NeuroOne Medical Technologies Corporation — Form 10-Q
Reporting period: Quarter and six months ended March 31, 2021; filed May 14, 2021. NeuroOne is an early-stage medical-device company developing technologies for brain monitoring and treatment. It began commercial sales of its cleared cEEG strip/grid and electrode cable assembly products in December 2020. The financial statements are unaudited.
Financial results and position
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 | Comparable 2020 period |
|---|---|---|---|
| Product revenue | $18,240 | $89,714 | None |
| Collaboration revenue | $20,113 | $42,387 | None |
| Product gross profit (loss) | $(21,123) | $(58,780) | No product sales |
| Operating expenses | $2.395 million | $4.523 million | $1.377 million / $3.191 million |
| Operating loss | $(2.396) million | $(4.539) million | $(1.377) million / $(3.191) million |
| Net loss | $(2.394) million | $(4.353) million | $(1.346) million / $(5.983) million |
| Operating cash used | — | $(4.284) million | $(2.475) million |
Product sales remained small and below product costs, producing negative product gross margins. Six-month R&D expense rose to $2.016 million from $844,000, mainly for SEEG development; G&A increased to $2.507 million from $2.347 million. The six-month net loss narrowed year over year, largely because the prior-year period included substantial noncash interest and financing-related charges on convertible notes. In contrast, operating loss widened as expenses increased.
Cash was $11.274 million at March 31, 2021, versus $4.036 million at September 30, 2020. Current assets were $11.355 million and current liabilities $750,000. Financing provided $11.524 million in the first half, principally from the January private placement; investing used $2,059. Accumulated deficit was $35.232 million. No convertible notes remained outstanding at quarter-end following conversion. Liabilities included an $83,333 PPP loan (forgiveness is uncertain) and operating lease liabilities of $284,000; total liabilities were $1.057 million.
Changes, financing and dilution
- The January 2021 private placement raised $12.5 million gross by selling 4,166,682 shares with warrants to buy an additional 4,166,682 shares; reported net cash proceeds were approximately $11.3 million. The warrants have a $5.25 exercise price and five-year term.
- Common shares outstanding increased from 7.394 million at September 30, 2020 to 11.910 million at March 31, 2021. The company completed a 1-for-3 reverse split effective after March 31; reported share and per-share figures are adjusted for the split. As of May 13, 2021, 11,954,543 shares were outstanding.
- Outstanding warrants totaled 7,514,949 at quarter-end, in addition to 1,103,609 stock options. These securities represent potential dilution; loss per share excludes them as anti-dilutive.
Outlook, risks and unusual items
- Management said available cash should fund operations for at least 12 months from the filing/financial-statement issuance date, while stating additional capital will be needed to reach cash-flow break-even. No quantified revenue or earnings guidance was provided; management expects continued losses and increased R&D and operating costs.
- Under its Zimmer development and distribution agreement, NeuroOne received a $2 million upfront exclusivity fee and recognizes it as performance obligations are completed. Additional SEEG fees depend on milestones and product-availability timing; Zimmer may terminate the agreement on 90 days’ notice and may terminate SEEG distribution rights if product availability has not occurred by June 30, 2022. The filing does not establish whether later milestone payments were earned.
- The company had FDA 510(k) clearance for its initial cEEG product. It reported submitting a 510(k) application for a second product in May 2021, after the reporting date. Other products remained in development.
- COVID-19 had disrupted trials, manufacturing, shipping, supply and R&D; continued effects could harm operations, liquidity, financing access and development timelines. One customer generated all product and collaboration revenue, and one contract manufacturer produced all Strip/Grid Products.
- Six-month other income of $186,775 was principally related to the PMT litigation. NeuroOne received $185,000 in sanctions, paid in December 2020. The PMT case remained pending, with trial set for December 2021; the outcome of claims against the company was not estimable.
- WARF royalties include a $100,000 minimum for 2021 and $150,000 annually from 2022 while the license remains in effect; $25,000 of the 2021 minimum was accrued at quarter-end. The PPP loan may require repayment if not forgiven.
Important facts for investors to verify
- Subsequent commercial sales, gross margins, customer concentration and whether product revenue can scale beyond the initial launch.
- Zimmer milestone achievement, SEEG product availability, related payments and the agreement’s continuing exclusivity status.
- Cash burn and financing needs against management’s stated 12-month runway, including any later equity or debt financing.
- Regulatory progress for the second product and development, trial and supply-chain timelines for products still under development.
- Potential dilution from the 7.5 million outstanding warrants and other equity awards, along with the status and financial exposure of the PMT litigation and PPP loan forgiveness.