0001213900-20-012278.txt : 20200514 0001213900-20-012278.hdr.sgml : 20200514 20200514162022 ACCESSION NUMBER: 0001213900-20-012278 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200514 DATE AS OF CHANGE: 20200514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEUROONE MEDICAL TECHNOLOGIES Corp CENTRAL INDEX KEY: 0001500198 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 270863354 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54716 FILM NUMBER: 20878078 BUSINESS ADDRESS: STREET 1: 7599 ANAGRAM DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: (952) 426-1383 MAIL ADDRESS: STREET 1: 7599 ANAGRAM DR CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: Original Source Entertainment, Inc. DATE OF NAME CHANGE: 20100830 10-Q 1 f10q0320_neuroonemed.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the Quarterly Period Ended March 31, 2020

 

-OR-

 

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transaction period from _________ to_________

 

Commission File Number: 000-54716

 

NeuroOne Medical Technologies Corporation

(Exact name of Registrant as specified in its charter)

 

Delaware   27-0863354
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification Number)
     
7599 Anagram Drive
Eden Prairie, MN
  55344
(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: 952-426-1383

 

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
 N/A   N/A     N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer Non-accelerated filer
Accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of outstanding shares of the registrant’s common stock as of May 8, 2020 was 16,154,122.

 

 

 

 

 

 

NEUROONE MEDICAL TECHNOLOGIES CORPORATION

FORM 10-Q

INDEX

 

    Page
  PART 1 – FINANCIAL INFORMATION  
Item 1. Financial Statements 1
  Condensed Balance Sheets as of March 31, 2020 (unaudited) and September 30, 2019 1
  Condensed  Statements of Operations for the three and six months ended March 31, 2020 and 2019 (unaudited) 2
  Condensed Statements of Changes in Stockholders’ Deficit for the three and six months ended March 31, 2020 and 2019 (unaudited) 3
  Condensed Statements of Cash Flows for the six months ended March 31, 2020 and 2019 (unaudited) 4
  Notes to Condensed Financial Statements (unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 33
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 37
     
SIGNATURES 38

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NeuroOne Medical Technologies Corporation

Condensed Balance Sheets

 

   As of 
   March 31,
2020
   September 30,
2019
 
   (unaudited)     
Assets        
Current assets:        
Cash  $747,244   $260,749 
Prepaid and other assets   81,305    41,002 
Total current assets   828,549    301,751 
Right-of-use asset   308,055     
Intangible assets, net   167,680    178,838 
Property and equipment, net   84,943    52,026 
Total assets  $1,389,227   $532,615 
           
Liabilities and Stockholders’ Deficit          
Current liabilities:          
Accounts payable  $1,077,225   $1,152,472 
Accrued expenses   291,874    617,721 
Convertible promissory notes (Note 7)   4,921,076     
Total current liabilities   6,290,175    1,770,193 
Lease liability   284,235     
Total liabilities   6,574,410    1,770,193 
           
Commitments and contingencies (Note 4)          
           
Stockholders’ deficit:          
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2020 and September 30, 2019; no shares issued or outstanding as of March 31, 2020 and September 30, 2019.        
Common stock, $0.001 par value; 100,000,000 shares authorized as of March 31, 2020 and September 30, 2019; 14,022,423 and 13,493,705 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively.   14,023    13,494 
Additional paid–in capital   18,022,373    15,987,799 
Accumulated deficit   (23,221,579)   (17,238,871)
Total stockholders’ deficit   (5,185,183)   (1,237,578)
Total liabilities and stockholders’ deficit  $1,389,227   $532,615 

 

See accompanying notes to condensed financial statements

 

1

 

 

NeuroOne Medical Technologies Corporation

Condensed Statements of Operations

(unaudited)

 

   For the Three Months Ended   For the Six Months Ended 
   March 31,   March 31, 
   2020   2019   2020   2019 
Operating expenses:                
General and administrative  $1,035,256   $1,084,789   $2,347,422   $1,951,468 
Research and development   342,102    436,311    843,921    645,479 
Total operating expenses   1,377,358    1,521,100    3,191,343    2,596,947 
Loss from operations   (1,377,358)   (1,521,100)   (3,191,343)   (2,596,947)
Interest expense       (20,534)   (2,697,507)   (284,557)
Net valuation change of instruments measured at fair value   31,716    (116,809)   (93,858)   (129,763)
Loss on notes extinguishment       (553,447)       (553,447)
Loss before income taxes   (1,345,642)   (2,211,890)   (5,982,708)   (3,564,714)
Provision for income taxes                
Net loss  $(1,345,642)  $(2,211,890)  $(5,982,708)  $(3,564,714)
                     
Net loss per share:                    
Basic and diluted  $(0.10)  $(0.20)  $(0.43)  $(0.34)
Number of shares used in per share calculations:                    
Basic and diluted   13,904,429    10,971,425    13,780,509    10,360,696 

 

See accompanying notes to condensed financial statements

 

2

 

 

NeuroOne Medical Technologies Corporation

Condensed Statements of Changes in Stockholders’ Deficit

(unaudited)

 

           Additional       Total 
   Common Stock   Paid–In   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Equity (Deficit) 
Balance at September 30, 2018   9,656,505   $9,657   $6,052,161   $(10,457,710)  $(4,395,892)
Issuance of common stock under 2018 and 2019 private placements   330,000    330    601,319        601,649 
Issuance of warrants under 2018 and 2019 private placements           223,351        223,351 
Issuance costs related to 2018 and 2019 private placements           (149,316)       (149,316)
Issuance of common stock for consulting services   50,000    50    114,950        115,000 
Net loss               (1,352,824)   (1,352,824)
Balance at December 31, 2018   10,036,505    10,037    6,842,465    (11,810,534)   (4,958,032)
Issuance of common stock under 2019 private placement   1,743,979    1,744    3,164,640        3,166,384 
Issuance of warrants under 2019 private placements           1,193,564        1,193,564 
Issuance costs related to 2019 and 2018 private placements           (698,777)       (698,777)
Issuance of common stock upon conversion of convertible promissory notes   839,179    839    1,920,881        1,921,720 
Issuance of warrants and reclassification of warrant liability upon conversion of convertible promissory notes           1,565,402        1,565,402 
Share–based compensation — employee           30,085        30,085 
Share–based compensation — non–employee           16,569        16,569 
Exercise of stock options   93,555    94    3,179        3,273 
Exercise of warrants   231,296    231    416,102        416,333 
Net loss               (2,211,890)   (2,211,890)
Balance at March 31, 2019   12,944,514   $12,945   $14,454,110   $(14,022,424)  $444,631 
                          
Balance at September 30, 2019   13,493,705   $13,494   $15,987,799   $(17,238,871)  $(1,237,578)
Issuance of common stock under securities purchase agreement   141,666    142    254,858        255,000 
Issuance of warrants in connection with convertible notes offering           419,635        419,635 
Stock-based compensation           463,084        463,084 
Issuance of common stock for consulting services   90,000    90    124,503        124,593 
Issuance of common stock upon vesting of restricted stock units   10,503    11    (11)        
Net loss               (4,637,066)   (4,637,066)
Balance at December 31, 2019   13,735,874    13,737    17,249,868    (21,875,937)   (4,612,332)
                          
Conversion of convertible notes into common stock   60,847    61    239,461        239,522 
Exercise of stock options   42,525    42    1,446        1,488 
Stock-based compensation           88,806        88,806 
Issuance of common stock for consulting services   61,000    61    153,520        153,581 
Issuance of common stock upon vesting of restricted stock units   122,177    122    289,272        289,394 
Net loss               (1,345,642)   (1,345,642)
Balance at March 31, 2020   14,022,423   $14,023   $18,022,373   $(23,221,579)  $(5,185,183)

 

See accompanying notes to condensed financial statements

 

3

 

 

NeuroOne Medical Technologies Corporation

Condensed Statements of Cash Flows

(unaudited)

 

   For the six months ended
March 31,
 
   2020   2019 
Operating activities        
Net loss  $(5,982,708)  $(3,564,714)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization and depreciation   20,965    10,622 
Stock-based compensation   1,119,458    189,197 
Non-cash interest on convertible notes   1,831,940    51,333 
Non-cash discount amortization on convertible notes       233,224 
Revaluation of convertible notes   93,858     
Revaluation of premium conversion derivatives and warrant liability       129,763 
Issuance costs attributed to financing activities   865,567     
Loss on notes extinguishment       553,447 
Lease liability principal payment deferral   4,038      
Right-of-use asset depreciation adjustment   (4,038)     
Change in assets and liabilities:          
Prepaid and other assets   (40,303)   (74,574)
Accounts payable and other accrued liabilities   (383,855)   (104,578)
Net cash used in operating activities   (2,475,078)   (2,576,280)
Investing activities          
Purchase of fixed assets and intangible assets   (40,224)   (65,000)
Net cash used in investing activities   (40,224)   (65,000)
Financing activities          
Proceeds from issuance of convertible promissory notes   3,234,800     
Issuance costs related to convertible notes   (417,176)    
Proceeds from unsecured loans       245,000 
Proceeds from issuance of common stock in connection with private placements   255,000    3,768,032 
Proceeds from issuance of warrants in connection with private placements       1,416,915 
Exercise of warrants       416,333 
Exercise of stock options   1,488    3,273 
Repayment of unsecured loans       (299,000)
Issuance costs related to private placements   (72,315)   (617,134)
Net cash provided by financing activities   3,001,797    4,933,419 
Net increase in cash   486,495    2,292,139 
Cash at beginning of period   260,749    13,260 
Cash at end of period  $747,244   $2,305,399 
Supplemental non-cash financing and investing transactions:          
Conversion of convertible promissory notes to equity  $   $1,678,361 
Exercise of premium conversion derivative liability  $   $419,590 
Reclassification of warrant liability to equity  $   $835,723 
Unpaid issuance costs attributed to convertible notes and private placement  $28,756   $230,959 
Broker warrants issued in connection with convertible notes  $419,635   $ 
Purchased fixed assets in accounts payable and accrued expenses  $2,500   $ 
Operating lease right of use asset obtained in exchange for operating lease  $335,119   $ 

 

See accompanying notes to condensed financial statements 

 

4

 

         

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

NOTE 1 – Description of Business and Basis of Presentation

 

NeuroOne Medical Technologies Corporation (the “Company”), a Delaware Corporation, is an early-stage medical technology company developing comprehensive neuromodulation cEEG and sEEG monitoring, ablation, and brain stimulation solutions to diagnose and treat patients with epilepsy, Parkinson’s disease, essential tremors, and other brain related disorders.

 

To date, the Company has recorded no product sales and has a limited expense history. The Company is currently raising capital to fund the development of its proprietary technology. The Company received clearance to market the initial device and expect to submit for additional clearance for a second product by end of year. The Company is also evaluating different options for commercializing the current approved device.

 

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, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, the Company has experienced delays and disruptions in its pre-clinical and clinical trials, as well as interruptions in its manufacturing, supply chain, and research and development operations. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact our business and pre-clinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, 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. The COVID-19 pandemic may also impact the Company’s ability to secure additional financing or its ability to up-list from its current OTC Market (“OTCQB”), and may result in further modifications to its debt agreements. See NOTE 12 – Subsequent Events. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.

 

Basis of presentation

 

The accompanying condensed financial statements have been prepared by the Company, without audit, 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, 2019 included in the Annual Report on Form 10-K. The condensed balance sheet at September 30, 2019 was derived from the audited financial statements of the Company.

 

In December 2019, the Company merged its wholly owned subsidiary, NeuroOne Inc., into NeuroOne Medical Technologies Corporation. The merger of the Company’s wholly owned subsidiary did not have a financial impact to the periods presented. Upon close of the merger, the Company did not have any remaining entities that required consolidation for financial statement reporting purposes.

 

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.

 

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 and has negative working capital, negative cash flows from operations, and an accumulated deficit of $23,221,579 as of March 31, 2020. The Company has not established a source of revenues to cover its 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. These factors raise substantial doubt about its ability to continue as a going concern. The condensed financial statements do not include any adjustments that might result from the outcome of this condition. Management intends to continue to seek additional financing to fund operations. If the Company is not able to raise additional working capital, it will have a material adverse effect on the operations of the Company and the development of its technology.

 

5

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

The Company does not have adequate liquidity to fund its operations without raising additional funds. Management intends to continue to seek additional debt and/or equity financing to fund operations. However, these actions are not solely within the control of the Company. 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. If management is unable to obtain the necessary capital, it may have to cease operations.

 

NOTE 3 – Summary of Significant Accounting Policies

 

Management’s Use of Estimates

 

The preparation of condensed 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 and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Concentration of 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 one financial institution in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. As of March 31, 2020, the Company did have deposits in excess of federally insured amounts by $497,244.

 

Common Stock Valuation

 

The Company has been utilizing pricing as quoted on the OTC Market as the basis for the fair value of the Company’s common stock since September 30, 2019. Prior to September 30, 2019, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock (the “AICPA Valuation Framework”). The valuation methodology included estimates and assumptions that required the Company’s judgment. These estimates and assumptions included a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, and the likelihood of achieving a liquidity event, such as an offering or sale. Significant changes to the key assumptions used in the valuations would result in different fair values of common stock at each of those valuation dates.

 

The fair value the Company’s common stock is used as an input into the fair value determination of instruments recorded at fair value and stock option or other equity awards that the Company has issued.

   

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 condensed 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:

 

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the Company at the measurement date.

 

6

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

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 March 31, 2020 and September 30, 2019, the fair values of cash, prepaid, 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 outstanding during the three and six month period ended March 31, 2020 were based on both the fair value of our common stock 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.

 

The estimated fair value of the convertible promissory notes of the Company that were outstanding during the three and six month period ended March 31, 2019 were based on amortized cost which was deemed to approximate fair value. The fair value of the warrant liability and the premium conversion derivatives associated with the convertible promissory notes outstanding during fiscal 2019 were based on both the estimated fair value of our common stock and cash flow models discounted at the then current implied market rates evidenced in arms-length transactions representing expected returns by market participants for similar instruments during that period and were based on Level 3 inputs.

 

There were no transfers between fair value hierarchy levels during the three and six months ended March 31, 2020 and 2019.

 

The fair value of financial instruments measured on a recurring basis is as follows:

 

   As of March 31, 2020 
Description  Total   Level 1   Level 2   Level 3 
Liabilities:                
Convertible Notes  $4,921,076           $4,921,076 
Total liabilities at fair value  $4,921,076           $4,921,076 

 

The following table provides a roll-forward of the convertible notes, warrant liability and premium debt conversion derivatives measured at fair value on a recurring basis using unobservable level 3 inputs for the six month periods ended March 31 as follows:

 

   2020 
Convertible notes    
Balance as of beginning of period – September 30, 2019  $ 
Fair value attributed to convertible promissory notes upon issuance   5,066,740 
Conversion of convertible promissory notes to common stock   (239,522)
Change in fair value including accrued interest   93,858 
Balance as of end of period – March 31, 2020  $4,921,076 

 

   2019 
Warrant liability    
Balance as of beginning of period – September 30, 2018  $817,155 
Change in fair value of warrant liability   18,568 
Reclassification to equity upon conversion of convertible promissory notes   (835,723)
Balance as of end of period – March 31, 2019  $ 

  

7

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

   2019 
Premium debt conversion derivatives    
Balance as of beginning of period – September 30, 2018  $308,395 
Change in fair value of premium debt conversion derivatives   111,195 
Reclassification to equity upon conversion of convertible promissory notes   (419,590)
Balance as of end of period – March 31, 2019  $ 

 

Intellectual Property

 

The Company has entered into two licensing agreements with major research institutions, which allows 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.

 

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.

 

Debt Issuance Costs

 

Debt issuance costs are recorded as a reduction of the convertible promissory notes when applicable. Amortization of debt issuance costs is calculated using the straight-line method over the term of the convertible promissory notes, which approximates the effective interest method, and is recorded in interest expense in the accompanying condensed statements of operations.

   

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. Nonrefundable 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. Lastly, de minimis income from the sale of prototype products and related materials is offset against research and development expenses.

 

8

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

Warrant Liability

 

The Company issued warrants to purchase equity securities in connection with the issuance or amendment of the convertible promissory notes. The Company accounts for these warrants as a liability at fair value when the number of shares is not fixed and determinable. Additionally, issuance costs associated with the warrant liability are expensed as incurred and reflected as interest expense in the accompanying condensed statements of operations. The Company adjusts the liability for changes in fair value until the earlier of the exercise or expiration of the warrants for any period when pricing protections in future equity financings remain in place, or until such time, if any, as the number of shares to be exercised becomes fixed, at which point the warrants will be classified in stockholders’ (deficit) equity provided that there are sufficient authorized and unissued shares of common stock to settle the warrants and redeem any other contracts that may require settlement in shares of common stock. Any future change in fair value of the warrant liability, when outstanding, is recognized in the condensed statements of operations.

  

 Premium Debt Conversion Derivatives

 

The Company evaluates all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method.  The separated embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a separated embedded derivative at each reporting period in the condensed statements of operations based on the fair value of its common stock 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.

 

 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 convertible promissory notes, 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. Diluted earnings with respect to the convertible promissory utilize the if-converted method. 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 and six month periods ended March 31, 2020 and 2019.

   

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 and six month periods ended March 31, 2020 and 2019:

 

   2020   2019 
Warrants   8,389,987    6,448,613 
Stock options   1,355,512    600,209 
Restricted stock units   59,090     
Convertible notes   1,648,287     

 

9

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017 and July 2018. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. The Company adopted the new standard on October 1, 2019 and did not have a material impact on the Company’s statements of comprehensive loss or statements of cash flows for agreements in place as of the adoption date. As such, the Company did not restate comparative periods and did not recognize any cumulative adjustment to retained earnings on the date of the adoption. The Company elected the short-term lease expedient upon adoption of the standard. See NOTE 4 – Commitments and Contingencies with regard to a new operating lease that commenced after the adoption date on November 1, 2019.

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018 for public business entities, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance on October 1, 2019, and the new guidance did not have an impact on the Company’s financial statements as of the adoption date.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The new guidance modifies the disclosure requirements in Topic 820 as follows:

 

  Removals: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements.
     
  Modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

 

  Additions: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

 

This guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the new guidance and does not expect that it will have a material impact 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 does not expect that the adoption of this new guidance will have a material impact on the Company’s financial statements.

 

10

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

 NOTE 4 – Commitments and Contingencies

 

WARF License amendment

 

The Company entered into an Amended and Restated Exclusive Start-up Company License Agreement (the “WARF License”) with Wisconsin Alumni Research Foundation (“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.

 

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. The Company has agreed to pay WARF a royalty equal to a single-digit percentage of its 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 the Company or any of its 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 the Company 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 if the Company defaults on the payments of amounts due to WARF or fails to timely submit development reports, or breaches any other covenant in the WARF License and fails to remedy such default in ninety (90) days or in the event of certain bankruptcy events involving the Company. WARF may also terminate the WARF License on ninety (90) days’ notice if the Company fails to have commercial sales of one or more FDA-approved products under the WARF License by June 30, 2020. The WARF License otherwise expires by its terms (i) on the date that no valid claims on the patents licensed thereunder remain or (ii) upon the cessation for more than four (4) calendar quarters of the payment, once begun, of earned royalties under certain sections of the WARF License. The Company expects the latest expiration of a licensed patent to occur in 2030.

 

In addition, WARF reserves the right to grant non-profit research institutions and government agencies non-exclusive licenses to practice and use the inventions of the licensed patents for non-commercial research purposes, and the Company grants WARF a non-exclusive, sub licensable, royalty-free right and license for non-commercial research purposes to use improvements to the licensed patents. In the event that the Company discontinues use or commercialization of the licensed patents or improvements thereon, the Company must grant WARF an option to obtain a non-exclusive, sub-licensable royalty-bearing license to use the improvements for commercial purposes.

 

Legal 

 

From time to time, the Company is subject to litigation and claims arising in the ordinary course of business. In May 2017, NeuroOne received a letter from PMT Corporation (“PMT”), the former employer of Mark Christianson and Wade Fredrickson. PMT claimed that these officers had breached their restrictive covenant obligations with PMT by virtue of their work for NeuroOne and such officer’s prior work during employment with the prior employer, that these officers had breached their confidentiality and non-disclosure obligations to PMT and federal and state law by misappropriating confidential and trade secret information, and that the Company is responsible for tortious interference with contracts. The letter, which purported to attach a noncompete agreement signed by Mr. Fredrickson, demanded that Mr. Fredrickson (who resigned from the Company in June 2017), Mr. Christianson and NeuroOne cease and desist all competitive activities, that Mr. Fredrickson step down from his position and that Mr. Christianson and NeuroOne provide the former employer access to NeuroOne’s systems to demonstrate that it is not using trade secrets or proprietary information nor competing with the former employer.

 

On March 29, 2018, the Company was served with a complaint filed by PMT adding the Company, NeuroOne and Mr. Christianson to its existing lawsuit against Mr. Fredrickson in the Fourth Judicial District Court of the State of Minnesota. The complaint purported to attach Mr. Fredrickson’s noncompete agreement as Exhibit A. In the lawsuit, PMT claims that Mr. Fredrickson and Mr. Christianson 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. Against Mr. Fredrickson, PMT also alleges 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, PMT alleges that the Company and NeuroOne 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.

 

11

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

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 states 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 intend to move for summary judgment on all remaining claims asserted against them as well as for leave to assert counterclaims against PMT for abuse of process.

 

On August 30, 2019, the Hennepin County District Court heard dispositive motions in this case. The district court judge indicated some claims would likely be tried to a jury and encouraged the parties to settle.

 

On September 12, 2019 the district court heard NeuroOne’s motion for sanctions. The district court held the sanctions hearing on December 17, 2019 and December 18, 2019 and indicated that a ruling would be made in approximately 90 days. NeuroOne and Mark Christianson (who has not worked for PMT since February 2012) intend to continue to defend themselves vigorously. The Court issued multiple rulings on the Company’s request for summary judgment and sanctions against PMT in April 2020. See NOTE 12 – Subsequent Events.

 

Facility 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.

 

Prior to the October 2019 Lease, the Company entered into a non-cancellable facility lease for its operations and headquarters for an eleven month term beginning on December 1, 2018. The monthly rent under that lease was $4,763.

 

During the three month periods ended March 31, 2020 and 2019, rent expense associated with the facility leases amounted to $25,862 and $14,289, respectively, and $47,866 and $19,052 during the six month periods ended March 31, 2020 and 2019, respectively.  

   

12

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

Supplemental cash flow information related to the operating lease was as follows:

 

   Six months
ended
 
   March 31,
2020
 
     
Cash paid for amounts included in the measurement of lease liability:    
Operating cash flows from operating leases  $ 
      
Right-of -use assets obtained in exchange for lease obligations:     
Operating leases  $335,119 

 

Supplemental balance sheet information related to the operating lease was as follows:

 

   As of 
   March 31,
2020
 
Right-of-use assets  $308,055 
      
Lease liability  $339,157 
      
Weighted average remaining lease term (years)   5.0 
Weighted average discount rate   7.0%

 

Maturity of the lease liability was as follows:

 

   As of 
   March 31, 2020 
2020 (period from April 1, 2020 to September 30, 2020)  $38,462 
2021   77,884 
2022   79,832 
2023   81,827 
2024   83,873 
2025   42,454 
Total lease payments   404,332 
Less imputed interest   (65,175)
Total   339,157 
Short-term portion   (54,922)
Long-term portion  $284,235 

 

13

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

  

NOTE 5 – Intangibles and Property and Equipment

 

Intangibles

 

Intangible assets rollforward is as follows: 

 

   Useful Life    
Net Intangibles, September 30, 2019  12-13 years  $178,838 
Less: amortization      (11,158)
Net Intangibles, March 31, 2020     $167,680 

 

Amortization expense was $5,579 and $5,311 for the three months ended March 31, 2020 and 2019, respectively, and 11,158 and $10,622 for the six months ended March 31, 2020 and 2019, respectively.

   

Property and Equipment

 

Property and equipment held for use by category are presented in the following table:  

 

   As of 
   March 31,
2020
   September 30,
2019
 
Equipment and furniture  $99,181   $56,457 
Software   1,895    1,895 
Total property and equipment   101,076    58,352 
Less accumulated depreciation   (16,133)   (6,326)
Property and equipment, net  $84,943   $52,026 

 

Depreciation expense was $5,488 and zero for the three months ended March 31, 2020 and 2019, respectively, and $9,807 and zero for the six months ended March 31, 2020 and 2019, respectively.

 

NOTE 6 - Accrued Expenses

 

Accrued expenses consisted of the following at March 31, 2020 and September 30, 2019:

  

   As of 
   March 31,
2020
   September 30,
2019
 
Legal services  $   $228,709 
Accrued issuance costs   50,400    50,400 
Accrued payroll   126,001    171,087 
Lease liability, short-term   54,922     
Other   60,551    167,525 
   $291,874   $617,721 

 

The “other” category is primarily comprised of board fees.  

 

NOTE 7 – Convertible Promissory Notes and Warrant Agreements

 

   As of
March 31,
2020
  As of
September 30,
2019
Paulson convertible notes, principal  $3,085,200   $         — 
Accrued interest   152,036     
Fair value adjustments   1,683,840     
   $4,921,076   $ 

 

14

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

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.

 

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.

   

The 2019 Paulson Notes bear interest at a fixed rate of 13% per annum and originally required the Company to repay the principal and accrued and unpaid interest thereon on May 1, 2020. The 2019 Paulson Notes were amended in April 2020 to extend the maturity date to November 1, 2020. See NOTE 12 – Subsequent Events for amended terms under the 2019 Paulson Notes.

 

Interest on principal amounted to $100,269 and $154,144 during the three and six month periods ended March 31, 2020, respectively, and was recorded under the net valuation change of instruments measured at fair value in the condensed statements of operations. The subscriber has the option to convert the outstanding principal and accrued and unpaid interest of such subscriber’s 2019 Paulson Note (the “Outstanding Balance”) into common stock in an amount equal to the Outstanding Balance divided by the ten day volume weighted average closing price (“VWAP”) of the common stock prior to conversion. In addition, if the Company raises more than $3,000,000 in an equity financing (the “2019 Qualified Financing”) before the maturity date, each subscriber shall have the option to convert the Outstanding Balance into the securities issued by the Company in such 2019 Qualified Financing in an amount equal to (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of securities issued by the Company in the 2019 Qualified Financing or (B) the ten day VWAP of the common stock prior to the first closing of a 2019 Qualified Financing. If a change of control transaction occurs prior to a 2019 Qualified Financing or the maturity date, the 2019 Paulson Notes would become payable on demand as of the closing date of such transaction. Change of control means a merger or consolidation with another entity in which the Company’s stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company’s assets.

 

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. The fair value of the 2019 Paulson Notes was significantly higher than the proceeds received as of each of the respective issuance dates given the significant redemption discount associated with the 2019 Qualified Financing provision. The excess of fair value over proceeds at issuance amounted to $1,831,940 and was recorded to interest expense in the condensed statements of operations during the six month period ended March 31, 2020. Subsequent to issuance, the fair value change of the 2019 Paulson Notes amounted to a reduction of $(31,716) and an increase of $93,858 during the three and six month periods ended March 31, 2020, respectively, 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 1.87, with an exercise price per share equal to $1.87. As of the final closing on December 3, 2019, the Company issued 2019 Paulson Warrants exercisable for 864,913 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.

 

15

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

In connection with the 2019 Private Placement, Paulson Investment Company, LLC (“Paulson”) received a cash commission equal to 12% of the gross proceeds from the sale of the 2019 Paulson Notes, and 10-year warrants to purchase an amount of Common Stock equal to 259,476 shares of common stock at an exercise price equal to $1.87 per share (the “Broker Warrants”). The issuance costs incurred during the six months ended March 31, 2020 in connection with the 2019 Paulson Private Placement were $865,567. Issuance costs included cash commissions equal to $388,176 and legal and third party fees in the amount of $57,756. In addition, issuance costs included the value of the Broker Warrants in the amount of $419,635. There were no issuance costs incurred in connection with 2019 Paulson Notes during the three months ended March 31, 2020. The issuance costs were recorded as a component of interest in the accompanying condensed statements of operations.

 

During the six months ended March 31, 2020, 2019 Paulson Notes with a fair value of $239,522 were converted into 60,847 shares of common stock.

 

2017 Convertible Notes

 

From October 2017 to May 2018, the Company issued convertible notes (the “2017 Convertible Notes”) in an aggregate principal amount of $1,540,000 that bear interest at a fixed rate of 8% per annum and warrants to purchase shares of the Company’s capital stock (the “2017 Warrants”).

   

On February 28, 2019, the 2017 Convertible Notes were converted into 839,179 shares of common stock and 839,179 common stock purchase warrants with an exercise term of approximately 4.8 years and an exercise price $3.00 per share. In addition, the previously issued 2017 Warrants became immediately exercisable for 839,179 shares of common stock. The conversion was accounted for as a debt extinguishment given the bifurcation of the embedded premium debt conversion feature. The fair value of the newly issued common shares and warrants associated with the 2017 Convertible Notes conversion relative to the carrying value of the debt and fair value of warrant liability and premium derivative liability on the conversion date was $553,447 and was recorded as a loss on note extinguishment in the accompanying condensed statements of operations for the three and six months ended March 31, 2019.

 

During the three and six month periods ended March 31, 2019, interest on the principal was $20,534 and $51,333, respectively, and interest related to amortization of discounts related to the bifurcation of premium derivative liability, separation of warrants, revaluation discounts and issuance costs amounted to zero and $233,224, respectively. The fair value changes related to the underlying premium conversion derivative and warrant liability amounted to an expense of $116,809 and $129,763 during the three and six month periods ended March 31, 2019, respectively.

 

As noted above, the 2017 Convertible Notes were converted into shares of common stock and not outstanding during the three and six month periods ended March 31, 2020.

 

NOTE 8 – Defined Contribution Plan

 

The Company has a 401(k) defined contribution plan (the “401K Plan”) for all employees over age 21. Employees can defer up to 100% of their compensation through payroll withholdings into the 401K Plan subject to federal law limits. The Company matches 100% of deferrals up to 3% of one’s contributions. The Company’s matching contributions to employee deferrals are discretionary. The Company may also make discretionary profit sharing contributions under the 401K Plan in the future, but it has not done so through March 31, 2020.

 

Employee contributions and any employer matching contributions made to satisfy certain non-discrimination tests required by the Internal Revenue Code are 100% vested upon contribution. Discretionary employer matches to employee deferrals vest over a six year period beginning on the second anniversary of an employee’s date of hire. Discretionary profit sharing contributions vest over a five year period beginning on the first anniversary of an employee’s date of hire. No matching contributions were made during the three and six month periods ended March 31, 2020. During the six month period ended March 31, 2019, there was a benefit reduction adjustment of $(4,359) given an overpayment. There were no matching contributions during the three month period ended March 31, 2019.

 

16

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

NOTE 9 – Stock-Based Compensation

 

Stock-based compensation expense was included in general and administrative and research and development expenses as follows in the accompanying condensed statements of operations:

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
   2020   2019   2020   2019 
General and administrative  $495,690   $26,105   $1,059,458   $141,105 
Research and development   36,091    44,112    60,000    48,092 
Total share-based compensation  $531,781   $70,217   $1,119,458   $189,197 

 

Stock Options

 

During the three month period ended March 31, 2020 and 2019, under the 2017 Equity Incentive Plan (the “2017 Plan”), the Company granted 20,000 and 150,548 stock options, respectively, to its employees, consultants and scientific advisory board members. During the six month periods ended March 31, 2020 and 2019, under the 2017 Plan, the Company granted 820,000 and 325,548 stock options, respectively, to its employees, consultants and scientific advisory board members. Vesting generally occurs over an immediate to 48 month period based on a time of service condition although vesting acceleration is provided under one grant in the event that certain milestones are met. The grant date fair value of the grants issued during the three month periods ended March 31, 2020 and 2019 was $1.15 and $1.11 per share, respectively. The grant date fair value of the grants issued during the six month periods ended March 31, 2020 and 2019 was $1.06 and $1.12 per share, respectively. The total expense for the three months ended March 31, 2020 and 2019 related to stock options was $88,806 and $46,654, respectively. The total expense for the six month periods ended March 31, 2020 and 2019 related to stock options was $526,888 and $46,654, respectively. The total number of stock options outstanding as of March 31, 2020 and September 30, 2019 was 1,355,512 and 845,840, respectively.

   

The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the three and six month periods ended March 31, 2020 and 2019:

 

   Three Months Ended   Six Months Ended 
   March 31,   March  31, 
   2020       2019   2020       2019 
                 
Expected stock price volatility   54.3%   50.7%   52.8%   50.2%
Expected life of options (years)   5.4    6.0    5.7    5.9 
Expected dividend yield   0%   0%   0%   0%
Risk free interest rate   1.4%   2.6%   1.7%   2.7%

 

During the three and six month periods ended March 31, 2020, 46,865 and 422,694 stock options vested, respectively, and 39,675 stock options vested during the three and six months ended March 31, 2019. During the three and six month periods ended March 31, 2020, 260,306 and 267,803 stock options were forfeited, respectively, and no options were forfeited during the three and six month periods ended March 31, 2019.

 

17

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

Restricted Stock Units

 

During the three and six month periods ended March 31, 2020, 167,851 restricted stock units (“RSUs”) were granted. During the three and six month periods ended March 31, 2019, no RSUs were granted. During the three and six month periods ended March 31, 2020, 122,767 and 133,272 RSUs vested, respectively. No RSUs vested during the three and six month periods ended March 31, 2019. The total expense for the three and six month period ended March 31, 2020 related to the RSU’s was $289,394 and $314,395, respectively. No expense was recognized related to the RSUs during the three and six month periods ended March 31, 2019. The number of RSUs forfeited during the three and six month periods ended March 31, 2020 was zero and 7,003, respectively. No RSUs were forfeited during the three and six month periods ended March 31, 2019.

 

 Other Stock-Based Awards

 

In October 2019, two consulting agreements were executed whereby up to 115,000 shares of common stock were issuable of which 90,000 shares of common stock were issued and vested as of March 31, 2020 under these agreements. Vesting is based on a time-based vesting condition ranging over a three to nine month period commencing upon the execution of the consulting agreements. In February 2020, an additional consulting agreement was executed whereby up to 90,000 shares of common stock were issuable of which 36,000 shares of common stock were issued and vested as of March 31, 2020 under this agreement. Compensation expense related to the stock awards granted under these consulting agreements amounted to $153,581 and $278,175 and was included in the total stock-based expense referenced above for the three and six month periods ended March 31, 2020, respectively. The expense was based on the fair value of the underlying common stock at the point of vesting which ranged from $2.00 to $2.65 per share.

 

In February 2018, 250,000 shares of common stock were reserved as a result of a consulting agreement for investor relations services executed in February 2018. Under the agreement, zero and 50,000 shares of common stock were awarded during the three and six month period ended March 31, 2019, respectively, on a time-based vesting condition that was met in November 2018. The compensation expense related to the vested common shares was included in the total stock-based expense referenced above which totaled zero and $115,000 for the three and six month periods ended March 31, 2019, respectively. The expense was based on the fair value of the underlying common stock at the point of vesting which was $2.30 per share. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering both the traded price and forward multiples from guideline public companies, using allocation and marketability-discount methodologies. 

 

As of March 31, 2019, the Company had formal obligation to issue future common stock options relating to several consulting agreements. The corresponding stock-based compensation expense related to the stock-based award liabilities amounted to $23,563 and $27,543 during the three and six month periods ended March 31, 2019, respectively, and was included in general and administrative expense in the accompanying condensed statements of operations.

 

General

 

As of March 31, 2020, 2,063,506 shares were available for future issuance on a combined basis under the 2016 Equity Incentive Plan and 2017 Plan. Unrecognized stock-based compensation was $0.8 million as of March 31, 2020. The unrecognized share-based expense is expected to be recognized over a weighted average period of 2.9 years.

   

NOTE 10 – Income Taxes

  

The effective tax rate for the three and six months ended March 31, 2020 and 2019 was zero percent. As a result of the analysis of all available evidence as of March 31, 2020 and September 30, 2019, the Company recorded a full valuation allowance on its net deferred tax assets. Consequently, the Company reported no income tax benefit during the three and six months ended March 31, 2020 and 2019. 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.

 

18

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The CARES Act is not expected to have a material impact on the Company’s financial statements. However, the Company is continuing to assess the impact of the CARES Act.

 

NOTE 11 – Stockholders’ Deficit

 

Common Stock Offering

 

On October 23, 2019, the Company entered into Securities Purchase Agreements with certain accredited investors, pursuant to which the Company, in a private placement, has issued and sold 141,666 shares of the Company’s common stock to the accredited investors at a price of $1.80 per share, for gross proceeds amounting to $255,000.

 

In connection with the private placement, the Company has agreed to issue and sell to accredited investors up to a maximum of 555,555 shares for total gross proceeds to the Company of up to $1,000,000. The Company intends to use the net proceeds from this private placement for funding operations or working capital and general corporate purposes. The Company has agreed to file a registration statement with the SEC covering the resale of the shares of common stock sold in the private placement within 60 days of the termination of the private placement.

 

2019 Private Placement

 

From December 28, 2018 through July 1, 2019, the Company entered into Subscription Agreements (each, a “2019 Purchase Agreement”) with certain accredited investors (the “New Purchasers”), pursuant to which the Company, in a new private placement (the “2019 Unit Private Placement”), agreed to issue and sell Units (the “2019 Units”), each consisting of (i) 1 share of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2019 Warrants”), to the New Purchasers. The 2019 Warrants are exercisable beginning on the date of issuance and will expire on December 28, 2023, five years from the date of the first closing of the 2019 Unit Private Placement.

 

The initial closing of the 2019 Unit Private Placement was consummated on December 28, 2018. The Company issued and sold an aggregate of 2,338,179 of the 2019 Units at $2.50 per Unit to the New Purchasers, for total gross proceeds to the Company of approximately $5,845,448 before deducting offering expenses (1,743,979 and 1,903,979 of the 2019 Units were sold during the three and six month periods ended March 31, 2019, respectively). In connection with the 2019 Unit Private Placement, the Company recorded issuance costs in the amount of $1,150,359 ($722,806 and $812,428 recorded during the three and six month periods ended March 31, 2019, respectively). The 2019 Unit Private Placement was terminated on July 1, 2019.

 

2018 Private Placement

 

From July 9, 2018 through November 30, 2018 (the final closing), the Company entered into subscription agreements (each, a “Purchase Agreement”) with certain accredited investors (the “Purchasers”), pursuant to which the Company, in a private placement (the “2018 Private Placement”), agreed to issue and sell to the Purchasers units (each, a “2018 Unit”), each consisting of (i) 1 share (each, a “Share”) of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2018 Warrants”). The 2018 Warrants are exercisable beginning on the date of issuance and will expire on July 9, 2023, five years from the date of the first closing. The 2018 Warrants were accounted for as free standing equity instruments and classified as additional paid-in capital in the accompanying condensed balance sheets based on their relative fair value to the underlying common shares issued. The initial closing of the 2018 Private Placement was consummated on July 9, 2018 and was terminated on December 12, 2018.

  

19

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

As of the termination of the 2018 Private Placement on December 12, 2018, the Company had issued and sold an aggregate of 615,200 of the 2018 Units at a price of $2.50 per Unit to the Purchasers, for total gross proceeds to the Company of $1,538,000 before deducting offering expenses (zero and 170,000 of the 2018 Units were sold during the three and six month periods ended March 31, 2019, respectively). In connection with the 2018 Private Placement, the Company recorded issuance costs in the amount of $173,067 (a reduction adjustment of $(24,029) and a cost of $35,665 recorded during the three and six month periods ended March 31, 2019, respectively).

 

Warrant Activity and Summary

 

The following table summarizes warrant activity during the six month period ended March 31, 2020:

 

          Exercise
Price
    Weighted
Average
    Weighted
Average
 
    Warrants     Per Warrant     Exercise Price     Term (years)  
Outstanding and exercisable at September 30, 2019     7,265,598     $ 1.80 - 3.00     $ 2.55       3.60  
Issued     1,124,389     $ 1.87     $ 1.87       4.26  
Exercised         $     $        
Forfeited         $     $        
Outstanding and exercisable at March 31, 2020     8,389,987     $ 1.80 - 3.00     $ 2.45       3.26  

 

NOTE 12 – Subsequent Events

 

Amendment of 2019 Paulson Notes

 

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 Paulson Amendment”) to, among other things:

 

  i. Extend the Maturity DateThe Second Paulson Amendment extends 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. Revise Optional Conversion TermsThe Second Paulson Amendment provides 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) will be equal to: (1) the Outstanding Balance 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 Paulson Amendment provides that promptly following the earlier of (1) May 1, 2020, if the applicable subscriber has 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.

 

There were no other significant changes to terms under the Second Paulson Amendment.

 

2019 Paulson Note Conversion

 

Between April 24, 2020 and May 1, 2020, certain holders elected to convert outstanding principal and accrued and unpaid interest of 2019 Paulson Notes in the amount of $2,633,280 into 2,054,245 shares of common stock.

 

20

 

 

NeuroOne Medical Technologies Corporation

Notes to Condensed Financial Statements (unaudited)

 

Paulson 2020 Convertible Note Financing 

 

On April 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 up to $3 million of 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. 

 

Between April 30, 2020 and May 8, 2020, the Company issued 2020 Paulson Notes in an aggregate principal amount of $2,469,800 to the Subscribers. The Company may conduct any number of additional closings so long as the aggregate amount of gross proceeds does not exceed $6,000,000 or a higher amount determined by the Board.

 

The 2020 Paulson Notes bear interest at a fixed rate of 13% per annum and require the Company to repay the principal and accrued and unpaid interest thereon on the earlier of (i) six months following the final closing of the 2020 Paulson Private Placement, (ii) six months following July 31, 2020, and (iii) a change of control transaction. If the Company raises more than $5,000,000 in an equity financing before the maturity date (the “2020 Qualified Financing”), without any action on the part of the Subscribers, all of the outstanding principal and accrued and unpaid interest of the Notes (the “Outstanding Balance”) shall convert into that number of shares of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs and (B) the volume weighted average price of the common stock for ten (10) trading days immediately preceding the 2020 Qualified Financing.

 

If the Company announces a transaction between the Company and any other company (or an affiliate of any such company) that is included in the S&P 500 Health Care Index as published from time to time by S&P Dow Jones Indices LLC that includes an investment or upfront payments resulting in gross proceeds to the Company of at least $2,000,000 upon the execution of such transaction or definitive agreement, and provides for terms of collaboration, manufacturing, distribution, licensing or supply of the Company’s products (a “Strategic Transaction”) before the maturity date, without any action on the part of the subscribers, the Outstanding Balance shall be converted into that number of shares of common stock equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the VWAP of the common stock for the ten (10) trading days immediately preceding the first announcement of the Strategic Transaction or (B) closing price of the common stock on the day preceding the first announcement by the Company of a Strategic Transaction.

 

At any time, at the sole election of the holder of such 2020 Paulson Note, all or a portion of the Outstanding Balance may be converted into that number of shares of common stock equal to: (i) the Outstanding Balance elected by the holder to be converted divided by (ii) 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.

 

If a change of control transaction occurs prior to the conversion of the 2020 Paulson Notes or the maturity date, the 2020 Paulson Notes would become payable on demand as of the closing date of such transaction. Change of control means a merger or consolidation with another entity in which the Company’s stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company’s assets.

 

Each 2020 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 2020 Paulson Notes divided by 1.87, with an exercise price per share equal to $1.87. The 2020 Paulson Warrants are immediately exercisable and expire on April 30, 2023. The exercise price is subject to adjustment in the event of any stock dividends or splits, reverse stock split, recapitalization, reorganization or similar transaction.

 

In connection with the 2020 Paulson Private Placement, Paulson will receive a cash commission equal to 12% of the gross proceeds from the sale of the 2020 Paulson Notes, and at the final closing of the 2020 Paulson Private Placement, Paulson will receive 7-year warrants to purchase an amount of common stock equal to 15% of the total gross proceeds received by the Company in the 2020 Paulson Private Placement, divided by 1.87 (the “Broker Warrants”). The Broker Warrants will have an exercise price equal to $1.87.

 

2020 Paulson Note Conversions

 

Between May 4, 2020 and May 12, 2020, certain Subscribers elected to convert $50,153 of the outstanding principal and interest of such Subscribers’ 2020 Paulson Notes into 38,335 shares of common stock.

 

Payroll Protection Program

 

The CARES Act, signed into law in March 2020, established the Paycheck Protection Program (“PPP”). The PPP authorizes up to $349 billion in forgivable loans to small businesses. Loan amounts are forgiven to the extent proceeds are used to cover documented payroll, mortgage interest, rent, and utility costs over an 8 week measurement period following loan funding. Loans have a maturity of 2 years and an interest rate of 1%. Prepayments may be made without penalty. In April 2020, the Company received loan funding of approximately $83,333 under the PPP.

 

Amendment to Veritas Consulting Agreement

 

On April 22, 2020, the Company entered into an amendment (the “Amendment”) to the Consulting Agreement, by and between the Company and Veritas Consulting Group Inc. (“Veritas”). Pursuant to the Amendment, the Company issued Veritas an additional 35,000 shares in exchange for consulting services. 

 

PMT Litigation

 

On April 29, 2020, the district court granted the Company’s motion for sanctions. 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, Fredrickson’s breach of confidentiality covenants, and the creation of a constructive trust and denied the Company’s motion for summary judgment on all other counts. 

 

21

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes included in Part I “Financial Information”, Item I “Financial Statements” of this Quarterly Report on Form 10-Q (the “Report”) and the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended September 30, 2019.

 

Forward-Looking Statements

 

Certain statements contained in this Report are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes to identify these forward-looking statements.

 

These forward-looking statements reflect our management’s beliefs and views with respect to future events, are based on estimates and assumptions as of the date of this Report and are subject to risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in these forward-looking statements. We discuss many of these risks in greater detail under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2019 and subsequent reports filed with or furnished to the Securities and Exchange Commission (the “SEC”). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

Any forward-looking statement made by us in this Report speaks only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable laws or regulations.

 

Overview

 

We are a medical technology company focused on the development and commercialization of thin film electrode technology for continuous electroencephalogram (cEEG) and stereoelectroencephalography (sEEG) recording, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s disease, dystonia, essential tremors and other related brain related disorders. Additionally, we are investigating the potential applications of our technology associated with artificial intelligence. We are based in Eden Prairie, Minnesota.

 

To date, our primary activities have been limited to, and our limited resources have been dedicated to, performing business and financial planning, raising capital, recruiting personnel, negotiating with business partners and the licensors of our intellectual property and conducting research and development activities. Our cortical strip, grid electrode and depth electrode technology are still under development and we have not generated any revenue from commercial sales.

 

We have incurred losses since inception. As of March 31, 2020, we had an accumulated deficit of $23.2 million, primarily as a result of expenses incurred in connection with our research and development programs, from general and administrative expenses associated with our operations and interest expense, fair value adjustments and loss on extinguishments related to our debt. We expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future.

 

22

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Our main source of cash to date has been proceeds from the issuances of notes, common stock, warrants and unsecured loans. See “—Liquidity and Capital Resources—Historical Capital Resources” below.

 

At March 31, 2020, we had $0.7 million in cash deposits. Our existing cash and cash equivalents will not be sufficient to fund our operating expenses through the end of our fiscal year. We need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, 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—Funding Requirements and Outlook” below.

  

Recent Developments

 

COVID-19

 

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, the Company has experienced delays and disruptions in our pre-clinical and clinical trials, as well as interruptions in our manufacturing, supply chain, and research and development operations. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact our business and pre-clinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, 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. The COVID-19 pandemic may also impact our ability to secure additional financing or ability up-list from our current OTC Market (“OTCQB”), and may result in further modifications to our debt agreements. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.

 

Financial Overview

 

Revenue

 

To date, we have not generated any revenue. We do not expect to generate revenue unless or until we develop and commercialize our cortical strip, grid electrode and depth electrode technology. If we fail to complete the development of our cortical strip, grid electrode and depth electrode technology, or any other product candidate we may pursue in the future, in a timely manner, or fail to obtain certain regulatory approvals, we may never be able to generate any revenue.

 

General and Administrative

 

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 product costs. We anticipate that our general and administrative expenses will significantly increase in the future to support our continued research and development activities, potential commercialization of our cortical strip, grid electrode and 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.

 

23

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

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 pre-clinical testing and clinical trials and will depend on the duration, costs and timing to complete our pre-clinical programs and clinical trials.

 

Interest Expense

 

Interest expense primarily consists of amortized discount costs and interest costs as applicable related to our 2019 Paulson Notes and 2017 Convertible Notes while outstanding as described further below.

 

Net valuation change of instruments measured at fair value

 

The net valuation change of instruments measured at fair value include the change in fair value of the 2019 Paulson Notes, warrant liability and the premium conversion derivatives during the particular period these instruments are outstanding.

 

Loss on note extinguishment

 

Loss on note extinguishment includes the loss associated with debt instrument modifications and conversions accounted for as debt extinguishments. 

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2020 and 2019

 

The following table sets forth the results of operations for the three months ended March 31, 2020 and 2019, respectively.

 

   For the three months ended
March 31,
(unaudited)
 
   2020   2019   Period to
Period
Change
 
Operating expenses:            
General and administrative  $1,035,256   $1,084,789   $(49,533)
Research and development   342,102    436,311    (94,209)
Total operating expenses   1,377,358    1,521,100    (143,742)
Loss from operations   (1,377,358)   (1,521,100)   143,742 
Interest expense       (20,534)   20,534 
Net valuation change of instruments measured at fair value   31,716    (116,809)   148,525 
Loss on note extinguishment       (553,447)   553,447 
Loss before income taxes   (1,345,642)   (2,211,890)   866,248 
Provision for income taxes            
Net loss  $(1,345,642)  $(2,211,890)  $866,248 

  

General and administrative expenses

 

General and administrative expenses were $1.0 million for the three months ended March 31, 2020, compared to $1.1 million for the three months ended March 31, 2019. The decrease was primarily due to a net decrease in legal and accounting fees of $0.2 million, board of director related costs of $0.2 million and employee related expenses of approximately $0.2 million offset in part by an increase in stock-based compensation costs of $0.5 million.

 

24

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Research and development expenses

 

Research and development expenses were $0.3 million for the three months ended March 31, 2020, compared to $0.4 million during for the three months ended March 31, 2019. The decrease period over period was attributed to the fluctuation in development activities, which primarily included salary-related expenses, consulting services and materials associated with research and development activities.

 

 Interest expense

 

Interest expense for the three months ended March 31, 2020 and 2019 was zero and $21,000, respectively. Interest expense for the three months ended March 31, 2019 related to interest on note principal in connection to the 2017 Convertible Notes described further below. Interest on principal in connection with the 2019 Paulson Notes is included in the net valuation change of instruments measured at fair value line item.

 

 Net valuation change of instruments measured at fair value:

 

The net valuation change of instruments measured at fair value for the 2019 Paulson Notes, warrant liability and premium conversion derivatives for the three months ended March 31, 2020 and 2019 was $(32,000) and $0.1 million, respectively. The change is due to accrued interest on the 2019 Paulson Notes and due to fluctuations in our common stock fair value and the number of potential shares of common stock issuable upon conversion of the 2019 Paulson Notes or the 2017 Convertible Notes while outstanding.

 

Loss on note extinguishment

 

Non-cash loss on note extinguishment for the six months ended March 31, 2019 was $0.6 million. The Series 3 Notes were converted on February 28, 2019 and the conversion was accounted for as a note extinguishment given the bifurcated embedded premium debt conversion feature. There were no note extinguishments during the comparable period in 2020.

 

Comparison of the Six Months Ended March 31, 2020 and 2019

 

The following table sets forth the results of operations for the six months ended March 31, 2020 and 2019, respectively.

 

   For the six months ended
March 31,
(unaudited)
 
   2020   2019   Period to
Period
Change
 
Operating expenses:            
General and administrative  $2,347,422   $1,951,468   $395,954 
Research and development   843,921    645,479    198,442 
Total operating expenses   3,191,343    2,596,947    594,396 
Loss from operations   (3,191,343)   (2,596,947)   (594,396)
Interest expense   (2,697,507)   (284,557)   (2,412,950)
Net valuation change of instruments measured at fair value   (93,858)   (129,763)   35,905 
Loss on note extinguishment       (553,447)   553,447 
Loss before income taxes   (5,982,708)   (3,564,714)   (2,417,994)
Provision for income taxes            
Net loss  $(5,982,718)  $(3,564,714)  $(2,417,994)

  

25

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

General and administrative expenses

 

General and administrative expenses were $2.3 million for the six months ended March 31, 2020, compared to $2.0 million for the six months ended March 31, 2019. The increase was primarily due to a net increase of stock-based compensation of $0.9 million offset in part by a decrease in legal and accounting fees of $0.2 million, board of director related costs of $0.2 million and other employee related costs of approximately $0.1 million.

 

Research and development expenses

 

Research and development expenses were $0.8 million for the six months ended March 31, 2020, compared to $0.6 million during for the six months ended March 31, 2019. The increase period over period was attributed to supporting development activities, which primarily included salary-related expenses and costs related to consulting services, materials and supplies.

 

Interest expense

 

Interest expense for the six months ended March 31, 2020 and 2019 was $2.7 million and $0.3 million, respectively. The increase was primarily attributed to non-cash interest expense in connection with our 2019 Paulson Notes described further below. Interest expense attributed to the 2019 Paulson Notes was comprised of issuance costs of $0.9 million and day-one interest at issuance of $1.8 million representing the amount by which fair value exceeded note proceeds. Interest on principal in connection with the 2019 Paulson Notes is included in the net valuation change of instruments measured at fair value line item.

 

Interest expense during the six months ended March 31, 2019 was comprised of interest on principal of $51,000 and amortization of debt discount costs of $0.2 million related to the Series 3 Notes.

 

Net valuation change of instruments measured at fair value:

 

The net valuation change of instruments measured at fair value for the 2019 Paulson Notes, warrant liability and premium conversion derivatives for the three months ended March 31, 2020 and 2019 was $94,000 and $0.1 million, respectively. The change is due to accrued interest on the 2019 Paulson Notes and due to fluctuations in our common stock fair value and the number of potential shares of common stock issuable upon conversion of the 2019 Paulson Notes or the 2017 Convertible Notes while outstanding.

 

 Loss on note extinguishment

 

Non-cash loss on note extinguishment for the six months ended March 31, 2019 was $0.6 million. The Series 3 Notes were converted on February 28, 2019 and the conversion was accounted for as a note extinguishment given the bifurcated embedded premium debt conversion feature. There were no note extinguishments during the comparable period in 2020.

 

Liquidity and Capital Resources

 

Historical Capital Resources

 

As of March 31, 2020, our principal source of liquidity consisted of cash deposits of $0.7 million. We have not generated any revenue, and we anticipate that we will continue to incur losses for the foreseeable future. We anticipate that our expenses will increase substantially as we develop our cortical strip, grid electrode and depth electrode technology and pursue pre-clinical and clinical trials, seek regulatory approvals, contract to manufacture any products, establish our own sales, marketing and distribution infrastructure to commercialize our cortical strip, grid electrode and depth electrode technology under development, if approved, hire additional staff, add operational, financial and management systems and continue to operate as a public company.

 

26

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Our source of cash to date has been proceeds from the issuances of notes with warrants, common stock with warrants and unsecured loans, the terms of which are further described below.

 

2020 Paulson Convertible Notes

 

On April 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 up to $3 million of 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.

 

Between April 30, 2020 and May 8, 2020, the Company issued 2020 Paulson Notes in an aggregate principal amount of $2,469,800 to the Subscribers. The Company may conduct any number of additional closings so long as the aggregate amount of gross proceeds does not exceed $6,000,000 or a higher amount determined by the Board.

 

The 2020 Paulson Notes bear interest at a fixed rate of 13% per annum and require the Company to repay the principal and accrued and unpaid interest thereon on the earlier of (i) six months following the final closing of the 2020 Paulson Private Placement, (ii) six months following July 31, 2020, and (iii) a change of control transaction. If the Company raises more than $5,000,000 in an equity financing before the maturity date (the “2020 Qualified Financing”), without any action on the part of the Subscribers, all of the outstanding principal and accrued and unpaid interest of the Notes (the “Outstanding Balance”) shall convert into that number of shares of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs and (B) the volume weighted average price (“VWAP”) of the common stock for ten (10) trading days immediately preceding the 2020 Qualified Financing.

 

If the Company announces a transaction between the Company and any other company (or an affiliate of any such company) that is included in the S&P 500 Health Care Index as published from time to time by S&P Dow Jones Indices LLC that includes an investment or upfront payments resulting in gross proceeds to the Company of at least $2,000,000 upon the execution of such transaction or definitive agreement, and provides for terms of collaboration, manufacturing, distribution, licensing or supply of the Company’s products (a “Strategic Transaction”) before the maturity date, without any action on the part of the subscribers, the Outstanding Balance shall be converted into that number of shares of common stock equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the VWAP of the common stock for the ten (10) trading days immediately preceding the first announcement of the Strategic Transaction or (B) closing price of the common stock on the day preceding the first announcement by the Company of a Strategic Transaction.

 

At any time, at the sole election of the holder of such 2020 Paulson Note, all or a portion of the Outstanding Balance may be converted into that number of shares of common stock equal to: (i) the Outstanding Balance elected by the holder to be converted divided by (ii) 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.

 

If a change of control transaction occurs prior to the conversion of the 2020 Paulson Notes or the maturity date, the 2020 Paulson Notes would become payable on demand as of the closing date of such transaction. Change of control means a merger or consolidation with another entity in which the Company’s stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company’s assets.

 

Each 2020 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 2020 Paulson Notes divided by 1.87, with an exercise price per share equal to $1.87. The 2020 Paulson Warrants are immediately exercisable and expire on April 30, 2023. The exercise price is subject to adjustment in the event of any stock dividends or splits, reverse stock split, recapitalization, reorganization or similar transaction.

 

27

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

In connection with the 2020 Paulson Private Placement, Paulson will receive a cash commission equal to 12% of the gross proceeds from the sale of the 2020 Paulson Notes, and at the final closing of the 2020 Paulson Private Placement, Paulson will receive 7-year warrants to purchase an amount of common stock equal to 15% of the total gross proceeds received by the Company in the 2020 Paulson Private Placement, divided by 1.87 (the “Broker Warrants”). The Broker Warrants will have an exercise price equal to $1.87.

 

2020 Paulson Note Conversions

 

Between May 4, 2020 and May 12, 2020, certain Subscribers elected to convert $50,153 of the outstanding principal and interest of such Subscribers’ 2020 Paulson Notes into 38,335 shares of common stock.

 

2019 Paulson Convertible Notes

 

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.

 

The initial closing of the private placement was consummated on November 1, 2019, and, on that date and through December 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 on December 3, 2019.

 

Second Amendment of 2019 Paulson Notes

 

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 Paulson Amendment”) to, among other things:

 

  i. Extend the Maturity DateThe Second Paulson Amendment extends 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. Revise Optional Conversion TermsThe Second Paulson Amendment provides that the amount of shares to be received upon the a subscriber’s optional conversion of the 2019 Paulson Notes prior to a Qualified Financing (as defined in the 2019 Paulson Notes) will be equal to: (1) the outstanding balance 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 Paulson Amendment provides that promptly following the earlier of (1) May 1, 2020, if the applicable subscriber has 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 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.

 

There were no other significant changes to terms under the Second Paulson Amendment.

 

2019 Paulson Note Conversion

 

Between April 24, 2020 and May 1, 2020, certain holders elected to convert outstanding principal and accrued and unpaid interest of 2019 Paulson Notes in the amount of $2,633,280 into 2,054,245 shares of common stock.

 

28

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Common Stock Offering

 

On October 23, 2019, the Company entered into Securities Purchase Agreements with certain accredited investors, pursuant to which the Company, in a private placement, has issued and sold 141,666 shares of the Company’s common stock to the accredited investors at a price of $1.80 per share, for gross proceeds amounting to $0.3 million before deducting offering expenses.

 

In connection with the private placement, the Company has agreed to issue and sell to accredited investors up to a maximum of 555,555 shares for total gross proceeds to the Company of up to $1,000,000. The Company intends to use the net proceeds from this private placement for funding operations or working capital and general corporate purposes. The Company has agreed to file a registration statement with the SEC covering the resale of the shares of common stock sold in the private placement within 60 days of the termination of the private placement.

 

Financings Prior to Fiscal Year 2020

 

Our sources of cash prior to fiscal year 2020 were generated from the following financing arrangements:

 

2019 Unit Private Placement

 

From December 28, 2018 through July 1, 2019, the Company entered into Subscription Agreements (each, a “2019 Purchase Agreement”) with certain accredited investors (the “New Purchasers”), pursuant to which the Company, in a new private placement (the “2019 Unit Private Placement”), agreed to issue and sell Units (the “2019 Units”), each consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock at an initial exercise price of $3.00 per share (the “2019 Warrants”), to the New Purchasers. The 2019 Warrants are exercisable beginning on the date of issuance and will expire on December 28, 2023, five years from the date of the first closing of the 2019 Unit Private Placement.

 

The initial closing of the 2019 Unit Private Placement was consummated on December 28, 2018. The Company issued and sold an aggregate of 2,338,179 of the 2019 Units at $2.50 per Unit to the New Purchasers, for total gross proceeds to the Company of approximately $5,845,448 before deducting offering expenses.

 

2018 Private Placement

 

From July 9, 2018 through November 30, 2018 (the final closing), the Company entered into subscription agreements (each, a “Purchase Agreement”) with certain accredited investors (the “Purchasers”), pursuant to which the Company, in a private placement (the “2018 Private Placement”), agreed to issue and sell to the Purchasers units (each, a “2018 Unit”), each consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock at an initial exercise price of $3.00 per share (the “2018 Warrants”). The 2018 Warrants are exercisable beginning on the date of issuance and will expire on July 9, 2023, five years from the date of the first closing. The 2018 Warrants were accounted for as free standing equity instruments and classified as additional paid-in capital in the accompanying condensed balance sheets based on their relative fair value to the underlying common shares issued. The initial closing of the 2018 Private Placement was consummated on July 9, 2018 and was terminated on December 12, 2018.

 

As of the termination of the 2018 Private Placement on December 12, 2018, the Company had issued and sold an aggregate of 615,200 of the 2018 Units at a price of $2.50 per Unit to the Purchasers, for total gross proceeds to the Company of $1,538,000 before deducting offering expenses.

 

Series 3 Notes and Warrants (2017 Convertible Notes)

 

From October 2017 to May 2018, the Company issued convertible notes (the “Series 3 Notes” or “2017 Convertible Notes”) in an aggregate principal amount of $1.5 million that bear interest at a fixed rate of 8% per annum and warrants to purchase shares of the Company’s capital stock (the “Series 3 Warrants”). On February 28, 2019, the outstanding principal and interest on the Series 3 Notes converted into 839,179 shares of common stock and 839,179 common stock purchase warrants with an exercise term of approximately 4.8 years and an exercise price of $3.00 per share.

 

29

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

In addition, each holder has the option to purchase additional shares of our capital stock equal to 839,179 shares of capital stock of the Company at a per share exercise price equal to $2.50. The warrants exercisable at $2.50 per share have a five year term which commenced on February 28, 2019. The exercise price and number of the shares issuable upon exercising the Series 3 Warrants are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization, business combination or similar transaction, as described therein.

  

Series 2 Notes and Warrants

 

 In August 2017, the Company entered into a subscription agreement in an aggregate principal amount of $253,000 to certain accredited investors (the “Series 2 Notes”). On July 2, 2018, the Series 2 Notes were converted into 144,053 shares of Common Stock and warrants exercisable for 477,856 shares of common stock at a per share exercise price equal to $1.80 per share. The warrants expire on November 21, 2021.

 

Series 1 Notes and Warrants

 

From November 2016 to June 2017, the Company issued convertible promissory notes in an aggregate principal amount of $1.6 million that bear interest at a fixed rate of 8% per annum and warrants to purchase shares of the Company’s capital stock (the “Series 1 Notes”). The Series 1 Notes were converted into 1,002,258 shares of Common Stock and warrants exercisable for 2,004,516 shares of Common Stock were issued on July 2, 2018 at a per share exercise price of $1.80 per share. The warrants will expire on November 21, 2021.

  

Unsecured Loans

 

From March 2018 to December 2018, the Company received gross proceeds from unsecured loans in the amount of $528,000. The unsecured loans were repaid in full as of June 30, 2019.

 

Refer to “—Liquidity and Capital Resources—Historical Capital Resources” in our Annual Report on Form 10-K for the year ended September 30, 2019 for additional information related to financings prior to fiscal year 2020.

  

Funding Requirements and Outlook

 

We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, we successfully commercialize our cortical strip, grid electrode and depth electrode technology. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third-party partners, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate our product development, future commercialization efforts, or grant rights to develop and market our cortical strip, grid electrode and depth electrode technology that we would otherwise prefer to develop and market ourselves.

  

Our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended September 30, 2019 and as of and for the nine month transition period ended September 30, 2018, noting the existence of substantial doubt about our ability to continue as a going concern. This uncertainty arose from management’s review of our results of operations and financial condition and its conclusion that, based on our operating plans, we did not have sufficient existing working capital to fund our operating expenses.

 

30

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

As of March 31, 2020, the outstanding principal and accrued and unpaid interest on the 2019 Paulson Notes was $3,237,236. Some of the 2019 Paulson Notes were converted following March 31, 2020; see NOTE 12 – Subsequent Events to our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. However, if we fail to complete the 2019 Qualified Financing by November 1, 2020, the remaining 2019 Paulson Notes will be immediately due and payable on such date, and we may not have sufficient cash to pay the principal and accrued and unpaid interest thereon.

 

We have agreements with the Wisconsin Alumni Research Foundation (“WARF”) and the Mayo Foundation for Medical Education and Research (“Mayo”) that require us to make certain milestone and royalty payments.

 

On January 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, dated October 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 the Mayo Development Agreement. Nothing further is due until we start selling our products.

 

Refer to the Company’s Annual Report on Form 10-K for the year ended September 30, 2019 with regard to: “Item 1—Business—WARF License,” “Business—Mayo Foundation for Medical Education and Research License and Development Agreement,” “Item 1A—Risk Factors—Risks Relating to Our Business—We depend on intellectual property licensed from WARF for our technology under development, and the termination of this license would harm our business” and “Item 1A—Risk Factors—We depend on our partnership with Mayo to license certain know how for the development and commercialization of our technology.”

 

Our existing cash and cash equivalents will not be sufficient to fund our operating expenses without raising additional funds. To continue to fund operations, we will need to secure additional funding or take steps to reduce expenses. We may obtain additional financing in the future through the issuance of our Common Stock and securities convertible into our Common Stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all. Further, we may not be able to pay off or modify terms of our existing debt, and any failure to raise capital or to amend existing debt that may be due as and when needed could compromise our ability to execute on our business plan.

 

The development of our cortical strip, grid electrode and depth electrode technology is subject to numerous uncertainties, and we have based these estimates on assumptions that may prove to be substantially different than we currently anticipate and could use our cash 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 certain regulatory approval and then 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. 

  

31

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Cash Flows

 

The following is a summary of cash flows for each of the periods set forth below.

 

   For the Six Months
Ended
 
   March 31, 
   2020   2019 
Net cash used in operating activities  $(2,475,078)  $(2,576,280)
Net cash used by investing activities   (40,224)   (65,000)
Net cash provided by financing activities   3,001,797    4,933,419 
Net increase in cash  $486,495   $2,292,139 

 

Net cash used in operating activities

 

Net cash used in operating activities was $2.5 million for the six months ended March 31, 2020, which consisted of a net loss of $6.0 million partially offset primarily by non-cash interest, stock-based compensation, depreciation, amortization related to intangible assets, revaluation of convertible notes, totaling approximately $3.9 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 $0.4 million. The change in operating assets and liabilities was primarily attributable to a decrease in accounts payable and accrued expenses and by an increase in our prepaid expenses.

 

 Net cash used in operating activities was $2.6 million for the six months ended March 31, 2019, which consisted of a net loss of $3.6 million partially offset by non-cash interest, note discount amortization, revaluation of premium debt conversion derivatives and warrant liabilities, non-cash note extinguishment, amortization related to intangible assets and stock-based compensation, totaling approximately $1.2 million in the aggregate. Net loss was also adjusted by a net change of $0.2 million in our net operating assets and liabilities. The change in operating assets and liabilities was primarily attributable to a net decrease in accounts payable and accrued expenses, offset in part by an increase in our prepaid expenses, associated with fluctuations in our operating activities.

 

Net cash used by investing activities

 

Net cash used by investing activities was $40,000 and consisted of outlays for furniture and equipment during the six months ended March 31, 2020.

 

Net cash used by investing activities was $0.1 million for the six months ended March 31, 2019 and consisted of the payment owed under the terms of the WARF License related to research and development.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $3.0 million for the six months ended March 31, 2020, which consisted primarily of net proceeds received upon the issuance of the Paulson Notes and common stock offering totaling $3.0 million in the aggregate and proceeds from the exercise of stock options in the amount of $1,000.

 

 Net cash provided by financing activities was $4.9 million for the six months ended March 31, 2019 which consisted primarily of net proceeds received upon the issuance of the 2019 Units and 2018 Units in the 2019 and 2018 Private Placements in the amount of approximately $4.6 million. Additionally, cash provided by financing activities also included proceeds from stock option and warrant exercises in the aggregate of $0.4 million, offset in part by net repayments over proceeds relating to our unsecured loans in the amount of $54,000 during the six month period.

  

Critical Accounting Policies

 

Our financial statements are prepared in accordance with U.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 condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report.

 

32

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

During the three and six months ended March 31, 2020, we elected to record the convertible notes issued during the three month period ended March 31, 2020 at fair value which is based on both the fair value of our common stock 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. There were no additional material changes to our critical accounting policies or estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended September 30, 2019.

 

Recent Accounting Pronouncements

 

Refer to Note 3— “Summary of Significant Accounting Policies” to our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report for a discussion of recently issued accounting pronouncements.

 

Off Balance Sheet Arrangements

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable for smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We designed and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired control objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Under the supervision of and with the participation of our management, including our principal executive and financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15(d)- 15(e) promulgated under the Exchange Act as of March 31, 2020. Based on this evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

33

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, the Company is subject to litigation and claims arising in the ordinary course of business. In May 2017, NeuroOne received a letter from PMT Corporation (“PMT”), the former employer of Mark Christianson and Wade Fredrickson. PMT claimed that these officers had breached their restrictive covenant obligations with PMT by virtue of their work for NeuroOne and such officer’s prior work during employment with the prior employer, that these officers had breached their confidentiality and non-disclosure obligations to PMT and federal and state law by misappropriating confidential and trade secret information, and that the Company is responsible for tortious interference with contracts. The letter, which purported to attach a noncompete agreement signed by Mr. Fredrickson, demanded that Mr. Fredrickson (who resigned from the Company in June 2017), Mr. Christianson and NeuroOne cease and desist all competitive activities, that Mr. Fredrickson step down from his position and that Mr. Christianson and NeuroOne provide the former employer access to NeuroOne’s systems to demonstrate that it is not using trade secrets or proprietary information nor competing with the former employer.

 

On March 29, 2018, we were served with a complaint filed by PMT adding 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 (the “Court”). In the lawsuit, PMT claims that Mr. Fredrickson and Mr. Christianson 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. Against Mr. Fredrickson, PMT also alleges 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 alleges that the Company and NeuroOne, Inc. were unjustly enriched and engaged in unfair competition. PMT asks 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. The Company, NeuroOne, Inc. and Mr. Christianson (who has not worked for PMT since 2012) intend to defend themselves vigorously. Furthermore, Mr. Christianson is a key officer and the loss of him would be detrimental to our operations and prospects.

 

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 states 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. Discovery is now virtually complete. On June 28, 2019, the Company presented to the special master evidence of what it believed to reflect significant litigation misconduct by PMT relating to a manufactured non-compete agreement for Wade Fredrickson that it had attempted to pass off as a business record of PMT. Based on the evidence presented, the special master ruled that PMT had waived the attorney client privilege with respect to certain communications with respect to the Fredrickson non-compete with both its former and current litigation counsel and authorized a deposition of the former litigation counsel concerning these communications. On August 30, 2019 the Hennepin County District Court heard dispositive motions in this case. The district court judge indicated some claims would likely be tried to a jury and encouraged the parties to settle.

 

On April 29, 2020, the district court granted the Company’s motion for sanctions. 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, Fredrickson’s breach of confidentiality covenants, and the creation of a constructive trust and denied the motion for summary judgment on all other counts.

 

34

 

 

Item 1A.  Risk Factors

 

In addition to the other information set forth elsewhere in this Report, you should carefully consider the factor set forth below and the other factors discussed in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended September 30, 2019. Those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this Report, and materially adversely affect our financial condition or future results. Although we are not aware of any other factors that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

 

The COVID-19 pandemic could adversely impact our business, including pre-clinical and clinical trials and regulatory approvals.

 

In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. In March 2020, COVID-19 had spread to other countries, including the United States, and was declared to be a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified, and the United States, Europe and Asia have implemented severe travel restrictions, social distancing and “shelter-in-place” orders, and delays or cancellations of elective surgeries. The COVID-19 pandemic poses the risk that the Company, our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time due to shutdowns that may be requested or mandated by state and federal governmental authorities.  

 

As COVID-19 continues to spread around the globe, we will likely experience disruptions that could severely impact our business and planned clinical trials, including:

 

delays or difficulties in conducting pre-clinical and clinical trials;

 

interruption in global manufacturing and shipping that may affect the transport of clinical trial materials and materials, including testing equipment and personal protective equipment, used at our facilities;

 

changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the way in which clinical trials are conducted and may result in unexpected costs;

 

delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19;

 

impact our ability to secure additional financing, our ability to up-list from our current OTC Market (“OTCQB”); and

 

may result in further modifications to our debt agreements.

 

In addition, the outbreak of COVID-19 could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board and its ability to hold meetings.

 

35

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact our business and pre-clinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, 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.

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

All unregistered issuances of securities during the period covered by this Report have been previously disclosed in the Company’s current reports on Form 8-K.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not applicable to our Company.

 

Item 5.  Other Information

 

None.

 

36

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

Item 6.  Exhibits

 

Exhibit 3.1   Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 on the Registrant’s Current Report on Form 8-K filed on June 29, 2017)
Exhibit 3.2   Bylaws of the Company (incorporated by reference to Exhibit 3.5 on the Registrant’s Current Report on Form 8-K filed on June 29, 2017)
Exhibit 10.1+   Amended and Restated Exclusive Start-up Company License Agreement effective January 21, 2020 by and between NeuroOne Medical Technologies Corporation and Wisconsin Alumni Research Foundation (incorporated by reference to Exhibit 10.1 on the Registrant’s Current Report on Form 8-K filed on January 24, 2020)
Exhibit 10.2   Form of Broker Warrant (incorporated by reference to Exhibit 4.1 on the Registrant’s Current Report on Form 8-K filed on January 24, 2020)
Exhibit 31   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS   XBRL Instance Document.
Exhibit 101.SCH   XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.
Exhibit 104   XBRL Cover Page

  

+ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. Certain portions of the exhibits that are not material and would be competitively harmful if publicly disclosed have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Copies of the unredacted exhibits will be furnished to the SEC upon request.

 

37

 

 

NeuroOne Medical Technologies Corporation
Form 10-Q

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: May 14, 2020

 

NeuroOne Medical Technologies Corporation 

 

By: /s/ Dave Rosa  
  Dave Rosa  
  Chief Executive Officer  
  (Principal Executive Officer)  
  (Principal Financial Officer)  

 

 

38

 

 

EX-31 2 f10q0320ex31_neuroon.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A) OR 15D-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 31

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

 

I, David Rosa, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of NeuroOne Medical Technologies Corporation for the period ended March 31, 2020;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2020   /s/ David Rosa
    Name: David Rosa
    Title: Chief Executive Officer
      (Principal Executive Officer and Principal Financial Officer)  

 

 

 

EX-32 3 f10q0320ex32_neuroon.htm CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER,

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002*

 

Pursuant to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, David Rosa, Chief Executive Officer of NeuroOne Medical Technologies Corporation (the “Company”) hereby certifies that, to the best of his knowledge:

 

1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020, to which this Certification is attached as Exhibit 32 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.

 

/s/ David Rosa

David Rosa

Chief Executive Officer

(Principal Executive Officer)

(Principal Financial Officer)

 
Dated: May 14, 2020

 

 

*     This certification accompanies the report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of NeuroOne Medical Technologies Corporation under the Securities Act of 1933, as amended, or the Exchange Act made before or after the date of the report, irrespective of any general incorporation language contained in such filing.

 

 

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Mar. 31, 2020
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Summary of Significant Accounting Policies (Tables)
6 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Schedule of fair value of financial instruments measured on a recurring basis

   As of March 31, 2020 
Description  Total   Level 1   Level 2   Level 3 
Liabilities:                
Convertible Notes  $4,921,076           $4,921,076 
Total liabilities at fair value  $4,921,076           $4,921,076 
Schedule of convertible notes, warrant liability and premium debt conversion derivatives measured at fair value on a recurring basis
  2020 
Convertible notes    
Balance as of beginning of period – September 30, 2019  $ 
Fair value attributed to convertible promissory notes upon issuance   5,066,740 
Conversion of convertible promissory notes to common stock   (239,522)
Change in fair value including accrued interest   93,858 
Balance as of end of period – March 31, 2020  $4,921,076 

 

   2019 
Warrant liability    
Balance as of beginning of period – September 30, 2018  $817,155 
Change in fair value of warrant liability   18,568 
Reclassification to equity upon conversion of convertible promissory notes   (835,723)
Balance as of end of period – March 31, 2019  $ 

  

   2019 
Premium debt conversion derivatives    
Balance as of beginning of period – September 30, 2018  $308,395 
Change in fair value of premium debt conversion derivatives   111,195 
Reclassification to equity upon conversion of convertible promissory notes   (419,590)
Balance as of end of period – March 31, 2019  $ 
Schedule of computation of diluted net loss per share

   2020   2019 
Warrants   8,389,987    6,448,613 
Stock options   1,355,512    600,209 
Restricted stock units   59,090     
Convertible notes   1,648,287     
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Convertible Promissory Notes and Warrant Agreements (Tables)
6 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Schedule of convertible promissory notes and warrant agreements

   As of
March 31,
2020
  As of
September 30,
2019
Paulson convertible notes, principal  $3,085,200   $         — 
Accrued interest   152,036     
Fair value adjustments   1,683,840     
   $4,921,076   $ 
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Condensed Statements of Changes in Stockholders' Deficit (Unaudited) - USD ($)
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Balance at Sep. 30, 2018 $ 9,657 $ 6,052,161 $ (10,457,710) $ (4,395,892)
Balance, shares at Sep. 30, 2018 9,656,505      
Issuance of common stock under private placement $ 330 601,319 601,649
Issuance of common stock under private placements, shares 330,000      
Issuance of warrants under private placements 223,351 223,351
Issuance costs related to private placements (149,316) (149,316)
Issuance of common stock for consulting services $ 50 114,950 115,000
Issuance of common stock for consulting services, shares 50,000      
Net loss (1,352,824) (1,352,824)
Balance at Dec. 31, 2018 $ 10,037 6,842,465 (11,810,534) (4,958,032)
Balance, shares at Dec. 31, 2018 10,036,505      
Balance at Sep. 30, 2018 $ 9,657 6,052,161 (10,457,710) (4,395,892)
Balance, shares at Sep. 30, 2018 9,656,505      
Balance at Mar. 31, 2019 $ 12,945 14,454,110 (14,022,424) 444,631
Balance, shares at Mar. 31, 2019 12,944,514      
Balance at Dec. 31, 2018 $ 10,037 6,842,465 (11,810,534) (4,958,032)
Balance, shares at Dec. 31, 2018 10,036,505      
Issuance of common stock under private placement $ 1,744 3,164,640 3,166,384
Issuance of common stock under private placements, shares 1,743,979      
Issuance of warrants under private placements 1,193,564 1,193,564
Issuance costs related to private placements (698,777) (698,777)
Issuance of common stock upon conversion of convertible promissory notes $ 839 1,920,881 1,921,720
Issuance of common stock upon conversion of convertible promissory notes, shares 839,179      
Issuance of warrants and reclassification of warrant liability upon conversion of convertible promissory notes 1,921,720 1,921,720
Issuance of warrants and reclassification of warrant liability upon conversion of convertible promissory notes, shares      
Share-based compensation - employee 30,085 30,085
Share-based compensation - non-employee 16,569 16,569
Exercise of stock options $ 94 3,179 3,273
Exercise of stock options, shares 93,555      
Exercise of warrants $ 231 416,102 (14,022,424) 416,333
Exercise of warrants, shares 231,296      
Net loss     (2,211,890) (2,211,890)
Balance at Mar. 31, 2019 $ 12,945 14,454,110 (14,022,424) 444,631
Balance, shares at Mar. 31, 2019 12,944,514      
Balance at Sep. 30, 2019 $ 13,494 15,987,799 (17,238,871) (1,237,578)
Balance, shares at Sep. 30, 2019 13,493,705      
Issuance of common stock under securities purchase agreement $ 142 254,858 255,000
Issuance of common stock under securities purchase agreement, shares 141,666      
Issuance of warrants in connection with convertible notes offering 419,635 419,635
Stock-based compensation 463,084 463,084
Issuance of common stock for consulting services $ 90 124,503 124,593
Issuance of common stock for consulting services, shares 90,000      
Issuance of common stock upon vesting of restricted stock units $ 11 (11)
Issuance of common stock upon vesting of restricted stock units, shares 10,503      
Net loss (4,637,066) (4,637,066)
Balance at Dec. 31, 2019 $ 13,737 17,249,868 (21,875,937) (4,612,332)
Balance, shares at Dec. 31, 2019 13,735,874      
Stock-based compensation 88,806 88,806
Issuance of common stock upon conversion of convertible promissory notes $ 61 239,461 239,522
Issuance of common stock upon conversion of convertible promissory notes, shares 60,847      
Exercise of stock options $ 42 1,446 1,488
Exercise of stock options, shares 42,525      
Issuance of common stock for consulting services $ 61 153,520 153,581
Issuance of common stock for consulting services, shares 61,000      
Issuance of common stock upon vesting of restricted stock units $ 122 289,272 289,394
Issuance of common stock upon vesting of restricted stock units, shares 122,177      
Net loss (1,345,642) (1,345,642)
Balance at Mar. 31, 2020 $ 14,023 $ 18,022,373 $ (23,221,579) $ (5,185,183)
Balance, shares at Mar. 31, 2020 14,022,423      
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Document and Entity Information - shares
6 Months Ended
Mar. 31, 2020
May 08, 2020
Document and Entity Information [Abstract]    
Entity Registrant Name NEUROONE MEDICAL TECHNOLOGIES Corp  
Entity Central Index Key 0001500198  
Amendment Flag false  
Document Type 10-Q  
Document Period End Date Mar. 31, 2020  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Current Fiscal Year End Date --09-30  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity File Number 000-54716  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
Entity Common Stock, Shares Outstanding   161,541,22.
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Summary of Significant Accounting Policies
6 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 3 – Summary of Significant Accounting Policies

 

Management’s Use of Estimates

 

The preparation of condensed 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 and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

 

Concentration of 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 one financial institution in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. As of March 31, 2020, the Company did have deposits in excess of federally insured amounts by $497,244.

 

Common Stock Valuation

 

The Company has been utilizing pricing as quoted on the OTC Market as the basis for the fair value of the Company’s common stock since September 30, 2019. Prior to September 30, 2019, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock (the “AICPA Valuation Framework”). The valuation methodology included estimates and assumptions that required the Company’s judgment. These estimates and assumptions included a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, and the likelihood of achieving a liquidity event, such as an offering or sale. Significant changes to the key assumptions used in the valuations would result in different fair values of common stock at each of those valuation dates.

 

The fair value the Company’s common stock is used as an input into the fair value determination of instruments recorded at fair value and stock option or other equity awards that the Company has issued.

   

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 condensed 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:

 

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 March 31, 2020 and September 30, 2019, the fair values of cash, prepaid, 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 outstanding during the three and six month period ended March 31, 2020 were based on both the fair value of our common stock 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.

 

The estimated fair value of the convertible promissory notes of the Company that were outstanding during the three and six month period ended March 31, 2019 were based on amortized cost which was deemed to approximate fair value. The fair value of the warrant liability and the premium conversion derivatives associated with the convertible promissory notes outstanding during fiscal 2019 were based on both the estimated fair value of our common stock and cash flow models discounted at the then current implied market rates evidenced in arms-length transactions representing expected returns by market participants for similar instruments during that period and were based on Level 3 inputs.

 

There were no transfers between fair value hierarchy levels during the three and six months ended March 31, 2020 and 2019.

 

The fair value of financial instruments measured on a recurring basis is as follows:

 

   As of March 31, 2020 
Description  Total   Level 1   Level 2   Level 3 
Liabilities:                
Convertible Notes  $4,921,076           $4,921,076 
Total liabilities at fair value  $4,921,076           $4,921,076 

 

The following table provides a roll-forward of the convertible notes, warrant liability and premium debt conversion derivatives measured at fair value on a recurring basis using unobservable level 3 inputs for the six month periods ended March 31 as follows:

 

   2020 
Convertible notes    
Balance as of beginning of period – September 30, 2019  $ 
Fair value attributed to convertible promissory notes upon issuance   5,066,740 
Conversion of convertible promissory notes to common stock   (239,522)
Change in fair value including accrued interest   93,858 
Balance as of end of period – March 31, 2020  $4,921,076 

 

   2019 
Warrant liability    
Balance as of beginning of period – September 30, 2018  $817,155 
Change in fair value of warrant liability   18,568 
Reclassification to equity upon conversion of convertible promissory notes   (835,723)
Balance as of end of period – March 31, 2019  $ 

   

   2019 
Premium debt conversion derivatives    
Balance as of beginning of period – September 30, 2018  $308,395 
Change in fair value of premium debt conversion derivatives   111,195 
Reclassification to equity upon conversion of convertible promissory notes   (419,590)
Balance as of end of period – March 31, 2019  $ 

 

Intellectual Property

 

The Company has entered into two licensing agreements with major research institutions, which allows 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.

 

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.

 

Debt Issuance Costs

 

Debt issuance costs are recorded as a reduction of the convertible promissory notes when applicable. Amortization of debt issuance costs is calculated using the straight-line method over the term of the convertible promissory notes, which approximates the effective interest method, and is recorded in interest expense in the accompanying condensed statements of operations.

   

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. Nonrefundable 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. Lastly, de minimis income from the sale of prototype products and related materials is offset against research and development expenses.

 

Warrant Liability

 

The Company issued warrants to purchase equity securities in connection with the issuance or amendment of the convertible promissory notes. The Company accounts for these warrants as a liability at fair value when the number of shares is not fixed and determinable. Additionally, issuance costs associated with the warrant liability are expensed as incurred and reflected as interest expense in the accompanying condensed statements of operations. The Company adjusts the liability for changes in fair value until the earlier of the exercise or expiration of the warrants for any period when pricing protections in future equity financings remain in place, or until such time, if any, as the number of shares to be exercised becomes fixed, at which point the warrants will be classified in stockholders’ (deficit) equity provided that there are sufficient authorized and unissued shares of common stock to settle the warrants and redeem any other contracts that may require settlement in shares of common stock. Any future change in fair value of the warrant liability, when outstanding, is recognized in the condensed statements of operations.

  

 Premium Debt Conversion Derivatives

 

The Company evaluates all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method.  The separated embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a separated embedded derivative at each reporting period in the condensed statements of operations based on the fair value of its common stock 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.

 

 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 convertible promissory notes, 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. Diluted earnings with respect to the convertible promissory utilize the if-converted method. 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 and six month periods ended March 31, 2020 and 2019.

   

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 and six month periods ended March 31, 2020 and 2019:

 

   2020   2019 
Warrants   8,389,987    6,448,613 
Stock options   1,355,512    600,209 
Restricted stock units   59,090     
Convertible notes   1,648,287     

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017 and July 2018. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. The Company adopted the new standard on October 1, 2019 and did not have a material impact on the Company’s statements of comprehensive loss or statements of cash flows for agreements in place as of the adoption date. As such, the Company did not restate comparative periods and did not recognize any cumulative adjustment to retained earnings on the date of the adoption. The Company elected the short-term lease expedient upon adoption of the standard. See NOTE 4 – Commitments and Contingencies with regard to a new operating lease that commenced after the adoption date on November 1, 2019.

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018 for public business entities, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance on October 1, 2019, and the new guidance did not have an impact on the Company’s financial statements as of the adoption date.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The new guidance modifies the disclosure requirements in Topic 820 as follows:

 

  Removals: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements.
     
  Modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

 

  Additions: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

 

This guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the new guidance and does not expect that it will have a material impact 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 does not expect that the adoption of this new guidance will have a material impact on the Company’s financial statements.

XML 17 R45.htm IDEA: XBRL DOCUMENT v3.20.1
Stock-Based Compensation (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]        
Total stock-based compensation expense $ 531,781 $ 70,217 $ 1,119,458 $ 189,197
General and Administrative Expense [Member]        
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]        
Total stock-based compensation expense 495,690 26,105 1,059,458 141,105
Research and Development Expense [Member]        
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]        
Total stock-based compensation expense $ 36,091 $ 44,112 $ 60,000 $ 48,092
XML 18 R41.htm IDEA: XBRL DOCUMENT v3.20.1
Accrued Expenses (Details) - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Payables and Accruals [Abstract]    
Legal services $ 228,709
Accrued issuance costs 50,400 50,400
Accrued payroll 126,001 171,087
Lease liability, short-term 54,922
Other 60,551 167,525
Total accrued expenses $ 291,874 $ 617,721
XML 19 R49.htm IDEA: XBRL DOCUMENT v3.20.1
Stockholders' Deficit (Details) - Warrant [Member]
6 Months Ended
Mar. 31, 2020
$ / shares
shares
Class of Warrant or Right [Line Items]  
Outstanding, Beginning | shares 7,265,598
Issued | shares 1,124,389
Exercised | shares
Forfeited | shares
Outstanding, Exercisable Ending | shares 8,389,987
Exercise Price Per Warrant, Issued $ 1.87
Exercise Price Per Warrant, Exercised
Exercise Price Per Warrant, Forfeited
Weighted Average Exercise Price, Beginning 2.55
Weighted Average Exercise Price, Issued 1.87
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited
Weighted Average Exercise Price, Exercisable Ending $ 2.45
Outstanding, Weighted Average Term (years), Beginning 3 years 7 months 6 days
Outstanding, Weighted Average Term (years), Issued 4 years 3 months 4 days
Outstanding, Weighted Average Term (years), Ending 3 years 3 months 4 days
Minimum [Member]  
Class of Warrant or Right [Line Items]  
Exercise Price Per Warrant, Beginning $ 1.80
Exercise Price Per Warrant, Exercisable Ending 1.80
Maximum [Member]  
Class of Warrant or Right [Line Items]  
Exercise Price Per Warrant, Beginning 3.00
Exercise Price Per Warrant, Exercisable Ending $ 3.00
XML 20 R50.htm IDEA: XBRL DOCUMENT v3.20.1
Stockholders' Deficit (Details Textual) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Dec. 12, 2018
Nov. 30, 2018
Oct. 23, 2019
Dec. 28, 2018
Mar. 31, 2019
Mar. 31, 2019
Warrant [Member]            
Stockholders' Deficit (Textual)            
Purchase price, per share     $ 1.80      
Maximum shares to be issued under private placement     555,555      
Gross proceeds from private placement     $ 255,000      
Private placement transaction, description     The SEC covering the resale of the shares of common stock sold in the private placement within 60 days of the termination of the private placement.      
Shares issued under private placement     141,666      
Maximum potential gross proceeds from financing     $ 1,000,000      
2018 Private Placement [Member]            
Stockholders' Deficit (Textual)            
Purchase agreement, description   (i) 1 share (each, a “Share”) of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2018 Warrants”). The 2018 Warrants are exercisable beginning on the date of issuance and will expire on July 9, 2023, five years from the date of the first closing.        
Offering price, per share $ 2.50          
Cost of issuance $ 173,067       $ (24,029) $ 35,665
Units sold under private placement         0 170,000
Gross proceeds from private placement $ 1,538,000          
Shares issued under private placement 615,200          
2019 Private Placement [Member]            
Stockholders' Deficit (Textual)            
Purchase agreement, description       (i) 1 share of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2019 Warrants”), to the New Purchasers. The 2019 Warrants are exercisable beginning on the date of issuance and will expire on December 28, 2023, five years from the date of the first closing of the 2019 Unit Private Placement.    
Offering price, per share       $ 2.50 $ 2.50 $ 2.50
Cost of issuance       $ 1,150,359 $ 722,806 $ 812,428
Units sold under private placement         1,743,979 1,903,979
Gross proceeds from private placement       $ 5,845,448    
Shares issued under private placement       2,338,179    
XML 21 R35.htm IDEA: XBRL DOCUMENT v3.20.1
Commitments and Contingencies (Details 1) - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]    
Right-of-use assets $ 308,055
Lease liability $ 339,157  
Weighted average remaining lease term (years) 5 years  
Weighted average discount rate 7.00%  
XML 22 R31.htm IDEA: XBRL DOCUMENT v3.20.1
Summary of Significant Accounting Policies (Details 3) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Reclassification to equity upon conversion of convertible promissory notes $ 239,522 $ 1,921,720  
Debt Conversion Derivative [Member]      
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Balance as of beginning of period – September 30, 2018     $ 308,395
Change in fair value of premium debt conversion derivatives     111,195
Reclassification to equity upon conversion of convertible promissory notes     (419,590)
Balance as of end of period – March 31, 2019  
XML 23 R39.htm IDEA: XBRL DOCUMENT v3.20.1
Intangibles and Property and Equipment (Details 1) - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
Equipment and furniture $ 99,181 $ 56,457
Software 1,895 1,895
Total property and equipment 101,076 58,352
Less accumulated depreciation (16,133) (6,326)
Property and equipment, net $ 84,943 $ 52,026
XML 24 R12.htm IDEA: XBRL DOCUMENT v3.20.1
Accrued Expenses
6 Months Ended
Mar. 31, 2020
Payables and Accruals [Abstract]  
Accrued Expenses

NOTE 6 - Accrued Expenses

 

Accrued expenses consisted of the following at March 31, 2020 and September 30, 2019:

  

   As of 
   March 31,
2020
   September 30,
2019
 
Legal services  $   $228,709 
Accrued issuance costs   50,400    50,400 
Accrued payroll   126,001    171,087 
Lease liability, short-term   54,922     
Other   60,551    167,525 
   $291,874   $617,721 

 

The “other” category is primarily comprised of board fees.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.20.1
Income Taxes
6 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 10 – Income Taxes

  

The effective tax rate for the three and six months ended March 31, 2020 and 2019 was zero percent. As a result of the analysis of all available evidence as of March 31, 2020 and September 30, 2019, the Company recorded a full valuation allowance on its net deferred tax assets. Consequently, the Company reported no income tax benefit during the three and six months ended March 31, 2020 and 2019. 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. However, the Company is continuing to assess the impact of the CARES Act.

 

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. The CARES Act is not expected to have a material impact on the Company's financial statements.

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Subsequent Events (Details) - USD ($)
1 Months Ended 6 Months Ended
May 01, 2020
Apr. 24, 2020
Apr. 30, 2020
Apr. 24, 2020
Mar. 31, 2020
Subsequent Events (Textual)          
Paycheck protection program, description         The PPP authorizes up to $349 billion in forgivable loans to small businesses. Loan amounts are forgiven to the extent proceeds are used to cover documented payroll, mortgage interest, rent, and utility costs over an 8 week measurement period following loan funding.
Convertible note, description         The 2020 Paulson Notes bear interest at a fixed rate of 13% per annum and require the Company to repay the principal and accrued and unpaid interest thereon on the earlier of (i) six months following the final closing of the 2020 Paulson Private Placement, (ii) six months following July 31, 2020, and (iii) a change of control transaction. If the Company raises more than $5,000,000 in an equity financing before the maturity date (the "2020 Qualified Financing"), without any action on the part of the Subscribers, all of the outstanding principal and accrued and unpaid interest of the Notes (the "Outstanding Balance") shall convert into that number of shares of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs and (B) the volume weighted average price of the common stock for ten (10) trading days immediately preceding the 2020 Qualified Financing.
Affiliate company, description         If the Company announces a transaction between the Company and any other company (or an affiliate of any such company) that is included in the S&P 500 Health Care Index as published from time to time by S&P Dow Jones Indices LLC that includes an investment or upfront payments resulting in gross proceeds to the Company of at least $2,000,000 upon the execution of such transaction or definitive agreement, and provides for terms of collaboration, manufacturing, distribution, licensing or supply of the Company's products (a "Strategic Transaction") before the maturity date, without any action on the part of the subscribers, the Outstanding Balance shall be converted into that number of shares of common stock equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the VWAP of the common stock for the ten (10) trading days immediately preceding the first announcement of the Strategic Transaction or (B) closing price of the common stock on the day preceding the first announcement by the Company of a Strategic Transaction.
Outstanding voting power, percentage         50.00%
Second Paulson Amendment [Member] | Subsequent Event [Member]          
Subsequent Events (Textual)          
Original maturity date       May 01, 2020  
Amended maturity date       Nov. 01, 2020  
Notes converted amount   $ 2,633,280      
2019 Paulson Notes [Member] | Subsequent Event [Member]          
Subsequent Events (Textual)          
Number of shares issued upon conversion 2,054,245        
2020 Paulson Private Placement [Member] | Subsequent Event [Member]          
Subsequent Events (Textual)          
Maximum principal amount issuable under paulson private placement     $ 3,000,000    
Convertible promissory notes, percentage     13.00%    
Principal amount     $ 1,854,800    
Convertible note, description     The Company may conduct any number of additional closings so long as the aggregate amount of gross proceeds does not exceed $3,000,000 or a higher amount determined by the Board.    
2020 Paulson Warrant [Member]          
Subsequent Events (Textual)          
Exercise price, per share         $ 1.87
Warrant expired date         Apr. 30, 2023
Purchase of common stock, desciption         Each 2020 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 2020 Paulson Notes divided by 1.87, with an exercise price per share equal to $1.87. The 2020 Paulson Warrants are immediately exercisable and expire on April 30, 2023. The exercise price is subject to adjustment in the event of any stock dividends or splits, reverse stock split, recapitalization, reorganization or similar transaction.
2020 Paulson Private Placement [Member]          
Subsequent Events (Textual)          
Cash commission, percentage         12.00%
Common stock, percentage         15.00%
2020 Paulson Private Placement [Member] | Common Stock [Member]          
Subsequent Events (Textual)          
Exercise price, per share         $ 1.87
Broker Warrants [Member]          
Subsequent Events (Textual)          
Exercise price, per share         $ 1.87
Payroll Protection Program [Member]          
Subsequent Events (Textual)          
Loan maturity         2 years
Interest rate         1.00%
Funding loan received         $ 83,333
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Intangibles and Property and Equipment (Details) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Finite-Lived Intangible Assets [Line Items]        
Beginning Balance     $ 178,838  
Less: amortization $ (5,579) $ (5,311) (11,158) $ (10,622)
Ending Balance $ 167,680   $ 167,680  
Minimum [Member]        
Finite-Lived Intangible Assets [Line Items]        
Useful Life     12 years  
Maximum [Member]        
Finite-Lived Intangible Assets [Line Items]        
Useful Life     13 years  
XML 28 R34.htm IDEA: XBRL DOCUMENT v3.20.1
Commitments and Contingencies (Details)
6 Months Ended
Mar. 31, 2020
USD ($)
Cash paid for amounts included in the measurement of lease liability:  
Operating cash flows from operating leases
Right-of -use assets obtained in exchange for lease obligations:  
Operating leases $ 335,119
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Summary of Significant Accounting Policies (Details 2) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Reclassification to equity upon conversion of convertible promissory notes $ 239,522 $ 1,921,720  
Warrant [Member]      
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]      
Balance as of beginning of period – September 30, 2018     $ 817,155
Change in fair value of warrant liability     18,568
Reclassification to equity upon conversion of convertible promissory notes     (835,723)
Balance as of end of period – March 31, 2019  
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Convertible Promissory Notes and Warrant Agreements
6 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Convertible Promissory Notes and Warrant Agreements

NOTE 7 – Convertible Promissory Notes and Warrant Agreements

 

   As of
March 31,
2020
  As of
September 30,
2019
Paulson convertible notes, principal  $3,085,200   $         — 
Accrued interest   152,036     
Fair value adjustments   1,683,840     
   $4,921,076   $ 

 

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.

 

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.

   

The 2019 Paulson Notes bear interest at a fixed rate of 13% per annum and originally required the Company to repay the principal and accrued and unpaid interest thereon on May 1, 2020. The 2019 Paulson Notes were amended in April 2020 to extend the maturity date to November 1, 2020. See NOTE 12 – Subsequent Events for amended terms under the 2019 Paulson Notes.

 

Interest on principal amounted to $100,269 and $154,144 during the three and six month periods ended March 31, 2020, respectively, and was recorded under the net valuation change of instruments measured at fair value in the condensed statements of operations. The subscriber has the option to convert the outstanding principal and accrued and unpaid interest of such subscriber’s 2019 Paulson Note (the “Outstanding Balance”) into common stock in an amount equal to the Outstanding Balance divided by the ten day volume weighted average closing price (“VWAP”) of the common stock prior to conversion. In addition, if the Company raises more than $3,000,000 in an equity financing (the “2019 Qualified Financing”) before the maturity date, each subscriber shall have the option to convert the Outstanding Balance into the securities issued by the Company in such 2019 Qualified Financing in an amount equal to (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of securities issued by the Company in the 2019 Qualified Financing or (B) the ten day VWAP of the common stock prior to the first closing of a 2019 Qualified Financing. If a change of control transaction occurs prior to a 2019 Qualified Financing or the maturity date, the 2019 Paulson Notes would become payable on demand as of the closing date of such transaction. Change of control means a merger or consolidation with another entity in which the Company’s stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company’s assets.

 

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. The fair value of the 2019 Paulson Notes was significantly higher than the proceeds received as of each of the respective issuance dates given the significant redemption discount associated with the 2019 Qualified Financing provision. The excess of fair value over proceeds at issuance amounted to $1,831,940 and was recorded to interest expense in the condensed statements of operations during the six month period ended March 31, 2020. Subsequent to issuance, the fair value change of the 2019 Paulson Notes amounted to a reduction of $(31,716) and an increase of $93,858 during the three and six month periods ended March 31, 2020, respectively, 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 1.87, with an exercise price per share equal to $1.87. As of the final closing on December 3, 2019, the Company issued 2019 Paulson Warrants exercisable for 864,913 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.

  

In connection with the 2019 Private Placement, Paulson Investment Company, LLC (“Paulson”) received a cash commission equal to 12% of the gross proceeds from the sale of the 2019 Paulson Notes, and 10-year warrants to purchase an amount of Common Stock equal to 259,476 shares of common stock at an exercise price equal to $1.87 per share (the “Broker Warrants”). The issuance costs incurred during the six months ended March 31, 2020 in connection with the 2019 Paulson Private Placement were $865,567. Issuance costs included cash commissions equal to $388,176 and legal and third party fees in the amount of $57,756. In addition, issuance costs included the value of the Broker Warrants in the amount of $419,635. There were no issuance costs incurred in connection with 2019 Paulson Notes during the three months ended March 31, 2020. The issuance costs were recorded as a component of interest in the accompanying condensed statements of operations.

 

During the six months ended March 31, 2020, 2019 Paulson Notes with a fair value of $239,522 were converted into 60,847 shares of common stock.

 

2017 Convertible Notes

 

From October 2017 to May 2018, the Company issued convertible notes (the “2017 Convertible Notes”) in an aggregate principal amount of $1,540,000 that bear interest at a fixed rate of 8% per annum and warrants to purchase shares of the Company’s capital stock (the “2017 Warrants”).

   

On February 28, 2019, the 2017 Convertible Notes were converted into 839,179 shares of common stock and 839,179 common stock purchase warrants with an exercise term of approximately 4.8 years and an exercise price $3.00 per share. In addition, the previously issued 2017 Warrants became immediately exercisable for 839,179 shares of common stock. The conversion was accounted for as a debt extinguishment given the bifurcation of the embedded premium debt conversion feature. The fair value of the newly issued common shares and warrants associated with the 2017 Convertible Notes conversion relative to the carrying value of the debt and fair value of warrant liability and premium derivative liability on the conversion date was $553,447 and was recorded as a loss on note extinguishment in the accompanying condensed statements of operations for the three and six months ended March 31, 2019.

 

During the three and six month periods ended March 31, 2019, interest on the principal was $20,534 and $51,333, respectively, and interest related to amortization of discounts related to the bifurcation of premium derivative liability, separation of warrants, revaluation discounts and issuance costs amounted to zero and $233,224, respectively. The fair value changes related to the underlying premium conversion derivative and warrant liability amounted to an expense of $116,809 and $129,763 during the three and six month periods ended March 31, 2019, respectively.

 

As noted above, the 2017 Convertible Notes were converted into shares of common stock and not outstanding during the three and six month periods ended March 31, 2020.

XML 31 R17.htm IDEA: XBRL DOCUMENT v3.20.1
Stockholders' Deficit
6 Months Ended
Mar. 31, 2020
Stockholders' Equity Note [Abstract]  
Stockholders' Deficit

NOTE 11 – Stockholders’ Deficit

 

Common Stock Offering

 

On October 23, 2019, the Company entered into Securities Purchase Agreements with certain accredited investors, pursuant to which the Company, in a private placement, has issued and sold 141,666 shares of the Company’s common stock to the accredited investors at a price of $1.80 per share, for gross proceeds amounting to $255,000.

 

In connection with the private placement, the Company has agreed to issue and sell to accredited investors up to a maximum of 555,555 shares for total gross proceeds to the Company of up to $1,000,000. The Company intends to use the net proceeds from this private placement for funding operations or working capital and general corporate purposes. The Company has agreed to file a registration statement with the SEC covering the resale of the shares of common stock sold in the private placement within 60 days of the termination of the private placement.

 

2019 Private Placement

 

From December 28, 2018 through July 1, 2019, the Company entered into Subscription Agreements (each, a “2019 Purchase Agreement”) with certain accredited investors (the “New Purchasers”), pursuant to which the Company, in a new private placement (the “2019 Unit Private Placement”), agreed to issue and sell Units (the “2019 Units”), each consisting of (i) 1 share of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2019 Warrants”), to the New Purchasers. The 2019 Warrants are exercisable beginning on the date of issuance and will expire on December 28, 2023, five years from the date of the first closing of the 2019 Unit Private Placement.

 

The initial closing of the 2019 Unit Private Placement was consummated on December 28, 2018. The Company issued and sold an aggregate of 2,338,179 of the 2019 Units at $2.50 per Unit to the New Purchasers, for total gross proceeds to the Company of approximately $5,845,448 before deducting offering expenses (1,743,979 and 1,903,979 of the 2019 Units were sold during the three and six month periods ended March 31, 2019, respectively). In connection with the 2019 Unit Private Placement, the Company recorded issuance costs in the amount of $1,150,359 ($722,806 and $812,428 recorded during the three and six month periods ended March 31, 2019, respectively). The 2019 Unit Private Placement was terminated on July 1, 2019.

 

2018 Private Placement

 

From July 9, 2018 through November 30, 2018 (the final closing), the Company entered into subscription agreements (each, a “Purchase Agreement”) with certain accredited investors (the “Purchasers”), pursuant to which the Company, in a private placement (the “2018 Private Placement”), agreed to issue and sell to the Purchasers units (each, a “2018 Unit”), each consisting of (i) 1 share (each, a “Share”) of common stock and (ii) a warrant to purchase 1 share of common stock at an initial exercise price of $3.00 per share (the “2018 Warrants”). The 2018 Warrants are exercisable beginning on the date of issuance and will expire on July 9, 2023, five years from the date of the first closing. The 2018 Warrants were accounted for as free standing equity instruments and classified as additional paid-in capital in the accompanying condensed balance sheets based on their relative fair value to the underlying common shares issued. The initial closing of the 2018 Private Placement was consummated on July 9, 2018 and was terminated on December 12, 2018.

  

As of the termination of the 2018 Private Placement on December 12, 2018, the Company had issued and sold an aggregate of 615,200 of the 2018 Units at a price of $2.50 per Unit to the Purchasers, for total gross proceeds to the Company of $1,538,000 before deducting offering expenses (zero and 170,000 of the 2018 Units were sold during the three and six month periods ended March 31, 2019, respectively). In connection with the 2018 Private Placement, the Company recorded issuance costs in the amount of $173,067 (a reduction adjustment of $(24,029) and a cost of $35,665 recorded during the three and six month periods ended March 31, 2019, respectively).

 

Warrant Activity and Summary

 

The following table summarizes warrant activity during the six month period ended March 31, 2020:

 

          Exercise
Price
    Weighted
Average
    Weighted
Average
 
    Warrants     Per Warrant     Exercise Price     Term (years)  
Outstanding and exercisable at September 30, 2019     7,265,598     $ 1.80 - 3.00     $ 2.55       3.60  
Issued     1,124,389     $ 1.87     $ 1.87       4.26  
Exercised         $     $        
Forfeited         $     $        
Outstanding and exercisable at March 31, 2020     8,389,987     $ 1.80 - 3.00     $ 2.45       3.26  
XML 32 R21.htm IDEA: XBRL DOCUMENT v3.20.1
Commitments and Contingencies (Tables)
6 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Summary of supplemental cash flow information related to the operating lease

   Six months
ended
 
   March 31,
2020
 
     
Cash paid for amounts included in the measurement of lease liability:    
Operating cash flows from operating leases  $ 
      
Right-of -use assets obtained in exchange for lease obligations:     
Operating leases  $335,119 
Summary of Supplemental balance sheet information related to the operating lease

   As of 
   March 31,
2020
 
Right-of-use assets  $308,055 
      
Lease liability  $339,157 
      
Weighted average remaining lease term (years)   5.0 
Weighted average discount rate   7.0%
Summary of Maturity of the lease liability

   As of 
   March 31, 2020 
2020 (period from April 1, 2020 to September 30, 2020)  $38,462 
2021   77,884 
2022   79,832 
2023   81,827 
2024   83,873 
2025   42,454 
Total lease payments   404,332 
Less imputed interest   (65,175)
Total   339,157 
Short-term portion   (54,922)
Long-term portion  $284,235 
XML 33 R25.htm IDEA: XBRL DOCUMENT v3.20.1
Stock-Based Compensation (Tables)
6 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of share-based compensation expense

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
   2020   2019   2020   2019 
General and administrative  $495,690   $26,105   $1,059,458   $141,105 
Research and development   36,091    44,112    60,000    48,092 
Total share-based compensation  $531,781   $70,217   $1,119,458   $189,197 
Schedule of weighted-average assumptions used black-scholes option-pricing model

   Three Months Ended   Six Months Ended 
   March 31,   March  31, 
   2020       2019   2020       2019 
                 
Expected stock price volatility   54.3%   50.7%   52.8%   50.2%
Expected life of options (years)   5.4    6.0    5.7    5.9 
Expected dividend yield   0%   0%   0%   0%
Risk free interest rate   1.4%   2.6%   1.7%   2.7%
XML 34 R29.htm IDEA: XBRL DOCUMENT v3.20.1
Summary of Significant Accounting Policies (Details 1) - Convertible Notes [Member]
6 Months Ended
Mar. 31, 2020
USD ($)
Convertible notes  
Balance as of beginning of period – September 30, 2019
Fair value attributed to convertible promissory notes upon issuance 5,066,740
Conversion of convertible promissory notes to common stock (239,522)
Change in fair value including accrued interest 93,858
Balance as of end of period – March 31, 2020 $ 4,921,076
XML 35 R8.htm IDEA: XBRL DOCUMENT v3.20.1
Going Concern
6 Months Ended
Mar. 31, 2020
Going Concern [Abstract]  
Going Concern

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 and has negative working capital, negative cash flows from operations, and an accumulated deficit of $23,221,579 as of March 31, 2020. The Company has not established a source of revenues to cover its 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. These factors raise substantial doubt about its ability to continue as a going concern. The condensed financial statements do not include any adjustments that might result from the outcome of this condition. Management intends to continue to seek additional financing to fund operations. If the Company is not able to raise additional working capital, it will have a material adverse effect on the operations of the Company and the development of its technology.

 

The Company does not have adequate liquidity to fund its operations without raising additional funds. Management intends to continue to seek additional debt and/or equity financing to fund operations. However, these actions are not solely within the control of the Company. 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. If management is unable to obtain the necessary capital, it may have to cease operations.

XML 36 R4.htm IDEA: XBRL DOCUMENT v3.20.1
Condensed Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Operating expenses:        
General and administrative $ 1,035,256 $ 1,084,789 $ 2,347,422 $ 1,951,468
Research and development 342,102 436,311 843,921 645,479
Total operating expenses 1,377,358 1,521,100 3,191,343 2,596,947
Loss from operations (1,377,358) (1,521,100) (3,191,343) (2,596,947)
Interest expense (20,534) (2,697,507) (284,557)
Net valuation change of instruments measured at fair value 31,716 (116,809) (93,858) (129,763)
Loss on notes extinguishment (553,447) (553,447)
Loss before income taxes (1,345,642) (2,211,890) (5,982,708) (3,564,714)
Provision for income taxes
Net loss $ (1,345,642) $ (2,211,890) $ (5,982,708) $ (3,564,714)
Net loss per share:        
Basic and diluted $ (0.10) $ (0.20) $ (0.43) $ (0.34)
Number of shares used in per share calculations:        
Basic and diluted 13,904,429 10,971,425 13,780,509 10,360,696
XML 37 R48.htm IDEA: XBRL DOCUMENT v3.20.1
Income Taxes (Details)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Income Taxes (Textual)        
Effective tax rate 0.00% 0.00% 0.00% 0.00%
Income tax benefit
XML 38 R44.htm IDEA: XBRL DOCUMENT v3.20.1
Defined Contribution Plan (Details) - USD ($)
6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Defined Contribution Plan (Textual)    
Employees defer compensation, percentage 100.00%  
Employee deferrals contributions, description The Company matches 100% of deferrals up to 3% of one’s contributions. The Company’s matching contributions to employee deferrals are discretionary. The Company may also make discretionary profit sharing contributions under the 401K Plan in the future, but it has not done so through March 31, 2020.  
Employee contributions, vesting percentage 100.00%  
Employee deferrals, vesting term 6 years  
Discretionary profit sharing contributions, vesting term 5 years  
Contributions cost $ (4,359)
XML 39 R40.htm IDEA: XBRL DOCUMENT v3.20.1
Intangibles and Property and Equipment (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Intangibles and Property and Equipment (Textual)        
Amortization expense $ 5,579 $ 5,311 $ 11,158 $ 10,622
Depreciation expense $ 5,488 $ 0 $ 9,807 $ 0
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Summary of Significant Accounting Policies (Policies)
6 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Management's Use of Estimates

Management's Use of Estimates

 

The preparation of condensed 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 and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

Concentration of 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 one financial institution in the United States. Amounts on deposit may at times exceed federally insured limits. Management believes that the financial institution is financially sound, and accordingly, minimal credit risk exists with respect to the financial institution. As of March 31, 2020, the Company did have deposits in excess of federally insured amounts by $497,244.

Common Stock Valuation

Common Stock Valuation

 

The Company has been utilizing pricing as quoted on the OTC Market as the basis for the fair value of the Company's common stock since September 30, 2019. Prior to September 30, 2019, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants' Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock (the "AICPA Valuation Framework"). The valuation methodology included estimates and assumptions that required the Company's judgment. These estimates and assumptions included a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, and the likelihood of achieving a liquidity event, such as an offering or sale. Significant changes to the key assumptions used in the valuations would result in different fair values of common stock at each of those valuation dates.

 

The fair value the Company's common stock is used as an input into the fair value determination of instruments recorded at fair value and stock option or other equity awards that the Company has issued.

Fair Value of Financial Instruments

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 condensed 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:

 

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 March 31, 2020 and September 30, 2019, the fair values of cash, prepaid, 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 outstanding during the three and six month period ended March 31, 2020 were based on both the fair value of our common stock 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.

 

The estimated fair value of the convertible promissory notes of the Company that were outstanding during the three and six month period ended March 31, 2019 were based on amortized cost which was deemed to approximate fair value. The fair value of the warrant liability and the premium conversion derivatives associated with the convertible promissory notes outstanding during fiscal 2019 were based on both the estimated fair value of our common stock and cash flow models discounted at the then current implied market rates evidenced in arms-length transactions representing expected returns by market participants for similar instruments during that period and were based on Level 3 inputs.

 

There were no transfers between fair value hierarchy levels during the three and six months ended March 31, 2020 and 2019.

 

The fair value of financial instruments measured on a recurring basis is as follows:

 

   As of March 31, 2020 
Description  Total   Level 1   Level 2   Level 3 
Liabilities:                
Convertible Notes  $4,921,076           $4,921,076 
Total liabilities at fair value  $4,921,076           $4,921,076 

 

The following table provides a roll-forward of the convertible notes, warrant liability and premium debt conversion derivatives measured at fair value on a recurring basis using unobservable level 3 inputs for the six month periods ended March 31 as follows:

 

   2020 
Convertible notes    
Balance as of beginning of period – September 30, 2019  $ 
Fair value attributed to convertible promissory notes upon issuance   5,066,740 
Conversion of convertible promissory notes to common stock   (239,522)
Change in fair value including accrued interest   93,858 
Balance as of end of period – March 31, 2020  $4,921,076 

 

   2019 
Warrant liability    
Balance as of beginning of period – September 30, 2018  $817,155 
Change in fair value of warrant liability   18,568 
Reclassification to equity upon conversion of convertible promissory notes   (835,723)
Balance as of end of period – March 31, 2019  $ 

  

   2019 
Premium debt conversion derivatives    
Balance as of beginning of period – September 30, 2018  $308,395 
Change in fair value of premium debt conversion derivatives   111,195 
Reclassification to equity upon conversion of convertible promissory notes   (419,590)
Balance as of end of period – March 31, 2019  $ 
Intellectual Property

Intellectual Property

 

The Company has entered into two licensing agreements with major research institutions, which allows 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

 

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.

Impairment of Long-Lived Assets

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.

Debt Issuance Costs

Debt Issuance Costs

 

Debt issuance costs are recorded as a reduction of the convertible promissory notes when applicable. Amortization of debt issuance costs is calculated using the straight-line method over the term of the convertible promissory notes, which approximates the effective interest method, and is recorded in interest expense in the accompanying condensed statements of operations.

Research and Development Costs

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. Nonrefundable 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. Lastly, de minimis income from the sale of prototype products and related materials is offset against research and development expenses.

Warrant Liability

Warrant Liability

 

The Company issued warrants to purchase equity securities in connection with the issuance or amendment of the convertible promissory notes. The Company accounts for these warrants as a liability at fair value when the number of shares is not fixed and determinable. Additionally, issuance costs associated with the warrant liability are expensed as incurred and reflected as interest expense in the accompanying condensed statements of operations. The Company adjusts the liability for changes in fair value until the earlier of the exercise or expiration of the warrants for any period when pricing protections in future equity financings remain in place, or until such time, if any, as the number of shares to be exercised becomes fixed, at which point the warrants will be classified in stockholders' (deficit) equity provided that there are sufficient authorized and unissued shares of common stock to settle the warrants and redeem any other contracts that may require settlement in shares of common stock. Any future change in fair value of the warrant liability, when outstanding, is recognized in the condensed statements of operations.

Premium Debt Conversion Derivatives

Premium Debt Conversion Derivatives

 

The Company evaluates all conversion and redemption features contained in a debt instrument to determine if there are any embedded derivatives that require separation from the host debt instrument. An embedded derivative that requires separation is bifurcated from its host debt instrument and a corresponding discount to the host debt instrument is recorded. The discount is amortized and recorded to interest expense over the term of the host debt instrument using the straight-line method which approximates the effective interest method.  The separated embedded derivative is accounted for separately on a fair market value basis. The Company records the fair value changes of a separated embedded derivative at each reporting period in the condensed statements of operations.

Income Taxes

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

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 convertible promissory notes, 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. Diluted earnings with respect to the convertible promissory utilize the if-converted method. 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 and six month periods ended March 31, 2020 and 2019.

   

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 and six month periods ended March 31, 2020 and 2019:

 

   2020   2019 
Warrants   8,389,987    6,448,613 
Stock options   1,355,512    600,209 
Restricted stock units   59,090     
Convertible notes   1,648,287     
Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017 and July 2018. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods. The Company adopted the new standard on October 1, 2019 and did not have a material impact on the Company’s statements of comprehensive loss or statements of cash flows for agreements in place as of the adoption date. As such, the Company did not restate comparative periods and did not recognize any cumulative adjustment to retained earnings on the date of the adoption. The Company elected the short-term lease expedient upon adoption of the standard. See NOTE 4 – Commitments and Contingencies with regard to a new operating lease that commenced after the adoption date on November 1, 2019.

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018 for public business entities, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance on October 1, 2019, and the new guidance did not have an impact on the Company’s financial statements as of the adoption date.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The new guidance modifies the disclosure requirements in Topic 820 as follows:

 

  Removals: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements.
     
  Modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

 

  Additions: the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

 

This guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of the new guidance and does not expect that it will have a material impact 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 does not expect that the adoption of this new guidance will have a material impact on the Company’s financial statements.

XML 43 R11.htm IDEA: XBRL DOCUMENT v3.20.1
Intangibles and Property and Equipment
6 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangibles and Property and Equipment

NOTE 5 – Intangibles and Property and Equipment

 

Intangibles

 

Intangible assets rollforward is as follows: 

 

   Useful Life    
Net Intangibles, September 30, 2019  12-13 years  $178,838 
Less: amortization      (11,158)
Net Intangibles, March 31, 2020     $167,680 

 

Amortization expense was $5,579 and $5,311 for the three months ended March 31, 2020 and 2019, respectively, and 11,158 and $10,622 for the six months ended March 31, 2020 and 2019, respectively.

   

Property and Equipment

 

Property and equipment held for use by category are presented in the following table:  

 

   As of 
   March 31,
2020
   September 30,
2019
 
Equipment and furniture  $99,181   $56,457 
Software   1,895    1,895 
Total property and equipment   101,076    58,352 
Less accumulated depreciation   (16,133)   (6,326)
Property and equipment, net  $84,943   $52,026 

 

Depreciation expense was $5,488 and zero for the three months ended March 31, 2020 and 2019, respectively, and $9,807 and zero for the six months ended March 31, 2020 and 2019, respectively.

XML 44 R15.htm IDEA: XBRL DOCUMENT v3.20.1
Stock-Based Compensation
6 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

NOTE 9 – Stock-Based Compensation

 

Stock-based compensation expense was included in general and administrative and research and development expenses as follows in the accompanying condensed statements of operations:

 

   Three Months Ended   Six Months Ended 
   March 31,   March 31, 
   2020   2019   2020   2019 
General and administrative  $495,690   $26,105   $1,059,458   $141,105 
Research and development   36,091    44,112    60,000    48,092 
Total share-based compensation  $531,781   $70,217   $1,119,458   $189,197 

 

Stock Options

 

During the three month period ended March 31, 2020 and 2019, under the 2017 Equity Incentive Plan (the “2017 Plan”), the Company granted 20,000 and 150,548 stock options, respectively, to its employees, consultants and scientific advisory board members. During the six month periods ended March 31, 2020 and 2019, under the 2017 Plan, the Company granted 820,000 and 325,548 stock options, respectively, to its employees, consultants and scientific advisory board members. Vesting generally occurs over an immediate to 48 month period based on a time of service condition although vesting acceleration is provided under one grant in the event that certain milestones are met. The grant date fair value of the grants issued during the three month periods ended March 31, 2020 and 2019 was $1.15 and $1.11 per share, respectively. The grant date fair value of the grants issued during the six month periods ended March 31, 2020 and 2019 was $1.06 and $1.12 per share, respectively. The total expense for the three months ended March 31, 2020 and 2019 related to stock options was $88,806 and $46,654, respectively. The total expense for the six month periods ended March 31, 2020 and 2019 related to stock options was $526,888 and $46,654, respectively. The total number of stock options outstanding as of March 31, 2020 and September 30, 2019 was 1,355,512 and 845,840, respectively.

   

The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the three and six month periods ended March 31, 2020 and 2019:

 

   Three Months Ended   Six Months Ended 
   March 31,   March  31, 
   2020       2019   2020       2019 
                 
Expected stock price volatility   54.3%   50.7%   52.8%   50.2%
Expected life of options (years)   5.4    6.0    5.7    5.9 
Expected dividend yield   0%   0%   0%   0%
Risk free interest rate   1.4%   2.6%   1.7%   2.7%

 

During the three and six month periods ended March 31, 2020, 46,865 and 422,694 stock options vested, respectively, and 39,675 stock options vested during the three and six months ended March 31, 2019. During the three and six month periods ended March 31, 2020, 260,306 and 267,803 stock options were forfeited, respectively, and no options were forfeited during the three and six month periods ended March 31, 2019.

 

Restricted Stock Units

 

During the three and six month periods ended March 31, 2020, 167,851 restricted stock units (“RSUs”) were granted. During the three and six month periods ended March 31, 2019, no RSUs were granted. During the three and six month periods ended March 31, 2020, 122,767 and 133,272 RSUs vested, respectively. No RSUs vested during the three and six month periods ended March 31, 2019. The total expense for the three and six month period ended March 31, 2020 related to the RSU’s was $289,394 and $314,395, respectively. No expense was recognized related to the RSUs during the three and six month periods ended March 31, 2019. The number of RSUs forfeited during the three and six month periods ended March 31, 2020 was zero and 7,003, respectively. No RSUs were forfeited during the three and six month periods ended March 31, 2019.

 

 Other Stock-Based Awards

 

In October 2019, two consulting agreements were executed whereby up to 115,000 shares of common stock were issuable of which 90,000 shares of common stock were issued and vested as of March 31, 2020 under these agreements. Vesting is based on a time-based vesting condition ranging over a three to nine month period commencing upon the execution of the consulting agreements. In February 2020, an additional consulting agreement was executed whereby up to 90,000 shares of common stock were issuable of which 36,000 shares of common stock were issued and vested as of March 31, 2020 under this agreement. Compensation expense related to the stock awards granted under these consulting agreements amounted to $153,581 and $278,175 and was included in the total stock-based expense referenced above for the three and six month periods ended March 31, 2020, respectively. The expense was based on the fair value of the underlying common stock at the point of vesting which ranged from $2.00 to $2.65 per share.

 

In February 2018, 250,000 shares of common stock were reserved as a result of a consulting agreement for investor relations services executed in February 2018. Under the agreement, zero and 50,000 shares of common stock were awarded during the three and six month period ended March 31, 2019, respectively, on a time-based vesting condition that was met in November 2018. The compensation expense related to the vested common shares was included in the total stock-based expense referenced above which totaled zero and $115,000 for the three and six month periods ended March 31, 2019, respectively. The expense was based on the fair value of the underlying common stock at the point of vesting which was $2.30 per share. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering both the traded price and forward multiples from guideline public companies, using allocation and marketability-discount methodologies. 

 

As of March 31, 2019, the Company had formal obligation to issue future common stock options relating to several consulting agreements. The corresponding stock-based compensation expense related to the stock-based award liabilities amounted to $23,563 and $27,543 during the three and six month periods ended March 31, 2019, respectively, and was included in general and administrative expense in the accompanying condensed statements of operations.

 

General

 

As of March 31, 2020, 2,063,506 shares were available for future issuance on a combined basis under the 2016 Equity Incentive Plan and 2017 Plan. Unrecognized stock-based compensation was $0.8 million as of March 31, 2020. The unrecognized share-based expense is expected to be recognized over a weighted average period of 2.9 years.

XML 45 R36.htm IDEA: XBRL DOCUMENT v3.20.1
Commitments and Contingencies (Details 2)
Mar. 31, 2020
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2020 (period from April 1, 2020 to September 30, 2020) $ 38,462
2021 77,884
2022 79,832
2023 81,827
2024 83,873
2025 42,454
Total lease payments 404,332
Less imputed interest (65,175)
Total 339,157
Short-term portion (54,922)
Long-term portion $ 284,235
XML 46 R32.htm IDEA: XBRL DOCUMENT v3.20.1
Summary of Significant Accounting Policies (Details 4) - shares
6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Warrants [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive computation of diluted net loss per share 8,389,987 6,448,613
Stock options [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive computation of diluted net loss per share 1,355,512 600,209
Restricted stock units [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive computation of diluted net loss per share 59,090
Convertible Notes [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Anti-dilutive computation of diluted net loss per share 1,648,287
XML 47 R23.htm IDEA: XBRL DOCUMENT v3.20.1
Accrued Expenses (Tables)
6 Months Ended
Mar. 31, 2020
Payables and Accruals [Abstract]  
Schedule of accrued expenses
  As of 
   March 31,
2020
   September 30,
2019
 
Legal services  $   $228,709 
Accrued issuance costs   50,400    50,400 
Accrued payroll   126,001    171,087 
Lease liability, short-term   54,922     
Other   60,551    167,525 
   $291,874   $617,721 

 

XML 48 R27.htm IDEA: XBRL DOCUMENT v3.20.1
Going Concern (Details) - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Going Concern (Textual)    
Accumulated deficit $ 23,221,579 $ 17,238,871
XML 49 R46.htm IDEA: XBRL DOCUMENT v3.20.1
Stock-Based Compensation (Details 1) - Stock Options [Member]
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Offsetting Assets [Line Items]        
Expected stock price volatility 54.30% 50.70% 52.80% 50.20%
Expected life of options (years) 5 years 4 months 24 days 6 years 5 years 8 months 12 days 5 years 10 months 25 days
Expected dividend yield 0.00% 0.00% 0.00% 0.00%
Risk free interest rate 1.40% 2.60% 1.70% 2.70%
XML 50 R42.htm IDEA: XBRL DOCUMENT v3.20.1
Convertible Promissory Notes and Warrant Agreements (Details) - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Short-term Debt [Line Items]    
Accrued interest $ 152,036
Fair value adjustments 1,683,840
Total 4,921,076
Paulson convertible notes, principal [Member]    
Short-term Debt [Line Items]    
Total $ 3,085,200
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Condensed Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating activities    
Net loss $ (5,982,708) $ (3,564,714)
Adjustments to reconcile net loss to net cash used in operating activities:    
Amortization and depreciation 20,965 10,622
Stock-based compensation 1,119,458 189,197
Non-cash interest on convertible notes 1,831,940 51,333
Non-cash discount amortization on convertible notes 233,224
Revaluation of convertible notes 93,858
Revaluation of premium conversion derivatives and warrant liability 129,763
Issuance costs attributed to financing activities 865,567
Loss on notes extinguishment 553,447
Lease liability principal payment deferral 4,038  
Right-of-use asset depreciation adjustment (4,038)  
Change in assets and liabilities:    
Prepaid and other assets (40,303) (74,574)
Accounts payable and other accrued liabilities (383,855) (104,578)
Net cash used in operating activities (2,475,078) (2,576,280)
Investing activities    
Purchase of fixed assets and intangible assets (40,224) (65,000)
Net cash used in investing activities (40,224) (65,000)
Financing activities    
Proceeds from issuance of convertible promissory notes 3,234,800
Issuance costs related to convertible notes (417,176)
Proceeds from unsecured loans 245,000
Proceeds from issuance of common stock in connection with private placements 255,000 3,768,032
Proceeds from issuance of warrants in connection with private placements 1,416,915
Exercise of warrants   416,333
Exercise of stock options 1,488 3,273
Repayment of unsecured loans (299,000)
Issuance costs related to private placements (72,315) (617,134)
Net cash provided by financing activities 3,001,797 4,933,419
Net increase in cash 486,495 2,292,139
Cash at beginning of period 260,749 13,260
Cash at end of period 747,244 2,305,399
Supplemental non-cash financing and investing transactions:    
Conversion of convertible promissory notes to equity 1,678,361
Exercise of premium conversion derivative liability 419,590
Reclassification of warrant liability to equity 835,723
Unpaid issuance costs attributed to convertible notes and private placement 28,756 230,959
Broker warrants issued in connection with convertible notes 419,635
Purchased fixed assets in accounts payable and accrued expenses 2,500
Operating lease right of use asset obtained in exchange for operating lease $ 335,119
XML 53 R2.htm IDEA: XBRL DOCUMENT v3.20.1
Condensed Balance Sheets - USD ($)
Mar. 31, 2020
Sep. 30, 2019
Current assets:    
Cash $ 747,244 $ 260,749
Prepaid and other assets 81,305 41,002
Total current assets 828,549 301,751
Right-of-use asset 308,055
Intangible assets, net 167,680 178,838
Property and equipment, net 84,943 52,026
Total assets 1,389,227 532,615
Current liabilities:    
Accounts payable 1,077,225 1,152,472
Accrued expenses 291,874 617,721
Convertible promissory notes (Note 7) 4,921,076
Total current liabilities 6,290,175 1,770,193
Lease liability 284,235
Total liabilities 6,574,410 1,770,193
Commitments and contingencies (Note 4)  
Stockholders' deficit:    
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2020 and September 30, 2019; no shares issued or outstanding as of March 31, 2020 and September 30, 2019.
Common stock, $0.001 par value; 100,000,000 shares authorized as of March 31, 2020 and September 30, 2019; 14,022,423 and 13,493,705 shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively. 14,023 13,494
Additional paid-in capital 18,022,373 15,987,799
Accumulated deficit (23,221,579) (17,238,871)
Total stockholders' deficit (5,185,183) (1,237,578)
Total liabilities and stockholders' deficit $ 1,389,227 $ 532,615
XML 54 R22.htm IDEA: XBRL DOCUMENT v3.20.1
Intangibles and Property and Equipment (Tables)
6 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of intangible assets
  Useful Life    
Net Intangibles, September 30, 2019  12-13 years  $178,838 
Less: amortization      (11,158)
Net Intangibles, March 31, 2020     $167,680 
Schedule of property and equipment

   As of 
   March 31,
2020
   September 30,
2019
 
Equipment and furniture  $99,181   $56,457 
Software   1,895    1,895 
Total property and equipment   101,076    58,352 
Less accumulated depreciation   (16,133)   (6,326)
Property and equipment, net  $84,943   $52,026 
XML 55 R26.htm IDEA: XBRL DOCUMENT v3.20.1
Stockholders' Deficit (Tables)
6 Months Ended
Mar. 31, 2020
Stockholders' Equity Note [Abstract]  
Schedule of warrant activity

          Exercise
Price
    Weighted
Average
    Weighted
Average
 
    Warrants     Per Warrant     Exercise Price     Term (years)  
Outstanding and exercisable at September 30, 2019     7,265,598     $ 1.80 - 3.00     $ 2.55       3.60  
Issued     1,124,389     $ 1.87     $ 1.87       4.26  
Exercised         $     $        
Forfeited         $     $        
Outstanding and exercisable at March 31, 2020     8,389,987     $ 1.80 - 3.00     $ 2.45       3.26  
XML 56 R47.htm IDEA: XBRL DOCUMENT v3.20.1
Stock-Based Compensation (Details Textual) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Feb. 29, 2020
Oct. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Sep. 30, 2019
Feb. 28, 2018
Restricted Stock [Member]                
Stock-Based Compensation (Textual)                
Stock options vested     122,767 0 133,272 0    
Compensation expense associated with restricted common stock     $ 289,394 $ 0 $ 314,395 $ 0    
Number of options, granted     167,851 0 167,851 0    
RSUs forfeited shares     0 0 7,003 0    
General and Administrative Expense [Member]                
Stock-Based Compensation (Textual)                
Compensation expense related to the stock awards       $ 23,563   $ 27,543    
2017 Equity Incentive Plan [Member]                
Stock-Based Compensation (Textual)                
Fair value of common stock price per share     $ 1.15 $ 1.11 $ 1.06 $ 1.12    
Compensation expense related to the stock awards     $ 88,806 $ 46,654 $ 526,888 $ 46,654    
Stock options vested     46,865 39,675 422,694 39,675    
Number of options, granted     20,000 150,548 820,000 325,548    
Unrecognized share-based expense is expected to be recognized over a weighted average period         2 years 10 months 25 days      
Number of options, forfeited     260,306 0 267,803 0    
Total number of stock options outstanding     1,355,512   1,355,512   845,840  
Stock-Based Awards [Member]                
Stock-Based Compensation (Textual)                
Reserved shares of common stock for issuance               250,000
Compensation expense related to the stock awards     $ 153,581   $ 278,175      
Stock options vested   60,000     0 50,000    
Stock-based services expense       $ 0   $ 115,000    
Common stock related to the award liability includes stock options         $ 2.30      
Stock-Based Awards [Member] | Minimum [Member]                
Stock-Based Compensation (Textual)                
Fair value of common stock price per share   $ 2.00            
Stock-Based Awards [Member] | Maximum [Member]                
Stock-Based Compensation (Textual)                
Fair value of common stock price per share   $ 2.65            
Stock-Based Awards [Member] | Consultant [Member]                
Stock-Based Compensation (Textual)                
Shares of common stock 90,000 115,000            
Stock-Based Awards [Member] | Consultant One [Member]                
Stock-Based Compensation (Textual)                
Shares of common stock 36,000 90,000            
Stock Option [Member] | 2016 and 2017 Equity Incentive Plans [Member]                
Stock-Based Compensation (Textual)                
Unrecognized stock-based compensation     $ 800,000   $ 800,000      
Shares available for future grant issuance     2,063,506   2,063,506      
XML 57 R43.htm IDEA: XBRL DOCUMENT v3.20.1
Convertible Promissory Notes and Warrant Agreements (Details Textual) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Dec. 03, 2019
Feb. 28, 2019
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Nov. 01, 2019
Convertible Promissory Notes and Warrant Agreements (Textual)              
Net valuation change of instruments measured at fair value     $ 31,716 $ (116,809) $ (93,858) $ (129,763)  
Paulson Private Placement [Member]              
Convertible Promissory Notes and Warrant Agreements (Textual)              
Issuance cost         419,635    
Issuance cost include cash commission         388,176    
Legal and third party fee         $ 57,756    
Paulson Private Placement [Member] | Common Stock [Member]              
Convertible Promissory Notes and Warrant Agreements (Textual)              
Warrants exercise price     $ 1.87   $ 1.87    
Warrants to purchase of common stock shares         259,476    
Exercise price, per share     $ 1.87   $ 1.87    
Issuance cost         $ 865,567    
2017 Convertible Notes [Member]              
Convertible Promissory Notes and Warrant Agreements (Textual)              
Convertible notes bear interest at fixed rate     8.00%   8.00%    
Principal amount     $ 1,540,000   $ 1,540,000    
Convertible notes conversion price per common share     $ 3.00   $ 3.00    
Convertible promissory notes converted into common stock   839,179          
Shares of common stock issuable upon exercise of warrants   839,179          
Issued new warrants exercisable common stock   839,179          
Warrant exercise term   4 years 9 months 18 days          
Interest on principal amount           30,800  
Interest related to amortization of discounts related to bifurcation of premium derivative liability, separation of warrants, revaluation discounts and issuance costs amount           233,223  
Fair value changes related to underlying premium conversion derivative and warrant liability amounted to benefit           6,265  
Fair value changes related to underlying premium conversion derivative and warrant liability amounted to expense           6,689  
Paulson Convertible Note Offering [Member]              
Convertible Promissory Notes and Warrant Agreements (Textual)              
Convertible notes bear interest at fixed rate             13.00%
Principal amount $ 3,234,800            
Gross proceeds of equity qualified financing         $ 3,000,000    
Equity qualified financing, description         (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of securities issued by the Company in the 2019 Qualified Financing or (B) the ten day VWAP of the common stock prior to the first closing of a 2019 Qualified Financing. If a change of control transaction occurs prior to a 2019 Qualified Financing or the maturity date, the 2019 Paulson Notes would become payable on demand as of the closing date of such transaction    
Description of maximum voting power of surviving entity         Change of control means a merger or consolidation with another entity in which the Company's stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company's assets.    
Warrants exercise price     $ 1.87   $ 1.87    
Warrants exercisable date of issuance and expire         Nov. 01, 2022    
Convertible notes to interest expense         $ 1,831,940    
Warrant issuance in connection with execution note agreement 864,913       60,847    
Maturity date         May 01, 2020    
Interest on principal amount     $ 100,269 100,269 $ 154,144 154,144  
Net valuation change of instruments measured at fair value     (31,716) (31,716) (31,716) (31,716)  
Net valuation of instruments measured at fair value     $ 93,858 $ 93,858 $ 93,858 $ 93,858  
Warrants, description         (i) 0.5 multiplied by (ii) the principal amount of such subscriber’s 2020 Paulson Notes divided by 1.87, with an exercise price per share equal to $1.87.    
XML 58 R7.htm IDEA: XBRL DOCUMENT v3.20.1
Description of Business and Basis of Presentation
6 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business and Basis of Presentation

NOTE 1 – Description of Business and Basis of Presentation

 

NeuroOne Medical Technologies Corporation (the "Company"), a Delaware Corporation, is an early-stage medical technology company developing comprehensive neuromodulation cEEG and sEEG monitoring, ablation, and brain stimulation solutions to diagnose and treat patients with epilepsy, Parkinson's disease, essential tremors, and other brain related disorders.

 

To date, the Company has recorded no product sales and has a limited expense history. The Company is currently raising capital to fund the development of its proprietary technology. The Company received clearance to market the initial device and expect to submit for additional clearance for a second product by end of year. The Company is also evaluating different options for commercializing the current approved device.

 

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, which continues to spread throughout the United States and around the world. As a result of the COVID-19 pandemic, the Company has experienced delays and disruptions in its pre-clinical and clinical trials, as well as interruptions in its manufacturing, supply chain, and research and development operations. The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact our business and pre-clinical and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, 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. The COVID-19 pandemic may also impact the Company's ability to secure additional financing or its ability to up-list from its current OTC Market ("OTCQB"), and may result in further modifications to its debt agreements. See NOTE 12 – Subsequent Events. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may have a material adverse effect on the Company's results of future operations, financial position, and liquidity in fiscal year 2020.

 

Basis of presentation

 

The accompanying condensed financial statements have been prepared by the Company, without audit, 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, 2019 included in the Annual Report on Form 10-K. The condensed balance sheet at September 30, 2019 was derived from the audited financial statements of the Company.

 

In December 2019, the Company merged its wholly owned subsidiary, NeuroOne Inc., into NeuroOne Medical Technologies Corporation. The merger of the Company's wholly owned subsidiary did not have a financial impact to the periods presented. Upon close of the merger, the Company did not have any remaining entities that required consolidation for financial statement reporting purposes.

 

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.

XML 59 R3.htm IDEA: XBRL DOCUMENT v3.20.1
Condensed Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 2020
Sep. 30, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 14,022,423 13,493,705
Common stock, shares outstanding 14,022,423 13,493,705
XML 61 R10.htm IDEA: XBRL DOCUMENT v3.20.1
Commitments and Contingencies
6 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

 NOTE 4 – Commitments and Contingencies

 

WARF License amendment

 

The Company entered into an Amended and Restated Exclusive Start-up Company License Agreement (the "WARF License") with Wisconsin Alumni Research Foundation ("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.

 

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. The Company has agreed to pay WARF a royalty equal to a single-digit percentage of its 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 the Company or any of its 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 the Company 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 if the Company defaults on the payments of amounts due to WARF or fails to timely submit development reports, or breaches any other covenant in the WARF License and fails to remedy such default in ninety (90) days or in the event of certain bankruptcy events involving the Company. WARF may also terminate the WARF License on ninety (90) days' notice if the Company fails to have commercial sales of one or more FDA-approved products under the WARF License by June 30, 2020. The WARF License otherwise expires by its terms (i) on the date that no valid claims on the patents licensed thereunder remain or (ii) upon the cessation for more than four (4) calendar quarters of the payment, once begun, of earned royalties under certain sections of the WARF License. The Company expects the latest expiration of a licensed patent to occur in 2030.

 

In addition, WARF reserves the right to grant non-profit research institutions and government agencies non-exclusive licenses to practice and use the inventions of the licensed patents for non-commercial research purposes, and the Company grants WARF a non-exclusive, sub licensable, royalty-free right and license for non-commercial research purposes to use improvements to the licensed patents. In the event that the Company discontinues use or commercialization of the licensed patents or improvements thereon, the Company must grant WARF an option to obtain a non-exclusive, sub-licensable royalty-bearing license to use the improvements for commercial purposes.

 

Legal 

 

From time to time, the Company is subject to litigation and claims arising in the ordinary course of business. In May 2017, NeuroOne received a letter from PMT Corporation ("PMT"), the former employer of Mark Christianson and Wade Fredrickson. PMT claimed that these officers had breached their restrictive covenant obligations with PMT by virtue of their work for NeuroOne and such officer's prior work during employment with the prior employer, that these officers had breached their confidentiality and non-disclosure obligations to PMT and federal and state law by misappropriating confidential and trade secret information, and that the Company is responsible for tortious interference with contracts. The letter, which purported to attach a noncompete agreement signed by Mr. Fredrickson, demanded that Mr. Fredrickson (who resigned from the Company in June 2017), Mr. Christianson and NeuroOne cease and desist all competitive activities, that Mr. Fredrickson step down from his position and that Mr. Christianson and NeuroOne provide the former employer access to NeuroOne's systems to demonstrate that it is not using trade secrets or proprietary information nor competing with the former employer.

 

On March 29, 2018, the Company was served with a complaint filed by PMT adding the Company, NeuroOne and Mr. Christianson to its existing lawsuit against Mr. Fredrickson in the Fourth Judicial District Court of the State of Minnesota. The complaint purported to attach Mr. Fredrickson's noncompete agreement as Exhibit A. In the lawsuit, PMT claims that Mr. Fredrickson and Mr. Christianson 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. Against Mr. Fredrickson, PMT also alleges 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, PMT alleges that the Company and NeuroOne 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 states 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 intend to move for summary judgment on all remaining claims asserted against them as well as for leave to assert counterclaims against PMT for abuse of process.

 

On August 30, 2019, the Hennepin County District Court heard dispositive motions in this case. The district court judge indicated some claims would likely be tried to a jury and encouraged the parties to settle.

 

On September 12, 2019 the district court heard NeuroOne's motion for sanctions. The district court held the sanctions hearing on December 17, 2019 and December 18, 2019 and indicated that a ruling would be made in approximately 90 days. NeuroOne and Mark Christianson (who has not worked for PMT since February 2012) intend to continue to defend themselves vigorously. The Court issued multiple rulings on the Company's request for summary judgment and sanctions against PMT in April 2020. See NOTE 12 – Subsequent Events.

 

Facility 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.

 

Prior to the October 2019 Lease, the Company entered into a non-cancellable facility lease for its operations and headquarters for an eleven month term beginning on December 1, 2018. The monthly rent under that lease was $4,763.

 

During the three month periods ended March 31, 2020 and 2019, rent expense associated with the facility leases amounted to $25,862 and $14,289, respectively, and $47,866 and $19,052 during the six month periods ended March 31, 2020 and 2019, respectively.  

   

Supplemental cash flow information related to the operating lease was as follows:

 

   Six months
ended
 
   March 31,
2020
 
     
Cash paid for amounts included in the measurement of lease liability:    
Operating cash flows from operating leases  $ 
      
Right-of -use assets obtained in exchange for lease obligations:     
Operating leases  $335,119 

 

Supplemental balance sheet information related to the operating lease was as follows:

 

   As of 
   March 31,
2020
 
Right-of-use assets  $308,055 
      
Lease liability  $339,157 
      
Weighted average remaining lease term (years)   5.0 
Weighted average discount rate   7.0%

 

Maturity of the lease liability was as follows:

 

   As of 
   March 31, 2020 
2020 (period from April 1, 2020 to September 30, 2020)  $38,462 
2021   77,884 
2022   79,832 
2023   81,827 
2024   83,873 
2025   42,454 
Total lease payments   404,332 
Less imputed interest   (65,175)
Total   339,157 
Short-term portion   (54,922)
Long-term portion  $284,235 
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  •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htm IDEA: XBRL DOCUMENT v3.20.1
    Defined Contribution Plan
    6 Months Ended
    Mar. 31, 2020
    Retirement Benefits [Abstract]  
    Defined Contribution Plan

    NOTE 8 – Defined Contribution Plan

     

    The Company has a 401(k) defined contribution plan (the “401K Plan”) for all employees over age 21. Employees can defer up to 100% of their compensation through payroll withholdings into the 401K Plan subject to federal law limits. The Company matches 100% of deferrals up to 3% of one’s contributions. The Company’s matching contributions to employee deferrals are discretionary. The Company may also make discretionary profit sharing contributions under the 401K Plan in the future, but it has not done so through March 31, 2020.

     

    Employee contributions and any employer matching contributions made to satisfy certain non-discrimination tests required by the Internal Revenue Code are 100% vested upon contribution. Discretionary employer matches to employee deferrals vest over a six year period beginning on the second anniversary of an employee’s date of hire. Discretionary profit sharing contributions vest over a five year period beginning on the first anniversary of an employee’s date of hire. No matching contributions were made during the three and six month periods ended March 31, 2020. During the six month period ended March 31, 2019, there was a benefit reduction adjustment of $(4,359) given an overpayment. There were no matching contributions during the three month period ended March 31, 2019.

    XML 64 R18.htm IDEA: XBRL DOCUMENT v3.20.1
    Subsequent Events
    6 Months Ended
    Mar. 31, 2020
    Subsequent Events [Abstract]  
    Subsequent Events

    NOTE 12 – Subsequent Events

     

    Amendment of 2019 Paulson Notes

     

    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 Paulson Amendment") to, among other things:

     

      i. Extend the Maturity DateThe Second Paulson Amendment extends 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. Revise Optional Conversion TermsThe Second Paulson Amendment provides 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) will be equal to: (1) the Outstanding Balance 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 Paulson Amendment provides that promptly following the earlier of (1) May 1, 2020, if the applicable subscriber has 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.

     

    There were no other significant changes to terms under the Second Paulson Amendment.

     

    2019 Paulson Note Conversion

     

    Between April 24, 2020 and May 1, 2020, certain holders elected to convert outstanding principal and accrued and unpaid interest of 2019 Paulson Notes in the amount of $2,633,280 into 2,054,245 shares of common stock.

     

    Paulson 2020 Convertible Note Financing 

     

    On April 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 up to $3 million of 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. 

     

    Between April 30, 2020 and May 8, 2020, the Company issued 2020 Paulson Notes in an aggregate principal amount of $2,469,800 to the Subscribers. The Company may conduct any number of additional closings so long as the aggregate amount of gross proceeds does not exceed $6,000,000 or a higher amount determined by the Board.

     

    The 2020 Paulson Notes bear interest at a fixed rate of 13% per annum and require the Company to repay the principal and accrued and unpaid interest thereon on the earlier of (i) six months following the final closing of the 2020 Paulson Private Placement, (ii) six months following July 31, 2020, and (iii) a change of control transaction. If the Company raises more than $5,000,000 in an equity financing before the maturity date (the "2020 Qualified Financing"), without any action on the part of the Subscribers, all of the outstanding principal and accrued and unpaid interest of the Notes (the "Outstanding Balance") shall convert into that number of shares of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the actual per share price of the securities issued by the Company in the closing on the date a 2020 Qualified Financing occurs and (B) the volume weighted average price of the common stock for ten (10) trading days immediately preceding the 2020 Qualified Financing.

     

    If the Company announces a transaction between the Company and any other company (or an affiliate of any such company) that is included in the S&P 500 Health Care Index as published from time to time by S&P Dow Jones Indices LLC that includes an investment or upfront payments resulting in gross proceeds to the Company of at least $2,000,000 upon the execution of such transaction or definitive agreement, and provides for terms of collaboration, manufacturing, distribution, licensing or supply of the Company's products (a "Strategic Transaction") before the maturity date, without any action on the part of the subscribers, the Outstanding Balance shall be converted into that number of shares of common stock equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the VWAP of the common stock for the ten (10) trading days immediately preceding the first announcement of the Strategic Transaction or (B) closing price of the common stock on the day preceding the first announcement by the Company of a Strategic Transaction.

     

    At any time, at the sole election of the holder of such 2020 Paulson Note, all or a portion of the Outstanding Balance may be converted into that number of shares of common stock equal to: (i) the Outstanding Balance elected by the holder to be converted divided by (ii) 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.

     

    If a change of control transaction occurs prior to the conversion of the 2020 Paulson Notes or the maturity date, the 2020 Paulson Notes would become payable on demand as of the closing date of such transaction. Change of control means a merger or consolidation with another entity in which the Company's stockholders do not own more than 50% of the outstanding voting power of the surviving entity or the disposition of all or substantially all of the Company's assets.

     

    Each 2020 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 2020 Paulson Notes divided by 1.87, with an exercise price per share equal to $1.87. The 2020 Paulson Warrants are immediately exercisable and expire on April 30, 2023. The exercise price is subject to adjustment in the event of any stock dividends or splits, reverse stock split, recapitalization, reorganization or similar transaction.

     

    In connection with the 2020 Paulson Private Placement, Paulson will receive a cash commission equal to 12% of the gross proceeds from the sale of the 2020 Paulson Notes, and at the final closing of the 2020 Paulson Private Placement, Paulson will receive 7-year warrants to purchase an amount of common stock equal to 15% of the total gross proceeds received by the Company in the 2020 Paulson Private Placement, divided by 1.87 (the "Broker Warrants"). The Broker Warrants will have an exercise price equal to $1.87.

     

    2020 Paulson Note Conversions

     

    Between May 4, 2020 and May 12, 2020, certain Subscribers elected to convert $50,153 of the outstanding principal and interest of such Subscribers' 2020 Paulson Notes into 38,335 shares of common stock.

     

    Payroll Protection Program

     

    The CARES Act, signed into law in March 2020, established the Paycheck Protection Program ("PPP"). The PPP authorizes up to $349 billion in forgivable loans to small businesses. Loan amounts are forgiven to the extent proceeds are used to cover documented payroll, mortgage interest, rent, and utility costs over an 8 week measurement period following loan funding. Loans have a maturity of 2 years and an interest rate of 1%. Prepayments may be made without penalty. In April 2020, the Company received loan funding of approximately $83,333 under the PPP.

     

    Amendment to Veritas Consulting Agreement

     

    On April 22, 2020, the Company entered into an amendment (the "Amendment") to the Consulting Agreement, by and between the Company and Veritas Consulting Group Inc. ("Veritas"). Pursuant to the Amendment, the Company issued Veritas an additional 35,000 shares in exchange for consulting services. 

     

    PMT Litigation

     

    On April 29, 2020, the district court granted the Company's motion for sanctions. 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, Fredrickson's breach of confidentiality covenants, and the creation of a constructive trust and denied the Company's motion for summary judgment on all other counts. 

    XML 65 R37.htm IDEA: XBRL DOCUMENT v3.20.1
    Commitments and Contingencies (Details Textual) - USD ($)
    3 Months Ended 6 Months Ended
    Mar. 31, 2020
    Mar. 31, 2019
    Mar. 31, 2020
    Mar. 31, 2019
    Nov. 01, 2019
    Commitments and Contingencies (Textual)          
    Royalty payments - 2020 $ 50,000   $ 50,000    
    Royalty payments - 2021 100,000   100,000    
    Royalty payments - 2022 150,000   150,000    
    Facility lease term         65 months
    Monthly lease rent     $ 4,763    
    Lease rent expense,description     Prior to the October 2019 Lease, the Company entered into a non-cancellable facility lease for its operations and headquarters for an eleven month term beginning on December 1, 2018. The monthly rent under that lease was $4,763.    
    Facility lease agreement, description     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.    
    Rent expense $ 25,862 $ 14,289 $ 47,866 $ 19,052  
    XML 66 R33.htm IDEA: XBRL DOCUMENT v3.20.1
    Summary of Significant Accounting Policies (Details Textual)
    6 Months Ended
    Mar. 31, 2020
    USD ($)
    Agreements
    Summary of Significant Accounting Policies (Textual)  
    Deposits in excess of federally insured amounts | $ $ 497,244
    Number of licencing agreements | Agreements 2
    Equipment [Member] | Minimum [Member]  
    Summary of Significant Accounting Policies (Textual)  
    Estimated useful life 3 years
    Equipment [Member] | Maximum [Member]  
    Summary of Significant Accounting Policies (Textual)  
    Estimated useful life 7 years
    Software [Member]  
    Summary of Significant Accounting Policies (Textual)  
    Estimated useful life 3 years