NEUROONE MEDICAL TECHNOLOGIES Corp 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, 2022. Forward-Looking Statements This Report contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “target,” “seek,” “contemplate,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about: ● our ability to maintain regulatory clearance of our cortical strip and grid electrode technology; ● our ability to obtain and maintain regulatory clearance for our RF ablation system; ● our ability to successfully commercialize our technology in the United States; ● our ability to achieve or sustain profitability; ● our ability to raise additional capital and to fund our operations; ● the availability of additional capital on acceptable terms or at all as or when needed; ● the clinical utility of our cortical strip, grid and depth electrode including technology under development; ● our ability to develop additional applications of our cortical strip, grid and depth electrode technology with the benefits we hope to offer as compared to existing technology, or at all; ● the results of our development and distribution relationship with Zimmer, Inc. (“Zimmer”); ● we have been the victim of a cyber-related crime, and our controls may not be successful in avoiding future cyber-related crimes; and ● the performance, productivity, reliability and regulatory compliance of our third party manufacturers of our cortical strip, grid electrode and depth electrode technology; ● our ability to develop future generations of our cortical strip, grid and depth electrode technology; ● our future development priorities; ● the impact of the COVID-19 pandemic on our business; ● our ability to obtain reimbursement coverage for our cortical strip, grid and depth electrode technology; ● our expectations about the willingness of healthcare providers to recommend our cortical strip, grid and depth electrode technology to people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders; 19 NeuroOne Medical Technologies Corporation Form 10-Q ● our future commercialization, marketing and manufacturing capabilities and strategy; ● our ability to comply with applicable regulatory requirements; ● our ability to maintain our intellectual property position; ● our expectations regarding international opportunities for commercializing our cortical strip, grid and depth electrode technology under including technology under development; ● our estimates regarding the size of, and future growth in, the market for our technology, including technology under development; and ● our estimates regarding our future expenses and needs for additional financing. Forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. You should refer to the “Risk Factors” section of our Annual Report on Form 10-K for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. These forward-looking statements speak only as of the date of this Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks and other information we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the date of this Report. Overview We are a medical technology company focused on the development and commercialization of thin film electrode technology for continuous electroencephalogram (cEEG) and stereoelectrocencephalography (sEEG), spinal cord stimulation, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. Additionally, we are investigating the potential applications of our technology associated with artificial intelligence. In November 2019, our Evo cortical technology received 510(k) clearance from the FDA for recording, monitoring, and stimulating brain tissue for up to 30 days, and in October 2022, we received FDA clearance for our Evo sEEG electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. We completed feasibility bench top testing with a new design of our diagnostic and ablation depth electrode in the first calendar quarter of 2021 and signed a contract with RBC Medical Innovations to develop hardware for the system in the third calendar quarter of 2021. We are targeting the first calendar quarter of 2023 for design verification of such hardware. We also completed an animal feasibility study at Emory University in September 2021. Next, we plan to complete additional animal studies through the first quarter of calendar 2023 and submit an application for FDA 510(k) clearance in the second calendar quarter of 2023. Our other products are still under development. We commenced commercial sales of cEEG strip/grid and electrode cable assembly products beginning in the first quarter of fiscal year 2021. We sold, on a limited application basis for design verification, sEEG depth electrode products for non-human use beginning in late fiscal year 2021, and we commenced commercial sales of our sEEG depth electrode products in late calendar 2022. Our other products are still under development. 20 NeuroOne Medical Technologies Corporation Form 10-Q We have incurred losses since inception. As of December 31, 2022, we had an accumulated deficit of $52.6 million, primarily as a result of expenses incurred in connection with our research and development, selling, general and administrative expenses associated with our operations and interest expense, fair value adjustments and loss on extinguishments related to our debt, offset in part by collaborations and product revenues. Prior to FDA clearance of certain of our products, our main sources of cash, cash equivalents and short-term investments were proceeds from the issuances of notes, common stock, warrants and unsecured loans. See “Liquidity and Capital Resources—Capital Resources” below. While we have begun to generate revenue from the sale of products based on our cEEG and sEEG technology and through milestone and other payments from our current collaboration with Zimmer, we expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless we generate a higher level of revenue from commercial sales, and we will need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources. We may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize our cortical strip, grid electrode and depth electrode technology and future products and our ability to pursue our business strategy. See “Liquidity and Capital Resources—Liquidity Outlook” below. Recent Developments and Upcoming Milestones Global Economic Conditions Generally, worldwide economic conditions remain uncertain, particularly due to the effects of the COVID-19 pandemic and increased inflation. The general economic and capital market conditions both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected our access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms or at all. If economic conditions decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected. The COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Financial Overview Product Revenue Our product revenue was derived from the sale of our strip and grid cortical electrodes (“Strip/Grid Products”), depth electrodes (“sEEG products”) and electrode cable assembly products (“Electrode Cable Assembly Products”) based on Evo cortical technology. We anticipate that we will generate additional revenue from the sale of products based on Evo cortical technology. In November 2019, we received FDA 510(k) clearance for our cortical strip electrode for temporary (less than 30 days) recording, monitoring, and stimulation on the surface of the brain. In October 2022, we received FDA 510(k) clearance for our Evo sEEG electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. 21 NeuroOne Medical Technologies Corporation Form 10-Q Product Gross Loss Product gross loss represents our product revenue less our cost of product revenue. Our cost of product revenue consists of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our Strip/Grid Products and outside supplier materials costs of producing the Electrode Cable Assembly Products. In addition, cost of product revenue includes royalty fees incurred in connection with our license agreements. Collaborations Revenue On July 20, 2020, we entered into an exclusive development and distribution agreement (the “Zimmer Development Agreement”) with Zimmer, pursuant to which we granted Zimmer exclusive global rights to distribute the Strip/Grid Products and electrode cable assembly products (the “Electrode Cable Assembly Products”). Additionally, we granted Zimmer the exclusive right and license to distribute certain depth electrodes developed by the Company (“sEEG Products”, and together with the Strip/Grid Products and Electrode Cable Assembly Products, the “Products”). The parties have agreed to collaborate with respect to development activities under the Zimmer Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer and the Company. Under the terms of the Zimmer Development Agreement, we are responsible for all costs and expenses related to developing the Products, and Zimmer is responsible for all costs and expenses related to the commercialization of the Products. In addition to the Zimmer Development Agreement, Zimmer and the Company have entered into a Manufacturing and Supply Agreement (the “MS Agreement”) and a supplier quality agreement (the “Quality Agreement”) with respect to the manufacturing and supply of the Products. Except as otherwise provided in the Zimmer Development Agreement, we are responsible for performing all development activities, including non-clinical and clinical studies directed at obtaining regulatory approval of each Product. Zimmer has agreed to use commercially reasonable efforts to promote, market and sell each Product following the “Product Availability Date” (as defined in the Zimmer Development Agreement) for such Product. Pursuant to the Zimmer Development Agreement, Zimmer made an upfront initial exclusivity fee payment of $2.0 million (the “Initial Exclusivity Fee”) to the Company in fiscal year 2020. In addition, on August 2, 2022, we entered into a Third Amendment to the Zimmer Development Agreement (the “Amendment”) with Zimmer. Pursuant to the terms and conditions of the Amendment, Zimmer made a $3.5 million payment to us in August 2022. In consideration of the mutual covenants and agreements contained in the Zimmer Development Agreement, certain fee and milestone payment provisions in the Zimmer Development Agreement were replaced with the following below: ● $1.5 million for the sEEG exclusivity maintenance fee; and ● $2.0 million for satisfaction of each of the milestone events related to the design of sEEG Products set forth in the Zimmer Development Agreement, even though the satisfaction was after the deadlines originally identified. In addition, in connection with the Amendment, we issued to Zimmer a warrant to purchase common stock (the “2022 Zimmer Warrant”). The 2022 Zimmer Warrant is exercisable for up to an aggregate of 350,000 shares of our Common Stock. The 2022 Zimmer Warrant has an exercise price of $3.00 per share, will be exercisable commencing six months from the issuance date, and will expire on August 2, 2027. The Zimmer Development Agreement will expire on the tenth anniversary of the date of the first commercial sale of the last Products to achieve a first commercial sale (the “Zimmer Term”), unless terminated earlier pursuant to its terms. Either party may terminate the Zimmer Development Agreement (x) with written notice for the other party’s material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer may terminate the Zimmer Development Agreement for any reason with 90 days’ written notice, and the Company may terminate the Zimmer Development Agreement if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company. The license rights granted to Zimmer under the Zimmer Development Agreement shall be exclusive from the effective date of the Amendment until the end of the Zimmer Term. 22 NeuroOne Medical Technologies Corporation Form 10-Q All payments attributed to the Initial Exclusivity Fee, the sEEG exclusivity maintenance fee and sEEG design milestone payment are non-refundable. The Zimmer Development Agreement and Amendment were accounted for under the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with the provisions under ASC 606, we identified five performance obligations under the Zimmer Development Agreement and Amendment: (1) our obligation to grant Zimmer access to our intellectual property; (2) completion of sEEG Product development; (3) completion of Strip/Grid Product development; (4) the provision of sEEG exclusivity maintenance; and (5) sEEG design modifications as requested by Zimmer. All performance obligations under the Zimmer Development Agreement and Amendment were met as of December 31, 2022. In October 2022, we received 510(k) clearance from the FDA for our Evo sEEG electrode technology for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. Accordingly, we recognized revenue in the amount of $1,455,188 during the three months ended December 31, 2022 related to the completion of the sEEG exclusivity maintenance milestone. During the three months ended December 31, 2021, we recognized revenue in the amount of $6,374 related to sEEG Product development. The achievement of the level of sales required to earn royalty payments from Zimmer is uncertain. For further discussion about the determination of collaborations revenue, product revenue and cost of product revenue, and for a discussion of milestones and royalty payments under the Zimmer Development Agreement, see “—Liquidity and Capital Resources—Liquidity Outlook” below and see “Note 7 — Zimmer Development Agreement” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. Selling, General and Administrative Selling, general and administrative expenses consist primarily of personnel-related costs including stock-based compensation for personnel in functions not directly associated with research and development activities. Other significant costs include legal and litigation costs relating to corporate matters, intellectual property costs, professional fees for consultants assisting with financial and administrative matters, and sales and marketing in connection with the commercial sale of cEEG strip/grid, sEEG depth electrode and electrode cable assembly products. We anticipate that our selling, general and administrative expenses will significantly increase in the future to support our continued research and development activities, further commercialization of our cortical strip technology, our grid electrode technology, and our depth electrode technology, and the increased costs of operating as a public company. These increases will include increased costs related to the hiring of additional personnel and fees for legal and professional services, as well as other public company related costs. Research and Development Research and development expenses consist of expenses incurred in performing research and development activities in developing our cortical strip, grid electrode and depth electrode technology. Research and development expenses include compensation and benefits for research and development employees including stock-based compensation, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to consultants and other outside expenses. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. Lastly, de minimis income from the sale of prototype products and related materials are offset against research and development expenses. We expect our research and development expenses to significantly increase over the next several years as we develop our cortical strip, grid electrode and depth electrode technology and conduct preclinical testing and clinical trials and will depend on the duration, costs and timing to complete our preclinical programs and clinical trials. Other Income Other income primarily consists of interest income related to our cash, cash equivalents and short-term investments and to proceeds outside of normal operating activity relating to legal settlements and sales of non-commercial supplies. 23 NeuroOne Medical Technologies Corporation Form 10-Q Results of Operations Comparison of the Three Months Ended December 31, 2022 and 2021 The following table sets forth the results of operations for the three months ended December 31, 2022 and 2021, respectively. For the three months ended December 31, (unaudited) 2022 2021 Period to Period Change Product revenue $ 114,579 $ 33,748 $ 80,831 Cost of product revenue 126,886 46,844 80,042 Product gross loss (12,307 ) (13,096 ) 789 Collaborations revenue 1,455,188 6,374 1,448,814 Operating expenses: Selling, general and administrative 1,663,737 1,742,141 (78,404 ) Research and development 1,563,496 1,060,462 503,034 Total operating expenses 3,227,233 2,802,603 424,630 Loss from operations (1,784,352 ) (2,809,325 ) 1,024,973 Other income 51,583 1,850 49,733 Loss before income taxes (1,732,769 ) (2,807,475 ) 1,074,706 Provision for income taxes — — — Net loss $ (1,732,769 ) $ (2,807,475 ) $ 1,074,706 Product Revenue and Product Gross Loss Product revenue was approximately $0.1 million and $34,000 during the three months ended December 31, 2022 and 2021, respectively. Product gross loss was approximately $(12,000) and $(13,000) during the three months ended December 31, 2022 and 2021, respectively. The product revenue consists of the sale of our strip/grid, depth electrode and electrode cable assembly products. Cost of product revenue consisted of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our strip/grid and depth electrode products, and outside supplier materials costs in connection with the electrode cable assembly products. In addition, cost of product revenue included royalty fees incurred of approximately $38,000 and $26,000 in connection with our license agreements during the three months ended December 31, 2022 and 2021, respectively. Collaborations Revenue Collaborations revenue was $1.5 million and $6,000 for the three months ended December 31, 2022 and 2021, respectively. Revenue during each period was derived from the Zimmer Development Agreement and represented the portion of the upfront initial development fee payment eligible for revenue recognition during such period. The amount of revenue recognized in the first quarter of fiscal year 2023 related to the completion of the sEEG maintenance fee obligation as a result of securing FDA approval. For the comparable prior year period, the upfront fee was based on development completed in connection with depth electrode products, and to a lesser extent, the strip/grid products. 24 NeuroOne Medical Technologies Corporation Form 10-Q Selling, general and administrative expenses Selling, general and administrative expenses were $1.7 million for the three months ended December 31, 2022, compared to $1.7 million for the three months ended December 31, 2021. The $0.1 million decrease was primarily due to a decrease in legal costs of $0.3 million and a decrease in professional services of $0.1 million, offset in part by increases in public company and other operating costs of $0.2 million and by increases in stock-based compensation of $0.1 million. Research and development expenses Research and development expenses were $1.6 million for the three months ended December 31, 2022, compared to $1.1 million during for the three months ended December 31, 2021. The $0.5 million 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 associated with the development of depth electrode products and to a lesser extent strip/grid products. Other Income Other income during the three months ended December 31, 2022 consisted of interest income in the amount of $52,000 attributed to our cash, cash equivalents and short term investments. Other income during the three month period ended December 31, 2021 consisted of $2,000 related primarily to interest income attributed to our cash deposits. Liquidity and Capital Resources Overview As of December 31, 2022, our principal source of liquidity consisted of cash, cash equivalents and short-term investments in the aggregate of approximately $7.6 million. While we began to generate revenue in fiscal year 2021 from commercial sales and through milestone and other payments under our collaboration with Zimmer, we expect to continue to incur significant expenses and increasing operating and net losses for the foreseeable future until and unless we generate an adequate level of revenue from commercial sales to cover expenses. Our most significant cash requirements relate to the funding of our ongoing product development and commercialization operations and our royalty obligations under our intellectual property licenses with the Wisconsin Alumni Research Foundation (“WARF”) and the Mayo Foundation for Medical Education and Research (“Mayo”). Our additional material cash needs include commitments under operating leases and other administrative services. See “Funding Requirements” below for more information. We anticipate that our expenses will increase substantially as we develop and commercialize our cortical strip, grid electrode and depth electrode technology and pursue pre-clinical and clinical trials, seek regulatory approvals, manufacture products, establish our own sales, marketing and distribution infrastructure to commercialize our ablation electrode technology, hire additional staff, add operational, financial and management systems and continue to operate as a public company. Capital Resources Our sources of cash, cash equivalents and short-term investments to date have been limited to collaboration and product revenues, along with proceeds from the issuances of notes with warrants, common stock with and without warrants and unsecured loans, with the terms of our most recent financings described below. At-The-Market Offering On December 21, 2022, we entered into a Capital on Demand TM Sales Agreement with JonesTrading Institutional Services LLC (“JonesTrading”) to create an at-the-market offering program (“ATM”) under which we may offer and sell shares having an aggregate offering price of up to $14.5 million. JonesTrading is entitled to a commission at a fixed commission rate equal to up to 3% of the gross proceeds. To date, no issuances of securities have occurred under the ATM. Deferred issuance costs in the amount of $0.1 million have been incurred in connection with the ATM. October 2021 Underwritten Public Offering On October 13, 2021, we entered into an underwriting agreement relating to the issuance and sale of 3,750,000 shares of our common stock at a price to the public of $3.20 per share (the “October 2021 Underwritten Public Offering”). In addition, under the terms of the underwriting agreement, we granted the underwriter an option, exercisable for 30 days, to purchase up to an additional 562,500 shares of common stock on the same terms. The base offering closed on October 15, 2021, and the sale of 422,057 shares of common stock subject to the underwriter’s overallotment option closed on November 15, 2021. The gross proceeds from this offering were approximately $13.4 million prior to deducting underwriting discounts and other offering expenses payable by us. 25 NeuroOne Medical Technologies Corporation Form 10-Q Funding Requirements As noted above, certain of our cash requirements relate to the funding of our ongoing product development and commercialization operations and our milestone and royalty obligations under our intellectual property licenses with the Wisconsin Alumni Research Foundation (“WARF”) and the Mayo Foundation for Medical Education and Research (“Mayo”). See “Item 1—Business—Clinical Development and Regulatory Pathway—Clinical Experience, Future Development and Clinical Trial Plans” in our Annual Report on Form 10-K for the year ended September 30, 2022 for a discussion of design, development, pre-clinical and clinical activities that we may conduct in the future, including expected cash expenditures required for some of those activities, to the extent we are able to estimate such costs. 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. See “Note 4 – Commitments and Contingencies” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report for more information about the WARF License and the Mayo Development Agreement. Our other cash requirements within the next twelve months include accounts payable, accrued expenses, purchase commitments and other current liabilities. Our other cash requirements greater than twelve months from various contractual obligations and commitments include operating leases and contracted services. Refer to “Note 4 – Commitments and Contingencies” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report for further detail of our lease obligations and the timing of expected future payments. Contracted services include agreements with third-party service providers for clinical research, product development, manufacturing, supplies, payroll services, equipment maintenance services, and audits for periods up to fiscal year 2024. We expect to satisfy our short-term and long-term obligations through cash on hand and, until we generate an adequate level of revenue from commercial sales to cover expenses, if ever, from future equity and debt financings. Liquidity Outlook For a discussion of potential fee payments under the Zimmer Development Agreement, see “Note 7 — Zimmer Development Agreement” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. Even though we have received regulatory clearance to expand the use of our Evo sEEG Electrode technology for up to 30 days, commercial sales of the sEEG Electrodes are expected to take some time to be a significant source of liquidity. Zimmer has exclusive global rights to distribute our strip and grid cortical electrodes, depth electrodes and electrode cable assembly products. Zimmer’s failure to timely develop or commercialize these products would have a material adverse effect on our business and operating results. 26 NeuroOne Medical Technologies Corporation Form 10-Q At December 31, 2022, we had cash, cash equivalents and short-term investments in the aggregate of approximately $7.6 million. Management has noted the existence of substantial doubt about our ability to continue as a going concern. Additionally, our independent registered public accounting firm included an explanatory paragraph in the report on our financial statements as of and for the years ended September 30, 2022 and 2021, respectively, noting the existence of substantial doubt about our ability to continue as a going concern. Our existing cash, cash equivalents and short-term investments may not be sufficient to fund our operating expenses through at least twelve months from the date of this filing. To continue to fund operations, we will need to secure additional funding through public or private equity or debt financings, through collaborations or partnerships with other companies or other sources. We may not be able to raise additional capital on terms acceptable to us, or at all. Any failure to raise capital when needed could compromise our ability to execute on our business plan. If we are unable to raise additional funds, or if our anticipated operating results are not achieved, we believe planned expenditures may need to be reduced in order to extend the time period that existing resources can fund our operations. If we are unable to obtain the necessary capital, it may have a material adverse effect on our operations and the development of our technology, or we may have to cease operations altogether. The development and commercialization of our cortical strip, grid electrode and depth electrode technology is subject to numerous uncertainties, and we could use our cash, cash equivalent and short-term investment resources sooner than we expect. Additionally, the process of developing medical devices is costly, and the timing of progress in pre-clinical tests and clinical trials is uncertain. Our ability to successfully transition to profitability will be dependent upon achieving further regulatory approvals and achieving a level of product sales adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Cash Flows The following is a summary of cash flows for each of the periods set forth below. For the Three Months Ended December 31, 2022 2021 Net cash used in operating activities $ (3,492,253 ) $ (2,679,136 ) Net cash provided by (used in) investing activities 15,069 (61,491 ) Net cash (used in) provided by financing activities (15,713 ) 12,023,604 Net (decrease) increase in cash $ (3,492,897 ) $ 9,282,977 Net cash used in operating activities Net cash used in operating activities was $3.5 million for the three months ended December 31, 2022, which consisted of a net loss of $1.7 million partially offset by non-cash stock-based compensation, depreciation, amortization related to intangible assets, short-term investment discount and premium amortization, and non-cash lease expense, totaling approximately $0.3 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a net cash use of $2.1 million. The net cash use stemming from the change in operating assets and liabilities was primarily attributable to a decrease in deferred revenue in connection with the completion of the remaining milestone performance obligation under the Zimmer Development Agreement, and to a lesser extent, to an increase in inventory purchases and to a net decrease in the aggregate of account payable, accrued expenses, accounts receivable and prepaid expenses attributed to the timing of payments. Net cash used in operating activities was $2.7 million for the three months ended December 31, 2021, which consisted of a net loss of $2.8 million partially offset by non-cash stock-based compensation, depreciation, amortization related to intangible assets and operating lease expense, totaling approximately $0.3 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a cash use of $0.1 million. The net cash use stemming from the change in operating assets and liabilities was primarily attributable to an increase in inventory purchases, net decrease in account payable and accrued expenses attributed to the timing of payments, partially offset by a decrease in accounts receivable in connection with the Zimmer Development Agreement. 27 NeuroOne Medical Technologies Corporation Form 10-Q Net cash provided by (used in) investing activities Net cash provided by investing activities for the three month ended December 31, 2022 was $15,000 and consisted of maturities of short-term investments in the amount of $1.5 million, offset by purchases of short term investment, consisting of treasury and corporate notes, and by outlays for purchases of property and equipment. Net cash used by investing activities consisted of outlays for property and equipment during the three months ended December 31, 2021. Net cash (used in) provided by financing activities Net cash used in financing activities was $16,000 for the three months ended December 31, 2022, which consisted of deferred issuance costs in connection with the ATM. Net cash provided by financing activities was $12.0 million for the three months ended December 31, 2021, which consisted of net proceeds from the October 2021 Underwritten Public Offering. Critical Accounting Estimates 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. Of these policies, the following are considered critical to an understanding of our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report as they require the application of the most subjective and the most complex judgments: Revenues: For discussion about the determination of collaborations revenue, product revenue and cost of product revenue, see “Note 7 — Zimmer Development Agreement” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. To date, we have not had, nor expect to have in the future, significant variable consideration adjustments related to product revenue, such as chargebacks, sales allowances and sales returns. Stock-based Compensation For discussions about the application of grant date fair value associated with our stock-based compensation, see “Note 8 — Stock-Based Compensation” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. Income Tax Assets and Liabilities Income tax assets and liabilities include income tax valuation allowances. For additional information, see “Note 10 — Income Taxes” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report and “Note 11 – Income Taxes” in Part II, Item 8 “Financial Statements” of our Annual Report on Form 10-K for the year ended September 30, 2022. Contingencies We are subject to numerous contingencies arising in the ordinary course of business, including legal contingencies. For additional information, see “Note 4 — Commitments and Contingencies” included in our condensed financial statements included in “Part 1, Item 1 – Financial Statements” in this Report. 28 NeuroOne Medical Technologies Corporation Form 10-Q 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable for smaller reporting companies.