NEUROONE MEDICAL TECHNOLOGIES Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 23 ) F-2 Balance Sheets F-3 Statements of Operations F-4 Statements of Changes in Stockholders’ Equity F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the board of directors of NeuroOne Medical Technologies Corporation: Opinion on the Financial Statements We have audited the accompanying balance sheets of NeuroOne Medical Technologies Corporation (the "Company") as of September 30, 2023 and 2022, the related statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended September 30, 2023, and the related notes (collectively referred to as the " financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of the Company’s operations and cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 of the financial statements, the Company had recurring losses from operations and an accumulated deficit, expects to incur losses for the foreseeable future and requires additional working capital. These are the reasons that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not contain any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Baker Tilly US, LLP We have served as the Company's auditor since 2021. Minneapolis, Minnesota December 15, 2023 F- 2 NeuroOne Medical Technologies Corporation Balance Sheets As of September 30, 2023 2022 Assets Current assets: Cash and cash equivalents $ 5,322,493 $ 8,160,329 Short-term investments — 2,981,010 Accounts receivable — 33,237 Inventory 1,726,686 704,538 Prepaid expenses 263,746 296,649 Total current assets 7,312,925 12,175,763 Intangible assets, net 89,577 111,892 Right-of-use asset 169,059 181,355 Property and equipment, net 525,753 353,599 Total assets $ 8,097,314 $ 12,822,609 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 685,104 $ 927,662 Accrued expenses and other liabilities 1,107,522 715,839 Deferred revenue — 1,455,188 Total current liabilities 1,792,626 3,098,689 Operating lease liability, long term 55,284 119,556 Total liabilities 1,847,910 3,218,245 Commitments and contingencies (Note 4) Stockholders’ equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized as of September 30, 2023 and 2022; no shares issued or outstanding as of September 30, 2023 and 2022. — — Common stock, $ 0.001 par value; 100,000,000 shares authorized as of September 30, 2023 and 2022; 23,928,945 and 16,216,540 shares issued and outstanding as of September 30, 2023 and 2022, respectively. 23,929 16,217 Additional paid–in capital 68,911,778 60,414,959 Accumulated deficit ( 62,686,303 ) ( 50,826,812 ) Total stockholders’ equity 6,249,404 9,604,364 Total liabilities and stockholders’ equity $ 8,097,314 $ 12,822,609 See accompanying notes to financial statements F- 3 NeuroOne Medical Technologies Corporation Statements of Operations Years ended September 30, 2023 2022 Product revenue $ 1,952,441 $ 171,169 Cost of product revenue 1,495,924 241,963 Product gross profit (loss) 456,517 ( 70,794 ) Collaborations revenue 1,455,188 1,948,872 Operating expenses: Selling, general and administrative 6,926,269 6,979,416 Research and development 6,940,686 4,929,427 Total operating expenses 13,866,955 11,908,843 Loss from operations ( 11,955,250 ) ( 10,030,765 ) Other income, net 95,759 31,152 Loss before income taxes ( 11,859,491 ) ( 9,999,613 ) Provision for income taxes — — Net loss $ ( 11,859,491 ) $ ( 9,999,613 ) Net loss per share: Basic and diluted $ ( 0.65 ) $ ( 0.63 ) Number of shares used in per share calculations: Basic and diluted 18,121,108 15,998,567 See accompanying notes to financial statements F- 4 NeuroOne Medical Technologies Corporation Statements of Changes in Stockholders’ Equity Common Stock Additional Paid–In Accumulated Total Stockholders’ Shares Amount Capital Deficit Equity Balance at September 30, 2021 12,010,019 $ 12,010 $ 47,369,090 $ ( 40,827,199 ) $ 6,553,901 Issuance of common stock in connection with public offering 4,172,057 4,172 13,346,410 — 13,350,582 Issuance cost in connection with public offering — — ( 1,352,280 ) — ( 1,352,280 ) Issuance of warrants in connection with Zimmer development agreement — — 104,562 — 104,562 Stock-based compensation — — 947,212 — 947,212 Issuance of common stock upon vesting of restricted stock units 34,464 35 ( 35 ) — — Net loss — — — ( 9,999,613 ) ( 9,999,613 ) Balance at September 30, 2022 16,216,540 16,217 60,414,959 ( 50,826,812 ) 9,604,364 Issuance of common stock in connection with public offering 6,037,500 6,038 6,031,462 — 6,037,500 Issuance of common stock in connection with at-the-market offering program 1,439,677 1,440 2,551,216 — 2,552,656 Issuance cost in connection with common stock issuances — — ( 1,071,663 ) — ( 1,071,663 ) Stock-based compensation — — 1,105,457 — 1,105,457 Issuance of common stock upon vesting of restricted stock units 314,485 313 ( 313 ) — — Share repurchases for the payment of employee taxes ( 79,257 ) ( 79 ) ( 119,340 ) — ( 119,419 ) Net loss ( 11,859,491 ) ( 11,859,491 ) Balance at September 30, 2023 23,928,945 $ 23,929 $ 68,911,778 $ ( 62,686,303 ) $ 6,249,404 See accompanying notes to financial statements F- 5 NeuroOne Medical Technologies Corporation Statements of Cash Flows Years ended September 30, 2023 2022 Operating activities Net loss $ ( 11,859,491 ) $ ( 9,999,613 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization and depreciation 199,266 118,620 Stock-based compensation 1,105,457 947,212 Loss on disposal of fixed assets 32,143 — Amortization of discounts and premiums on short-term investments ( 45,571 ) ( 11,471 ) Non-cash lease expense 109,832 107,593 Issuance of warrants in connection with Zimmer contract amendment — 104,562 Change in assets and liabilities: Accounts receivable 33,237 15,099 Inventory ( 1,022,148 ) ( 606,251 ) Prepaid expenses and other assets 32,903 ( 145,540 ) Accounts payable ( 247,189 ) 515,438 Accrued expenses, deferred revenue, operating lease and other liabilities ( 1,225,313 ) 1,434,817 Net cash used in operating activities ( 12,886,874 ) ( 7,519,534 ) Investing activities Purchases of short-term investments ( 1,473,419 ) ( 3,469,539 ) Maturities of short-term investments 4,500,000 500,000 Proceeds from the disposal of fixed assets 7,500 — Purchases of property and equipment ( 384,117 ) ( 275,226 ) Net cash provided by (used in) investing activities 2,649,964 ( 3,244,765 ) Financing activities Proceeds from issuance of common stock in connection with public offerings and at-the-market offering program 8,590,156 13,350,582 Issuance costs in connection with common stock issuances ( 1,071,663 ) ( 1,327,300 ) Share repurchases for the payment of employee taxes ( 119,419 ) — Net cash provided by financing activities 7,399,074 12,023,282 Net (decrease) increase in cash and cash equivalents ( 2,837,836 ) 1,258,983 Cash and cash equivalents at beginning of year 8,160,329 6,901,346 Cash and cash equivalents at end of year $ 5,322,493 $ 8,160,329 Supplemental non-cash financing and investing transactions: Unpaid purchases of property and equipment $ 4,631 $ — Modification of right-of-use asset and associated lease liability $ 97,536 $ — Reclass of deferred offering costs to additional paid-in capital in connection with public offering $ — $ 24,980 See accompanying notes to financial statements F- 6 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 1 - Organization and Nature of Operations NeuroOne Medical Technologies Corporation (the “Company” or “NeuroOne”), a Delaware corporation, is a medical technology company focused on the development and commercialization of thin film electrode for continuous electroencephalogram (“cEEG”) and stereoelectrocencephalography (“sEEG”) recording, monitoring, ablation, drug delivery and brain stimulation solutions to diagnose and treat patients with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. The Company received 510(k) clearance from the United States (“U.S.”) Food and Drug Administration (“FDA”) for its Evo cortical electrode technology in November 2019 and in October 2022, the Company received 510(k) clearance from the FDA for its 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. The Company is based in Eden Prairie, Minnesota. Global Economic Conditions Generally, worldwide economic conditions remain uncertain, particularly due to the conflicts between Russia and Ukraine and in the Middle East, disruptions in the banking system and financial markets, lingering 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 the Company’s 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 continue to decline, the Company’s 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, the Company’s 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 conflicts in Ukraine and the Middle East, disruptions in the banking system and financial markets, 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. NOTE 2 - Going Concern The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has incurred losses since inception, negative cash flows from operations, and an accumulated deficit of $ 62.7 million as of September 30, 2023. To date, the Company’s revenues have not been sufficient to cover its full operating costs, and as such, has been dependent on funding operations through the issuance of debt and sale of equity securities. With the July 2023 public offering, the Company has adequate liquidity to fund its operations through March 31, 2024. The raising of additional funds is not solely within the control of the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this condition. If the Company is unable to raise additional funds, or the Company’s anticipated operating results are not achieved, management believes planned expenditures may need to be reduced in order to extend the time period that existing resources can fund the Company’s operations. The Company intends to fund ongoing activities by utilizing its current cash and cash equivalents on hand, from product and collaborations revenue and by raising additional capital through equity or debt financings. If management is unable to obtain the necessary capital, it may have a material adverse effect on the operations of the Company and the development of its technology, or the Company may have to cease operations altogether. F- 7 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 3 - Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting standards generally accepted in the United States of America (“U.S. GAAP”). Management’s Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment Information Operating segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer views the Company’s operations and manages its business in one operating segment, which is the business of development and commercialization of products related to comprehensive neuromodulation cEEG and sEEG recording, monitoring, ablation, and brain stimulation solutions. Accordingly, the Company has a single reporting segment. Cash and Cash Equivalents The Company considers all highly liquid investments with an original contractual maturity on date of purchase of less than or equal to three months to be classified and presented as cash equivalents on the Balance Sheets. Cash equivalents are stated at cost, which approximates fair value. The Company’s cash and cash equivalents may include demand deposit accounts with large financial institutions, institutional money market funds, U.S. Treasury securities, and corporate notes and bonds. The Company monitors the creditworthiness of the financial institutions, institutional money market funds, and corporations in which the Company invests its surplus funds. The Company has experienced no credit losses from its cash and cash equivalent investments. Short-Term Investments The Company has periodically invested its excess cash in U.S. Treasury securities and highly rated corporate securities. The Company has held these investments to maturity. Securities with original maturity dates of more than three months were reported as held-to-maturity investments and were recorded at amortized cost, which approximated fair value due to the negligible risk of changes in value due to interest rates. All investments held as September 30, 2022 had contractual maturities of less than one year. There were no short-term investments outstanding as of September 30, 2023. The amortized cost and estimated fair values of the Company’s investments as of September 30, 2022 were as follows: September 30, 2022 Unrealized Unrealized Amortized Cost Holding Gains Holding Losses Fair Value Short-term: U.S. treasury and corporate notes $ 2,981,010 $ — $ 2,870 $ 2,978,140 Total $ 2,981,010 $ — $ 2,870 $ 2,978,140 F- 8 NeuroOne Medical Technologies Corporation Notes to Financial Statements Revenue Recognition The Company entered into a development and distribution agreement which has current and future revenue recognition implications. See “Note 7 – Zimmer Development Agreement.” In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Account Standards Codification (“ASC”) Topic 606 (“ASC 606”). Performance obligations may include license rights, development services, and services associated with regulatory submission and approval processes. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations are either completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. Product Revenue Revenues from product sales are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. At the inception of each customer contract, performance obligations are identified and the total transaction price is allocated to the performance obligations. Cost of Product Revenue Cost of product revenue consists of the manufacturing and materials costs incurred by the Company’s third-party contract manufacturer in connection with the Company’s strip and grid cortical electrodes (the “Strip/Grid Products”), depth electrodes (“sEEG Products) and outside supplier materials costs in connection with the electrode cable assembly products (“Electrode Cable Assembly Products”). In addition, cost of product revenue includes royalty fees incurred in connection with the Company’s license agreements. Collaborations Revenue As part of the accounting for collaboration arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. The Company allocates the total transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service underlying each performance obligation. Licenses of intellectual property : If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. F- 9 NeuroOne Medical Technologies Corporation Notes to Financial Statements Milestone payments : At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until those approvals are received. When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised goods or service underlying each performance obligation and recorded in collaborations revenues based upon when the customer obtains control of each element. Royalties : For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Fair Value of Financial Instruments The Company’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adheres to the Financial Accounting Standards Board (“FASB”) fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: ● 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 September 30, 2023 and 2022, the fair values of cash, cash equivalents, short-term investments, accounts receivable, inventory, prepaids and other assets, accounts payable and accrued expenses and other liabilities approximated their carrying values because of the short-term nature of these assets or liabilities. There were no transfers between fair value hierarchy levels during the years ended September 30, 2023 and 2022. Intellectual Property The Company has entered into two licensing agreements with major research institutions, which allow for access to certain patented technology and know-how. Payments under those agreements are capitalized and amortized to selling, 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. F- 10 NeuroOne Medical Technologies Corporation Notes to Financial Statements Impairment of Long-Lived Assets The Company evaluates its long-lived assets, which consist of licensed intellectual property, property and equipment and right-of-use assets 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. Allowances for Doubtful Accounts The Company records a provision for doubtful accounts, when appropriate, based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable, its historical write-offs, the credit worthiness of each customer, and general economic conditions. Account balances are charged off against the allowance when the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may be in excess of the Company’s estimated allowance. Inventory Inventory is stated at the lower of cost (using the first-in, first-out “FIFO” method) or net realizable value. The Company calculates inventory valuation adjustments for excess and obsolete inventory, when appropriate, based on current inventory levels, movement, expected useful lives, and estimated future demand of the products and spare parts. The Company’s inventory is currently comprised of Strip/Grid Products, sEEG and electrode cable assembly work-in-process and finished good product. The Strip/Grid Products and sEEG Products are produced by a third-party contract manufacturer and the Electrode Cable Assembly Products are obtained from outside suppliers. No inventory valuation allowance was required during the periods presented. Research and Development Costs Research and development costs are charged to expense as incurred. Research and development expenses may include costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development . Selling, General and Administrative Selling, general and administrative expenses consist primarily of personnel-related costs including stock-based compensation for personnel in functions not directly associated with research and development activities. Other significant costs include legal and litigation costs relating to corporate matters, intellectual property costs, professional fees for consultants assisting with regulatory, clinical, product development, financial matters and sales and marketing in connection with the commercial sales of the Company’s products. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”). Accordingly, compensation costs related to equity instruments granted are recognized at the grant-date fair value over the requisite service period. The Company records forfeitures when they occur. Stock-based compensation arrangements to non-employees are accounted for in accordance with the applicable provisions of ASC 718. F- 11 NeuroOne Medical Technologies Corporation Notes to Financial Statements Income Taxes 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 Basic loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. The Company’s warrants, stock options, and restricted stock units while outstanding are considered common stock equivalents for this purpose. Diluted earnings or loss per share of common stock is computed utilizing the treasury method for the warrants, stock options and restricted stock units. No incremental common stock equivalents were included in calculating diluted loss per share because such inclusion would be anti-dilutive given the net loss reported for the years ended September 30, 2023 and 2022. 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 years ended September 30: 2023 2022 Warrants 6,202,426 7,103,344 Stock options 1,708,427 1,239,915 Restricted stock units 393,370 414,430 Unissued vested restricted stock units — 7,316 Recent Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments – Credit Losses” . The ASU sets forth a “current expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The FASB issued the final ASU to delay adoption for smaller reporting companies to fiscal years beginning after December 15, 2022. The Company adopted the guidance on October 1, 2023. The Company does not expect that the adoption of this ASU will have a material impact on its financial statements. In August 2020, the FASB issued ASU 2020-06 , Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which, among other things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this ASU are effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 effective October 1, 2022 and the ASU did not have a material impact to its financial statements. F- 12 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 4 - Commitments and Contingencies WARF License Agreement The Company has entered into an exclusive start-up company license agreement with the Wisconsin Alumni Research Foundation (“WARF”) for WARF’s neural probe array and thin film micro electrode technology (the “WARF Agreement”). The Company entered into an Amended and Restated Exclusive Start-up Company License Agreement (the “WARF License”) with WARF on January 21, 2020, which amended and restated in full the prior license agreement between WARF and NeuroOne, LLC, a predecessor of the Company, dated October 1, 2014, as amended on February 22, 2017, March 30, 2019 and September 18, 2019. 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 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 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 on 30 days’ written notice if we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our development plan or breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain bankruptcy events involving us. WARF may also terminate the WARF License (i) on 90 days’ notice if we had failed to have commercial sales of one or more FDA-approved products under the WARF License by June 30, 2021 or (ii) if, after royalties earned on sales begin to be paid, such earned royalties cease for more than four calendar quarters. The first commercial sale occurred on December 7, 2020, prior to the June 30, 2021 deadline. The WARF License otherwise expires by its terms on the date that no valid claims on the patents licensed thereunder remain. The Company expects the latest expiration of a licensed patent to occur in 2030. During the years ended September 30, 2023 and 2022, $ 150,000 and $ 137,500 in royalty fees were incurred related to the WARF License, respectively, and were reflected as a component of cost of product revenue. Mayo Agreement The Company has an exclusive license and development agreement with the Mayo Foundation for Medical Education and Research (“Mayo”) related to certain intellectual property and development services for thin film micro electrode technology (“Mayo Agreement”). If the Company is successful in obtaining regulatory approval, the Company is to pay royalties to Mayo based on a percentage of net sales of products of the licensed technology through the term of the Mayo Agreement, set to expire May 25, 2037. During the years ended September 30, 2023 and 2022, $ 7,486 and $ 4,861 in royalty fees were incurred, respectively, and were reflected as a component of cost of product revenue. Facility Leases Headquarters Lease On October 7, 2019, the Company entered into a non-cancellable lease agreement (the “Lease”) with certain landlords (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 “Lease 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 Lease 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. F- 13 NeuroOne Medical Technologies Corporation Notes to Financial Statements Los Gatos Lease On July 1, 2021, the Company entered into a non-cancellable facility lease (the “Los Gatos Lease”), pursuant to which the Company agreed to rent office space for its research and development operations located at 718 University Avenue, Suite #111, Los Gatos, California. The facility space under the Los Gatos Lease is approximately 1,162 square feet. The Company took possession of the office space on July 2, 2021. The initial monthly rent under the Los Gatos Lease was approximately $ 4,241 . On November 4, 2022, the Los Gatos Lease was extended for an additional two years to December 31, 2024 . The rent under the extended Los Gatos Lease ranges from $ 4,453 to $ 4,632 per month beginning on January 1, 2023. During the years ended September 30, 2023 and 2022, rent expense associated with the facility leases amounted to $ 171,633 and $ 170,501 , respectively. Supplemental cash flow information related to the operating lease was as follows: For the Years Ended September 30, 2023 2022 Cash paid for amounts included in the measurement of lease liability: Operating cash flows from operating leases $ 134,632 $ 130,727 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 97,536 $ — Supplemental balance sheet information related to the operating lease was as follows: As of September 30, 2023 2022 Right-of-use assets $ 169,059 $ 181,355 Lease liability $ 184,400 $ 202,895 Weighted average remaining lease term (years) 1.4 2.4 Weighted average discount rate 7.8 % 6.9 % Maturity of the lease liability was as follows: Calendar Year As of September 30, 2023 2023 (period from October 1, 2023 to December 31, 2023) $ 34,070 2024 139,969 2025 21,227 Total lease payments 195,266 Less imputed interest ( 10,866 ) Total 184,400 Short-term portion ( 129,116 ) Long-term portion $ 55,284 F- 14 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 5 - Supplemental Balance Sheet Information Inventory Inventory consisted of the following: As of September 30, 2023 2022 Component inventory $ 1,202,778 $ 400,063 Work-in-process 343,597 230,507 Finished goods 180,311 73,968 Total $ 1,726,686 $ 704,538 Intangibles Intangible assets roll forward is as follows: Useful Life Net Intangibles, September 30, 2021 12 - 13 years $ 134,207 Less: amortization ( 22,315 ) Net Intangibles, September 30, 2022 111,892 Less: amortization ( 22,315 ) Net Intangibles, September 30, 2023 $ 89,577 The Company anticipates amortization expense of approximately $ 22,000 per year for fiscal year 2024 through 2027 based upon the two current license agreements. Property and Equipment Property and equipment, net held for use by category are presented in the following table: As of September 30, 2023 2022 Equipment and furniture $ 860,737 $ 538,061 Software — 1,895 Total property and equipment 860,737 539,956 Less accumulated depreciation ( 334,984 ) ( 186,357 ) Property and equipment, net $ 525,753 $ 353,599 Depreciation expense was $ 176,951 and $ 96,305 for the years ended September 30, 2023 and 2022, respectively. Equipment with a net book value of $ 39,643 was disposed by the Company resulting in net proceeds of $ 7,500 . NOTE 6 - Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following As of September 30, 2023 2022 Accrued payroll $ 874,382 $ 521,368 Operating lease liability, short term 129,116 83,339 Royalty fees 104,024 111,132 Total $ 1,107,522 $ 715,839 F- 15 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 7 - Zimmer Development Agreement On July 20, 2020, the Company entered into an exclusive development and distribution agreement (the “Development Agreement”) with Zimmer, Inc. (“Zimmer”), pursuant to which the Company granted Zimmer exclusive global rights to distribute the Strip/Grid Products and electrode cable assembly products (the “Electrode Cable Assembly Products”). Additionally, the Company granted Zimmer the exclusive right and license to distribute certain depth electrodes developed by the Company (“SEEG Products”, and together with the Strip/Grid Products and Electrode Cable Assembly Products, the “Products”). The parties have agreed to collaborate with respect to development activities under the Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer and the Company. Under the terms of the Development Agreement, the Company is responsible for all costs and expenses related to developing the Products, and Zimmer is responsible for all costs and expenses related to the commercialization of the Products. In addition to the Development Agreement, Zimmer and the Company have entered into a Manufacturing and Supply Agreement and a supplier quality agreement with respect to the manufacturing and supply of the Products. Except as otherwise provided in the Development Agreement, the Company is responsible for performing all development activities, including non-clinical and clinical studies directed at obtaining regulatory approval of each Product. Zimmer has agreed to use commercially reasonable efforts to promote, market and sell each Product following the “Product Availability Date” (as defined in the Development Agreement) for such Product. Pursuant to the Development Agreement, Zimmer made an upfront initial exclusivity fee payment of $ 2.0 million (the “Initial Exclusivity Fee”) to the Company in fiscal year 2020. On August 2, 2022, the Company entered into a Third Amendment to Exclusive Development and Distribution Agreement (the “Amendment”) with Zimmer. Pursuant to the terms and conditions of the Amendment, Zimmer made a $ 3.5 million payment to the Company. In consideration of the mutual covenants and agreements contained in the Development Agreement, the fee and milestone payment provisions in the 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 Development Agreement even though the satisfaction was after the deadlines originally identified. In addition, in connection with the Amendment, the Company issued Zimmer a warrant to purchase common stock (the “2022 Zimmer Warrant”). The 2022 Zimmer Warrant is exercisable for up to an aggregate of 350,000 shares of the Company’s common stock. The 2022 Zimmer Warrant has an exercise price of $ 3.00 per share, will be exercisable commencing six months from the issuance date, and will expire on August 2, 2027 . The fair value of the 2022 Zimmer Warrant of $ 0.1 million was based on the Black-Scholes pricing model. Input assumptions used were as follows: a risk-free interest rate of 2.9 %; expected volatility of 53.5 %; expected life of 5 years; expected dividend yield of 0 %; and the underlying fair market of the common stock. The 2022 Zimmer Warrant was classified in stockholders’ equity as the number of shares were fixed and determinable, no cash settlement was required and no other provisions precluded equity treatment. The 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 “Term”), unless terminated earlier pursuant to its terms. Either party may terminate the Development Agreement (x) with written notice for the other party’s material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer may terminate the Development Agreement for any reason with 90 days’ written notice, and the Company may terminate the Development Agreement if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company. The license rights granted to Zimmer under the Strip/Grid Distribution License and sEEG Distribution License shall be exclusive from the Effective Date of the Amendment until the end of the Term. F- 16 NeuroOne Medical Technologies Corporation Notes to Financial Statements The Development Agreement and Amendment were accounted for under the provisions of ASC 606. In accordance with the provisions under ASC 606, the Company identified five performance obligations under the Development Agreement and Amendment: (1) the Company’s obligation to grant Zimmer access to its intellectual property; (2) completion SEEG Product development; (3) completion of Strip/Grid Product development; (4) the provision of sEEG exclusivity maintenance; and (5) completion of sEEG design modifications as requested by Zimmer. All performance obligations under the Development Agreement and Amendment, outside of the sEEG exclusivity maintenance obligation, were met by September 30, 2022. The remaining performance obligation in deferred revenue as of September 30, 2022 attributed to sEEG exclusivity maintenance was completed in first quarter of fiscal year 2023. The aggregate transaction price associated with the Development Agreement and Amendment was $ 5.4 million comprising the Initial Exclusivity Fee of $ 2.0 million and the $ 3.5 million payment under the Amendment, less the fair value 2022 Zimmer Warrant of $ 0.1 million. The transaction price was allocated between performance obligations based on their relative standalone selling prices. The Company used a market based valuation approach and an expected cost plus margin approach with regard to estimating the standalone selling price for the performance obligations. The Company recognized revenue in the amount of $ 1,455,188 and $ 1,948,872 during the years ended September 30, 2023 and 2022, respectively, in connection with the Development Agreement and Amendment. A reconciliation of the closing balance of deferred revenue related to the Development Agreement and Amendment is as follows as of September 30, 2023 and 2022: Deferred Revenue Balance as of September 30, 2021 $ 8,622 Zimmer agreement amendment related to sEEG exclusivity maintenance 3,395,438 Revenue recognized ( 1,948,872 ) Balance as of September 30, 2022 1,455,188 Revenue recognized ( 1,455,188 ) Balance as of September 30, 2023 $ — Product Revenue Product revenue is related to its Strip/Grid Products, sEEG Products and Electrode Cable Assembly Products. Product revenue recognized during the years ended September 30, 2023 and 2022 was $ 1,952,441 and $ 171,169 , respectively. Advertising Expense Advertising expense is charged to selling, general and administrative expenses during the period that it is incurred. Total advertising expense amounted to $ 173,430 and $ 270,612 for the years ended September 30, 2023 and 2022, respectively. NOTE 8 - Stock-Based Compensation During the years ended September 30, 2023 and 2022, stock-based expense related to the stock options, restricted stock units and stock awards was included in selling, general and administrative and research and development costs as follows in the accompanying statements of operations: 2023 2022 Selling, general and administrative $ 905,108 $ 780,818 Research and development 200,349 166,394 Total stock-based compensation expense $ 1,105,457 $ 947,212 F- 17 NeuroOne Medical Technologies Corporation Notes to Financial Statements The Company’s 2017 Equity Incentive Plan (“2017 Plan”) provides for the issuance of restricted shares and stock options to employees, directors, and consultants of the Company. Effective October 1, 2021, no shares were available for issuance under the 2016 Equity Incentive Plan. Inducement Plan In addition to the Company’s 2017 Plan, the Company adopted the NeuroOne Medical Technologies Corporation 2021 Inducement Plan (the “Inducement Plan”) on October 4, 2021, pursuant to which the Company reserved 420,350 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan was approved by the Company’s board of directors without stockholder approval in accordance with such rule. On November 9, 2023, the Company’s board of directors adopted the First Amendment to the Company’s Inducement Plan, increasing the aggregate number of shares of common stock that may be issued pursuant to equity incentive awards under the Inducement Plan by 150,000 shares for a total of 570,350 shares of common stock that may be issued pursuant to equity incentive awards under the Inducement Plan. Evergreen provision Under the 2017 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2017 Plan is approved by the stockholders of the Company, commencing on January 1, 2019 and ending on (and including) January 1, 2027, to an amount equal to 13 % of the fully-diluted shares outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board of Directors may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. “Fully Diluted Shares” as of a date means an amount equal to the number of shares of common stock (i) outstanding and (ii) issuable upon exercise, conversion or settlement of outstanding awards under the 2017 Plan and any other outstanding options, warrants or other securities of the Company that are (directly or indirectly) convertible or exchangeable into or exercisable for shares of common stock, in each case as of the close of business of the Company on December 31 of the preceding calendar year. On January 1, 2023 and 2022, 129,479 and 1,614,538 shares were added to the 2017 Plan, respectively, as a result of the evergreen provision. Stock Options During the years ended September 30, 2023 and 2022, 459,512 and 152,690 stock options were granted to employees, directors and consultants, respectively, with a weighted average grant date fair value of $ 0.88 and $ 0.76 per share, respectively. The options granted have vesting periods ranging from being immediate to four years. All options expire ten years from the date of grant. The total expense for the years ended September 30, 2023 and 2022 related to the stock options was $ 632,315 and $ 582,329 , respectively. The following table summarizes the Company’s stock option plan activity for the years ended September 30, 2023 and 2022 as follows: Number of Options Weighted Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value(1) Outstanding at September 30, 2021 1,122,560 $ 5.89 8.8 $ 127,339 Granted 152,690 $ 1.50 — — Exercised — $ — — — Forfeited/Cancelled ( 35,335 ) $ 4.14 — — Outstanding at September 30, 2022 1,239,915 $ 5.40 8.0 $ 89,295 Granted 469,512 $ 1.55 — — Exercised — $ — — — Forfeited/Cancelled ( 1,000 ) $ 3.78 — — Outstanding at September 30, 2023 1,708,427 $ 4.34 7.69 $ 20,064 Vested and expected to vest at September 30, 2023 1,708,427 $ 4.34 7.69 $ 20,064 Vested and exercisable at September 30, 2023 1,120,768 $ 5.08 7.12 $ 20,064 (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of September 30, 2023 and 2022 of $ 0.89 and $ 1.69 per share, respectively. As of September 30, 2023 and 2022, 1,682,912 and 1,125,710 outstanding options, respectively, had no intrinsic value. F- 18 NeuroOne Medical Technologies Corporation Notes to Financial Statements The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the years ended September 30: 2023 2022 Expected stock price volatility 57.4 % 53.5 % Expected life of options (years) 5.8 5.6 Expected dividend yield 0 % 0 % Risk free interest rate 3.7 % 2.3 % During the years ended September 30, 2023 and 2022, 337,753 and 327,615 stock options vested, respectively. No options were exercised during the years ended September 30, 2023 and 2022. Restricted Stock Units A summary of restricted stock unit (“RSU”) activity is as follows for the years ended September 30, 2023 and 2022: Number of Shares Non-vested at September 30, 2021 11,384 Granted 443,670 Vested ( 40,624 ) Non-vested at September 30, 2022 414,430 Granted 310,728 Vested ( 331,788 ) Non-vested at September 30, 2023 393,370 During the years ended September 30, 2023 and 2022, 310,728 and 443,670 RSUs were granted to members of the Company’s board of directors and employees that vest over a period ranging from a one year to three year period, with a grant date fair value of $ 1.60 and $ 1.91 per unit, respectively. During the years ended September 30, 2023 and 2022, 331,788 and 40,624 RSUs vested, respectively. The total expense for the years ended September 30, 2023 and 2022 related to the RSU’s was $ 473,142 and $ 364,883 , respectively. No RSUs were forfeited during the years ended September 30, 2023 and 2022. General As of September 30, 2023, 1,137,983 shares were available for future issuance on a combined basis under the 2017 Plan and the Inducement Plan. Unrecognized stock-based compensation was $ 1,474,119 as of September 30, 2023. The unrecognized share-based expense is expected to be recognized over a weighted average period of 1.8 years. F- 19 NeuroOne Medical Technologies Corporation Notes to Financial Statements NOTE 9 - Stockholders’ Equity July 2023 Public Offering On July 24, 2023, the Company entered into an underwriting agreement with The Benchmark Company, LLC, as underwriter (“Benchmark”), relating to the issuance and sale of 5,250,000 shares of the Company’s common stock, par value $ 0.001 per share, at a price to the public of $ 1.00 per share (the “July 2023 Public Offering”). In addition, under the terms of the July 2023 Public Offering, the Company granted Benchmark an option, exercisable for 30 days, to purchase up to an additional 787,500 shares of common stock on the same terms (“the Overallotment Option”). The July 2023 Public Offering closed on July 27, 2023, and the Company completed the sale and issuance of an aggregate of 6,037,500 shares of its common stock, including the exercise in full of the Overallotment Option. The net proceeds to the Company from the July 2023 Public Offering were approximately $ 5.2 million after deducting underwriting discounts and other offering expenses payable by the Company. The Company intends to use the net proceeds from this offering to: (i) support the commercial launch of the EVO sEEG electrode with Zimmer Biomet, (ii) support the FDA submission for the OneRF ablation system and (iii) complete the design of a novel drug delivery electrode, among other general corporate purposes. At-The-Market Offering On December 21, 2022, the Company entered into a Capital on Demand TM Sales Agreement (“Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”) to create an at-the-market offering program (“ATM”) under which the Company 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. As of September 30, 2023, 1,439,677 shares of common stock were issued for gross proceeds of $ 2,552,656 under the ATM, and issuance costs in the amount of $ 234,725 have been incurred in connection with the ATM. On July 24, 2023, we decreased the amount of common stock that can be sold pursuant to the Sales Agreement, such that we were offering up to an aggregate of $ 2,560,000 of our common stock for sale under the Sales Agreement, including the shares of common stock previously sold. 2021 Public Offering On October 13, 2021, the Company, entered into an underwriting agreement (the “Underwriting Agreement”) with Craig-Hallum Capital Group LLC, as underwriter (the “Underwriter”), relating to the issuance and sale of 3,750,000 shares of the Company’s common stock at a price to the public of $ 3.20 per share. In addition, under the terms of the Underwriting Agreement, the Company granted the Underwriter an option, exercisable for 30 days, to purchase up to an additional 562,500 shares of common stock on the same terms. The base offering closed on October 15, 2021, and the sale of 422,057 shares of common stock subject to the Underwriter’s overallotment option closed on November 15, 2021. The gross proceeds to the Company from this offering were approximately $ 13.4 million prior to deducting underwriting discounts and other offering expenses payable by the Company in the amount of approximately $ 1.4 million in the aggregate. Warrant Activity and Summary The following table summarizes warrant activity during the years ended September 30, 2023 and 2022: Warrants Exercise Price Per Warrant Weighted Average Exercise Price Weighted Average Term (years) Outstanding and exercisable at September 30, 2021 7,503,808 $ 5.25 - 9.00 $ 6.06 3.23 Issued 350,000 $ 3.00 $ 3.00 4.84 Exercised — $ — $ — — Reverse split adjustment correction ( 100 ) $ — $ — — Expired ( 750,364 ) $ 5.40 $ 5.40 — Outstanding and exercisable at September 30, 2022 7,103,344 $ 3.00 - 9.00 $ 5.98 2.68 Issued — $ — $ — — Exercised — $ — $ — — Expired ( 900,918 ) $ 5.61 - 9.00 $ 6.38 — Outstanding at September 30, 2023 6,202,426 $ 3.00 - 9.00 $ 5.92 2.00 Outstanding and exercisable at September 30, 2023 6,202,426 $ 3.00 - 900 $ 5.92 2.00 F- 20 NeuroOne Medical Technologies Corporation Notes to Financial Statements The following table summarizes information about warrants outstanding at September 30, 2023: Exercise Price Number Outstanding Weighted Average Remaining Contractual life (Years) Number Exercisable at September 30, 2023 $ 3.00 350,000 3.84 350,000 $ 5.25 4,166,682 2.29 4,166,682 $ 5.61 220,855 4.75 220,855 $ 6.00 45,171 0.75 45,171 $ 7.50 279,727 0.41 279,727 $ 8.25 62,906 0.75 62,906 $ 9.00 1,077,085 0.25 1,077,085 Total 6,202,426 6,202,426 NOTE 10 - Concentrations Revenue One customer accounts for all of the Company’s product and collaborations revenue. Supplier concentration One contract manufacturer produces all of the Company’s Strip/Grid Products and sEEG Products and another supplier was responsible for the development of the Company’s OneRF Ablation system. NOTE 11 - Income Taxes The effective tax rate for the Company for the years ended September 30, 2023 and 2022 was zero percent. A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of operations for the years ended September 30 is as follows: 2023 2022 Income tax benefit at federal statutory rate ( 21.0 )% ( 21.0 )% State income tax, net of federal benefit ( 7.7 ) ( 7.7 ) Research credits ( 1.7 ) ( 3.0 ) Stock-based compensation and other 0.8 0.7 Valuation allowance 29.6 31.0 Effective tax rate — % — % Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of September 30: 2023 2022 Deferred tax assets: Federal and state operating loss carryforwards $ 11,657,158 $ 10,164,679 Acquired intangibles 28,352 26,447 Accruals and other 63,301 70,399 Research and development capitalization 1,780,649 — Research and development credit carryforwards 1,314,487 1,107,559 Stock-based compensation 788,790 688,998 Total deferred tax assets 15,632,737 12,058,082 Deferred tax liabilities: Fixed assets and other ( 204,829 ) ( 140,538 ) Total deferred tax liabilities ( 204,829 ) ( 140,538 ) Valuation allowance ( 15,427,908 ) ( 11,917,544 ) Net deferred tax assets $ — $ — F- 21 NeuroOne Medical Technologies Corporation Notes to Financial Statements As of September 30, 2023 and 2022, the Company had gross deferred tax assets of approximately $ 15,633,000 and $ 12,058,000 , respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company has had significant pre-tax losses since its inception. The Company has not yet generated revenues from sales to the level of becoming profitable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance of approximately $ 15,428,000 and $ 11,918,000 as of September 30, 2023 and 2022, respectively. Net deferred tax assets will continue to require a valuation allowance until the Company can demonstrate their realizability through sustained profitability or another source of income. As of September 30, 2023 and 2022, the Company’s federal net operating loss carryforwards were approximately $ 40,571,000 and $ 35,408,000 , respectively. The Company had federal research credit carryforwards as of September 30, 2023 and 2022 of approximately $ 1,074,000 and $ 759,000 , respectively. The federal net operating loss incurred prior to January 1, 2018 and tax credit carryforwards will begin to expire in 2036 if not utilized. Federal net operating losses incurred after December 31, 2017 will not expire. As of September 30, 2023 and 2022, the Company had state net operating loss carryforwards of approximately $ 40,522,000 and $ 35,249,000 , respectively. The Company had state research credit carryforwards of approximately $ 598,000 and $ 441,000 as of September 30, 2023 and 2022, respectively. The state net operating loss carryforwards will begin to expire in 2031, if not utilized, and the state research credit carryforwards will begin to expire in 2032 if not utilized. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percent shareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36-month testing period or beginning the day after the most recent ownership change, if shorter. The annual limitation may result in the expiration of net operating losses and credits before utilization. In accordance with ASC 740, Income Taxes (“ASC 740”), specifically related to uncertain tax positions, a Company is required to use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. A reconciliation of the beginning and ending amounts of unrecognized tax positions for the years ended September 30 is as follows: 2023 2022 Unrecognized tax positions, beginning of year $ — $ — Gross increase, current period tax positions 231,968 — Unrecognized tax positions, end of year $ 231,968 $ — If recognized, none of the unrecognized tax positions would impact the Company's income tax benefit or effective tax rate as long as the Company's net deferred tax assets remain subject to a full valuation allowance. The Company does not expect any significant increases or decreases to the Company's unrecognized tax positions within the next 12 months. In accordance with this guidance, the Company has adopted a policy under which, if required to be recognized in the future, interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the accompanying statements of operations. F- 22 NeuroOne Medical Technologies Corporation Notes to Financial Statements The Company has tax filing obligations in the following jurisdictions: U.S. federal, Minnesota and California. The income tax returns since inception as a corporation in 2016 are subject to examination by the federal and state taxing authorities. NOTE 12 - 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 may match 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 September 30, 2023. 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. The amount of contributions made by the Company under the 401K Plan during the years ended September 30, 2023 and 2022 was nil and $ 30,697 , respectively. NOTE 13 - Subsequent Events First Amendment to 2021 Inducement Plan On November 9, 2023, the Company’s board of directors adopted the First Amendment to the Company’s Inducement Plan, increasing the aggregate number of shares of common stock that may be issued pursuant to equity incentive awards under the Inducement Plan by 150,000 shares for a total of 570,350 shares. At-The-Market Offering On December 1, 2023, the Company increased the amount of common stock that can be sold pursuant to the Sales Agreement with JonesTrading, such that we are offering up to an aggregate of $ 4.8 million of common stock for sale under the Sales Agreement, including the shares of common stock previously sold. F- 23 NeuroOne Medical Technologies Corporation FORM 10-K ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.