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Zimmer Development Agreement and Other Product Revenue

12 Months Ended

Sep. 30, 2024

Zimmer Development Agreement and Other Product Revenue [Abstract]

Zimmer Development Agreement and Other Product Revenue

NOTE 7 - Zimmer Distribution Agreement and Other Product Revenue

On July 20, 2020, the Company entered into an exclusive development and distribution agreement (the “Zimmer Distribution Agreement”) with Zimmer, Inc. (“Zimmer”), pursuant to which the Company granted Zimmer exclusive global rights to distribute the Strip/Grid Products and the Electrode Cable Assembly Products. Additionally, the Company granted Zimmer the exclusive right and license to distribute certain sEEG Products developed by the Company and together with the Strip/Grid Products and Electrode Cable Assembly Products, the “Products”. The parties have agreed to collaborate with respect to development activities under the Zimmer Distribution Agreement through a joint development committee composed of an equal number of representatives of Zimmer and the Company.

Under the terms of the Zimmer Distribution Agreement, the Company is responsible for all costs and expenses related to developing the Products, and Zimmer is responsible for all costs and expenses related to the commercialization of the Products. In addition to the Zimmer Distribution Agreement, Zimmer and the Company have entered into a Manufacturing and Supply Agreement and a Supplier Quality Agreement with respect to the manufacturing and supply of the Products.

Except as otherwise provided in the Zimmer Distribution Agreement, the Company is responsible for performing all development activities, including non-clinical and clinical studies directed at obtaining regulatory approval of each Product. Zimmer has agreed to use commercially reasonable efforts to promote, market and sell each Product following the “Product Availability Date” (as defined in the Zimmer Distribution Agreement) for such Product.

Pursuant to the Zimmer Distribution Agreement, Zimmer made an upfront initial exclusivity fee payment of $2.0 million (the “Initial Exclusivity Fee”) to the Company in fiscal year 2020.

On August 2, 2022, the Company entered into a Third Amendment to Exclusive Development and Distribution Agreement (the “Zimmer Amendment”) with Zimmer. Pursuant to the terms and conditions of the Zimmer Amendment, Zimmer made a $3.5 million payment to the Company. In consideration of the mutual covenants and agreements contained in the Zimmer Distribution Agreement, the fee and milestone payment provisions in the Zimmer Distribution Agreement were replaced with the following below:

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$1.5 million for the sEEG Exclusivity Maintenance Fee; and

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$2.0 million for satisfaction of each of the milestone events related to the design of sEEG Products set forth in the Zimmer Distribution Agreement even though the satisfaction was after the deadlines originally identified.

In addition, in connection with the Zimmer Amendment, the Company issued Zimmer a warrant to purchase common stock (the “2022 Zimmer Warrant”). The 2022 Zimmer Warrant is exercisable for up to an aggregate of 350,000 shares of the Company’s common stock. The 2022 Zimmer Warrant has an exercise price of $3.00 per share, is exercisable commencing six months from the issuance date, and will expire on August 2, 2027. The fair value of the 2022 Zimmer Warrant of $0.1 million was based on the Black-Scholes pricing model. Input assumptions used were as follows: a risk-free interest rate of 2.9%; expected volatility of 53.5%; expected life of 5 years; expected dividend yield of 0%; and the underlying fair market of the common stock. The 2022 Zimmer Warrant was classified in stockholders’ equity as the number of shares were fixed and determinable, no cash settlement was required and no other provisions precluded equity treatment.

The Zimmer Distribution Agreement will expire on the tenth anniversary of the date of the first commercial sale of the last Products to achieve a first commercial sale, unless terminated earlier pursuant to its terms. Either party may terminate the Zimmer Distribution Agreement (x) with written notice for the other party’s material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer may terminate the Zimmer Distribution Agreement for any reason with 90 days’ written notice, and the Company may terminate the Zimmer Distribution Agreement if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company. The license rights granted to Zimmer under the Strip/Grid Distribution License and sEEG Distribution License as defined in the Zimmer Distribution Agreement shall be exclusive from the effective date of the Zimmer Amendment until the end of the term of the Zimmer Amendment.

The Zimmer Distribution Agreement and Zimmer Amendment were accounted for under the provisions of ASC 606. In accordance with the provisions under ASC 606, the Company identified five performance obligations under the Zimmer Distribution Agreement and Zimmer Amendment: (1) the Company’s obligation to grant Zimmer access to its intellectual property; (2) completion of sEEG Product development; (3) completion of Strip/Grid Product development; (4) the provision of sEEG exclusivity maintenance; and (5) completion of sEEG design modifications as requested by Zimmer. All performance obligations under the Zimmer Distribution Agreement and Zimmer Amendment, outside of the sEEG exclusivity maintenance obligation, were met by September 30, 2022. The remaining performance obligation in deferred revenue as of September 30, 2022 attributed to sEEG exclusivity maintenance was completed in first quarter of fiscal year 2023.

The aggregate transaction price associated with the Zimmer Distribution Agreement and Zimmer Amendment was $5.4 million comprising the Initial Exclusivity Fee of $2.0 million and the $3.5 million payment under the Zimmer Amendment, less the fair value 2022 Zimmer Warrant of $0.1 million. The transaction price was allocated between performance obligations based on their relative standalone selling prices. The Company used a market based valuation approach and an expected cost plus margin approach with regard to estimating the standalone selling price for the performance obligations. The Company recognized collaborations revenue in the amount of $1,455,188 during the year ended September 30, 2023 in connection with the Zimmer Distribution Agreement and Zimmer Amendment. Given the achievement of the milestones under the Zimmer Distribution Agreement and Zimmer Amendment by December 31, 2022, no collaborations revenue was recognized during the year ended September 30, 2024.

A reconciliation of the closing balance of deferred revenue related to the Zimmer Distribution Agreement and the Zimmer Amendment is as follows as of September 30, 2024 and 2023:

Deferred Revenue
Balance as of September 30, 2022	$	1,455,188
Revenue recognized		(1,455,188	)
Balance as of September 30, 2023		—
Revenue recognized		—
Balance as of September 30, 2024	$	—

Product Revenue

Product revenue related to the Company’s Strip/Grid Products, sEEG Products, OneRF Products and Electrode Cable Assembly Products. Product revenue recognized during the years ended September 30, 2024 and 2023 was $3,453,003 and $1,952,441, respectively, inclusive of OneRF Product revenue that amounted to $340,185 during the year ended September 30, 2024. There was no OneRF Product revenue recognized during the prior year period presented. The OneRF Products were not covered by the Zimmer Distribution Agreement during the year ended September 30, 2024.