NeuroOne Medical Technologies Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2021; comparatives are the three months ended December 31, 2020. The company is an early-stage medical technology developer with limited commercial sales. Its Evo cortical technology and sEEG electrodes for temporary use of less than 24 hours had FDA 510(k) clearance; an application to extend sEEG use to up to 30 days was pending.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Product revenue | $33,748 | $71,474 |
| Collaboration revenue | $6,374 | $22,274 |
| Product gross loss | $(13,096); approximately -38.8% gross margin | $(37,657); approximately -52.7% gross margin |
| Operating expenses | $2.80 million | $2.13 million |
| Operating loss | $(2.81) million | $(2.14) million |
| Net loss | $(2.81) million; $(0.18) per share | $(1.96) million; $(0.26) per share |
| Operating cash used | $(2.68) million | $(1.90) million |
| Cash at period end | $16.18 million | $7.13 million |
Revenue consisted of product sales and recognition of part of the upfront fee under the Zimmer development agreement. Product revenue fell about 53% year over year, while collaboration revenue fell about 71%. The product gross loss narrowed as cost of product revenue declined more than sales. SG&A rose $548,000, primarily from legal costs, sales and marketing, and operating costs; R&D rose $126,000. The net loss increased by $848,000, partly because the prior-year period included $185,000 of PMT litigation-related other income.
At December 31, 2021, total assets were $17.18 million, total liabilities $1.24 million, and stockholders’ equity $15.95 million. Cash was the principal current asset; current liabilities were $1.06 million. The filing reports no outstanding convertible notes at quarter-end. Operating lease liabilities totaled $288,388, including $115,074 classified as short term.
Liquidity, financing and material changes
Cash increased by $9.28 million during the quarter, chiefly from $12.02 million of net financing proceeds, including the October 2021 public offering. The offering sold 4,172,057 shares for approximately $13.4 million gross proceeds and incurred approximately $1.4 million in offering expenses. Operating and investing activities used $2.68 million and $61,491, respectively. Shares outstanding increased from 12,010,019 at September 30 to 16,187,722 at December 31, 2021.
Management disclosed substantial doubt about the company’s ability to continue as a going concern. It stated existing cash might not fund operating expenses for at least 12 months from the filing date and that additional capital is needed. Management may reduce planned expenditures if financing or anticipated results fall short; failure to obtain capital could materially harm operations or lead to cessation of operations.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management expects significant expenses and operating losses to continue while it develops and commercializes products, and anticipates increased R&D and SG&A spending.
- The 30-day sEEG clearance request was pending; the company reported submitting responses to FDA questions in February 2022. It said product shipment after clearance could support an additional Zimmer milestone payment, but timing and payment were uncertain.
- Under the Zimmer agreement, Zimmer has exclusive global distribution rights. The sEEG Product Availability Date had not occurred; Zimmer could terminate the sEEG distribution license if it had not occurred by June 30, 2022. The company also noted that disagreements on milestone dates or Zimmer’s failure to commercialize could adversely affect results.
- COVID-19, supplier staffing constraints, shipping delays, shortages of polyimide film, and inflationary pressures had disrupted or could further delay development, manufacturing, and product availability.
- One customer accounted for all product and collaboration revenue, and one contract manufacturer produced all strip/grid and sEEG products.
- PMT litigation remained unresolved; trial was postponed to August 2022. The company said the outcome of PMT’s claims was not estimable. The court had previously awarded NeuroOne, Inc. $185,000 in sanctions, paid in December 2020; the company’s abuse-of-process and punitive-damages claims were dismissed in 2021.
- WARF royalties include a $150,000 minimum annual payment for 2022 and later years while the license remains in effect. The filing reports $25,000 of WARF royalty fees and $739 of Mayo royalty fees incurred in the quarter.
Important facts for investors to verify
- Whether the company secures additional financing and how cash use affects its going-concern position.
- The FDA decision and timing for sEEG use up to 30 days, and whether product shipments or Zimmer milestone payments follow.
- Product demand, revenue concentration, gross margin improvement, and Zimmer’s commercialization progress.
- Supply-chain continuity, manufacturing capacity, and the effect of COVID-related disruption and inflation on development timelines and costs.
- Developments in the PMT litigation and any resulting financial or operational exposure.
- Potential dilution from future equity financing and outstanding warrants; the filing reported 6,753,444 warrants outstanding at December 31, 2021.