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Commitments and Contingencies | 9 Months Ended
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Jun. 30, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | NOTE 4 - Commitments and Contingencies WARF License Agreement The Company has entered into an exclusive start-up company license agreement with the Wisconsin Alumni Research Foundation (“WARF”) for WARF’s neural probe array and thin film micro electrode technology (the “WARF Agreement”). The Company entered into an Amended and Restated Exclusive Start-up Company License Agreement (the “WARF License”) with WARF on January 21, 2020, which amended and restated in full the prior license agreement between WARF and NeuroOne, LLC, a predecessor of the Company, dated October 1, 2014, as amended on February 22, 2017, March 30, 2019 and September 18, 2019. The WARF License grants to the Company an exclusive license to make, use and sell, in the United States only, products that employ certain licensed patents for a neural probe array or thin-film micro electrode array and method. 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. 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. WARF may terminate the WARF License on 30 days’ written notice if we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our development plan or breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain bankruptcy events involving us. WARF may also terminate the WARF License (i) on 90 days’ notice if we had failed to have commercial sales of one or more FDA-approved products under the WARF License by June 30, 2021 or (ii) if, after royalties earned on sales begin to be paid, such earned royalties cease for more than four calendar quarters. The first commercial sale occurred on December 7, 2020, prior to the June 30, 2021 deadline. The WARF License otherwise expires by its terms on the date that no valid claims on the patents licensed thereunder remain. We expect the latest expiration of a licensed patent to occur in 2030. During the three months ended June 30, 2022 and 2021, $37,500 and $25,000 in royalty fees were incurred related to the WARF License, respectively. During each of the nine month periods ended June 30, 2022 and 2021, $100,000 in royalty fees were incurred related to the WARF License. The royalty fees were reflected as a component of cost of product revenue. Mayo Agreement The Company has an exclusive license and development agreement with the Mayo Foundation for Medical Education and Research (“Mayo”) related to certain intellectual property and development services for thin film micro electrode technology (“Mayo Agreement”). If the Company is successful in obtaining regulatory approval, the Company is to pay royalties to Mayo based on a percentage of net sales of products of the licensed technology through the term of the Mayo Agreement, set to expire May 25, 2037. During the three months ended June 30, 2022 and 2021, $962 and $1,203 in royalty fees were incurred related to the Mayo Agreement, respectively. During the nine months ended June 30, 2022 and 2021, $2,798 and $3,894 in royalty fees were incurred related to the Mayo Agreement, respectively. The royalty fees were reflected as a component of cost of product revenue. Legal PMT Litigation From time to time, the Company is subject to litigation and claims in the ordinary course of business. On March 29, 2018, the Company was served with a complaint filed by PMT Corporation (“PMT”), the former employer of Mark Christianson, a current Company employee, and Wade Fredrickson, a now former Company employee. The complaint added the Company, NeuroOne, Inc. and Mr. Christianson to its existing lawsuit against Mr. Fredrickson in the Fourth Judicial District Court of the State of Minnesota. In the lawsuit, PMT claims that Mr. Fredrickson and Mr. Christianson, by virtue of their work for the Company and their prior work during employment with PMT, breached their non-competition, non-solicitation and non-disclosure obligations, breached their fiduciary duty obligations, were unjustly enriched, engaged in unfair competition, engaged in a civil conspiracy, tortiously interfered with PMT’s contracts and prospective economic advantage, and breached a covenant of good faith and fair dealing. The complaint purported to attach Mr. Fredrickson’s noncompete agreement as Exhibit A. Against Mr. Fredrickson, PMT also alleged that he intentionally or negligently spoliated evidence, made negligent or fraudulent misrepresentations, misappropriated trade secrets in violation of Minnesota law, and committed the tort of conversion and statutory civil theft. Against the Company and NeuroOne, Inc., PMT alleged that the Company and NeuroOne, Inc. were unjustly enriched and engaged in unfair competition. PMT asked the Court to impose a constructive trust over the shares held by Mr. Fredrickson and Mr. Christianson and to award compensatory damages, equitable relief, punitive damages, attorneys’ fees, costs and interest. On April 18, 2018, Mr. Christianson, the Company and NeuroOne, Inc. filed a motion for dismissal, which was heard by the Court on October 11, 2018. The motion for dismissal stated that: the contract claims against Mr. Christianson fail because his agreement was not supported by consideration; the Minnesota Uniform Trade Secrets Act preempts plaintiff’s claims for unfair competition, civil conspiracy and unjust enrichment; plaintiff fails to state a claim regarding alleged breach of the duties of loyalty and good faith/fair dealing; plaintiff cannot legally obtain a constructive trust; plaintiff has insufficiently pled its tortious interference claims; and Plaintiff has not stated a claim for unfair competition. On January 7, 2019, the judge granted the motion for dismissal with respect to PMT’s claim for breach of the duty of good faith and fair dealing and denied the motion for dismissal with respect to the other claims presented. In April 2019, PMT served the Company, NeuroOne, Inc. and Christianson with a proposed Second Amended Complaint, which included new claims against the Company and NeuroOne, Inc for tortious interference with contract and tortious interference with prospective business advantage and punitive damages against the Company, NeuroOne Inc. and Christianson. On June 28, 2019, the Company presented evidence indicating that PMT had participated in a fraud on the Court and sought an Order that PMT had waived the attorney client privilege. On July 16, 2019, the defendants served PMT with a joint notice of motion for sanctions seeking a variety of sanctions for litigation misconduct including, but not limited to, dismissal of the case and an award of attorneys’ fees. The Company, NeuroOne Inc and Mr. Christianson further moved for summary judgment on all remaining claims asserted against them as well as for leave to assert counterclaims against PMT for abuse of process. Following hearings on the dispositive motions and defendants’ sanctions motion, the district court granted the Company’s motion for sanctions on April 29, 2020. Additionally, the district court granted the Company’s motion for summary judgment in part with respect to the counts for Christianson’s breach of non-confidentiality agreement and denied the Company’s motion for summary judgment on all other counts. On August 24, 2020, defendants moved the Court to amend their counterclaims for abuse of process against PMT to add a claim for punitive damages with respect to its conduct pertaining to the Fredrickson noncompete. On October 12, 2020 the Court awarded NeuroOne, Inc. $185,000 in Rule 11 sanctions and Fredrickson $145,000 in Rule 11 sanctions with respect to PMT’s misconduct relating to the Fredrickson noncompete. PMT and its former litigation counsel, Barnes & Thornburg, were jointly and severally liable for these awards, which were paid on December 11, 2020 and have been recognized in other income in the statements of operations. The Court granted NeuroOne, Inc.’s motion to amend to permit its assertion of the right to assert a punitive damages claim against PMT associated with fighting the allegations relating to the Fredrickson noncompete. On May 27, 2021 PMT, moved for summary judgment on defendants’ claims for abuse of process and punitive damages, and on August 5, 2021, the district court granted PMT’s motion to dismiss the Company’s abuse of process and punitive damage claims. On April 29, 2022, the district court issued an order ruling on several motions brought by the parties to exclude evidence from the trial, granting many of the Company’s requests to exclude certain evidence, and denying PMT’s exclusion requests. On July 26, 2022, the Special Master appointed by the district court issued an order striking PMT’s attempt to supplement its trade secret claim by adding thirteen new trade secret claims which it never disclosed during discovery. The Special Master found that the attempt by PMT’s fourth set of lawyers to add claims on the eve of trial was both untimely and unfairly prejudicial to the Company. In addition, the Special Master found the alleged trade secrets were too vague and indefinite to constitute actionable trade secrets. Trial was postponed from December 2021 to August 22, 2022. The Company intends to continue to defend itself vigorously. The outcome of any claim against the Company by PMT was not able to be estimated as of the issuance of these financial statements. Facility Leases Headquarters Lease On October 7, 2019, the Company entered into a non-cancellable lease agreement (the “Minnesota Lease”) with Biynah Cleveland, LLC, BIP Cleveland, LLC, and Edenvale Investors (together, the “Landlord”) pursuant to which the Company has agreed to lease office space located at 7599 Anagram Drive, Eden Prairie, Minnesota (the “Premises”). The Company took possession of the Premises on November 1, 2019, with the term of the Minnesota Lease ending 65 months after such date, unless terminated earlier (the “Term”). The initial base rent for the Premises is $6,410 per month for the first 17 months, increasing to $7,076 per month by the end of the Term. In addition, as long as the Company is not in default under the Minnesota Lease, the Company shall be entitled to an abatement of its base rent for the first 5 months. The Company will also pay its pro rata share of the Landlord’s annual operating expenses associated with the premises, calculated as set forth in the Minnesota Lease of which the Company is entitled to an abatement of these operating expense for the first 3 months. Los Gatos Lease On July 1, 2021, the Company entered into a non-cancellable facility lease (the “Los Gatos Lease”), pursuant to which the Company agreed to rent office space for its research and development operations located at 718 University Avenue, Suite #111, Los Gatos, California. The term of the Los Gatos Lease is eighteen months. The facility space under the Los Gatos Lease is approximately 1,162 square feet. The Company took possession of the office space on July 2, 2021. The initial monthly rent under the Los Gatos Lease is approximately $4,241. San Jose Lease: On December 30, 2020, the Company entered into a non-cancellable lease agreement for short term office space in San Jose, California (the “San Jose Lease”) for a three month initial term. After March 31, 2021, the San Jose Lease was cancellable upon a 30-day notice to the landlord. The Company took possession of the office space on January 1, 2021 and the San Jose Lease was terminated upon the commencement of the Los Gatos Lease discussed above. The base rent under the San Jose Lease was $504 per month. During the three and nine months ended June 30, 2022, rent expense associated with the facility leases amounted to $42,185 and $128,315, respectively. During the three and nine months ended June 30, 2021, rent expense associated with the facility leases amounted to $31,485 and $92,746, respectively. Supplemental cash flow information related to the operating leases was as follows:
|  | For the Nine Months Ended June 30, |
|  | 2022 |  |  | 2021 |
Cash paid for amounts included in the measurement of lease liability: |  |  |  |  |  |
Operating cash flows from operating leases |  | $ | 97,799 |  |  | $ | 58,173 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |  |  |  |
Operating leases |  | $ | — |  |  | $ | — |
Supplemental balance sheet information related to the operating leases was as follows:
|  | As of June 30, 2022 |  |  | As of September 30, 2021 |
Right-of-use assets |  | $ | 208,928 |  |  | $ | 288,948 |
Lease liabilities |  | $ | 232,011 |  |  | $ | 315,673 |
Weighted average remaining lease term (years) |  |  | 2.5 |  |  |  | 3.1 |
Weighted average discount rate |  |  | 6.8 | % |  |  | 6.7 | %
Maturity of the lease liabilities was as follows:
Calendar Year |  | As of June 30, 2022 |
2022 |  | $ | 65,856 |
2023 |  |  | 82,333 |
2024 |  |  | 84,391 |
2025 |  |  | 21,227 |
Total lease payments |  |  | 253,807 |
Less imputed interest |  |  | (21,796 | )
Total |  |  | 232,011 |
Short-term portion |  |  | (94,052 | )
Long-term portion |  | $ | 137,959 |

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