See accompanying notes to
unaudited condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
1.
|
Organization, Nature of Operations and Going Concern Uncertainty
|
MYnd
Analytics, Inc. (“MYnd,” “CNS,” “we,” “us,” “our,” or the “Company”),
formerly known as CNS Response Inc., is a predictive analytics company that has developed a decision support tool to help physicians
reduce trial and error treatment in mental health and provide more personalized care to patients. The Company employs a clinically
validated scalable technology platform to support personalized care for mental health patients. The Company utilizes its patented
machine learning, artificial intelligence, data analytics platform for the delivery of telebehavioral health services and its PEER
predictive analytics product offering. On November 13, 2017, the Company acquired Arcadian Telepsychiatry Services LLC (“Arcadian”),
which manages the delivery of telepsychiatry and telebehavioral health services through a nationwide network of licensed and credentialed
psychiatrists, psychologists and master’s-level therapists. The Company is commercializing its PEER predictive analytics tool to
help physicians reduce trial and error treatment in mental health. MYnd’s patented, clinically validated technology platform (“PEER
Online”) utilizes complex algorithms to analyze electroencephalograms (“EEGs”) to generate Psychiatric EEG Evaluation
Registry (“PEER”) Reports to predict individual responses to a range of medications prescribed for the treatment of
behavioral disorders including depression, anxiety, bipolar disorder, PTSD and other non-psychotic disorders.
Going Concern Uncertainty
The accompanying
unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting
principles (“GAAP”), which contemplate continuation of the Company as a going concern. The Company’s operations are
subject to certain problems, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the
operation of a business. These risks include the ability to obtain adequate financing on a timely basis, if at all, the failure
to develop or supply technology or services to meet the demands of the marketplace, the failure to attract and retain qualified
personnel, competition within the industry, government regulation and the general strength of regional and national economies.
The
Company’s recurring net losses and negative cash flows from operations raise substantial doubt about its ability to continue
as a going concern. During the six months ended March 31, 2019, the Company incurred a net loss of $5.4 million and used $3.8 million
of net cash in operating activities. As of March 31, 2019, the Company’s accumulated deficit was $89.9 million. In connection
with these unaudited condensed consolidated financial statements, management evaluated whether there were conditions and events,
considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they become
due for the next twelve months from the date of issuance of these financial statements. Management assessed that there were such
conditions and events, including a history of recurring operating losses, and negative cash flows from operating activities.
To date,
the Company has financed its cash requirements primarily from equity financings. As of March 31, 2019, the Company’s principal sources
of liquidity were its cash balance of $1.2 million and the remaining amount available under the Aspire Equity Line of Credit of
$6.3 million. The Company will need to raise funds immediately to continue its operations and increase demand for its services.
Until it can generate sufficient revenues to meet its cash requirements, which it may never do, the Company must continue to finance
future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. The Company’s
liquidity and capital requirements depend on several factors, including the rate of market acceptance of its services, the future
profitability of the Company, the rate of growth of the Company’s business and other factors described elsewhere in this
Quarterly Report on Form 10-Q. The Company continues to explore additional sources of capital, but there is substantial doubt as
to whether any financing arrangement will be available in amounts and on terms acceptable to the Company to permit it to continue
operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with GAAP
and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim
financial reporting. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present
fairly the financial position, changes in stockholders’ equity, results of operations and cash flows of the Company at the
dates and for the periods indicated. The interim results for the quarter ended March 31, 2019 are not necessarily indicative
of results for the full 2019 fiscal year or any other future interim periods. As such, the information included in this
quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes
included in the Company’s Form 10- K for the year ended September 30, 2018.
Basis of Consolidation
The
unaudited condensed consolidated financial statements include the results of the Company, its wholly owned subsidiary,
Arcadian, two professional associations, Arcadian Telepsychiatry PA (“Texas PA”) incorporated in Texas, Arcadian
Telepsychiatry Florida P.A. (“Florida PA”) incorporated in Florida, and two professional corporations, Arcadian
Telepsychiatry P.C. (” Pennsylvania PC”) incorporated in Pennsylvania and Arcadian Telepsychiatry of California,
P.C. incorporated in California (“California PC” and together with the Pennsylvania PC, Florida PA and Texas PA,
the “Arcadian Entities.”)
Arcadian
is party to Management Services Agreements by and among it and the Arcadian Entities, pursuant to which Arcadian provides management
and administrative services to each of the Arcadian Entities. Each entity is established pursuant to the requirements of its respective
domestic jurisdiction governing the corporate practice of medicine. All intercompany balances and transactions have been eliminated
upon consolidation.
Segments
We view our operations and manage our
business as one operating segment.
Variable Interest Entities (VIE)
On November 13, 2017, Arcadian entered into a management and
administrative services agreement with Texas PA and with Pennsylvania PC, for an initial fixed term of 20 years. In accordance
with relevant accounting guidance, Texas PA and Pennsylvania PC are each determined to be a Variable Interest Entity (“VIE”)
as MYnd is the primary beneficiary with the ability to direct the activities (excluding clinical decisions) that most significantly
affect Texas PA’s and Pennsylvania PC’s economic performance through its majority representation of the Texas PA and
Pennsylvania PC; therefore, Texas PA and Pennsylvania PC are consolidated by MYnd. On January 19, 2018, Arcadian entered into a
management and administrative services agreement with California PC, for an initial fixed term of 20 years. In accordance with
relevant accounting guidance, California PC is determined to be a VIE and MYnd is the primary beneficiary with the ability to direct
the activities (excluding clinical decisions) that most significantly affect California PC’s economic performance through
its majority representation of California PC; therefore, California PC is consolidated by MYnd. On March 27, 2018, Arcadian entered
into a management and administrative services agreement with Florida PA, for an initial fixed term of 20 years. In accordance with
relevant accounting guidance, Florida PA is determined to be a VIE and MYnd is the primary beneficiary with the ability to direct
the activities (excluding clinical decisions) that most significantly affect Florida PA’s economic performance through its
majority representation of Florida PA; therefore, Florida PA is consolidated by MYnd.
The Company holds a variable interest in
the entities which contract with physicians and other health professionals in order to provide telepsychiatry services to Arcadian.
The entities are considered variable interest entities since they do not have sufficient equity to finance their activities without
additional financial support. An enterprise having a controlling financial interest in a VIE must consolidate the VIE if it has
both power and benefits-that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s
economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE
or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the
power and rights to control all activities of the entities and funds and absorbs all losses of the VIE.
In accordance with
management service agreements entered into between the Company and medical professional corporations and associations in compliance
with regulatory requirements within certain states, the Company has the power to direct activities of the VIE’s and may transfer
the assets from the individual VIEs. Therefore, the Company considers that there are no assets in any of the consolidated VIEs
that may be relied upon to settle obligations of these entities. Furthermore, creditors of the VIEs do not have recourse to the
general credit of the Company for any of the liabilities of the VIEs. Finally, none of the professional corporations or associations
have purchased equipment nor are they responsible for handling cash or accounts receivable.
There is no
either explicit or implicit arrangement that requires the Company to provide financial support to the VIE, including events
or circumstances that could expose the Company to a loss. For the six months ended March 31, 2019 and 2018, the Company did
not provide, nor does it intend to provide in the future, any financial or other support either explicitly or implicitly
during the periods presented to its variable interest entities. In addition, there are no restrictions on the net income
earned by the VIEs. The Company allocates all of the net income earned to the primary owner of the VIE. As part of the
operating agreement with the VIE, the Company will be reimbursed for all cost incurred related to operating the VIE in
addition to a management fee charged for oversight. For the six months ended March 31, 2019 and 2018, no net income was
allocated to the VIEs nor have any dividends been paid from the Company to the VIEs from inception to date,
respectively.
In addition,
to the extent that the VIE is not a shareholder of the Company, the Company has not paid any dividends to the VIEs from inception
to date and there are no dividend obligations within the management services agreement entered into with the medical professional
corporations and associations.
Use of Estimates
The preparation
of the unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expense, and related disclosure of assets and liabilities. On an ongoing basis,
the Company evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, useful lives
of furniture and equipment, intangible assets, valuation allowance on deferred taxes, valuation of equity instruments, and accrued
liabilities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
Cash and Cash Equivalents
The Company
considers all liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company deposits
its cash with major financial institutions and may at times exceed the federally insured limit of $250,000. At March 31, 2019 cash
exceeds the federally insured limit by $1.1 million. The Company believes that the risk of loss is minimal. To date, the Company
has not experienced any losses related to cash deposits with financial institutions.
Debt Instruments
Debt
instruments are initially recorded at fair value, with coupon interest and amortization of debt issuance discounts recognized in
the statement of operations as interest expense at each period end while such instruments are outstanding.
Fair Value of Financial Instruments
Financial
Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, ASC 825-10 Recognition and Measurement of Financial
Assets and Financial Liabilities defines financial instruments and requires disclosure of the fair value of financial instruments
held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable
and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments
and their expected realization.
The Company
also analyzes all financial instruments with features of both liabilities and equity under ASC 480-10, ASC 815-10 and ASC 815-40.
The FASB
has established a framework for measuring fair value using generally accepted accounting principles. That framework provides a
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 unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
|
●
|
Level I inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets;
|
|
●
|
Level II inputs to the valuation methodology include:
|
|
○
|
Quoted prices for similar assets or liabilities in
active markets;
|
|
○
|
Quoted prices for identical or similar assets or liabilities
in inactive markets; Inputs other than quoted prices that are observable for the asset or liability;
|
|
○
|
Inputs that are derived principally from or corroborated
by observable market data by correlation or other means;
|
If
the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the
full term of the asset or liability.
|
●
|
Level III inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset
or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques used must maximize the use of observable inputs and minimize
the use of unobservable inputs.
Accounts Receivable, net
The Company
estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current
creditworthiness of each customer. Allowances are provided for specific receivables deemed to be at risk for collection which as
of March 31, 2019 and September 30, 2018 were $8,100 and $1,800, respectively.
Property and Equipment
Property
and equipment, which are recorded at cost, consist of office furniture and equipment which are depreciated, over their estimated
useful lives on a straight-line basis. The useful lives of these assets are estimated to be between three and five years. Depreciation
expense on furniture and equipment for the three months ended March 31, 2019 and 2018 was $16,100 and $15,600, respectively. Depreciation
expense on furniture and equipment for the six months ended March 31, 2019 and 2018 was 32,300 and 28,000, respectively. Accumulated
depreciation at March 31, 2019 and September 30, 2018 was $181,500 and 149,200, respectively.
Intangible Assets
Costs
for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with
developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in
the unaudited condensed consolidated balance sheets. Capitalized software development costs are amortized over three years. Costs
incurred during the preliminary project along with post-implementation stages of internal use computer software development and
costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability
of development costs require considerable judgment by management with respect to certain external factors, including, but not limited
to, technological and economic feasibility and estimated economic life.
On November
13, 2017, the Company acquired customer relationship and tradename intangibles in connection with the Arcadian acquisition which
were recorded at fair value and are being amortized over an estimated useful life of four years on a straight-line basis.
Amortization
for the three months ended March 31, 2019 and 2018 was $14,000 and $13,800, respectively. Amortization for the six months ended
March 31, 2019 and 2018 was 28,000 and 24,700, respectively. Accumulated amortization was $122,300 and $94,200 at March 31, 2019
and September 30, 2018 respectively.
The expected amortization of the intangible assets,
as of March 31, 2019, is as follows:
For the year ended September 30,
|
|
|
Intangible assets
|
|
|
2019 (for the remaining six months)
|
|
|
$
|
26,100
|
|
|
2020
|
|
|
|
29,400
|
|
|
2021
|
|
|
|
29,400
|
|
|
2022
|
|
|
|
3,500
|
|
|
Total
|
|
|
$
|
88,400
|
|
Goodwill
Goodwill represents the
excess of the aggregate purchase price paid over the fair value of the net assets acquired in our business combinations.
Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Events or changes in circumstances that could trigger an impairment
review include a significant adverse change in business climate, an adverse action or assessment by a regulator,
unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or
the strategy for our overall business, significant negative industry or economic trends, or significant under performance
relative to expected historical or projected future results of operations. The Company has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If, after
assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount, additional impairment testing is not required. The Company tests
for goodwill impairment annually on September 30.
The Company performed a qualitative
goodwill assessment at September 30, 2018 and concluded there was no impairment based on consideration of a number of factors,
including the improvement in the Company’s key operating metrics over the prior year, improvement in the strength of the
general economy and the Company’s continued execution against its overall strategic objectives.
Based
on the foregoing, the Company determined that it was not more likely than not that the fair value of its reporting unit is less
than its carrying amount and therefore that no further impairment testing was required.
During the six months ended March 31, 2019, the Company
did not record any Goodwill impairment.
Accrued Compensation
Accrued
compensation consists of accrued vacation pay, accrued compensation granted by the Board but not paid, and accrued pay due to staff
members.
Accrued
compensation – related parties consists of accrued vacation pay, accrued bonuses granted by the Board but not paid for officers
and directors.
Deferred Revenue
Deferred
revenue represents cash collected in advance of services being rendered but not earned as of March 31, 2019 and September 30, 2018.
This represents a philanthropic grant for the payment of PEER Reports ordered in a clinical trial for a member of the U.S. Military,
a veteran or their family members, the cost of which is not covered by other sources. On August 1, 2017, the Company entered into
a Research Study Funding Agreement with Horizon Healthcare Services, Inc. dba Horizon Blue Cross Blue Shield of New Jersey and
its subsidiaries (collectively “Horizon”) and Cota, Inc. (“Cota”). On February 6, 2018, Horizon prepaid for
part of the study in the amount of $125,000 and the Company paid Cota $15,000 out of this payment for its services under the Study.
These
deferred revenue grant funds total $152,100 and $159,700 as of March 31, 2019 and September 30, 2018, respectively.
Revenue Recognition
Neurometric
services - gross service revenue is recorded in the accounting records at the time the services are provided on an accrual basis
at the provider’s established rates, regardless of whether the provider expects to collect that amount. The Company reserves
a provision for contractual adjustment and discounts that are deducted from gross service revenue. The Company reports revenues
net of any sales, use and value added taxes.
Telepsychiatry services -
The Company satisfies its performance obligation to stand ready to provide telepsychiatry services which occurs when the Company’s
clients have access to the telepsychiatry service. The Company generally bills for the telepsychiatry services on a monthly basis
with payment terms generally being 30 days. There are not significant differences between the timing of revenue recognition and
billing. Consequently, the Company has determined that client contracts do not include a financing component. Revenue is recognized
in an amount that reflects the consideration that is expected in exchange for the service and this may include a variable transaction
price as the number of members may vary from the initial billing. Based on historical experience, the Company estimates this amount
which is recorded as a component of revenue.
Accounting
Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
(“Topic 606”), became
effective for the Company on October 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting
policies that are affected by this new standard. The Company applied the “modified retrospective” transition method
for open contracts for the implementation of Topic 606
.
As sales are and have been primarily from providing healthcare services,
and the Company has no significant post-delivery obligations, this new standard did not result in a material recognition of revenue
on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard.
The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance
with its historical accounting practices under Topic 605,
Revenue Recognition
.
Revenue
from providing neurometric and telepsychiatry services are recognized under Topic 606 in a manner that reasonably reflects the
delivery of its services to customers in return for expected consideration and includes the following elements:
|
○
|
executed contracts with the Company’s customers
that it believes are legally enforceable;
|
|
○
|
identification of performance obligations in the respective
contract;
|
|
○
|
determination of the transaction price for each performance
obligation in the respective contract;
|
|
○
|
allocation the transaction price to each performance
obligation; and
|
|
○
|
recognition of revenue only when the Company satisfies
each performance obligation.
|
Research and Development Expenses
The Company charges research and development expenses
to operations as incurred.
Advertising Expenses
The Company
charges all advertising expenses to operations as incurred. For the three months ended March 31, 2019 and 2018 advertising
expenses were $4,800 and $97,500, respectively. For the six months ended March 31, 2019 and 2018 advertising expenses were
$4,800 and $248,500, respectively
Stock-Based Compensation
The Company
accounts for employee stock options in accordance with ASC 718, Compensation-Stock Compensation. For stock options issued to employees
and directors we use the Black-Scholes option valuation model for estimating fair value at the date of grant. For stock options
issued for services rendered by non-employees, we recognize compensation expense in accordance with the requirements of ASC 505-50,
Equity, as amended. Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the vesting
period. At the end of each financial reporting period prior to performance, the value of these options, as calculated using the
Black-Scholes option valuation model, is determined, and compensation expense recognized or recovered during the period is adjusted
accordingly. Since the fair value of options granted to non-employees is subject to change in the future, the amount of
the future compensation expense is subject to adjustment until the common stock options or warrants are fully vested.
Warrants
From time to time, the Company
has issued warrants to purchase shares of common stock. These warrants have been issued in connection with the Company’s
financing transactions. The Company’s warrants are subject to standard anti-dilution provisions applicable to shares of our
common stock. The Company estimates the fair value of warrants using the Black-Scholes option valuation model with the following
inputs: market prices of the stock, time to maturity, volatility, zero expected dividend rate and risk free rate all at the date
of the warrant issuance.
Income Taxes
The Company
accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances
are recorded, when necessary, to reduce deferred tax assets to the amount expected to be realized.
On December
22, 2017, new legislation was adopted that significantly revises the Internal Revenue Code of 1986, as amended,
or the Code. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation,
including reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of
the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of
the deduction for net operating losses to 80 percent of current-year taxable income and elimination of net operating loss carrybacks,
one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain
new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and
credits.
As a
result of the implementation of certain provisions of FASB ASC 740, Income Taxes, which clarifies the accounting and disclosure
for uncertainty in tax positions, the Company has analyzed filing positions in each of the federal and state jurisdictions where
required to file income tax returns, as well as all open tax years in these jurisdictions. We have identified U.S. Federal and
California as our major tax jurisdictions. Generally, the Company remains subject to Internal Revenue Service examination of our
2014 through 2016 U.S. federal income tax returns, and remain subject to California Franchise Tax Board examination of our 2013
through 2016 California Franchise Tax Returns. The Company has certain tax attribute carryforwards which will remain subject to
review and adjustment by the relevant tax authorities until the statute of limitations closes with respect to the year in which
such attributes are utilized.
The Company
believes that its income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that
will result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been
recorded pursuant to ASC 740. Our policy for recording interest and penalties associated with income-based tax audits is to record
such items as a component of income taxes.
Deferred
taxes have been recorded on a net basis in the accompanying balance sheet. The Act reduces the U.S. statutory tax rate from 35%
to 21%, effective January 1, 2018. As of September 30, 2018, the Company had gross Federal net operating loss carryforwards of
approximately $60.2 million and State gross net operating loss carryforwards of approximately $33.8 million. Both the Federal and
State net operating loss carryforwards will begin to expire in 2022 and 2023 respectively. The Company's ability to utilize net
operating loss carryforwards may be limited in the event that a change in ownership, as defined in the Internal Revenue Code, occurs
in the future.
The Company
has placed a valuation allowance against the deferred tax assets in excess of deferred tax liabilities due to the uncertainty surrounding
the realization of such excess tax assets. Management periodically evaluates the recoverability of the deferred tax assets and
the level of the valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax assets
are realizable, the valuation allowance will be reduced accordingly.
Noncontrolling Interest
The Company
consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which
the Company holds, directly or indirectly, more than 50% of the voting rights, and VIEs for which the Company is the primary beneficiary.
Noncontrolling interests represent third-party equity ownership interests in the Company’s consolidated entities. The amount
of net loss attributable to noncontrolling interests for the three months ended March 31, 2019 and 2018 was $451,100 and $72,300,
respectively. The amount of net loss attributable to noncontrolling interests for the six months ended March 31, 2019 and 2018 was
$778,000 and $72,300, respectively.
Earnings (Loss) per Share
Basic and diluted earnings
(loss) per share is presented in conformity with the two-class method. Under the two-class method, basic net loss per share is
computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding during the
period. Net loss per share is calculated as the net loss less the current period preferred stock dividends. Diluted earnings (loss)
per share takes into account the potential dilution that could occur if securities or other contracts to issue Common Stock were
exercised and converted into Common Stock.
Recent Accounting Pronouncements
Apart
from the below-mentioned recent accounting pronouncements, there are no new accounting pronouncements that are currently applicable
to the Company.
In June 2018, the FASB
issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (Topic 718). The amendments in this Update
expand the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees.
An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an
option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and
the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment
transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by
issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used
to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this
Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim
periods within that fiscal year. The Company is currently evaluating the impact of adoption of this standard to its financial
statements.
ASU 2016-15,
“Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Payments” was issued by the Financial
Accounting Standards Board (FASB) in August 2016. The purpose of this amendment is to address eight specific cash flow issues with
the objective of reducing the existing diversity in practice. The amendments in this Update are effective for public business entities
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted.
The Company adopted ASU 2016-15 during our first quarter of fiscal year 2019, which had no impact on our consolidated financial
statements, and will apply the new guidance in future periods.
ASU 2016-02,
“Leases (Topic 842)” was issued by the FASB in February 2016. The guidance requires lessees to recognize the assets
and liabilities that arise from leases on the balance sheet. ASU 2016-02 is effective for annual periods beginning after December
15, 2018, including interim periods within those annual periods, and should be applied using a modified retrospective approach.
The guidance is effective for the Company on October 1, 2019. The Company will elect the prospective transition method with the
effects of adoption recognized as a cumulative effect adjustment to the opening balance of retained earnings in the Company's fiscal
2020 financial statements, with no restatement of comparative periods. The Company will also elect the package of three practical
expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward
the historical lease classification. The Company is currently assessing the impact of adopting this guidance on its consolidated
financial statements and related disclosures. The Company expects to record right of use assets and lease liabilities, which may
be material, on its consolidated balance sheet upon adoption of this standard and is still assessing the impact to its results
of operations and cash flows.
Accounting
Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
(“Topic 606”), became
effective for the Company on October 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting
policies that are affected by this new standard. The Company applied the “modified retrospective” transition method
for open contracts for the implementation of Topic 606
.
As sales are and have been primarily from providing healthcare services,
and the Company has no significant post-delivery obligations, this new standard this new standard did not result in a change to
revenue recognition on the Company’s accompanying condensed consolidated financial statements for the cumulative impact of
applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue
to be presented in accordance with its historical accounting practices under Topic 605,
Revenue Recognition
.
At the adoption of Topic 606,
the cumulative effect of initially applying the new revenue standard is required to be presented as an adjustment to the opening
balance of retained earnings. The Company determined there was no impact to opening retained earnings based on applying the new
revenue standard.
The Company
operates as one reportable segment, the healthcare delivery segment. The Company disaggregates revenue from contracts by service
type and by payor. This level of detail provides useful information pertaining to how the Company generates revenue by significant
revenue stream and by type of direct contracts. The condensed consolidated statements of operations present disaggregated revenue
by service type. The following table presents disaggregated revenue for the three and six months ended March 31, 2019 and 2018:
|
|
Three months ended
March 31,
|
|
|
Six months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Neurometric services
|
|
$
|
44,800
|
|
|
$
|
79,800
|
|
|
$
|
124,000
|
|
|
$
|
133,100
|
|
Telepsychiatry services
|
|
|
415,300
|
|
|
|
380,100
|
|
|
|
723,200
|
|
|
|
448,800
|
|
Revenue
|
|
|
460,100
|
|
|
|
459,900
|
|
|
|
847,200
|
|
|
|
581,900
|
|
As of March 31, 2019, accounts receivable, net of allowance for doubtful accounts, was $154,400.
The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance.
The Company determines the allowance based on historical experience, specific account information and other currently available
evidence.
The
Company receives payments from the following sources for services rendered: (i) commercial insurers; (ii) the federal
government under the Medicare program administered by CMS; (iii) state governments under the Medicaid and other programs;
(iv) other third party payors (e.g., hospitals); and (v) individual patients and clients. As the period between the time of
service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18
and did not adjust for the effects of a significant financing component.
The Company
derives a significant portion of its revenue from Medicare, Medicaid and other payors that receive discounts from established billing
rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated
are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of
services provided and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its
interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursements
are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally,
updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation
process by management.
Settlements
under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services
are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under
the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of appeal and the
application of numerous technical provisions.
Under
the new revenue standard, the Company has elected to apply the following practical expedients and optional exemptions:
|
●
|
Recognize incremental costs of obtaining a contract with amortization periods of one year or
less as expense when incurred. These costs are recorded within general and administrative expenses.
|
|
●
|
Recognize revenue in the amount of consideration to which the Company has a right to invoice
the customer if that amount corresponds directly with the value to the customer of the Company’s services completed to date.
|
|
●
|
Exemptions from disclosing the value of unsatisfied performance obligations for (i) contracts
with an original expected length of one year or less, (ii) contracts for which revenue is recognized in the amount of consideration
to which the Company has a right to invoice for services performed, and (iii) contracts for which variable consideration is allocated
entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that
forms part of a single performance obligation.
|
|
●
|
Use a portfolio approach for the fee-for-service (FFS) revenue stream to group contracts with
similar characteristics and analyze historical cash collections trends.
|
|
●
|
No adjustment is made for the effects of a significant financing component as the period between
the time of service and time of payment is typically one year or less.
|
Contract Assets
Typically,
revenues and receivables are recognized once the Company has satisfied its performance obligation. Accordingly, the Company’s
contract assets are comprised of accounts receivable. Generally, the Company does not have material amounts of other contract assets.
Contract Liabilities (Deferred Revenue
)
Contract
liabilities are recorded when cash payments are received in advance of the Company’s performance. The Company’s contract
liability balance was $152,100 and $159,700 as of March 31, 2019 and September 30, 2018 and is presented within the “Deferred
Revenue” line item of the condensed consolidated balance sheets. $7,600 of the amounts recorded as of September 30, 2018
was recognized as revenue for the six months ended March 31, 2019. The Company has elected the optional exemption to not disclose
the remaining performance obligations of its contracts since substantially all of its contracts have a duration of one year or
less.
Accounts receivable, net, is as
follows:
|
|
March 31,
2019
|
|
|
September 30,
2018
|
|
Accounts receivable
|
|
$
|
162,500
|
|
|
$
|
65,100
|
|
Allowance for doubtful accounts
|
|
|
(8,100
|
)
|
|
|
(1,800
|
)
|
Accounts receivable, net
|
|
$
|
154,400
|
|
|
$
|
63,300
|
|
5.
LONG - TERM BORROWINGS AND OTHER NOTES PAYABLE
Debt assumed from Arcadian
As a result of the acquisition of Arcadian, the Company
guaranteed Arcadian's then outstanding debt obligations totaling
$700,000 owed to Ben Franklin
Technology Partners of Southeastern Pennsylvania ("BFTP"). The maturity date for the debt is September 30, 2021 and interest
accrues at an 8% annual rate. Unpaid interest was $120,500 as of March 31, 2019. The Company recorded the debt at its fair value
and recorded a discount of $93,500 as of March 31, 2019 attributable to the difference between the market interest rate and the
stated interest rate on the debt. Interest expense related to the accretion of debt discount for the three months ended March 31,
2019 and 2018 was $9,400 and 9,400, respectively. Interest expense related to the accretion of debt discount for the six months
ended March 31, 2019 and 2018 was $18,800 and $14,000, respectively.
A balloon payment of $700,000 plus interest will be
made on the scheduled maturity date of September 30, 2021.
The changes in carrying amounts
of the debt acquired through acquisition for the six months ended March 31, 2019 were as follows:
Beginning balance (September 30, 2018)
|
|
$
|
587,700
|
|
Accretion of debt discount
|
|
|
18,800
|
|
Ending balance (March 31, 2019)
|
|
$
|
606,500
|
|
On November
13, 2017, the Company acquired Arcadian. The Company accounted for the acquisition of Arcadian using the acquisition method of
accounting for business combinations under ASC 805, Business Combinations. The total purchase price is allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition
date.
Fair
value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates
and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities
assumed, as well as asset lives and the expected future cash flows and related discount rates, can materiality impact our results
of operations. Significant inputs used for the model included the amount of cash flows, the expected period of the cash flows and
the discount rates.
The purchase
price, including the value of the indebtedness and payables of Arcadian, is $1,339,600 based upon a deemed acquisition of all of
the assets and liabilities of Arcadian, including the equity interests in Arcadian. The aggregate purchase price consists of (i)
initial investment in Arcadian of $195,900 (ii) $317,000 of forgiveness of a note receivable with the primary member of Arcadian
(iii) assumption by Arcadian of subordinated debt (“Arcadian Note”) with a fair value of $555,000, plus accrued interest
of $96,700 (iv) $175,000 payment for the redemption and cancellation of two warrants to purchase equity interests in Arcadian Services.
The Arcadian Note bears interest at an annual rate of 8% and matures on September 30, 2021.
Unaudited Pro Forma Financial Information
The following unaudited pro
forma statement of operations data presents the combined results of operations for the six months ended March 31, 2018 as if the
acquisition of Arcadian had taken place on October 1, 2017. The unaudited pro forma financial information includes the effects
of certain adjustments, including the amortization of acquired intangibles and the associated tax effect and the elimination of
the Company’s and the acquiree’s non-recurring acquisition related expenses.
The unaudited pro forma
information presented does not purport to be indicative of the results that would have been achieved had the acquisitions been
consummated at October 1, 2017 nor of the results which may occur in the future. The pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
|
|
|
|
|
|
|
Pro Forma
|
|
Three Months Ended
March 31, 2018
|
|
|
Six Months Ended
March 31,
2018
|
|
Revenues
|
|
$
|
459,900
|
|
|
$
|
727,100
|
|
Net income (loss)
|
|
|
(2,659,600
|
)
|
|
|
(5,605,300
|
)
|
Basic and diluted loss per share:
|
|
$
|
(0.61
|
)
|
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding at weighted average shares outstanding
|
|
|
4,362,564
|
|
|
|
4,347,745
|
|
Merger Agreement
On January
4, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company,
the Company’s wholly owned subsidiary, Athena Merger Subsidiary, Inc., a Delaware corporation (“Merger Sub”),
and Emmaus Life Sciences, Inc., a Delaware corporation (“Emmaus”). Under the terms of the Merger Agreement, pending
stockholder approval of the transaction, Merger Sub will merge with and into Emmaus with Emmaus surviving the merger and becoming
a wholly-owned subsidiary of MYnd (the “Merger”). Subject to the terms of the Merger Agreement, at the effective time
of the Merger, Emmaus stockholders will receive a number of newly issued shares of MYnd common stock determined using the exchange
ratio described below in exchange for their shares of Emmaus stock. Following the Merger, stockholders of Emmaus will become the
majority owners of MYnd.
The exchange
ratio will be determined prior to closing and will cause the MYnd securityholders (including holders of options and warrants) prior
to the effective time to collectively own 5.9% of the post-merger company on a fully diluted basis and Emmaus securityholders (including
holders of options, warrants and convertible notes) prior to the effective time to collectively own 94.1% of the post-merger company
on a fully diluted basis. The exchange ratio will reflect any dilution that may result from securities sold by MYnd or Emmaus prior
to the closing of the Merger and any changes to the number of outstanding convertible securities of each company. The Merger Agreement
provides that if Emmaus converts certain debt obligations into equity within six months of the completion of the Merger, Emmaus
will issue additional shares (equal to 5.9% of the shares issued in connection with the debt conversion to third parties) to an
existing subsidiary of MYnd which is expected to be spun-off to stockholders of MYnd prior to the effective time of the merger,
as described below.
The post-merger
company, led by Emmaus’ management team, is expected to be named “Emmaus Life Sciences, Inc.” Prior to the
closing of the Merger, MYnd will seek shareholder approval to conduct a reverse split of its outstanding shares if necessary
to satisfy listing requirements of the Nasdaq Capital Market (the “NasdaqCM”). The post-merger company is expected
to trade on the NasdaqCM under a new ticker symbol. At the closing, the post-merger company’s board of directors is
expected to consist of one member from MYnd and up to six members from Emmaus. The Merger has been unanimously approved by
the Board of Directors of each company. The transaction is expected to close no later than July 31, 2019, subject
to approvals by the stockholders of MYnd and Emmaus, and other closing conditions, including but not limited to the approval
of the continued listing of the post-merger company’s common stock on the NasdaqCM, conversion of MYnd’s
preferred stock into common stock, satisfaction of certain cash and debt conversion conditions and consummation of the MYnd
spin-off described below.
The parties
to the Merger Agreement have made representations and warranties to each other as of specific dates for the purpose of allocating
risk and not for the purpose of establishing facts. Accordingly, the representations and warranties should not be relied on as
characterizations of the actual state of facts.
The Merger
Agreement contains certain termination rights for each of MYnd and Emmaus, and further provides that, upon certain terminations
of the Merger Agreement, MYnd may be required to pay Emmaus a termination fee of $750,000 and Emmaus may be required to pay MYnd
a termination fee of $750,000; provided that if the termination results from the failure to obtain the approval of the continued
listing of the post-merger company’s common stock on the NasdaqCM, this fee payable by Emmaus will be $1,600,000. In connection
with the termination of the Merger Agreement upon certain circumstances, either party also may be required to pay the other party’s
third party expenses up to $600,000. The termination of the Merger Agreement will not relieve any party thereto from any liability
or damages resulting from or arising out of any fraud or willful or intentional breach of any representation, warranty, covenant,
obligation or other provision contained in the Merger Agreement.
Spin-Off
Prior
to the closing of the Merger, we intend, subject to obtaining any required regulatory approvals and the completion of certain tax
analyses, to transfer all of our businesses, assets and liabilities not assumed by Emmaus to our existing wholly-owned subsidiary,
Telemynd, Inc., a Delaware corporation (“Telemynd”), pursuant to the terms of the Amended and Restated Separation and
Distribution Agreement (the “Separation Agreement”) entered into on March 27, 2019 by us, Telemynd and MYnd Analytics,
Inc., a California corporation (“MYnd California”). We intend to distribute all shares of Telemynd held by us to our
stockholders of record as a future record date will be determined for such potential distribution.
The
Separation Agreement: (i) amended and restated in its entirety that certain Separation and Distribution Agreement dated as of January
4, 2019, by and between MYnd and MYnd California (the “Prior Agreement”) and (ii) caused Telemynd to assume all of
the rights and obligations of MYnd California under the Prior Agreement.
Pursuant
to the Separation Agreement, the Telemynd Business (as defined in the Separation Agreement) would be separated from the Company
upon, and subject to, the closing of the transactions contemplated by the Separation Agreement (provided that such transactions
occur at all), and the Company intends to distribute all shares of Telemynd held by it to the Company’s stockholders of record
as of a future record date to be determined for such potential distribution. The Separation Agreement includes the terms of the
proposed spin-off and the distribution to the Company’s stockholders and includes representations and warranties, covenants
and conditions, which would impact the terms of the proposed spin-off and distribution. The proposed spin-off will be subject to
conditions and regulatory approvals not entirely under the control of the Company and the terms of the proposed spin-off, if and
when completed, are subject to change. The foregoing summary of the Separation Agreement is not complete and qualified in its entirety
by reference to the text of the Separation Agreement filed herewith.
Amendment to Merger Agreement
On May 10, 2019, the parties executed amendment
no. 1 to the Merger Agreement. By executing amendment no. 1, MYnd, Emmaus and Merger Sub agreed that: (i) the definition
"Parent California Subsidiary" should be amended to refer to Telemynd, Inc., the newly formed wholly-owned corporation,
(ii) MYnd would not adopt a new equity incentive plan at closing, which had been contemplated previously and determined to be unnecessary
at this time, (iii) MYnd would be entitled to receive credit in its Net Liabilities calculation for certain agreed upon prepaid
costs, (iv) Telemynd would be entitled to receive shares of Emmaus after closing if the exchange ratio applicable to any Company
Warrants, Company Convertible Notes or Company Debentures is reduced during the six (6) month period after the closing of the Merger
for any reason, and (v) the outside termination date was extended from May 31, 2019 to July 31, 2019.
The Aspire Capital Equity Credit Lines
On December
6, 2016, the Company, entered into the first common stock purchase agreement (the “First Purchase Agreement”) with
Aspire Capital Fund, LLC (“Aspire Capital”) which provided that, upon the terms and subject to the conditions and limitations
set forth therein, Aspire Capital was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s
Common Stock over the 30-month term of the First Purchase Agreement. Concurrently with entering into the First Purchase Agreement,
the Company also entered into a registration rights agreement with Aspire Capital (the “Registration Rights Agreement”),
pursuant to which the Company maintained an effective registration statement registering the sale of the shares of Common Stock
that were issued to Aspire under the First Purchase Agreement. Under the First Purchase Agreement, on any trading day selected
by the Company on which the closing sale price of its Common Stock is equal to or greater than $0.50 per share, the Company had
the right, in its sole discretion, to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to
purchase up to 50,000 shares of Common Stock per business day, up to $10.0 million of the Company’s common stock in the aggregate
at a per share purchase price equal to the lesser of:
|
a)
|
the lowest sale price of Common Stock on the purchase date; or
|
|
b)
|
the arithmetic average of the three (3) lowest closing sale prices for Common Stock during the
twelve (12) consecutive trading days ending on the trading day immediately preceding the purchase date.
|
In addition,
on any date on which the Company submitted a purchase notice to Aspire Capital in an amount equal to 50,000 shares, and the closing
sale price of its Common Stock is equal to or greater than $0.50 per share, the Company also had the right, in its sole discretion,
to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing
Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of Common Stock traded on its principal
market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of shares the Company may determine.
The purchase price per share pursuant to such VWAP Purchase Notice is generally 95% of the volume-weighted average price for Common
Stock traded on its principal market on the VWAP Purchase Date.
The purchase
price was subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the period(s) used to compute the First Purchase Price. The Company could deliver multiple Purchase Notices and
VWAP Purchase Notices to Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent
purchase has been completed.
The First
Purchase Agreement provided that the Company and Aspire Capital would not effect any sales under the First Purchase Agreement on
any purchase date where the closing sale price of the Company’s common stock was less than $0.50. There were no trading volume
requirements or restrictions under the First Purchase Agreement, and the Company could control the timing and amount of sales of
Common Stock to Aspire Capital. Aspire Capital had no right to require any sales by the Company, but was obligated to make purchases
from the Company as directed by the Company in accordance with the First Purchase Agreement. There were no limitations on use of
proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights, penalties
or liquidated damages in the First Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently
with the execution of the First Purchase Agreement, the Company issued to Aspire Capital 80,000 shares of Common Stock (the “
First Commitment Shares”). The First Purchase Agreement was terminated and replaced by the Second Purchase Agreement defined
below on May 15, 2018. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage
in any direct or indirect short-selling or hedging of Common Stock during any time prior to the termination of the Purchase Agreement.
Any proceeds from the Company receives under the First Purchase Agreement are expected to be used for working capital and general
corporate purposes. The Company cannot request Aspire to purchase more than $100,000 per business day.
As of
March 31, 2019, the Company has issued purchase notices to Aspire Capital under the First Purchase Agreement to purchase an aggregate
of 1,180,000 shares of common stock, at a per share price of $2.00, resulting in gross cash proceeds of approximately $2.4 million.
The issuance of shares of common stock that were issued from time to time to Aspire Capital under the First Purchase Agreement
were exempt from registration under the Securities Act, pursuant to the exemption for transactions by an issuer not involving any
public offering under Section 4(a)(2) of the Securities Act.
The
Second Purchase Agreement with Aspire Capital
On
May 15, 2018, the Company terminated the First Purchase Agreement, and entered into a second common stock purchase agreement (the
“Second Purchase Agreement”) with Aspire Capital under substantially the same terms, conditions and limitations as
the First Purchase Agreement which are: Aspire Capital is committed to purchase up to an aggregate of $10.0 million of shares
of the Company’s Common Stock over the 30-month term of the Second Purchase Agreement. Concurrently with entering into the
Second Purchase Agreement, the Company also entered into a registration rights agreement with Aspire Capital (the “Registration
Rights Agreement”), pursuant to which the Company maintains an effective registration statement registering the sale of
the shares of Common Stock that have and may be issued to Aspire under the Second Purchase Agreement. Under the Second Purchase
Agreement, on any trading day selected by the Company on which the closing sale price of its Common Stock is equal to or greater
than $0.50 per share, the Company has the right, in its sole discretion, to present Aspire Capital with a purchase notice, directing
Aspire Capital (as principal) to purchase up to 50,000 shares of Common Stock per business day, up to $10.0 million of the Company’s
common stock in the aggregate at a per share purchase price equal to the lesser of:
a)
the lowest sale price of Common Stock on the purchase date; or
b)
the arithmetic average of the three (3) lowest closing sale prices for Common Stock during the twelve (12) consecutive trading
days ending on the trading day immediately preceding the purchase date.
In
addition, on any date on which the Company submits a purchase notice to Aspire Capital in an amount equal to 50,000 shares, and
the closing sale price of its Common Stock is equal to or greater than $0.50 per share, the Company also has the right, in its
sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase
Notice”) directing Aspire Capital to purchase an amount of stock equal to up to 30% of the aggregate shares of Common Stock
traded on its principal market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of
shares the Company may determine. The purchase price per share pursuant to such VWAP Purchase Notice is generally 95% of the volume-weighted average price for Common Stock traded on its principal market on the VWAP Purchase Date.
The
purchase price will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the period(s) used to compute the Purchase Price. The Company may deliver multiple Purchase Notices and VWAP
Purchase Notices to Aspire Capital from time to time during the term of the Second Purchase Agreement, so long as the most recent
purchase has been completed.
The
Second Purchase Agreement provides that the Company and Aspire Capital will not effect any sales under the Second Purchase Agreement
on any purchase date where the closing sale price of the Company’s common stock is less than $0.50. There are no trading
volume requirements or restrictions under the Second Purchase Agreement, and the Company will control the timing and amount of
sales of Common Stock to Aspire Capital. Aspire Capital has no right to require any sales by the Company, but is obligated to
make purchases from the Company as directed by the Company in accordance with the Second Purchase Agreement. There are no limitations
on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights,
penalties or liquidated damages in the Second Purchase Agreement. In consideration for entering into the Second Purchase Agreement,
concurrently with the execution of the Second Purchase Agreement, the Company issued to Aspire Capital 250,000 shares of Common
Stock (the “Second Commitment Shares”). The Second Purchase Agreement may be terminated by the Company at any time,
at its discretion, without any cost to the Company. Aspire Capital has agreed that neither it nor any of its agents, representatives
and affiliates shall engage in any direct or indirect short-selling or hedging of Common Stock during any time prior to the termination
of the Second Purchase Agreement. Any proceeds from the Company receives under the Second Purchase Agreement are expected to be
used for working capital and general corporate purposes. The Company cannot request Aspire to purchase more than $300,000 per
business day.
As
of March 31, 2019, the Company has issued purchase notices to Aspire Capital under the Second Purchase Agreement to purchase an
aggregate of 2,200,100 shares of common stock, resulting in gross cash proceeds of approximately $3.7 million. The issuance of
shares of common stock that were issued from time to time to Aspire Capital under the Second Purchase Agreement were exempt from
registration under the Securities Act, pursuant to the exemption for transactions by an issuer not involving any public offering
under Section 4(a)(2) of the Securities Act.
Shareholder
Approval for Removal of Exchange Cap
The
Second Purchase Agreement previously restricted the amount of shares that may be sold to Aspire Capital thereunder to 1,134,671
shares of Common Stock (the "Exchange Cap"). On November 26, 2018, the Company received shareholder approval to remove
the Exchange Cap in compliance with the applicable listing rules of the Nasdaq Stock Market. Pursuant to Nasdaq Listing Rule 5635(d),
shareholder approval is required prior to the issuance of securities in connection with a transaction other than a public offering
involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable
common stock) equal to 20% or more of the common stock outstanding before the issuance for less than the greater of book
or market value of the stock. Following receipt of shareholder approval, the Company may issue an additional $8.1 million,
up to an aggregate of $10 million, of common stock to Aspire Capital under the Second Purchase Agreement, with remaining availability
of $6.3 million at March 31, 2019.
Common
and Preferred Stock
As
of March 31, 2019, the Company is authorized to issue 265,000,000 shares of stock of which 250,000,000 are common stock, and 15,000,000
shares were preferred shares, with a par value of $0.001 per shares are blank-check preferred stock which the Board is expressly
authorized to issue without stockholder approval, for one or more series of preferred stock and, with respect to each such series,
to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares
of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications,
limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional
and other special rights of each series of preferred stock, and the qualifications, limitations or restrictions thereof, if any,
may differ from those of any and all other series at any time outstanding.
Private
Placement with Directors and Management
On
September 21, 2018, the Company entered into definitive agreements with George C. Carpenter IV, President and then Chief Executive
Officer, Robin L. Smith, Chairman, as well as John Pappajohn, and Peter Unanue, each a director of the Company, and entities affiliated
with Michal Votruba, a member of the Board of Directors of MYnd Analytics and Director of Life Sciences for the European-based
RSJ-Gradus fund, relating to a private placement of an aggregate of 459,458 units for $1.85 per unit, with each unit consisting
of one share of common stock and one common stock purchase warrant to purchase one share of Common Stock for $2.00 per share.
Stock-Option
Plans
2006
Stock Incentive Plan
On
August 3, 2006, CNS Response, Inc. adopted the CNS 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provided
for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO)
or non-statutory stock options (NSO), stock appreciation rights and stock unit grants to eligible employees, directors and consultants
and is administered by the Board. A total of 3,339 shares of stock were ultimately reserved for issuance under the 2006 Plan.
As of March 31, 2019, zero options were exercised and there were 1,435 option shares outstanding under the amended 2006 Plan. The
outstanding options have exercise prices to purchase shares of common stock ranging from $2,400 to $3,300 per share.
2012
Omnibus Incentive Compensation Plan
On
March 22, 2012, our Board approved the MYnd Analytics, Inc. 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”),
reserved 1,667 shares of stock for issuance and on December 10, 2012, the Board approved the amendment of the 2012 Plan to increase
the shares authorized for issuance from 1,667 shares to 27,500 shares. On March 26, 2013, the Board further approved the amendment
of the 2012 Plan to increase the shares authorized for issuance from 27,500 shares to 75,000 shares. The 2012 Plan, as amended,
was approved by our stockholders at the 2013 annual meeting held on May 23, 2013.
On
April 5, 2016, the Board approved a further amendment of the 2012 Plan to increase the Common Stock authorized for issuance from
75,000 shares to 200,000 shares.
On
September 22, 2016 the Board amended the 2012 Plan to: (i) increase the total number of shares of Common Stock available for grant
under the 2012 Plan from 200,000 shares to an aggregate of 500,000 shares, (ii) add an "evergreen" provision which,
on January 1st of each year through 2022, automatically increases the number of shares subject to the 2012 Plan by the lesser
of: (a) a number equal to 10% of the shares of Common Stock authorized under the 2012 Plan as of the preceding December 31st,
or (b) an amount, or no amount, as determined by the Board, but in no event may the number of shares of Common Stock authorized
under the 2012 Plan exceed 885,781 and (iii) increase the annual individual award limits under the 2012 Plan to 100,000 shares
of Common Stock, subject to adjustment in accordance with the 2012 Plan. Per the above mentioned “evergreen” provision,
an additional 50,000 shares were automatically allocated for distribution under the 2012 Plan as of January 1, 2017.
At
the 2017 Annual Meeting of Stockholders of the Company, held on August 21, 2017 (the “2017 Annual Meeting”), the holders
of the Company’s common stock voted to amend the Company’s 2012 Plan to increase: (i) the total number of shares of
common stock, par value $0.001 per share ("Common Stock"), available for grant under the 2012 Plan (subject to the overall
limits described in clause (ii) below) from 550,000 shares to an aggregate of 975,000 shares; (ii) the aggregate limitation on
authorized shares available for grant under the 2012 Plan, following any increases pursuant to the evergreen provision, from 885,781
shares to 1,570,248 shares and (iii) the annual individual award limits under the 2012 Plan to 150,000 shares of Common Stock
(subject to adjustment in accordance with the 2012 Plan);
At
the 2018 Annual Meeting of Stockholders of the Company, held on April 4, 2018 (the “2018 Annual Meeting”), the holders
of the Company’s common stock voted to amend the 2012 Plan to increase (i) the total number of shares of Common Stock available
for grant under the 2012 Plan (subject to the overall limit described in clause (ii) below) from 1,072,500 shares to an aggregate
of 1,500,000 shares and (ii) the aggregate limitation on the authorization shares available for grant under the 2012 Plan, following
any increases pursuant to the evergreen provision, from 1,570,248 shares to 2,200,000 shares.
At
the Special Meeting of Stockholders of the Company, held on November 26, 2018, the holders of the Company’s common and preferred
stock voted to (i) amend the 2012 Plan to eliminate the annual individual award limits under the 2012 Plan and (ii) amend 2012
Plan to increase: (a) the total number of shares of common stock, par value $0.001 per share (“Common Stock”), available
for grant under the 2012 Plan (subject to the overall limits described in clause (b) below) from 1,500,000 shares to an aggregate
of 2,250,000 shares and (b) the aggregate limitation on authorized shares available for grant under the 2012 Plan, following any
increases pursuant to the evergreen provision (the “Evergreen Provision”), from 2,200,000 shares to 2,950,000 shares.
Amendment
to Chief Executive Officer’s Agreement
On
April 19, 2018, the Company and George C. Carpenter, IV, the former CEO of the Company, entered into an amendment to his Employment
Agreement, dated as of September 7, 2007 (the “CEO Amendment"), pursuant to which Mr. Carpenter’s annual salary was
reduced from $270,000 to $206,250. This change is retroactive to April 13, 2018. Further, pursuant to the CEO Amendment, Mr. Carpenter
was granted 34,380 restricted shares of common stock under the 2012 Plan. The shares granted under the CEO Amendment will vest
quarterly. If the employee’s relationship with the Company is terminated, the above grant will be prorated. On or before
December 31, 2018, the parties will review this modification to determine if the above salary reduction adjustment will be renewed.
As of May 9, 2019, the parties have not amended the modification.
Appointment
of Chief Innovation Officer; Amendment to Former CEO Employment Agreement
As
of December 12, 2018, George C. Carpenter, IV no longer served in the position of Chief Executive Officer and became, in addition
to President, the Chief Innovation Officer of the Company. In connection therewith, on December 12, 2018, the Company and Mr.
Carpenter entered into an amendment to his Employment Agreement, dated as of September 7, 2007 (the “Carpenter Amendment”),
pursuant to which Mr. Carpenter was given the title of President and Chief Innovation Officer of the Company. Pursuant to the
Carpenter Amendment, Mr. Carpenter received an option to purchase 50,000 shares of common stock of the Company, with such option
vesting over a twelve-month period.
Appointment
of Patrick Herguth as CEO; Herguth Employment Agreement
Effective
December 12, 2018, the Company appointed Patrick Herguth to the position of Chief Executive Officer.
In
connection with Mr. Herguth’s appointment to the position of Chief Executive Officer, the Company entered into an employment
agreement with Mr. Herguth, dated as of December 12, 2018 (the “Herguth Employment Agreement”). Pursuant to the Herguth
Employment Agreement, Mr. Herguth will serve as the Company’s Chief Executive Officer and will receive a base annual compensation
of $325,000, subject to periodic increases. For fiscal year 2019, Mr. Herguth is eligible to receive a performance bonus in a
target amount of $340,000, with payment of such bonuses subject to achievement of certain performance goals set forth in the Herguth
Employment Agreement. The employment agreement also provides that Mr. Herguth will receive an option to purchase up to 200,000
shares of the Company’s common stock, subject to the time-based vesting schedule and up to 200,000 shares of the Company’s
common stock subject to a performance-based vesting schedule, both as specified in the Herguth Employment Agreement, with options
to purchase 50,000 of such shares vesting on the date of the Herguth Employment Agreement. The time-based options will be subject
to vesting upon a change of control of the Company.
Election
of Patrick Herguth to the Board of Directors
Effective
December 12, 2018, the Board increased the number of directors on the Board by one and elected Mr. Herguth to the Board to
serve as a director of the Company to fill the vacancy created by such increase. Mr. Herguth has not been appointed to any
committee of the Board.
Stock-based
Compensation and Expenses
As
of March 31, 2019, options to purchase 1,428,500 shares of Common Stock were outstanding under the 2012 Plan with exercise
prices ranging from $1.20 to $600.00 per share, with a weighted average exercise price of $3.05 per share. Additionally,
580,564 restricted shares of Common Stock have been granted under the 2012 Plan, leaving 465,936 shares of Common Stock
available to be awarded under the 2012 Plan.
Stock-based
compensation expenses are generally recognized over the employees’ or service provider’s requisite service period,
generally the vesting period of the award. Stock-based compensation expense included in the accompanying unaudited condensed consolidated
statements of operations for the six months ended March 31, 2019 and 2018 is as follows:
|
|
Six
months ended March 31,
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Stock-based
compensation
expense - stock
options
|
|
|
|
Stock-based
compensation
expense
- restricted
shares
|
|
|
|
Stock-based
compensation
expense
- stock
options
|
|
|
|
Stock-based
compensation
expense
restricted
shares
|
|
Research
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Product
development
|
|
|
29,200
|
|
|
|
17,800
|
|
|
|
100
|
|
|
|
—
|
|
Sales and marketing
|
|
|
12,000
|
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
General and administrative
|
|
|
404,200
|
|
|
|
312,100
|
|
|
|
302,900
|
|
|
|
289,900
|
|
Total
|
|
$
|
445,400
|
|
|
$
|
329,900
|
|
|
$
|
303,100
|
|
|
$
|
289,900
|
|
Total
unrecognized stock compensation expense as of March 31, 2019 amounted to $334,900.
The
following table sets forth the Company’s unrecognized stock-based compensation expense, net of estimated forfeitures, by
type of award and the weighted-average period over which that expense is expected to be recognized:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Type of Award:
|
|
|
Unrecognized Expense, net of estimated
forfeitures
|
|
|
|
Weighted average Recognition Period (in
years)
|
|
|
|
Unrecognized Expense, net of estimated forfeitures
|
|
|
|
Weighted average Recognition Period
(in years)
|
|
Stock Options
|
|
$
|
329,600
|
|
|
|
1.40
|
|
|
$
|
682,900
|
|
|
|
0.53
|
|
Restricted Stock
|
|
|
5,300
|
|
|
|
0.05
|
|
|
|
139,100
|
|
|
|
0.48
|
|
Total
|
|
$
|
334,900
|
|
|
|
1.38
|
|
|
$
|
822,000
|
|
|
|
0.52
|
|
A
summary of all stock option activity is as follows:
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term (in
years)
|
|
Intrinsic
Value
|
|
Outstanding at September 30, 2018
|
|
|
803,937
|
|
|
$
|
10.13
|
|
|
|
8.75
|
|
|
$
|
7,500
|
|
Granted
|
|
|
864,758
|
|
|
|
1.34
|
|
|
|
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
(38,760
|
)
|
|
|
2.28
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
1,629,935
|
|
|
$
|
5.65
|
|
|
|
8.89
|
|
|
$
|
52,600
|
|
There
are 825,100 options vested and 804,835 unvested as of March 31, 2019; there are 531,604 options vested and 272,333 options unvested
as of September 30, 2018;
Following
is a summary of the restricted stock activity for the six months ended March 31, 2019:
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding at September 30, 2018
|
|
406,564
|
|
|
$
|
4.09
|
|
Granted
|
|
174,000
|
|
|
|
1.35
|
|
Forfeited
|
|
—
|
|
|
|
—
|
|
Outstanding at March 31, 2019
|
|
580,564
|
|
|
$
|
3.27
|
|
There
are 567,469 shares of restricted stock vested and 13,095 unvested as of March 31, 2019; there are 351,522 shares of restricted
stock vested and 55,042 unvested as of September 30, 2018;
The
range of Black-Scholes option-pricing model assumption inputs for all the valuation dates are in the table below:
|
|
Six Months Ended March 31, 2019
|
|
|
|
Low
|
|
|
High
|
|
Annual dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected life (years)
|
|
|
3.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
2.23
|
%
|
|
|
2.90
|
%
|
Expected volatility
|
|
|
172.89
|
%
|
|
|
200.47
|
%
|
Expected
Dividend Yield
. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends
in the foreseeable future.
Expected
Life
. The Company elected to utilize the “simplified” method for “plain vanilla” options to value
stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term
and the contractual term.
Expected
Volatility.
The expected volatility rate used to value stock option grants is based on the historical volatilities of the
Company’s common stock.
Risk-free
Interest Rate
. The risk-free interest rate assumption was based on U.S. Treasury bill instruments that had terms consistent
with the expected term of the Company’s stock option grants.
The
warrant activity for the six months ended March 31, 2019, are described as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at September 30, 2018
|
|
|
6,075,874
|
|
|
$
|
4.53
|
|
Expired/ Forfeited
|
|
|
(555
|
)
|
|
|
55.00
|
|
Outstanding at March 31, 2019
|
|
|
6,075,319
|
|
|
$
|
4.52
|
|
Following
is a summary of the status of warrants outstanding at March 31, 2019:
Exercise
Price
|
|
|
Number
of Shares
|
|
|
Expiration
Date
|
|
Weighted
Average
Exercise Price
|
|
$
|
2.00
|
|
|
|
459,458
|
(1)
|
|
|
09/2023
|
|
$
|
2.00
|
|
|
2.34
|
|
|
|
1,050,000
|
(2)
|
|
|
03/2023
|
|
|
2.34
|
|
|
5.25
|
|
|
|
2,539,061
|
(3)
|
|
|
07/2022
|
|
|
5.25
|
|
|
5.25
|
|
|
|
1,675,000
|
(4)
|
|
|
07/2022
|
|
|
5.25
|
|
|
5.25
|
|
|
|
213,800
|
(5)
|
|
|
07/2022
|
|
|
5.25
|
|
|
6.04
|
|
|
|
134,000
|
(6)
|
|
|
07/2022
|
|
|
6.04
|
|
|
10.00
|
|
|
|
4,000
|
|
|
|
06/2021
|
|
|
10.00
|
|
|
Total
|
|
|
|
6,075,319
|
|
|
|
|
|
$
|
4.52
|
|
|
(1)
|
On
September 21, 2018, the Company entered into definitive agreements with George C. Carpenter
IV, President and former Chief Executive Officer, Robin L. Smith, Chairman, as well as
John Pappajohn, and Peter Unanue, each a director of the Company, and entities affiliated
with Michal Votruba, a member of the Board of Directors of MYnd Analytics and Director
of Life Sciences for the European-based RSJ-Gradus fund, relating to a private placement
of an aggregate of 459,458 units for $1.85 per unit, with each unit consisting of one
share of Common Stock and one Common Stock Purchase Warrant to purchase one share of
Common Stock for $2.00 per share. The closing price per share of the Common Stock on
the Nasdaq Stock Market on September 20, 2018 was $1.72 per share.
|
|
(2)
|
On
March 29, 2018, the Company sold an aggregate of 1,050,000 units for $2.00 per Unit each
consisting of one share of newly-designated Series A Preferred Stock, and one warrant
in a private placement to three affiliates of the Company, for gross proceeds of $2.1
million. The private placement closed on March 29, 2018. The closing price per share
of the Common Stock on the Nasdaq Stock Market on March 29, 2018 was $1.19 per share.
|
|
(3)
|
On
July 13, 2017, the Company declared a special dividend of warrants to purchase shares
of the Company’s common stock to record holders of Common Stock as of such date.
Warrants to purchase 2,539,061 shares of Common Stock were distributed pro rata to all
holders of common stock on the record date. These warrants are exercisable (in accordance
with their terms) to purchase one share of common stock, at an exercise price of $5.25
per share. The warrants will become exercisable commencing not less than 12 months following
their July 27, 2017 distribution date and will expire five years from the date of issuance.
|
|
(4)
|
On
July 19, 2017, the Company issued 1,675,000 shares of Common Stock and accompanying Warrants
to purchase up to 1,675,000 shares of Common Stock in connection with an underwritten
public offering.
|
|
(5)
|
On
August 23, 2017, the Company issued warrants to purchase 213,800 shares of common stock
to underwriters as part of the exercise of the overallotment option attributed to the
July 2017 underwritten public offering.
|
|
(6)
|
As
part of the underwritten public offering on July 19, 2017, the Company issued warrants
to purchase 134,000 shares of common stock to the underwriters as part of the services
performed by them in connection with the underwritten public offering.
|
9.
RELATED PARTY TRANSACTIONS
DCA
Agreement
On
September 25, 2013, the Board approved a consulting agreement effective May 1, 2013, for marketing services provided by Decision
Calculus Associates ("DCA"), an entity operated by Mr. Carpenter’s spouse, Jill Carpenter. Effective August 2015,
DCA was engaged at a fee of $10,000 per month. From August 2015 through February 2017, DCA has been paid $170,000. The DCA contract
was renewed at $3,000 a month effective March 1, 2017. On May 1, 2018, the Company amended the agreement with DCA to reduce the
monthly fee to $2,000 a month. The amendment provides for a term of one year with a 30 day termination clause. The Company incurred
fees of $6,000 and $9,000 for the three months ended March 31, 2019 and 2018, respectively. The Company incurred fees of $12,000
and $18,000 for the six months ended March 31, 2019 and 2018, respectively. The agreement with DCA was terminated on April 20,
2019.
Hooper
Holmes Agreement
In
2016, we entered into an agreement with Hooper Holmes Inc, for which Dr. Smith, our Chairman of the Board, became an advisory
member of its board as of March 16, 2017, and in which Mr. Pappajohn, our director, has participated in equity raises to become
the beneficial owner of a greater than 10% interest. Hooper Holmes performs EEGs nationwide to patients who wish to obtain a PEER
report. The Company paid $0 and $54,300 for these services during the three months ended March 31, 2019 and 2018, respectively.
The Company paid $2,600 and $90,700 for these services during the six months ended March 31, 2019 and 2018, respectively. The agreement
with Hooper Holmes was deleted on December 31, 2018.
Private
Placement with Directors and Management
On
September 21, 2018, the Company entered into definitive agreements with George C. Carpenter IV, President and then Chief Executive
Officer, Robin L. Smith, Chairman, as well as John Pappajohn, and Peter Unanue, each a director of the Company, and entities affiliated
with Michal Votruba, a member of the Board of Directors of MYnd Analytics and Director of Life Sciences for the European-based
RSJ-Gradus fund, relating to a private placement of an aggregate of 459,458 units for $1.85 per unit, with each unit consisting
of one share of common stock and one common stock purchase warrant to purchase one share of Common Stock for $2.00 per share.
10.
LOSS PER SHARE
Basic
earnings (loss) per share is computed by dividing income (loss) available to common stockholders less the current period preferred
stock dividend by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into
account the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised and converted
into Common Stock
A
summary of the net income (loss) and shares used to compute net income (loss) per share for the three and six months ended March
31, 2019 and 2018 is as follows:
|
|
Three Months Ended March 31,
|
|
|
Six Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss for computation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss attributable to MYnd Analytics, Inc.
|
|
$
|
(2,258,600
|
)
|
|
$
|
(2,587,300
|
)
|
|
$
|
(4,636,100
|
)
|
|
$
|
(5,356,700
|
)
|
Preferred stock dividends
|
|
|
(24,600
|
)
|
|
|
—
|
|
|
|
(49,200
|
)
|
|
|
—
|
|
|
|
$
|
(2,283,200
|
)
|
|
$
|
(2,587,300
|
)
|
|
$
|
(4,685,300
|
)
|
|
$
|
(5,356,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(1.23
|
)
|
Basic and diluted weighted average shares outstanding
|
|
|
8,399,443
|
|
|
|
4,362,564
|
|
|
|
7,964,021
|
|
|
|
4,347,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
6,075,319
|
|
|
|
5,617,481
|
|
|
|
6,075,319
|
|
|
|
5,617,481
|
|
Restricted common stock
|
|
|
13,095
|
|
|
|
42,416
|
|
|
|
13,095
|
|
|
|
42,416
|
|
Options
|
|
|
1,629,935
|
|
|
|
554,059
|
|
|
|
1,629,935
|
|
|
|
554,059
|
|
Total
|
|
|
7,718,349
|
|
|
|
6,213,956
|
|
|
|
7,718,349
|
|
|
|
6,213,956
|
|
11.
COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
The
Company is not currently party to any legal proceedings, the adverse outcome of which, in the Company’s management’s
opinion, individually or in the aggregate, would have a material adverse effect on the Company’s results of operations or
financial position.
Lease
Commitments
The
Company has entered into operating lease agreements for its office locations in California, Virginia and Pennsylvania which expire
at various times through September 30, 2020. Minimum future lease payments under these leases are as follows:
|
|
Payments due by period
|
|
Contractual Obligations
|
|
Total
|
|
|
2019
|
|
|
2020
|
|
Operating Lease Obligations
|
|
$
|
177,300
|
|
|
$
|
129,800
|
|
|
$
|
47,500
|
|
Total
|
|
$
|
177,300
|
|
|
$
|
129,800
|
|
|
$
|
47,500
|
|
12.
SUBSEQUENT EVENTS
Aspire
Line
Subsequent
to March 31, 2019, the Company issued purchase notices to Aspire Capital to purchase 463,636 shares of common stock, at a weighted
average per share price of $1.10, resulting in gross cash proceeds of $510,000.
Equity Grant to Chairman of the Board
On May 8, 2019,
the
Board of Directors granted 50,000 restricted shares and 100,000 options to purchase common stock to the Chairman of the Board,
Dr. Robin L. Smith, under the Company's Amended and Restated 2012 Omnibus Incentive Compensation Plan. The restricted shares and
options vest immediately and survive the full term. In the event the merger does not close, Dr. Smith will forfeit 25,000
restricted shares and 25,000 shares of common stock to the Company's plan.