x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
¨
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Delaware
|
87-0419387
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
Large
accelerated filer
|
¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer
|
¨
|
(Do
not check if smaller reporting company)
|
Smaller
reporting company x
|
Page
|
||||
PART
I
|
FINANCIAL
INFORMATION
|
3
|
||
Item
1.
|
Financial
Statements
|
3
|
||
Unaudited
Condensed Consolidated Statements of Operations for the three months ended
December 31, 2010 and 2009
|
3
|
|||
Condensed
Consolidated Balance Sheets as of December 31, 2010 (unaudited) and
September 30, 2010
|
4
|
|||
Unaudited
Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 2010 and 2009
|
5
|
|||
Unaudited
Condensed Consolidated Statements of Stockholders’ Equity
(Deficit) for the three months ended December 31, 2010 and
2009
|
6
|
|||
Notes
to Unaudited Condensed Consolidated Financial Statements
|
7
|
|||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
31
|
||
Item
4.
|
Controls
and Procedures
|
31
|
||
PART
II
|
OTHER
INFORMATION
|
33
|
||
Item
1A.
|
Risk
Factors
|
33
|
||
Item
2.
|
Unregistered
Sales of Equity Security and Use of Proceeds.
|
33
|
||
Item
5.
|
Other
Information
|
37
|
||
Item
6.
|
Exhibits
|
37
|
Item
1.
|
Financial
Statements
|
For the three months ended
December 31,
|
||||||||
2010
|
2009
|
|||||||
REVENUES
|
||||||||
Neurometric
Information Services
|
$ | 27,300 | $ | 22,400 | ||||
Clinical
Services
|
120,600 | 121,100 | ||||||
147,900 | 143,500 | |||||||
OPERATING
EXPENSES
|
||||||||
Cost
of neurometric services revenues
|
36,100 | 29,600 | ||||||
Research
and development
|
355,400 | 222,600 | ||||||
Sales
and marketing
|
246,700 | 200,400 | ||||||
General
and administrative
|
1,053,800 | 1,547,700 | ||||||
Total
operating expenses
|
1,692,000 | 2,000,300 | ||||||
OPERATING
LOSS
|
(1,544,100 | ) | (1,856,800 | ) | ||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
income (expense), net
|
(2,627,100 | ) | (1,600 | ) | ||||
Financing
fees
|
(142,700 | ) | - | |||||
Gain
on derivative liabilities
|
4,217,500 | - | ||||||
Total
other income
|
1,447,700 | ( 1,600 | ) | |||||
LOSS
BEFORE INCOME TAXES
|
(96,400 | ) | (1,858,400 | ) | ||||
Income
taxes
|
1,300 | 800 | ||||||
NET
LOSS
|
$ | (97,700 | ) | $ | (1,859,200 | ) | ||
NET
LOSS PER SHARE:
|
||||||||
Basic
|
$ | (0.00 | ) | $ | (0.04 | ) | ||
Diluted
|
$ | (0.00 | ) | $ | (0.04 | ) | ||
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
||||||||
Basic
|
56,023,921 | 42,584,297 | ||||||
Diluted
|
56,023,921 | 42,584,297 |
(Unaudited) As at
December 31,
|
As at
September 30,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 697,800 | $ | 62,000 | ||||
Accounts
receivable (net of allowance for doubtful accounts of $20,400 and $10,400
as of December 31 and September 30, 2010 respectively)
|
51,100 | 48,900 | ||||||
Prepaids
and other
|
45,400 | 84,900 | ||||||
Total
current assets
|
794,300 | 195,800 | ||||||
Furniture
& equipment
|
36,200 | 23,000 | ||||||
Other
assets
|
18,700 | 18,700 | ||||||
TOTAL
ASSETS
|
$ | 849,200 | $ | 237,500 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable (including $95,900 and $60,800 to related parties as of December
31 and September 30, 2010 respectively)
|
$ | 1,239,800 | $ | 1,383,700 | ||||
Accrued
liabilities
|
440,600 | 380,700 | ||||||
Other
payable – related party
|
- | 100,000 | ||||||
Deferred
compensation (including $118,700 and $81,200 to related parties as of
December 31 and September 30, 2010, respectively)
|
243,300 | 263,600 | ||||||
Accrued
patient costs
|
135,000 | 135,000 | ||||||
Accrued
consulting fees (including $27,000 and $27,000 to related parties as of
December 31 and September 30, 2010, respectively)
|
86,600 | 86,600 | ||||||
Accrued
interest
|
62,600 | - | ||||||
Derivative
liability
|
1,888,300 | 2,061,900 | ||||||
Secured
convertible promissory notes-related party (net of discounts $2,423,700
and $1,023,900 as of December 31 and September 30, 2010,
respectively)
|
600,300 | - | ||||||
Current
portion of long-term debt
|
5,600 | 26,900 | ||||||
Total
current liabilities
|
4,702,100 | 4,438,400 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Capital
lease
|
14,900 | 3,400 | ||||||
Total
long-term liabilities
|
14,900 | 3,400 | ||||||
TOTAL
LIABILITIES
|
4,717,000 | 4,441,800 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock, $0.001 par value; authorized 750,000,000 shares; 56,023,921
shares outstanding as of December 31 and September 30,
2010
|
56,000 | 56,000 | ||||||
Additional
paid-in capital
|
29,543,800 | 29,109,600 | ||||||
Accumulated
deficit
|
(33,467,600 | ) | (33,369,900 | ) | ||||
Total
stockholders' equity
|
(3,867,800 | ) | (4,204,300 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 849,200 | $ | 237,500 |
For the three months ended
December 31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (97,700 | ) | $ | (1,859,200 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and Amortization
|
2,700 | 2,400 | ||||||
Amortization
of discount on bridge notes issued
|
600,300 | - | ||||||
Stock-based
compensation
|
434,200 | 183,800 | ||||||
Issuance
of warrants for financing services
|
82,700 | - | ||||||
Gain
on derivative liability valuation
|
(4,217,500 | ) | - | |||||
Non-cash
interest expense
|
2,021,200 | - | ||||||
Doubtful
debt write-off
|
- | 5,800 | ||||||
Changes
in operating assets and liabilities
|
||||||||
Accounts
receivable
|
(2,200 | ) | (1,500 | ) | ||||
Prepaids
and other current assets
|
39,500 | 43,200 | ||||||
Accounts
payable
|
(143,900 | ) | (197,800 | ) | ||||
Accrued
liabilities
|
122,500 | (2,000 | ) | |||||
Deferred
compensation
|
(20,300 | ) | 6,800 | |||||
Accrued
consulting fees
|
- | (20,000 | ) | |||||
Accrued
patient costs
|
- | (107,200 | ) | |||||
Security
deposit on new lease
|
- | (16,600 | ) | |||||
Net
cash used in operating activities
|
(1,178,500 | ) | (1,962,300 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition
of Furniture & Equipment
|
(15,900 | ) | - | |||||
Net
cash used in operating activities
|
(15,900 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Repayment
of note
|
(24,700 | ) | (22,900 | ) | ||||
Repayment
of leases
|
(1,000 | ) | (500 | ) | ||||
New
equipment lease
|
15,900 | - | ||||||
Net
proceeds from bridge notes
|
1,840,000 | - | ||||||
Proceeds
from sale of common stock, net of offering
costs
|
- | 2,922,600 | ||||||
Net
cash provided by financing activities
|
1,830,200 | 2,899,200 | ||||||
Net
increase in cash
|
635,800 | 936,900 | ||||||
Cash,
beginning of period
|
62,000 | 988,100 | ||||||
Cash,
end of period
|
$ | 697,800 | $ | 1,925,000 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Cash paid
during the period for:
|
||||||||
Interest
|
$ | 1,000 | $ | 1600 | ||||
Income
taxes
|
$ | 1,300 | $ | 800 |
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
|||||||||||||||||
For the three months ended December 31, 2010
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|||||||||||||||
BALANCE
- September 30, 2010 (Audited)
|
56,023,921 | $ | 56,000 | $ | 29,109,600 | $ | (33,369,900 | ) | $ | ( 4,204,300 | ) | |||||||||
Stock-based
compensation
|
- | - | 434,200 | - | 434,200 | |||||||||||||||
Net
loss for the three months ended December 31, 2010
|
- | - | - | (97,700 | ) | (97,700 | ) | |||||||||||||
Balance
at December 31, 2010
|
56,023,921 | $ | 56,000 | $ | 29,543,800 | $ | (33,467,600 | ) | $ | (3,867,800 | ) |
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
|||||||||||||||||
For the three months ended December 31, 2009
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|||||||||||||||
BALANCE
- September 30, 2009 (Audited)
|
41,781,129 | $ | 41,800 | $ | 24,044,000 | $ | (25,195,900 | ) | $ | ( 1,110,100 | ) | |||||||||
Stock-based
compensation
|
- | - | 183,800 | - | 183,800 | |||||||||||||||
Issuance
of stock in connection with the Maxim PIPE net of offering cost of
$505,300
|
11,426,666 | 11,400 | 2,911,200 | - | 2,922,600 | |||||||||||||||
Warrants
issued in association with the Maxim PIPE
|
- | - | 7,383,400 | - | 7,383,400 | |||||||||||||||
Offering
cost pertaining to the Maxim PIPE
|
- | - | (7,383,400 | ) | - | (7,383,400 | ) | |||||||||||||
Net
loss for the three months ended December 31, 2009
|
- | - | - | (1,859,200 | ) | (1,859,200 | ) | |||||||||||||
Balance
at December 31, 2009
|
53,207,795 | $ | 53,200 | $ | 27,139,000 | $ | (27,055,100 | ) | $ | 137,100 |
1.
|
NATURE OF
OPERATIONS
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
·
|
Level 1 inputs
to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active
markets.
|
|
·
|
Level 2 inputs
to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the
assets or liability, either directly or indirectly, for substantially the
full term of the financial
instruments.
|
|
·
|
Level 3 inputs
to the valuation methodology are unobservable and significant to the fair
value.
|
December 31, 2010
|
||||
Annual
dividend yield
|
-
|
|||
Expected
life (years)
|
1.0-3.5
|
|||
Risk-free
interest rate
|
2.02
|
%
|
||
Expected
volatility
|
141%-277
|
%
|
Fair Value
|
Fair Value Measurements at
|
|||||||||||||||
As of
|
December 31, 2010
|
|||||||||||||||
December 31,
|
Using Fair Value Hierarchy
|
|||||||||||||||
2010
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Liabilities
|
||||||||||||||||
Warrant
liability
|
$ | 1,029,500 | $ | - | $ | 1,029,500 | $ | - | ||||||||
Secured
convertible promissory note
|
3,023,900 | 3,023,900 | - | |||||||||||||
Conversion
option liability
|
858,800 | - | 858,800 | - | ||||||||||||
Total
accrued derivative liabilities
|
$ | 4,912,200 | $ | - | $ | 4,912,200 | $ | - |
3.
|
CONVERTIBLE DEBT AND EQUITY
FINANCINGS
|
4.
|
STOCKHOLDERS’
EQUITY
|
For the three months ended December 31,
|
||||||||
2010
|
2009
|
|||||||
Operations
|
$ | 2,500 | $ | 4,000 | ||||
Research
and development
|
89,300 | 65,000 | ||||||
Sales
and marketing
|
66,900 | 29,600 | ||||||
General
and administrative
|
275,500 | 85,200 | ||||||
Total
|
$ | 434,200 | $ | 183,800 |
Number of
Shares
|
Weighted Average
Exercise Price
|
|||||||
Outstanding
at September 30, 2010
|
15,670,973
|
$
|
0.62
|
|||||
Granted
|
-
|
$
|
-
|
|||||
Exercised
|
-
|
$
|
-
|
|||||
Forfeited
|
(420,852
|
)
|
$
|
0.69
|
||||
Outstanding
at December 31, 2010
|
15,250,121
|
$
|
0.62
|
Exercise Price
|
Number of Shares
|
Weighted Average
Contractual Life
|
Weighted Average
Exercise Price
|
||||||
$0.12
|
859,270
|
10
years
|
$
|
0.12
|
|||||
$0.132
|
987,805
|
7
years
|
$
|
0.132
|
|||||
$0.30
|
135,700
|
10
years
|
$
|
0.30
|
|||||
$0.59
|
28,588
|
10
years
|
$
|
0.59
|
|||||
$0.80
|
140,000
|
10
years
|
$
|
0.80
|
|||||
$0.89
|
968,875
|
10
years
|
$
|
0.89
|
|||||
$0.96
|
352,974
|
10
years
|
$
|
0.96
|
|||||
$1.09
|
2,513,549
|
10
years
|
$
|
1.09
|
|||||
$1.20
|
243,253
|
5
years
|
$
|
1.20
|
|||||
$0.51
|
41,187
|
10
years
|
$
|
0.51
|
|||||
$0.40
|
856,000
|
10
years
|
$
|
0.40
|
|||||
$0.55
|
8,122,920
|
10
years
|
$
|
0.55
|
|||||
Total
|
15,250,121
|
$
|
0.62
|
Warrants to Purchase
|
Exercise
Price
|
Issued in Connection With:
|
|||
5,893,334
shares
|
$ | 0.30 |
Associated
with the second, third and fourth closing of the private placement
transaction of 11,786,667 shares at $0.30 with 50% warrant coverage as
described in Note 3
|
||
1,200,267
shares
|
$ | 0.33 |
Associated
with warrants for the lead and secondary placement agents for private
placement as described in Note 3
|
||
(3,333,333)
shares
|
$ | 0.30 |
These
warrants were surrendered in a net issue exercise and 2,456,126 shares
were issued in lieu of cash.
|
||
500,000
shares
|
$ | 0.30 |
These
warrants were granted to individual staff members of Equity Dynamics, Inc.
a Company owned by Mr. Pappajohn, for their efforts in providing
consulting services associated with the Company’s financing
activities.
|
||
852,812
shares
|
$ | 0.30 |
These
warrants were issued to Mr. John Pappajohn, a Director of the Company,
pursuant to the October 1, 2010 Note and Warrant Purchase agreement
described in note 3; whereby two outstanding convertible notes of $250,000
each, issued on June 3 and July 25, 2010 respectively, and 250,000
outstanding warrants issued on July 25, 2010, with an exercise price of
$0.50 were cancelled and exchanged on October 1, 2010 for two new notes of
$250,000 each plus unpaid interest and warrants to purchase 852,812 shares
of common stock.
|
||
256,125
shares
|
$ | 0.30 |
These
warrants were issued to Deerwood Partners, LLC which is controlled by Dr.
George Kallins, a Director of the Company, pursuant to the October 1, 2010
Note and Warrant Purchase agreement described in note 3; whereby two
outstanding convertible notes of $125,000 each, issued on July 5 and
August 20, 2010 respectively, and 75,000 outstanding warrants issued on
August 20, 2010, with an exercise price of $0.56 were cancelled and
exchanged on November 3, 2010 for two new notes of $125,000 each plus
unpaid interest and warrants to purchase 256,125 shares of common
stock.
|
||
256,125
shares
|
$ | 0.30 |
These
warrants were issued to Deerwood Holdings, LLC which is controlled by Dr.
George Kallins, a Director of the Company, pursuant to the October 1, 2010
Note and Warrant Purchase agreement described in note 3; whereby two
outstanding convertible notes of $125,000 each, issued on July 5 and
August 20, 2010 respectively, and 75,000 outstanding warrants issued on
August 20, 2010, with an exercise price of $0.56 were cancelled and
exchanged on November 3, 2010 for two new notes of $125,000 each plus
unpaid interest and warrants to purchase 256,125 shares of common
stock.
|
||
341,498
shares
|
$ | 0.30 |
These
warrants were issued to SAIL, of which Mr. David Jones, a Director of the
Company, is a managing partner. SAIL had undertaken to guarantee the four
abovementioned Deerwood notes which were issued on July 5 and August 20,
2010. For this guarantee SAIL was issued 100,000 warrants on August 20,
2010 with an exercise price of $0.56. Upon the cancellation and exchange
of the Deerwood notes on November 3, 2010, SAIL undertook to guarantee the
four new Deerwood notes in exchange for the cancellation of the SAIL’s
100,000 outstanding warrants which were replaced with new
341,498.
|
3,333,329
shares
|
$ | 0.30 |
These
warrants were issued to eight investors who purchased notes for $2,222,220
pursuant to the October 1, 2010 Note and Warrant Purchase agreement
described in note 3. These investors included three directors of the
Company, Mr. David Jones, Mr. John Pappajohn and Dr. George Kallins, each
of whom purchased notes for $250,000 ($750,000 in aggregate) either
directly or through an entity that they control.
|
||
166,666
shares
|
$ | 0.33 |
These
warrants were issued Monarch Capital who acted as placement agents in
raising $500,000 from two investors who purchase notes pursuant to the
Note and Warrant Purchase agreement described in note
3.
|
5.
|
RELATED
PARTY TRANSACTIONS
|
6.
|
REPORTABLE
SEGMENTS
|
Three months ended December 31, 2010
|
||||||||||||||||
Reference
Neurometric
|
Clinic
|
Eliminations
|
Total
|
|||||||||||||
Revenues
|
34,400 | 120,600 | (7,100 | ) | 147,900 | |||||||||||
Operating
expenses:
|
||||||||||||||||
Cost
of revenues
|
36,100 | 7,100 | (7,100 | ) | 36,100 | |||||||||||
Research
and development
|
355,400 | - | - | 355,400 | ||||||||||||
Sales
and marketing
|
243,700 | 3,000 | - | 246,700 | ||||||||||||
General
and administrative
|
832,700 | 221,100 | 1,053,800 | |||||||||||||
Total
operating expenses
|
1,467,900 | 231,200 | (7,100 | ) | 1,692,000 | |||||||||||
Loss
from operations
|
$ | (1,433,500 | ) | $ | (110,600 | ) | $ | - | $ | (1,544,100 | ) |
Three months ended December 31, 2009
|
||||||||||||||||
Reference
Neurometric
|
Clinic
|
Eliminations
|
Total
|
|||||||||||||
Revenues
|
26,400
|
154,400
|
(37,300
|
)
|
143,500
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Cost
of revenues
|
29,600
|
4,000
|
(4,000
|
)
|
29,600
|
|||||||||||
Research
and development
|
233,200
|
-
|
-
|
233,200
|
||||||||||||
Sales
and marketing
|
198,400
|
2,000
|
-
|
200,400
|
||||||||||||
General
and administrative
|
1,422,000
|
148,400
|
(33,300
|
)
|
1,537,100
|
|||||||||||
Total
operating expenses
|
1,883,200
|
154,400
|
(37,300
|
)
|
2,000,300
|
|||||||||||
Loss
from operations
|
$
|
(1,856,800
|
)
|
$
|
-
|
$
|
-
|
$
|
(1,856,800
|
)
|
Reference
Neurometric
|
Clinic
|
Total
|
||||||||||
Total
assets
|
$
|
810,500
|
$
|
38,700
|
$
|
849,200
|
7.
|
EARNINGS PER
SHARE
|
2010
|
2009
|
|||||||
Net
loss for computation of basic net income (loss) per share
|
$
|
(97,700
|
)
|
$
|
(1,859,200
|
)
|
||
Net
income (loss) for computation of dilutive net income (loss) per
share
|
$
|
(97,700
|
)
|
$
|
(1,859,200
|
)
|
||
Basic
net income (loss) per share
|
$
|
0.00
|
$
|
(0.04
|
)
|
|||
Diluted
net income (loss) per share
|
$
|
0.00
|
$
|
(0.04
|
)
|
|||
Basic
weighted average shares outstanding
|
56,023,921
|
42,584,297
|
||||||
Dilutive
common equivalent shares
|
-
|
-
|
||||||
Diluted
weighted average common shares
|
56,023,921
|
42,584,297
|
||||||
Anti-dilutive
common equivalent shares not included in the computation
of dilutive net loss per share:
|
||||||||
Convertible
debt
|
2,611,595
|
-
|
||||||
Warrants
|
24,322,648
|
16,089,296
|
||||||
Options
|
15,551,655
|
6,630,174
|
8.
|
COMMITMENTS AND CONTINGENT
LIABILITIES
|
9.
|
SUBSEQUENT
EVENTS
|
|
|
our inability to raise
additional funds to support operations and capital
expenditures;
|
|
|
our inability to achieve
greater and broader market acceptance of our products and services in
existing and new market
segments;
|
|
|
our inability to successfully
compete against existing and future
competitors;
|
|
|
our inability to manage and
maintain the growth of our
business;
|
|
|
our inability to protect our
intellectual property rights;
and
|
|
|
other factors discussed under
the headings “Risk Factors” and “Business” in our Annual Report on Form
10-K and this Quarterly Report on Form
10-Q.
|
Three months December 31,
|
||||||||
2010
|
2009
|
|||||||
Revenues
|
100
|
%
|
100
|
%
|
||||
Cost
of revenues
|
24
|
21
|
||||||
Gross
profit
|
76
|
79
|
||||||
Research
and development
|
240
|
163
|
||||||
Sales
and marketing
|
167
|
140
|
||||||
General
and administrative expenses
|
713
|
1,071
|
||||||
Operating
loss
|
(1,044
|
)
|
(1,294
|
)
|
||||
Other
income (expense), net
|
978
|
(2
|
)
|
|||||
Net
income (loss)
|
(66
|
)%
|
(1,296
|
)%
|
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Neurometric
Information Service Revenues
|
$ | 27,300 | $ | 22,400 | 22 | % | ||||||
Clinical
Service Revenues
|
120,600 | 121,100 | - | % | ||||||||
Total
Revenues
|
$ | 147,900 | $ | 143,500 | 3 | % |
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Cost
of Neurometric Information Services revenues
|
$ | 36,100 | $ | 29,600 | 22 | % |
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Neurometric
Information Services research and development
|
$ | 355,400 | $ | 222,600 | 59 | % |
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Sales
and Marketing
|
||||||||||||
Neurometric
Information Services
|
$ | 243,700 | $ | 198,400 | 23 | % | ||||||
Clinical
Services
|
3,000 | 2,000 | 50 | % | ||||||||
Total
Sales and Marketing
|
$ | 246,700 | $ | 200,400 | 23 | % |
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
General
and administrative
|
||||||||||||
Neurometric
Information Services
|
$ | 832,700 | $ | 1,399,300 | (40 | )% | ||||||
Clinical
Services
|
221,100 | 148,400 | 49 | % | ||||||||
Total
General and administrative
|
$ | 1,053,800 | $ | 1,547,700 | (31 | )% |
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Neurometric Information
Services income (expense), net
|
$ | 1,447,700 | $ | (1,400 | ) | * | % | |||||
Clinical
Services income (expense)
|
- | (200 | ) | * | % | |||||||
Total
other income (expense)
|
$ | 1,447,700 | $ | (1,600 | ) | * | % | |||||
*
not meaningful
|
Three Months ended
December 31,
|
||||||||||||
2010
|
2009
|
Percent
Change
|
||||||||||
Neurometric
Information Services net profit (loss)
|
$ | 12,900 | $ | (1,859,000 | ) | (6 | )% | |||||
Clinical
Services net loss
|
(110,600 | ) | (200 | ) | 5530 | % | ||||||
Total
Net Loss
|
$ | (97,700 | ) | $ | (1,859,200 | ) | (4 | )% |
|
1.
|
$1.0
million, which represents the fair value liability associated with the
warrants issued in conjunction with the October
Notes.
|
|
2.
|
$0.9
million, which represent the fair value liability associated with the
conversion option of the October Notes. (Please
see Note 3 to the financial statements or “Private Placement Transactions”
above.)
|
|
·
|
the
amount and timing of costs we incur in connection with our research and
product development activities, including enhancements to our CNS Database
and costs we incur to further validate the efficacy of our rEEG
technology;
|
|
·
|
the
amount and timing of costs we incur in connection with the expansion of
our commercial operations, including our selling and marketing
efforts;
|
|
·
|
whether
we incur additional consulting and legal fees in our efforts to obtain
510(k) clearance from the FDA.
|
|
·
|
if
we expand our business by acquiring or investing in complimentary
businesses.
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market
Risk.
|
Item
4.
|
Controls
and Procedures.
|
|
·
|
We
do not have a comprehensive and formalized accounting and procedures
manual.
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Term
|
Bridge Note/Deerwood Note
|
October Note
|
||
Maturity
|
December
15, 2010
|
One
year from the date of issuance
|
||
Initial
Conversion Price
|
$0.50,
with any adjustment being subject to a $0.30 floor
|
$0.30
|
||
If
Company issues common stock (or securities convertible, exercisable or
exchangeable for common stock), at a consideration (or conversion,
exercise or exchange price) (the “Offering Price”) less than the
Conversion Price, Conversion Price will be adjusted to match the Offering
Price (“Ratchet”)
|
No
|
Yes
|
||
Prepayment
upon financing with aggregate proceeds of not less than
$3million
|
Yes
|
No
|
||
Noteholder
has Security Interest
|
Yes
(Bridge Note)
No
(Deerwood Note)
|
Yes.
Benefits of security agreement expire on the date that holders of a
majority of aggregate principal amount of notes issued have converted
their Notes in accordance with their terms.
|
||
Events
of Default (Differences only)
|
·
General assignment to creditors
·
Bankruptcy proceeding, which is not dismissed within 60
days
·
Entry of final judgment for the payment of money in excess of $25,000 and
failure to satisfy for 30 days
|
·
Voluntary bankruptcy filing
·
Failure to comply with Use of Proceeds covenant in purchase
agreement
·
Court enters bankruptcy order that is not vacated, set aside or reversed
within 60 days
|
||
Option
to convert notes into securities to be issued in subsequent financings at
the lower of conversion price or price per share payable by purchasers of
such securities
|
No
|
Yes
|
||
Amendments,
waivers or modification of the note or related warrants requires written
consent of the holders of a majority of the aggregate principal amount of
the notes outstanding, and such written consent will be binding on all
holders
|
N/A
- single investors
|
Yes
|
Warrant
Coverage
|
25%
(in case of Deerwood Notes, 40% of which was issued to guarantor of
Deerwood Notes)
|
50%
(in case of Deerwood entities, 40% of which was issued to guarantor of
notes issued to Deerwood entities)
|
||
Initial
Exercise Price of Warrants
|
$0.50
(Bridge Note); $0.56 (Deerwood Note)
|
$0.30
|
||
Ratchet
as applied to Warrants (see definition above)
|
|
Results
in a decrease in exercise price
|
|
Results
in a decrease in exercise price and corresponding increase in number of
shares issuable
|
Item
5.
|
Other
Information
|
Exhibits
|
Exhibit
Number
|
Exhibit Title
|
|
10.38
|
Form
of Note and Warrant Purchase Agreement, dated October 1, 2010, by and
between the Registrant and the Investors party
thereto. Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K (File Number 000-26285) filed with
the Securities and Exchange Commission on October 7,
2010.
|
|
10.39
|
Security
Agreement, dated October 1, 2010, by and between the Registrant and John
Pappajohn, as administrative agent for the secured
parties. Incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K (File Number 000-26285) filed with
the Securities and Exchange Commission on October 7,
2010.
|
|
10.40
|
Form
of October Note. Incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K (File Number 000-26285) filed
with the Securities and Exchange Commission on October 7,
2010.
|
|
10.41
|
Form
of October Warrant. Incorporated by reference to Exhibit 4.2 to
the Registrant's Current Report on Form 8-K (File Number 000-26285) filed
with the Securities and Exchange Commission on October 7,
2010.
|
|
10.42
|
Form
of Placement Agent Warrant issued to Monarch Capital Group,
LLC. Incorporated by reference to Exhibit 4.3 to the
Registrant's Current Report on Form 8-K (File Number 000-26285) filed with
the Securities and Exchange Commission on October 27,
2010.
|
|
10.44
|
Form
of Guaranty, dated as of November 3, 2010, by SAIL Venture Partners, LP in
favor of [Deerwood Holdings, LLC][Deerwood Partners,
LLC]. Incorporated by reference to Exhibit 10.44 to the
Registrant’s Annual Report on Form 10-K (File No. 000-26285) filed with
the Commission on December 21, 2010.
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of
2002.
|
CNS
Response, Inc.
|
|||
Date:
February 14, 2010
|
/s/ George Carpenter | ||
By:
|
George
Carpenter
|
||
Its:
|
Chief
Executive Officer
|
||
(Principal
Executive Officer)
|
|||
/s/ Paul Buck | |||
By:
|
Paul
Buck
|
||
Its:
|
Chief
Financial Officer
|
||
(Principal
Financial Officer)
|