NeuroOne Medical Technologies Corporation — Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2021; filed August 13, 2021. The company develops neuromodulation and brain-monitoring products and is at an early commercial stage. Its initial cortical EEG product had FDA 510(k) clearance; an application for a second product was submitted in May 2021.
Financial performance
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 | Comparable 2020 period |
|---|---|---|---|
| Product revenue | $40,096 | $129,810 | None reported |
| Collaboration revenue | $17,451 | $59,838 | None reported |
| Product gross loss | $(21,839) | $(80,619) | None reported |
| Operating expenses | $3.03 million | $7.55 million | $1.59 million and $4.78 million |
| Net loss | $(2.95) million | $(7.31) million | $(7.09) million and $(13.07) million |
| Net cash used in operating activities | Not provided for the quarter | $(6.57) million | $(3.70) million for nine months |
Product gross margin was negative, approximately 54.5% for the quarter and 62.1% for the nine-month period. Product costs include manufacturing, materials, and licensing royalties. The lower net losses versus 2020 primarily reflect the absence of substantial debt-related interest, fair-value changes, and extinguishment losses recorded in the prior-year period—not a reduction in operating expenses.
Financial position and liquidity
- Cash was $8.99 million at June 30, 2021, versus $4.04 million at September 30, 2020. Current assets were $9.27 million and current liabilities $747,000.
- Total liabilities were $954,000; no convertible notes remained outstanding after conversion. Operating lease liabilities totaled $269,000.
- Net cash provided by financing activities was $11.56 million for the nine months, mainly from the January 2021 private placement. The company reported $12.5 million gross proceeds from issuing 4.17 million shares and warrants to purchase another 4.17 million shares; cash-flow financing proceeds were net of offering costs and included warrant allocation accounting.
- Operating cash use increased to $6.57 million from $3.70 million in the comparable nine months. Management stated cash on hand was not sufficient to fund operating expenses for at least 12 months from the filing date; the filing identifies substantial doubt about the company’s ability to continue as a going concern without additional funding.
Changes, outlook, and key risks
- Commercial product sales began in December 2020, but revenue remained limited and one customer accounted for all product and collaboration revenue. One contract manufacturer produced all Strip/Grid Products.
- SG&A rose 33% for the nine months to $4.64 million, and R&D rose to $2.92 million from $1.29 million, principally reflecting commercialization, personnel, public-company costs, and development work. Management expects both expense categories to increase as development and commercialization continue.
- Under its Zimmer development and distribution agreement, NeuroOne is responsible for product development costs; Zimmer handles commercialization costs. Potential additional milestone and royalty revenue is uncertain. Zimmer has termination rights, including a right to terminate the SEEG distribution license if the product availability date has not occurred by June 30, 2022.
- Management expects continued losses and says additional equity, debt, partnership, milestone, or product revenue will be needed. It may reduce spending if funding or expected operating results do not materialize. No specific financial guidance was provided.
- COVID-19 had caused or could cause delays in development, trials, manufacturing, supply, and shipping. The filing says continuing effects could materially affect operations, financial position, and liquidity.
- The PMT litigation remained unresolved: the court dismissed NeuroOne’s abuse-of-process and punitive-damages claims on August 5, 2021, after quarter-end; trial was scheduled for December 2021, and the company said the outcome of PMT’s claims was not estimable. The company had previously received $185,000 in sanctions, recognized as other income.
- Other notable items: PPP loan forgiveness of $83,333 was recognized as income; the company moved its stock listing to Nasdaq in May 2021 and completed a 1-for-3 reverse split; and it changed its independent auditor to Baker Tilly in June 2021.
Investor verification priorities
- Confirm current cash, subsequent financing, and management’s updated liquidity and going-concern assessment.
- Track customer concentration, product sales growth, gross margins, and the economics of royalties and manufacturing.
- Verify SEEG development progress, regulatory milestones, and Zimmer’s product availability and payment obligations.
- Review dilution and potential warrant exercises; the filing reported 7.50 million warrants outstanding at June 30, 2021.
- Check developments in the PMT litigation and any resulting financial exposure.