| Summary of Significant Accounting Policies | 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. In December
2019, the Company merged its wholly-owned subsidiary, NeuroOne Inc., into NeuroOne Medical Technologies Corporation. The merger of the
Company’s wholly-owned subsidiary did not have a financial impact to the periods presented. Upon close of the merger, the Company
did not have any remaining entities that required consolidation for financial statement reporting purposes. Segment Information Operating segments are components of an enterprise
for which separate financial information is available and is 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. Reverse
Stock Split On March
11, 2021, the Company’s Board of Directors (the “Board”) approved a one-for-three reverse stock split of the Company’s
issued and outstanding shares of common stock (the “Reverse Stock Split”) effective end-of-day March 31, 2021. All issued
and outstanding common stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this
Reverse Stock Split for all periods presented. In addition, a proportionate adjustment was made to the per share exercise price and the
number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of
common stock. A proportionate adjustment was also made to the number of shares reserved for issuance pursuant to the Company’s equity
incentive compensation plans to reflect the Reverse Stock Split. Any fraction of a share of common stock that was created as a result
of the Reverse Stock Split was rounded up to the next whole share. The authorized shares and par value of the common stock and preferred
stock were not adjusted as a result of the Reverse Stock Split. Management’s Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, primarily in connection with the convertible promissory notes, and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash. The Company’s cash is held by one financial institution in the United
States. Amounts on deposit may at times exceed federally insured limits. The Company has not experienced any losses on its deposits since
inception, and management believes that minimal credit risk exists with respect to these financial institutions. As of September 30, 2021,
the Company had $6.7 million of deposits in excess of federally insured amounts. 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.” 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.
The Company commenced commercial sales of cEEG strip/grid and electrode cable assembly products in the first quarter of fiscal year 2021. 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”) and outside supplier materials
costs in connection with the .
In addition, cost of product revenue includes royalty fees incurred in connection with the Company’s license agreements. Collaborations
Revenue 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. 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. As part
of the accounting for these 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 Milestone
payments Royalties 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, 2021 and 2020, the fair values
of cash, accounts receivable, inventory, prepaid, other assets, accounts payable and accrued expenses approximated their carrying values
because of the short-term nature of these assets or liabilities. The fair value of the convertible notes while outstanding were based
on both the fair value of our common stock, discount associated with the embedded redemption features, and cash flow models discounted
at current implied market rates evidenced in recent arms-length transactions representing expected returns by market participants for
similar instruments and are based on Level 3 inputs. There were no transfers between fair value hierarchy
levels during the years ended September 30, 2021 and 2020. There were no financial instruments measured on
a recurring basis outstanding as of September 30, 2021. The fair value of financial instruments measured on a recurring basis was as follows
as of September 30, 2020:
As of
Description Total Level 1 Level 2 Level 3
Liabilities:
Convertible notes $ 1,007,206 — — $ 1,007,206
Total liabilities at fair value $ 1,007,206 — — $ 1,007,206 The following table provides a roll-forward of
the convertible notes, warrant liability and premium debt conversion derivatives measured at fair value on a recurring basis using unobservable
level 3 inputs for the years ended September 30 as follows:
2021
Convertible notes
Balance as of beginning of period – September 30, 2020 $ 1,007,206
Conversion of convertible promissory notes to common stock (1,005,232 )
Change in fair value including accrued interest (1,974 )
Balance as of end of period – September 30, 2021 $ —
2020
Convertible notes
Balance as of beginning of period – September 30, 2019 $ —
Fair value attributed to convertible promissory notes upon issuance 13,974,358
Fair value attributed to note extinguishment 2,017,847
Conversion of convertible promissory notes to common stock (14,180,470 )
Change in fair value including accrued interest (804,529 )
Balance as of end of period – September 30, 2020 $ 1,007,206 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 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. 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. Inventories Inventories
are 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 cEEG
strip/grid and electrode cable assembly finished good product. The Strip/Grid Products are produced by a third-party contract manufacturer
and the Electrode Cable Assembly Products are obtained from outside suppliers. 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 fees relating to corporate matters,
intellectual property costs, professional fees for consultants assisting with regulatory, clinical, product development, financial matters,
and beginning in the first quarter of fiscal year 2021, sales and marketing in connection with the commercial sale of cEEG strip/grid
and electrode cable assembly products. Income
Taxes For the
Company, 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 For the Company, 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 convertible notes, warrants, stock
options and restricted stock units, while outstanding, are considered common stock equivalents for this purpose. Diluted earnings is computed
utilizing the treasury method for the warrants, stock options and restricted stock units. Diluted earnings with respect to the convertible
promissory utilize the if-converted method. 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, 2021 and 2020. 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:
2021 2020
Warrants 7,503,808 3,390,320
Stock options 1,122,560 492,842
Restricted stock units 11,384 26,698
Unissued vested restricted stock units 1,148 2,063
Convertible notes — 277,618 Recent Accounting Pronouncements In June
2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments – Credit Losses” In August
2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements
for Fair Value Measurement .
● Removals: the amount
of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels;
and the valuation processes for Level 3 fair value measurements.
● Modifications: for investments
in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s
assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced
the timing publicly; and the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty
in measurement as of the reporting date.
● Additions: the changes
in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held
at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair
value measurements. This guidance
is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The
amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of measurement uncertainty should all be applied prospectively for only
the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively
to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or
modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company
adopted the new guidance on October 1, 2020 and it did not have a material impact on its financial statements. In December
2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income
taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting
for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending
existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020. The Company does not expect that the adoption
of this new guidance will have a material impact on the Company’s financial statements and plans to adopt this guidance on a prospective
basis for the provisions applicable to the Company. In August
2020, 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
earnings per share 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 is currently evaluating the impact of ASU 2020-06 on its financial statements. |
