You should read the following discussion and analysis of financial condition and
results of operations of NeuroOne together with our financial statements and the
related notes included elsewhere in this Report. References in this discussion
to "series" or "notes" refer to all of our outstanding notes as of the relevant
date of the item being discussed. References in this discussion to "convertible
promissory notes" refer to all of our outstanding convertible promissory notes
as of the relevant date of the item being discussed.



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) recording,
spinal cord stimulation, brain stimulation 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. Additionally, we are investigating the potential applications of our
technology associated with artificial intelligence.



Prior to FDA approval or clearance of certain of our products, our primary
activities were limited to, and our limited resources were dedicated to,
performing business and financial planning, raising capital, recruiting
personnel, negotiating with business partners and the licensors of our
intellectual property and conducting research and development activities. In
November 2019, our Evo cortical technology ("cEEG") received 510(k) clearance
from the FDA for recording, monitoring, and stimulating brain tissue for up to
30 days, and in September 2021, we received FDA clearance for our Evo sEEG
electrode technology for temporary (less than 24 hours) use with recording,
monitoring, and stimulation equipment for the recording, monitoring, and
stimulation of electrical signals at the subsurface level of the brain. Our
submission to the FDA seeking 510(k) for use of our Evo sEEG electrode
technology for up to 30 days is pending.



                                       60





We completed feasibility bench top testing with a new design of our diagnostic
and ablation depth electrode in the first calendar quarter of 2021, and signed a
contract with RBC Medical Innovations to develop hardware for the system in the
third calendar quarter of 2021. We are targeting the third calendar quarter of
2022 for completion of such hardware. We also completed an animal feasibility
study at Emory University in September 2021. Next, we plan to submit a
Pre-Submission(Q-Sub) to the FDA for the RF ablation system and to review the
feasibility of "Breakthrough" designation, complete additional animal studies
through the first half of calendar 2022, and submit an application for FDA
510(k) clearance in the fourth calendar quarter of 2022. Our other products

are
still under development.



We have incurred losses since inception. As of September 30, 2021, we had an
accumulated deficit of $40.8 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 approval of certain of our products, our main source of cash was
proceeds from the issuances of notes, common stock, warrants and unsecured
loans. See "-Liquidity and Capital Resources-Historical Capital Resources"
below. While we have begun to generate revenue from the sale of products based
on our cEEG technology beginning in the first quarter of fiscal 2021 and through
milestone 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-Funding Requirements and Outlook" below.



Recent Developments


October 2021 Underwritten Public Offering





On October 13, 2021, we entered into an Underwriting Agreement (the
"Underwriting Agreement") with Craig-Hallum Capital Group LLC, as underwriter
(the "Underwriter"), relating to the issuance and sale of 3,750,000 shares of
our common stock, par value $0.001 per share, at a price to the public of $3.20
per share. In addition, under the terms of the Underwriting Agreement, we
granted the Underwriter an option, exercisable for 30 days, to purchase up to an
additional 562,500 shares of common stock on the same terms. The base offering
closed on October 15, 2021, and the sale of 422,057 shares of common stock
subject to the Underwriter's overallotment option closed on November 15, 2021.



The gross proceeds from this offering were approximately $13.4 million prior to
deducting underwriting discounts and other offering expenses payable by us. We
intend to use the net proceeds from this offering for working capital and
general corporate purposes.



Change of Independent Registered Public Accounting Firm for Fiscal 2021


On June 18, 2021, the Audit Committee of the Board (i) engaged Baker Tilly US,
LLP ("Baker Tilly") to serve as the Company's independent registered public
accounting firm for the Company's fiscal year ending September 30, 2021, and
(ii) determined to dismiss BDO USA, LLP ("BDO"), the Company's independent
registered public accounting firm for the year ending September 30, 2020.



2021 Shelf Registration



On June 4, 2021, NeuroOne filed a Form S-3 shelf registration statement under
the Securities Act, which was declared effective by the SEC on June 14, 2021
(the "2021 Shelf"). Under the 2021 Shelf, the Company may offer and sell, from
time to time in its sole discretion, securities having an aggregate offering
price of up to $150 million, subject to the limitations of Form S-3.



Nasdaq Capital Market



The Company's common stock commenced trading on The Nasdaq Capital Market on May
26, 2021 under the ticker symbol "NMTC." Previously, the Company's common stock
was traded on the OTC Markets quotation system on the OTCQB.



Reverse Stock Split



Effective after the close of business on March 31, 2021, the Company completed a
1-for-3 reverse stock split of its common stock. All share and per share amounts
in this Report have been reflected on a post-split basis.



                                       61





COVID-19



On March 11, 2020, the World Health Organization declared the outbreak of
COVID-19 as a global pandemic. As a result of the COVID-19 pandemic, the Company
has experienced, and will likely continue to experience, delays and disruptions
in our pre-clinical and clinical trials, as well as interruptions in our
manufacturing, supply chain, shipping and research and development operations.
For example:


? development of our technology was delayed in fiscal year 2021 due to

interruptions in global manufacturing and shipping as a result of the COVID-19

pandemic, including as one of our key manufacturing partners and one of the

Company's suppliers had staffing issues leading to delays in the Company's

development builds and delays in shipping product;

? the Company's own staff has been impacted by infections and mandatory


   quarantines;



? the Company is currently experiencing product shortages of its primary

component, polyimide film, due to supply chain shortages attributed to COVID


   related issues;




? the Company is experiencing delays in timelines for product availability and

delivery from vendors, including related to staffing shortages, both generally

and due to employee illness, and due to increases in demand from other larger

or more longstanding customers of our suppliers placing large orders due to


   concerns with supply chain disruption and the impact of COVID-19.




The Company's plans for further testing or clinical trials may be further
impacted by the continuing effects of COVID-19. The global outbreak of COVID-19
continues to rapidly evolve. In April 2020, given the impact of COVID-19 on the
Company, the Company applied for and received loan funding of $83,333 under the
Paycheck Protection Program, which was forgiven by the U.S. Small Business
Administration on June 9, 2021.



The extent to which the COVID-19 pandemic may further impact our business and
pre-clinical and clinical trials will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as the effect of
the pandemic on our suppliers and distributors and the global supply chain, the
ultimate geographic spread of the disease, the duration of the outbreak, travel
restrictions and social distancing in the U.S. and other countries, business
closures or business disruptions and the effectiveness of actions taken in the
U.S. and other countries to contain and treat the disease. The COVID-19 pandemic
may also continue to impact our business as a result of employee illness, school
closures, and other community response measures.



The COVID-19 pandemic may also impact our ability to secure additional
financing. Although the Company cannot estimate the length or gravity of the
impact of the COVID-19 outbreak at this time, if the pandemic continues, it may
have a material adverse effect on the Company's results of future operations,
financial position, and liquidity in for fiscal year 2022 and beyond.



See "Risk Factors-Risks Related to Our Business-The COVID-19 pandemic has adversely impacted, and may continue to impact, our business."





Financial Overview



Product Revenue



Our product revenue was derived from the sale of our strip and grid cortical
electrodes ("Strip/Grid Products") and electrode cable assembly products
("Electrode Cable Assembly Products") based on Evo cortical technology. We
anticipate that we will generate additional revenue from the sale of products
based on Evo cortical technology.



We have received FDA 510(k) clearance for our cortical strip electrode for
temporary (less than 30 days) recording, monitoring, and stimulation on the
surface of the brain and our Evo sEEG electrode technology for temporary (less
than 24 hours) use with recording, monitoring, and stimulation equipment for the
recording, monitoring, and stimulation of electrical signals at the subsurface
level of the brain, but we do not expect to generate any revenue from the sale
of our other products until we develop and obtain all required regulatory
approvals or clearances for and commercialize depth electrode technology. If we
fail to complete the development of the depth electrode technology, or any other
product candidate we may pursue in the future, in a timely manner, or fail to
obtain regulatory approvals or clearances, we may never be able to generate
revenue from product sales sufficient to sustain operations.



                                       62





Product Gross Loss



Product gross loss 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 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, the Company entered into the Development Agreement with
Zimmer, pursuant to which the Company granted Zimmer exclusive global rights to
distribute the Strip/Grid Products and electrode cable assembly products (the
"Electrode Cable Assembly Products"). Additionally, the Company granted Zimmer
the exclusive right and license to distribute certain depth electrodes developed
by the Company ("SEEG Products", and together with the Strip/Grid Products and
Electrode Cable Assembly Products, the "Products"). The parties have agreed to
collaborate with respect to development activities under the Development
Agreement through a joint development committee composed of an equal number of
representatives of Zimmer and the Company.



Under the terms of the Development Agreement, the Company is 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 Development Agreement, Zimmer and the Company have entered into
a Manufacturing and Supply Agreement (the "MS Agreement") and a supplier quality
agreement (the "Quality Agreement") with respect to the manufacturing and supply
of the Products.



Except as otherwise provided in the Development Agreement, the Company is
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
Development Agreement) for such Product.



Pursuant to the Development Agreement, Zimmer made an upfront initial exclusivity fee payment of $2.0 million (the "Initial Exclusivity Fee") to the Company.


Except where Zimmer timely delivers a Design Modification Notice under the
Development Agreement, if one or more of the events set forth below occurs on or
before the deadline indicated for such event and the Product Availability Date
(as defined in the Development Agreement) for the SEEG Products occurs on or
before June 30, 2021, then the Company shall receive the additional amount
indicated for such event as part of the SEEG Exclusivity Maintenance Fee:



? Design freeze for the SEEG Products by December 15, 2020 - $500,000

? Acceptance of all Deliverables for SEEG Products under the Development Plan (as


   defined in the Development Agreement) by April 30, 2021 - $500,000
If Zimmer timely delivers a Design Modification Notice to the Company under the
Development Agreement, and one or more of the events set forth below occurs on
or before the deadline indicated for such event and the Product Availability
Date for the SEEG Products occurs on or before June 30, 2021, then the Company
shall receive the additional amount indicated for such event as part of the

SEEG
Exclusivity Maintenance Fee:


? Acceptance of all Deliverables for SEEG Products under the Development Plan

other than the Modified Connector by April 30, 2021 - $500,000

? Acceptance of all Deliverables for SEEG Products under the Development Plan,


   including the Modified Connector by September 30, 2021 - $500,000




For purposes of the Development Agreement, each of the foregoing events shall
have occurred only if the Company has demonstrated the achievement of the event
to Zimmer's reasonable satisfaction. Notwithstanding the foregoing, the events
in Sections 6.1(c)(ii), (iii) and (iv) of the Development Agreement shall not be
deemed to be met if FDA Approval for the SEEG Products is not received prior to
the applicable deadline.



                                       63





Zimmer has delivered a Design Modification Notice. The design freeze for the
SEEG Products occurred by December 15, 2020. In September 2021, the Company
received 510(k) clearance from the FDA to market its Evo sEEG Electrode
technology for temporary (less than 24 hours) use with recording, monitoring,
and stimulation equipment for the recording, monitoring, and stimulation of
electrical signals at the subsurface level of the brain. FDA clearance is one
condition of the Product Availability Date under the Development Agreement.
However, the Company does not intend to deliver saleable product to Zimmer
unless and until it receives regulatory clearance to expand the use of its Evo
sEEG Electrode technology for up to 30 days, at which point the Company and
Zimmer intend to commence negotiations regarding payments of applicable amounts
above, notwithstanding the deadlines for the Product Availability Date and the
Acceptance of all Deliverables for SEEG Products.



In addition to the Initial Exclusivity Fee and Interim Fee Bonus, in order to
maintain the exclusivity of the SEEG Distribution License, Zimmer must pay the
SEEG Exclusivity Maintenance Fee to the Company, on or prior to the SEEG
Exclusivity Confirmation Date, in immediately available funds as follows:



? if the Product Availability Date for the SEEG Products occurs on or before June

30, 2021, then $3,000,000, plus the amount of any Interim Fee Bonuses earned

pursuant to Section 6.1(c), including any such Interim Fee Bonus earned after

June 30, 2021 pursuant to Section 6.1(c)(iv) following the delivery of a Design


   Modification Notice;




? if the Product Availability Date for the SEEG Products occurs after June 30,

2021, but on or before September 30, 2021, then $3,000,000, plus if Zimmer

timely issues a Design A-9 Modification Notice, any Interim Fee Bonus earned

pursuant to Section 6.1(c)(iv);

? if the Product Availability Date for the SEEG Products occurs after September

30, 2021, but on or before December 31, 2021, then $2,500,000; and

? if the Product Availability Date for the SEEG Products occurs after December


   31, 2021, then $1,500,000.




As noted above, upon receipt (if any) of regulatory clearance to expand the use
of its Evo sEEG Electrode technology for up to 30 days, the Company and Zimmer
intend to commence negotiations regarding the applicable SEEG Exclusivity
Maintenance Fee amount, notwithstanding the above deadlines for the Product
Availability Date. Notwithstanding any other provision of the Development
Agreement, if the Product Availability Date for the SEEG Products has not
occurred on or before June 30, 2022, Zimmer shall have the right to terminate
the SEEG Distribution License by delivering written notice to the Company to
that effect and, upon delivery of such notice, Zimmer shall be relieved of all
of its obligations hereunder with respect to SEEG Products, including any
obligation to pay the SEEG Exclusivity Maintenance Fee or to purchase, market,
distribute or sell any SEEG Products. The Initial Exclusivity Fee and the SEEG
Exclusivity Maintenance Fee (including any Interim Fee Bonus(es)), once paid,
are non-refundable.



The Development Agreement will expire on the tenth anniversary of the date of
the first commercial sale of the last of the Products to achieve a first
commercial sale, unless terminated earlier pursuant to its terms. Either party
may terminate the 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 Development Agreement for any reason with 90 days' written notice,
and the Company may terminate the Development Agreement if Zimmer acquires or
directly or indirectly owns a controlling interest in certain competitors of the
Company.



At inception of the Zimmer Development Agreement through September 30, 2021, the
Company has identified the following three performance obligations under the
Zimmer Development Agreement: (1) the Company obligation to grant Zimmer access
to its intellectual property; (2) complete SEEG Product development; and (3)
complete Strip/Grid Product development. Accordingly, the Company recognized
revenue in the amount of $64,812 and $1,926,566 during the years ended September
30, 2021 and 2020, respectively, related to the development of the Products
completed during the periods in connection with the Initial Exclusivity Fee

payment.



                                       64




In August 2021, we received initial stocking orders from Zimmer for SEEG electrodes.

The achievement of future milestones or level of sales required to earn royalty payments from Zimmer is uncertain.

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 our Strip/Grid Products and Electrode Cable Assembly
Products. We anticipate that our general and administrative expenses will
significantly increase in the future to support our continued research and
development activities, further commercialization of our cortical strip
technology, commercial sales of our sEEG electrode technology, and the increased
costs of operating as a public company. These expense 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 developing our
cortical strip, grid electrode and depth electrode technology, 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 significantly increase over
the next several years as we continue to develop our cortical strip, grid
electrode and depth electrode technology and conduct preclinical testing and
clinical trials and will depend on the duration, costs and timing to complete
our preclinical programs and clinical trials.



Interest Expense


Interest expense primarily consists of interest costs related to our 2019 Paulson Notes and 2020 Paulson Notes, as defined below.

Net valuation change of instruments measured at fair value

The net valuation change of instruments measured at fair value includes the change in fair value of the 2019 Paulson Notes and 2020 Paulson Notes.





Loss on notes extinguishment


Loss on note extinguishment includes the loss associated with debt instrument modifications and conversions accounted for as debt extinguishments.





Other Income


Other income consists of proceeds derived from activity outside of normal operating activity, including legal settlements, the forgiveness of the paycheck protection program loan and interest income.





                                       65





Results of Operations


Comparison of the Fiscal Years Ended September 30, 2021 and 2020

The following table sets forth our results of operations for the fiscal years ended September 30, 2021 and 2020.





                                                                            For the year ended
                                                                              September 30,
                                                                                                  Period to
                                                                                                    Period
                                                                 2021              2020             Change
Product revenue                                              $     178,146     $           -     $    178,146
Cost of product revenue                                            275,895                 -          275,895
Product gross loss                                                 (97,749 )               -          (97,749 )

Collaborations revenue                                              64,812  

1,926,566 (1,861,754 )



Operating expenses:
Selling, general and administrative                              6,260,266         4,753,036        1,507,230
Research and development                                         3,925,008         2,075,791        1,849,217
Total operating expenses                                        10,185,274 

       6,828,827        3,356,447
Loss from operations                                           (10,218,211 )      (4,902,261 )     (5,315,950 )
Interest expense                                                    (3,053 )      (7,524,581 )      7,521,528

Net valuation change of instruments measured at fair value           1,974           804,529         (802,555 )
Loss on note extinguishment                                              - 

      (2,017,847 )      2,017,847
Other income                                                       271,122                 -          271,122
Net loss                                                     $  (9,948,168 )   $ (13,640,160 )   $  3,691,992

Product Revenue and Product Gross Loss





Product revenue and product gross loss were $0.2 million and $(0.1) million,
respectively, during the year ended September 30, 2021. The product revenue
consisted of the sale of Strip/Grid 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 Products and outside supplier materials costs in connection with the
Electrode Cable Assembly Products. In addition, cost of product revenue included
royalty fees incurred, including the royalty fees to WARF and Mayo of $0.1
million in connection with our license agreements. There was no product revenue
or product gross loss recognized during the comparable prior year period.



Collaborations Revenue


Collaborations revenue was $65,000 and $1.9 million for the years ended September 30, 2021 and 2020, respectively. Revenue during the period was derived from the Development Agreement and represented the portion of the upfront initial development fee payment eligible for revenue recognition during the respective periods ended September 30, 2021 and 2020.

Selling, general and administrative expenses


Selling, general and administrative expenses were $6.3 million for the year
ended September 30, 2021, compared to $4.8 million for the year ended September
30, 2020. The increase of $1.5 million was primarily due to an increase in sales
and marketing costs of $0.8 million, payroll related costs of $0.3 million,
board and public company costs of $0.3 million, insurance costs of $0.2 million
and outside professional support and other costs of $0.2 million, offset
partially by a reduction in litigation support costs of $0.2 million and
stock-based compensation of $0.1 million.



                                       66




Research and development expenses





Research and development expenses were $3.9 million for the year ended September
30, 2021, compared to $2.1 million for the year ended September 30, 2020. The
increase during fiscal 2021 over the comparable prior year period was due to an
increase in supporting development activities largely attributed to our Evo sEEG
electrode technology, which primarily included salary-related expenses and other
costs of consulting services, materials and supplies.



Interest expense



Interest expense for the year ended September 30, 2021 and 2020 was $3,000 and
$7.5 million, respectively. The decrease year over year is attributed to the
full conversion of the 2019 Paulson Notes and 2020 Paulson Notes by early fiscal
year 2021. Interest expense during the year ended September 30, 2021 was $3,000
and consisted of issuance costs in connection with our 2019 Paulson Notes
described further below. Interest expense in fiscal year 2020 related to the
2019 Paulson Notes and 2020 Paulson Notes and was comprised of issuance costs of
$1.9 million and day-one interest at issuance of $5.6 million representing the
amount by which fair value exceeded note proceeds. Interest on principal in
connection with the 2019 Paulson Notes and 2020 Paulson Notes is included in the
net valuation change of instruments measured at fair value line item.



Net valuation change of instruments measured at fair value





The net valuation change of instruments measured at fair value for the years
ended September 30, 2021 and 2020 was a benefit of $(2,000) and $(0.8) million,
respectively. The change was due to accrued interest on the 2019 Paulson Notes
and 2020 Paulson Notes, while outstanding, and due to fluctuations in our common
stock fair value, the number of potential shares of common stock issuable upon
conversion of the 2019 Paulson Notes and 2020 Paulson Notes during the
respective periods.



Loss on note extinguishment



Non-cash loss on note extinguishment for the year ended September 30, 2020 was
$2.0 million. The 2019 Paulson notes as described further below were amended on
April 24, 2020 to principally add a 40% discount to the optional conversion
feature and to extend the maturity date by six months. The April 2020 amendment
was accounted for as a note extinguishment given the significant modification
made to the optional conversion feature. There were no note extinguishments
during the year ended September 30, 2021.



Other Income



Other income during the year ended September 30, 2021 consisted principally of
proceeds received in connection with the PMT Corporation litigation in the
amount of $0.2 million and from the forgiveness of the paycheck protection
program loan in the amount of $0.1 million. We did not have other income during
the comparable prior year period.



Liquidity and Capital Resources

Historical Capital Resources





As of September 30, 2021, our principal source of liquidity consisted of cash
deposits of $6.9 million. Subsequent to September 30, 2021, we received gross
proceeds of $13.4 million in the aggregate from the issuance and sale of common
stock in the October 2021 underwritten public offering described below. While we
began to generate revenue from commercial sales during the first quarter of
fiscal year 2021 and through milestone 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
an adequate level of revenue from commercial sales to cover expenses.



We anticipate that our expenses will increase substantially as we develop and
commercialize our cortical strip, grid electrode and depth electrode technology
and pursue pre-clinical and clinical trials, seek regulatory approvals,
manufacture products, establish our own sales, marketing and distribution
infrastructure to commercialize our cortical strip, grid electrode and depth
electrode technology, hire additional staff, add operational, financial and
management systems and continue to operate as a public company.



                                       67





Our source of cash, outside of collaboration and product revenues, to date has
been proceeds from the issuances of notes with warrants, common stock with and
without warrants and unsecured loans, the terms of which are further described
below. See also "-Funding Requirements and Outlook" below.



October 2021 Underwritten Public Offering


On October 13, 2021, we entered into Underwriting Agreement relating to the
issuance and sale of 3,750,000 shares of our common stock at a price to the
public of $3.20 per share. In addition, under the terms of the Underwriting
Agreement, we granted the Underwriter an option, exercisable for 30 days, to
purchase up to an additional 562,500 shares of common stock on the same terms.
The base offering closed on October 15, 2021, and the sale of 422,057 shares of
common stock subject to the Underwriter's overallotment option closed on
November 15, 2021. The gross proceeds from this offering were approximately
$13.4 million prior to deducting underwriting discounts and other offering

expenses payable by us.



2021 Private Placement



On January 12, 2021, we entered into a purchase agreement with certain
accredited investors, pursuant to which the Company, in a private placement (the
"2021 Private Placement"), agreed to issue and sell an aggregate of 4,166,682
shares (the "Shares") of the common stock of the Company, and warrants to
purchase an aggregate of 4,166,682 shares of common stock (the "2021 Warrants")
at an aggregate purchase price of $3.00 per share of common stock and
corresponding warrant, resulting in total gross proceeds of $12.5 million before
deducting placement agent fees and estimated offering expenses. The 2021
Warrants have an initial exercise price of $5.25 per share. The 2021 Warrants
became immediately exercisable beginning on the date of issuance and will expire
on the fifth anniversary of such date. Prior to expiration, subject to the terms
and conditions set forth in the 2021 Warrants, the holders of such 2021 Warrants
may exercise the 2021 Warrants for shares of common stock by providing notice to
the Company and paying the exercise price per share for each share so exercised
or by utilizing the "cashless exercise" feature contained in each 2021 Warrant.
The 2021 Private Placement closed on January 14, 2021.



In connection with the 2021 Private Placement, the Company agreed to file a
registration statement with the SEC covering the resale of the Shares, the 2021
Warrants and the shares of common stock issuable upon exercise of the 2021
Warrants. The Company agreed to file such registration statement within 30 days
of the execution of the 2021 Purchase Agreement on January 12, 2021 and filed
such registration statement on February 10, 2021.



Other Common Stock Offerings





On July 24, 2020, we entered into a Securities Purchase Agreement ("2020
Purchase Agreement") with an accredited investor pursuant to which we, in a
private placement, issued and sold 25,000 shares of the Company's common stock
for gross proceeds in the amount of $135,000. Under the 2020 Purchase Agreement,
we agreed to use the net proceeds from the private placement for funding
operations or working capital and general corporate purposes. We granted the
investor indemnification rights with respect to representations, warranties and
agreements under the 2020 Purchase Agreement.



On October 23, 2019, we entered into securities purchase agreements with certain
accredited investors, pursuant to which the Company, in a private placement,
issued and sold 47,223 shares of the Company's common stock to the accredited
investors at a price of $5.40 per share, for gross proceeds amounting to $0.3
million before deducting offering expenses. We filed a registration statement
with the SEC covering the resale of the shares of common stock sold in the
private placement on August 11, 2020.



2020 Paulson Convertible Notes





On April 30, 2020, the Company entered into a subscription agreement with
certain accredited investors, pursuant to which the Company, in a private
placement (the "2020 Paulson Private Placement"), agreed to issue and sell to
the investors 13% convertible promissory notes (each, a "2020 Paulson Note" and
collectively, the "2020 Paulson Notes") and warrants (each, a "2020 Paulson
Warrant" and collectively, the "2020 Paulson Warrants") to purchase shares

of
the Company's common stock.



                                       68





Between April 30, 2020 and June 30, 2020, the Company issued 2020 Paulson Notes
in an aggregate principal amount of $5.1 million to the accredited investors.
The final closing under the 2020 Paulson Private Placement occurred on June 30,
2020. In July 2020, all remaining 2020 Paulson Notes outstanding were
automatically converted into Common Stock following the announcement of a
Strategic Transaction (as defined in the 2020 Paulson Notes) with Zimmer, Inc.
The terms of the 2020 Paulson Notes are summarized below:



The 2020 Paulson Notes had interest at a fixed rate of 13% per annum and
required the Company to repay the principal and accrued and unpaid interest
thereon on the earlier of (i) December 31, 2020 or (ii) a change of control
transaction. If the Company had raised more than $5,000,000 in an equity
financing before the maturity date (the "2020 Qualified Financing"), without any
action on the part of the subscribers, all of the outstanding principal and
accrued and unpaid interest of the 2020 Paulson Notes (the "Outstanding
Balance") would have been converted into that number of shares of the securities
issued by the Company in the closing on the date a 2020 Qualified Financing
occurred equal to: (i) the Outstanding Balance divided by (ii) the lower of 0.6
multiplied by (A) the actual per share price of the securities issued by the
Company in the closing on the date a 2020 Qualified Financing occurred and (B)
the volume weighted average price ("VWAP") of the common stock for ten (10)
trading days immediately preceding the 2020 Qualified Financing.



In addition, as was the case in July 2020, if the Company announced a
transaction between the Company and any other company (or an affiliate of any
such company) that was included in the S&P 500 Health Care Index as published
from time to time by S&P Dow Jones Indices LLC that included an investment or
upfront payments resulting in gross proceeds to the Company of at least
$2,000,000 upon the execution of such transaction or definitive agreement, and
provided for terms of collaboration, manufacturing, distribution, licensing or
supply of the Company's products (a "Strategic Transaction") before the maturity
date, without any action on the part of the subscribers, the Outstanding Balance
would convert into that number of shares of common stock equal to: (i) the
Outstanding Balance divided by (ii) the lower of 0.6 multiplied by (A) the VWAP
of the common stock for the ten (10) trading days immediately preceding the
first announcement of the Strategic Transaction or (B) closing price of the
common stock on the day preceding the first announcement by the Company of

a
Strategic Transaction.



At any time, at the sole election of the holder of such 2020 Paulson Note prior
to a 2020 Qualified Financing, Strategic Transaction or change of control
transaction, all or a portion of the Outstanding Balance could be converted into
that number of shares of common stock equal to: (i) the Outstanding Balance
elected by the holder to be converted divided by (ii) an amount equal to 0.6
multiplied by the volume weighted average price of the common stock for the ten
(10) trading days immediately preceding the date of conversion.



If a change of control transaction had occurred prior to the conversion of the
2020 Paulson Notes or the maturity date, the 2020 Paulson Notes would have
become payable on demand as of the closing date of such transaction. Change of
control meant a merger or consolidation with another entity in which the
Company's stockholders did not own more than 50% of the outstanding voting power
of the surviving entity or the disposition of all or substantially all of the
Company's assets.



Each 2020 Paulson Warrant grants the holder the option to purchase the number of
shares of common stock equal to (i) 0.5 multiplied by (ii) the principal amount
of such subscriber's 2020 Paulson Notes divided by 5.61, with an exercise price
per share equal to $5.61. As of the final closing on June 30, 2020, the Company
issued 2020 Paulson Warrants exercisable for 456,564 shares of Common Stock in
connection with all closings of the private placement.



The 2020 Paulson Warrants are immediately exercisable and expire on April 30,
2023. The exercise price is subject to adjustment in the event of any stock
dividends or splits, reverse stock split, recapitalization, reorganization,

or
similar transaction.



In connection with the 2020 Paulson Private Placement, Paulson Investment
Company ("Paulson"), received a cash commission equal to 12% of the gross
proceeds from the sale of the 2020 Paulson Notes, and at the final closing of
the 2020 Paulson Private Placement, Paulson received 7-year warrants to purchase
an amount of Common Stock equal to 136,971 ("Broker Warrants"). The Broker
Warrants have an exercise price equal to $5.61.



2020 Paulson Note Conversions



Between May 4, 2020 and July 22, 2020, certain subscribers elected to convert
$3,590,353 of the outstanding principal and interest of such subscribers' 2020
Paulson Notes into 1,337,459 shares of common stock. On July 23, 2020, the
remaining outstanding principal and interest balance of the 2020 Paulson Notes
in the amount of $1,613,961 was converted into 535,178 shares of common stock
upon the announcement of the Zimmer Development Agreement that qualified as a
Strategic Transaction as discussed above.



                                       69




2019 Paulson Convertible Notes


On November 1, 2019, the Company entered into a subscription agreement with
certain accredited investors, pursuant to which the Company, in a private
placement (the "2019 Paulson Private Placement"), agreed to issue and sell to
the investors 13% convertible promissory notes (each, a "2019 Paulson Note" and
collectively, the "2019 Paulson Notes") and warrants (each, a "2019 Paulson
Warrant" and collectively, the "2019 Paulson Warrants") to purchase shares

of
the Company's common stock.



The initial closing of the private placement was consummated on November 1,
2019, and, on that date and through December 3, 2019, the Company issued 2019
Paulson Notes in an aggregate principal amount of $3,234,800 to the Subscribers
for gross proceeds equaling the principal amount. The private placement
terminated on December 3, 2019.



The Paulson Notes had a fixed interest rate of 13% per annum and required the
Company to repay the principal and accrued and unpaid interest thereon on May 1,
2020 (the "Maturity Date"). If the Company had raised more than $3,000,000 in an
equity financing before the Maturity Date (the "Qualified Financing"), each
subscriber would have had the option to convert the outstanding principal and
accrued and unpaid interest of such subscriber's 2019 Paulson Note (the
"Outstanding Balance") into the securities issued by the Company in such
Qualified Financing in an amount equal to (i) the Outstanding Balance divided by
(ii) the lower of 0.6 multiplied by (A) the actual per share price of securities
issued by the Company in the Qualified Financing and (B) the ten day volume
weighted average closing price of the common stock prior to the first closing of
a Qualified Financing. If a change of control transaction had occurred prior to
the earlier of a Qualified Financing or the Maturity Date, the 2019 Paulson
Notes would have become payable on demand as of the closing date of such
transaction. Change of control meant a merger or consolidation with another
entity in which the Company's stockholders did not own more than 50% of the
outstanding voting power of the surviving entity or the disposition of all or
substantially all of the Company's assets.



Each 2019 Paulson Warrant grants the holder the option to purchase the number of
shares of common stock equal to (i) 0.5 multiplied by (ii) the principal amount
of such subscriber's 2019 Paulson Notes divided by 5.61, with an exercise price
per share equal to $5.61. As of the final closing on December 3, 2019, the
Company issued 2019 Paulson Warrants exercisable for 288,305 shares of Common
Stock in connection with all closings of the private placement. The 2019 Paulson
Warrants are immediately exercisable and expire on November 1, 2022. The
exercise price is subject to adjustment in the event of any stock dividends or
splits, reverse stock split, recapitalization, reorganization or similar
transaction, as described therein.



In connection with the private placement, Paulson received a cash commission
equal to 12% of the gross proceeds from the sale of the 2019 Paulson Notes, and
10-year warrants to purchase an amount of Common Stock equal to 86,498 shares of
common stock at an exercise price equal to $5.61 per share.



Second Amendment of 2019 Paulson Notes





On April 24, 2020, the Company and holders of a majority in aggregate principal
amount of the 2019 Paulson Notes entered into an amendment to the 2019 Paulson
Notes (the "Second Paulson Amendment") to, among other things:



i. Extended the Maturity Date - The Second Paulson Amendment extended the

maturity date of the 2019 Paulson Notes from May 1, 2020 to November 1, 2020

(in either case, unless a change of control transaction happens prior to such


    date);




ii. Revised Optional Conversion Terms - The Second Paulson Amendment provided

that the amount of shares to be received upon the a subscriber's optional


     conversion of the 2019 Paulson Notes prior to a Qualified Financing (as
     defined in the 2019 Paulson Notes) would have been equal to: (1) the
     outstanding balance of such subscriber's 2019 Paulson Note elected by the

subscriber to be converted divided by (2) an amount equal to 0.6 multiplied

by the volume weighted average price of the common stock for the ten (10)


     trading days immediately preceding the date of conversion; and




                                       70




iii. Revised the Registration Date - The Second Paulson Amendment provided that


      promptly following the earlier of (1) May 1, 2020, if the applicable
      subscriber had converted all or a majority of the outstanding balance of
      such subscriber's 2019 Paulson Note prior to such date; (2) the final

closing a Qualified Financing; and (3) the maturity date, the Company would

enter into a registration rights agreement with the applicable subscriber

containing customary and usual terms pursuant to which the Company shall

agree to prepare and file with the SEC a registration statement on or prior

to the 90th calendar day following the registration date, covering the

resale of any common stock received on conversion of such 2019 Paulson


      Notes, and shares of common stock underlying the Warrants.



There were no other significant changes to terms under the Second Paulson Amendment.





2019 Paulson Note Conversions



During the years ended September 30, 2021 and 2020, the 2019 Paulson Notes were
converted into 292,754 and 725,394 shares of common stock, respectively. All of
the 2019 Paulson notes were converted shares of common stock by December 31,
2020.


Paycheck Protection Program Loan


In connection with the 2020 Coronavirus Aid, Relief, and Economic Security
("CARES Act"), the Company received loan funding of approximately $83,000 under
the Paycheck Protection Program ("PPP"), which was forgiven by the U.S. Small
Business Administration on June 9, 2021.



Funding Requirements and Outlook


At September 30, 2021, we had approximately $6.9 million in cash deposits.
Subsequent to September 30, 2021, we received gross proceeds of approximately
$13.4 million in the aggregate from the issuance and sale of common stock in the
October 2021 underwritten public offering described below. To date, we have
generated limited revenues from commercialization and through milestone payments
from our current collaboration with Zimmer, and 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.



Management has noted the existence of substantial doubt about our ability to
continue as a going concern. Additionally, our independent registered public
accounting firm and our former independent registered public accounting firm
included explanatory paragraphs in the reports on our financial statements as of
and for the years ended September 30, 2021 and 2020, respectively, noting the
existence of substantial doubt about our ability to continue as a going concern.
Our existing cash 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.



For a discussion of potential fee payments under the Zimmer Development
Agreement, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations- Financial Overview-Collaborations Revenue," "Note 7 -
Zimmer Development Agreement" included in "Item 8 - Financial Statements and
Supplementary Data" in this Report and "Risk Factors-Risks Related to Our
Business-Zimmer has exclusive global rights to distribute our strip and grid
cortical 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. Further, our inability to agree
with Zimmer on dates of completion for product development, regulatory clearance
and commercialization milestones on which various fee payments to the Company
are based under the Zimmer Development Agreement could have a material adverse
impact on our financial and operating results."



                                       71





Our material cash requirements relate to the funding of our ongoing product
development and commercialization operations and our royalty obligations under
our intellectual property licenses with the Wisconsin Alumni Research Foundation
("WARF") and the Mayo Foundation for Medical Education and Research ("Mayo").
 See "Item 1-Business-Clinical Development and Regulatory Pathway-Clinical
Experience, Future Development and Clinical Trial Plans" in this Report 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. In
addition, we have agreements with the WARF Mayo that require us to make certain
milestone and royalty payments.



On January 22, 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 (the "Original WARF
License"). 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. The minimum annual royalty payment for calendar year 2020 in the amount
of $50,000 was paid in January 2021. 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. Nothing further was due until we started selling our products. As of
September 30, 2021, $4,000 in royalty payments were earned by Mayo based on the
commencement of commercial sales in fiscal year 2021.



Refer to "Item 1-Business-WARF License", "Item 1-Business-Mayo Foundation for
Medical Education and Research License and Development Agreement", "Item 1A-Risk
Factors-Risks Related to Our Business-We depend on intellectual property
licensed from WARF for our technology under development, and the termination of
this license would harm our business" and "Item 1A-Risk Factors-Risks Related to
Our Business-We depend on our partnership with Mayo to license certain know how
for the development and commercialization of our technology" of this Report.



The development and commercialization of our cortical strip, grid electrode and
depth electrode technology is subject to numerous uncertainties, and we could
use our cash 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 Year Ended
                                                    September 30,
                                                2021             2020

Net cash used in operating activities $ (8,602,826 ) $ (3,425,302 ) Net cash used in investing activities

            (67,079 )       (122,427 )
Net cash provided by financing activities     11,534,854        7,323,377
Net increase in cash                        $  2,864,949     $  3,775,648




                                       72




Net cash used in operating activities





Net cash used in operating activities was $8.6 million for the year ended
September 30, 2021, which consisted of a net loss of $9.9 million partially
offset primarily by stock-based compensation, depreciation, amortization related
to intangible assets, revaluation of convertible notes, non-cash lease expense
and Paycheck Protection Program loan forgiveness, totaling approximately $1.9
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 $0.5 million. The year on year change in operating
assets and liabilities was primarily attributable to a net decrease in accounts
payable and accrued expenses, and by an increase in our prepaid expenses.



Net cash used in operating activities was $3.4 million for the year ended
September 30, 2020, which consisted of a net loss of $13.6 million partially
offset primarily by non-cash interest, stock-based compensation, depreciation,
amortization related to intangible assets, revaluation of convertible notes and
loss on notes extinguishment, totaling approximately $10.6 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 $0.4 million. The year on year change in operating assets and
liabilities was primarily attributable to a decrease in accounts payable and
accrued expenses, largely in connection with the payment of legal expenses, and
by an increase in our prepaid expenses.



Net cash used in investing activities

Net cash used by investing activities for the year ended September 30, 2021 was $0.1 million and consisted of outlays for research and development equipment.

Net cash used by investing activities for the year ended September 30, 2020 was $0.1 million and consisted of outlays for furniture and equipment.

Net cash provided by financing activities





Net cash provided by financing activities was $11.5 million for the year ended
September 30, 2021, which consisted primarily of net proceeds received upon the
issuance of the 2021 Private Placement in the amount of $11.3 million in the
aggregate. There were also exercises of stock options and warrants during the
year ended September 30, 2021 resulting in additional cash proceeds of $0.3
million, offset in part by deferred offering costs of $49,000.



Net cash provided by financing activities was $7.3 million for the year ended
September 30, 2020, which consisted primarily of net proceeds received upon the
issuance of the 2020 and 2019 Paulson Notes and the common stock offerings
totaling $7.2 million in the aggregate, and $0.1 million in proceeds received
from the Paycheck Protection Program.



Critical Accounting Policies and Significant Judgments and Estimates





Critical Accounting Policies



Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or GAAP. The preparation of these financial statements requires us to
make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities as of
the dates of the balance sheets and the reported amounts of revenue and expenses
during the reporting periods. In accordance with GAAP, we base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances at the time such estimates are made. Actual
results may differ materially from our estimates and judgments under different
assumptions or conditions. We periodically review our estimates in light of
changes in circumstances, facts and experience. The effects of material
revisions in estimates are reflected in our financial statements prospectively
from the date of the change in estimate.



While our significant accounting policies are more fully described in the notes
to our financial statements appearing elsewhere in this Report, we believe the
following are the critical accounting policies used in the preparation of our
financial statements that require significant estimates and judgments.



                                       73





Product Revenue


Revenues from product sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. At the inception of each contract, performance obligations are identified and the total transaction price is allocated to the performance obligations.





Cost of Product Revenue



Cost of product revenue consists of the manufacturing and materials costs
incurred by our third-party contract manufacturer in connection with our strip
and grid cortical electrodes (the "Strip/Grid Products") and outside supplier
materials costs in connection with the Electrode Cable Assembly Products. In
addition, cost of product revenue includes royalty fees incurred in connection
with our license agreements.



Collaborations Revenue



In determining the appropriate amount of revenue to be recognized as we fulfill
our obligations under our agreements, we perform 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) we satisfy 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 we
expect to complete our performance obligations under the arrangement. If we
cannot reasonably estimate when our performance obligations are either completed
or become inconsequential, then revenue recognition is deferred until we 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, we must develop assumptions
that require judgment to determine the stand-alone selling price of each
performance obligation identified in the contract. We use 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. We allocate 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: If the license to our intellectual property
is determined to be distinct from the other performance obligations identified
in the arrangement, we recognize revenues from non-refundable, up-front fees
allocated to the license when the license is transferred to the customer, and
the customer can use and benefit from the license. For licenses that are bundled
with other promises, we utilize judgment to assess the nature of the combined
performance obligation to determine whether the combined performance obligation
is satisfied over time or at a point in time and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue from
non-refundable, up-front fees. We evaluate the measure of progress each
reporting period and, if necessary, adjust the measure of performance and
related revenue recognition.



Milestone payments: At the inception of each arrangement that includes milestone
payments, we evaluate whether the milestones are considered probable of being
achieved and estimate the amount to be included in the transaction price using
the most likely amount method. If it is probable that a significant revenue
reversal would not occur, the value of the associated milestone (such as a
regulatory submission) is included in the transaction price. Milestone payments
that are not within our control, such as approvals from regulators, are not
considered probable of being achieved until those approvals are received. When
our assessment of probability of achievement changes and variable consideration
becomes probable, any additional estimated consideration is allocated to each
performance obligation based on the estimated relative standalone selling prices
of the promised goods or service underlying each performance obligation and
recorded in license, collaboration, and other revenues based upon when the
customer obtains control of each element.



                                       74





Royalties: For arrangements that include sales-based royalties, including
milestone payments based on the level of sales, and the license is deemed to be
the predominant item to which the royalties relate, we recognize revenue at the
later of (a) when the related sales occur, or (b) when the performance
obligation to which some or all of the royalty has been allocated has been
satisfied (or partially satisfied).



Fair Value of Financial Instruments





We account 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 adhering 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 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. We elected to account for the convertible notes while
they were outstanding on a fair value basis under ASC 825 to comprehensively
value and streamline the accounting for the embedded conversion options. The
fair value of these convertible notes 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.



Recent Accounting Pronouncements


See "Note 3 - Summary of Significant Accounting Policies" included in "Item 8 -
Financial Statements and Supplementary Data" in this Report regarding the impact
of certain recent accounting pronouncements on our financial statements.

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