ITEM 1 – BUSINESS

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, we 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, we changed our name from All Soft Gels Inc. to Brain Scientific Inc. and changed our 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. In conjunction with the Acquisition, we ceased all direct operations and assigned all of our assets and liabilities from prior to the Acquisition, and assumed and commenced the business of MemoryMD as the sole business of the Company.

On June 11, 2021, we entered into another merger agreement (the “Piezo Merger Agreement”) with Piezo Motion Corp. and BRSF Acquisition Corp. to acquire Piezo. (the “Piezo Acquisition”). The transactions contemplated by the Piezo Merger Agreement were consummated on October 1, 2021. Pursuant to the terms of the Piezo Merger Agreement, all outstanding shares of Piezo were exchanged for shares of our common stock. Accordingly, we acquired 100% of Piezo in exchange for the issuance of shares of our common stock and Piezo became our wholly-owned subsidiary.

Our principal executive office is located at 6700 Professional Parkway, Lakewood Ranch, Florida 34240 and our telephone number is (917) 388-1578. Our website address is www.brainscientific.com. The information on our website is not part of this Annual Report on Form 10-K.

The Company

The Company is a MedTech company with two cutting edge product lines: Neurology and Motion Products. Since October 1, 2021, the Company has had two subsidiaries, each of which is focused on one of our complimentary Product lines. The Neurology Products of Memory MD are designed for neurology-focused medical devices. The Motion Products of Piezo are piezoelectric motors which are fast, precise, tiny and powerful. The piezo motors are designed for and expected to have valuable and beneficial uses as motors within medical devices and devices outside of the MedTech industry. We have developed twelve motor platforms and an ultra-precise micro dosing pump, each of which is presently available commercially. We are also currently developing additional motion products that leverage our patented intellectual property.

Our initial Neurology Products are intended to allow for simplifying and making more ambulatory the completion of electroencephalography (“EEG”). Further, the NeuroCap and NeuroEEG Products, both 510K FDA cleared, are focused on providing efficient tools to the EEG medical market. Our technology allows a miniature, wireless, clinical device capable of recording an EEG and provides the data to medical staff without the bulky hardware or necessitating a neurology technician to place the cap. The NeuroEEG™ Hardware Platform for data collection and NeuroCap™ Software-like Consumables for data collection are anticipated to have strong margins, utilizing a distribution network to provide access to hospitals, neurologists, and general practitioners as well as the various telehealth and teleneurology companies.

The NeuroEEG connects wirelessly to the computer, allowing freedom of movement for the patient and enabling telemedicine applications. Currently, a shortage of EEG testing equipment and technicians exists in some areas. Other technology may require a specialized technician to apply the gel and electrodes individually. A neurology technician may be more expensive and in shorter supply. They may not be staffed and available 24/7 for some hospitals.

Piezo has recently completed an extensive engineering program culminating in the development and initial launch of a unique line of small rotary and linear piezomotor products (the ‘Blue Series’), control electronics and associated software. Piezo’s motor product line utilizes engineering polymers making them suitable for equipment and for high volume OEM applications. While there are several types of piezomotor on the market, the design and technology employed by Piezo is very new and combines key advantages, such as superior precision and power density with affordability and ease-of-manufacture.  

Piezo’s Blue Series piezomotors are available in a variety of sizes and configurations and are divided into twelve core motor platforms which include rotary motors (Models RBS, RAS) and linear motors (Models LCS, LBS and LAS). These core motor models differ in output specification and are further divided into variants/versions which include versions having hollow-shaft and solid-shaft rotors, versions having integrated magnetic and/or optical encoders and versions which are non-magnetic and suitable for use within medical MRI. For each motor product line Piezo has developed hardware control electronics together with motion control software including firmware and operating software. 

The Company is now positioned to build on its MedTech platform, as well as having Motion Products which are able to serve other market segments. Over the past year, the Company has made a concerted effort to solidify its manufacturing and sales distribution channels for both Neurology and Motion Products.

Recent Developments

COVID-19 Pandemic

From a market perspective with our Neurology Products, the COVID-19 pandemic has created an on-going opportunity. As the variants of COVID-19 continue to emerge, an interest exists in use of sanitary medical products, such as NeuroCap, Further, continued stress exists on medical staff across the US. We believe tools which allow for more generalized practitioners to provide EEG testing will become more necessary and relevant within healthcare settings.

The COVID-19 pandemic has created challenges for the supply chain on both our Neurology and our Motion Products. Delays in receiving parts have been up to 8 weeks for key components of both Products. At present, we are not seeing a reduction in these issues for 2022.

Russian Invasion of Ukraine

On February 24, 2022, Russia invaded Ukraine. Our Piezo research and development group in Kyiv has not been able to operate from the offices since that time. The team from Kyiv are all working remotely. We do not know when they will have access to the office. Further, we have engineering resources capable of performing the work done in Kyiv from the United States.

We operate a 100% fully-owned subsidiary of Memory MD, Inc., MemoryMD Russia, in Russia. Memory MD Russia is still operating as a medical device distributor. However, we anticipate that the economic sanctions will impact the business. At present, we are unable to determine the full impact of the situation. Further, the political situation may result in our inability to continue operations as a 100% fully-owned subsidiary of a U.S. company. This will not impact the operations of Memory MD, Inc. in the U.S. or internationally.

Neurology: Industry Overview

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 applications related to the following:

The EEG may also be used to determine the electrical activity of the brain of an individual involved in a trauma or experiencing 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.

Neurology: Our Products, Services and Product Roadmap

Our data acquisition platform is composed of three main parts:

NeuroEEG

NeuroEEG™ is an FDA cleared 16-channel, clinical-grade device, intended for prescription use to acquire, record, transmit, and display electrical brain activity for patients of all ages. portable, versatile, and compact and can easily be deployed across any number of different patient settings. Easy setup on NeuroEEG™ lets clinical staff of any level set up and run the EEG test under the supervision of a physician. Its 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 through traditional EEG solutions. NeuroEEG™ is designed for use in hospitals, private practices, mobile (ambulatory care & emergency medical service vehicles), field applications (clinical trials), 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 clinic, operating room, intensive care unit, and emergency room environment. 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 Product.

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 also work with other EEG devices and not just our NeuroEEG. NeuroCap’s electrode placement follows 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. Benefits of NeuroCap™ include:

Initial sales of NeuroCap™ have been made to a small number of hospitals and clinics. After completion of the merger, operations were transferred to Lakewood Ranch, Florida. In 2022, a manufacturing agreement was entered into. The Company is moving and new distribution agreements were entered into to start selling the NeuroCap™ within the United States and internationally.

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 Electronic Health Records(“EHRs”), Electronic Medical Records (“EMRs”), Internet of Things (“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 neurologists.

We are 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 will be acquired via the 22 channel NeuroCap™ and will 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 NeuroNet Cloud would then be able to cross-reference multiple points-of-data including:

We expect to have a fully working model of the NeuroNet Cloud by the end of 2023, 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 will 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 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 NeuroNet Cloud is being designed to handle millions of brain images to create robust models that correlate health records, behaviors, and other neurological factors.

Neurology: 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. All such applications are pending and, if granted, would expire in 2037. We have also applied for one provisional U.S. patent application titled “Full Head Apparatus and Electrodes for Conducting Electroencephalography” (Application No.: 63/115,810) in the name of Brain Scientific, Inc.; and one provisional U.S. patent application titled “Integrated Brain Machine Interface Platform with Graphene Based Electrodes” (Application No.: 63/070,749) in the name of Memory MD, Inc.

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 us, 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 us 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; and 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 us pursuant to this proviso will be suspended for the next calendar year.

Neurology: Market Overview

We compete 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 $594.5 billion by 2024, and it is forecast to grow at a compound annual growth rate (“CAGR”) of 5.3% from 2020 to 2024, according to Statistsa.

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.

The global EEG system and device market is expected to reach $1.59 billion by 2026, growing at a CAGR of 8.7% during the forecast period according to Grand View Research. We believe the increasing incidence and prevalence of neurological disorders, rising awareness about neurodegenerative disorders, high incidence of epilepsy, sleeping disorders, Parkinson’s, and the increasing applications of brain monitoring in clinical trials are driving the growth of this market. In 2018, standalone devices were estimated to generate the most revenue as they gained adoption in hospitals and specialized centers. These customers make our primary target market for our neurology devices.

The United States had the highest revenue share of the EEG system/device market according to Grand View Research. It is our plan to target the US market primarily, though we are pursuing sales globally through our master agent LOK Corporation as well. Statista estimates the U.S. EEG market size at $355M in 2024, growing at a 5.6% CAGR over the forecast period.

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 can 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 9.7 percent in 2020, reaching $4.1 trillion or $12,530 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 19.7%.

Digital health innovations are driving growth and opportunity in three major verticals of healthcare:

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, and UPMC Sports Medicine estimates 5 in 10 concussions go unreported or undetected with 2 in 10 high school athletes who play contact sports getting a concussion in a given 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 according to NIH, 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.

Education Enhancement

Global education and training expenditures are estimated to reach approximately $10 trillion by 2030 according to HolonIQ, 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 potential customers in this space can be a steppingstone 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 (CRO) market size is expected to reach over $61.6 billion by 2027, registering a CAGR of over 6.6% over the same period, primarily resulting from the increasing cost of drug development, according to FutureWise Research. 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 USD 70.4 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 19.5% from 2022 to 2030.

Telemedicine has been extensively used during the COVID-19 pandemic as it aids in decreasing contact with healthcare facilities, healthcare staff, and patients, in order to minimalize the risk of COVID-19.

According to a report published by the Agency for Healthcare Research and Quality (AHRQ), the implementation of telehealth or telemedicine solutions improves care delivery to patients.

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.

Neurology: Market Dynamics

Driver: Growing incidence of traumatic brain injuries

A traumatic brain injury or 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. According to the Journal of Neurosurgery, TBI is a leading cause of morbidity and mortality, with approximately 69 million people suffering TBI annually worldwide. Estimated incidence is highest in regions with good data such as North America and Europe, indicating that better testing would likely uncover a higher global TBI incidence. 

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 or 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 or 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.

Neurology: 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 that we target. 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, we anticipate 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 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:

The major U.S. medical device companies who we deem as competitors include Baxter International Inc., Beckman Coulter Inc., Becton Dickinson and Company, Boston Scientific Corporation, General Electric Company’s GE Healthcare, Johnson & Johnson, St. Jude Medical, Inc., Stryker Corporation, and Medtronic plc. Many of the companies which we presently compete against or may compete against in the future have or will 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 or will. 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 part of 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:

Neurology: 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.

Neurology: 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. 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 plan 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 to sell through distribution partners, indirect sales channels. We also plan to penetrate 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. 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.

Since 2019, we have acted as a distributor of third-party medical devices 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. The Russian invasion of Ukraine on February 24, 2022 may impact the operation of our Russian subsidiary. Economic sanctions and inflation may have a negative impact. Further, the Russian government may take actions to inhibit the operations of companies which are 100% owned by U.S. companies.

Neurology 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 October 1, 2015, after a series of lengthy delays. Accounting for modern advances in clinical treatment and medical devices, ICD-10 codes offer many more classification options compared to those found in its predecessor, ICD-9. Within the healthcare industry, providers, coders, IT professionals, insurance carriers, government agencies and others use ICD codes to properly note diseases on health records, to track epidemiological trends and to assist in medical reimbursement decisions.

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.

Neurology: 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 certification requirements, 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.

Neurology: 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 Neurology Products and to enhance the commercial value of such Neurology Products.

Neurology: 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 current devices (NeuroCap and NeuroEEG) are classified as Class II medical devices by the United States FDA.

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:

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:

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:

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:

We have a wholly-owned subsidiary in Russia and have established a wholly-owned subsidiary in Europe (Poland) for current product distribution. The Russian invasion of Ukraine on February 24, 2022 may impact the operation of our Russian subsidiary. Economic sanctions and inflation may have a negative impact. Further, the Russian government may take actions to inhibit the operations of companies which are 100% owned by U.S. companies.

Other Regulatory Requirements

Even after a device receives clearance or approval and is placed in commercial distribution, numerous regulatory requirements apply. These include:

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:

Our contract manufacturers, specification developers and some suppliers of components or device accessories, also are required to manufacture our Neurology 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. The Health Insurance Portability and Accountability Act of 1996 or 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.

Motion: Industry Overview

Piezoelectric motors are unique because they combine the key benefits of a piezo motor with the price point of traditional precision direct current or DC motors. Unlike the classic DC or stepper motors, the versatile piezo rotary and linear motion motors contain very few parts enabling economical manufacturing volume yielding a stable and reliable final result. Piezo technology is inherently non-magnetic which enables motor designs for specialized applications where traditional DC motors cannot be used. Piezo motors are also immune from electromagnetic (“EM”) and radio frequency (“RF”) interference and generate no emissions which can aid original equipment manufacturer (“OEM”) product compliance and reduce or eliminate shielding costs. 

We believe that our propriety piezo technology may be up to 1,000 times more precise and up to 100 times faster to respond than the DC competitors. A typical rotary stepper motor might be configured to make up to 51,200 steps in each rotation. By comparison, our rotary motor may make over 600,000 steps to complete a full revolution and this drives a smoother and more precise motion. We manufacture compact motors with our smallest being the length and width of a thumbnail.  

Piezo Motion currently serves industries such as:

Piezo Motion is a provider of piezo motor technology with significant investment in research and development of affordable piezoelectric motors to meet, and exceed, the needs of today's global markets. The company is committed to the development of innovative piezoelectric technology and motion products that enhance their functionality in a multitude of applications. We work with startups, OEMs, research institutions, and industrial companies from around the world empowering the visionaries behind their products.

Precision Motion Market

We compete within the domestic and global precision motor and motion control industries which are expected to grow at a CAGR of 4.9% from 2021 to 2025 to an estimated $2.4B by 2025.The precision motion market is defined primarily by costly, high-precision piezoelectric motors and lower-end DC precision motors. These are the motors that guide lasers, satellites, Mars rovers, and small cameras, among other things. This market continues to value more compact, precise, efficient motors to address the trends of miniaturization and portability. These motors are used across many industries, including aerospace, robotics, manufacturing, drones, telecommunications, and the medical field. We believe that we are uniquely positioned with our patented technology to sell piezo precision at a price point that can compete with precision DC motors.

Medical Technology Market

The primary focus for our piezoelectric motors remains on the medical technology, or MedTech, market. Use cases for precision motion products in this space vary from lab equipment to surgical robotics to drug delivery systems, to give a few examples. The MedTech industry is an optimal target because it increasingly requires higher precision than DC motors can offer, low electromagnetic interference, and often an affordable price point to reduce system costs. Our products’ unique advantages play well into this space.

Micro Dosing & Fluidics Market

The market for microinjectors and micropumps is growing significantly with a trend in the medical field towards smaller, sustained dosing and testing of higher concentrations of medicines. This market is expected to increase from $1.8B worldwide in 2021 to $3.2B worldwide in 2025, growing at an estimated 16% CAGR during this period. Currently, labs buy separate microinjector and continuous flow instruments due to the limitations in the products available in the marketplace today. Our Micro Dosing Pump can fulfill both of these applications at once, saving bench space in labs and simplifying lab operations.

Motion: Intellectual Property

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 secured a total of fourteen (14) U.S. nonprovisional patents and nine (9) foreign patents including European, Japanese and Chinese patents; these patents all relate to the Company’s piezoelectric technologies. We have one European patent application pending titled “Liner Piezoelectric Actuator on Rail System” (Application No. 18761639). 

In September of 2015 we entered into a License Agreement with Parker Hannifin Corporation in which we granted a worldwide license under our Patents for certain pneumatic, gas and fluid control devices for sale into the pneumatic industrial factory automation market, medical equipment gas/liquid control market and instrumentation gas/liquid control market. Under the License Agreement we received an initial fee of two million dollars ($2,000,000.00) which was paid in two annual installments in 2015 and 2016. To-date we have not received any additional royalties from Parker Hannifin -under the License Agreement.   

Motion: Market Dynamics

Driver: Trends toward miniaturization and portability

Creating increasingly small and mobile devices requires not just smaller and more energy-efficient motors within those devices but also more precise machinery to manufacture said devices.

According to Machine Design, the need for miniature motors is itself being expanded by trends towards the invent of collaborative robotic applications, robustness and extended life, safety and analytics through encoders and other feedback devices, and autonomy through multi-axis control. Smaller drones, smaller assembly lines, more complex smartphones and cameras, and more precise robotics all push the demand for miniaturized motors forward.

Portability has long been a trend for convenience, but an interconnected global world, increasingly complex robotic systems, and increasingly mobile workforce all speak to the need for micro-sized motors to be more energy and weight efficient than before. According to an article from ISA (International Society of Automation), increased human-robotics interactions and systems is a primary driver behind the trend of compact portability for robotics and motion systems. These trends are likely to support market growth for our products.

Opportunity: Increased needs for small precision motion systems

To drive progress in current hardware systems and robotics, and to keep pace with software and analytical developments, we believe increased motion precision is needed. The World Economic Forum estimates that by 2025 humans will create 463 exabytes of data each day globally. For context, one exabyte is equal to 1 million terabytes. This predicted influx of data creation data will likely drive more precise analytics, predictions, and recommendations – but to drive change in the physical world we believe will require motion systems capable of such high precision.

Piezoelectric motors are generally more precise than DC motors so they stand to benefit from demand for greater precision. The primary historic limitation of piezoelectric motion for precision applications has been their cost.

Challenge: The cost of piezoelectric motion systems

Piezoelectric systems can often cost 10x as much as a precision DC motor of a similar size. For most precision use cases outside of the highest-cost, highest-precision applications, precision DC motors are used today. We believe that piezoelectric motion can be far more affordable while still maintaining advantages in precision, efficiency, simplicity, and weight compared to precision DC motors.

We believe that our patented technology makes us unique in this ability and will help us maintain pricing levels comparable to precision DC motors while offering piezoelectric motor performance.

Motion: Competition

Our products and services compete against a range of competitors spanning large, established manufacturers with many product lines to startups with only a few employees doing custom projects. Most of the competitors we directly compete with sell either piezoelectric motors at a higher price point than us or precision DC motors at a similar price point but with lower precision and efficiency. Our indirect competitors sell other types of small, precise motors or motion systems that may be able to fulfill some of the same use cases outside of the target focus of our products. Meanwhile our Micro Dosing Pump competes for sale to labs and researchers against microinjectors and micropumps since our product fulfills the use cases of both current product categories.

The trends of miniaturization and portability are putting pressure on manufacturers of motion systems to design smaller, more efficient, and more precise motors. In addition, the manufacturing systems and robotics used to serve these trends also need increasingly precise motors. These trends play well into the advantages of piezoelectric motors, which have traditionally come at a cost point prohibitive to many use cases outside of advanced aerospace, optics, and defense industries. When piezoelectric motors are too expensive, precision DC motors, with poorer efficiency and precision, are the general solution. Now we have invented piezoelectric motion systems that are significantly more affordable than traditional piezoelectric systems while maintaining the unique advantages of piezoelectric technology. There are a couple of other small manufacturers attempting more affordable piezoelectric motors as well but most focus on the high-end, ultra-precise applications piezoelectric motors are traditionally known for.

Motion: Market Application

Our piezoelectric motion devices have many applications. Our primary markets are life sciences, MedTech, and lab instruments given those markets’ focus on precision and need for miniaturization. We believe devices in these fields can benefit from our technology: such potential applications include infusion MRI pumps, syringe pumps, wearable drug dispensers, handheld drug dispensers, surgical robotics, microscopes and micropositioning systems, and diagnostic testing equipment.

In addition to the life sciences industry, our motors have market applications in a wider set of industries, some of which have already started to use our motors. These secondary target markets include the advanced manufacturing, defense, laser/photonics/optic, semiconductor, and aerospace industries.

Motion: Sales and Marketing

Our linear and rotary motion products are commercially available directly from Piezo Motion or from one of our worldwide distribution partners. We market our solution though an integrated digital marketing program and in person trade shows and conferences. Our partners market our products directly to their customers in their local markets. Our sales strategy it focused on OEM product manufactures where size, precision and scale are key characteristics of their product needs. We provide resources online that allow OEM manufactures to learn and incorporate our motor into their product designs. We offer evaluation kits direct from our website and though our partner network.

Motion: Manufacturing, Supply and Quality Assurance

Our piezoelectric motors are currently fully assembled and tested in-house. The material components used in the assembly process include plastics, piezoceramics and metals. The main housing for our motors is produced from engineered thermoplastic. We currently use two plastics companies to produce these injection molded parts. One of these companies is located locally in Florida, the other company is located overseas.

Our assembly area consists of a localized storeroom, a site for fabrication, subassembly manufacturing, final assembly, and test/quality verification. We continue to look to enhance our processes by focusing on automation and lean initiatives.

Materials from suppliers is routinely inspected for quality and conformance against documented specifications. We are in the process of securing certification for ISO 9001 quality management systems.

Our piezoceramics are currently sourced from two suppliers, one is located in US, the other is overseas.

The vast majority of all other components, including electronic components, used in the assembly of our motors and associated electronics are available off-the-shelf from various suppliers sourced within the U.S.

We believe that the suppliers we currently utilize or that we may utilize in the future have sufficient capacity to meet our launch requirements and are able to scale up their capacity relatively quickly as demand for our product grows. We believe that with increased future demand, our per unit costs will decrease materially. Our suppliers meet the quality management systems for ISO 9001 or higher. We plan to audit our suppliers periodically to ensure conformity with the specifications, policies and procedures for our devices. We have also identified capable second source suppliers in the event of disruption from any of our primary vendors.

Motion: Research and Development

Our research and development activities are performed in the United States and at our subsidiary location in Kyiv, Ukraine where we have a small team of highly trained and experienced scientists and engineers employed on a full-time basis. We are also working with subcontractors in developing specific components of our technologies including software. Since the Russian invasion of Ukraine on February 24, 2022, our personnel in Ukraine have not been able to work from the office. They are working remotely and may not be able to return to an office location in the foreseeable future.

The primary objective of our research and development program is to advance the development of our existing and future Products and Technology. This work includes studies focused on topics such as:

Employees 

As of March 31, 2022, we had twenty-eight 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.