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, 2023. 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 sEEG electrode technology, and 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 and ability to continue as a going concern; ● 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 electrodes, RF ablation system, and technology under development; ● our ability to develop additional applications of our cortical strip, grid and depth electrode and RF ablation 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; ● the performance, productivity, reliability and regulatory compliance of our third-party manufacturers of our cortical strip, electrode and depth electrode and RF ablation technology; ● our ability to develop future generations of our cortical strip, grid and depth electrode and RF ablation technology; ● our future development priorities; ● 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 and RF ablation technology to people with epilepsy, Parkinson’s disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders; 21 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 and RF ablation 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; ● our ability to satisfy the continued listing requirements of Nasdaq; 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, drug delivery 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. We are also developing the capability to use our sEEG electrode technology to deliver drugs or gene therapy while being able to record brain activity before, during, and after delivery. Additionally, we are investigating the potential applications of our technology associated with artificial intelligence. NeuroOne has received 510(k) clearance for three of its devices from the FDA, including: (i) our Evo cortical electrode technology for recording, monitoring, and stimulating brain tissue for up to 30 days, (ii) 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, and (iii) our OneRF ablation system for creation of radiofrequency lesions in nervous tissue for functional neurosurgical procedures. Our other products are still under development. Under the Zimmer Development Agreement, we commenced commercial sales of cEEG strip/grid electrodes and 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. We have also initiated a limited commercial launch of our OneRF ablation system in March 2024 without a distribution partner. 22 NeuroOne Medical Technologies Corporation Form 10-Q We have incurred losses since inception. As of June 30, 2024, we had an accumulated deficit of $71.7 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 Corporate Updates OneRF Ablation Limited Commercial Launch In March 2024, we announced a limited commercial launch of our OneRF ablation system. We do not have a distribution partner for the OneRF ablation system at this time, and are continuing to pursue a potential strategic partnership for the OneRF Products. Nasdaq Notice Since May 28, 2024, the closing price of our common stock has been below $1.00. On July 11, 2024, we received a letter (the “Notice”) from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) informing us that because the closing bid price for our common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company was not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Marketplace Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Marketplace Rule 5810(c)(3)(A), the Company has a period of 180 calendar days from July 11, 2024, or until January 7, 2025, to regain compliance with the Minimum Bid Price Requirement. If at any time before January 7, 2025, the closing bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive trading days (which number days may be extended by Nasdaq), Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement, and the matter would be resolved. The Notice also disclosed that in the event we do not regain compliance with the Rule by January 7, 2025, we may be eligible for additional time. To qualify for additional time, we would be required to meet the applicable market value of publicly held shares requirement for continued listing and all other applicable standards for initial listing on The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period. If we meet these requirements, Nasdaq will inform us that it has been granted an additional 180 calendar days. However, if it appears to the Staff that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide notice that our securities will be subject to delisting. We intend to continue actively monitor the closing bid price for our common stock between now and January 7, 2025, and will consider available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement. If we do not regain compliance within the allotted compliance period, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. There can be no assurance that we will regain compliance with the Minimum Bid Price Requirement during the 180-day compliance period, secure a second period of 180 calendar days to regain compliance, or maintain compliance with the other Nasdaq listing requirements. 23 NeuroOne Medical Technologies Corporation Form 10-Q 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, 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 continue to decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected. 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 conflicts in Ukraine and the Middle East, disruptions in the banking system and financial markets, and steps taken by governments and central banks, 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/Grid Products, sEEG Products and electrode cable assembly products (“Electrode Cable Assembly Products”) based on Evo cortical electrode technology and products based on our OneRF ablation system (“OneRF Products”). We anticipate that we will generate additional revenue from the sale of products based on Evo cortical electrode technology and our OneRF ablation system. In November 2019, we received FDA 510(k) clearance for our cortical 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. In December 2023, we received FDA 510(k) clearance for our OneRF ablation system for creation of radiofrequency lesions in nervous tissue for functional neurosurgical procedure. Product Gross Profit Product gross profit 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, sEEG Products, OneRF 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. Additionally, we granted Zimmer the exclusive right and license to distribute certain sEEG Products developed by the Company. The OneRF ablation system is not covered by the Zimmer Development Agreement. The parties 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. 24 NeuroOne Medical Technologies Corporation Form 10-Q 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 and a Supplier 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 “Zimmer Amendment”) with Zimmer. Pursuant to the terms and conditions of the Zimmer 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 Zimmer 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, is 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 Zimmer Amendment until the end of the Zimmer Term. All payments attributed to the Initial Exclusivity Fee, the sEEG exclusivity maintenance fee and sEEG design milestone payment are non-refundable. The Zimmer Development Agreement and Zimmer 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 Zimmer 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 Zimmer 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 $1.5 million during the nine months ended June 30, 2023 related to the completion of the sEEG exclusivity maintenance milestone. There was no collaboration revenue during the nine months ended June 30, 2024. 25 NeuroOne Medical Technologies Corporation Form 10-Q 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, OneRF ablation system and electrode cable assembly products. We anticipate that our selling, general and administrative expenses will increase in the future to support our continued research and development activities, further commercialization of our cortical strip and grid technology, ablation system 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, depth electrode and ablation system 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 increase over the next several years as we develop additional applications for our electrode and ablation system technology and conduct preclinical testing and clinical trials. Other Income, net Other income, net primarily consists of interest income related to our cash, cash equivalents, investment income or loss from short-term investments and other income or expense outside of normal operating activity relating to legal settlements, sales of non-commercial supplies and other items as applicable. 26 NeuroOne Medical Technologies Corporation Form 10-Q Results of Operations Comparison of the Three Months Ended June 30, 2024 and 2023 The following table sets forth the results of operations for the three months ended June 30, 2024 and 2023, respectively. For the Three Months Ended June 30, (unaudited) 2024 2023 Period to Period Change Product revenue $ 825,776 $ 629,906 $ 195,870 Cost of product revenue 543,904 386,240 157,664 Product gross profit 281,872 243,666 38,206 Operating expenses: Selling, general and administrative 1,881,099 1,862,389 18,710 Research and development 1,194,674 1,891,512 (696,838 ) Total operating expenses 3,075,773 3,753,901 (678,128 ) Loss from operations (2,793,901 ) (3,510,235 ) 716,334 Other income, net 26,376 41,462 (15,086 ) Loss before income taxes (2,767,525 ) (3,468,773 ) 701,248 Provision for income taxes — — — Net loss $ (2,767,525 ) $ (3,468,773 ) $ 701,248 Product Revenue and Product Gross Profit Product revenue was $0.8 million during the three months ended June 30, 2024 with a gross margin and gross profit percentage of $0.3 million and 34.1%, respectively. During the three months ended June 30, 2023, product revenue was $0.6 million with a gross margin and gross profit percentage of $0.2 million and 38.7%, respectively. The decrease in the gross profit percentage in the current period when compared to the corresponding prior year period was primarily due to an increase in material supply costs. Product revenue consisted of the sale of our Strip/Grid Products, sEEG Products, OneRF Products and Electrode Cable Assembly Products. Cost of product revenue consisted of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our Strip/Grid, sEEG Products and OneRF 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 $43,000 in connection with our license agreements during the three months ended June 30, 2024 and 2023, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses were $1.9 million during each of the three months ended June 30, 2024 and 2023. The negligible increase in costs during the current three-month period was attributed to higher administrative payroll costs of approximately $0.1 million offset largely by professional service costs which decreased by approximately $0.1 million. Research and Development Expenses Research and development expenses were $1.2 million for the three months ended June 30, 2024, compared to $1.9 million during for the three months ended June 30, 2023. The $0.7 million decrease period over period was attributed to the net reduction in development activities associated with our sEEG Products, Strip/Grid Products and OneRF Products given the commercialization of these products. Activity associated with new technology development partially offset the overall net decrease in research and development costs during the current period. Development activities primarily included salary-related expenses and costs related to consulting services, materials and supplies. 27 NeuroOne Medical Technologies Corporation Form 10-Q Other Income, net Other income during the three months ended June 30, 2024 and 2023 related to interest income on our cash and cash equivalents in the amount of $26,000 and $41,000, respectively. Comparison of the Nine Months Ended June 30, 2024 and 2023 The following table sets forth the results of operations for the nine months ended June 30, 2024 and 2023, respectively. For the Nine Months Ended June 30, (unaudited) 2024 2023 Period to Period Change Product revenue $ 3,180,719 $ 1,210,661 $ 1,970,058 Cost of product revenue 2,242,114 947,799 1,294,315 Product gross profit 938,605 262,862 675,743 Collaborations revenue — 1,455,188 (1,455,188 ) Operating expenses: Selling, general and administrative 6,057,520 5,347,234 710,286 Research and development 3,951,559 5,161,322 (1,209,763 ) Total operating expenses 10,009,079 10,508,556 (499,477 ) Loss from operations (9,070,474 ) (8,790,506 ) (279,968 ) Other income, net 102,959 66,136 36,823 Loss before income taxes (8,967,515 ) (8,724,370 ) (243,145 ) Provision for income taxes — — — Net loss $ (8,967,515 ) $ (8,724,370 ) $ (243,145 ) Product Revenue and Product Gross Profit Product revenue was $3.2 million during the nine months ended June 30, 2024 with a gross profit and gross profit percentage of $0.9 million and 29.5%, respectively. Product revenue was $1.2 million during the nine months ended June 30, 2023 with a gross margin and gross profit percentage of $0.3 million and 21.7%, respectively. The increase in gross profit percentage during the current period was largely due to the higher sales volume that exceeded fixed royalty period costs and due to slightly lower overall material supply costs. Product revenue consisted of Strip/Grid Products, sEEG Products, OneRF Products and Electrode Cable Assembly Products sales. Cost of product revenue consisted of the manufacturing and materials costs incurred by our third-party contract manufacturer in connection with our Strip/Grid Products, sEEG Products and OneRF 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 $117,000 and $119,000 in connection with our license agreements during the nine months ended June 30, 2024 and 2023, respectively. Collaborations Revenue Collaborations revenue was $1.5 million for the nine months ended June 30, 2023. Revenue during the period was derived from the Zimmer Development Agreement in connection with the completion of the sEEG maintenance fee obligation as a result of securing FDA approval. There was no collaborations revenue during the nine months ended June 30, 2024. 28 NeuroOne Medical Technologies Corporation Form 10-Q Selling, General and Administrative Expenses Selling, general and administrative expenses were $6.1 million for the nine months ended June 30, 2024, compared to $5.3 million for the nine months ended June 30, 2023. The $0.7 million increase during the current period was primarily attributed to higher administrative payroll costs of $0.4 million, professional services of $0.2 million and sales and marketing costs of $0.1 million. Research and Development Expenses Research and development expenses were $4.0 million for the nine months ended June 30, 2024, compared to $5.2 million for the nine months ended June 30, 2023. The $1.2 million decrease period over period was attributed to the net reduction in development activities associated with our sEEG Products, Strip/Grid Products and OneRF Products given the commercialization of these products. Activity associated with new technology development partially offset the overall net decrease in research and development costs during the current period. Development activities primarily included salary-related expenses and costs related to consulting services, materials and supplies. Other Income, net Other income, net during the nine months ended June 30, 2024 of $0.1 million consisted of interest income attributed to our cash and cash equivalents. Other income, net during the nine months ended June 30, 2023 of $66,000 consisted of $160,000 related primarily to interest income attributed to our cash, cash equivalents and short-term investments, while outstanding, which was partially offset by an exploit loss of $94,000. Liquidity and Capital Resources Overview As of June 30, 2024, our principal source of liquidity consisted of cash and cash equivalents in the aggregate of approximately $1.6 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. Our additional material cash needs include commitments under operating leases, royalty obligations under our intellectual property licenses with the Wisconsin Alumni Research Foundation (“WARF”) and the Mayo Foundation for Medical Education and Research (“Mayo”) as well as other administrative services. See “Funding Requirements” below for more information. We anticipate that our expenses will increase substantially as we continue to develop and commercialize our electrode technology and pursue pre-clinical and clinical trials, seek regulatory approvals, manufacture products, market and distribute our OneRF Products, hire additional staff, add operational, financial and management systems and continue to operate as a public company. On August 2, 2024, we closed a private placement of shares of common stock and warrants for total gross proceeds of approximately $2.65 million, and entered into a delayed draw term loan facility in an aggregate principal amount not to exceed $3.0 million. 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 more recent financings described below. At-The-Market Offering On December 21, 2022, we 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 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 of up to 3% of the gross proceeds. 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 $2.6 million of our common stock for sale under the Sales Agreement, including the shares of common stock previously sold. Subsequently on December 1, 2023, however, we increased the amount of common stock that can be sold pursuant to the Sales Agreement, such that we were offering up to an aggregate of $4.8 million of our common stock for sale under the Sales Agreement, including the shares of common stock previously sold. On January 5, 2024, we further increased the amount of common stock that can be sold pursuant to the Sales Agreement, such that we are offering up to an aggregate of $9.3 million of our common stock for sale under the Sales Agreement, including the shares of common stock previously sold. 29 NeuroOne Medical Technologies Corporation Form 10-Q Through June 30, 2024, we have issued 5,188,590 shares of common stock under the ATM for gross proceeds in the amount of $7.6 million. We incurred issuance costs in connection with the ATM in the amount of $0.5 million through June 30, 2024. July 2023 Public Offering On July 24, 2023, we 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 our 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, we 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 we completed the sale and issuance of an aggregate of 6,037,500 shares of our common stock, including the exercise in full of the Overallotment Option. The net proceeds to us from the July 2023 Public Offering were approximately $5.2 million after deducting underwriting discounts and other offering expenses payable by the Company. 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 WARF and 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, 2023 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 21, 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. 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 2028. 30 NeuroOne Medical Technologies Corporation Form 10-Q 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 and OneRF Products 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. We do not have a distribution partner for the OneRF ablation system at this time, and are continuing to pursue a potential strategic partnership for the OneRF Products. At June 30, 2024, we had cash and cash equivalents in the aggregate of approximately $1.6 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, 2023 and 2022, respectively, noting the existence of substantial doubt about our ability to continue as a going concern. Our existing cash and cash equivalents 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, depth electrode and ablation system technology is subject to numerous uncertainties, and we could use our cash and cash equivalent 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 Nine Months Ended June 30, 2024 2023 Net cash used in operating activities $ (8,344,957 ) $ (9,984,048 ) Net cash (used in) provided by investing activities (83,292 ) 2,700,084 Net cash provided by financing activities 4,725,733 2,207,093 Net decrease in cash and cash equivalents $ (3,702,516 ) $ (5,076,871 ) 31 NeuroOne Medical Technologies Corporation Form 10-Q Net cash used in operating activities Net cash used in operating activities was $8.3 million for the nine months ended June 30, 2024, which consisted of a net loss of $9.0 million partially offset principally by non-cash stock-based compensation, depreciation, amortization related to intangible assets, operating lease expense, totaling approximately $1.3 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a cash use of approximately $0.6 million. The net cash use stemming from the change in operating assets and liabilities was primarily attributable to both an increase in our accounts receivable and inventory purchases. Net cash used in operating activities was $10.0 million for the nine months ended June 30, 2023, which consisted of a net loss of $8.7 million partially offset principally by non-cash stock-based compensation, depreciation, amortization related to intangible assets, operating lease expense, totaling approximately $1.0 million in the aggregate. The net change in our net operating assets and liabilities associated with fluctuations in our operating activities resulted in a cash use of approximately $2.3 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, coupled with a decrease in the aggregate of account payable and accrued expenses, attributed to the timing of payments. Partially offsetting the net cash operating use during the period was a decrease in our accounts receivable and prepaids in the aggregate of $0.1 million resulting from timing of payments and fluctuations in our operations. Net cash (used in) provided by investing activities Net cash used in investing activities was $0.1 million for the nine months ended June 30, 2024 and consisted of outlays for purchases of property and equipment. Net cash provided by investing activities was $2.7 million for the nine months ended June 30, 2023 and consisted of maturities of short-term investments in the amount of $4.5 million, offset by purchases of short term investment of $1.5 million, consisting of treasury and corporate notes. The balance of activity during the period consisted of outlays for purchases of property and equipment in the amount $0.3 million. Net cash provided by financing activities Net cash provided by financing activities was $4.7 million for the nine months ended June 30, 2024, which consisted of net proceeds from the ATM of $4.8 million, offset partially by repurchases of common stock for the payment of employee taxes in the amount of $0.1 million. Net cash provided by financing activities was $2.2 million for the nine months ended June 30, 2023, which consisted of net proceeds from the ATM of $2.3 million, offset partially by repurchases of common stock for the payment of employee taxes in the amount of $0.1 million. 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. 32 NeuroOne Medical Technologies Corporation Form 10-Q 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, 2023. 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. 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.