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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2022-02-14 · 526 added, 535 removed, 21 unchanged (98% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following discussion of our financial

condition and results of operations should be read in conjunction with the financial statements and notes included in Part I “Financial

Information”, Item I “Financial Statements” of this Quarterly Report on Form 10-Q (the “Report”) and the

audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended September 30, 2021.

Forward-Looking Statements

This Report contains forward-looking statements

that involve substantial risks and uncertainties.

In some cases, you can identify forward-looking statements by the words “may,”

“might,” “will,” “could,” “would,” “should,” “expect,” “intend,”

“plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,”

“project,” “potential,” “target,” “seek,” “contemplate,” “continue”

and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of

activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Report, we caution you that

these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which

we cannot be certain.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

following discussion of our financial condition and results of operations should be read in conjunction with the financial statements

and notes included in Part I “Financial Information”, Item I “Financial Statements” of this Quarterly Report

on Form 10-Q (the “Report”) and the audited financial statements and related footnotes included in our Annual Report on Form

10-K for the year ended September 30, 2021.

Forward-Looking

Report contains forward-looking statements that involve substantial risks and uncertainties.

In some cases, you can identify forward-looking

statements by the words “may,” “might,” “will,” “could,” “would,” “should,”

“expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,”

“estimate,” “predict,” “project,” “potential,” “target,” “seek,”

“contemplate,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology

intended to identify statements about the future.

These statements involve known and unknown risks, uncertainties and other factors that

may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed

or implied by these forward-looking statements.

Although we believe that we have a reasonable basis for each forward-looking statement

contained in this Report, we caution you that these statements are based on a combination of facts and factors currently known by us

and our expectations of the future, about which we cannot be certain.

Forward-looking statements include statements about:

the timing of and our ability

to obtain and maintain regulatory clearance of our cortical strip, grid and depth electrode technology;

even if our cortical strip,

grid electrode and depth electrode technology is approved for commercial sale, our ability to successfully commercialize our technology

in the United States;

our ability to achieve

or sustain profitability;

our ability to raise additional

capital and to fund our operations;

the availability of additional

capital on acceptable terms or at all as or when needed;

the clinical utility of

our cortical strip, grid and depth electrode including technology under development;

our ability to develop

additional applications of our cortical strip, grid and depth electrode technology with the benefits we hope to offer as compared

to existing technology, or at all;

the results of our development

and distribution relationship with Zimmer, Inc.

the performance, productivity,

reliability and regulatory compliance of our third party manufacturers of our cortical strip, grid electrode and depth electrode

our ability to develop

future generations of our cortical strip, grid and depth electrode technology;

our future development

the impact of the COVID-19

pandemic and resulting macroeconomic conditions, including supply chain disruptions, labor shortages and inflationary pressures,

on our business;

our ability to obtain reimbursement

coverage for our cortical strip, grid and depth electrode technology;

our expectations about

the willingness of healthcare providers to recommend our cortical strip, grid and depth electrode technology to people with epilepsy,

Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological

our future commercialization,

marketing and manufacturing capabilities and strategy;

our ability to comply with

applicable regulatory requirements;

our ability to maintain

our intellectual property position;

the outcome of legal proceedings

with PMT Corporation (“PMT”);

our expectations regarding

international opportunities for commercializing our cortical strip, grid and depth electrode technology under including technology

under development;

our estimates regarding

the size of, and future growth in, the market for our technology, including technology under development;

our estimates regarding

our future expenses and needs for additional financing.

Forward-looking statements are based on management’s

current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s

beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and

other factors that are in some cases beyond our control.

You should refer to the “Risk Factors” section of our Annual Report

on Form 10-K for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied

by our forward-looking statements.

As a result of these factors, we cannot assure you that the forward-looking statements in this Report

will prove to be accurate.

Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material.

light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation

or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

These forward-looking statements speak only as

of the date of this Report.

Except as required by law, we assume no obligation to update or revise these forward-looking statements for

any reason, even if new information becomes available in the future.

You should, however, review the factors and risks and other information

we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the

date of this Report.

We are a medical technology

company focused on the development and commercialization of thin film electrode technology for cEEG and sEEG recording, spinal cord stimulation,

brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s disease, dystonia, essential tremors,

chronic pain due to failed back surgeries and other related neurological disorders.

Additionally, we are investigating the potential

applications of our technology associated with artificial intelligence

We are developing our

cortical, sheet and depth electrode technology to provide solutions for diagnosis through cEEG recording and sEEG recording and treatment

through brain stimulation and ablation, all in one product.

A cEEG is a continuous recording of the electrical activity of the brain

that identifies the location of irregular brain activity, which information is required for proper treatment.

cEEG recording involves

an invasive surgical procedure, referred to as a craniotomy.

sEEG involves a less invasive procedure whereby doctors place electrodes

in targeted brain areas by drilling small holes through the skull.

Both methods of seizure diagnosis are used to identify areas of the

brain where epileptic seizures originate in order to precisely locate the seizure source for therapeutic treatment if possible.

Deep brain stimulation,

or DBS, therapies involve activating or inhibiting the brain with electricity that can be given directly by electrodes on the surface

or implanted deeper in the brain via depth electrodes.

Introduced in 1987, this procedure involves implanting a power source referred

to as a neurostimulator, which sends electrical impulses through implanted depth electrodes, to specific targets in the brain for the

treatment of disorders such as Parkinson’s disease, essential tremors, dystonia, and chronic pain.

The effects of DBS as a potential

treatment for Alzheimer’s is also being evaluated by researchers.

Unlike ablative technologies, the effects of DBS are reversible.

RF ablation is a procedure

that uses radiofrequency under the electrode contacts which is directed to the site of the brain tissue that is targeted for removal.

timing of and our ability to obtain and maintain regulatory clearance of our cortical strip, grid and depth electrode technology, including

our ability to obtain 510(k) clearance for use of its Evo sEEG electrode technology for less than 30 days;

ability to successfully commercialize our technology in the United States;

ability to achieve or sustain profitability;

ability to raise additional capital and to fund our operations;

results of our development and distribution relationship with Zimmer, Inc.

availability of additional capital on acceptable terms or at all as or when needed;

clinical utility of our cortical strip, grid and depth electrode including technology under development;

ability to develop additional applications of our cortical strip, grid and depth electrode technology with the benefits we hope to offer

as compared to existing technology, or at all;

performance, productivity, reliability and regulatory compliance of our third party manufacturers of our cortical strip, grid electrode

and depth electrode technology;

ability to develop future generations of our cortical strip, grid and depth electrode technology;

future development priorities;

impact of the COVID-19 pandemic and resulting macroeconomic conditions, including supply chain disruptions, labor shortages and inflationary

pressures, on our business;

ability to obtain reimbursement coverage for our cortical strip, grid and depth electrode technology;

expectations about the willingness of healthcare providers to recommend our cortical strip, grid and depth electrode technology to people

with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological

future commercialization, marketing and manufacturing capabilities and strategy;

ability to comply with applicable regulatory requirements;

ability to maintain our intellectual property position;

outcome of legal proceedings with PMT Corporation (“PMT”);

expectations regarding international opportunities for commercializing our cortical strip, grid and depth electrode technology under

including technology under development;

estimates regarding the size of, and future growth in, the market for our technology, including technology under development;

estimates regarding our future expenses and needs for additional financing.

Forward-looking

statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry

in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve

known and unknown risks, uncertainties and other factors that are in some cases beyond our control.

You should refer to the “Risk

Factors” section of our Annual Report on Form 10-K for a discussion of important factors that may cause our actual results to differ

materially from those expressed or implied by our forward-looking statements.

As a result of these factors, we cannot assure you that

the forward-looking statements in this Report will prove to be accurate.

Furthermore, if our forward-looking statements prove to be inaccurate,

the inaccuracy may be material.

In light of the significant uncertainties in these forward-looking statements, you should not regard

these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified

time frame, or at all.

forward-looking statements speak only as of the date of this Report.

Except as required by law, we assume no obligation to update or

revise these forward-looking statements for any reason, even if new information becomes available in the future.

You should, however,

review the factors and risks and other information we describe in the reports we will file from time to time with the Securities and

Exchange Commission (the “SEC”) after the date of this Report.

are a medical technology company focused on the development and commercialization of thin film electrode technology for cEEG and sEEG

recording, spinal cord stimulation, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s

disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders.

Additionally,

we are investigating the potential applications of our technology associated with artificial intelligence.

are developing our cortical, sheet and depth electrode technology to provide solutions for diagnosis through cEEG recording and sEEG

recording and treatment through brain stimulation and ablation, all in one product.

A cEEG is a continuous recording of the electrical

activity of the brain that identifies the location of irregular brain activity, which information is required for proper treatment.

recording involves an invasive surgical procedure, referred to as a craniotomy.

sEEG involves a less invasive procedure whereby doctors

place electrodes in targeted brain areas by drilling small holes through the skull.

Both methods of seizure diagnosis are used to identify

areas of the brain where epileptic seizures originate in order to precisely locate the seizure source for therapeutic treatment if possible.

brain stimulation, or DBS, therapies involve activating or inhibiting the brain with electricity that can be given directly by electrodes

on the surface or implanted deeper in the brain via depth electrodes.

Introduced in 1987, this procedure involves implanting a power

source referred to as a neurostimulator, which sends electrical impulses through implanted depth electrodes, to specific targets in the

brain for the treatment of disorders such as Parkinson’s disease, essential tremors, dystonia, and chronic pain.

The effects of

DBS as a potential treatment for Alzheimer’s is also being evaluated by researchers.

Unlike ablative technologies, the effects

of DBS are reversible.

ablation is a procedure that uses radiofrequency under the electrode contacts which is directed to the site of the brain tissue that

is targeted for removal.

The process involves delivering energy to the contacts, thereby heating them and destroying the brain tissue.

The ablation does not remove

Rather, it is left in place and typically scar tissue forms in the place where the ablation occurs.

This procedure is also

known as brain lesioning as it causes irreversible lesions.

We received 510(k)

FDA clearance for our Evo cortical technology in November 2019, and in September 2021 we received FDA clearance to market our Evo

sEEG electrode technology for temporary (less than 24 hours) use with recording, monitoring, and stimulation equipment for the

The ablation does not remove the tissue.

Rather, it is left in place and typically scar tissue forms in the place where the ablation

This procedure is also known as brain lesioning as it causes irreversible lesions.

received 510(k) FDA clearance for our Evo cortical technology in November 2019, and in September 2021 we received FDA clearance to market

our Evo sEEG electrode technology for temporary (less than 24 hours) use with recording, monitoring, and stimulation equipment for the

recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain.

Our submission to the FDA seeking

510(k) for use of our Evo sEEG electrode technology for up to 30 days was made in November 2021 and is pending.

responses on February 9, 2022 to questions from the FDA regarding our submission and the FDA acknowledged receipt of our response on

February 10, 2022.

The Company commenced commercial sales of cEEG strip/grid and electrode cable assembly products beginning in the

first quarter of fiscal year 2021.

The Company sold, on a limited application basis for design verification, sEEG depth electrode

products for non-human use in late fiscal year 2021 and the first quarter of fiscal year 2022.

Our other products are still under

Prior to FDA approval

or clearance of certain of our products, our primary activities were limited to, and our limited resources were dedicated to, performing

business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors of our intellectual

property and conducting research and development activities.

We have incurred losses

since inception.

As of December 31, 2021, we had an accumulated deficit of $43.6 million, primarily as a result of expenses incurred

in connection with our research and development, selling, general and administrative expenses associated with our operations and interest

expense, fair value adjustments and loss on extinguishments related to our debt, offset in part by collaborations and product revenues.

Prior to FDA approval

of certain of our products, our main source of cash was proceeds from the issuances of notes, common stock, warrants and unsecured loans.

November 2021, the Company submitted a request to the FDA seeking a 510(k) clearance for use of its Evo sEEG electrode technology for

less than 30 days.

On March 11, 2022, the Company received a letter via email from the FDA that the FDA had denied the Company’s

510(k) application based on a finding of non-substantial equivalence based on their analysis of the methodology used for exhaustive extraction

The FDA letter stated the Company has not demonstrated that the sEEG Electrode for less than 30-day use is substantially equivalent

to the predicate device (sEEG Electrode for less than 24 hours K211367).

The FDA also stated that the Company may re-submit a new 510(k)

if it has biocompatibility data it believes can show its device to be substantially equivalent.

Company filed an appeal of this decision to a higher level within the FDA, which places the submission on hold until a decision is made.

This process may take up to 60 days from date of the appeal before an FDA decision is reached.

Company has stated previously that it expected to be commercial ready with the Evo sEEG electrode in the first calendar quarter of 2022

pending FDA clearance.

The Company now expects that additional time will be required and will continue to work with the FDA in pursuit

of 510(k) clearance.

Company commenced commercial sales of cEEG strip/grid and electrode cable assembly products beginning in the first quarter of fiscal

The Company sold, on a limited application basis for design verification, sEEG depth electrode products for non-human use

beginning in late fiscal year 2021.

Our other products are still under development.

to FDA approval or clearance of certain of our products, our primary activities were limited to, and our limited resources were dedicated

to, performing business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors

of our intellectual property and conducting research and development activities.

have incurred losses since inception.

As of March 31, 2022, we had an accumulated deficit of $46.7 million, primarily as a result of

expenses incurred in connection with our research and development, selling, general and administrative expenses associated with our operations

and interest expense, fair value adjustments and loss on extinguishments related to our debt, offset in part by collaborations and product

to FDA approval of certain of our products, our main source of cash was proceeds from the issuances of notes, common stock, warrants

and unsecured loans.

See “—Liquidity and Capital Resources—Capital Resources” below.

While we have begun to generate revenue

from the sale of products based on our cEEG and sEEG technology and through milestone payments from our current collaboration with Zimmer, we

expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless

we generate a higher level of revenue from commercial sales, and we will need to obtain substantial additional funding in connection

with our continuing operations through public or private equity or debt financings, through collaborations or partnerships with other

companies or other sources.

We may be unable to

raise additional funds when needed on favorable terms or at all.

Our failure to raise such capital as and when needed would have a negative

impact on our financial condition and our ability to develop and commercialize our cortical strip, grid electrode and depth electrode

technology and future products and our ability to pursue our business strategy.

See “—Liquidity and Capital Resources—Liquidity

Outlook” below

Recent Developments and Upcoming Milestones

Corporate Updates

In November 2021, we

submitted a clearance request to the FDA for less than 30-day use of our Evo® sEEG Electrode, which has already been 510(k) cleared

for temporary (less than 24 hours) use, and our request is pending.

We expect to be commercial ready pending that approval.

Product shipment

following FDA clearance of our SEEG product family may also qualify the Company for an additional milestone payment from our distribution

partner Zimmer Biomet, who has placed initial stocking orders.

We completed feasibility

bench top testing with a new design of our diagnostic and ablation depth electrode in the first calendar quarter of 2021, and signed

a contract with RBC Medical Innovations to develop and manufacture hardware (a radio frequency generator) for the system in the third

calendar quarter of 2021.

We are targeting the third calendar quarter of 2022 for completion of a prototype of hardware and the submission

of an application for FDA clearance in early calendar 2023.

We also completed an animal feasibility study at Emory University in September

2021 and additional animal studies are planned.

Subsequent to the end of the fiscal quarter, we also announced that we have surpassed

five years of accelerated aging testing for our recording electrodes.

On March 11, 2020, the World Health Organization

declared the outbreak of COVID-19 as a global pandemic.

COVID-19 and its variants continue to impact the United States and the world.

As a result of the COVID-19 pandemic, the Company has experienced delays and disruptions in our pre-clinical and clinical trials, as

well as interruptions in our manufacturing, supply chain, and research and development operations.

● development of our technology has been and may continue to

be delayed in fiscal year 2021 and continuing into fiscal 2022 due to interruptions in global manufacturing and shipping as a result

While we have

begun to generate revenue from the sale of products based on our cEEG and sEEG technology and through milestone payments from our current

collaboration with Zimmer, we expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable

future until and unless we generate a higher level of revenue from commercial sales, and we will need to obtain substantial

additional funding in connection with our continuing operations through public or private equity or debt financings, through collaborations

or partnerships with other companies or other sources.

may be unable to raise additional funds when needed on favorable terms or at all.

Our failure to raise such capital as and when needed

would have a negative impact on our financial condition and our ability to develop and commercialize our cortical strip, grid electrode

and depth electrode technology and future products and our ability to pursue our business strategy.

See “—Liquidity and Capital

Resources—Liquidity Outlook” below

Developments and Upcoming Milestones