You should read the following discussion and analysis of financial condition and results of operations of NeuroOne together with our financial statements and the related notes included elsewhere in this Report. References in this discussion to "series" or "notes" refer to all of our outstanding notes as of the relevant date of the item being discussed. References in this discussion to "convertible promissory notes" refer to all of our outstanding convertible promissory notes as of the relevant date of the item being discussed. Overview We are a medical technology company focused on the development and commercialization of thin film electrode technology for continuous electroencephalogram (cEEG) and stereoelectrocencephalography (sEEG), spinal cord stimulation, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson's disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. Additionally, we are investigating the potential applications of our technology associated with artificial intelligence. InNovember 2019 , our Evo cortical technology ("cEEG") received 510(k) clearance from the FDA for recording, monitoring, and stimulating brain tissue for up to 30 days, and inOctober 2022 , we received FDA clearance for our Evo sEEG electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. We completed feasibility bench top testing with a new design of our diagnostic and ablation depth electrode in the first calendar quarter of 2021, and signed a contract with RBC Medical Innovations to develop hardware for the system in the third calendar quarter of 2021. We are targeting the fourth calendar quarter of 2022 for completion of such hardware. We also completed an animal feasibility study atEmory University inSeptember 2021 . Next, we plan to complete additional animal studies through the first quarter of calendar 2023, and submit an application for FDA 510(k) clearance in the second calendar quarter of 2023. Our other products are still under development. We commenced commercial sales of cEEG strip/grid and electrode cable assembly products beginning in the first quarter of fiscal year 2021. We sold, on a limited application basis for design verification, sEEG depth electrode products for non-human use beginning in late fiscal year 2021, and plan to commence commercial sales of our sEEG depth electrode products in early calendar 2023. Our other products are still under development. We have incurred losses since inception. As ofSeptember 30, 2022 , we had an accumulated deficit of$50.8 million , primarily as a result of expenses incurred in connection with our research and development, selling, general and administrative expenses associated with our operations and interest expense, fair value adjustments and loss on extinguishments related to our debt, offset in part by collaborations and product revenues. Prior to FDA clearance of certain of our products, our main sources of cash, cash equivalents and short-term investments were proceeds from the issuances of notes, common stock, warrants and unsecured loans. See "Liquidity and Capital Resources-Capital Resources" below. While we have begun to generate revenue from the sale of products based on our cEEG and sEEG technology and through milestone and other payments from our current collaboration with Zimmer, we expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless we generate a higher level of revenue from commercial sales, and we will need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources. 62NeuroOne Medical Technologies Corporation FORM 10-K We may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize our cortical strip, grid electrode and depth electrode technology and future products and our ability to pursue our business strategy. See "Liquidity and Capital Resources-Liquidity Outlook" below
Recent Developments and Upcoming Milestones
Corporate Updates
Accelerated Zimmer Milestone Payment
In
Distribution Agreement with Zimmer that provided us with a
accelerated payment relating to certain milestone events. As part of the
consideration, Zimmer received a Warrant to purchase 350,000 shares of our
Common Stock, with an exercise price of
Global Economic Conditions
Generally, worldwide economic conditions remain uncertain, particularly due to the effects of the COVID-19 pandemic and increased inflation. The general economic and capital market conditions both in theU.S. and worldwide, have been volatile in the past and at times have adversely affected our access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected. The COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict inUkraine , and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Financial Overview Product Revenue Our product revenue was derived from the sale of our strip and grid cortical electrodes ("Strip/Grid Products") and electrode cable assembly products ("Electrode Cable Assembly Products") based on Evo cortical technology. We anticipate that we will generate additional revenue from the sale of products based on Evo cortical technology. InNovember 2019 , we received FDA 510(k) clearance for our cortical strip electrode for temporary (less than 30 days) recording, monitoring, and stimulation on the surface of the brain. InOctober 2022 , we received FDA 510(k) clearance for our Evo sEEG electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. We expect to begin generating revenue from our depth electrode technology in the first quarter of fiscal 2023. Product Gross Loss
Product gross loss represents our product revenue less our cost of product revenue. Our cost of product revenue consists of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our Strip/Grid Products and outside supplier materials costs of producing the Electrode Cable Assembly Products. In addition, cost of product revenue includes royalty fees incurred in connection with our license agreements. 63NeuroOne Medical Technologies Corporation FORM 10-K Collaborations Revenue OnJuly 20, 2020 , we entered into an exclusive development and distribution agreement (the "Zimmer Development Agreement") with Zimmer, pursuant to which we granted Zimmer exclusive global rights to distribute the Strip/Grid Products and electrode cable assembly products (the "Electrode Cable Assembly Products"). Additionally, we 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 Zimmer Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer and the Company. Under the terms of the Zimmer Development Agreement, we are 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 Zimmer Development Agreement, we are 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 Development Agreement) for such Product. Pursuant to the Zimmer Development Agreement, Zimmer made an upfront initial exclusivity fee payment of$2.0 million (the "Initial Exclusivity Fee") to the Company in fiscal year 2020. In addition, onAugust 2, 2022 , we entered into a Third Amendment to the Zimmer Development Agreement (the "Amendment") with Zimmer. Pursuant to the terms and conditions of the Amendment, Zimmer made a$3.5 million payment to us inAugust 2022 . In consideration of the mutual covenants and agreements contained in the Development Agreement, certain fee and milestone payment provisions in the Development Agreement were replaced with the following below:
?
?
design of SEEG Products set forth in the Development Agreement, even though the
satisfaction was after the deadlines originally identified. In addition, in connection with the Amendment, we issued to 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 our Common Stock. The 2022 Zimmer Warrant has an exercise price of$3.00 per share, will be exercisable commencing six months from the issuance date, and will expire onAugust 2, 2027 .
The Development 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 (the "Zimmer Term"), unless terminated earlier pursuant to its terms. Either party may terminate the Zimmer 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 Zimmer Development Agreement for any reason with 90 days' written notice, and the Company may terminate theZimmer Development 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 Zimmer Development Agreement shall be exclusive from the effective date of the Amendment until the end of the Zimmer Term.
All payments attributed to the Initial Exclusivity Fee, the sEEG exclusivity
maintenance fee and sEEG design milestone payment are non-refundable.
The Zimmer Development Agreement and Amendment were accounted for under the provisions of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"). In accordance with the provisions under ASC 606, we identified five performance obligations under theZimmer Development Agreement and Amendment: (1) our obligation to grant Zimmer access to our intellectual property; (2) completion SEEG Product development; (3) completion of Strip/Grid Product development; (4) the provision of sEEG exclusivity maintenance; and (5) sEEG design modifications as requested by Zimmer. All performance obligations under the Zimmer Development Agreement and Amendment, outside of the sEEG exclusivity maintenance obligation, were met as ofSeptember 30, 2022 . We recognized revenue in the amount of$1,948,872 and$64,812 during the years endedSeptember 30, 2022 and 2021, respectively, in connection with the Zimmer Development Agreement and Amendment. 64NeuroOne Medical Technologies Corporation FORM 10-K
The achievement of the level of sales required to earn royalty payments from
Zimmer is uncertain.
For further discussion about the determination of collaborations revenue, product revenue and cost of product revenue, see "Note 7 -Zimmer Development Agreement" included in "Item 8 - Financial Statements and Supplementary Data" in this Report.
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 and litigation costs relating to corporate matters, intellectual property costs, professional fees for consultants assisting with financial and administrative matters, and sales and marketing in connection with the commercial sale of cEEG strip/grid, sEEG depth electrode and electrode cable assembly products. We anticipate that our selling, general and administrative expenses will significantly increase in the future to support our continued research and development activities, further commercialization of our cortical strip technology, our grid electrode technology, and our depth electrode technology, and the increased costs of operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services, as well as other public company related costs. Research and Development Research and development expenses consist of expenses incurred in performing research and development activities in developing our cortical strip, grid electrode and depth electrode technology. Research and development expenses include compensation and benefits for research and development employees including stock-based compensation, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to consultants and other outside expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. Lastly, de minimis income from the sale of prototype products and related materials are offset against research and development expenses. We expect our research and development expenses to significantly increase over the next several years as we develop our cortical strip, grid electrode and depth electrode technology and conduct preclinical testing and clinical trials and will depend on the duration, costs and timing to complete our preclinical programs and clinical trials. Interest Expense Interest expense consists of interest costs related to our convertible notes issued in 2019 (the "2019 Paulson Notes") outstanding during the first quarter of fiscal year 2021.
Net valuation change of instruments measured at fair value
The net valuation change of instruments measured at fair value included the
change in fair value of the 2019 Paulson Notes while they were outstanding.
Other Income Other income primarily consists of interest income related to our cash, cash equivalents and short-term investments and to proceeds outside of normal operating activity relating to legal settlements and sales of non-commercial supplies. 65NeuroOne Medical Technologies Corporation FORM 10-K Results of Operations
Comparison of the Fiscal Years Ended
The following table sets forth our results of operations for the fiscal years
ended
For the years ended September 30, Period to Period 2022 2021 Change Product revenue$ 171,169 $ 178,146 $ (6,977 ) Cost of product revenue 241,963 275,895 (33,932 ) Product gross loss (70,794 ) (97,749 ) 26,955 Collaborations revenue 1,948,872 64,812 1,884,060 Operating expenses:
Selling, general and administrative 6,979,416
6,260,266 719,150 Research and development 4,929,427 3,925,008 1,004,419 Total operating expenses 11,908,843 10,185,274 1,723,569 Loss from operations (10,030,765 ) (10,218,211 ) 187,446 Interest expense - (3,053 ) 3,053 Net valuation change of instruments measured at fair value - 1,974 (1,974 ) Other income 31,152 271,122 (239,970 ) Net loss$ (9,999,613 ) $ (9,948,168 ) $ (51,445 )
Product Revenue and Product Gross Loss
Product revenue and product gross loss were$0.2 million and$(0.1) million , respectively, during each of the years endedSeptember 30, 2022 and 2021. The product revenue consisted of the sale of Strip/Grid Products and Electrode Cable Assembly Products. Cost of product revenue consisted of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our Strip/Grid Products and outside supplier materials costs in connection with the Electrode Cable Assembly Products. In addition, cost of product revenue included royalty fees incurred, including the royalty fees to WARF and Mayo of$0.1 million in connection with our license agreements during each of the years endedSeptember 31, 2022 and 2021. Collaborations Revenue Collaborations revenue was$1.9 million and$0.1 million during the years endedSeptember 30, 2022 and 2021, respectively. Revenue during the periods presented were derived from the Zimmer Development Agreement and Amendment and represented the portion of our performance obligations that were met in connection with the upfront initial development fee and payments associated with the Amendment.
Selling, general and administrative expenses
Selling, general and administrative expenses were$7.0 million for the year endedSeptember 30, 2022 , compared to$6.3 million for the year endedSeptember 30, 2021 . The increase of$0.7 million was primarily due to an increase in legal and litigation settlement costs of$0.8 million , public company costs largely in connection with the Nasdaq up-listing of$0.6 million and other operating costs on a net basis of$0.1 million , offset partially by a reduction in stock-based compensation of$0.8 million .
Research and development expenses
Research and development expenses were$4.9 million for the year endedSeptember 30, 2022 , compared to$3.9 million for the year endedSeptember 30, 2021 . The$1.0 million increase during fiscal 2022 over the comparable prior year period was due to an increase in supporting development activities largely attributed to our Evo sEEG electrode technology, which primarily included salary-related expenses and other costs of consulting services, materials and supplies. 66NeuroOne Medical Technologies Corporation FORM 10-K Interest expense Interest expense for the year endedSeptember 30, 2021 was$3,000 and consisted of issuance costs in connection with our 2019 Paulson Notes described further below. We did not incur any interest expense in fiscal year 2022.
Net valuation change of instruments measured at fair value
The net valuation change of instruments measured at fair value for the year 2021 was a benefit of$(2,000) attributed to the fair value change of Paulson Notes while they were outstanding. We did not have any instruments measured at fair value during fiscal year 2022. Other Income
Other income during the year ended
on our cash, cash equivalents and short-term investments in the amount of
principally of proceeds received in connection with the
litigation in the amount of
paycheck protection program loan in the amount of
Liquidity and Capital Resources
Overview As ofSeptember 30, 2022 , our principal source of liquidity consisted of cash, cash equivalents and short-term investments in the aggregate of approximately$11.1 million . While we began to generate revenue in fiscal year 2021 from commercial sales and through milestone and other payments under our collaboration with Zimmer, we expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless we generate an adequate level of revenue from commercial sales to cover expenses. Our most significant cash requirements relate to the funding of our ongoing product development and commercialization operations and our royalty obligations under our intellectual property licenses with theWisconsin Alumni Research Foundation ("WARF") and theMayo Foundation for Medical Education and Research ("Mayo"). Our additional material cash needs include commitments under operating leases and other administrative services. See "Funding Requirements" below for more information. We anticipate that our expenses will increase substantially as we develop and commercialize our cortical strip, grid electrode and depth electrode technology and pursue pre-clinical and clinical trials, seek regulatory approvals, manufacture products, establish our own sales, marketing and distribution infrastructure to commercialize our ablation electrode technology, hire additional staff, add operational, financial and management systems and continue to operate as a public company. Capital Resources Our sources of cash, cash equivalents and short-term investments to date have been limited to collaboration and product revenues, along with proceeds from the issuances of notes with warrants, common stock with and without warrants and unsecured loans with the terms of our financings described below.
OnOctober 13, 2021 , we entered into an underwriting agreement relating to the issuance and sale of 3,750,000 shares of our common stock at a price to the public of$3.20 per share (the "October 2021 Underwritten Public Offering"). In addition, under the terms of the underwriting agreement, we 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 onOctober 15, 2021 , and the sale of 422,057 shares of common stock subject to the underwriter's overallotment option closed onNovember 15, 2021 . The gross proceeds from this offering were approximately$13.4 million prior to deducting underwriting discounts and other offering expenses payable by us. 67NeuroOne Medical Technologies Corporation FORM 10-K 2021 Private Placement OnJanuary 12, 2021 , we entered into a purchase agreement with certain accredited investors, pursuant to which the Company, in a private placement (the "2021 Private Placement"), agreed to issue and sell an aggregate of 4,166,682 shares of the common stock of the Company, 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 became immediately exercisable beginning on the date of issuance and will expire on the fifth anniversary of such date. Prior to expiration, subject to the terms and conditions set forth in the 2021 Warrants, the holders of such 2021 Warrants may exercise the 2021 Warrants for shares of common stock by providing notice to the Company and paying the exercise price per share for each share so exercised or by utilizing the "cashless exercise" feature contained in each 2021 Warrant. The 2021 Private Placement closed onJanuary 14, 2021 . Common Stock Offerings OnJuly 24, 2020 , we entered into a securities purchase agreement ("2020 Purchase Agreement") with an accredited investor pursuant to which we, in a private placement, issued and sold 25,000 shares of the Company's common stock for gross proceeds in the amount of$135,000 . Under the 2020 Purchase Agreement, we agreed to use the net proceeds from the private placement for funding operations or working capital and general corporate purposes. We granted the investor indemnification rights with respect to representations, warranties and agreements under the 2020 Purchase Agreement. OnOctober 23, 2019 , the Company entered into securities purchase agreements with certain accredited investors, pursuant to which the Company, in a private placement, issued and sold 47,223 shares of the Company's common stock to the accredited investors at a price of$5.40 per share, for gross proceeds amounting to$0.3 million before deducting offering expenses.
2020 Paulson Convertible Notes
OnApril 30, 2020 , the Company entered into a subscription agreement with certain accredited investors, pursuant to which the Company, in a private placement (the "2020 Paulson Private Placement"), agreed to issue and sell to the investors 13% convertible promissory notes (each, a "2020 Paulson Note" and collectively, the "2020 Paulson Notes") and warrants (each, a "2020 Paulson Warrant" and collectively, the "2020 Paulson Warrants") to purchase shares
of the Company's common stock. BetweenApril 30, 2020 andJune 30, 2020 , the Company issued 2020 Paulson Notes in an aggregate principal amount of$5.1 million to the Subscribers. The final closing under the 2020 Paulson Private Placement occurred onJune 30, 2020 . InJuly 2020 , all remaining 2020 Paulson Notes outstanding were automatically converted into common stock following the announcement of a Strategic Transaction (as defined in the 2020 Paulson Notes) withZimmer, Inc. Refer to "Liquidity and Capital Resources-Historical Capital Resources" in our Annual Report on Form 10-K for the year endedSeptember 30, 2021 for additional information related to the 2020 Paulson Convertible Notes.
2019 Paulson Convertible Notes
OnNovember 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. 68NeuroOne Medical Technologies Corporation FORM 10-K
The initial closing of the private placement was consummated onNovember 1, 2019 , and, on that date and throughDecember 3, 2019 , the Company issued 2019 Paulson Notes in an aggregate principal amount of$3,234,800 to the Subscribers for gross proceeds equaling the principal amount. The private placement terminated onDecember 3, 2019 . BetweenApril 24, 2020 andDecember 15, 2020 , all of the holders elected to convert outstanding principal and accrued and unpaid interest of 2019 Paulson Notes in the amount of$3,453,883 into shares of common stock. Refer to "-Liquidity and Capital Resources-Historical Capital Resources" in our Annual Report on Form 10-K for the year endedSeptember 30, 2021 for additional information related to the 2019 Paulson Convertible Notes.
Paycheck Protection Program Loan
In connection with the CARES Act, the Company received loan funding of
approximately
forgiven by the
Funding Requirements As noted above, certain of our cash requirements relate to the funding of our ongoing product development and commercialization operations and our milestone and royalty obligations under our intellectual property licenses with theWisconsin Alumni Research Foundation ("WARF") and theMayo Foundation for Medical Education and Research ("Mayo"). See "Item 1-Business-Clinical Development and Regulatory Pathway-Clinical Experience,Future Development and Clinical Trial Plans" in the Report for a discussion of design, development, pre-clinical and clinical activities that we may conduct in the future, including expected cash expenditures required for some of those activities, to the extent we are able to estimate such costs. OnJanuary 22, 2020 , we entered into an Amended and Restated License Agreement (the "WARF License") with WARF, which amended and restated in full our prior license agreement with WARF, datedOctober 1, 2014 (the "Original WARF License"). Under the WARF License, 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.
Under the Amended and Restated License and Development Agreement with Mayo (the "Mayo Development Agreement"), we have agreed to pay Mayo a royalty equal to a single-digit percentage of our product sales pursuant to theMayo Development Agreement. See "Note 4 - Commitments and Contingencies" included in our financial statements included in "Item 8 - Financial Statements and Supplementary Data" in this Report for more information about the WARF License and the Mayo Development Agreement. Our other cash requirements within the next twelve months include accounts payable, accrued expenses, purchase commitments and other current liabilities. Our other cash requirements greater than twelve months from various contractual obligations and commitments include operating leases and contracted services. Refer to "Note 4 - Commitments and Contingencies" included in our financial statements included in "Item 8 - Financial Statements and Supplementary Data" in this Report for further detail of our lease obligations and the timing of expected future payments. Contracted services include agreements with third-party service providers for clinical research, product development, manufacturing, supplies, payroll services, equipment maintenance services, and audits for periods up to fiscal 2024. We expect to satisfy our short-term and long-term obligations through cash on hand and, until we generate an adequate level of revenue from commercial sales to cover expenses, if ever, from future equity and debt financings. Liquidity Outlook For a discussion of potential fee payments under theZimmer Development Agreement, see "Note 7 - Zimmer Development Agreement" included in our financial statements included in "Item 8 - Financial Statements and Supplementary Data" in this Report. Even though we have received regulatory clearance to expand the use of our Evo sEEG Electrode technology for up to 30 days, we don't anticipate that commercial sales of the sEEG Electrode will begin until early 2023. Zimmer has exclusive global rights to distribute our strip and grid cortical electrodes, depth electrodes and electrode cable assembly products. Zimmer's failure to timely develop or commercialize these products would have a material adverse effect on our business and operating results. 69NeuroOne Medical Technologies Corporation FORM 10-K AtSeptember 30, 2022 , we had cash, cash equivalents and short-term investments in the aggregate of approximately$11.1 million . Management has noted the existence of substantial doubt about our ability to continue as a going concern. Additionally, our independent registered public accounting firm included an explanatory paragraph in the report on our financial statements as of and for the years endedSeptember 30, 2022 and 2021, respectively, noting the existence of substantial doubt about our ability to continue as a going concern. Our existing cash, cash equivalents and short-term investments may not be sufficient to fund our operating expenses through at least twelve months from the date of this filing. To continue to fund operations, we will need to secure additional funding through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital when needed could compromise our ability to execute on our business plan. If we are unable to raise additional funds, or if our anticipated operating results are not achieved, we believe planned expenditures may need to be reduced in order to extend the time period that existing resources can fund our operations. If we are unable to obtain the necessary capital, it may have a material adverse effect on our operations and the development of our technology, or we may have to cease operations altogether. The development and commercialization of our cortical strip, grid electrode and depth electrode technology is subject to numerous uncertainties, and we could use our cash, cash equivalent and short-term investment resources sooner than we expect. Additionally, the process of developing medical devices is costly, and the timing of progress in pre-clinical tests and clinical trials is uncertain. Our ability to successfully transition to profitability will be dependent upon achieving further regulatory approvals and achieving a level of product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Cash Flows The following is a summary of cash flows for each of the periods set forth below. For the Years EndedSeptember 30, 2022 2021
Net cash used in operating activities
Net cash used in investing activities (3,244,765 ) (67,079 )
Net cash provided by financing activities 12,023,282 11,534,854
Net increase in cash
$ 1,258,983 $ 2,864,949
Net cash used in operating activities
Net cash used in operating activities was$7.5 million for the year endedSeptember 30, 2022 , which consisted of a net loss of$10.0 million partially offset primarily by stock-based compensation, depreciation, amortization related to intangible assets and to short-term investment discounts and premiums, non-cash lease expense and non-cash consideration associated with the Zimmer Development Agreement, totaling approximately$1.3 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a cash source of approximately$1.2 million . The year on year change in operating assets and liabilities was primarily attributable to a net increase in accounts payable, accrued expenses and deferred revenue, offset partially by increases in inventory purchases and prepaid expenses. Net cash used in operating activities was$8.6 million for the year endedSeptember 30, 2021 , which consisted of a net loss of$9.9 million partially offset primarily by stock-based compensation, depreciation, amortization related to intangible assets, revaluation of convertible notes, non-cash lease expense and Paycheck Protection Program loan forgiveness, totaling approximately$1.9 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a cash use of approximately$0.5 million . The year on year change in operating assets and liabilities was primarily attributable to a net decrease in accounts payable and accrued expenses, and by an increases in inventory purchases, accounts receivable and prepaid expenses. 70NeuroOne Medical Technologies Corporation FORM 10-K
Net cash used in investing activities
Net cash used by investing activities for the year endedSeptember 30, 2022 was$3.2 million and consisted of purchases of short-term investments consisting of treasury and corporate notes of approximately$3.5 million and outlays for purchases of property and equipment of$0.3 million which were partially offset by maturities of short-term investments in the amount of$0.5 million .
Net cash used by investing activities for the year ended
Net cash provided by financing activities
Net cash provided by financing activities was
Underwritten Public Offering.
Net cash provided by financing activities was$11.5 million for the year endedSeptember 30, 2021 , which consisted primarily of net proceeds received upon the issuance of the 2021 Private Placement in the amount of$11.3 million in the aggregate. There were also exercises of stock options and warrants during the year endedSeptember 30, 2021 resulting in additional cash proceeds of$0.3 million , offset in part by deferred offering costs of$49,000 .
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance withU.S. generally accepted accounting principles. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonably based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in "Note 3 - Summary of Significant Accounting Policies" to our financial statements included in "Item 8 - Financial Statements and Supplementary Data" in this Report.
Of these policies, the following are considered critical to an understanding of
our financial statements included in “Item 8 – Financial Statements and
Supplementary Data” in this Report that require the application of the most
subjective and the most complex judgments:
Revenues: For discussion about the determination of collaborations revenue, product revenue and cost of product revenue, see "Note 7 - Zimmer Development Agreement" included in "Item 8 - Financial Statements and Supplementary Data" in this Report. To date, we have not had, nor expect to have in the future, significant variable consideration adjustments related to product revenue, such as chargebacks, sales allowances and sales returns. Stock-based Compensation For discussions about the application of grant date fair value associated with our stock-based compensation, see "Note 9 - Stock-Based Compensation" included in "Item 8 - Financial Statements and Supplementary Data" in this Report. 71NeuroOne Medical Technologies Corporation FORM 10-K
Income Tax Assets and Liabilities
Income tax assets and liabilities include income tax valuation allowances. For
additional information, see “Note 11 – Income Taxes” included in “Item 8 –
Financial Statements and Supplementary Data” in this Report.
Contingencies
We are subject to numerous contingencies arising in the ordinary course of business, including legal contingencies. For additional information, see "Note 4 - Commitments and Contingencies" included in "Item 8 - Financial Statements and Supplementary Data" in this Report.
Recent Accounting Pronouncements
See "Note 3 - Summary of Significant Accounting Policies" included in "Item 8 - Financial Statements and Supplementary Data" in this Report regarding the impact of certain recent accounting pronouncements on our financial statements.
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