory agency concludes that we have engaged in the off-label promotion of our products.
Our
promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition
of the promotion of the off-label use of our products. Healthcare providers may use our products, if approved, off-label, as the FDA
does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines
that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter,
injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities
might take action if they consider our promotional or training materials to constitute promotion of an unapproved use, which could result
in significant fines or penalties. Although we intend to train our marketing and direct sales force to not promote our products for uses
outside of their cleared uses and our policy will be to refrain from statements that could be considered off-label promotion of our products,
the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. In addition, the off-label
use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could result
in substantial damage awards against us and harm our reputation.
Legislative
or regulatory healthcare reforms may have a material adverse effect on our business, financial condition, results or operations and cash
flows.
Recent
political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes. The sales of our products
depend in part on the availability of coverage and reimbursement from third-party payors such as government health administration authorities,
private health insurers, health maintenance organizations and other healthcare-related organizations. Both the federal and state governments
in the United States continue to propose and pass new legislation and regulations designed to contain or reduce the cost of healthcare.
This legislation and regulation may result in decreased reimbursement for medical devices, which may further exacerbate industry-wide
pressure to reduce the prices charged for medical devices. This could harm our ability to market our products and generate sales.
In
addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business
and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen
review times of our products. Delays in receipt of or failure to receive regulatory clearances or approvals for our products would harm
our business, financial condition and operating results.
While
one often stated goal of healthcare reform is to expand coverage to more individuals, it also involves increased government price controls,
additional regulatory mandates and other measures designed to constrain medical costs. For example, the ACA and Health Care and Education
Affordability Reconciliation Act of 2010 were enacted into law in the U.S. in March 2010. Certain provisions of this law, including comparative
effectiveness research, pilot programs to evaluate alternative payment methodologies and other changes to the payment systems, have started
changing the way healthcare is delivered, reimbursed and funded. While the extent to which it has affected our business is not clear,
these changes, over the long-term, may adversely affect our business and results of operations. The current U.S. administration may attempt
to reverse some of the previous administration’s changes to the ACA, particularly related to healthcare coverage for the uninsured,
and is further expected to introduce more ambitious healthcare legislation, which could include what is commonly referred to as a “public
option” or changes to Medicare age requirements. If passed, this legislation would lead to increased coverage levels and utilization
of services; however, at this point, the impact of any such changes is unclear because specific changes have not been enacted or implemented.
NeuroOne
Medical Technologies Corporation
FORM 10-K
We
cannot predict whether any additional healthcare reform proposals will be adopted or how such proposals may impact our business and operations.
However, any changes that lower reimbursements for either our products or procedures using our products, reduce medical procedure volumes,
increase cost containment pressures on us or others in the healthcare sector, or impose additional or heightened regulatory requirements
could adversely affect our business and results of operations.
Risks
Related to our Common Stock
The
price of our Common Stock might fluctuate significantly, and you could lose all or part of your investment.
Volatility
in the market price of our Common Stock may prevent you from being able to sell your shares of our Common Stock at or above the price
you paid for your shares. The trading price of our Common Stock may be volatile and subject to wide price fluctuations in response to
various factors, including:
| ● | actual
or anticipated fluctuations in our quarterly financial and operating results; |
| ● | our
progress toward developing our cortical strip and sheet electrode technology; |
| ● | the
commencement, enrollment and results of our future clinical trials; |
| ● | adverse
results from, delays in or termination of our clinical trials; |
| ● | adverse
regulatory decisions, including failure to receive regulatory approval; |
| ● | publication
of research reports about us or our industry or positive or negative recommendations or withdrawal
of research coverage by securities analysts, if any; |
| ● | perceptions
about the market acceptance of our products and the recognition of our brand; |
| ● | adverse
publicity about our products or industry in general; |
| ● | overall
performance of the equity markets; |
| ● | introduction
of products, or announcements of significant contracts, licenses or acquisitions, by us or
our competitors; |
| ● | legislative,
political or regulatory developments; |
| ● | additions
or departures of key personnel; |
| ● | threatened
or actual litigation and government investigations; |
| ● | third-party
promotional activities, which are subject to ongoing regulatory obligations; |
| ● | sale
of shares of our Common Stock by us or members of our management; and |
| ● | general
economic conditions. |
NeuroOne
Medical Technologies Corporation
FORM 10-K
These
and other factors might cause the market price of our Common Stock to fluctuate substantially, which may negatively affect the liquidity
of our Common Stock. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility
has had a significant impact on the market price of securities issued by many companies across many industries. The changes frequently
appear to occur without regard to the operating performance of the affected companies. Accordingly, the price of our Common Stock could
fluctuate based upon factors that have little or nothing to do with our Company, and these fluctuations could materially reduce our share
price.
Securities
class action litigation has often been instituted against companies following periods of volatility in the overall market and in the
market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our
management’s attention and resources, and harm our business, operating results and financial condition.
Any
failure to maintain an effective system of internal controls could result in material misstatements of our financial statements or cause
us to fail to meet our reporting obligations or fail to prevent fraud in which case, our stockholders could lose confidence in our financial
reporting, which would harm our business and could negatively impact the price of our stock.
We
are required to comply with the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act of
2002 (“SOX”) and management is required to report annually on our internal control over financial reporting. Our independent
registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial
reporting pursuant to Section 404(b) of SOX until the date we have a public float of $75 million or greater.
If
we fail to maintain effective internal controls and procedures for financial reporting, it could result in material misstatements in
the annual or interim financial statements that would not be prevented or detected in a timely manner. We identified material weaknesses
in our internal control over financial reporting in 2018, and we cannot assure you that material weaknesses or significant deficiencies
will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair
our ability to accurately and timely report our financial position, results of operations or cash flows.
We
intend to issue more shares to raise capital, which will result in substantial dilution.
Our
certificate of incorporation authorizes the issuance of a maximum of 100,000,000 shares of Common Stock and 10,000,000 shares of preferred
stock. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of
equity, debt financings, or other capital sources. Any additional financings effected by us may result in the issuance of additional
securities without stockholder approval and the substantial dilution in the percentage of Common Stock held by our then existing stockholders.
Moreover, the Common Stock issued in any such transaction may be valued on an arbitrary or non-arm’s-length basis by our management,
resulting in an additional reduction in the percentage of Common Stock held by our current stockholders. Our Board has the power to issue
any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock
are issued, dilution to the interests of our stockholders will occur and the rights of the holder of Common Stock might be materially
and adversely affected.
As
of September 30, 2022, we had outstanding warrants to purchase an aggregate of 7,103,344 shares of Common Stock at a weighted average
exercise price of $5.98 per share, and options to purchase an aggregate of 1,239,915 shares of Common Stock at a weighted average exercise
price of $5.40 per share. For a description of our outstanding warrants and information about the number of shares of Common Stock for
which they are exercisable, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity
and Capital Resources-Historical Capital Resources.” To the extent these outstanding options or warrants are exercised, there will
be further dilution to holders of our Common Stock.
NeuroOne
Medical Technologies Corporation
FORM 10-K
Anti-takeover
provisions in the Company’s certificate of incorporation and bylaws may prevent or frustrate attempts by stockholders to change
the Board or current management and could make a third-party acquisition of the Company difficult.
The
Company’s certificate of incorporation and bylaws contain provisions that may discourage, delay or prevent a merger, acquisition
or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive
a premium for their shares. For example, our certificate of incorporation permits the Board without stockholder approval to issue up
to 10,000,000 shares of preferred stock and to fix the designation, power, preferences, and rights of those shares. Furthermore, our
Board has the ability to increase the size of the Board and fill the newly created vacancies without stockholder approval. These provisions
could limit the price that investors might be willing to pay in the future for shares of the Common Stock.
We
are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies may make our Common
Stock less attractive to investors.
We
are a “smaller reporting company” as defined in Section 12 of the Exchange Act. For as long as we continue to be a smaller
reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not smaller reporting companies such as, reduced disclosure obligations regarding executive compensation in our annual and periodic
reports and proxy statements and stockholder approval of any golden parachute payments not previously approved. We will remain a “smaller
reporting company” as long as (i) our public float remains less than $250 million or (ii) our annual revenues are less than $100
million and we either have no public float, or our public float is less than $700 million. Public float is measured as of the last business
day of our most recently-completed second fiscal quarter, and annual revenues are as of the most recently completed fiscal year for which
audited financial statements are available. We cannot predict if investors will find our Common Stock less attractive because we may
rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market
for our Common Stock and our stock price may be more volatile.
We
have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to
the value of our stock.
We
have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings
for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Accordingly,
you may have to sell some or all of your shares of our Common Stock in order to generate cash flow from your investment. You may not
receive a gain on your investment when you sell shares and you may lose the entire amount of the investment.
If
securities or industry analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business
or our market, our stock price and trading volume could decline.
The
trading market for our Common Stock will be influenced by the research and reports that securities or industry analysts publish about
us and our business. Securities or industry analysts may elect not to provide coverage of our Common Stock, and such lack of coverage
may adversely affect the market price of our Common Stock. In the event we do not secure additional securities or industry analyst coverage,
we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline
if one or more securities or industry analysts downgrade our stock or issue other unfavorable commentary or research. If one or more
securities or industry analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our stock could
decrease, which in turn could cause our stock price or trading volume to decline.
If
we fail to comply with the continued listing standards of the Nasdaq Capital Market, our Common Stock could be delisted. If it is delisted,
our Common Stock and the liquidity of our Common Stock would be impacted.
The
continued listing of our Common Stock on Nasdaq is contingent on NeuroOne’s continued compliance with a number of listing standards.
There is no assurance that NeuroOne will remain in compliance with these standards. Delisting from Nasdaq would adversely affect our
ability to raise additional financing through the public or private sale of equity securities, significantly affect the ability of investors
to trade our securities and negatively affect the value and liquidity of our Common Stock. Delisting also could limit our strategic alternatives
and attractiveness to potential counterparties and have other negative results, including the potential loss of employee confidence,
the loss of institutional investors or interest in business development opportunities. Moreover, NeuroOne committed in connection with
the sale of securities to use commercially reasonable efforts to maintain the listing of its Common Stock during such time that certain
warrants are outstanding.
NeuroOne
Medical Technologies Corporation
FORM 10-K
Risks
Related to the Acquisition
We
may be subject to unknown risks as a result of our completed Acquisition by Original Source Entertainment, Inc.
Original
Source Entertainment, Inc., which was renamed NeuroOne Medical Technologies Corporation in connection with the Acquisition, was formed
to license songs to the television and movie industry and has generated very little revenues. Prior to the Acquisition, its operations
have been primarily limited to organizational, start-up, and capital formation activities, with no employees other than the former officers.
In connection with the Acquisition, the liabilities existing in Original Source Entertainment, Inc. at the time of the Acquisition were
cancelled or paid by a related party, as required by the Merger Agreement with NeuroOne, Inc. and OSOK Acquisition Company (the “Merger
Agreement”). Despite this requirement and the representations and warranties of Original Source Entertainment, Inc. in the Merger
Agreement, there may be unknown liabilities, or liabilities that were known but believed to be immaterial, related to the business of
Original Source Entertainment, Inc. that may become material liabilities we are subject to in the future. If we are subject to material
liabilities as a result of the conduct of Original Source Entertainment, Inc., we may have limited recourse for such liabilities, which
could have a material impact on our business and stock price.
Additional
risks may exist since we were engaged in a transaction that can be generally characterized as a “reverse merger” with a shell
company. Securities analysts of major brokerage firms may not provide coverage of the Company since there is little incentive to brokerage
firms to recommend the purchase of the Common Stock. No assurance can be given that brokerage firms will want to conduct any secondary
offerings.
General
Risk Factors
Changes
in tax laws or exposure to additional income tax liabilities could have a material impact on our business, results of operations, financial
condition and cash flows.
We
are subject to income and other non-income-based taxes and tariffs in the U.S., and our operations, plans and results are affected by
tax and other initiatives. The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons
involved in the legislative process and by the Internal Revenue Service, the U.S. Treasury Department, and state/local taxing authorities.
The tax laws in the U.S. could change on a prospective or retroactive basis, and any such changes could materially adversely affect our
business, our results of operations, our effective tax rate, and holders of our common stock. We cannot predict whether, when, in what
form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided, which could result in an
increase in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize
increases in our tax liability. In recent years, many such changes have been made and changes are likely to continue to occur in the
future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition, results of operations,
tax provision, cash tax liability, and effective tax rate. For example, in August 2022, the Inflation Reduction Act of 2022 (“IRA”)
was enacted into law. The IRA includes a 15% corporate alternative minimum tax and a 1% excise tax on share repurchases.
We
urge investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment
in our common stock.
We
are also subject to regular reviews, examinations, and audits by the Internal Revenue Service and other taxing authorities with respect
to our taxes. Although we believe our tax estimates are reasonable, if a taxing authority disagrees with the positions we have taken,
we could face additional tax liability, including interest and penalties. There
can be no assurance that payment of such additional amounts upon final adjudication of any disputes will not have a material impact on
our results of operations and financial position.
NeuroOne
Medical Technologies Corporation
FORM 10-K
We
may seek to grow our business through acquisitions of complementary products or technologies, and the failure to complete acquisitions,
or the failure to integrate them with our existing business, could harm our business, financial condition and operating results.
From
time to time, we may consider opportunities to acquire other companies, products or technologies that may enhance our product platform
or technology, expand the breadth of our markets or customer base, or advance our business strategies. The success of our strategy relating
to future acquisitions, investments or alliances will depend on a number of factors, including our ability to:
| ● | identify
suitable opportunities for acquisition, investment or alliance, if at all; |
| ● | manage
acquisition, investment or alliance opportunities within our capital capacity and prioritize
those investments to execute on our strategy; |
| ● | manage
our due diligence process to uncover potential issues and liabilities with targets; |
| ● | finance
any future acquisition, investment or alliance on terms acceptable to us, if at all; |
| ● | complete
acquisitions, investments or alliances in a timely manner on terms that are satisfactory
to us, if at all; |
| ● | successfully
integrate and operate acquired businesses; |
| ● | successfully
identify and retain key target employees; |
| ● | comply
with applicable laws and regulations; |
| ● | protect
intellectual property and to prevail in litigation related to newly acquired technologies; |
| ● | assimilate
the acquired products or technologies; |
| ● | maintain
uniform standards, procedures, controls and policies; |
| ● | anticipate
costs associated with acquisitions; |
| ● | avoid
the diversion of management’s attention from our existing business; |
| ● | manage
risks associated with entering new markets in which we have limited or no experience; and |
| ● | manage
legal and accounting costs relating to the acquisitions or compliance with regulatory matters. |
We
have no current commitments with respect to any acquisition. We do not know if we will be able to identify acquisitions we deem suitable,
whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully
integrate any acquired products or technologies. Our potential inability to integrate any acquired products or technologies effectively
may adversely affect our business, operating results and financial condition.
NeuroOne
Medical Technologies Corporation
FORM 10-K
Our
future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We
are highly dependent on the management, research and development, clinical, financial and business development expertise of our officers
and advisory board members. Although we have an employment agreement with David Rosa, he (and each of our other key employees) may terminate
his employment with us at any time and will continue to be able to do so. We do not maintain “key person” insurance for any
of our executives or employees.
Recruiting
and retaining qualified scientific and clinical personnel will also be critical to our success. The loss of the services of our executive
officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously
harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be
difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills
and experience required to successfully develop, gain regulatory approval of and commercialize our products. Competition to hire from
this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the
competition among numerous medical device companies for similar personnel, many of which have greater financial and other resources dedicated
to attracting and retaining personnel. We also experience competition for the hiring of scientific and clinical personnel from universities
and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us
in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers
other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to
us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
Prolonged
negative economic conditions could adversely affect us, our customers and third-party partners, manufactures or suppliers, if any, which
could harm our financial condition.
We
are subject to the risks arising from adverse changes in general economic and market conditions, including, but not limited to, changes
related to the COVID-19 pandemic. Uncertainty about future economic conditions could negatively impact our existing and potential customers,
adversely affect the financial ability of health insurers to pay claims, adversely impact our expenses and ability to obtain financing
of our operations, and cause delays or other problems with key suppliers.
Healthcare
spending in the United States has been, and is expected to continue to be, under significant pressure and there are many initiatives
to reduce healthcare costs. As a result, we believe that some insurers are scrutinizing insurance claims more rigorously and delaying
or denying coverage and reimbursement more often. Because the sale, if approved, of our cortical strip, grid electrode and depth electrode
technology under development will generally depend on the availability of third-party coverage and reimbursement, any delay or decline
in coverage and reimbursement will adversely affect our sales.
We
have incurred, and may continue to incur increased costs and demands upon management as a result of being a public company.
As
a public company in the United States, we incur significant legal, accounting and other costs. These additional costs could negatively
affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure,
including regulations implemented by the SEC and the stock exchange on which we may list our Common Stock, may increase legal and financial
compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations
and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities
may initiate legal proceedings against us and our business may be harmed.
NeuroOne
Medical Technologies Corporation
FORM 10-K
Failure
to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer
liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons
to serve on our Board, on committees of our Board or as members of senior management.