ITEM
1 – BUSINESS
The
Company
We are a neurodiagnostic
and predictive technology platform company seeking to provide a centralized platform for data acquisition and analysis of electroencephalography
(“EEG”) data that combines innovative medical device technologies with cloud-based telehealth services. The Company
is primarily focused on establishing diagnostic protocols through the use of its Products to identify pathological risk factors
involving the brain, and driving novel insights into cognitive health that support early treatment of neurological disorders.
We
believe our approach is unique in utilizing medical, consumer and hybrid technologies to create the value chain to ultimate
health:
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linking
analysis to business/health outcomes through benefits mapping;
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investing
in advanced analytics, starting with the assumption that advanced information will result
in predictive analytics for the integral body;
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validating
the organization's maturity against multiple complementary models;
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ensuring
there is sufficient trust in the data and analysis to change pre-existing beliefs; and
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balancing
analytic insight with the ability of an organization to make and optimally utilize the
information (coupling man + machine learning) while prioritizing incremental improvements
over integral body transformation.
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The
Company is initially targeting brain data acquisition via the EEG medical market because it offers high revenue potential due
to the established healthy base of customer users with a broad demographic profile. Our technology solution combines a miniature,
wireless, clinical device capable of recording electroencephalograms (EEG) that is fast, portable, and easy-to-use with the capability
to integrate an interpretive cloud-based platform allowing for rapid and remote interpretation. The NeuroEEG™ Hardware Platform
for data collection and NeuroCap™ Software-like Consumables for data collection is expected to enjoy healthy margins and
a business-to-business (B2B) direct market opportunity with hospitals, neurologist, general practitioners as well as the various
tele health and tele neurology companies.
This
brain monitoring system is designed for use in physicians’ offices, sports fields, wellness centers and anywhere else that
benefits from rapid EEG testing.
Recent
Events
COVID-19 Pandemic
With the outbreak of the
COVID-19 pandemic, we are promoting the use of sanitary medical practice with the NeuroCap, which we believe promotes the use
of good, sanitary medical practice and can help flatten the COVID-19 curve.
A
recent report from three COVID-19-designated hospitals in Wuhan, China indicated that more than one-third of coronavirus patients
had some type of neurologic symptom, including altered consciousness, evidence of skeletal muscle damage, and acute cerebrovascular
disease. Early data implies that COVID-19, like prior coronavirus breakouts MERS and SARS, is demonstrating a neurologic component
in severe cases.
As hospitals and other
first responders to the pandemic around the world increase their purchases of supplies to fight the virus, and the U.S. government
has passed a $2 trillion aid package to prop up the country’s economy and assist in fighting the virus, we are working to
position our NeuroCap as a safe and effective diagnostic tool to help against the COVID-19 virus.
Information
in this Annual Report is based on available information from prior to the pandemic. We have not yet been able to evaluate how
the pandemic has or may continue to affect our business and operations, including the potential markets for our Products.
History
We
were initially organized on November 18, 2013 as a Nevada limited liability company under the name Global Energy Express LLC by
the filing of articles of organization with the Secretary of State of the State of Nevada. On December 18, 2015, the Company converted
from a Nevada limited liability company under the name Global Energy Express LLC to a Nevada corporation under the name All Soft
Gels Inc. by the filing of articles of conversion and articles of incorporation with the Secretary of State of the State of Nevada.
On September 18, 2018, the Company changed its name from All Soft Gels Inc. to Brain Scientific Inc. and changed its ticker symbol
on the OTC Pink market to “BRSF”.
On
September 21, 2018, we entered into a merger agreement (the “Merger Agreement”) with MemoryMD, Inc. and AFGG Acquisition
Corp. to acquire MemoryMD, Inc. (the “Acquisition”). The transactions contemplated by the Merger Agreement were consummated
on September 21, 2018 and, pursuant to the terms of the Merger Agreement, all outstanding shares of MemoryMD were exchanged for
shares of our common stock. Accordingly, we acquired 100% of Memory MD, Inc. in exchange for the issuance of shares of our common
stock and MemoryMD, Inc. became our wholly-owned subsidiary. Furthermore, the Company at such time ceased all operations and assigned
all of its assets and liabilities from prior to the Acquisition, and assumed and commenced the business of MemoryMD as the sole
business of the Company.
Our
principal executive office is located at 205 East 42nd Street, 14th Floor, New York, New York 10017, and our telephone number
is (646) 388-3788. Our website address is www.brainscientific.com. The information on our website is not part of this Annual Report
on Form 10-K.
Introduction
to Data Acquisition using Electroencephalography (EEG)
Electroencephalography,
or EEG, is a method to identify and evaluate the electrical activity of the brain. The ability to do this dates back to the mid-to-late
19th century when scientists began to study the brain activity of various animals such as rabbits, dogs, and monkeys. The 1920’s
saw the first example of these involving humans, when in 1924 German physiologist and psychiatrist Hans Berger recorded the first
human EEG.
One
of the first discoveries was the EEG’s ability to identify the potential for epileptic seizures. As science and scientists
began to understand the workings of the EEG, they could identify more beneficial applications of the technology working in combination
with other tests. These include:
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Testing
brain activity after a stroke
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Dementia,
including Alzheimer’s Disease
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Traumatic
Head Injury (sports and non-sports related)
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Sleep
Disorders (e.g. Insomnia, Restless Leg Syndrome, Narcolepsy)
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The
EEG may also be used to determine the electrical activity of the brain of an individual involved in a trauma, addiction, as well
as the brain activity of comatose individuals.
It
is here in the advancement of technology where we believe our products and technology will play a key role in the use and development
of EEG related activities.
Product
and Services Pipeline
Our
data acquisition platform is composed of three main parts:
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Hardware
- NeuroEEG™ and NeuroCap™, our two products on the market.
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Software
- interpreted by remote technicians for rapid response time.
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NeuroNet
Cloud - The database where brain data can be stored and analyzed.
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NeuroEEG
NeuroEEG™
is an FDA cleared 16 channel, portable, cloud-enabled data acquisition platform for electroencephalogram (EEG) activity.
This wireless system digitizes and records electrophysiological activity at 500Hz, and is further supported by advanced artifact
filtering allowing for the cleanest signal possible. The intuitive nature of the device democratizes EEG as a viable diagnostic
tool that can be implemented across environments that were formerly inaccessible by traditional EEG solutions. NeuroEEG™
is designed for use in mobile (ambulatory care & emergency medical service vehicles), field applications (clinical trials),
as well as hospital and athletic environments.
NeuroEEG™ is
non-invasive and is intended to acquire, display and store the electrical activity of a patient’s brain on a computer (PC
or laptop). The generated data serves as a clinical assessment aid within a clinical practice, rehabilitation institution, diagnostic
center, neurosurgical clinics, operating room, intensive care unit, and emergency room environments. Data acquired by NeuroEEG™
is to be performed under the direction and interpretation of a licensed medical professional. This device does not provide any
diagnostic conclusion about a subject's condition. The NeuroEEG is designed to be used with our NeuroCap and other brands and
models of caps.
The Company commenced
delivery of its first purchase order of this product in the fourth quarter of 2018, although it has not had any further material
orders to date.
NeuroCap
The NeuroCap™
is an FDA cleared disposable, soft layered cap with an integrated electrode circuit that is designed to address existing problems
of conventional EEG systems. The silver embedded wiring is pre-gelled, so it requires no prepping of the skin before application.
NeuroCap™ makes it possible for medical staff of all levels to perform EEG tests, without having to laboriously apply electrodes
one-by-one or spend considerable time cleaning an EEG headset after each use.
The
NeuroCap™ works in parallel with the NeuroEEG™ amplifier device to successfully carry out EEG tests. However, the
NeuroCap™ can work also with other EEG devices and not just our NeuroEEG. NeuroCap’s electrode placement follow standard
alignment pursuant to the international 10-20 system. The acquisition of electrical brain activity is carried out by non-invasive
pre-gelled passive Ag/AgCl scalp (cutaneous) electrodes, ensuring maximum comfortability for the wearer.
We
received our first purchaser order for the NeuroCap from a distributor of medical supplies for testing purposes and commenced
shipping product in the fourth quarter of 2018 to several hospitals and other customers, although we have not had any further
material orders to date.
NeuroNet
Cloud
Our
NeuroNet Cloud infrastructure is being designed to provide for a robust platform to store and manage all forms of data that may
be received from internal and external entities such as EHRs/EMRs, IOT devices and 3rd party apps, clinical applications and other
forms of patient data. The NeuroNet Cloud is also being designed to provide for streamlined connectivity, allowing secure access
to patient data for purposes of evaluation and reporting by outside clinical specialists, such as a neurologists.
The
Company is also developing a HIPAA-compliant data storage and patient management cloud infrastructure to provide teleneurology
services. The infrastructure is being designed so neurologists will be able to remotely access patient EEG and clinical data to
evaluate patient conditions. We believe that such an infrastructure removes the need for direct contact with the patient, opening
up underserved geographic locations with an undersupply of physicians to meet growing demand for neurological care as aging patient
populations continues to grow.
Data
is acquired via the 16 channel NeuroCap™ and would be wirelessly transmitted to the cloud, via the NeuroEEG™, as batch
data (fully transferred before being consumed) or in real-time (data is consumed as it is being produced).
Data
can then be consumed by a doctor or specialist who can recover the data, replay, and provide feedback, such as a report, on the
selected patient data. This infrastructure is configurable to match unique workflows of healthcare operators.
As
designed, the MemoryMD™ cloud would then be able to cross-reference multiple points-of-data:
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Electronic
Health Records
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We
expect to have a fully working model of the NeuroNet Cloud by the end of 2020, subject to the availability of funds.
Artificial
Intelligence Infrastructure
Our
infrastructure is also being designed to gather and mine brain-imaging data. Clinicians and researchers would be able to access
data profiles of their patients and generate risk assessment and treatment plans to address neurological conditions. This data
could also be useful in establishing correlations between a myriad of brain scans, allowing us to further understand connections
about the brain that have not been discovered.
Artificial
intelligence infrastructure in the Company cloud refers to all modules used to perform automatic analysis of patient data. This
infrastructure can receive inputs from many different sources such as medical databases, normative data sets, and other patient
health information. By using machine-learning algorithms, the system is being designed to improve accuracy, providing for more
advanced diagnostics as additional brain images are acquired.
The
infrastructure is being designed to combine neural networks with a state-of-the-art tree search and pattern classification systems
to build robust neurological health profiles of patient brain scans. These models are expected to be self-learning, so the more
data supplied to it, to more “educated” it is expected to be.
We
believe we will achieve better patient outcomes at a reduced cost through robust modelling and correlational analysis of brain
imaging and other biometric data. Significant patterns recognized by the system are designed to help medical professionals detect
nuances in an individual brain, allowing them to tailor more personalized treatment plans for their patients. The MemoryMD™
cloud is being designed to handle millions of brain images to create robust models that correlate health records, behaviors, and
other neurological factors.
Intellectual
Property
Protection of our intellectual
property is a strategic priority for our business. We rely on a combination of patents, trademarks, copyrights, trade secrets as
well as nondisclosure and assignment of invention agreements, confidentiality agreements and other measures to protect our intellectual
property and other proprietary rights.’'
Patents and trademarks
are significant to our business to the extent that a Product or an attribute of a Product represents a unique design or process.
Patent protection restricts competitors from duplicating unique designs and features. To protect our proprietary secrets and competitive
technologies, we have obtained and are seeking to further obtain patent, trade secret, trademark and other intellectual property
protection on our Products whenever appropriate. As of the date of this Annual Report on Form 10-K, the Company has applied for
one U.S. nonprovisional patent titled “Apparatus And Method For Conducting Electroencephalography” (Application No.:
15/898,611), one Chinese patent titled “Apparatus and Method for Conducting Electroencephalography” (Application No.:
201880002338.7), and one European patent titled “Apparatus And Method For Conducting Electroencephalography” (Application
No.: 18757492.6), all of which relate to our NeuroCap, are pending and would expire in 2037.
We also own two registered
trademarks (Neuro EEG and NeuroCap) and have pending applications for two additional trademark registrations (Brain Scientific
and Memory MD).
In May 2018, we entered
into a Patent Assignment and License Back Agreement with Boris Goldstein, our Chairman, Secretary and Executive Vice President,
Dmitriy Prilutskiy, Stanislav Zabodaev and Medical Computer Systems Ltd. Pursuant to the agreement, among other things, Messrs.
Goldstein, Prilutskiy and Zabodaev assigned all of their rights to a patent entitled “Apparatus And Method For Conducting
Electroencephalography” (Application No.: 15/898,611), to our Company, and in return, we granted to Medical Computer Systems
Ltd., an unaffiliated entity who also provides manufacturing services to us, a limited, royalty-free, fully paid-up, worldwide,
nonexclusive license (without the right to sublicense or assign), to the patent, to practice, make and use the inventions, ideas
and information embodied therein, and to make, use, offer to sell, sell, lease or import products, services, processes, methods
and materials embodying or deriving from the inventions, ideas and information from the patent and any activities derived directly
therefrom; provided, however, that if and upon FDA approval of a Product, Medical Computer Systems’ aforementioned rights
shall be limited to manufacturing and sales solely to our Company or on our behalf provided that we purchase from Medical Computer
Systems (and Medical Computer Systems makes available for sale) a minimum of 20,000 units of Products per calendar year on reasonable
terms and conditions to be determined by the parties in good faith; provided further, however, that Medical Computer Systems can
without any limitation sell products embodying or deriving from the inventions, ideas and information from the patent in (i) the
territories that made up the former USSR (excluding the Baltic countries) and (ii) Japan. In furtherance of the foregoing first
proviso, in the event we fail to purchase the annual minimum order for a particular calendar year, Medical Computer Systems’
limitation to manufacture and sell Products only to our Company pursuant to this proviso shall be suspended for the next calendar
year.
Industry
Overview
The
Company competes within the domestic and global medical device industry, referred to as the “MedTech” industry, which
industry, on a global scale, is expected to reach an estimated $432.6 billion by 2025, and it is forecast to grow at a CAGR of
4.1% from 2020 to 2025.
The
MedTech industry is characterized by rapid change resulting from technological advances and scientific discoveries. We believe
that U.S. medical device companies are highly regarded on a global scale for their innovations and high-technology products, which
innovations and products are produced due to a significant investment in research and development. U.S. sales are expected to
grow from about $164 billion in 2018 to $208 billion in 2023, according to Fitch.
The
global brain monitoring market is expected to reach $11.6 billion by 2024 from $8.7 billion in 2019, at a CAGR of 6.1% during
the forecast period. We believe the increasing incidence and prevalence of neurological disorders, rising awareness about neurodegenerative
disorders, growing incidence of traumatic brain injuries, and the increasing applications of brain monitoring in clinical trials
are driving the growth of this market. In addition, of this global market, the traumatic brain injury diagnostic market size was
estimated at approximately $38 million and it is expected to reach approximately $166 million by the end of 2025, with a CAGR
of 23.6%.
Traumatic
brain injury holds the largest share of the brain monitoring market, by disease type. Some of the major factors responsible for
the large share of this market include the growing incidence of TBIs across the globe, leading to the high demand for the management
of these cases—which we believe requires the intensive use of brain monitoring devices.
We
believe the hospitals segment has accounted for the largest share of the brain monitoring market in 2019. Brain monitoring is
a complex process, requiring expensive and advanced devices and equipment that are mainly found only in hospitals. Hospitals also
see a considerably larger inflow of patients as compared to small clinics and other end users. Additionally, brain monitoring
devices pose a considerable burden in terms of maintenance expenses on healthcare facilities; we believe that in general hospitals,
more than other end users, are able to bear such costs. Hence, brain monitoring devices are mostly used in hospitals, which consequently
account for the largest market share.
U.S.
Healthcare Market
The
National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States. U.S.
health care spending grew 4.6 percent in 2018, reaching $3.6 trillion or $11,172 per person. As a share of the nation's Gross
Domestic Product, health spending accounted for 17.7%.
Digital
health innovations are driving growth and opportunity in three major verticals of healthcare:
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Remote
Patient Monitoring. Devices and applications that allow care providers to keep tabs on
chronically ill, recently released, and overall “high-risk” patients (also
referred to as remote patient management, or RPM). Wearable patches that diagnose heart
conditions, sensors that monitor asthma medication intake, and glucose monitors that
send diabetics’ data straight to their smartphones are just a few examples.
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Telehealth. Doctor access and advice, from outside the confines
of an office visit. It could be mental health counselling from across the country, diagnosis and prescription writing in pediatrics
without taking a sick child to the office, alternatives to primary care physician visits, and other, similar events.
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Behavior
Modification. Platforms that help patients change their habits and adopt healthier lifestyles,
with the primary aim of preventing illness and a clinically validated methodology of
doing so. That includes smoking cessation tools and diabetes prevention through digital
weight loss and coaching, among other technologies.
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Athletic
Performance Market
Athletic performance encompasses
the treatment and prevention of injuries related to athletics and exercise.
The
growth of this market can be attributed to increased participation in athletic activities, thus leading to an increased risk of
injuries. Also, government support for participation in athletics to combat high obesity rates is expected to boost participation
in athletics.
Our
business plan includes positioning our products and services as a go-to choice in diagnostic tools for brain-related sports injuries.
The EEG with cortical brain maps is highly capable of identifying post-concussion syndrome. Concussions and traumatic brain injuries
caused by contact sports are a growing widespread issue among athletes. The Center for Disease Control and Prevention has reported
that 1.6 million to 3.8 million concussions occur each year.
If
left undetected, concussions can lead to long-term brain damage and may even be fatal. Without professional doctors to survey
the true damage of the head impact, athletes often ignore head impacts and later suffer from the consequences. Since an estimated
90% of diagnosed concussions do not include a loss of consciousness, many head impact injuries are dismissed. To prevent these
outcomes, it is critical that coaches and players are aware of the dangers of contact sports and are able to conduct a proper
concussion evaluation. The growing number of sports related brain injuries suggests that there is an unmet demand for a quick
assessment and delivery of brain damage, which we believe our products and services can provide.
Government Initiatives – Pre COVID
19 Pandemic
Although
the Covid-19 pandemic has abruptly changed the world, which we hope is temporary, prior to the outbreak, there was a surge of
regional tensions and national security threats and many countries, including the United States, were increasing defense budgets.
Also, prior to the pandemic, we expected that stable growth in global GDP, lower commodity prices, and an increase in travel demand
could lead to more defense spending as well as investing in next generation military equipment and technology to combat terrorism
and cyber-threats. While many of those expectations and paradigms have now changed, we expect that they will return as the pandemic
is contained and the world economy rebounds.
The
Defense Advanced Research Project Agency supports the Brain Initiative, which is a program designed to revolutionize the understanding
of the human brain to find new ways to treat, cure, and prevent brain disorders. We believe our product and service offerings
can be an asset in providing millions of brain scans that allow for research and analysis. In addition to the Brain Initiative
and other Government sponsored research and grants, our scalable, easy to use EEG can serve the military and can be deployed in
the field for either proactive brain monitoring or reactive emergency response.
Education
Enhancement
Global
education and training expenditures are estimated to reach approximately $10 trillion by 2030 as population growth and technology
in developing markets is expected to fuel a massive expansion in education, and training.
The
growth in the market is due to an increase in the attendance of students, the promotion of online learning, a rise in tuition
costs, an escalation of graduation rates, and an expansion of scientific research. Parents are willing to spend on education for
their children and government initiated awareness programs promote the importance of education. The US is one of the most efficient,
and therefore desired, destinations for educational purposes. In the United States, higher growth opportunity and better career
prospects reinforce the need for education and research.
Since
analysis of EEGs are useful in recognizing cognitive differences, the brain scans of the up-to 50 million potential customers
in this space can be a stepping stone for further research. Furthermore, the cognitive measurements of EEGs are useful in assessing
the effectiveness of an educational program. Conclusions drawn from the analysis can then be further applied in the classroom
in the future. The goal of selling to the education market is to have the opportunity to measure baseline EEGs of students. The
baseline EEGs can serve in multiple studies, including those that evaluate the best methods of teaching and learning in the classroom.
Some additional uses of EEGs within the education market include research and analysis into the brain images of students with
learning disabilities.
Clinical
Trials
The
global healthcare contract research organization market size is expected to reach approximately $62.1 billion by 2027,
registering a CAGR of 6.6% over the same period, primarily resulting from the increasing cost of drug development. Rising cost
of clinical trials and challenges pertaining to patient recruitment have led biopharmaceutical companies to turn to regions like
Central and Eastern Europe, Asia Pacific, Latin America, and Middle East for cost savings and quick patient recruitment.
Clinical
trials assess the safety and efficacy of a new drug, therapy, surgical procedure, medical device, or other intervention and are
essential tools in conducting research. When used in clinical trials, we expect our products and services will give a fast and
accurate analysis that may speed the clinical trial process. Moreover, clinical imaging is the technique and process of capturing
images of the human body for clinical purposes to reveal, diagnose or examine diseases. Our EEG is a clinical imaging tool that
can acquire millions of clinical images stored on a cloud infrastructure. A vast number of clinical images can assist in revealing,
diagnosing, and examining neurological conditions.
The
Global Telemedicine Market/Industry
In
addition to the MedTech industry, we are also seeking to participate within the rapidly expanding global telemedicine industry/market.
This industry focuses on the delivery of healthcare services, consultations and advice to patients wherever they are through the
means of technology, software mediated video and data portals. We believe that there is and will continue to be significant demand
for such services given the need to match physicians with patients in remote areas or without having patients travel long distances
to access the care they need. We also believe that there is a major need within this industry to also provide point of care diagnostic,
which we are seeking to develop as a niche, especially within neurology.
The
global telemedicine market was estimated at approximately $31.5 billion in 2018 and is expected to grow at a CAGR of 19.28% by
2025.
Factor
such as, rising emergency medical incidents and ageing world population are anticipated to drive such growth. North America is
anticipated to account for a significant portion of market share, and the U.S. is expected to be the largest telemedicine market
in North America over this period. The Europe telemedicine market is also expected to grow substantially, due to factors such
as rising cost of healthcare and rising prevalence of chronic diseases, while Asia-Pacific is projected to record the fastest
growth over such period.
Market
Dynamics
Driver:
Growing incidence of traumatic brain injuries
A
traumatic brain injury (“TBI”) is non-degenerative, non-congenital damage to the brain from an external mechanical
force, possibly leading to permanent or temporary impairment. TBI is a major public health concern, and the most common cause
of death and disability in developed as well as developing countries.
According
to the CDC, TBI is a leading cause of morbidity and mortality, responsible for approximately 2.8 million accidents and emergency
department visits annually in the U.S. and approximately 1 million in the UK. It is one of the most common causes of mortality
in people aged under 25, and its incidence is high in adults and very young children, as well. However, the rate of TBI-related
hospitalizations and deaths is the highest in the elderly. According to Headway, in 2016–2017, there were 348,453 hospital
admissions related to brain injuries in the UK.
TBI,
if ignored, can lead to permanent disabilities or death. Close monitoring and immediate therapy for related abnormalities are
crucial to reducing the rate of mortality or morbidity associated with TBIs. As intercranial pressure monitoring (ICP) is the
most common cause of death in patients with severe TBI, ICP monitoring is considered as the standard of care. The growing incidence
of TBIs is, therefore, likely to support market growth.
Opportunity:
Increasing Expanding therapeutic applications of brain monitoring devices
Apart
from applications in neurological disorders, neurodegenerative diseases, and psychiatric disorders, brain monitoring devices are
also used in other therapeutic areas like insomnia, post-traumatic stress disorder (PTSD), and sleep apnea. Quantitative EEG analysis
is widely used to investigate the neurophysiological characteristics of insomnia. EEG biofeedback is a training process that has
been scientifically proven to aid in the management of PTSD.
A
number of research studies have demonstrated the effectiveness of neurofeedback for PTSD in adults. For instance, a research study
published by the NCBI in 2016 demonstrated that 24 sessions of neurofeedback significantly reduced PTSD symptoms in adult sample
populations. Similar studies are also being conducted in children. Such positive research outcomes suggest that neurofeedback
is a promising approach in the treatment of PTSD. This is especially important because existing treatments can be quite difficult
to tolerate and have limited effectiveness for many individuals with PTSD. In addition, EEG is routinely used to measure and record
brain wave activity for the diagnosis and treatment of sleep apnea. These extended applications of brain monitoring devices are
expected to provide growth opportunities for players operating in this market.
Challenge:
Shortage of trained professionals
Trained
medical personnel are required to effectively operate devices involved in the complex process of brain monitoring. The positioning
of electrodes on the scalp and the insertion of muscular needles require accuracy and can be performed only by highly trained
personnel. In addition, the results generated by brain monitoring machines are complex and can only be interpreted by qualified
technicians or skilled professionals. Without these fundamental skills, end users will face difficulties in maximizing the utility
of their brain monitoring equipment. The presence of highly skilled medical personnel and staff is, therefore, vital for the effective
use of brain monitoring equipment.
Currently,
there is a shortage of skilled medical personnel in both developed and developing countries. It has been estimated that the United
States will see a shortage of up to nearly 122,000 physicians by 2032 as demand for physicians continues to grow faster than supply,
Furthermore, according to the American Association of Colleges of Nursing, there is a projected shortage of registered nurses
in the US, and it is expected to intensify by 2030. Moreover, the shortage of trained and experienced neurodiagnostic technologists
globally has compelled hospitals to cross-train other allied health professionals to perform neurodiagnostic examinations. This
presents a key challenge for the growth of the global brain monitoring devices market.
We
believe the market remains fragmented as many medical practices rely on dated technology and complicated brain monitoring solutions.
We also believe that the overpricing and technological barriers currently existing in the market make our innovative EEG platform
truly disruptive by being both user friendly and cost effective.
Competition
Our
Products face a mixture of competitors ranging from large manufacturers with multiple business lines to small manufacturers offering
a limited selection of products and services. Many of the competitors whom we directly compete with include companies who develop
or intend to develop medical EEG products with FDA clearance to support clinical diagnosis of brain disorders. Our indirect competitors
offer similar products and services, but target audiences in the clinical research and consumer solutions markets, as opposed
to the medical solution market the Company targets. These indirect competitors are largely focused on the development of EEG products
for research, consumer, and athletic application.
Major
shifts in industry market share have occurred in connection with product problems, physician advisories, safety alerts, and publications
about MedTech products, reflecting the importance of product quality, product efficacy, and quality systems in the medical device
industry. In addition, in the current environment of managed care, economically motivated customers, consolidation among health
care providers, increased competition, and declining reimbursement rates, the Company anticipates an increasing need to compete
on the basis of price and quality. In order to continue to compete effectively, we must continue to create or acquire advanced
technology, incorporate this technology into our current and future proprietary Products, obtain regulatory approvals in a timely
manner, maintain high-quality manufacturing processes, and successfully market these Products. Some of these initiatives include,
but are not limited to, creating integrated cloud solutions that connect specialists with generalists for simple data transfer
and analysis, streamlining clinical diagnoses with new medical devices, and opening up revenue streams from secondary healthcare
markets, such as primary care medical professionals who utilize EEG analyses in their practices.
The
medical device companies who we deem as competitors include the following, along with a description of their business based on
publicly available information:
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Advanced
Brain Monitoring - A California- based private company specializing in developing neurological
medical devices. The company specializes in two specific areas: neurotechnology and sleep
medicine. Advanced Brain Monitoring primarily is a medical device and software company
that sells its products to clinical trials and pharmaceutical companies, ignoring several
profitable and addressable markets.
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Elmiko
Medical - A Warsaw-based private company specializing in designing and developing medical
electronics and IT solutions. Elmiko primarily sells their products and services to scientific
institutes, medical universities, hospitals, and private clinics across the world.
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Contec
- A China-based private medical device company focusing on research, manufacturing, and
distribution of medical instrument since 1996. Contec currently has over 20 products
in its portfolio focusing on the medical-technology industry ranging from stethoscopes
to EEGs.
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EGI
(Electrical Geodesics, Inc) - An Oregon-based medical-device company founded in 1992,
EGI specializes in making dense array EEG (dEEG) for research laboratories.
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Masimo
Corporation - A California-based public (NASDAQ: MASI) medical technology company that
develops and manufactures innovative noninvasive patient monitoring technologies, including
medical devices and a wide array of sensors. Masimo has a wide array of products, ranging
from pulse oximetry to EEGs. The company serves mainly the sleep study, clinical trial,
and athletic performance markets.
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NeuroSky,
Inc - A health and wellness tracking and analysis company that are advancing health solutions
through consumer wearables and mobile devices, including biosensor technologies.
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Oculogica,
Inc – A private company looking to better learn and treat concussions, having developed
an eye tracking technology that works to detect concussions, the severity of the concussion,
and the treatment for the concussion.
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Picofemto
LLC - A healthcare company focusing on assisting clinicians and research professionals
with a web platform that analyzes raw primary medical data at the point of evaluation.
They have developed a cloud-based service called Cliniscan, which allows the clinician
and researcher to work in the cloud with a wide range of biomedical modalities.
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Satoris,
Inc - A molecular diagnostics company, engages in the development and commercialization
of neurodiagnostic tests for Alzheimer's disease. Satoris plans to have their product
manage and treat neurodegenerative diseases through diagnostic tests. These tests are
developed through data of molecular biology and bioinformatics.
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CAS
Medical Systems, Inc - A developer of innovative, non-invasive vital signs monitoring
technologies and products that deliver patient data.
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Emotiv
Systems, Inc. - A bioinformatics company advancing understanding of the human brain using
EEG. Their technology aims to track cognitive performance, monitor emotions, and control
both virtual and physical objects via machine learning of trained mental commands.
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Atlas
Wearables, Inc. - A data analytics company and the developer of a fitness monitor designed
to improve indoor and outdoor training. Their goal is to use the combination of data
acquired from the lab along with each unique set of data from the customer, to provide
clear and current knowledge based on data results.
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BaziFIT
- A modular sensor system that works to monitor the neuromuscular efficiency, strength,
stability, and calories burned during the customer’s workout. Their physical technology
is an attachment that goes on various workout equipment that helps the customer get exercise
content and quantifiable feedback on every workout instantly. Their app uses the data
collected by their attachment to assess the customer’s progress and health and
suggests various workouts for the customer to do to optimize the progress of their health.
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MAD
Apparel Inc. - The developer of the product Athos, a performance apparel that monitors
biosignals and distills them into meaningful information to improve the level of exercise
the customer is performing. The technology receives data in real time and shows the customer
their stats so they can alter or continue the workout.
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Mechio
Inc. - A developer of wearable fitness technology to monitor the health, fitness, and
sleep of the customer.
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Sarvint
Technologies, Inc. - An Atlanta-based wearables technology company born from smart-garment
technology research at Georgia Tech. The research led to the development of their Smart
Shirt, a garment that uses special fibers to detect and monitor body vital signs. It
then sends these signals to a program that can be downloaded onto smart phones to easily
monitor the information collected.
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Sensifree
Inc. – A company developing technology to solve the shortcomings of optical sensors.
Their RF based sensor technology monitors heart rate from different parts of the human
body.
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Sensoria
Inc. - A developer of wearable fitness technology that collects fitness data and connects
with a real time virtual coach that gives performance and running form feedback.
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CorTechs
Labs- A developer of medical device software solutions capable of automatically segmenting
and quantifying brain structures, making quantitative analysis of MRI images of the human
brain a routine part of clinical practice.
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Other
EEG makers that we may compete against include Ceribell, Biosignal Group and Zeto. The major U.S. medical device companies who
we deem as competitors include Baxter, Beckman Coulter, Becton Dickinson, Boston Scientific, GE Healthcare Technologies, Johnson
& Johnson, St. Jude, Stryker Corporation, and Medtronic. 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.
We
intend to compete based on our belief in the superiority of our products and services in functionality, cost-effectiveness, efficiency,
ease of use and accuracy.
Because
our business plan contemplates servicing the neurotech industry across multiple platforms including hardware, software, service
and cloud computing, and our existing and proposed product and service platforms are in a growing industry, we believe we are
in a position to take a leadership position within the sector due to our:
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Strong
Portfolio of Intellectual Property. Our diverse intellectual property portfolio includes
a series of patents and FDA approvals, ranging from hardware to firmware applications.
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Diverse
Commercial Application Opportunities. From smart wearable devices that monitor cognitive
and behavioral health in real-time, to enhanced Brain Computer Interface (“BCI”)
capabilities within the connected home and car environments, our EEG technologies span
a range of novel applications and commercial uses, including:
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Global
Brain Monitoring Market
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Scalable
Integration. We believe that we offer the highest level of integration and flexibility
while providing an optimal combination of convenience and performance. This is achieved
through the modular design and build of our products, allowing seamless integration of
hardware and software components into existing platforms. We are also engaged with strategic
partners to augment the next generation of health wearables and technologies, forging
relationships with companies and individuals seeking to implement EEG solutions across
a multitude of segments.
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Experienced
Leadership Team. The MemoryMD™ team has over 30 years of combined experience in
sectors spanning across artificial intelligence, data mining, software development, commercialization,
EEG imaging, and biotechnology. With a firm background in medical grade EEG applications,
our team has a qualified perspective on electrode quality and brain wave interpretation.
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Centralized
Cloud Data Collection. Neuro-net algorithms and other mathematical models based on EEG
interpretation mine for unique brain patterns on a global scale. These patterns are continuously
trained and visualized to provide reliable health data and insights that consumers, developers,
and companies can leverage across the entire MemoryMD™ platform.
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Market
Application
For
neurologists and other health providers, we aim to provide a solution for monitoring patient health and safety across a variety
of locations including the hospital, specialized clinics, and home settings. In managing patients with epilepsy, providers can
improve in areas concerning patient re-admittance, patient mortality and morbidity. Providers can also proactivity prevent the
onset of negative chronic health conditions by engaging with at-risk populations at a fraction of the cost by implementing our
affordable EEG solutions.
For
health providers, our offering of an EEG monitoring solution could ease data collection efforts. By providing an accurate and
consistent stream of EEG data, our products and services are being designed to allow physicians and other health professionals
to make use of newly available bio-metric data to improve diagnosis, treatment and management of various neurological illnesses,
effectively increasing the quality and value add of medical services.
Our
portability and integration potential augment the existing suite of remote monitoring solutions, allowing physicians to more accurately
differentiate between nuanced neurological conditions happening within and outside the hospital setting. An example includes helping
neurologist’s contrast nocturnal epilepsy patterns across other sleep disorders such as parasomnias where individuals engage
in abnormal movements during sleep.
Furthermore,
we believe a range of medical based applications can be created in conjunction with our EEG solutions around managing patient
behavior, offering incentives and parameters for individuals. By understanding what is going on with their brain and being alerted
when discrepancies occur, we believe that physicians will be able to better communicate health information, improving the effectiveness
and relationship between physicians and patients in improving health outcomes, and individuals with the support of their physicians
will be able to better regulate targeted mental states or emotions reducing the sole reliance on on-site visits to hospitals for
mental health treatment plans.
Sales
and Marketing
We
have commenced the commercial roll-out of the NeuroEEG™ and NeuroCap™, on a limited basis, initially targeting the
United States market following with Canada market. We expect the following developmental milestones to be completed within the
next 24 months, subject to cash availability:
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Scale
production in US, Europe and Russia
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Release
new products to the market:
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12
channel EEG cap for adults and pediatric use
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Long
Term Monitoring caps
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Long
Term Monitoring 24 channel EEG
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Data
storage for normalized data brain scans
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AI
neuro net development focused on epilepsy to start, with following up on pre-Alzheimer
and BCI prediction
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Minimally
invasive graphene electrodes connected to the micro EEG
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Expend
AI prediction toward concussion, pain and autism applications
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File
international applications in Latin America, Europe and beyond.
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We
are identifying additional long-term partners to accelerate market penetration, product diversification, and ultimate survivability
across targeted verticals. Through new implementations of our EEG products and services, we expect to retain and capture additional
market share through continuous enhancements.
We
plans to utilize partner relationships and co-marketing opportunities as the initial driver of our marketing efforts, thereby
benefiting from increased speed-to-market, as well as the ability to leverage a pre-existing audience/customer base and communications
channels. We expect to offer to early adopters our products and services at preferential rates in exchange for expediting development,
distribution, and sales of such products and services.
Our marketing and
sales strategy is focused on rapid, cost-effective delivery of high-quality products into the U.S. and international healthcare
market. The sales strategy is based on penetrating the neurology and diagnostic imaging subsectors of the MedTech industry market
via planned medical device distributor arrangements or partnering on distribution of NeuroCaps through existing EEG manufacturers,
and expanding into nursing homes and primary care practices. Included amongst the customers to whom we intend to market and sell
our Products through distributors and partners (B2B), are individual physicians, medical practices, urgent care facilities, physician
associations, and other medical professionals and medical professional groups, hospitals, health clinics, nursing homes, physical
rehabilitation centers, addiction rehabilitation centers and other medical institutions, athletic organizations, and colleges,
universities, and other academic institutions.
We
intend for our products’ initial entry into the market would be at emergency departments, ICU’s and other acute care
settings in the United States.
We
will also be looking at forming partnerships with national and global telemedicine and teleneurology companies in order to leverage
their relationships, to access our target end-users. This would allow our initial entry into the rapidly growing global telemedicine
and teleneurology markets.
As we grow, we intend
to expand to global distributors, Group Purchasing Organizations (GPOs) of medical supplies, and Independent Physician Associations
(IPAs) to scale business operations. At this time, we do not provide financing for potential customers, but we are evaluating implementing
a leasing program.
We
do not at this time have plans to have direct sales or hire a direct sales force.
In 2019, we commenced acting as a distributor of third-party medical devices (including
those purchased from a company affiliated with one of our officers and directors) in Russia, which we expect to continue while
we commercialize our Products and seek to generate material revenue from those sources. While we intend to continue the sale of
third party medical devices, we do not intend for it to be our primary source of revenue in the long-term and expect to curtail
or cease this line of operations as, if and when we commence generating material, recurring revenues from our Products.
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, or 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.
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 Oct. 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.
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, unless government and other third-party payors provide adequate coverage
and reimbursement for our Products and the related insertion and removal procedures, our financial performance may be limited.
Coverage
Outside the United States
If
we seek to commercialize our Products in countries outside the United States, coverage may be available from certain governmental
authorities, private health insurance plans, and labor unions. Coverage systems in international markets vary significantly by
country and, within some countries, by region. If we seek to commercialize our technology, if approved, outside the U.S., coverage
approvals must be obtained on a country-by-country, region-by-region or, in some instances, a case-by case basis. Based on our
ongoing evaluation, certain countries reimburse more highly than others.
Manufacturing,
Supply and Quality Assurance
We
currently outsource the supply and manufacture of all components of our NeuroEEG and NeuroCap. We plan to continue with an outsourced
manufacturing arrangement for the foreseeable future. We expect that our third-party manufacturers will be competent to manufacture
our Products and have quality systems established that meet FDA requirements. We believe the manufacturers we currently utilize
or that we may utilize in the future have sufficient capacity to meet our launch requirements if our technology under development
is approved in the future and are able to scale up their capacity relatively quickly with minimal capital investment. 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 ISO 13485:2003 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 plan to audit our suppliers periodically to ensure conformity with the specifications, policies and procedures for
our devices.
With
respect to graphene electrodes, our goal is to start working with specific 3D printers and print prototypes of the next generation
electrodes. Upon successful testing, of which we can give no assurance of success, we plan to submit the graphene electrode for
biocompatibility testing in 2020/2021 with a follow up application to the FDA in 2021 and projected approval in 2022 with commercial
implementation to follow.
Research
and Development
Our
research and development programs are generally pursued by engineers and scientists employed by us on a full-time basis or hired
as per diem consultants or through partnerships with industry leaders in manufacturing and design and researchers and academia.
We are also working with subcontractors in developing specific components of our technologies.
The
primary objective of our research and development program is to advance the development of our existing and proposed Products,
to enhance the commercial value of such Products.
We
have incurred research and development costs of $103,616 for the year ended December 31, 2019 and $210,206 for the year ended
December 31, 2018.We have commenced evaluating the use of graphene for brain electrodes, with an affiliate of Boris Goldstein,
our Chairman of the Board. We believe the main benefits of using graphene for electrodes are:
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No
reaction to any chemicals or human organs
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Inexpensive
compared to platinum
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Potential
electronic applications of graphene in EEG include ultra-small transistors, super-dense data storage, touchscreens and a wearable
e-tattoo EEG patch. In the energy field, potential applications include ultra-capacitors to store and transmit electrical power
as well as highly efficient solar cells. We believe graphene-based batteries in EEG will be able to charge faster and last longer,
although we have not commenced any work towards that goal at this time.
We
also have formed a Medical Advisory Board. The current members are Dr. John Gaitanis, MD, Tufts Medical Center; and Dr. John Hixson,
MD, Associate Professor of Neurology, University of California San Francisco. We intend to grant to such members from time to
time equity for the services they provide to us.
Government
Regulation
Our
NeuroEEG and NeuroCap are each a medical device subject to extensive and ongoing regulation by the FDA, the U.S. Centers for Medicare
& Medicaid Services, or CMS, the European Commission, and regulatory bodies in other countries. Regulations cover virtually
every critical aspect of a medical device company’s business operations, including research activities, product development,
quality and risk management, contracting, reimbursement, medical communications, and sales and marketing. In the United States,
the Federal Food, Drug and Cosmetic Act, or FDCA, and the implementing regulations of the FDA govern product design and development,
pre-clinical and clinical testing, premarket clearance or approval, 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 foreign regulations, such as ISO
13485, ISO 14971, FDA’s Quality System Regulation, or QSR, contained in 21 CFR Part 820, and the European Commission’s
Directive 93/42/EEC concerning medical devices and its amendments.
U.S.
Regulation
The
FDA characterizes medical devices into one of three classes. Devices that are considered by the FDA to pose lower risk are classified
as Class I or II. Class I devices and are subject to controls for labeling, pre-market notification and adherence to the FDA’s
QSR. This pertains to manufacturers’ methods and documentation of the design, testing, production, control quality assurance,
labeling, packaging, sterilization, storage and shipping of products, but are usually exempt from premarket notification requirements.
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 guidelines, or particularized labeling, and may also require clinical testing prior to clearance
or approval. 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.
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, and the requirement of compliance with substantially all of the QSR. However, a
pre-market approval, or 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 several years to complete. While the 510(k) process is typically shorter than a PMA process, both
the 510(k) clearance and PMA processes can be expensive and lengthy.
Our NeuroCap device is characterized as a Class I device and
NeuroEEG device is characterized as a Class II device.
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:
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the
device may not be safe, effective, reliable or accurate to the FDA’s satisfaction;
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the
data from pre-clinical studies and clinical trials may be insufficient to support approval;
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the
manufacturing process or facilities may not meet applicable requirements; and
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changes
in FDA approval policies or adoption of new regulations may require additional data.
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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 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 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 clintrials.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:
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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;
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patients,
sponsor or study sites do not comply with trial protocols;
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patient
follow-up is not at the rate expected;
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patients
experience adverse side effects;
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patients
die during a clinical trial, even though their death may not be related to the products
that are part of our trial;
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institutional
review boards and third-party clinical investigators may delay or reject the trial protocol;
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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;
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the
sponsor 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;
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third-party
clinical investigators have significant financial interests related to the sponsor or
the study that the FDA deems to make the study results unreliable, or the company or
investigators fail to disclose such interests;
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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;
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changes
in governmental regulations or administrative actions;
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the
interim or final results of the clinical trial are inconclusive or unfavorable as to
safety or efficacy; and
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the
FDA concludes that our trial design is inadequate to demonstrate safety and efficacy.
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International
Regulation
International
sales of medical devices are subject to local government regulations, which may vary substantially from country to country. The
time required to obtain approval in another country may be longer or shorter than that required for FDA approval, and the requirements
may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada
and various other industrialized countries.
The
primary regulatory body in Europe is that of the European Union, the European Commission, which includes most of the major countries
in Europe. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European
Union with respect to medical devices. The European Union has adopted numerous directives and standards regulating the design,
manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements
of these relevant directives will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential
requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing
conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer
and a third party assessment by a “Notified Body.” This third-party assessment may consist of an audit of the manufacturer’s
quality system and specific testing of the manufacturer’s product. An assessment by a Notified Body of one country within
the European Union is required in order for a manufacturer to commercially distribute the product throughout the European Union.
Additional local requirements may apply on a country-by-country basis. Outside of the European Union, regulatory approval would
need to be sought on a country-by-country basis in order for us to market our Products.
Medical
devices in Europe are classified into four primary categories. They are as follows:
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Invasive
medical devices
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Special
Rules (including contraceptive, disinfectant, and radiological diagnostic medical devices)
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Devices
are further segmented into the classes noted below. In Vitro Diagnostic devices (IVDs) have their own classification scheme and
while active implantable devices do not follow the same classification system as provided by the Medical Device Directive (MDD),
they are subject to similar requirements as Class III devices:
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Class
I – Provided non-sterile or do not have a measuring function (low risk)
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Class
I – Provided sterile and/or have a measuring function (low/medium risk)
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Class
IIa (medium risk)
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Class
IIb (medium/high risk)
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We
have established a wholly-owned subsidiary in Russia and are seeking to establish a wholly-owned subsidiary in Europe (Poland)
for product distribution and certification.
Other
Regulatory Requirements
Even
after a device receives clearance or approval and is placed in commercial distribution, numerous regulatory requirements apply.
These include:
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establishment
registration and device listing;
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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;
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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;
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voluntary
and mandatory device recalls to address problems when a device is defective and could
be a risk to health; and
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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.
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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:
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warning
letters or untitled letters that require corrective action;
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fines
and civil penalties;
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unanticipated
expenditures;
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delays
in approving or refusal to approve future products;
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FDA
refusal to issue certificates to foreign governments needed to export products for sale
in other countries;
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suspension
or withdrawal of FDA clearance or approval;
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product
recall or seizure;
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interruption
of production;
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operating
restrictions;
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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, 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 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.
Health
Insurance Portability and Accountability Act of 1996 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.
Foreign
data privacy regulations, such as the EU Data Protection Directive (Directive 95/46/EC), the country-specific regulations that
implement Directive 95/46/EC, and the EU General Data Protection Regulation (GDPR) also govern the processing of personally identifiable
data, and may be stricter than U.S. laws.
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 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 federal 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 federal 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, or PPACA. Specifically, as noted above, under the Anti-Kickback
Statute, the government must prove the defendant acted “knowingly” to prove a violation occurred. The PPACA 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 PPACA
codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes
a false or fraudulent claim for purposes of the federal civil False Claims Act.
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 federal anti-kickback legislation 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.
Federal
law also includes a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare
or Medicaid patients to an entity providing “designated health services,” including a company that furnishes durable
medical equipment, in which the physician has an ownership or investment interest or with which the physician has entered into
a compensation arrangement. 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.
Federal
False Claims Act
The
Federal 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 Federal
False Claims Act have made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies
under the Federal 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 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 in the healthcare fraud and false statements relating 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.
Civil
Monetary Penalties Law
In
addition to the Anti-Kickback Statute and the civil and criminal False Claims Acts, 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. Noncompliance can result in civil money penalties
of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from
the federal healthcare programs.
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.
U.S.
Foreign Corrupt Practices Act
The
U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and their representatives from offering, promising, authorizing
or making corrupt payments, gifts or transfers to any foreign government official, government staff member, political party or
political candidate in an attempt to obtain or retain business abroad. The FCPA also obligates companies whose securities are
listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately
and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate
system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly
outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government
contracts.
Employees
As of March 27, 2020,
we had seven employees, none of whom are represented by a labor union or covered by a collective bargaining agreement. We consider
our relationship with our employee to be satisfactory.
ITEM 1A –
RISK FACTORS
Investing
in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following
risks, as well as general economic and business risks, and all of the other information contained in this Report. Any of the following
risks could harm our business, operating results and financial condition and cause the trading price of our common stock to decline,
which would cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the
other information contained in this Report including our financial statements and the related notes thereto.
Risks
Relating 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 the formation of MemoryMD in 2015 and had an accumulated deficit of $3,672,077 as of December 31, 2019 and had a
working capital deficit of $897,206 as of December 31, 2019. We expect to continue to incur significant expenses and increasing
operating and net losses for the foreseeable future. To date, we have financed our operations primarily through debt and equity
financings. To date, 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, including the commercialization of our first two Products.
We believe that to fully implement our business strategy we
need to, among other things, raise approximately or generate revenues of $10.0 million, or some combination thereof. We have never
been profitable and do not expect to be profitable in the foreseeable future. Any profitability in the future will be dependent
upon the successful development of our business model, of which we can give no assurance of success. 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. Accordingly, we are a highly speculative venture involving significant financial risk.
We
are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your
investment.
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 existing and proposed Products, a competitive environment characterized by well-established and well-capitalized
competitors and reliance on key personnel.
We
may not be successful in carrying out our business objectives. The revenue and income potential of our proposed business and operations
are unproven as the lack of operating history makes it difficult to evaluate the future prospects of our business. There is nothing
at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able
to operate profitably. Accordingly, we have no track record of successful business activities, strategic decision-making by management,
fund-raising ability, and other factors that would allow an investor to assess the likelihood that we will be successful in our
business. There is a substantial risk that we will not be successful in fully implementing our business plan, or if initially
successful, in thereafter generating material operating revenues or in achieving profitable operations.
Since inception of MemoryMD in 2015,
we have not established any material revenues or operations that will provide financial stability in the long term, and there can
be no assurance that we will realize our plans on our projected timetable (or at all) in order to reach sustainable or profitable
operations.
We are not currently
generating any revenue from Product sales, and may never be able to successfully commercialize our NeuroEEG™ and NeuroCap™,
or other future Product candidates. Even if we succeed in commercializing any of such Products, we may never generate revenues
significant enough to achieve profitability.
In 2019, we commenced
acting as a distributor of third-party medical devices in Russia (including those purchased from a company affiliated with one
of our officers and directors), which resulted in all of our revenue for 2019. While we intend to continue the sale of third party
medical devices, we do not intend for it to be our primary source of revenue in the long-term and expect to curtail or cease this
line of operations as, if and when we commence generating material, recurring revenues from our Products, of which we can give
no assurance. We also can give no assurance that any revenue we generate from so acting as a distributor of third-party medical
devices will continue, will continue to be material or will be sufficient to enable us to continue our operations.
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. We have not emerged from the development stage, and may be unable to raise
further equity. These factors 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.
The
Company has limited experience in medical device development and commercialization. Our ability to become profitable depends primarily
on: our ability to develop our Products, our successful completion of all necessary pre-clinical testing and clinical trials on
such Products, our ability to obtain approval for such Products and, if approved, successfully commercialize such Products, 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 Products. 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 our Products, 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. Because we are subject to
these risks, you may have a difficult time evaluating our business and your investment in our Company.
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. As a result, our registered public accounting firm has included an explanatory
paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in
this Annual Report. 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.
Upon
the completion of the audit of our financial statements for the year ended December 31, 2019, we concluded there was substantial
doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included
an explanatory paragraph regarding this uncertainty in its report on those financial statements.
The
continued growth of our business, including the development, regulatory approval and commercialization of our Products, will significantly
increase our expenses going forward, regardless of our revenues. As a result, we are required to seek substantial additional funds
to continue our business. Our future capital requirements will depend on many factors, including:
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the
cost of developing our Products;
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obtaining
and maintaining regulatory clearance or approval for our Products;
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the
costs associated with commercializing our Products;
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any
change in our development priorities;
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the
revenue generated by sales of our Products, if approved;
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the revenue generated by sales of third-party medical devices;
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the
costs associated with expanding our sales and marketing infrastructure for commercialization of our Products, if approved;
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any
change in our plans regarding the manner in which we choose to commercialize any approved Product in the United States or
internationally;
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the
cost of ongoing compliance with regulatory requirements;
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expenses
we incur in connection with potential litigation or governmental investigations;
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the
costs to develop additional intellectual property:
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anticipated
or unanticipated capital expenditures; and
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unanticipated
general and administrative expenses.
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We
believe our existing cash and cash equivalents, without raising additional capital or generating additional revenues, is insufficient
to fund our operating expenses for the foreseeable future. We expect to seek additional capital from public or private offerings
of our capital stock, borrowings under credit lines, if available, 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 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.
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.
Before
obtaining marketing approval from regulatory authorities for the sale of our Products under development in the United States or
elsewhere, we must complete all pre-clinical testing, clinical trials and other regulatory requirements necessitated by the FDA
and foreign regulatory bodies and demonstrate the performance and safety of our Products. 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 approval. We have limited resources to complete the expensive process
of medical device development, pre-clinical testing and clinical trials, putting 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:
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regulators
may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial
site;
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the
failure to successfully complete pre-clinical testing requirements required by the FDA and international organizations;
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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;
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clinical
trials of our Products 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;
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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;
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our
Products may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators
or institutional review boards to suspend or terminate the trials;
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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;
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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;
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the
cost of clinical trials of our Products may be greater than we anticipate;
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the
supply or quality of our Products or other materials necessary to conduct clinical trials of our Products may be insufficient
or inadequate; and
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delays
from our suppliers and manufacturers could impact clinical trial completion and impact revenue.
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If
we are required to conduct additional clinical trials or other testing of our Products under development beyond those that we
contemplate, if we are unable to successfully complete clinical trials of our Products under development or other testing, if
the results of these trials or tests are not favorable or if there are safety concerns, we may:
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not
obtain marketing approval at all;
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be
delayed in obtaining marketing approval for our Products under development in a jurisdiction;
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be
subject to additional post-marketing testing requirements; or
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have
our Products removed from the market after obtaining marketing approval.
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Our
development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of
our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
clinical trial delays also could allow our competitors to bring innovative products to market before we do and impair our ability
to successfully commercialize our Products.
Business
or economic disruptions or global health concerns could seriously harm our business.
Broad-based
business or economic disruptions could adversely affect our business. For example, in December 2019 an outbreak of a novel strain
of coronavirus originated in Wuhan, China, and has since spread around the world. To date, this outbreak has already resulted
in extended shutdowns of businesses around the world, including in the United States. We cannot presently predict the scope and
severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including
the suppliers, clinical trial sites, regulators, health care providers and other third parties with whom we conduct business,
were to experience shutdowns or other business disruptions, our ability to conduct our business could be materially and negatively
impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals, clinics
and healthcare providers to whom we intend to sell our products, as, if and when commercialized, which could have a material adverse
effect on our business and our results of operation and financial condition.
Current
economic and political conditions make tax rules in any jurisdiction subject to significant change.
We
are subject to income taxes as well as non-income based taxes, in both the U.S. and ultimately various jurisdictions outside the
U.S. where we intend to operate. We cannot predict the overall impact that changes or revisions to any such tax laws and regulations,
whether in in the U.S. or in jurisdictions outside the U.S., may have on our business. We may be subject to ongoing tax audits
in various jurisdictions, and the tax authorities conducting such audits may disagree with certain taxation positions we have
taken and assess additional taxes. Although we intend to regularly assess the likely outcomes of these audits in order to determine
the appropriateness of our tax obligations, there can be no assurance that we will accurately predict the outcomes of these audits,
and the actual outcomes of these audits could have a material adverse effect on our financial condition and business operations.
Recent
executive and legislative actions to amend or impede the implementation of the Affordable Care Act and ongoing efforts to repeal,
replace or further modify the Affordable Care Act may adversely affect our business, financial condition and results of operations.
Recent
executive and legislative actions to amend or impede the implementation of the Affordable Care Act and ongoing efforts to repeal,
replace or further modify the Affordable Care Act may adversely affect our business, financial condition and results of operations.
There
have been judicial and congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts
by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017, President
Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Affordable
Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act.
Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care
Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under
the Affordable Care Act have been signed into law. The Tax Act included a provision which repealed, effective January
1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail
to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.
The 2018 Appropriations Resolution delayed the implementation of certain Affordable Care Act-mandated fees, including, without
limitation, the medical device excise tax. The Bipartisan Budget Act of 2018, or BBA, among other things, amended the Affordable
Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut
hole”. In July 2018, CMS published a final rule permitting further collections and payments to and from certain Affordable
Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program
in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.
On December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its
entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District
Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal
of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable
Care Act will impact the Affordable Care Act and our business.
In
addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These
changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in
April 2013 and, due to the BBA, will stay in effect through 2027 unless additional Congressional action is taken. In January 2013,
President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare
payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers
from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could
negatively impact customers for our product candidates, if approved, and, accordingly, our financial operations.
We
expect that other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare
and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the
price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may
result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our Products.
We
are subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially adversely
affect our financial condition and business operations.
Our
medical devices are subject to regulation by numerous government agencies, including the FDA and comparable agencies outside of
the U.S. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development,
testing, manufacturing, labeling, marketing, and distribution of our Products. We cannot guarantee that we will be able to obtain
or maintain marketing clearance for our new Products, or enhancements or modifications to existing Products, and the failure to
maintain approvals or obtain approval or clearance could have a material adverse effect on the financial condition of our business
and our business operations. Even if we are able to obtain such approval or clearance, it may take a significant amount of time,
require the expenditure of substantial resources, involve stringent clinical and pre-clinical testing, require increased post-market
surveillance, involve modifications, repairs, or replacements of our Products, and result in limitation on the proposed uses of
our Products.
Both
before and after a Product or service is commercially released or offered, we have ongoing responsibilities under FDA regulations.
Many of our facilities and procedures and those of our suppliers are also subject to periodic inspections by the FDA to determine
compliance with the FDA’s requirements, including the quality system regulations and medical device reporting regulations.
The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms
of enforcement. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of
our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize
adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending
pre-market approval applications or require certificates of non-U.S. governments for exports, and/or require us to notify health
professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA may also
assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis,
or enjoin and/or restrain certain conduct resulting in violations of applicable law. The FDA may also recommend prosecution to
the U. S. Department of Justice. Governmental agencies comparable to the FDA which operate in foreign jurisdictions may also require
us to comply with regulations similar to those required by the FDA, and failing to do so may result in material adverse ramifications
similar to those caused by a failure to comply with FDA regulations. Any adverse regulatory action, depending on its magnitude,
may restrict us from effectively marketing and selling our Products and limit our ability to obtain future pre-market clearances
or approvals, and could cause result in a substantial modification to our business practices and operations.
In
addition, the FDA has taken the position that device manufacturers are prohibited from promoting their products other than for
the uses and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers
that promote products for “off-label” uses, including actions alleging that federal health care program reimbursement
of products promoted for “off-label” uses constitute false and fraudulent claims to the government. The failure to
comply with “off-label” promotion restrictions can result in significant civil or criminal exposure, administrative
obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.
Governmental
regulations outside the U.S. have become increasingly stringent and more common, and we may become subject to more rigorous regulation
by governmental authorities in the future in the event we determine to conduct business internationally. In the European Union,
for example, a new Medical Device Regulation was published in 2017 which, when it enters into full force, will impose significant
additional premarket and post-market requirements. Penalties for a company’s non-compliance with governmental regulation
could be severe, including fines and revocation or suspension of a company’s business license, mandatory price reductions
and criminal sanctions. Any governmental law or regulation imposed in the future may have a material adverse effect on us.
We
are subject to environmental laws and regulations and the risk of environmental liabilities, violations and litigation.
We
are subject to numerous U.S. federal, state, local and non-U.S. environmental, health and safety laws and regulations concerning,
among other things, the health and safety of our employees, the generation, storage, use and transportation of hazardous materials,
emissions or discharges of substances into the environment, investigation and remediation of hazardous substances or materials
at various sites, chemical constituents in medical products and end-of-life disposal and take-back programs for medical devices.
Our operations involve the use of substances regulated under such laws and regulations, primarily those used in manufacturing
and sterilization processes. If we violate these environmental laws and regulations, we could be fined, criminally charged or
otherwise sanctioned by regulators.
In
addition, certain environmental laws assess liability on current or previous owners or operators of real property for the costs
of investigation, removal or remediation of hazardous substances or materials at their properties or at properties which they
have disposed of hazardous substances. Liability for investigative, removal and remedial costs under certain U.S. federal and
state laws are retroactive, strict and joint and several. In addition to cleanup actions brought by governmental authorities,
private parties could bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. The
ultimate cost of site cleanup and timing of future cash outflows is difficult to predict, given the uncertainties regarding the
extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.
We
may in the future be subject to additional environmental claims for personal injury or cleanup based on our past, present or future
business activities (including the past activities of companies we may acquire). The costs of complying with current or future
environmental protection and health and safety laws and regulations, or liabilities arising from past or future releases of, or
exposures to, hazardous substances, may exceed our estimates, or have a material adverse effect on the financial condition of
our business and our business operations.
Our
failure to comply with laws and regulations relating to reimbursement of health care goods and services may subject us to penalties
and adversely impact our reputation, financial condition, and business operations.
Our
Products are expected to be purchased primarily by medical professionals and organizations that typically bill various third-party
payers, such as governmental programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and
managed care plans, for the healthcare services provided to their patients. The ability of our customers to obtain appropriate
reimbursement for products from third-party payers is critical because it affects which products customers purchase and the prices
they are willing to pay for such products. As a result, our Products are subject to regulation regarding quality and cost by the
U.S. Department of Health and Human Services, including the Centers for Medicare & Medicaid Services (“CMS”) as
well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care goods and services.
The principal U.S. federal laws implicated include those that prohibit (i) the filing of false or improper claims for federal
payment, known as the false claims laws, (ii) unlawful inducements for the referral of business reimbursable under federally-funded
health care programs, known as the anti-kickback laws, and (iii) health care service providers from seeking reimbursement for
providing certain services to a patient who was referred by a physician who has certain types of direct or indirect financial
relationships with the service provider, known as the Stark Law. Many states have similar laws that apply to reimbursement by
state Medicaid and other funded programs as well as in some cases to all payers. Insurance companies can also bring a private
cause of action claiming treble damages against a manufacturer for causing a false claim to be filed under the federal Racketeer
Influenced and Corrupt Organizations Act. In addition, if we were to become a manufacturer of FDA-approved devices reimbursable
by federal healthcare programs, we would be subject to the Physician Payments Sunshine Act, which would require us to annually
report certain payments and other transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals.
Our
anticipated domestic and international operations may be subject to risks relating to changes in government and private medical
reimbursement programs and policies, and changes in legal regulatory requirements in the U.S. and around the world. Implementation
of further legislative or administrative reforms to the reimbursement system in the U.S. and outside of the U.S., or adverse decisions
relating to our Products or services by administrators of these systems in coverage or reimbursement, could significantly reduce
reimbursement or result in the denial of coverage, which could have an impact on the acceptance of and demand for our Products
and the prices that our customers are willing to pay for them.
The
laws and regulations of healthcare related products that are applicable to us, including those described herein, are subject to
evolving interpretations and enforcement discretion. If a governmental authority were to conclude that we are not in compliance
with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties,
including, for example, exclusion from participation as a supplier of products or services to beneficiaries covered by CMS. Any
failure to comply with laws and regulations relating to reimbursement and healthcare products could adversely affect our financial
condition and business operations.
We
are subject to federal, state and foreign healthcare regulations related to anti-bribery and anti-corruption laws, and could face
substantial penalties if we fail to fully comply with such regulations and laws.
The
relationships that we and our potential distributors and others that market or may market our Products have with healthcare professionals,
such as physicians and hospitals, are subject to scrutiny under various federal, state, foreign laws often referred to collectively
as healthcare fraud and abuse laws. In addition, U.S. and foreign government regulators have increased the enforcement of the
Foreign Corrupt Practices Act and other anti-bribery laws. We also must comply with a variety of other laws that protect the privacy
of individually identifiable healthcare information and impose extensive tracking and reporting related to all transfers of value
provided to certain healthcare professionals. These laws and regulations are broad in scope and are subject to evolving interpretation
and we could be required to incur substantial costs to monitor compliance or to alter our practices if we are found not to be
in compliance. Violations of these laws may be punishable by criminal or civil sanctions, including substantial fines, imprisonment
of current or former employees and exclusion from participation in governmental healthcare programs, all of which could have a
material adverse effect on our financial condition and business operations.
Quality
problems with, and product liability claims in connection with our Products could lead to recalls or safety alerts, harm
to our reputation, or adverse verdicts or costly settlements, and could have a material adverse effect on our financial condition
and business operations.
Quality
is extremely important to us and our customers due to the serious and costly consequences of Product failure and our business
exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices
and services. In addition, our products may be used in intensive care settings with seriously ill patients. Component failures,
manufacturing defects, design flaws, off-label use, or inadequate disclosure of product-related risks or product-related information
with respect to our products, could result in an unsafe condition or injury to, or death of, a patient or other user of our products.
These problems could lead to the recall of, or issuance of a safety alert relating to, our Products, and could result in unfavorable
judicial decisions or settlements arising out of product liability claims and lawsuits, including class actions, which could negatively
affect our financial condition and business operations. In particular, a material adverse event involving one of our products
could result in reduced market acceptance and demand for all products offered under our brand, and could harm our reputation and
ability to market products in the future.
High
quality products are critical to the success of our business. If we fail to meet the high standards we set for ourselves and which
our customers expect, and our products are the subject of recalls, safety alerts, or other material adverse events, our reputation
could be damaged, we could lose customers, and our revenue and results of operations could decline. Our success also depends generally
on our ability to manufacture to exact tolerances precision-engineered components, subassemblies, and finished devices from multiple
materials. If our components fail to meet these standards or fail to adapt to evolving standards, our reputation, competitive
advantage and market share could be negatively impacted. In certain situations, we may undertake a voluntary recall of products
or temporarily shut down product production lines if we determine, based on performance relative to our own internal safety and
quality monitoring and testing data, that we have or may be in danger of failing to meet the high quality standards we have set
for ourselves and which our customers expect. Such recalls or cessation of services or product manufacturing may also negatively
impact our business.
Any
product liability claim brought against us, with or without merit, could be costly to defend and resolve. Any of the foregoing
problems, including product liability claims or product recalls in the future, regardless of their ultimate outcome, could harm
our reputation and have a material adverse effect on our financial condition and business operations.
We
are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation
related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments,
negatively impact our ability to sell current or future Products, or prohibit us from enforcing our patent and other proprietary
rights against others.
We
are and will continue to be materially dependent on a combination of patents, trade secrets, and trademarks, non-disclosure and
non-competition agreements, and other intellectual property protections which will enable us to maintain our proprietary competitiveness.
We also operate in an industry characterized by extensive patent litigation. Patent litigation against us can result in significant
damage awards and injunctions that could prevent our manufacture and sale of affected Products or require us to pay significant
royalties in order to continue to manufacture or sell affected Products. At any given time, we could potentially be involved as
a plaintiff and/or as a defendant in a number of patent infringement and/or other contractual or intellectual property related
actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to predict the outcome
of such litigation, we acknowledge the possibility that any such litigation could result in our payment of significant monetary
damages and/or royalty payments, negatively impact our ability to sell current or future Products, or prohibit us from enforcing
our patent and proprietary rights against others, which would have a material adverse effect on the financial condition of our
business and on our business operations.
While
we intend to defend against any threats to our intellectual property, including our patents, trade secrets, and trademarks, and
while we intend to defend against any actual or threatened breaches of our non-disclosure and non-competition agreements, may
not adequately protect our intellectual property or enforce such agreements. Further, patent or trademark applications currently
pending that are owned by us may not result in patents or trademarks being issued to us, patents or trademarks issued to or licensed
by us in the past or in the future may be challenged or circumvented by competitors and such patents or trademarks may be found
invalid, unenforceable or insufficiently broad to protect our proprietary advantages.
In
addition, the laws of certain countries in which we market, or intend to market, some or all of our Products do not protect our
intellectual property rights to the same extent as the laws of the U.S., which could make it easier for competitors to capture
market position in such countries by utilizing technologies and other intellectual property that are similar to those developed
or licensed by us. Competitors may also harm our sales by designing products or offering services that mirror the capabilities
of our Products, or the technology contained therein, without infringing our intellectual property rights. If we are unable to
protect our intellectual property in these countries, it could have a material adverse effect on our financial condition and business
operations.
If
we experience decreasing prices for our Products and we are unable to reduce our expenses, our financial condition and
business operations may suffer.
We
may experience decreasing prices for our Products due to pricing pressure experienced by our customers from managed care organizations
and other third-party payers, increased market power of our customers as the medical device industry consolidates, and increased
competition among medical engineering and manufacturing service providers. If the prices for our Products decrease and we are
unable to reduce our expenses, our results of operations will be adversely affected.
Our
research and development efforts rely upon investments and investment collaborations, and we cannot guarantee that any previous
or future investments or investment collaborations will be successful.
Our
commercialization strategy requires a wide variety of technologically advanced and capable Products. The rapid pace of technological
development in the MedTech industry and the specialized expertise required in different areas of medicine make it difficult for
one company alone to develop a broad portfolio of technological solutions. In addition to internally generated growth through
our research and development efforts, we anticipate the need to rely upon investments and investment collaborations to provide
us access to new technologies both in areas served by our contemplated businesses as well as in new areas. A failure to establish
such collaborations may harm our financial condition and business operations.
Going
forward, we expect to make future investments where we believe that we can stimulate the development or acquisition of new technologies,
Products to further our strategic objectives and strengthen our existing business ventures. Investments and investment collaborations
in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future investments
or investment collaborations will be successful or will not have a materially adverse effect our financial condition and business
operations.
The
ability to offer our planned Products, and the continuing development of new Products, depends upon us maintaining
strong relationships with health care professionals.
If
we fail to maintain our working relationships with health care professionals, many of our Products may not be developed and offered
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 research, development, marketing, and sales of our Products is expected to be dependent upon
our maintaining working relationships with such health care professionals, and the use of our Products is expected to often require
the participation of health care professionals. In addition, health care professionals are the primary customer groups we expect
to market and sell our Products directly to, further highlighting the importance of our relationship with such health care professionals.
If we are unable to maintain our relationships with these professionals, we may lose our primary customer base, our Products may
not be utilized correctly or to their full potential, and our ability to develop, manufacture, and market future Products may
be significantly stunted.
Economic
and political instability around the world could adversely affect our financial condition and business operations.
Economic
and political instability around the world may adversely affect our ability to develop, manufacture, market, and sell our Products.
Our customers and suppliers may experience financial difficulties or be unable to borrow money to fund their operations which
may adversely impact their ability to purchase our Products or services or to pay for our Products on a timely basis, if at all.
As with our customers and suppliers, these economic conditions make it more difficult for us to accurately forecast and plan our
future business activities. In addition, a significant amount of our trade receivables are with national health care systems in
the U.S. and in many foreign countries. Repayment of these receivables is dependent upon the political and financial stability
of those countries. In light of domestic and global economic fluctuations, we continue to monitor the creditworthiness of customers
located both inside and outside the U.S. Failure to receive payment of all or a significant portion of these receivables could
adversely affect our financial condition and business operations.
Laws
and regulations governing the export of our Products could adversely impact our business.
The
U.S. Department of the Treasury’s Office of Foreign Assets Control and the Bureau of Industry and Security at the U.S. Department
of Commerce administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting
activities, transacting business with or making investments in certain countries, governments, entities and individuals subject
to U.S. economic sanctions. Due to our planned international operations, we expect to be subject to such laws and regulations,
which are complex, could restrict our business dealings with certain countries and individuals, and are constantly changing. Further
restrictions may be enacted, amended, enforced or interpreted in a manner that adversely impacts our financial condition and business
operations.
Consolidation
in the health care industry may cause a material adverse effect on our financial health and business operations.
In
response to a variety of actions by legislators, regulators, and third-party payers to reduce the perceived rise in healthcare
costs, many health care industry companies, including health care systems, are consolidating to create new companies with greater
market power. As the health care industry consolidates, competition to provide goods and services to industry participants will
become more intense. These industry participants may try to use their market power to negotiate price concessions or reductions
our products which price concessions may be unanticipated and adversely affect our financial condition and business operations.
We
operate in a highly competitive industry and we may be unable to compete effectively.
We
expect to compete domestically and internationally in the neurology and diagnostic imaging MedTech markets. These markets are
characterized by rapid change resulting from technological advances and scientific discoveries. In the product lines and offered
services in which we compete, we face a mixture of competitors ranging from large manufacturers with multiple business lines to
small manufacturers that offer a limited selection of niche products. Development by other companies of new or improved products,
processes, technologies, or the introduction of reprocessed products or generic versions when our proprietary Products lose their
patent protection may make our Products or proposed Products less competitive. In addition, we face competition from providers
of alternative medical therapies such as pharmaceutical companies. Competitive factors include product reliability, product performance,
product technology, product quality, breadth of product lines, product services, customer support, price, and reimbursement approval
from health care insurance providers.
We
also face competition for marketing, distribution, and collaborative development agreements, for establishing relationships health
care professionals, medical associations, and academic and research institutions, and for licenses to intellectual property. In
addition, academic institutions, governmental agencies and other public and private research organizations also may conduct research,
seek patient protection and establish collaborative arrangements for discovery, research, clinical development and marketing of
products similar to ours. These companies, professionals, and institutions compete with us in recruiting and retaining qualified
scientific and management personnel, as well as in acquiring necessary product technologies.
A
reduction or interruption in our supply of raw materials coupled with an inability to develop alternative sources for such raw
materials, and other similar supply chain management difficulties, may adversely affect our ability to manufacture our Products.
The
manufacture of our Products require the timely delivery of sufficient amounts of quality components and materials and is highly
exacting and complex, due in part to strict regulatory requirements, and we cannot guarantee that our efforts to secure quality
components and materials in a timely, cost effective manner will be successful. Other problems in the manufacturing process, including
equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and environmental factors,
could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify
and address manufacturing problems prior to the release of Products to our customers may also result in quality or safety issues.
The
Company’s operating results could be negatively impacted if it is unable to capitalize on research and development spending.
The
Company has and intends to continue to spend a significant amount of time and resources on research and development projects in
order to develop and validate new and innovative products. The Company believes these projects will result in the commercialization
of new products and will create additional future sales. However, factors including regulatory delays, safety concerns or patent
disputes could delay the introduction or marketing of new products. Additionally, unanticipated issues may arise in connection
with current and future clinical studies that could delay or terminate a product’s development prior to regulatory approval.
The Company may experience an unfavorable impact on its financial condition and business operations if we are unable to capitalize
on those efforts by attaining the proper FDA approval or to successfully market new products.
We
may be unable to attract and retain key employees.
Our
sales, technical and other key personnel play an integral role in the development, marketing and selling of our Products. If we
are unable to recruit, hire, develop and retain a talented, competitive work force, we may not be able to meet our strategic business
objectives.
Risks
Related to our Common Stock
There
is not now, and there may never be, an active market for our common stock and we cannot assure you that our common stock will
become liquid or that it will be listed on a securities exchange.
There
currently is no liquid market for our common stock. An investor may find it difficult to obtain accurate quotations as to the
market value of the common stock and trading of our common stock may be extremely sporadic. For example, several days may pass
before any shares may be traded. A more active market for our common stock may never develop. In addition, if we failed to meet
the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities
to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers
from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult
for us to raise additional capital.
Our
shares may not become eligible to be traded electronically which could result in brokerage firms being unwilling to trade them.
Our
shares of common stock are eligible to be quoted on the OTC Pink Market. However, our shares are not eligible with Depository
Trust Company (DTC) to trade electronically. Because we are not DTC eligible, our shares cannot be electronically transferred
between brokerage accounts, the practical effect of which means that our shares will not trade much, if at all, on the OTC Pink
Market. In order for our shares to trade on the OTC Pink Market, our shares would need to be traded manually between broker dealers
and their accounts, which is time consuming, costly and cumbersome. We cannot guaranty that our shares will ever become DTC eligible
or how long it will take to become eligible.
Additionally,
because our common stock should be considered “penny stock,” and our common stock is not traded on a national securities
exchange, among other reasons, holders of our common stock may have difficulty identifying a broker-dealer willing to accept our
shares for deposit. We cannot guaranty that investors will identify a broker willing to accept our shares for deposit, which would
make it difficult for investors to sell their 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:
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actual
or anticipated fluctuations in our quarterly financial and operating results;
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our
progress toward developing our Products;
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the
commencement, enrollment and results of our future clinical trials;
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adverse
results from, delays in or termination of our clinical trials;
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adverse
regulatory decisions, including failure to receive regulatory approval;
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publication
of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by
securities analysts, if any;
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perceptions
about the market acceptance of our Products and the recognition of our brand;
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adverse
publicity about our Products or industry in general;
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overall
performance of the equity markets;
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introduction
of Products, or announcements of significant contracts, licenses or acquisitions, by us or our competitors;
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legislative,
political or regulatory developments;
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additions
or departures of key personnel;
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threatened
or actual litigation and government investigations;
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sale
of shares of our common stock by us or members of our management; and
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general
economic conditions.
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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, from time to time, the stock market experiences price and volume fluctuations, some
of which may be significant. 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.
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 Securities Exchange Act of 1934, as amended (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, including
not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act of 2002 (“SOX”),
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding nonbinding advisory votes on executive compensation, and stockholder approval of any golden parachute
payments not previously approved. 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.
Our
common stock is subject to the “penny stock” rules of the SEC, which makes transactions in our stock cumbersome and
may reduce the value of an investment in our stock.
The
SEC has adopted regulations which generally define a "penny stock" as an equity security that has a market price of
less than $5.00 per share, subject to specific exemptions. The SEC's penny stock rules require a broker-dealer, before a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information
about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules
generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser's agreement to the transaction. If applicable
in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of
investors to sell their shares, until our common stock no longer is considered a penny stock.
Concentration
of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors
from influencing significant corporate decisions.
Our executive officers,
directors and their affiliates, in the aggregate, beneficially own approximately 50% of our outstanding common stock as of March
27, 2020. As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder
approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our
assets, or other significant corporate transactions.
Some
of these persons or entities may have interests different than yours. For example, they may be more interested in selling our
company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other
stockholders.
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 200,000,000 shares of common stock and 10,000,000 shares
of “blank check” preferred stock. 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 securities 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 on
an as converted, fully-diluted basis. Our board of directors 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 or other securities convertible into
or exchangeable for common stock are issued in connection with a financing, dilution to the interests of our stockholders will
occur and the rights of the holder of common stock might be materially and adversely affected.
Anti-takeover
provisions that may be in our charter and bylaws may prevent or frustrate attempts by stockholders to change the board of directors
or current management and could make a third-party acquisition of us difficult.
Our
certificate of incorporation and bylaws may 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. These provisions could limit the price that investors might be willing to pay in the future
for shares of our common stock.
We
do not intend to pay cash dividends on our common stock in the foreseeable future.
We
have never declared or paid cash dividends on our capital stock. Subject to any series of preferred stock we may issue in the
future, we 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 on our common stock 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.
We
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 additional 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.
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 of directors, on committees of our board of directors or as members of senior management.
Failure
to establish and 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. Furthermore,
our management and our independent auditors have identified certain internal control deficiencies, which management and our independent
auditors believe constitute material weaknesses.
Prior
to the Acquisition, Memory MD, Inc. was a private company with limited accounting personnel and other resources with which to
address our internal controls and procedures. Following the Acquisition, we must review and update our internal controls, disclosure
controls and procedures, and corporate governance policies as our Company continues to evolve. In addition, in connection with
the Acquisition and becoming a company that files reports with the SEC, we are required to comply with the internal control evaluation
and certification requirements of Section 404 of 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 of SOX until the date we are no longer a "smaller
reporting company" as defined by applicable SEC rules.
Any
ineffective internal control regarding our financial reporting could have an adverse effect on our business and financial results
and the price of our common stock could be negatively affected once we become a registrant required to file registration statements
with the SEC. This reporting requirement could also make it more difficult or more costly for us to obtain certain types of insurance,
including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. Any system of internal controls, however well designed and
operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives
of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulation concerning
control and procedures could have a material effect on our business, results of operation and financial condition. Any of these
events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability
of our financial statements, which ultimately could negatively affect the market price of our shares, increase the volatility
of our stock price and adversely affect our ability to raise additional funding. The effect of these events could also make it
more difficult for us to attract and retain qualified persons to serve on our board of directors and as executive officers.
Our
management’s evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2019 concluded
that our controls were not effective, due to material weaknesses resulting from:
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Management
did not maintain effective internal controls relating to the accounting closing and financial reporting process pertaining
to certain stock transactions and complicated convertible debt instruments;
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The
Company has insufficient internal personnel resources and technical accounting and reporting expertise within the Company’s
financial closing and reporting functions; and
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Due
to our small size, the Company did not maintain effective internal controls to assure proper segregation of duties as the
same employee was responsible for initiating and recording of transactions, thereby creating a segregation of duties weakness.
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Management
believes there is a reasonable possibility that these control deficiencies, if uncorrected, could result in material misstatements
in the annual or interim financial statements that would not be prevented or detected in a timely manner. Accordingly, we have
determined that these control deficiencies constitute material weaknesses. Although the Company is taking steps to remediate the
material weaknesses, it currently has limited resources to do so and there can be no assurance that similar incidents can be prevented
in the future.
We
will need to evaluate our existing internal controls over financial reporting against the criteria set forth in Internal Control
– Integrated Framework (2013) (the “Framework”) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. During the course of our ongoing evaluation of the internal controls, we may identify other areas requiring improvement,
and may have to design enhanced processes and controls to address issues identified through this review. Remediating any deficiencies,
significant deficiencies or material weaknesses that we or our independent registered public accounting firm may identify may
require us to incur significant costs and expend significant time and management resources. We cannot assure you that any of the
measures we implement to remedy any such deficiencies will effectively mitigate or remedy such deficiencies. The existence of
one or more material weaknesses could affect the accuracy and timing of our financial reporting. Investors could lose confidence
in our financial reports, and the value of our common stock may be harmed, if our internal controls over financial reporting are
found not to be effective by management or by an independent registered public accounting firm or if we make disclosure of existing
or potential material weaknesses in those controls.
Even
if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles,
because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements.
Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating
results or cause us to fail to meet our future reporting obligations.
Our
reporting obligations as a public company will place a significant strain on our management, operational and financial resources
and systems for the foreseeable future. If we fail to timely achieve and maintain the adequacy of our internal control over financial
reporting, we may not be able to produce reliable financial reports or help prevent fraud. Our failure to achieve and maintain
effective internal control over financial reporting could prevent us from filing our periodic reports on a timely basis which
could result in the loss of investor confidence in the reliability of our financial statements, harm our business and negatively
impact the trading price of our common stock.
A
significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the
future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales
of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell,
or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the
market price of our common stock could decline significantly.
Of
the 19,380,460 shares of our common stock currently issued and outstanding, approximately 3.625 million shares are freely tradable
without restriction by stockholders who are not our affiliates. We issued or are deemed to have issued an aggregate of approximately
15.6 million shares of our common stock to the former Memory MD, Inc. stockholders and to the holders of convertible promissory
notes upon their conversion, among other issuances, in each case, pursuant to an exemption from the registration requirements
of the Securities Act of 1933, as amended, or the Securities Act, and such shares are also “restricted securities”
as defined in Rule 144. Most if not all of these shares are expected to be registered for resale in 2020, thus allowing the holders
to sell their shares on the open market without restriction. In any event, substantially all of these restricted securities may
be publicly resold under Rule 144.
In
addition, in the future, we intend to file one or more registration statements on Form S-8 registering the issuance of approximately
3,500,000 shares of common stock subject to options or other equity awards issued. Shares registered under these registration
statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options
and the restrictions of Rule 144 in the case of our affiliates.
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.
We
may be subject to unknown risks and liabilities which could harm our business, financial condition and results of operations.
Before
the Acquisition, MemoryMD conducted due diligence on, among other things, the business and financial conditions of All Soft Gels
that it believed was customary and appropriate for a transaction such as the Acquisition. However, the due diligence process may
not have revealed all material liabilities of the Company then existing or which may be asserted in the future against us relating
to the Company’s activities before the consummation of the Acquisition. In addition, the agreement with the Company contains
representations with respect to the absence of any liabilities. However, there can be no assurance that the Company had no liabilities
upon the closing of the Acquisition. Any such liabilities of the Company that survive the Acquisition Transaction could harm our
revenues, business, prospects, financial condition and results of operations.
In
addition, in connection with the Acquisition, the known liabilities existing in All Soft Gels at the time of the Acquisition were
cancelled or paid by us, as required by the Merger Agreement. Despite this requirement and the representations and warranties
of All Soft Gels in the Merger Agreement, there may be unknown liabilities, or liabilities that were known but believed to be
immaterial, related to the business of All Soft Gels that may become material liabilities we are subject to in the future. If
we are subject to material liability as a result of the conduct of All Soft Gels, we may have limited recourse for such liabilities,
which could have a material impact on our business and stock price.
IN
ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING
THIS ANNUAL REPORT ON FORM 10-K, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE MAY BE OTHER POSSIBLE RISKS THAT COULD BE
IMPORTANT.