Notes
to Condensed Financial Statements
(unaudited)
NOTE 1 – Description of Business and
Basis of Presentation
NeuroOne Medical Technologies Corporation (the
“Company” or “NeuroOne”), a Delaware corporation, is an early-stage medical technology company developing comprehensive
neuromodulation electroencephalogram (cEEG) and stereoelectrocencephalography (sEEG) recording, monitoring, ablation, and brain stimulation
solutions to diagnose and treat patients with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed
back surgeries and other related neurological disorders.
The Company received 510(k) clearance from the
U.S Food and Drug Administration (“FDA”) for its Evo cortical technology in November 2019, and in September 2021 received
510(k) clearance from the FDA for its Evo sEEG electrode technology for temporary (less than 24 hours) use with recording, monitoring,
and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain.
To date, the Company has had limited commercial sales.
The Company is based in Eden Prairie, Minnesota.
COVID-19
On March 11, 2020, the World Health Organization
declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic. As a result of the COVID-19 pandemic, the
Company has experienced, and will likely continue to experience, delays and disruptions in its pre-clinical and clinical trials, as well
as interruptions in its manufacturing, supply chain, shipping, and research and development operations. The development of the Company’s
technology was delayed in the first quarter due to interruptions in global manufacturing and shipping as a result of the COVID-19 pandemic.
Additionally, the Company’s own staff has been impacted by infections and mandatory quarantines. Testing and clinical trials, manufacturing,
component supply, shipping and research and development operations may be further impacted by the continuing effects of COVID-19.
The extent to which the COVID-19 pandemic and
macroeconomic conditions may further impact the Company’s business will depend on future developments, which are highly uncertain
and cannot be predicted with confidence, such as global supply chain disruptions, the duration of the pandemic and the impact of variants,
travel restrictions and social distancing in the U.S. and other countries, business closures or business disruptions and the effectiveness
of actions taken in the U.S. and other countries to contain and treat the disease.
Although the Company cannot estimate the length
or gravity of the impact of the COVID-19 outbreak at this time, the continuing impact of the pandemic may have a material adverse effect
on the Company’s results of future operations, financial position, and liquidity for the duration of fiscal year 2022 and beyond.
Basis of presentation
The accompanying unaudited condensed financial
statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. The condensed financial statements
may not include all disclosures required by U.S. GAAP; however, the Company believes that the disclosures are adequate to make the information
presented not misleading. These unaudited condensed financial statements should be read in conjunction with the audited financial statements
and the notes thereto for the year ended September 30, 2021 included in the Annual Report on Form 10-K. The condensed balance sheet at
September 30, 2021 was derived from the audited financial statements of the Company.
In the opinion of management, all adjustments,
consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and
cash flows for the interim periods, have been made. The results of operations for the interim periods are not necessarily indicative
of the operating results for the full fiscal year or any future periods.
NeuroOne Medical Technologies
Corporation
Notes to Condensed Financial
Statements, continued
(unaudited)
NOTE 2 – Going Concern
The accompanying condensed financial statements
have been prepared on the basis that the Company will continue as a going concern. The Company has incurred losses since inception, negative
cash flows from operations, and had an accumulated deficit of $43.6 million as of December 31, 2021. The Company has not established
a source of revenues to cover its full operating costs, and as such, has been dependent on funding operations through the issuance of
debt and sale of equity securities. The Company does not have adequate liquidity to fund its operations without raising additional funds
and such actions are not solely within the control of the Company. These factors raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that might result from the outcome of this condition. If
the Company is unable to raise additional funds, or the Company’s anticipated operating results are not achieved, management believes
planned expenditures may need to be reduced in order to extend the time period that existing resources can fund the Company’s operations.
The Company intends to fund ongoing activities by utilizing its current cash on hand, from product and collaborations revenue and by
raising additional capital through equity or debt financings. If management is unable to obtain the necessary capital, it may have a
material adverse effect on the operations of the Company and the development of its technology, or the Company may have to cease operations
altogether.
NOTE 3 - Summary of Significant Accounting
Policies
Reverse Stock Split
On March 11, 2021, the Company’s Board
of Directors (the “Board”) approved a one-for-three reverse stock split of the Company’s issued and outstanding shares
of common stock (the “Reverse Stock Split”) effective end-of-day March 31, 2021.
All issued and outstanding common stock and per
share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods
presented. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the
exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of common stock. A proportionate adjustment
was also made to the number of shares reserved for issuance pursuant to the Company’s equity incentive compensation plans to reflect
the Reverse Stock Split. Any fraction of a share of common stock that was created as a result of the Reverse Stock Split was rounded
up to the next whole share. The authorized shares and par value of the common stock and preferred stock were not adjusted as a result
of the Reverse Stock Split.
Management’s Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, primarily in connection with the convertible promissory notes when outstanding,
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company entered into a development and distribution
agreement which has current and future revenue recognition implications. See “Note 7 – Zimmer Development Agreement”.
Product Revenue
Revenues from product sales are recognized when
control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration
the Company expects to be entitled to in exchange for those goods or services. At the inception of each contract, performance obligations
are identified and the total transaction price is allocated to the performance obligations. The Company commenced commercial sales of
cEEG strip/grid and electrode cable assembly products beginning in the first quarter of fiscal year 2021. The Company sold, on a limited
application basis for design verification, sEEG depth electrode products for non-human use in late fiscal year 2021 and the first quarter
of fiscal year 2022.
Cost of Product
Revenue
Cost of product revenue consists of the manufacturing
and materials costs incurred by the Company’s third-party contract manufacturer in connection with cEEG strip/grid and sEEG depth
electrode products, and outside supplier materials costs in connection with the electrode cable assembly products. In addition, cost
of product revenue includes royalty fees incurred in connection with the Company’s license agreements.
Collaborations Revenue
In determining the appropriate amount of revenue
to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of
the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations
including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint
on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices;
and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
A performance obligation is a promise in a contract
to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. Performance obligations may include
license rights, development services, and services associated with regulatory submission and approval processes. Significant management
judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to
complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations
are either completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates.
Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.
As part of the accounting for these arrangements,
the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation
identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted
revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory
success. The Company allocates the total transaction price to each performance obligation based on the estimated relative standalone
selling prices of the promised goods or service underlying each performance obligation.
Licenses of intellectual property: If
the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred
to the customer, and the customer can use and benefit from the license. For licenses that are bundled with other promises, the Company
utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation
is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing
revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts
the measure of performance and related revenue recognition.
Milestone payments: At the inception of
each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved
and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant
revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission) is included in the transaction
price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable
of being achieved until those approvals are received. When the Company’s assessment of probability of achievement changes and variable
consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the estimated
relative standalone selling prices of the promised goods or service underlying each performance obligation and recorded in license, collaboration,
and other revenues based upon when the customer obtains control of each element.
Royalties: For arrangements that include
sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item
to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance
obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Fair Value of Financial Instruments
The Company’s accounting for fair value
measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring
basis adheres to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy are as follows:
|
●
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Level
1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement
date.
|
|
●
|
Level 2 Inputs: Other than
quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially
the full term of the asset or liability.
|
|
●
|
Level 3 Inputs: Unobservable
inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing
for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
|
As of December 31, 2021 and September 30, 2021,
the fair values of cash, accounts receivable, inventory, prepaid expenses, other assets, accounts payable and accrued expenses approximated
their carrying values because of the short-term nature of these assets or liabilities. The fair value of the convertible notes while
outstanding were based on both the fair value of our common stock, discount associated with the embedded redemption features, and cash
flow models discounted at current implied market rates evidenced in recent arms-length transactions representing expected returns by
market participants for similar instruments and are based on Level 3 inputs.
There were no transfers between fair value hierarchy
levels during the three months ended December 31, 2021 and 2020.
The following table provides a roll-forward of
the convertible notes at fair value on a recurring basis using unobservable level 3 inputs for the three months ended December 31, 2020.
There were no convertible notes outstanding during the three months ended December 31, 2021.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
|
|
2020
|
|
Convertible notes
|
|
|
|
Balance as of beginning of period – September 30, 2020
|
|
$
|
1,007,206
|
|
Change in fair value including accrued interest
|
|
|
(1,974
|
)
|
Conversion of convertible promissory notes to common stock
|
|
|
(1,005,232
|
)
|
Balance as of end of period – December 31, 2020
|
|
$
|
—
|
|
Intellectual Property
The Company has entered into two licensing agreements
with major research institutions, which allow for access to certain patented technology and know-how. Payments under those agreements
are capitalized and amortized to general and administrative expense over the expected useful life of the acquired technology.
Property and Equipment
Property and equipment is recorded at cost and
reduced by accumulated depreciation. Depreciation expense is recognized over the estimated useful lives of the assets using the straight-line
method. The estimated useful life for equipment and furniture ranges from three to seven years and three years for software. Tangible
assets acquired for research and development activities and that have alternative use are capitalized over the useful life of the acquired
asset. Estimated useful lives are periodically reviewed, and, when appropriate, changes are made prospectively. Software purchased for
internal use consists primarily of amounts paid for perpetual licenses to third-party software providers and installation costs. When
certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on
the recoverability of the carrying amounts. Maintenance and repairs are charged directly to expense as incurred.
Allowances for Doubtful Accounts
The Company records a provision for doubtful
accounts, when appropriate, based on historical experience and a detailed assessment of the collectability of its accounts receivable.
In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable,
its historical write-offs, the credit worthiness of each customer, and general economic conditions. Account balances are charged off
against the allowance when the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may
be in excess of the Company’s estimated allowance.
Inventories
Inventories are stated at the lower of cost (using
the first-in, first-out “FIFO” method) or net realizable value. The Company calculates inventory valuation adjustments for
excess and obsolete inventory, when appropriate, based on current inventory levels, movement, expected useful lives, and estimated future
demand of the products and spare parts. The Company’s inventory is currently comprised of cEEG strip/grid, sEEG depth electrode
and electrode cable assembly finished good products and related component parts. The strip/ grid and depth electrode products are produced
by a third-party contract manufacturer and the electrode cable assembly products are obtained from outside suppliers.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets,
which consist of licensed intellectual property and property and equipment for impairment whenever events or changes in circumstances
indicate that the carrying value of these assets may not be recoverable. The Company assesses the recoverability of long-lived assets
by determining whether or not the carrying value of such assets will be recovered through undiscounted expected future cash flows. If
the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the
fair value of the impaired asset.
Research and Development Costs
Research and development costs are charged to
expense as incurred. Research and development expenses may include costs incurred in performing research and development activities,
including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services,
license fees, and other external costs. Non-refundable advance payments for goods and services that will be used in future research and
development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is
made, in accordance with Accounting Standards Codification (ASC) 730, Research and Development.
Selling, General and Administrative
Selling, general and administrative expenses
consist primarily of personnel-related costs including stock-based compensation for personnel in functions not directly associated with
research and development activities. Other significant costs include legal fees relating to corporate matters, intellectual property
costs, professional fees for consultants assisting with regulatory, clinical, product development, financial matters and sales and marketing
in connection with the commercial sale of cEEG strip/grid, sEEG depth electrode and electrode cable assembly products.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
Income Taxes
For the Company, income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are
reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Net Loss Per Share
For the Company, basic loss per share of common
stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings or loss per share of common
stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include
additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company’s warrants, stock options
and restricted stock units while outstanding are considered common stock equivalents for this purpose. Diluted earnings is computed utilizing
the treasury method for the warrants, stock options and restricted stock units. No incremental common stock equivalents were included
in calculating diluted loss per share because such inclusion would be anti-dilutive given the net loss reported for the three months
ended December 31, 2021 and 2020.
The following potential common shares were not
considered in the computation of diluted net loss per share as their effect would have been anti-dilutive for the three months ended
December 31, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Warrants
|
|
|
6,753,444
|
|
|
|
3,390,221
|
|
Stock options
|
|
|
1,111,226
|
|
|
|
534,512
|
|
Restricted stock units and awards
|
|
|
6,888
|
|
|
|
31,651
|
|
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards
Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current
expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This
replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized
cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay
adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this
ASU on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12,
Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify
the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve
the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The ASU
is effective for fiscal years beginning after December 15, 2020. The Company adopted the new guidance on October 1, 2021 and the adoption
of this new guidance did not have a material impact on the Company’s financial statements.
In August 2020, FASB issued ASU 2020-06, Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, provides guidance
on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting
models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently
accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments
and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective
for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within
those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently
evaluating the impact of ASU 2020-06 on its financial statements.
NOTE 4 - Commitments and Contingencies
WARF License Agreement
The Company has entered into an exclusive start-up
company license agreement with the Wisconsin Alumni Research Foundation (“WARF”) for WARF’s neural probe array and
thin film micro electrode technology (the “WARF Agreement”). The Company entered into an Amended and Restated Exclusive Start-up
Company License Agreement (the “WARF License”) with WARF on January 21, 2020, which amended and restated in full the prior
license agreement between WARF and NeuroOne, LLC, a predecessor of the Company, dated October 1, 2014, as amended on February 22, 2017,
March 30, 2019 and September 18, 2019.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
The WARF License grants to the Company an exclusive
license to make, use and sell, in the United States only, products that employ certain licensed patents for a neural probe array
or thin-film micro electrode array and method. We have agreed to pay WARF a royalty equal to a single-digit percentage of our product
sales pursuant to the WARF License, with a minimum annual royalty payment of $50,000 for 2020, $100,000 for 2021 and $150,000 for
2022 and each calendar year thereafter that the WARF License is in effect. If we or any of our sublicensees contest the validity of any
licensed patent, the royalty rate will be doubled during the pendency of such contest and, if the contested patent is found to be valid
and would be infringed by us if not for the WARF License, the royalty rate will be tripled for the remaining term of the WARF License.
WARF may terminate the WARF License on 30 days’
written notice if we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our
development plan or breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain
bankruptcy events involving us. WARF may also terminate the WARF License (i) on 90 days’ notice if we had failed to have commercial
sales of one or more FDA-approved products under the WARF License by June 30, 2021 or (ii) if, after royalties earned on sales begin
to be paid, such earned royalties cease for more than four calendar quarters. The first commercial sale occurred on December 7, 2020,
prior to the June 30, 2021 deadline. The WARF License otherwise expires by its terms on the date that no valid claims on the patents
licensed thereunder remain. We expect the latest expiration of a licensed patent to occur in 2030. During the three months ended December
31, 2021 and 2020, $25,000 and $50,000 in royalty fees were incurred related to the WARF License, respectively, and were reflected as
a component of cost of product revenue.
Mayo Agreement
The Company has an exclusive license and development
agreement with the Mayo Foundation for Medical Education and Research (“Mayo”) related to certain intellectual property and
development services for thin film micro electrode technology (“Mayo Agreement”). If the Company is successful in obtaining
regulatory approval, the Company is to pay royalties to Mayo based on a percentage of net sales of products of the licensed technology
through the term of the Mayo Agreement, set to expire May 25, 2037. During the three months ended December 31, 2021 and 2020, $739
and $2,144 in royalty fees were incurred related to the Mayo Agreement, respectively, and were reflected as a component of cost of product
revenue.
Legal
PMT Litigation
From time to time, the Company is subject to
litigation and claims in the ordinary course of business.
On March 29, 2018, the Company was served with
a complaint filed by PMT Corporation (“PMT”), the former employer of Mark Christianson, a current Company employee, and Wade
Fredrickson, a now former Company employee. The complaint added the Company, NeuroOne, Inc. and Mr. Christianson to its existing lawsuit
against Mr. Fredrickson in the Fourth Judicial District Court of the State of Minnesota. In the lawsuit, PMT claims that Mr. Fredrickson
and Mr. Christianson, by virtue of their work for the Company and their prior work during employment with PMT, breached their non-competition,
non-solicitation and non-disclosure obligations, breached their fiduciary duty obligations, were unjustly enriched, engaged in unfair
competition, engaged in a civil conspiracy, tortiously interfered with PMT’s contracts and prospective economic advantage, and
breached a covenant of good faith and fair dealing. The complaint purported to attach Mr. Fredrickson’s noncompete agreement as
Exhibit A. Against Mr. Fredrickson, PMT also alleged that he intentionally or negligently spoliated evidence, made negligent or fraudulent
misrepresentations, misappropriated trade secrets in violation of Minnesota law, and committed the tort of conversion and statutory civil
theft. Against the Company and NeuroOne, Inc., PMT alleged that the Company and NeuroOne, Inc. were unjustly enriched and engaged in
unfair competition. PMT asked the Court to impose a constructive trust over the shares held by Mr. Fredrickson and Mr. Christianson and
to award compensatory damages, equitable relief, punitive damages, attorneys’ fees, costs and interest.
On April 18, 2018, Mr. Christianson, the Company
and NeuroOne, Inc. filed a motion for dismissal, which was heard by the Court on October 11, 2018. The motion for dismissal stated that:
the contract claims against Mr. Christianson fail because his agreement was not supported by consideration; the Minnesota Uniform Trade
Secrets Act preempts plaintiff’s claims for unfair competition, civil conspiracy and unjust enrichment; plaintiff fails to state
a claim regarding alleged breach of the duties of loyalty and good faith/fair dealing; plaintiff cannot legally obtain a constructive
trust; plaintiff has insufficiently pled its tortious interference claims; and Plaintiff has not stated a claim for unfair competition.
On January 7, 2019, the judge granted the motion for dismissal with respect to PMT’s claim for breach of the duty of good faith
and fair dealing, and denied the motion for dismissal with respect to the other claims presented.
In April 2019, PMT served the Company, NeuroOne,
Inc. and Christianson with a proposed Second Amended Complaint, which included new claims against the Company and NeuroOne, Inc for tortious
interference with contract and tortious interference with prospective business advantage and punitive damages against the Company, NeuroOne
Inc. and Christianson. On June 28, 2019, the Company presented evidence indicating that PMT had participated in a fraud on the Court
and sought an Order that PMT had waived the attorney client privilege.
On July 16, 2019, the defendants served PMT with
a joint notice of motion for sanctions seeking a variety of sanctions for litigation misconduct including, but not limited to, dismissal
of the case and an award of attorneys’ fees. The Company, NeuroOne Inc and Mr. Christianson further moved for summary judgment
on all remaining claims asserted against them as well as for leave to assert counterclaims against PMT for abuse of process. Following
hearings on the dispositive motions and defendants’ sanctions motion, the district court granted the Company’s motion for
sanctions on April 29, 2020. Additionally, the district court granted the Company’s motion for summary judgment in part with respect
to the counts for Christianson’s breach of non-confidentiality agreement, and denied the Company’s motion for summary judgment
on all other counts.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
On August 24, 2020, defendants moved the Court
to amend their counterclaims for abuse of process against PMT to add a claim for punitive damages with respect to its conduct pertaining
to the Fredrickson noncompete. On October 12, 2020 the Court awarded NeuroOne, Inc. $185,000 in Rule 11 sanctions and Fredrickson
$145,000 in Rule 11 sanctions with respect to PMT’s misconduct relating to the Fredrickson noncompete. PMT and its former
litigation counsel, Barnes & Thornburg, were jointly and severally liable for these awards, which were paid on December 11, 2020
and have been recognized in other income in the statements of operations. The Court granted NeuroOne, Inc.’s motion to amend to
permit its assertion of the right to assert a punitive damages claim against PMT associated with fighting the allegations relating to
the Fredrickson noncompete.
On May 27, 2021 PMT moved for summary judgment
on defendants’ claims for abuse of process and punitive damages, and on August 5, 2021, the district court granted PMT’s
motion to dismiss the abuse of process and punitive damage claims.
Trial has been postponed from December 2021 to
August of 2022. The Company intends to continue to defend itself vigorously and to continue to aggressively prosecute its affirmative
counterclaim against PMT. The outcome of any claim against the Company by PMT was not estimable as of the issuance of these financial
statements.
Facility Lease
Headquarters Lease
On October 7, 2019, the Company entered into
a non-cancellable lease agreement (the “Lease”) with Biynah Cleveland, LLC, BIP Cleveland, LLC, and Edenvale Investors (together,
the “Landlord”) pursuant to which the Company has agreed to lease office space located at 7599 Anagram Drive, Eden Prairie,
Minnesota (the “Premises”). The Company took possession of the Premises on November 1, 2019, with the term of the Lease ending
65 months after such date, unless terminated earlier (the “Term”). The initial base rent for the Premises is $6,410 per month
for the first 17 months, increasing to $7,076 per month by the end of the Term. In addition, as long as the Company is not in default
under the Lease, the Company shall be entitled to an abatement of its base rent for the first 5 months. In addition, the Company will
pay its pro rata share of the Landlord’s annual operating expenses associated with the premises, calculated as set forth in the
Lease of which the Company is entitled to an abatement of these operating expense for the first 3 months.
Los Gatos Lease
On July 1, 2021, the Company entered into a non-cancellable
facility lease (the “New Lease”), pursuant to which the Company agreed to rent office space for its research and development
operations located at 718 University Avenue, Suite #111, Los Gatos, California. The term of the New Lease is eighteen months. The facility
space under the New Lease is approximately 1,162 square feet. The Company took possession of the office space on July 2, 2021. The initial
monthly rent under the New Lease is approximately $4,241.
San Jose Lease:
On December 30, 2020, the Company entered into
a non-cancellable lease agreement for short term office space in San Jose, California (the “San Jose Lease”) for a three
month initial term. After March 31, 2021, the San Jose Lease was cancellable upon a 30-day notice to the landlord. The Company took possession
of the office space on January 1, 2021 and the San Jose Lease was terminated upon the commencement of the New Lease discussed above.
The base rent under the San Jose Lease was $504 per month.
During the three months ended December 31, 2021
and 2020, rent expense associated with the facility leases amounted to $43,045 and $29,461, respectively.
Supplemental cash flow information related to
the operating leases was as follows:
|
|
For the three months ended
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liability:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
32,435
|
|
|
$
|
19,231
|
|
|
|
|
|
|
|
|
|
|
Right-of -use assets obtained in exchange for lease obligations:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
—
|
|
|
$
|
—
|
|
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
Supplemental balance sheet information related
to the operating leases was as follows:
|
|
As of
December 31,
2021
|
|
|
As of
September 30,
2021
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
262,713
|
|
|
$
|
288,948
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
$
|
288,388
|
|
|
$
|
315,673
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
2.9
|
|
|
|
3.1
|
|
Weighted average discount rate
|
|
|
6.7
|
%
|
|
|
6.7
|
%
|
Maturity of the lease liabilities was as follows:
Calendar
Year
|
|
As of
December 31,
2021
|
|
2022
|
|
$
|
131,220
|
|
2023
|
|
|
82,333
|
|
2024
|
|
|
84,391
|
|
2025
|
|
|
21,226
|
|
Total lease payments
|
|
|
319,170
|
|
Less imputed interest
|
|
|
(30,782
|
)
|
Total
|
|
|
288,388
|
|
Short-term portion
|
|
|
(115,074
|
)
|
Long-term portion
|
|
$
|
173,314
|
|
NOTE 5 – Supplemental Balance Sheet
Information
Prepaid and Other Assets
Prepaid and other assets consisted of the following:
|
|
As
of
December 31,
2021
|
|
|
As
of
September 30,
2021
|
|
Prepaid expenses
|
|
$
|
137,460
|
|
|
$
|
151,109
|
|
Deferred offering costs
|
|
|
—
|
|
|
|
92,934
|
|
Total
|
|
$
|
137,460
|
|
|
$
|
244,043
|
|
Intangibles
Intangible assets rollforward is as follows:
|
|
Useful
Life
|
|
|
|
Net Intangibles, September 30, 2021
|
|
12-13 years
|
|
$
|
134,207
|
|
Less: amortization
|
|
|
|
|
(5,579
|
)
|
Net Intangibles, December 31, 2021
|
|
|
|
$
|
128,628
|
|
Amortization expense was $5,579 for each of the
three month periods ended December 31, 2021 and 2020.
Property and Equipment
Property and equipment held for use by category
are presented in the following table:
|
|
As of
December 31,
2021
|
|
|
As of
September 30,
2021
|
|
Equipment and furniture
|
|
$
|
324,326
|
|
|
$
|
311,486
|
|
Software
|
|
|
1,895
|
|
|
|
1,895
|
|
Total property and equipment
|
|
|
326,221
|
|
|
|
313,381
|
|
Less accumulated depreciation
|
|
|
(109,634
|
)
|
|
|
(90,052
|
)
|
Property and equipment, net
|
|
$
|
216,587
|
|
|
$
|
223,329
|
|
Depreciation expense was $19,582 and $13,157
for the three month periods ended December 31, 2021 and 2020, respectively.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
NOTE 6 - Accrued Expenses and Other Liabilities
Accrued expenses consisted of the following at
December 31, 2021 and September 30, 2021:
|
|
As of
December 31,
2021
|
|
|
As of
September 30,
2021
|
|
Accrued payroll
|
|
$
|
143,478
|
|
|
$
|
376,236
|
|
Operating lease liability, short term
|
|
|
115,074
|
|
|
|
112,778
|
|
Royalty Payments
|
|
|
97,822
|
|
|
|
72,083
|
|
Other
|
|
|
—
|
|
|
|
83,152
|
|
Total
|
|
$
|
356,374
|
|
|
$
|
644,249
|
|
The “other” category is primarily
comprised of board fees.
NOTE 7 – Zimmer Development Agreement
On July 20, 2020, the Company entered into an
exclusive development and distribution agreement (the “Development Agreement”) with Zimmer, Inc. (“Zimmer”),
pursuant to which the Company granted Zimmer exclusive global rights to distribute the Strip/Grid Products and electrode cable assembly
products (the “Electrode Cable Assembly Products”). Additionally, the Company granted Zimmer the exclusive right and license
to distribute certain depth electrodes developed by the Company (“SEEG Products”, and together with the Strip/Grid Products
and Electrode Cable Assembly Products, the “Products”). The parties have agreed to collaborate with respect to development
activities under the Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer
and the Company.
Under the terms of the Development Agreement,
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 Development Agreement, Zimmer and the Company have entered
into a Manufacturing and Supply Agreement (the “MS Agreement”) and a supplier quality agreement (the “Quality Agreement”)
with respect to the manufacturing and supply of the Products.
Except as otherwise provided in the Development
Agreement, 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 Development Agreement) for such Product.
Pursuant to the Development Agreement, Zimmer
made an upfront initial exclusivity fee payment of $2.0 million (the “Initial Exclusivity Fee”) to the Company.
Except where Zimmer timely delivers a Design
Modification Notice pursuant to Section 1.2, if one or more of the events set forth below occurs on or before the deadline indicated
for such event and the Product Availability Date (as defined in the Development Agreement) for the SEEG Products occurs on or before
June 30, 2021, then the Company shall receive the additional amount indicated for such event as part of the SEEG Exclusivity Maintenance
Fee:
|
●
|
Design freeze for the SEEG Products by December 15, 2020 - $500,000
|
|
●
|
Acceptance of all Deliverables for SEEG Products under the Development Plan (as defined in the Development Agreement) by April 30, 2021 - $500,000
|
If Zimmer timely delivers a Design Modification
Notice to the Company under the Development Agreement, and one or more of the events set forth below occurs on or before the deadline
indicated for such event and the Product Availability Date for the SEEG Products occurs on or before June 30, 2021, then the Company
shall receive the additional amount indicated for such event as part of the SEEG Exclusivity Maintenance Fee:
|
●
|
Acceptance of all Deliverables for SEEG Products under the Development Plan other than the Modified Connector by April 30, 2021 - $500,000
|
|
●
|
Acceptance of all Deliverables for SEEG Products under the Development Plan, including the Modified Connector by September 30, 2021 - $500,000
|
For purposes of the Development Agreement, each
of the foregoing events shall have occurred only if the Company has demonstrated the achievement of the event to Zimmer’s reasonable
satisfaction. Notwithstanding the foregoing, the events in Sections 6.1(c)(ii), (iii) and (iv) of the Development Agreement shall not
be deemed to be met if FDA Approval for the SEEG Products is not received prior to the applicable deadline.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
In order to maintain the exclusivity of the SEEG
Distribution License, Zimmer must pay the SEEG Exclusivity Maintenance Fee to the Company, on or prior to the SEEG Exclusivity Confirmation
Date, in immediately available funds as follows:
|
●
|
if the Product Availability Date for the SEEG Products occurs on or before June 30, 2021, then $3,000,000, plus the amount of any Interim Fee Bonuses earned pursuant to Section 6.1(c), including any such Interim Fee Bonus earned after June 30, 2021 pursuant to Section 6.1(c)(iv) following the delivery of a Design Modification Notice;
|
|
●
|
if the Product Availability Date for the SEEG Products occurs after June 30, 2021, but on or before September 30, 2021, then $3,000,000, plus if Zimmer timely issues a Design A-9 Modification Notice, any Interim Fee Bonus earned pursuant to Section 6.1(c)(iv);
|
|
●
|
if the Product Availability Date for the SEEG Products occurs after September 30, 2021, but on or before December 31, 2021, then $2,500,000; and
|
|
●
|
if the Product Availability Date for the SEEG Products occurs after December 31, 2021, then $1,500,000.
|
The Product Availability Date for the SEEG Products
has not yet occurred. Notwithstanding any other provision of the Development Agreement, if the Product Availability Date for the SEEG
Products has not occurred on or before June 30, 2022, Zimmer shall have the right to terminate the SEEG Distribution License by delivering
written notice to the Company to that effect and, upon delivery of such notice, Zimmer shall be relieved of all of its obligations hereunder
with respect to SEEG Products, including any obligation to pay the SEEG Exclusivity Maintenance Fee or to purchase, market, distribute
or sell any SEEG Products. The Initial Exclusivity Fee and the SEEG Exclusivity Maintenance Fee (including any Interim Fee Bonus(es)),
once paid, are non-refundable.
The Development Agreement will expire on the
tenth anniversary of the date of the first commercial sale of the last of the Products to achieve a first commercial sale, unless terminated
earlier pursuant to its terms. Either party may terminate the Development Agreement (x) with written notice for the other party’s
material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer
may terminate the Development Agreement for any reason with 90 days’ written notice, and the Company may terminate the Development
Agreement if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company.
At inception of the Zimmer Development Agreement
through December 31, 2021, the Company had identified three performance obligations under the Zimmer Development Agreement and consisted
of the following: (1) the Company obligation to grant Zimmer access to its intellectual property; (2) complete SEEG Product development;
and (3) complete Strip/Grid Product development. Accordingly, the Company recognized revenue in the amount of $6,374 and $22,274 related
to the development of the Products completed during the three month periods ended December 31, 2021 and 2020, respectively, in connection
with the Initial Exclusivity Fee payment. The Zimmer Development Agreement was accounted for under the provisions of ASC 606, Revenue
from Contracts with Customers.
A reconciliation of the closing balance of deferred
revenue related to the Zimmer Development Agreement is as follows during the three months ended as of December 31, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Deferred Revenue
|
|
|
|
|
|
|
Balance as of beginning of period – September 30
|
|
$
|
8,622
|
|
|
$
|
73,434
|
|
Revenue recognized
|
|
|
(6,374
|
)
|
|
|
(22,274
|
)
|
Balance as of end of period – December 31
|
|
$
|
2,248
|
|
|
$
|
51,160
|
|
The remaining performance obligations reflected
in deferred revenue as of December 31, 2021 are expected to be completed in the first half of fiscal year 2022.
Product Revenue
Product revenue recognized during the three month
periods ended December 31, 2021 and 2020 was $33,748 and $71,474, respectively, related to its Strip/Grid Products, SEEG Products and
Electrode Cable Assembly Products.
Advertising Expense
Advertising expense is charged to selling, general
and administrative expenses during the period that it is incurred. Total advertising expense amounted to $61,335 and $29,007 for the
three month periods ended December 31, 2021 and 2020, respectively.
NOTE 8 - Convertible Promissory Notes and
Warrant Agreements
2019 Paulson Convertible Note Offering
On November 1, 2019, the Company entered into
a subscription agreement with certain accredited investors, pursuant to which the Company, in a private placement (the “2019 Paulson
Private Placement”), agreed to issue and sell to the investors 13% convertible promissory notes (each, a “2019 Paulson Note”
and collectively, the “2019 Paulson Notes”) and warrants (each, a “2019 Paulson Warrant” and collectively, the
“2019 Paulson Warrants”) to purchase shares of the Company’s common stock.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
The initial closing of the 2019 Paulson Private
Placement was consummated on November 1, 2019, and, on that date and through December 3, 2019, the Company issued the 2019 Paulson Notes
in an aggregate principal amount of $3,234,800 to the subscribers for gross proceeds equaling the principal amount. The 2019 Paulson
Private Placement terminated on December 3, 2019.
On April 24, 2020, the Company and holders of
a majority in aggregate principal amount of the 2019 Paulson Notes entered into an amendment to the 2019 Paulson Notes (the “Second
2019 Paulson Notes Amendment”) to, among other things:
|
i.
|
Extended the Maturity
Date – The Second 2019 Paulson Notes Amendment extended the maturity date of the 2019 Paulson Notes from May
1, 2020 to November 1, 2020 (in either case, unless a change of control transaction happens prior to such date);
|
|
ii.
|
Revised Optional
Conversion Terms – The Second 2019 Paulson Notes Amendment provided that the amount of shares to be received
upon the a subscriber’s optional conversion of the 2019 Paulson Notes prior to a 2019 Qualified Financing (as defined in the
2019 Paulson Notes) would have equaled: (1) the Outstanding Balance as defined below of such subscriber’s 2019 Paulson Note
elected by the subscriber to be converted divided by (2) an amount equal to 0.6 multiplied by the volume weighted average price of
the common stock for the ten (10) trading days immediately preceding the date of conversion; and
|
|
iii.
|
Revise the Registration
Date – The Second 2019 Paulson Notes Amendment provided that promptly following the earlier of (1) May 1, 2020, if
the applicable subscriber converted all or a majority of the Outstanding Balance of such subscriber’s 2019 Paulson Note prior
to such date; (2) the final closing a 2019 Qualified Financing; and (3) the maturity date, the Company will enter into a registration
rights agreement with the applicable subscriber containing customary and usual terms pursuant to which the Company shall agree to
prepare and file with the SEC a registration statement on or prior to the 90th calendar day following the registration date, covering
the resale of any common stock received on conversion of such 2019 Paulson Notes, and shares of common stock underlying the Warrants.
|
The 2019 Paulson Notes had a fixed interest rate
of 13% per annum and required the Company to repay the principal and accrued and unpaid interest thereon on November 1, 2020 (the “Maturity
Date”). Interest on principal amounted to $5,701 during the three month periods ended December 31, 2020 and was recorded under
the net valuation change of instruments measured at fair value in the condensed statements of operations. The 2019 Paulson Notes were
not outstanding during the three month period ended December 31, 2021.
The Company elected to account for the 2019 Paulson
Notes on a fair value basis under ASC 825 to comprehensively value and streamline the accounting for the embedded conversion options.
Subsequent to issuance, the fair value change of the Paulson Notes amounted to a benefit of $(1,974) during the three months ended December
31, 2020 and was recorded under the net valuation change of instruments measured at fair value in the condensed statements of operations.
Each 2019 Paulson Warrant grants the holder the
option to purchase the number of shares of common stock equal to (i) 0.5 multiplied by (ii) the principal amount of such subscriber’s
2019 Paulson Notes divided by 5.61, with an exercise price per share equal to $5.61. As of the final closing on December 3, 2019, the
Company issued 2019 Paulson Warrants exercisable for 288,305 shares of common stock in connection with all closings of the 2019 Paulson
Private Placement. The 2019 Paulson Warrants are immediately exercisable and expire on November 1, 2022. The exercise price is subject
to adjustment in the event of any stock dividends or splits, reverse stock split, recapitalization, reorganization or similar transaction,
as described therein. The 2019 Paulson warrants were deemed to be a free-standing instrument and were accounted for as equity. Given
that the fair value of the 2019 Paulson Notes exceeded the proceeds received at issuance, there was no value attributed to the 2019 Paulson
Warrants in the condensed financial statements.
Issuance costs during the three month period
ended December 31, 2020 in connection with the 2019 Paulson Private Placement were $3,053 and related to legal costs. The issuance costs
were recorded as a component of interest in the accompanying condensed statements of operations.
During the first quarter of fiscal year 2021,
the remaining holders of the 2019 Paulson Notes elected to convert the remaining outstanding principal and accrued and unpaid interest
in the amount of $615,159 into 292,754 shares of common stock.
NOTE 9 – Stock-Based Compensation
During the three month periods ended December
31, 2021 and 2020, stock-based compensation expense was included in general and administrative and research and development costs as
follows in the accompanying condensed statements of operations.
|
|
2021
|
|
|
2020
|
|
General and administrative
|
|
$
|
163,001
|
|
|
$
|
181,792
|
|
Research and development
|
|
|
40,071
|
|
|
|
64,037
|
|
Total stock-based compensation expense
|
|
$
|
203,072
|
|
|
$
|
245,829
|
|
Stock Options
During the three month period ended December
31, 2021 and 2020, under the 2017 Equity Incentive Plan (the “2017 Plan”), the Company granted 2,000 and 41,669 stock options,
respectively, to its employees and consultants. Vesting generally occurs over an immediate to 48 month period based on a time of service
condition. The grant date fair value of the grants issued during the three month periods ended December 31, 2021 and 2020 was $1.72 and
$1.60 per share, respectively. The total expense for the three months ended December 31, 2021 and 2020 related to stock options was $162,361
and $100,147, respectively. The total number of stock options outstanding as of December 31, 2021 and September 30, 2021 was 1,111,226
and 1,122,560, respectively.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
The weighted-average assumptions used in the
Black-Scholes option-pricing model are as follows for the stock options granted during the three month period ended December 31, 2021
and 2020:
|
|
2021
|
|
|
2020
|
|
Expected stock price volatility
|
|
|
56.0
|
%
|
|
|
54.3
|
%
|
Expected life of options (years)
|
|
|
6.0
|
|
|
|
5.8
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk free interest rate
|
|
|
1.1
|
%
|
|
|
0.5
|
%
|
During the three month periods ended December
31, 2021 and 2020, 18,843 and 71,774 stock options vested, and 13,334 and zero stock options were forfeited during these periods, respectively.
Restricted Stock Units
There were no restricted stock units (“RSUs”)
granted during the three months ended December 31, 2021 and 2020, 5,644 and 8,384 RSUs vested during these periods, respectively. The
total expense for the three months ended December 31, 2021 and 2020 related to these RSUs was $40,711 and $43,082, respectively. No RSUs
were forfeited during the three month periods ended December 31, 2021 and 2020.
Other Stock-Based Awards
In August 2020, an additional consulting agreement
was executed whereby 40,000 shares of common stock were issued, subject to Company repurchase. The stock award under the agreement vested
over a six-month period. As of December 31, 2020, 26,667 shares were vested under this agreement of which 20,000 shares vested during
the first quarter of fiscal year 2021. Compensation expense related to the stock awards granted under this consulting agreement amounted
to $102,600 for the three month ended December 31, 2020 and was included in the total stock-based expense.
No stock-based awards were issued during the
first quarter of fiscal year 2022 and no expense associated with stock awards was recorded during the three months ended December 31,
2021.
Inducement Plan
On October 4, 2021, the Company adopted the NeuroOne
Medical Technologies Corporation 2021 Inducement Plan (the “Plan”), pursuant to which the Company reserved 420,350 shares
of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the
Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4)
of the Nasdaq Listing Rules. The Plan was approved by the Company’s Board of Directors without stockholder approval in accordance
with such rule.
General
As of December 31, 2021, 673,022 shares were
available in the aggregate for future issuance under the 2017 Equity Incentive Plan and Inducement Plan. No shares were available for
future issuance under the 2016 Equity Incentive Plan. Unrecognized stock-based compensation was $1,473,086 as of December 31, 2021. The
unrecognized share-based expense is expected to be recognized over a weighted average period of 2.7 years.
NOTE 10 – Concentrations
Credit Risk
Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash. The Company’s cash is held by a network of financial institutions
in the United States. Amounts on deposit may at times exceed federally insured limits. The Company has not experienced any losses on
its deposits since inception, and management believes that minimal credit risk exists with respect to these financial institutions. As
of December 31, 2021, the Company had no deposits in excess of federally insured amounts.
Revenue
One customer accounts for all of the Company’s product and collaborations
revenue.
Supplier concentration
One contract manufacturer produces all of the Company’s Strip/Grid
Products and SEEG Products.
NOTE 11 – Income Taxes
The effective tax rate for the three months ended
December 31, 2021 and 2020 was zero percent. As a result of the analysis of all available evidence as of December 31, 2021 and September
30, 2021, the Company recorded a full valuation allowance on its net deferred tax assets. Consequently, the Company reported no income
tax benefit during the three months ended December 31, 2021 and 2020. If the Company’s assumptions change and the Company
believes that it will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance
on deferred tax assets will be recognized as a reduction of future income tax expense. If the assumptions do not change, each
period the Company could record an additional valuation allowance on any increases in the deferred tax assets.
NeuroOne Medical Technologies Corporation
Notes to Condensed Financial Statements, continued
(unaudited)
NOTE 12 – Stockholders’ Equity
Public Offering
On October 13, 2021, the Company, entered
into an Underwriting Agreement (the “Underwriting Agreement”) with Craig-Hallum Capital Group LLC, as underwriter (the “Underwriter”),
relating to the issuance and sale of 3,750,000 shares of the Company’s common stock at a price to the public of $3.20 per share.
In addition, under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 30 days, to
purchase up to an additional 562,500 shares of common stock on the same terms. The base offering closed on October 15, 2021, and the
sale of 422,057 shares of common stock subject to the Underwriter’s overallotment option closed on November 15, 2021.
The gross proceeds to the Company from this offering
were approximately $13.4 million prior to deducting underwriting discounts and other offering expenses payable by the Company in
the amount of approximately $1.4 million in the aggregate.
2021 Private Placement
On January 12, 2021, the Company entered into
a Common Stock and Warrant Purchase Agreement (the “2021 Purchase Agreement”) with certain accredited investors (the “Purchasers”),
pursuant to which the Company, in the 2021 Private Placement, agreed to issue and sell an aggregate of 4,166,682 shares (the “Shares”)
of the common stock of the Company, par value $0.001 per share (the “Common Stock”), and warrants to purchase an aggregate
of 4,166,682 shares of Common Stock (the “2021 Warrants”) at an aggregate purchase price of $3.00 per share of Common Stock
and corresponding warrant, resulting in total gross proceeds of $12.5 million before deducting placement agent fees and estimated offering
expenses. The 2021 Warrants have an initial exercise price of $5.25 per share. The 2021 Warrants are exercisable beginning on the date
of issuance and will expire on the fifth anniversary of such date. The 2021 Private Placement closed on January 14, 2021.
Warrant Activity and Summary
The following table summarizes warrant activity
during the three month period ended December 31, 2021:
|
|
|
|
|
Exercise
|
|
|
Weighted
Average
|
|
|
Weighted
Average
|
|
|
|
Warrants
|
|
|
Price
Per Warrant
|
|
|
Exercise
Price
|
|
|
Term
(years)
|
|
Outstanding and exercisable at September 30, 2021
|
|
|
7,503,808
|
|
|
$
|
5.25- $9.00
|
|
|
$
|
6.06
|
|
|
|
3.23
|
|
Issued
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Forfeited/Expired
|
|
|
(750,364
|
)
|
|
$
|
5.40
|
|
|
$
|
5.40
|
|
|
|
—
|
|
Outstanding and exercisable at December 31, 2021
|
|
|
6,753,444
|
|
|
$
|
5.25-$9.00
|
|
|
$
|
6.14
|
|
|
|
3.32
|
|
NOTE 13 – Subsequent Events
2017 Plan Evergreen Provision
Under the 2017 Plan, the shares reserved automatically
increase on January 1st of each year, for a period of not more than ten years from the date the 2017 Plan is approved by the stockholders
of the Company, commencing on January 1, 2019 and ending on (and including) January 1, 2027, to an amount equal to 13% of the fully-diluted
shares outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January
1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in
the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding
sentence. “Fully Diluted Shares” as of a date means an amount equal to the number of shares of common stock (i) outstanding
and (ii) issuable upon exercise, conversion or settlement of outstanding awards under the 2017 Plan and any other outstanding options,
warrants or other securities of the Company that are (directly or indirectly) convertible or exchangeable into or exercisable for shares
of common stock, in each case as of the close of business of the Company on December 31 of the preceding calendar year. Effective January
1, 2022, 1,614,538 shares were added to the 2017 Plan as a result of the evergreen provision.
Stock-Based Awards
On February 3, 2022, the Company granted an aggregate
of 355,950 RSUs to certain officers and employees under the 2017 Plan. The RSUs vest over a three year period with 50 percent vesting
on the first anniversary of the grant date and the remaining RSUs vesting in equal monthly installments on the last day of each month
over 24 months, subject to the recipient’s continued service on such dates.