UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

(Mark One)



xQuarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the quarterly period ended March 31, 2015



 ̈Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the transition period from __________________
to ______________________.



Commission file number 001-35527



CNS Response, Inc.

(Exact name of registrant as specified in its
charter)



|Delaware                        |  | 87-0419387         
|------------------------------- |  | -------------------
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



85 Enterprise, Suite 410

Aliso Viejo, California 92656

(Address of principal executive offices) (Zip
Code)



(949) 420-4400

(Registrant’s telephone number, including
area code)



(Former name, former address,
former fiscal year, if changed since last report)



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YesxNo ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

YesxNo ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.



|Large accelerated filer |  ̈                                                | Accelerated filer         |  ̈
|----------------------- | ------------------------------------------------ | ------------------------- | -
|                        |                                                  |                           |  
|Non-accelerated filer   |  ̈(Do
    not check if smaller reporting company) | Smaller reporting company | x



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈Nox



As of May 15, 2015, the issuer had 101,667,409
shares of common stock, par value $.001 per share, issued and outstanding.









CNS RESPONSE, INC.



INDEX



|         |                                                                                                                       | Page
|-------- | --------------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                                       |     
|PART I   | FINANCIAL INFORMATION                                                                                                 | 2   
|         |                                                                                                                       |     
|Item 1.  | Financial Statements                                                                                                  | 2   
|         |                                                                                                                       |     
|         | Unaudited Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2015 and 2014  | 2   
|         |                                                                                                                       |     
|         | Condensed Consolidated Balance Sheets as of March 31, 2015 (unaudited) and September 30, 2014                         | 3   
|         |                                                                                                                       |     
|         | Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2015 and 2014            | 4   
|         |                                                                                                                       |     
|         | Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the six months ended March 31, 2015 and 2014 | 5   
|         |                                                                                                                       |     
|         | Notes to Unaudited Condensed Consolidated Financial Statements                                                        | 6   
|         |                                                                                                                       |     
|Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                 | 20  
|         |                                                                                                                       |     
|Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                                                            | 40  
|         |                                                                                                                       |     
|Item 4.  | Controls and Procedures                                                                                               | 40  
|         |                                                                                                                       |     
|PART II  | OTHER INFORMATION                                                                                                     | 41  
|         |                                                                                                                       |     
|Item 1.  | Legal Proceedings                                                                                                     | 41  
|         |                                                                                                                       |     
|Item 1A. | Risk Factors                                                                                                          | 41  
|         |                                                                                                                       |     
|Item 2.  | Unregistered Sales of Equity Security and Use of Proceeds                                                             | 41  
|         |                                                                                                                       |     
|Item 6.  | Exhibits                                                                                                              | 41  



1







PART
I

FINANCIAL
INFORMATION



Item 1.       Financial
Statements



CNS RESPONSE,
INC.

UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                         |  | For the three months endedMarch 31, |             |   | For the six months endedMarch 31, |  
|---------------------------------------- |  | ----------------------------------- | ----------- | - | --------------------------------- | -
|                                         |  | 2015                                |             |   | 2014                              |  
|REVENUES                                 |  |                                     |             |   |                                   |  
|Neurometric Services                     |  | $                                   | 20,900      |   |                                   | $
|                                         |  |                                     |             |   |                                   |  
|Cost of neurometric services revenue     |  |                                     | 1,800       |   |                                   |  
|Research                                 |  |                                     | 22,900      |   |                                   |  
|Product development                      |  |                                     | 191,900     |   |                                   |  
|Sales and marketing                      |  |                                     | 175,200     |   |                                   |  
|General and administrative               |  |                                     | 408,300     |   |                                   |  
|                                         |  |                                     |             |   |                                   |  
|Total operating expenses                 |  |                                     | 800,100     |   |                                   |  
|                                         |  |                                     |             |   |                                   |  
|OPERATING LOSS                           |  |                                     | (779,200    | ) |                                   |  
|                                         |  |                                     |             |   |                                   |  
|OTHER INCOME (EXPENSE):                  |  |                                     |             |   |                                   |  
|Interest expense, net                    |  |                                     | (54,600     | ) |                                   |  
|Gain on extinguishment of debt           |  |                                     | -           |   |                                   |  
|Gain on derivative liabilities           |  |                                     | 139,200     |   |                                   |  
|Total other income (expense)             |  |                                     | 84,600      |   |                                   |  
|LOSS BEFORE PROVISION FOR INCOME TAXES   |  |                                     | (694,600    | ) |                                   |  
|Provision for income taxes               |  |                                     | 800         |   |                                   |  
|LOSS FROM CONTINUING OPERATIONS          |  | $                                   | (695,400    | ) |                                   | $
|Gain (Loss) from discontinued operations |  |                                     | (900        | ) |                                   |  
|NET LOSS                                 |  | $                                   | (696,300    | ) |                                   | $
|                                         |  |                                     |             |   |                                   |  
|BASIC AND DILUTED LOSS PER SHARE:        |  |                                     |             |   |                                   |  
|From continuing operations               |  | $                                   | (0.01       | ) |                                   | $
|From discontinued operations             |  |                                     | (0.00       | ) |                                   |  
|Combined Net Loss                        |  | $                                   | (0.01       | ) |                                   | $
|                                         |  |                                     |             |   |                                   |  
|WEIGHTED AVERAGE SHARES OUTSTANDING:     |  |                                     |             |   |                                   |  
|Basic and Diluted                        |  |                                     | 101,667,409 |   |                                   |  



See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.



2







CNS RESPONSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                             |  | UnauditedAs atMarch 31, |             |   | As atSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ------------------ | -
|                                                                                                                                                             |  | 2015                    |             |   | 2014               |  
|ASSETS                                                                                                                                                       |  |                         |             |   |                    |  
|CURRENT ASSETS:                                                                                                                                              |  |                         |             |   |                    |  
|Cash                                                                                                                                                         |  | $                       | 310,000     |   |                    | $
|Accounts receivable (net of allowance for doubtful accounts of $1,200 and
    $1,200 as of March 31, 2015 and September 30, 2014 respectively)               |  |                         | 5,400       |   |                    |  
|Prepaids and other assets                                                                                                                                    |  |                         | 114,700     |   |                    |  
|Total current assets                                                                                                                                         |  |                         | 430,100     |   |                    |  
|Furniture and equipment, net                                                                                                                                 |  |                         | 5,300       |   |                    |  
|Other assets                                                                                                                                                 |  |                         | 18,300      |   |                    |  
|TOTAL ASSETS                                                                                                                                                 |  | $                       | 453,700     |   |                    | $
|                                                                                                                                                             |  |                         |             |   |                    |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                        |  |                         |             |   |                    |  
|CURRENT LIABILITIES:                                                                                                                                         |  |                         |             |   |                    |  
|Accounts payable (including $51,400 and $41,300 to related parties as March
    31, 2015 and September 30, 2014 respectively)                                |  | $                       | 841,500     |   |                    | $
|Accrued liabilities                                                                                                                                          |  |                         | 85,400      |   |                    |  
|Accrued compensation (including $249,000 and $71,700 to related parties as
    of March 31, 2015 and September 30, 2014 respectively)                        |  |                         | 415,900     |   |                    |  
|Deferred revenue - grant funds                                                                                                                               |  |                         | 45,900      |   |                    |  
|Secured convertible debt (net of discounts $144,300 and $174,200 as of March 31, 2015 and
    September 30, 2014 respectively)                               |  |                         | 1,920,700   |   |                    |  
|Accrued interest                                                                                                                                             |  |                         | 45,400      |   |                    |  
|Derivative liability                                                                                                                                         |  |                         | 85,800      |   |                    |  
|Current portion of capital lease                                                                                                                             |  |                         | 3,400       |   |                    |  
|Liabilities of discontinued operation                                                                                                                        |  |                         | 157,700     |   |                    |  
|Total current liabilities                                                                                                                                    |  |                         | 3,601,700   |   |                    |  
|                                                                                                                                                             |  |                         |             |   |                    |  
|LONG-TERM LIABILITIES                                                                                                                                        |  |                         |             |   |                    |  
|Capital lease                                                                                                                                                |  |                         | 700         |   |                    |  
|Total long-term liabilities                                                                                                                                  |  |                         | 700         |   |                    |  
|TOTAL LIABILITIES                                                                                                                                            |  |                         | 3,602,400   |   |                    |  
|STOCKHOLDERS' DEFICIT:                                                                                                                                       |  |                         |             |   |                    |  
|Common stock, $0.001 par value; authorized 180,000,000 shares and issued and outstanding
    101,667,409 shares as of March 31, 2015 and September 30, 2014. |  |                         | 101,700     |   |                    |  
|Additional paid-in capital                                                                                                                                   |  |                         | 57,534,000  |   |                    |  
|Accumulated deficit                                                                                                                                          |  |                         | (60,784,400 | ) |                    |  
|Total stockholders' deficit                                                                                                                                  |  |                         | (3,148,700  | ) |                    |  
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                  |  | $                       | 453,700     |   |                    | $



See accompanying Notes to Unaudited
Condensed Consolidated Financial Statements.



3







CNS RESPONSE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS



|                                                                            |  | For the six months endedMarch 31, |           
|--------------------------------------------------------------------------- |  | --------------------------------- | ----------
|                                                                            |  | 2015                              |           
|OPERATING ACTIVITIES:                                                       |  |                                   |           
|Net loss                                                                    |  | $                                 | (1,570,900
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                   |           
|Net loss from discontinued operations                                       |  |                                   | 1,800     
|Depreciation and amortization                                               |  |                                   | 4,400     
|Amortization of discount on bridge notes issued                             |  |                                   | 29,900    
|Loss on derivative liability valuation                                      |  |                                   | (67,300   
|Stock-based compensation                                                    |  |                                   | 162,200   
|Gain on extinguishment of debt                                              |  |                                   | -         
|Non-cash interest expense                                                   |  |                                   | 42,800    
|Valuation of warrants – investor relations                                  |  |                                   | 21,600    
|Changes in operating assets and liabilities                                 |  |                                   |           
|Accounts receivable                                                         |  |                                   | 3,900     
|Prepaids and other                                                          |  |                                   | (56,500   
|Accounts payable and accrued liabilities                                    |  |                                   | 31,800    
|Deferred compensation                                                       |  |                                   | 73,900    
|Deferred revenue grant funds                                                |  |                                   | -         
|Net cash used in operating activities                                       |  |                                   | (1,322,400
|FINANCING ACTIVITIES:                                                       |  |                                   |           
|Repayment of a capital lease                                                |  |                                   | (1,900    
|Net proceeds from secured notes                                             |  |                                   | 415,000   
|Net proceeds from purchase of common stock                                  |  |                                   | -         
|Net cash provided by financing activities                                   |  |                                   | 413,100   
|Net cash used in continuing operations                                      |  |                                   | (909,300  
|DISCONTINUED OPERATIONS                                                     |  |                                   |           
|Net Cash used in discontinued operations                                    |  |                                   | (21,300   
|NET DECREASE IN CASH                                                        |  |                                   | (930,600  
|Cash – beginning of period                                                  |  |                                   | 1,240,600 
|Cash – end of period                                                        |  |                                   | 310,000   
|                                                                            |  |                                   |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                           |  |                                   |           
|Cash paid during the period for:                                            |  |                                   |           
|Interest                                                                    |  | $                                 | 1,500     
|Income taxes                                                                |  | $                                 | 4,000     
|Non-cash financing activities:                                              |  |                                   |           
|Placement agent warrants issued                                             |  | $                                 | -         



See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.



4







CNS RESPONSE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ DEFICIT FOR THE SIX MONTHS ENDED MARCH 31, 2015 AND 2014





|                                                 |  | Common Stock |             |  | AdditionalPaid-in |   |         | Accumulated |  |   |            | 
|------------------------------------------------ |  | ------------ | ----------- |  | ----------------- | - | ------- | ----------- |  | - | ---------- | 
|For six months ended March 31, 2015              |  | Shares       |             |  | Amount            |   |         | Capital     |  |   | Deficit    | 
|BALANCE - September 30, 2014 (Audited)           |  |              | 101,667,409 |  |                   | $ | 101,700 |             |  | $ | 57,350,200 | 
|Stock-based compensation                         |  |              | -           |  |                   |   | -       |             |  |   | 162,200    | 
|Warrant valuation – Investor Relations           |  |              | -           |  |                   |   | -       |             |  |   | 21,600     | 
|Net loss for the six months ended March 31, 2015 |  |              | -           |  |                   |   | -       |             |  |   | -          | 
|Balance at March 31, 2015                        |  |              | 101,667,409 |  |                   | $ | 101,700 |             |  | $ | 57,534,000 | 





|                                                   |  | Common Stock |             |  | AdditionalPaid-in |   |         | Accumulated |  |   |            |  
|-------------------------------------------------- |  | ------------ | ----------- |  | ----------------- | - | ------- | ----------- |  | - | ---------- | -
|For six months ended March 31, 2014                |  | Shares       |             |  | Amount            |   |         | Capital     |  |   | Deficit    |  
|BALANCE - September 30, 2013 (Audited)             |  |              | 92,716,562  |  |                   | $ | 92,700  |             |  | $ | 54,298,000 |  
|Stock-based compensation                           |  |              | -           |  |                   |   | -       |             |  |   | 666,900    |  
|Stock issued for private placement shares          |  |              | 5,900,000   |  |                   |   | 5,900   |             |  |   | 1,425,100  |  
|Stock issued in lieu of cash to creditors          |  |              | 1,446,380   |  |                   |   | 1,400   |             |  |   | 360,100    |  
|Stock issued for cashless exercise of warrants     |  |              | 484,288     |  |                   |   | 500     |             |  |   | (500       | )
|Net income for the six months ended March 31, 2014 |  |              | -           |  |                   |   | -       |             |  |   | -          |  
|Balance at March 31, 2014                          |  |              | 100,547,230 |  |                   | $ | 100,500 |             |  | $ | 56,749,600 |  



See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.



5







CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS



|1. |  | NATURE OF OPERATIONS
|-- |  | --------------------



Organization and Nature of Operations



CNS Response, Inc. (“CNS,”
“we,” “us,” “our,” or the “Company”) was incorporated in Delaware on March 20,
1987, under the name Age Research, Inc.  Prior to January 16, 2007, the Company (then called Strativation, Inc.) was a “shell
company” with nominal assets and our sole business was to identify, evaluate and investigate various companies to acquire
or with which to merge.  On January 16, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with CNS Response, Inc., a California corporation formed on January 11, 2000 (“CNS California”),
and CNS Merger Corporation, a California corporation and the Company’s wholly-owned subsidiary (“MergerCo”)
pursuant to which the Company agreed to acquire CNS California in a merger transaction wherein MergerCo would merge with and into
CNS California, with CNS California being the surviving corporation (the “Merger”). On March 7, 2007, the Merger closed,
CNS California became a wholly-owned subsidiary of the Company, and on the same date the corporate name was changed from Strativation,
Inc. to CNS Response, Inc.



The Company is a cloud-based
predictive analytics company that provides objective clinical decision support to mental healthcare providers for the treatment
of behavioral disorders, including depression, anxiety, bipolar disorder and post-traumatic stress disorder ("PTSD").
The Company uses its proprietary neurometric platform, PEER Online, to generate Psychiatric EEG Evaluation Registry ("PEER")
Reports to predict the likelihood of response by an individual to certain medications for the treatment of behavioral disorders.
In April 2013, the Company commenced a reimbursed clinical trial at Walter Reed National Military Medical Center ("Walter
Reed") and Fort Belvoir Community Hospital ("Fort Belvoir") (collectively, the "Walter Reed PEER Trial")
using its neurometric platform to provide PEER Reports to military psychiatrists treating patients primarily for depression with
various comorbidities, including PTSD and mild traumatic brain injury ("mTBI"). In April 2014, based on an interim analysis
of less than 10% of the planned clinical trial enrollees, statistically significant results were achieved for ten of the twelve
endpoints of the Walter Reed PEER Trial. We are awaiting further data to determine achievement of our primary endpoint. In May
2014, following the interim analysis, the Walter Reed Institutional Review Board (the "Walter Reed IRB") suspended enrollment
of new patients in order to conduct an internal review. We expect to recommence enrollment of the Walter Reed PEER Trial in 2015,
which will provide additional information to demonstrate the clinical and economic utility of our neurometric platform.



The Company acquired the
Neuro-Therapy Clinic, Inc. (“NTC”) on January 15, 2008, to provide behavioral health care services.  NTC’s
operations were discontinued effective September 30, 2012. See Note 3. Discontinued Operations.



At the Company’s 2014 annual meeting
of stockholders, held on May 13, 2014 (the “2014 Annual Meeting”), the Company’s common stockholders voted to
reappoint the Company’s existing board of directors (the “Board”) to serve until the next annual meeting and
until any successor is elected and qualified.



Going Concern Uncertainty



The accompanying 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 has a limited operating history and its operations are subject to
certain problems, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the operation
of a new business. These risks include the ability to obtain adequate financing on a timely basis, 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 continued
operating losses and limited capital raise substantial doubt about its ability to continue as a going concern. The Company has
limited cash resources for its operations and will need to raise additional funds to meet its obligations as they become
due.



To date, the Company has financed its cash
requirements primarily from debt and equity financings.  The Company will need to raise additional funds immediately
to continue its operations and to raise substantial additional funds before the Company can increase demand for its PEER Online
services. Until it can generate a sufficient amount of revenues to finance its cash requirements, which it may never do, the Company
has to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings 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 audited consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern.



6







|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------



Basis of Presentation



The unaudited condensed
consolidated financial statements of CNS Response, Inc. (“CNS,” “we,” “us,” “our”
or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission
and include all the accounts of CNS and its wholly owned subsidiaries CNS California and NTC. Certain information and note disclosures,
normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to such rules
and regulations. The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of our financial position as of March 31, 2015 and our operating results,
cash flows, and changes in stockholders’ deficit for the interim periods presented. The September 30, 2014 balance sheet
was derived from our audited consolidated financial statements but does not include all disclosures required by GAAP. These unaudited
condensed consolidated financial statements and the related notes should be read in conjunction with our audited consolidated
financial statements and notes for the year ended September 30, 2014, which are included in our annual report on Form 10-K, filed
with the Securities and Exchange Commission on December 29, 2014.



The preparation of financial
statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities and revenues and expenses in the financial statements. Examples
of estimates subject to possible revision based upon the outcome of future events include, among others, recoverability of long-lived
assets and goodwill, stock-based compensation, the allowance for doubtful accounts, the valuation of equity instruments, use and
other taxes. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments
(consisting of normal recurring adjustments, except as otherwise indicated) necessary for fair presentation for the periods presented
as required by regulation S-X, Rule 10-01. Actual results could differ from those estimates.



The results of operations
for the six months ended March 31, 2015 are not necessarily indicative of the results that may be expected for future periods
or for the year ending September 30, 2015.



Basis of Consolidation



The condensed consolidated
financial statements include the accounts of CNS Response, Inc., an inactive parent company, and its wholly owned subsidiaries
CNS California and NTC.  All significant intercompany transactions have been eliminated in consolidation. NTC is accounted
for as a discontinued operation. See Note 3. Discontinued Operations.



Use of Estimates



The preparation of the
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 contingent assets and liabilities. On an ongoing basis,
the Company evaluates its estimates, including those related to revenue recognition, doubtful accounts, intangible assets, income
taxes, valuation of equity instruments, accrued liabilities, contingencies and litigation. 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



The Company deposits its
cash with major financial institutions and may at times exceed the federally insured limit of $250,000.  At March 31,
2015 cash exceeded the federally insured limit by $60,000.  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.



Derivative Liabilities



The Company evaluates
all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements
of operations. For stock-based derivative financial instruments, the Company uses a weighted average Black-Scholes option pricing
model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2015, the
Company’s only derivative financial instrument were a series of convertible notes with a “reset” and “dilutive
issuance” clause within the notes relating to the conversion price from dilutive share issuance. See Notes 4, Convertible
Debt and Equity Financings & 5, Derivative Liabilities.



7







Fair Value of Financial Instruments



ASC 825-10 (formerly Statement
of Financial Accounting Standards (“SFAS”) 107, Disclosures about Fair Value of Financial Instruments) 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 (formerly SFAS 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity), ASC 815-10 (formerly SFAS 133, Accounting
for Derivative Instruments and Hedging Activities) and ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock).



The Company adopted ASC
820-10 (formerly SFAS 157, Fair Value Measurements) on January 1, 2008. ASC 820-10 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:



| | · | 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;
                                         and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Level
                                         3 inputs to the valuation methodology are unobservable and significant to the fair
                                         value.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company used Level
2 inputs for its valuation methodology for the conversion option liability in determining the fair value using the Black-Scholes
option-pricing model with the following assumption inputs:



|                        |  | March
    31, 2015 |     
|----------------------- |  | ------------------ | ----
|Annual dividend yield   |  |                    | -   
|Expected life (years)   |  |                    | 0.5 
|Risk-free interest rate |  |                    | 0.14
|Expected volatility     |  |                    | 64  



|                            |  | Carrying Value |           |  | Fair Value Measurements at |  
|--------------------------- |  | -------------- | --------- |  | -------------------------- | -
|                            |  | As of          |           |  | March 31, 2015             |  
|                            |  | March
    31,  |           |  | Using Fair Value Hierarchy |  
|                            |  | 2015           |           |  | Level 1                    |  
|Liabilities                 |  |                |           |  |                            |  
|Secured Convertible Debt    |  | $              | 1,920,700 |  |                            | $
|Conversion option liability |  |                | 85,800    |  |                            |  
|Total                       |  | $              | 2,006,500 |  |                            | $



For the six months ending
March 31, 2015 the Company recognized a gain of $99,300 on the change in fair value of derivative liabilities.  For the six
months ending March 31, 2014 the Company had no derivative liabilities or change in fair valuation thereon.  As at March
31, 2015 the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at
fair value in accordance with ASC 825-10.



Accounts Receivable



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.



8







Furniture and Equipment



Fixed assets, which are
recorded at cost, consist of office furniture and equipment and are depreciated over their estimated useful life on a straight-line
basis.  The useful life of these assets is estimated to be from 3 to 5 years.  Depreciation for the six months
ended March 31, 2015 and 2014 was $4,400 and $5,400 respectively.  Accumulated depreciation at March 31, 2015 and 2014
was $72,300 and $65,200 respectively.



Offering Costs



The Company applies ASC
505-10, Costs of an Equity Transaction, for recognition of offering costs. In accordance with ASC 505-10, the Company treats
incremental direct costs incurred to issue shares classified as equity, as a reduction of the proceeds. Direct costs incurred
before shares classified as equity are issued are classified as an asset until the stock is issued. Indirect costs such as management
salaries or other general and administrative expenses and deferred costs of an aborted offering are expensed.



Long-Lived Assets



As required by ASC 350-30
(formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company reviews the carrying
value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of
an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the
future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less
than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying
value and fair value. No impairment loss was recorded for the three and six months ended March 31, 2015 and 2014.



The Company adopted Accounting
Standards Update (“ASU”) 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment. The new guidance is intended to reduce the complexity and costs of the annual impairment
test for indefinite-lived intangible assets by allowing companies to make a qualitative evaluation about the likelihood of impairment
to determine whether it should perform a quantitative impairment test.



Accounts Payable



This consists of trade payables of which $476,900
is for legal services.



Deferred Revenue



Deferred revenue represents
revenue collected but not earned as of March 31, 2015. This represents a philanthropic grant for the payment of PEER Reports ordered
for the Walter Reed clinical trial during calendar 2014, which are otherwise not paid for by Walter Reed or Fort Belvoir. These
deferred revenue grant funds as of March 31, 2015 and 2014, are $45,900 and $47,000.



Revenues



The Company recognizes
revenue on services, being the delivery of PEER Reports to medical providers, in accordance with the Financial Accounting Standards
Board (“FASB”) ASC No. 605, Revenue Recognition.  In all cases, revenue is recognized when we
have persuasive evidence of an arrangement, a determinable fee, when collection is considered to be reasonably assured and the
services are delivered.



Research and Development Expenses



The Company charges all
research and development expenses to operations as incurred.



Advertising Expenses



The Company charges all
advertising expenses to operations as incurred. For the six months ended March 31, 2015 we incurred advertising expenses of $29,000;
for the six months ended March 31, 2014 we incurred $10,000 in advertising expenses.



Stock-Based Compensation



The Company has adopted
ASC 718-20 (formerly SFAS No. 123R, Share-Based Payment - revised 2004) and related interpretations which establish the
accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost to option grantee,
being employees, directors and consultants, and is measured at the grant date based on the calculated fair value of the award.
See Note 5. Derivative Liabilities for further discussion on valuations. The expense is recognized over the option grantees’
requisite service period, generally the vesting period of the award.



9







Comprehensive Loss



ASC 220-10 (formerly,
SFAS No. 130, Reporting Comprehensive Income), requires disclosure of all components of comprehensive income (loss) on
an annual and interim basis.  Comprehensive income (loss) is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-owner sources.  The Company’s comprehensive
loss is the same as its reported net loss for the six months March 31, 2015 and 2014.



Loss per Share



The Company has adopted
GAAP regarding earnings (loss) per share, which requires presentation of basic and diluted earnings (loss) per share in conjunction
with the disclosure of the methodology used in computing such earnings (loss) per share.



Basic earnings (loss)
per share are computed by dividing income (loss) available to common stockholders 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.



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 November 2014, the
FASB issued Accounting Standards Update (“ASU”) No. 2014-17 Business Combinations (topic 805)- Pushdown Accounting.An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control
event occurs. An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control
event in which an acquirer obtains control of the acquired entity. If pushdown accounting is not applied in the reporting period
in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in
a subsequent reporting period to the acquired entity’s most recent change-in-control event. An election to apply pushdown
accounting in a reporting period after the reporting period in which the change-in-control event occurred should be considered
a change in accounting principle in accordance with Topic 250, Accounting Changes and Error Corrections. If pushdown accounting
is applied to an individual change-in-control event, that election is irrevocable. The Company does not expect the adoption of
the standard update to have a material impact on its consolidated financial position or results of operations.



In November 2014, the
FASB issued ASU No. 2014-16 Derivatives and Hedging (Topic 815) Determining Whether the Host Contract in a Hybrid Financial
Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity.Entities commonly raise capital by issuing different
classes of shares, including preferred stock, that entitle the holders to certain preferences and rights over the other shareholders.
The specific terms of those shares may include conversion rights, redemption rights, voting rights, and liquidation and dividend
payment preferences, among other features. One or more of those features may meet the definition of a derivative under generally
accepted accounting principles (GAAP). Shares that include such embedded derivative features are referred to as hybrid financial
instruments. For hybrid financial instruments issued in the form of a share, an entity (an issuer or an investor) should determine
the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument,
weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature
of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including
the embedded derivative feature that is being evaluated for separate accounting from the host contract. The Company does not expect
the adoption of the standard update to have a material impact on its consolidated financial position or results of operations.



|3. |  | DISCONTINUED OPERATIONS
|-- |  | -----------------------



On September 30, 2012 the Company discontinued
its Clinical Services Operation at its wholly-owned subsidiary, NTC, because the operation had persistent losses which could no
longer be supported by the Company. Furthermore, the Company chose to focus its limited cash resources to conduct its Walter Reed
PEER Trial.





10









Summary Financial Data of Discontinued Operations:



Revenues, income before income taxes and net loss of NTC which
are included in discontinued operations are as follows:



|                            |  | Three Months endedMarch 31, |     
|--------------------------- |  | --------------------------- | ----
|                            |  | 2015                        |     
|Neuro-Therapy Clinic        |  |                             |     
|Revenues                    |  | $                           | -   
|Expenses                    |  |                             | 900 
|Operating Loss before taxes |  | $                           | (900
|Taxes                       |  |                             | -   
|Net Loss                    |  | $                           | (900



|                            |  | Six Months endedMarch 31, |       
|--------------------------- |  | ------------------------- | ------
|                            |  | 2015                      |       
|Neuro-Therapy Clinic        |  |                           |       
|Revenues                    |  | $                         | -     
|Expenses                    |  |                           | 1,800 
|Operating Loss before taxes |  | $                         | (1,800
|Taxes                       |  |                           | -     
|Net Loss                    |  | $                         | (1,800



The assets and liabilities of NTC are as follows:



|                                       |  | (Unaudited)March 31, |         |  | September
30, |  
|-------------------------------------- |  | -------------------- | ------- |  | ------------- | -
|                                       |  | 2015                 |         |  | 2014          |  
|ASSETS:                                |  |                      |         |  |               |  
|Assets of Discontinued Operations      |  | $                    | -       |  |               | $
|                                       |  |                      |         |  |               |  
|LIABILITIES:                           |  |                      |         |  |               |  
|Accounts Payable                       |  | $                    | 86,600  |  |               | $
|Accrued Payroll Liabilities            |  |                      | 71,000  |  |               |  
|Liabilities of Discontinued Operations |  | $                    | 157,600 |  |               | $



|4. |  | CONVERTIBLE DEBT AND EQUITY FINANCINGS
|-- |  | --------------------------------------



Between September 22,
2014, and March 18, 2015, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) in connection
with a bridge financing, with nine accredited investors, including lead investor RSJ Private Equity (“RSJ PE”).  Pursuant
to the Note Purchase Agreement, the Company issued twelve secured convertible promissory notes (each, a “September 2014
Note”) in the aggregate principal amount of $2.07 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000.
The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: The Tierney
Family Trust, of which the Company’s Chairman of the Board, Thomas Tierney, is a trustee, purchased three September 2014
Notes for $415,000; the Company’s Director, John Pappajohn, purchased two September 2014 Notes for $300,000; the Follman
Family Trust of which Robert Follman is a Director of the Company, purchase a September 2014 Note for $100,000; and Oman Ventures,
of which Mark Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000.



|                                                                                 |  |              |  | As
    of March 31, 2015 |          
|-------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | ---------
|Note Type and
    Investor                                                       |  | Due
    Date |  | Balance                  |          
|Senior Secured
    5% Notes Convertible at $0.25(the “September
    2014 Notes”) |  |              |  | ($)                      |          
|                                                                                 |  |              |  |                          |          
|RSJ Private Equity                                                               |  | 03/21/2016   |  | $                        | 750,000  
|4 Accredited Investors                                                           |  | 03/21/2016   |  |                          | 300,000  
|John Pappajohn                                                                   |  | 03/21/2016   |  |                          | 300,000  
|Tierney Family Trust                                                             |  | 03/21/2016   |  |                          | 415,000  
|Oman Ventures                                                                    |  | 03/21/2016   |  |                          | 200,000  
|Follman Family Trust                                                             |  | 03/21/2016   |  |                          | 100,000  
|Total Secured Convertible Promissory
    (September 2014) Notes                  |  |              |  | $                        | 2,065,000



11







The Note Purchase Agreement
provides for the issuance and sale of September 2014 Notes in the aggregate principal amount of up to $2.5 million, in one or
more closings to occur over a six-month period beginning September 22, 2014. The Note Purchase Agreement also provides that the
Company and the holders of the September 2014 Notes enter into a registration rights agreement covering the registration of the
resale of the shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) underlying the
September 2014 Notes.



The September 2014 Notes
mature on March 21, 2016, which is eighteen months from the date of first issuance (subject to earlier conversion or prepayment),
earn interest at a rate of 5% per annum with interest payable at maturity, are convertible into shares of Common Stock (i) automatically
upon the closing of a qualified offering of no less than $5 million at a conversion price equal to the lesser of $0.25 or 70%
of the lowest cost of Common Stock offered by the Company, but in no event less than $0.10 per share or (ii) voluntarily within
15 days of maturity at the lesser of a conversion price equal to $0.25 or the lowest cost of Common Stock offered by the Company,
but in no event less than $0.10 per share. No September 2014 Note may be prepaid without the prior written consent of the holder
of such Note. The September 2014 Notes are secured by a security interest in the Company’s intellectual property, as detailed
in a security agreement. Upon a change of control of the Company, the holder of a September 2014 Note will have the option to
have the Note repaid with a premium equal to 50% of the outstanding principal.



|5. |  | DERIVATIVE LIABILITIES
|-- |  | ----------------------



Starting September 22,
2014, through March 18, 2015, the Company raised $2.07 million in a private placement of secured convertible debt at $0.25 per
share of Common Stock. This debt instrument also has a ratchet whereby the conversion price of $0.25 per share can be reduced
to a minimum of $0.10 per share (see Note 4). The inclusion of this ratchet requires the determination of the fair market carrying
value. At issuance, the note discount and derivative liability using the Black-Scholes model was $179,200. Upon subsequent revaluations,
the derivative liability value was $153,100 and $85,800 as at September 30, 2014 and March 31, 2015 with a resultant $139,200
gain from derivative liabilities being booked to other income for the three months ended March 31, 2015, and a gain of $99,300
being booked to other income for the six months ended March 31, 2015. For the six months ended March 31, 2014, we had no change
in valuation as there were no derivative liabilities at that time.



The Black-Scholes option-pricing
model with the following assumption inputs:



|                        |  | March
    31, 2015 |      
|----------------------- |  | ------------------ | -----
|Annual dividend yield   |  |                    | -    
|Expected life (years)   |  |                    | 0.5  
|Risk-free interest rate |  |                    | 0.14 
|Expected volatility     |  |                    | 64.22



|6. |  | STOCKHOLDERS’ DEFICIT
|-- |  | ---------------------



Common and Preferred Stock



As of March 31, 2015,
the Company is authorized to issue 195,000,000 shares of stock of which 180,000,000 are Common Stock at par value of $0.001 per
share (“Common Stock”); the remaining 15,000,000 shares, with a par value of $0.001 per shares are blank-check preferred
stock which the Board is expressly authorized to provide, 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.



As of March 31, 2015,
101,667,409 shares of Common Stock were issued and outstanding. No shares of preferred stock were issued or outstanding.



From October 4, 2013,
through February 14, 2014, 29 accredited investors purchased an aggregate of 5,900,000 shares of Common Stock, at a price of $0.25
per share pursuant to private placements. The Company received gross aggregate cash proceeds of $1,475,000. (Refer to Note
8. Related Party Transactions)



12







Between November 11, 2013,
and December 20, 2013, the Company issued an aggregate of 1,446,380 shares of its Common Stock valued at $361,500, as full and
complete settlement of trade payables totaling an aggregate $1,466,800 owed to two creditors who are also accredited investors.
As a result of this transaction the Company recorded a gain on extinguishment of debt of $1,105,200.



On March 21, 2014, the
Board resolved to amend the Company’s Charter in order to further increase the number of shares of Common Stock authorized
for issuance under the Charter from 150,000,000 to 180,000,000. This amendment to the Charter was approved by more than 65% of
the stockholders eligible to vote at the annual meeting of stockholders held on May 13, 2014.



From July 8, 2014 through
July 23, 2014, 8 accredited investors purchased an aggregate of 1,040,000 shares of Common Stock, at a price of $0.25 per share
pursuant to private placements. The Company received gross aggregate cash proceeds of $260,000. (Refer to Note 8. Related Party
Transactions)



On January 29, 2014 and
June 20, 2014, placement agent warrants to purchase in aggregate 608,309 shares of Common Stock with a price of $0.04718 per share
were exercised on a net basis resulting in the issuance of 564,467 shares of Common Stock.



Stock-Option Plans



On August 3, 2006, CNS
California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides 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 667,667 shares of stock were ultimately reserved for issuance under the 2006 Plan. As of September 30,
2014, 70,825 options were exercised and there were 501,924 options and 6,132 restricted shares outstanding under the amended 2006
Plan leaving 87,786 shares which will not be issued as the 2006 Plan has been frozen. The outstanding options have exercise prices
to purchase shares of Common Stock ranging from $3.60 to $32.70.



On March 22, 2012, our
Board approved the CNS Response, Inc. 2012 Omnibus Incentive Compensation Plan (the “2012 Plan”), reserved 333,334
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 333,334 shares to 5,500,000 shares. On March 26, 2013, the Board further approved the amendment of
the 2012 Plan to increase the shares authorized for issuance from 5,500,000 shares to 15,000,000 shares. The 2012 Plan, as amended,
was approved by our stockholders at the 2013 annual meeting held on May 23, 2013.



On October 8, 2013, the
Board granted to the Company’s two executive officers and two senior managers (collectively, the “Managers”)
options to purchase shares of its Common Stock pursuant to the 2012 Omnibus Incentive Compensation Plan, as amended (the “2012
Plan”), at an exercise price of $0.25 per share as follows: George Carpenter 435,000 shares, Paul Buck 470,000 shares, Stewart
Navarre 385,000 shares and Brian MacDonald 310,000. These options vested pro-rata over 12 months starting from the date of grant.
The four managers agreed to forego a portion of their salaries in fiscal year 2014 as follows: George Carpenter $98,000, Paul
Buck $106,500, Stewart Navarre $83,600 and Brian MacDonald $66,700. These executive officers and managers will be paid out of
the salaries which were earned and accrued during fiscal years 2012 and 2013. The accruals to be paid out are equivalent to the
fiscal year 2014 salaries that each of the executive officers and managers agreed to forego in lieu of receiving options.



On November 8, 2013, the
Board granted 700,000 options to purchase shares of its Common Stock pursuant to the 2012 Plan, at an exercise price of $0.25
per share to select consultants and staff, excluding the managers. The staff options vest evenly over 48 months starting on the
date of grant; consultant options vest evenly over 36 months starting on the date of grant.



On July 31, 2014, the
Board granted 425,000 options to purchase shares of its Common Stock pursuant to the 2012 Plan, at an exercise price of $0.26
per share to select consultants. These options vest evenly over 36 months starting on the date of grant.



On January 8, 2015, the
Board granted an option to purchase 250,000 shares of its Common Stock pursuant to the 2012 Plan, at an exercise price of $0.25
per share to a consultant. The option vesting is contingent upon the achievement of agreed upon goals.



As of March 31, 2015,
70,825 options had been exercised and 501,924 options and 6,132 restricted shares were outstanding under the amended 2006 Plan
leaving 87,786 shares which will never be issued as the 2006 Plan is frozen. Options to purchase 12,165,575 shares of Common Stock
have been issued under the 2012 Plan, none of which have been exercised, leaving 2,834,425 options available for issuance.



13







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 statements of operations for the three
months and six months ended March 31, 2015 and 2014 is as follows:



|                                      |  | For the three months endedMarch 31, |       
|------------------------------------- |  | ----------------------------------- | ------
|                                      |  | 2015                                |       
|Cost of Neurometric Services revenues |  | $                                   | -     
|Research                              |  |                                     | 10,400
|Product Development                   |  |                                     | 15,500
|Sales and marketing                   |  |                                     | 53,400
|General and administrative            |  |                                     | 20,500
|Total                                 |  | $                                   | 99,800



|                                      |  | For the six months endedMarch 31, |        
|------------------------------------- |  | --------------------------------- | -------
|                                      |  | 2015                              |        
|Cost of Neurometric Services revenues |  | $                                 | -      
|Research                              |  |                                   | 20,800 
|Product Development                   |  |                                   | 34,000 
|Sales and marketing                   |  |                                   | 63,300 
|General and administrative            |  |                                   | 44,100 
|Total                                 |  | $                                 | 162,200



Total unrecognized compensation as of March 31, 2015
amounted to $241,765.



A summary of stock option
activity is as follows:



|                                  |  | Number ofShares |            |  | Weighted
    AverageExercise Price |  
|--------------------------------- |  | --------------- | ---------- |  | ---------------------------------- | -
|Outstanding at September 30, 2014 |  |                 | 12,417,499 |  |                                    | $
|Granted                           |  |                 |            |  |                                    |  
|Exercised                         |  |                 |            |  |                                    |  
|Forfeited                         |  |                 |            |  |                                    |  
|Outstanding at December 31, 2014  |  |                 | 12,417,499 |  |                                    | $
|Granted                           |  |                 | 250,000    |  |                                    |  
|Exercised                         |  |                 | -          |  |                                    |  
|Forfeited                         |  |                 | -          |  |                                    |  
|Outstanding at March 31, 2015     |  |                 | 12,667,499 |  |                                    | $



Following is a summary
of the status of options outstanding at March 31, 2015:



|ExercisePrice |         |  | Numberof Shares |  |            | ExpirationDate |  |  | Weighted
    AverageExercise Price
|------------- | ------- |  | --------------- |  | ---------- | -------------- |  |  | ----------------------------------
|              |         |  |                 |  |            |                |  |  |                                   
|$             | 0.04718 |  |                 |  | 8,920,300  |                |  |  | 12/2022 – 01/2023                 
|$             | 0.25    |  |                 |  | 2,777,605  |                |  |  | 03/2023 – 01/2025                 
|$             | 0.26    |  |                 |  | 425,000    |                |  |  | 07/2024                           
|$             | 3.00    |  |                 |  | 42,670     |                |  |  | 03/2022                           
|$             | 3.60    |  |                 |  | 28,648     |                |  |  | 08/2016                           
|$             | 3.96    |  |                 |  | 32,928     |                |  |  | 08/2016                           
|$             | 9.00    |  |                 |  | 4,525      |                |  |  | 11/2016                           
|$             | 12.00   |  |                 |  | 28,535     |                |  |  | 03/2019 – 07/2020                 
|$             | 14.10   |  |                 |  | 10,000     |                |  |  | 03/2021                           
|$             | 15.30   |  |                 |  | 1,373      |                |  |  | 09/2018                           
|$             | 16.50   |  |                 |  | 262,441    |                |  |  | 03/2020                           
|$             | 17.70   |  |                 |  | 953        |                |  |  | 08/2016                           
|$             | 24.00   |  |                 |  | 4,667      |                |  |  | 12/2017                           
|$             | 26.70   |  |                 |  | 32,297     |                |  |  | 09/2017                           
|$             | 28.80   |  |                 |  | 11,767     |                |  |  | 04/2018                           
|$             | 32.70   |  |                 |  | 83,790     |                |  |  | 08/2017                           
|              | Total   |  |                 |  | 12,667,499 |                |  |  |                                   



14







Warrants to Purchase Common Stock



The warrant activity for the period starting
October 1, 2013, through March 31, 2015, is described as follows:



|                                  |  | Number ofShares |          |   | Weighted
    AverageExercise Price |  
|--------------------------------- |  | --------------- | -------- | - | ---------------------------------- | -
|Outstanding at September 30, 2014 |  |                 | 814,744  |   |                                    | $
|Granted                           |  |                 | 200,000  |   |                                    |  
|Exercised                         |  |                 | -        |   |                                    |  
|Forfeited                         |  |                 | (226,020 | ) |                                    |  
|Outstanding at December 31,2014   |  |                 | 788,724  |   |                                    |  
|Granted                           |  |                 | -        |   |                                    |  
|Exercised                         |  |                 | -        |   |                                    |  
|Forfeited                         |  |                 | (7,200   | ) |                                    |  
|Outstanding at March 31, 2015     |  |                 | 781,524  |   |                                    | $



Following is a summary
of the status of warrants outstanding at March 31, 2015:



|ExercisePrice |         |  | Numberof Shares |  |         | ExpirationDate |  |                       | Weighted
    AverageExercise Price
|------------- | ------- |  | --------------- |  | ------- | -------------- |  | --------------------- | ----------------------------------
|              |         |  |                 |  |         |                |  |                      
|$             | 0.04718 |  |                 |  | 38,152  |                |  | 03/2018               |                                   
|              | 0.25    |  |                 |  | 332,200 |                |  | 04/2016 –
    07/2017 |                                   
|              | 0.275   |  |                 |  | 324,000 |                |  | 06/2018 –
    03/2019 |                                   
|              | 1.00    |  |                 |  | 67,170  |                |  | 10/2015 –
    01/2017 |                                   
|              | 7.50    |  |                 |  | 3,334   |                |  | 05/2016               |                                   
|$             | 9.00    |  |                 |  | 16,668  |                |  | 07/2017               |                                   
|              | Total   |  |                 |  | 781,524 |                |  |                       |                                   



On March 22, 2014, a warrant to purchase120,000
shares of Common Stock at an exercise price of $0.275 per share were issued to Monarch Capital who acted as placement agents in
raising $300,000 from 11 accredited investors who purchased restricted common stock in private placement agreements dated October
2, 2013 and January 8, 2014.



Also on March 22, 2014, a warrant to purchase
32,200 shares of Common Stock at an exercise price of $0.25 per share were issued to D&D Securities, Inc. who acted as placement
agents in raising $115,000 from three accredited investors who purchased restricted common stock in private placement agreements
dated January 8, 2014.



On August 1, 2014, a warrant to purchase 200,000
shares of Common Stock at an exercise price of $0.25 per share were issued to Red Chip Companies, Inc. pursuant to an investor
relations services agreement.



At March 31, 2015, there were warrants outstanding
to purchase 781,524 shares of the Company’s common stock. The exercise price of the outstanding warrants range from
$0.04718 to $9.00 with a weighted average exercise price of $0.53. The warrants expire at various times starting 2015 through
2019.



|7. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------



On October 8, 2013, the
Board granted to the Company’s two executive officers and two senior managers (collectively, the “Managers”)
options to purchase shares of its Common Stock pursuant to the 2012 Option Plan at an exercise price of $0.25 per share as follows:
George Carpenter 435,000 shares, Paul Buck 470,000 shares, Stewart Navarre 385,000 shares and Brian MacDonald 310,000. These options
vest pro-rata over 12 months starting from the date of grant. Pursuant to the Employment Compensation Forfeiture and Exchange
Agreement dated December 16, 2013, the Managers agreed to forego a portion of their salaries in fiscal year 2014 as follows: George
Carpenter $98,000, Paul Buck $106,500, Stewart Navarre $83,600 and Brian MacDonald $66,700. These Managers were paid out of the
salaries earned and accrued during fiscal years 2012 and 2013. The accruals to be paid out were equivalent to the fiscal year
2014 salaries that each of the Managers agreed to forego in lieu of receiving options to purchase shares.



15







Transactions with John Pappajohn, Director



On September 22, 2014 and March 18, 2015, Mr.
Pappajohn purchased two September 2014 Notes for $200,000 and $100,000 respectively. The September 2014 Notes are convertible
into shares of Common Stock (i) automatically upon the closing of a qualified offering of no less than $5 million at a conversion
price equal to the lesser of $0.25 or 70% of the lowest cost of Common Stock offered by the Company, but in no event less than
$0.10 per share or (ii) voluntarily within 15 days of maturity at the lesser of a conversion price equal to $0.25 or the lowest
cost of Common Stock offered by the Company, but in no event less than $0.10 per share.



Transactions with Walter L. Schindler,
Director



Mr. Schindler is a Director
and the Managing Partner of SAIL Capital Partners which is the general partner of all the SAIL entities except for SAIL Holding,
LLC, which is controlled directly by Mr. Schindler.



On July 11, 2014, SAIL
Pre-Exit Acceleration fund, L.P, an entity managed by Mr. Schindler, entered into a subscription agreement to purchase 40,000
shares of Common Stock at $0.25 per share for which the Company received gross cash proceeds of $10,000.



On January 5, 2015, we entered into a three-month
long consulting engagement with Dr. Eric Warner, Managing Partner, Europe, Middle East & Africa, Sail Capital Partners Ltd.
The objectives of the engagement include the establishment of a revenue-generating licensing agreement in the United Kingdom (U.K.)
and initiation a pilot study of our PEER Online technology. Dr. Warner has been paid $10,000 per month for a total of $30,000.
On January 8, 2015, the Board granted Dr. Warner an option to purchase 250,000 shares of Common Stock with an exercise price of
$0.25 per share; the option vesting is conditioned on the execution of a licensing agreement and a PEER Online pilot study. The
fair value of the option, which was determined using the Black-Scholes model, was $28,300 and was expensed over the term of the
engagement.



Transactions with Thomas T. Tierney, Chairman
of the Board



The Thomas T. and Elizabeth
C. Tierney Family Trust (the “Tierney Family Trust”), of which our Chairman, Mr. Tierney, is a trustee, has made multiple
additional investments pursuant to a series of subscription agreements all of which were the result of private placements of unregistered
stock at $0.25 per share. All individual transactions were in tranches of $100,000 for the purchase of 400,000 shares and the
Company received gross cash proceeds of $100,000 on each occasion. Since October 1, 2013, transactions occurred on the following
dates: January 13, February 12 and July 8, of 2014. In aggregate the Tierney Family Trust has purchased 1,200,000 shares at $0.25
per share for $300,000 gross cash proceeds to the Company.



On September 22, 2014,
January 8, 2015 and March 17, 2015, the Tierney Family Trust purchased four September 2014 Notes for $200,000, $100,000 and $115,000
respectively for an aggregate total of $415,000. The September 2014 Notes are convertible into shares of Common Stock (i) automatically
upon the closing of a qualified offering of no less than $5 million at a conversion price equal to the lesser of $0.25 or 70%
of the lowest cost of Common Stock offered by the Company, but in no event less than $0.10 per share or (ii) voluntarily within
15 days of maturity at the lesser of a conversion price equal to $0.25 or the lowest cost of Common Stock offered by the Company,
but in no event less than $0.10 per share.



Transactions with Robert J. Follman, Director



The Trust of Robert J.
Follman and Carole A. Follman, dated August 14, 1979 (the “Follman Trust”), of which our Director Mr. Follman is a
trustee, has made multiple additional investments pursuant to a series of subscription agreements all of which were the result
of private placements of unregistered stock at $0.25 per share. All individual transactions were in tranches of $100,000 for the
purchase of 400,000 shares and the Company received gross cash proceeds of $100,000 on each occasion. Since October 1, 2013, transactions
occurred on the following dates: January 17, February 14 and July 8 of 2014. In aggregate the Follman Trust has purchased 1,200,000
shares at $0.25 per share for $300,000 gross cash proceeds to the Company.



On March 17, 2015, the
Trust of Robert J. Follman and Carole A. Follman, dated August 14, 1979 (the “Follman Trust”), of which our Director
Mr. Follman is a trustee, purchased a September 2014 Note for $100,000. The September 2014 Notes are convertible into shares of
Common Stock (i) automatically upon the closing of a qualified offering of no less than $5 million at a conversion price equal
to the lesser of $0.25 or 70% of the lowest cost of Common Stock offered by the Company, but in no event less than $0.10 per share
or (ii) voluntarily within 15 days of maturity at the lesser of a conversion price equal to $0.25 or the lowest cost of Common
Stock offered by the Company, but in no event less than $0.10 per share.



16







Transactions with George Carpenter, Chief
Executive Officer



On September 25, 2013,
the Board approved a consulting agreement effective May 1, 2013, for marketing services provided by Decision Calculus Associates,
an entity operated by Mr. Carpenter’s spouse, Jill Carpenter. For the period from May 1, 2013 through to February 28, 2015,
we have paid $210,000 to Decision Calculus Associates and have an accounts payable balance of a further $10,000.



On January 28, 2014, Mr.
and Mrs. Carpenter invested $50,000 for 200,000 shares of Common Stock at $0.25 per share pursuant to a subscription agreement
for which the Company received gross cash proceeds of $50,000.



On July 11, 2014, Mr.
and Mrs. Carpenter invested $12,500 for 50,000 shares of Common Stock at $0.25 per share pursuant to a subscription agreement
for which the Company received gross cash proceeds of $12,500.



Transactions with Paul Buck, Chief Financial
Officer



On February 12, 2014,
Mr. Buck invested $25,000 for 100,000 shares of Common Stock at $0.25 per share pursuant to a subscription agreement for which
the Company received gross cash proceeds of $25,000.



On July 8, 2014, Mr. Buck
invested $12,500 for 50,000 shares of Common Stock at $0.25 per share pursuant to a subscription agreement for which the Company
received gross cash proceeds of $12,500.



Transactions with Mark and Jill Oman, Greater
than 5% Stockholder



On September 22, 2014, Oman Ventures LLC, of
which Mr. Oman, a greater than 5% stockholder is the President, purchased $200,000 of September 2014 Notes which are convertible
into shares of Common Stock (i) automatically upon the closing of a qualified offering of no less than $5 million at a conversion
price equal to the lesser of $0.25 or 70% of the lowest cost of Common Stock offered by the Company, but in no event less than
$0.10 per share or (ii) voluntarily within 15 days of maturity at the lesser of a conversion price equal to $0.25 or the lowest
cost of Common Stock offered by the Company, but in no event less than $0.10 per share.



|8. |  | LOSS PER SHARE
|-- |  | --------------



In accordance with ASC
260-10 (formerly SFAS 128, Computation of Earnings Per Share), basic net income (loss) per share is computed by dividing
the net income (loss) to common stockholders for the period by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average
number of common and dilutive common equivalent shares outstanding during the period.  For the three and six month period
ended March 31, 2015 and 2014, the Company has excluded all common equivalent shares from the calculation of diluted net loss
per share as such securities are anti-dilutive.



A summary of the net loss
and shares used to compute net loss per share for the three months ended March 31, 2015 and 2014 is as follows:



|                                                                                                           |  | Three
    months endedMarch 31, |            
|---------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -----------
|                                                                                                           |  | 2015                            |            
|Net loss for computation of basic net loss per share:                                                      |  |                                 |            
|From continuing operations                                                                                 |  | $                               | (695,400   
|From discontinued operations                                                                               |  |                                 | (900       
|Net loss                                                                                                   |  | $                               | (696,300   
|Basic net loss per share:                                                                                  |  |                                 |            
|From continuing operations                                                                                 |  | $                               | (0.01      
|From discontinued operations                                                                               |  |                                 | (0.00      
|Basic net loss per share                                                                                   |  | $                               | (0.01      
|Net loss for computation of dilutive net loss per share:                                                   |  |                                 |            
|From continuing operations                                                                                 |  | $                               | (695,400   
|From discontinued operations                                                                               |  |                                 | (900       
|Net loss                                                                                                   |  | $                               | (696,300   
|Diluted net loss per share:                                                                                |  |                                 |            
|From continuing operations                                                                                 |  | $                               | (0.01      
|From discontinued operations                                                                               |  |                                 | (0.00      
|Basic net loss per share                                                                                   |  | $                               | (0.01      
|                                                                                                           |  |                                 |            
|Basic weighted average shares outstanding                                                                  |  |                                 | 101,667,409
|Dilutive common equivalent shares                                                                          |  |                                 | -          
|Diluted weighted average common shares                                                                     |  |                                 | 101,667,409
|                                                                                                           |  |                                 |            
|Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per
    share: |  |                                 |            
|Convertible debt                                                                                           |  |                                 | 1,892,742  
|Warrants                                                                                                   |  |                                 | 781,833    
|Options                                                                                                    |  |                                 | 12,645,994 



17







A summary of the
net loss and shares used to compute net loss per share for the six months ended March 31, 2015 and 2014 is as follows:



|                                                                                                           |  | Six
    months endedMarch 31, |            
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------- | -----------
|                                                                                                           |  | 2015                          |            
|Net loss for computation of basic net loss per share:                                                      |  |                               |            
|From continuing operations                                                                                 |  | $                             | (1,596,100 
|From discontinued operations                                                                               |  |                               | (1,800     
|Net loss                                                                                                   |  | $                             | (1,570,900 
|Basic net loss per share:                                                                                  |  |                               |            
|From continuing operations                                                                                 |  | $                             | (0.02      
|From discontinued operations                                                                               |  |                               | (0.00      
|Basic net loss per share                                                                                   |  | $                             | (0.02      
|Net loss for computation of dilutive net loss per share:                                                   |  |                               |            
|From continuing operations                                                                                 |  | $                             | (1,596,100 
|From discontinued operations                                                                               |  |                               | (1,800     
|Net loss                                                                                                   |  | $                             | (1,570,900 
|Diluted net loss per share:                                                                                |  |                               |            
|From continuing operations                                                                                 |  | $                             | (0.02      
|From discontinued operations                                                                               |  |                               | (0.00      
|Basic net loss per share                                                                                   |  | $                             | (0.02      
|                                                                                                           |  |                               |            
|Basic weighted average shares outstanding                                                                  |  |                               | 101,667,409
|Dilutive common equivalent shares                                                                          |  |                               | -          
|Diluted weighted average common shares                                                                     |  |                               | 101,667,409
|                                                                                                           |  |                               |            
|Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per
    share: |  |                               |            
|Convertible debt                                                                                           |  |                               | 1,771,371  
|Warrants                                                                                                   |  |                               | 871,027    
|Options                                                                                                    |  |                               | 12,531,746 



|9. |  | COMMITMENTS AND CONTINGENT LIABILITIES
|-- |  | --------------------------------------



Litigation



From time to time, the
Company may be involved in litigation relating to claims arising out of the Company’s operations in the ordinary course
of business. Other than as set forth below, 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.



Since June 2009, the Company
has been involved in litigation against Leonard J. Brandt, a stockholder, former Director and the Company’s former Chief
Executive Officer (“Brandt”) in the Delaware Chancery Court, the Supreme Court of the State of Delaware and the United
States District Court for the Central District of California. Other than current actions described below, the Company has prevailed
in all actions or the matters have been dismissed.



18







On April 11, 2011, Brandt
and his family business partnership Brandt Ventures, GP, filed an action in the Superior Court for the State of California, Orange
County against the Company, one of its stockholders, SAIL Venture Partner, LP, and Mr. David Jones, a former member of the Board,
alleging breach of a promissory note agreement entered into by Brandt Ventures, GP and the Company and alleging that Mr. Brandt
was wrongfully terminated as Chief Executive Officer in April, 2009.  The Company was served with a summons and complaint
in the action on July 19, 2011.



On November 1, 2011, Mr.
Brandt and Brandt Ventures filed an amended complaint amending their claims and adding new claims against the same parties.
On March 12, 2012, the court sustained demurrers to certain of the counts against each defendant. On March 22, 2012, the
plaintiffs filed a second amended complaint modifying certain of their claims, but did not add new claims. On February 6,
2013, the plaintiffs moved for leave to amend the second amended complaint and file a third amended complaint. On March 6, 2013,
the Court granted leave to amend, but awarded fees and costs for the defendants to again make dispositive motions. The third amended
complaint adds a claim for breach of the promissory note and seeks to foreclose on the collateral securing the note obligation. 
In addition, Mr. Brandt is seeking approximately $170,000 of severance and compensatory and punitive damages in connection
with his termination.  In interrogatory responses served on January 26, 2013, Mr. Brandt for the first time identified
that he seeks damages in connection with his termination exceeding $9,000,000.  Mr. Brandt has proffered no credible
evidence to support damages in this amount, and the Company believes this claim for damages is without merit.  The
plaintiffs also seek rescission of a $250,000 loan made by Brandt Ventures, GP to the Company which was converted into Common
Stock in accordance with its terms and restitution of the loan amount.





Discovery is ongoing
and the Company continues to aggressively defend the action. A trial date had originally been set for May 2014; however, plaintiffs’
counsel requested a continuance until August 2014 to which the Company agreed. On June 18, 2014, at plaintiffs’ counsel’s
request, the Company entered into a Standstill and Tolling Agreement, whereby the parties agreed to seek a stay of the litigation
and plaintiffs agreed to provide the Company with an executed dismissal of all the claims without prejudice, with the ability to
re-file the third amended complaint, without change, on or before June 18, 2015, which the Company may file if the Court lifted
the stay.  Subsequently on May 7, 2015, the parties agreed to continue the Standstill and Tolling Agreement for another year,
until June, 2016, on the same terms. On May 12, 2015, the Court agreed to stay the case for another six months.   The
Company believes that the third amended complaint, like the prior complaints, is without merit. The Company has not accrued any
amounts related to this matter. The action is captioned Leonard J. Brandt and Brandt Ventures, GP v. CNS Response, Inc., Sail
Venture Partners and David Jones, case no. 30-2011-00465655-CU-WT-CJC.



The Company has expended
substantial resources to pursue the defense of legal proceedings initiated by Mr. Brandt.  The Company does not know whether
Mr. Brandt will institute additional claims against the Company and the defense of any such claims could involve the expenditure
of additional resources by the Company.



Lease Commitments



Since February 2010, the
Company has leased its current Headquarters and Neurometric Services business premises located at 85 Enterprise, Aliso Viejo,
California 92656.  On February 6, 2014, we signed a 24 month extension which commenced on February 1, 2014 and terminates
on January 31, 2016. The rent for months one through 13 was $4,349 per month; the months of February 2014 and January 2015
were abated; the rent for months 14 through 24 is $4,523 per month.



The Company incurred rent
expense from continuing operations of $12,200 and $12,300 for the three months ended March 31, 2015 and 2014, respectively. And
$24,400 and 20,600 for the six months ended March 31, 2015 and 2014, respectively.



On April 24, 2013, we
entered into a financial lease to acquire EEG equipment costing $8,900. The term of the lease is 36 months ending May 2016
with a monthly payment of $325. As of March 31, 2015 the remaining lease obligation is $4,100: being $3,400, $700 for fiscal
years 2015 and 2016 respectively.



|                            |  | Payments due by period |        |  |                                                           |   |        |              | 
|--------------------------- |  | ---------------------- | ------ |  | --------------------------------------------------------- | - | ------ | ------------ | 
|Contractual Obligations     |  | Total                  |        |  | Less than 1
                                         year |   |        | 1 to 3 years | 
|                            |  |                        |        |  |                                                           |   |        |              | 
|Operating Lease Obligations |  | $                      | 45,200 |  |                                                           | $ | 45,200 |              | 
|Capital Lease Obligations   |  |                        | 4,100  |  |                                                           |   | 3,400  |              | 
|Total                       |  | $                      | 49,300 |  |                                                           | $ | 48,600 |              | 



19







Item 2.     Management’s Discussion
and Analysis of Financial Condition and Results of Operations



The information contained
in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended September
30, 2014 and presumes that readers have access to, and will have read, the “Management's Discussion and Analysis of Financial
Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis
also should be read together with our consolidated financial statements and the notes to the consolidated financial statements
included elsewhere in this Form 10-Q.



Forward-Looking Statements



This discussion summarizes
the significant factors affecting the condensed consolidated operating results, financial condition and liquidity and cash flows
of CNS Response, Inc. (“CNS,” “we,” “us,” “our,” or the “Company”)
for the three and six months ended March 31, 2015 and 2014. Except for historical information, the matters discussed in this management's
discussion and analysis or plan of operation and elsewhere in this Quarterly Report on Form 10-Q are “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, that include information relating to future events, future financial performance, strategies, expectations,
competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation,
statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning
projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic
performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations
or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical
facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,”
“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,”
“plans,” “believes” and “estimates,” and similar expressions, as well as statements in future
tense, identify forward-looking statements.



Forward-looking statements
should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times,
or by which, that performance or those results will be achieved. Forward-looking statements are based on information available
at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject
to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested
by the forward-looking statements. Important factors that could cause these differences include, but are not limited to:



| | • | 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 for the year ended September 30, 2014 and this Quarterly Report on
                                         Form 10-Q.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Forward-looking statements
speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation
to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements,
no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.



Overview



CNS Response, Inc. is
a cloud-based predictive analytics company that provides objective clinical decision support to mental healthcare providers
for the treatment of behavioral disorders, including depression, anxiety, bipolar disorder and post-traumatic stress disorder
("PTSD"). The Company uses its proprietary neurometric platform, PEER Online, to generate Psychiatric EEG
Evaluation Registry ("PEER") Reports to predict the likelihood of response by an individual to certain medications
for the treatment of behavioral disorders. In April 2013, the Company commenced a reimbursed clinical trial at Walter Reed
National Military Medical Center ("Walter Reed") and Fort Belvoir Community Hospital ("Fort Belvoir")
(collectively, the "Walter Reed PEER Trial") using its neurometric platform to provide PEER Reports to military
psychiatrists treating patients primarily for depression with various comorbidities, including PTSD and mild traumatic brain
injury ("mTBI"). In April 2014, based on an interim analysis of less than 10% of the planned clinical trial
enrollees, statistically significant results were achieved for ten of the twelve endpoints of the Walter Reed PEER Trial. We
are awaiting further data to determine achievement of our primary endpoint. In May 2014, following the interim analysis, the
Walter Reed Institutional Review Board (the "Walter Reed IRB") suspended enrollment of new patients in order to
conduct an internal review. Our management expects enrollment of the Walter Reed PEER Trial to
recommence in 2015, which it believes will
provide additional information to demonstrate the clinical and economic utility of our neurometric platform. To date, the Walter Reed PEER Trial has not recommenced and we do not know when or if it will recommence.



20







Working Capital



We are unable to pay all
our obligations as they become due and we are in arrears on paying certain of our creditors.  If we are not able to raise
additional funds within the next few months and reach accommodations with certain of our creditors, we will likely be
required to cease our operations.



Since our inception, we
have generated significant net losses. As of March 31, 2015 and 2014 we had an accumulated deficit of approximately $60.8 million
and $57.4 million respectively. We incurred operating losses of $1,558,400 and $1,904,600 for the six months ended March 2015
and 2014 respectively; and incurred a net loss of $1,570,900 for the six months ended March 31, 2015, versus a net loss of $807,000
for the same period in the prior year.



Assuming we are able to
continue our operations, we expect our net losses to continue for at least eighteen to twenty-four months and possibly beyond
that time. We anticipate that a substantial portion of any capital resources and efforts would be focused on the scale-up of our
commercial organization followed by, further research including expansion of clinical trials with the military, international
expansion, product development and other general corporate purposes, including the payment of legal fees incurred as a result
of our litigation. We anticipate that future research and development projects, including our clinical trial being conducted at
Walter Reed and Fort Belvoir, would be predominantly funded by grants or third-party sponsorship, along with funding by the Company.



As of March 31, 2015,
our current liabilities of approximately $3.6 million exceeded our current assets of approximately $0.4 million by approximately
$3.2 million and, assuming we are able to continue our operations, our net losses will continue for the foreseeable future.  During
our current six months ended March 31, 2015 we raised $415,000 in the private placement of secured convertible debt with a conversion
price of $0.25 per share.



During fiscal year 2014
we were successful in raising a net $3.34 million of which $1.69 million was in the private placement of equity at $0.25 per share
of common stock, par value $0.001 per share (“Common Stock”) and $1.65 million was in the private placement of secured
convertible debt at $0.25 per share. We will need additional funding to commence any significant commercialization of our PEER
Online services and to complete our clinical trial at Walter Reed, Fort Belvoir and other military and VA locations, if any.



We are actively exploring
additional sources of capital. However, we cannot offer assurances that additional funding will be available on acceptable terms,
or at all. Even if we were to raise additional funds, any additional equity funding may result in significant dilution to existing
stockholders, and, if we incur additional debt financing, a substantial additional portion of our operating cash flow may be dedicated
to the payment of principal and interest on such indebtedness, thus limiting the funds available for our business activities.
If adequate funds are not available, it will likely force us to cease operations or would otherwise have a material adverse effect
on our business, financial condition and/or results of operations.



Recent Developments





Transformation in Military Medicine



Military medicine faces
unprecedented challenges in treating the growing number of soldiers, both active and veteran, who present with “invisible
wounds of war”.



Both the Department
of Defense (“DOD”) and the Veterans Administration (VA) have pledged to hire thousands of new behavioral health professionals
needed to address demand and reduce waiting times. Yet as the VA waiting list scandal unfolded during 2014, reports also began
to emerge of systemic preventable medical error in DOD hospitals. The New York Times reported, “Investigative teams from
the Times worked for months to understand the high rate of safety/medical error issues in DOD facilities. They found a system in
which ‘scrutiny is sporadic and avoidable errors are chronic’”. For PTSD and other mental disorders, the news
was particularly concerning as an Institute of Medicine report found that $9.3 billion had been allocated to research and treatment
of PTSD over a three year period, yet no conclusions could be reached because there had been no systematic collection of outcomes.



10% of the defense
budget is now spent on healthcare, and mental disorders are now the leading cause of hospitalization in the US Armed Forces. Among
active soldiers, suicide is now the leading cause of non-combat death. With the passage in 2015 of the Clay Hunt SAV Act, veterans
are expected to have greater access to services, and the effectiveness of suicide prevention programs will be evaluated annually
by an independent organization.



As a consequence, US
military medicine is now undergoing a major transformation focused on transparency and accountability, in order to improve outcomes.
The DOD has issued a system wide mandate to collect behavioral health data, and programs to reduce preventable error are at the
core of this commitment. The Company believes that improving treatment outcomes immediately would have an enormous practical impact
on the military in terms of reduced suffering, improved access to providers through treatment efficiencies and cost savings.



21









PEER Military Initiative



During this same period,
the Company has been actively working with the military to study the impact of PEER Interactive information on treatment outcomes.
PEER’s foundation is a clinical outcome registry which has demonstrated correlations with certain electrophysiological features
in multiple randomized controlled and observational trials. It is Open Science, meaning that outcome correlations are published
online and can be updated with new data using machine learning algorithms. In this way, the outcome registry continues to build
evidence as it grows.



This technology was
of interest to military medicine in part because of the deteriorating evidence for their primary depression treatment: Selective
Serotonin Reuptake Inhibitor (“SSRI”) antidepressants. Even under ideal clinical trial conditions, there were more
negative than positive trials for most SSRIs, and they have proven significantly less effective than originally thought by physicians.
Importantly, each medication carries an FDA black-box warning for suicidality in children and young adults. With the PEER database now surpassing 10,000 unique patients, PEER is approaching levels
of evidence similar to the evidence used for approval of many of these SSRI medications.



The premise is that
physicians with objective, adjunctive information can better avoid medications that have a low probability of success, and are
more often able to select medications with a higher probability of success.



The Walter Reed PEER Trial



The Walter Reed PEER
Trial is designed as a randomized, double-blind, multi-site controlled clinical trial for military patients with a primary diagnosis
of depression, and comorbid diagnoses such as PTSD, mTBI and other behavioral disorders. Walter Reed has acted as the lead site
and Principal Investigator, with Fort Belvoir being the secondary site. The trial’s primary prospective endpoint will be
a change from baseline using the Quick Inventory of Depression Symptomology Self Report (QIDS-SR) scale in the study group when
compared with the control group. Additional endpoints include suicidality conducted on the Concise Health Risk Tracking scale (CHRT),
the PTSD Checklist (PCL-C), achievement of Maximum Medical Improvement (MMI) and psychiatric adverse events. A post-hoc analysis
will be performed to evaluate the predictiveness of the database for the full population, including the control subjects.



The protocol includes
standard methodological procedures to prevent bias, including subject randomization, double-blinding, and input of all study data
by independent clinical research personnel who are contracted through the Henry Jackson Foundation.



Based on its six-month
long review of the protocol in 2012, the United States Food and Drug Administration (“FDA”) Center for Devices concluded
the trial to be a Non-Significant Risk trial that does not require an Investigational Device Exemption (“IDE”) review.



Although the Trial
completed multiple science reviews and agency approvals, it has not received any funds from the $1.8 million grant application
submitted in 2013 and has only received approximately $54,000 from Walter Reed to date. The bulk of trial costs have been borne
by the Company.



The Trial began recruiting
its first subjects in April 2013, the first month of the National Budget Sequestration, which limited military staff resources
which could have been devoted to it. Nevertheless, enrollment into the trial grew rapidly to 60 physician sub-investigators and
161 enrollees within its first year.



Statistically Significant Trial Findings



Per the protocol, an
interim analysis was performed when the trial had reached approximately 10% of projected enrollment, showing statistically significant
results for ten of the twelve study endpoints. Comparing physicians who followed the PEER Report recommendations compared with
those who did not follow the recommendations, the study found:



| | • | 75% greater improvement in Suicidality scores
| | - | ---------------------------------------------

| | • | 144% greater improvement in Depression scores
| | - | ---------------------------------------------

| | • | 139% greater improvement in PTSD scores
| | - | ---------------------------------------

| | • | 43% more patients remained in treatment, with greater than 50% improvement in treatment efficiency
| | - | --------------------------------------------------------------------------------------------------





The interim report
manuscript was submitted, peer reviewed and accepted for publication by a neuropsychiatric journal in June 2014, but has not yet
been released for publication pending approval by the military.





22







Walter Reed Internal Review



The abovementioned
preliminary trial findings were shared by the Army with Members of Congress in April 2014. Following the interim analysis and submission
of the interim manuscript to the Walter Reed Institutional Review Board (IRB) in May, 2014, the IRB suspended enrollment of new
patients into the study in order to conduct an internal review. The Company believes that this review was of its own Principal
Investigator, not of the Company, and consequently, the Company has had no access to the review documents or the IRB conclusions,
in spite of repeated requests.



By November 2014, the
internal review was completed and Walter Reed leadership expressed interest in continuing the PEER Interactive trial under certain
conditions, confirming that PEER “could make a fundamental difference in the treatment of depression”. There were no
internal review findings shared with the Company identifying any material quality or safety issues, nor any protocol violations
which could impact patient-reported outcomes.



The trial protocol,
with minor revisions and clarifications, was resubmitted to the Walter Reed IRB for approval by the acting Principal Investigator
in December, 2014. These revisions included:



| | • | Replacement of the Principal Investigator and the Sponsor’s on-site study monitor, with new
personnel selected by Walter Reed
| | - | -----------------------------------------------------------------------------------------------------------------------------

| | • | Enrollment target revision to 1,600 subjects at the two military sites, and the elimination of
the Boston VA as a potential site.
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | • | Exclusion of subjects currently being treated with Fluoxetine (Prozac) due to its lengthy washout
period.
| | - | ---------------------------------------------------------------------------------------------------------

| | • | New definition of Serious Adverse Events, replacing the FDA-based definition used in the original
protocol.
| | - | -----------------------------------------------------------------------------------------------------------



Walter Reed and Fort
Belvoir commanding officers pledged in writing “to devote the time and attention necessary for the success of this endeavor”.
Nevertheless, there has been no formal communication of the results of its IRB submission which was reviewed at an IRB meeting
in January, 2015, and it is our belief that there will be no further action until a new Senior Principal Investigator has been
selected to lead this research.



Defense Health Agency Engagement



The DHA was created
by the DOD in 2013 as a joint management activity, tasked with integrating the separate services’ medical organizations and
bringing best practices (e.g. reduction of preventable error) to military medicine.



In 2015, the Company
asked the DHA to provide a clear pathway for the adoption of its PEER Technology in military medicine. CNS Response and the DHA
are working together to develop a research protocol involving a different location or locations within the military health system
and to find an appropriate, Senior Principal Investigator for a research protocol of this nature, scope and potential significance.



Other Evidence



Depression Efficacy
Study:  Over the last few years, we have been primarily focused on demonstrating the efficacy of PEER Report-informed
treatments through multiple clinical trials. The largest of these — the Depression Efficacy Trial — was
a multi-center, randomized, parallel controlled trial completed in 2009 at 12 academic and commercial sites, including Harvard
University, Stanford University, Cornell University, University of California Irvine, Rush University and other sites. The study
began in late 2007 and was completed in September 2009. The study screened 465 potential subjects with Treatment-Resistant Depression
and ultimately randomized 114 participants to a 12-week course of treatment utilizing PEER Reports in the experimental group and
a modified STAR*D algorithm in the control group (STAR*D, or Sequenced Treatment Alternatives to Relieve Depression, was a large,
seven-year study sponsored by the National Institute of Mental Health that was completed in 2006). Primary clinical outcome measures
included the Quick Inventory of Depression Symptomology (QIDS-SR16) and the Quality of Life Enjoyment and Satisfaction Questionnaire
(Q-LES-Q-SF). Top-line results were consistent with previous trials of PEER Reports:



| | · | The
                                         study found that physicians using PEER Reports significantly outperformed the modified
                                         STAR*D treatment algorithm beginning at week 2. The difference, or separation, between
                                         PEER Reports and the STAR*D control group was 50 and 100 percent for the study’s
                                         two primary endpoints. By contrast, separation between a new treatment and a control
                                         group often averages less than 10 percent in antidepressant studies. Separation was achieved
                                         early (in week 2) and was durable, continuing to grow through week 12.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Statistical
                                         significance (p <.05) was achieved on all primary and most secondary endpoints.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



Commercial Payer
Analysis:   During 2011, a retrospective analysis was conducted of physician reports and health records of patients
who were members of several of the Nation’s largest managed care networks. The results were published in Neuropsychiatric
Disease and Treatment - the journal of the International Neuropsychiatric Association (INA). The paper, “Measuring Severe
Adverse Events and Medication Selection Using A ‘PEER Report’ for Non-Psychotic Patients: A Retrospective Chart Review,”
was authored by Daniel Hoffman M.D., of the Neuro-Therapy Clinic, Charles DeBattista M.D., of the Stanford University School of
Medicine, Rob Valuck, Ph.D., from the University of Colorado Health Sciences Center and Dan Iosifescu, M.D., of the Mood and Anxiety
Disorders Program, Mount Sinai School of Medicine and Harvard University Faculty. The analysis of 257 evaluable patient records
for the period starting in 2003 through mid-2011 represents cases in which the prescribers utilized PEER Reports for these patients.
The analysis found that prescribers using the PEER Reports reported reduced trial-and-error pharmacotherapy through the following
findings:



| | · | 27
                                         patients (11%) actually required no medications at all after the PEER Report.
| | - | -------------------------------------------------------------------------------------------------------------------------

| | · | Of
                                         the remaining patients who required medications:
| | - | --------------------------------------------------------------------------------------------

| | · | 87%
                                         of the patients achieved “much improved” or “very much improved”
                                         on the Clinical Global Improvement standardized outcomes measurement and 71% showed significant
                                         improvement using the Quality of Life Enjoyment and Satisfaction Questionnaire.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 69%
                                         of the patients achieved Maximum Medical Improvement (MMI) in an average of four visits.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | · | Out
                                         of 68 (26%) patients who had reported suicidality preceding their PEER Report, nine (4%)
                                         reported suicidality during the average two year follow-up period.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Out
                                         of 33 patients who had experienced a severe adverse event on their previous medications,
                                         18 (55%) had PEER Reports which indicated poor outcomes for those medications in patients
                                         with similar EEG findings, suggesting caution in using those drugs.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







Medco Analysis:  In 2011, the Company signed an agreement with Medco Health Services Inc. to analyze historical PEER Report
outcome results in terms of Medco drug and healthcare claims datasets. Approximately 2,200 matching records were analyzed, yielding
about 211 patients for whom 365 days of continuous claim data were available before and after the test. Based on these data, the
Company’s consultants assessed the performance of physicians before and after testing. Findings include:



| | · | significant
                                         changes in physician prescribing behavior: approximately 92% of physicians receiving
                                         PEER Reports changed pharmacotherapy strategies post-test, with over half changing every
                                         single medication; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | increased
                                         proportion of generic prescribing: (generic utilization increased 32% after receipt of
                                         PEER Reports).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Medco Research performed
an analysis of the tested group against a control cohort of patients in its database matched by age, sex, disease-chronicity and
prescription profile.



| | · | The
                                         primary endpoint of the analysis was to measure impact on healthcare utilization, with
                                         a 25% reduction in health care costs experienced for those in the PEER group compared
                                         to those in the control cohort. However, because the claim sample size was small (only
                                         29 health care records), the reduction did not reach statistical significance.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Drug
                                         mix: a significantly higher proportion of older medications were utilized by physicians
                                         in the tested group, with generally fewer SSRIs (Selective Serotonin Reuptake Inhibitors)
                                         and Atypical Antipsychotics, and categorical increases in MAOI (Monoamine Oxidase Inhibitors)
                                         and Tricyclic class antidepressants, and certain stimulants.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Eating Disorders
Study: In November 2011, we published in Neuropsychiatric Disease and Treatment - the journal of the INA, a paper entitled
“Retrospective Chart Review of a Referenced EEG Database in Assisting Medication Selection for Treatment of Depression in
Patients with Eating Disorders.” The physicians reviewed two-year pre-treatment data and between two- to five-year follow-up
data, and found that study patients experienced significantly decreased depressive symptoms and overall 53 percent fewer hospitalization
days, which significantly reduced overall healthcare costs.



Polypharmacy Paper:  We published an additional paper in Neuropsychiatric Disease and Treatment - the journal of the INA, entitled
“Polypharmacy or Medication Washout: An Old Tool Revisited”. The paper includes a comparison of the advantages and
risks from using medication washout compared to polypharmacy with treatment-resistant patients. Polypharmacy is a common medical
practice in which physicians prescribe additional psychiatric medications on top of previous medications already being used for
a patient. This can result in patients being on too many drugs with the potential for harmful side effects. When done appropriately,
washing medications out of select patients can be valuable in supporting better patient diagnosis and assessing medication needs,
and can reduce the risks resulting from unknown drug interactions. While some patients will still need more than one medication
as part of their treatment regimen, the ultimate goal is to determine which medications are necessary and effective for an individual
patient. The paper highlights previous study findings and current data related to medication washout and polypharmacy.



Marketing Initiatives





To prove its effectiveness,
the Company engaged in test marketing campaigns utilizing digital and social media advertising. Marketing campaigns were deployed
on two occasions during the first six months of fiscal 2015: these successfully demonstrated increasing awareness resulting in
leads which were referred to psychiatrists and other providers using our PEER technology. Additionally, our investment in marketing
automation and retargeting demonstrated our ability to optimize yield, resulting in an average lead acquisition cost of approximately
$55 for the most targeted campaigns. Apart from these promising test marketing campaigns, no further extended marketing was undertaken
due to capital resource constraints. However, the focus on quick ramp-up media suggests that lead generation can be initiated rapidly
and cost efficiently once sufficient funding is established.



Marketing efforts
also focused on activating key opinion leaders to support the Company. This initiative led to the abovementioned meeting between
the leadership of the DHA and the Company’s Chairman and CEO requesting a clear pathway for the military adoption of its
PEER Technology. Partnering with key opinion leaders is expected to result in future initiatives which can be used to drive military
and consumer adoption.



Corporate Governance



Termination of the Governance Agreements



On March 28, 2015, the
Company entered into a separate termination agreement with each of Equity Dynamics, Inc. ("EDI") and SAIL Capital Partners
("SAIL"), in each case to immediately terminate the respective November 28, 2012 governance agreement (collectively,
the "Governance Agreements") that the Company had entered into with each of EDI and SAIL (collectively, the "Termination
Agreements"). EDI is an entity owned by John Pappajohn, a director of the Company, and SAIL is one of the Company's principal
stockholders of which a director, Walter Schindler, is the managing partner. Pursuant to the Governance Agreements, the Company
had agreed, subject to providing required notice to stockholders, to appoint four individuals nominated by EDI and three individuals
nominated by SAIL to the Company's Board of Directors, and to create vacancies for that purpose, if necessary. In addition, at
each meeting of stockholders of the Company at which directors were nominated and elected, the Company had agreed to nominate
for election the four designees of EDI and the three designees of SAIL, and further had agreed to take all necessary action to
support such election, and to oppose any challenges to such designees. The Governance Agreements also restricted the Company's
ability to increase the number of directors to more than seven without the consent of EDI and SAIL. Pursuant to the Termination
Agreements, the Governance Agreements were terminated in their entirety as of March 28, 2015, and are of no further force or effect.



24







The passing of a Board Member



On April 12, 2015, Richard W. Turner, Ph.D.,
a member of CNS Response, Inc.'s Board of Directors, Audit Committee and Governance and Nominations Committee, passed away at
the age of 68. Dr. Turner had served as a member of the Board since February 25, 2013, when he was nominated to the Board by EDI.
Dr. Turner will be greatly missed.



Private Placement Transactions



From February 2013, through
July 2014, the Company conducted five tranches of private placements of shares of common stock at $0.25 per share as follows:



The first two tranches,
from February 22, 2013, through April 1, 2013, and from May 23, 2013, through September 12, 2013, 38 accredited investors purchased
an aggregate of 12,180,000 shares of common stock at a price of $0.25 per share in the private placements. The Company received
gross aggregate cash proceeds of $3,045,000. The investors included the following affiliates: the Tierney Family Trust of which
Mr. Tierney, our Chairman of the Board of the Company, is a trustee, acquired 1,600,000 shares of common stock for which the Company
received cash proceeds of $400,000: the Follman Family Trust of which Mr. Robert Follman, a director of the Company is a trustee,
acquired 800,000 shares of common stock for which the Company received cash proceeds of $200,000: Mr. John Pappajohn, a director
of the Company, acquired 400,000 shares of common stock for which the Company received cash proceeds of $100,000: Mr. Paul Buck,
the Company’s CFO, acquired 100,000 shares of common stock for which the Company received cash proceeds of $25,000: Extuple
Limited Partnership (“Extuple”) an accredited investor and a greater than 5% beneficial owner of the Company, invested
$300,000 for 1,200,000 shares of common stock and Mr. & Mrs. Mark and Jill Oman, who are also greater than 5% beneficial owners
of the Company, and an entity under their control acquired 1,400,000 shares of common stock for which the Company received cash
proceeds of $350,000.

The third tranche, from
October 7, 2013, through November 14, 2013, the Company sold and issued an aggregate of 1,900,000 shares of its common stock at
a per share price of $0.25, in a private placement to 10 accredited investors, for which it received gross cash proceeds to the
Company of $475,000. No affiliates participated in this tranche.



The fourth tranche, between
January 14, 2014 and February 14, 2014, the Company sold and issued an aggregate of 4,000,000 shares of its Common Stock,
par value $0.001, at a price of $0.25 per share, in a private placement to 20 accredited investors, for which it received
gross cash proceeds to the Company of $1,000,000. The investors included the following affiliates: the Tierney Family Trust acquired
800,000 shares of Common Stock for which the Company received gross proceeds of $200,000: the Follman Family Trust acquired 800,000
shares of Common Stock for which the Company received cash proceeds of $200,000: George Carpenter, the Company’s Chief Executive
Officer, and his wife Jill Carpenter acquired 200,000 shares of Common Stock for which the Company received cash proceeds of $50,000:
Paul Buck, the Company’s, CFO, acquired 100,000 shares of Common Stock for which the Company received cash proceeds of $25,000.



The fifth tranche, between
July 8, 2014 and July 23, 2014, the Company sold and issued an aggregate of 1,040,000 shares of its Common Stock, at a price of
$0.25 per share, in a private placement to nine accredited investors, for which it received gross cash proceeds of $260,000. These
investors included the Tierney Family Trust and Follman Family Trust, who each purchased 400,000 shares of Common Stock for $100,000
each; an entity beneficially owned by our Director, Walter Schindler, purchased 40,000 shares of Common Stock for $10,000; our
Chief Executive Officer, George Carpenter and his wife Jill Carpenter, purchased 50,000 shares of Common Stock for $12,500; our
CFO, Paul Buck, also purchased 50,000 shares of Common Stock for $12,500.



Between September 22,
2014, and March 18, 2015, the Company entered into a new Note Purchase Agreement (the “Note Purchase Agreement”) in
connection with a bridge financing, with seven accredited investors, including lead investor RSJ Private Equity (“RSJ PE”).  Pursuant
to the Note Purchase Agreement, the Company issued twelve secured convertible promissory notes (each, a “September 2014
Note”) in the aggregate principal amount of $2.07 million. Of this amount, RSJ PE purchased a September 2014 Note for $750,000.
The September 2014 Notes were also purchased by the following affiliates of the Company or entities under their control: The Tierney
Family Trust purchased three September 2014 Notes for $415,000; the Company’s Director, John Pappajohn, purchased two September
2014 Notes for $300,000; the Follman Family Trust purchased a September 2014 Note for $100,000; and Oman Ventures, of which Mark
Oman, a greater than 5% stockholder of the Company, is the President, purchased a September 2014 Note for $200,000. The obligations
represented by these September 2014 Notes are secured by substantially all of the assets of the Company.



Please see Note 4.
Convertible Debt and Equity Financings to the Consolidated Financial Statements for details of the abovementioned transactions.



25







Financial Operations Overview



Revenues



Our neurometric
services revenues are derived from the sale of PEER Reports to physicians. Physicians are generally billed upon delivery of a
PEER Report. The list price of our PEER Reports to physicians is $400 per report which excludes the cost of doing the EEG. Our
Clinical Trial revenues are derived from the PEER Reports to the Military. The list price of our PEER Reports to the Military
is $540 and is inclusive of collecting the EEG. We stopped providing PEER Reports to the Military in May 2014 and generated no
revenue after such time. Although we expect to continue our service to the Military, no assurance can be given that we will generate
any additional revenue by providing the Military with PEER Reports.



Cost of Revenues



Cost of revenues
are for neurometric services and represent the cost of direct labor, the costs associated with external processing, analysis and
consulting review necessary to render an individualized test result and any miscellaneous support expenses. Costs associated with
performing our tests are expensed as the tests are performed. We continually evaluate the feasibility of hiring our own personnel
to perform most of the processing and analysis necessary to render a PEER Report.



Research and Product
Development



Research and Product
development expenses are associated with our neurometric services and primarily represent costs incurred to design and conduct
clinical studies, to recruit patients into the studies, to improve PEER Report processing, to add data to the CNS Database, to
improve analytical techniques and advance application of the methodology. We charge all research and development expenses to operations
as they are incurred.



Sales and Marketing



For our neurometric
services, our selling and marketing expenses consist primarily of personnel, media, support and travel costs to inform user organizations
and consumers of our products and services. Additional marketing expenses are the costs of educating physicians, laboratory personnel,
other healthcare professionals regarding our products and services.



General and Administrative



Our general and
administrative expenses consist primarily of personnel, occupancy, legal, consulting and administrative and support costs for
our neurometric services.



Critical Accounting Policies and Significant Judgments
and Estimates



This management’s
discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated
financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities
and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues
and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates
on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other
sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.



Our significant
accounting policies are described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere
in this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions
used in the preparation of our consolidated financial statements.



Discontinued Operation



Due to our cessation of
our Clinical Services operation as described in Note 3 to our consolidated financial statements, we have segregated the revenues
and expenses associated with the Clinical Services and accounted for them as discontinued operations.



26







Revenue Recognition



We have generated limited
revenues since our inception. Revenues for our Neurometric Service product are recognized when a PEER Report is delivered to a
Client-Physician. For our Clinical Services, revenues were recognized when the services were performed.



Stock-based Compensation
Expense



Stock-based compensation
expense, which is a non-cash charge, results from stock option grants. Compensation cost is measured at the grant date based on
the calculated fair value of the award. We recognize stock-based compensation expense on a straight-line basis over the vesting
period of the underlying option. The amount of stock-based compensation expense expected to be amortized in future periods may
decrease if unvested options are subsequently cancelled or may increase if future option grants are made.



Offering Costs



The Company applies Accounting
Standards Codification (“ASC”) topic 505-10, Costs of an Equity Transaction, for recognition of offering costs.
In accordance with ASC 505-10, the Company treats incremental direct costs incurred to issue shares classified as equity, as a
reduction of the proceeds. Direct costs incurred before shares classified as equity are issued, are classified as an asset until
the stock is issued. Indirect costs such as management salaries or other general and administrative expenses and deferred costs
of an aborted offering are expensed.



Long-Lived Assets and Intangible Assets



Property and equipment
and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value of the
assets may not be recoverable. If the Company determines that the carrying value of the asset is not recoverable, a permanent
impairment charge is recorded for the amount by which the carrying value of the long-lived or intangible asset exceeds its fair
value. Intangible assets with finite lives are amortized on a straight-line basis over their useful lives of ten years.



Derivative accounting for convertible debt
and warrants



The Company analyzes all
financial instruments with features of both liabilities and equity under ASC-480-10 and ASC 815-10 whereby the Company determines
the fair market carrying value of a financial instrument using the Black-Scholes model and revalues the fair market value on a
quarterly basis. Any changes in carrying value flow through as other income (expense) in the income statement. As of September
30, 2013, the Company did not have any convertible debt or warrants, and therefore, had no associated derivative liabilities at
that time. Between September 2014 and March 2015, the Company raised $2.07 million in a private placement of secured convertible
debt at $0.25 per share of Common Stock. This debt instrument also has a ratchet requiring the determination of the fair market
carrying value At issuance, the note discount and derivative liability using the Black-Scholes model was $179,200. Upon subsequent
revaluations the derivative liability value was $153,100 and $85,800 as at September 30, 2014 and March 31, 2015 with a resultant
$139,200 gain from derivative liabilities being booked to other income for the three months ended March 31, 2015, and a gain of
$99,300 being booked to other income for the six months ended March 31, 2015.



Results of Operations for the three
months ended March 31, 2015 and 2014



We only operate our Neurometric
Services business which is focused on the delivery of PEER Reports that enable psychiatrists and other physicians/prescribers
to make more informed, patient-specific decisions when treating individual patients for behavioral (psychiatric and/or addictive)
disorders based on the patient’s own physiology.



The following table presents
consolidated statement of operations data for each of the periods indicated as a percentage of revenues.



|                                           |  | Three months ended |       
|------------------------------------------ |  | ------------------ | ------
|                                           |  | March 31,          |       
|                                           |  | 2015               |       
|                                           |  |                    |       
|Revenues                                   |  |                    | 100   
|Cost of revenues                           |  |                    | 9     
|Gross profit                               |  |                    | 91    
|Research                                   |  |                    | 110   
|Product development                        |  |                    | 918   
|Sales and marketing                        |  |                    | 838   
|General and administrative expenses        |  |                    | 1,954 
|Operating loss                             |  |                    | (3,729
|Other income (expense), net                |  |                    | 401   
|Net expense before Discontinued Operations |  |                    | (3,328
|Loss from Discontinued Operations          |  |                    | (4    
|Net loss                                   |  |                    | (3,332



27







Revenues



|                             |  | Three months ended |        |  | Percent |  
|---------------------------- |  | ------------------ | ------ |  | ------- | -
|                             |  | March 31,          |        |  | Change  |  
|                             |  | 2015               |        |  | 2014    |  
|Neurometric Service Revenues |  | $                  | 20,900 |  |         | $



With respect to
our Neurometric Services business, the number of third party paid PEER Reports delivered decreased to 48 for the three months
ended March 31, 2015, down from 88 for the prior year’s three month period. The decrease was due to the halt of enrollment
into the Walter Reed Clinical trial in May, 2014, pending an internal review. Consequently, no PEER Reports were ordered for the
trial during the 2015 period. Our standard price per report is $400 to our non-military providers plus the fee for Company recorded
EEGs and ancillary services; the price to our military clinical trial providers is $540, which includes the collection of the
EEG. The average revenue per report was $410 per report for the 2015 period. The total numbers of free non-military PEER Reports
processed were 3 and 22 for the three months ended March 31, 2015 and 2014 respectively. These free PEER Reports are used for
training, database-enhancement and compassionate-use purposes.



Cost of Revenues



|                                          |  | Three months ended |       |  | Percent |  
|----------------------------------------- |  | ------------------ | ----- |  | ------- | -
|                                          |  | March 31,          |       |  | Change  |  
|                                          |  | 2015               |       |  | 2014    |  
|Cost of revenues for Neurometric Services |  | $                  | 1,800 |  |         | $



Cost of Neurometric
Services revenues consisting of payroll costs (including stock-based compensation) and consulting costs which were as follows:



|                                    |  | Three months ended |      
|----------------------------------- |  | ------------------ | -----
|                                    |  | March 31,          |      
|Key Expense Categories              |  | 2015               |      
|(1)      Salaries and benefit costs |  | $                  | -    
|(2)      Consulting fees            |  |                    | 1,800
|Total Costs of Revenues             |  | $                  | 1,800



Consulting costs
associated with the processing of second generation of PEER Online reports are between $10 and $60 per report. We expect the cost
of revenues to decrease as a percentage of revenues as we improve our operating efficiency and increase the automation of certain
processes.



Comparing the three months ended March 31,
2015 with the corresponding period in 2014:



| | (1) | Salary and benefit expenses for the 2015 period were nil as a
                                         member of staff had left in 2014. This function was re-assigned to a consultant and other
                                         members of staff along with the rollout of our second generation of PEER Online which
                                         is more automated; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Consulting fees declined for the 2015 period as we utilized a
                                         different consulting resource to artifact EEGs which were generated with our second release
                                         of the PEER Online reports.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28







Research



|                              |  | Three months ended |        |  | Percent |  
|----------------------------- |  | ------------------ | ------ |  | ------- | -
|                              |  | March 31,          |        |  | Change  |  
|                              |  | 2015               |        |  | 2014    |  
|Neurometric Services Research |  | $                  | 22,900 |  |         | $



Research expenses
consist of payroll costs (including stock-based compensation), consulting fees, practitioner training costs, travel, conference
and other miscellaneous costs which were as follows:



|                                   |  | Three months ended |       
|---------------------------------- |  | ------------------ | ------
|                                   |  | March 31,          |       
|Key Expense Categories             |  | 2015               |       
|(1)      Salary and benefit costs  |  | $                  | 10,400
|(2)      Consulting fees           |  |                    | 10,000
|(3)      Other miscellaneous costs |  |                    | 2,500 
|Total Research                     |  | $                  | 22,900



Comparing the three months ended March 31,
2015 with the corresponding period in 2014:



| | (1) | Salary and benefit costs, which are solely comprised of stock-based
                                         compensation, decreased for the 2015 as options grants for our medical consultants are
                                         becoming fully vested, therefore the amortization for the stock-based compensation is
                                         reduced;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting costs increased for 2015 period as we entered into
                                         a consulting agreement with Dr. Schiller for the medical monitoring of the Walter Reed
                                         trial, the training of clinical trial investigators and new PEER Online users. Additionally
                                         Dr. Schiller is advising on product development; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Other miscellaneous costs for 2015 and 2014 periods were substantially
                                         similar.
| | --- | ------------------------------------------------------------------------------------------------------------------------



Product Development



|                                         |  | Three months ended |         |  | Percent |  
|---------------------------------------- |  | ------------------ | ------- |  | ------- | -
|                                         |  | March 31,          |         |  | Change  |  
|                                         |  | 2015               |         |  | 2014    |  
|Neurometric Services Product Development |  | $                  | 191,900 |  |         | $



Product Development
expenses consist of payroll costs (including stock-based compensation), consulting fees, system development costs, travel and
miscellaneous costs which were as follows:



|                                   |  | Three months ended |        
|---------------------------------- |  | ------------------ | -------
|                                   |  | March 31,          |        
|Key Expense Categories             |  | 2015               |        
|(1)     Salaries and benefit costs |  | $                  | 120,300
|(2)     Consulting fees            |  |                    | 37,900 
|(3)     System development costs   |  |                    | 9,200  
|(4)     Conference and travel      |  |                    | -      
|(5)     Other miscellaneous costs  |  |                    | 24,500 
|Total Product Development          |  | $                  | 191,900



Comparing the three months ended March 31,
2015 with the corresponding period in 2014:



| | (1) | Salaries and benefits increased by
                                         a net $7,200 in the 2015 period as senior managers agreed in the 2014 period to forfeit
                                         a portion of their salaries in favor of receiving stock-based compensation in the form
                                         of options to purchase Common Stock at $0.25 per share along with the payout of their
                                         accrued salaries from prior periods. These accrued salaries were paid out over an extended
                                         period in place of their forfeited salaries; and consequently, the aforementioned reduction
                                         in salary expense was partially offset by the associated increase in stock-based compensation;
                                         Effective March 2015, managers have voluntarily agreed to reduce their salaries to $4,000
                                         per month, for the time being, in order to conserve cash: deferred salaries are being
                                         accrued;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29







| | (2) | Consulting fees decreased by $120,100
                                         for the 2015 period due to a reduction of staffing associated with the Walter Reed clinical
                                         trial. As enrollment into the clinical trial was suspended on May 2014, consequently
                                         staff was adjusted to the reduced workload. During the 2014 period we had a research
                                         staff of five while during the 2015 period staffing was reduced to one clinical research
                                         coordinator, who then left at the beginning of February 2015. The staff, which included
                                         clinical research coordinators and EEG technologists, were engaged as consultants through
                                         the Henry Jackson Foundation.  Similarly, we have reduced the costs for the clinical
                                         research organization which oversees the clinical trial and data management processes
                                         as a result of the reduced workload;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | System development and maintenance
                                         costs decreased in the 2015 due to the stage in the development cycle and in order to
                                         conserve cash;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Conference and travel costs were
                                         reduced to zero for the 2015 period as there were no visits to Walter Reed as the clinical
                                         trial enrollment had been suspended for the internal review. In the 2014 period we had
                                         personnel who regularly traveled to Bethesda, MD, to manage the Walter Reed trial; and
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Other miscellaneous costs decreased
                                         by $12,300 due to the inactivity with the clinical trial.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------





Sales and marketing



|                     |  | Three months ended |         |  | Percent |  
|-------------------- |  | ------------------ | ------- |  | ------- | -
|                     |  | March 31,          |         |  | Change  |  
|                     |  | 2015               |         |  | 2014    |  
|Sales and Marketing  |  |                    |         |  |         |  
|Neurometric Services |  | $                  | 175,200 |  |         | $



Sales and marketing
expenses associated with our Neurometric Information Services business consist primarily of payroll and benefit costs, including
stock-based compensation, advertising and marketing, consulting fees and conference and travel expenses.



|                                       |  | Three months ended |        
|-------------------------------------- |  | ------------------ | -------
|                                       |  | March 31,          |        
|Key Expense Categories                 |  | 2015               |        
|(1)    Salaries and benefit costs      |  | $                  | 80,500 
|(2)    Consulting fees                 |  |                    | 78,900 
|(3)    Advertising and marketing costs |  |                    | 8,300  
|(4)    Conferences and travel costs    |  |                    | 5,900  
|(5)    Other miscellaneous costs       |  |                    | 1,600  
|Total Sales and marketing              |  | $                  | 175,200



Comparing the three months ended March 31,
2015 with the corresponding period in 2014:



| | (1) | Salaries and benefits for the 2015 period had an increase of
                                         $28,300 largely due to an option to purchase Common Stock conditionally granted to a
                                         U.K. based consultant tasked with introducing the PEER Online system to a prospective
                                         customer in the U.K. and to obtain a licensing agreement;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting fees for the 2015 period increased by $48,900: of
                                         this $30,000 were the consulting fees for the abovementioned U.K. based consultant; the
                                         remaining increase in expenses were for the placement of public relations opportunities,
                                         including “The Doctor’s” show on CBS television and for improvement
                                         in our website design. For the 2014 period the Company had engaged a marketing consultant,
                                         Decision Calculus Associates (“DCA”), to assist with social media and general
                                         marketing efforts. The DCA continued through February of 2015;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Advertising and marketing expenses remained substantially similar
                                         for the 2015 and 2014 periods;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Conference and travel costs increased for the 2015 period due
                                         to travel and related expenses associated with “The Doctor’s” on CBS
                                         television. In the 2014 period costs were minimal; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Miscellaneous expenditures for the 2015 and 2014 periods were
                                         immaterial.
| | --- | ------------------------------------------------------------------------------------------------------------------



30







General and administrative



|                           |  | Three months ended |         |  | Percent |  
|-------------------------- |  | ------------------ | ------- |  | ------- | -
|                           |  | March 31,          |         |  | Change  |  
|                           |  | 2015               |         |  | 2014    |  
|General and administrative |  |                    |         |  |         |  
|Neurometric Services       |  | $                  | 408,300 |  |         | $



General and administrative
expenses for our Neurometric Information Services business are largely comprised of payroll and benefit costs, including stock-based
compensation, legal fees, patent costs, other professional and consulting fees, general administrative and occupancy costs, dues
and subscriptions, conference and travel costs and miscellaneous costs.



|                                               |  | Three months ended |        
|---------------------------------------------- |  | ------------------ | -------
|                                               |  | March 31,          |        
|Key Expense Categories                         |  | 2015               |        
|(1)     Salaries and benefit costs             |  | $                  | 183,700
|(2)     Legal fees                             |  |                    | 67,800 
|(3)     Other professional and consulting fees |  |                    | 21,500 
|(4)     Patent costs                           |  |                    | 30,700 
|(5)     Marketing and investor relations costs |  |                    | 3,300  
|(6)     Conference and travel costs            |  |                    | 28,000 
|(7)     Dues & subscriptions fees              |  |                    | 20,200 
|(8)     General admin and occupancy costs      |  |                    | 53,100 
|Total General and administrative costs         |  | $                  | 408,300



Comparing the three months ended March 31,
2015 with the corresponding period in 2014:



| | (1) | Salaries and benefit expenses decreased for the 2015 period
                                         for several reasons: (a) Stock option grants for officers, directors and consultants
                                         became fully vested and consequently the amortization of option expenses were reduced
                                         by $167,400. This reduction was offset by (b) in the 2014 period, corporate officers
                                         had agreed to forfeit their current salaries in favor of receiving stock-based compensation
                                         in the form of options with an exercise price of $0.25 per share of Common Stock along
                                         with the payout of their accrued salaries from prior periods which were owed to them.
                                         These accrued salaries were paid out in the first part of the fiscal 2014 period in place
                                         of their forfeited current salaries. The resultant increase in salaries and associated
                                         taxes was $98,900 in the 2015 period over the 2014 period. Effective February 28, 2015,
                                         corporate officers have voluntarily agreed to reduce their salaries to $4,000 per month,
                                         for the time being, in order to conserve cash. Deferred salaries are being accrued;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Legal fees showed a net increase for the 2015 period: (a)
                                         since activity on the Brandt litigation is currently on hold, no legal expenses were
                                         incurred during the 2015 period compared to the $7,000 incurred in the 2014 period; (b)
                                         general and securities legal expenses increased for the 2015 period largely due to expenses
                                         relating to the Secured Convertible Note financing. (c) other legal fees associated with
                                         our lobbying efforts remained the same;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Other professional and consulting fees decreased in the 2015
                                         period as $10,000 relating to the our tax preparation expense had not yet been incurred;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Patent costs decreased by $8,700 due to the timing and volume
                                         of patent applications and maintenance costs;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Marketing and investor relations costs had a minor $2,200
                                         increase in the 2015 period;
| | --- | -------------------------------------------------------------------------------------------------------------------------------



| | (6) | Conference and travel costs for the 2015 period increased
                                         by $19,700 due to (a) travel to the U.K. to investigate a licensing opportunity; and
                                         (b) a non-deal investor roadshow set up by our investor relations firm, Red Chip Companies,
                                         Inc.;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Dues and subscription cost for 2015 and 2014 periods were
                                         substantially similar; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------



| | (8) | General and administrative expenses decreased in the 2015
                                         period with marginal decreases in insurance and telecommunications costs.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31







Other Income and Expenses



|                                           |  | Three months ended |        |  | Percent |  
|------------------------------------------ |  | ------------------ | ------ |  | ------- | -
|                                           |  | March 31,          |        |  | Change  |  
|Other Income (Expenses)                    |  | 2015               |        |  | 2014    |  
|Neurometric Services income (expense), net |  | $                  | 84,600 |  |         | $

* (Not Meaningful)



For the three months ended
March 31, 2015 and 2014 net other non-operating income (loss) for Neurometric Services was as follows:



| | • | For the 2015 period, we incurred non-cash interest charges
                                         totaling $54,600 of which $22,100 was accrued interest on our convertible promissory
                                         notes at 5% per annum; the remaining balance was comprised of $32,000 of beneficial conversion
                                         discount amortization on convertible promissory notes; only $500 was for actual net interest
                                         paid in cash during that period. For the 2014 period we incurred only $600 in net interest
                                         expense which was paid in cash; we incurred no non-cash interest charges.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Under ASC 815, all derivative instruments are required
                                         to be measured periodically at fair value and the change in fair value of non-hedging
                                         derivative instrument are to be recognized in current earnings. For the 2015 period we
                                         revaluated our derivative liabilities for the convertible promissory note beneficial
                                         conversion feature which resulted in a non-cash gain on derivative liabilities of $139,200.
                                         For the 2014 period we had no derivative instruments to value and consequently no associated
                                         expense or gain.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net Loss from Continuing Operations



|                              |  | Three months ended |          |   | Percent |  
|----------------------------- |  | ------------------ | -------- | - | ------- | -
|                              |  | March 31,          |          |   | Change  |  
|                              |  | 2015               |          |   | 2014    |  
|Neurometric Services net loss |  | $                  | (695,400 | ) |         | $



The net loss for our Neurometric
Services business of $695,400 for the three months ended March 31, 2015 compared to the approximately $942,300 loss for the same
period in the prior year is primarily due to an overall reduction of operating expenses of $161,000 largely due to the suspension
of the clinical trial. Secondarily, as mentioned above, we benefited from a net gain of $84,600 in Other Income largely due to
the revaluation of derivative liabilities.



Net gain (loss) from Discontinued
operations:



|                                  |  | Three months ended |      |   | Percent | 
|--------------------------------- |  | ------------------ | ---- | - | ------- | 
|                                  |  | March 31,          |      |   | Change  | 
|                                  |  | 2015               |      |   | 2014    | 
|Clinical Services net gain (loss) |  |                    | (900 | ) |         | 



For our Clinical Services
the net loss for the three months ended March 31, 2015 of $900 is an increase over the same period in 2014 period in which we
had a minor adjustment for an expense booked in the prior period. As there were no ongoing operations during either the 2015 or
2014 period, the expenditures incurred were largely due to medical record storage fees.



Results of Operations for the six
months ended March 31, 2015 and 2014



We only operate our Neurometric
Services business which is focused on the delivery of PEER Reports that enable psychiatrists and other physician/prescribers to
make more informed, patient-specific decisions when treating individual patients for behavioral (psychiatric and/or addictive)
disorders based on the patient’s own physiology.



32







The following table presents
consolidated statement of operations data for each of the periods indicated as a percentage of revenues.



|                                           |  | Six months ended |       
|------------------------------------------ |  | ---------------- | ------
|                                           |  | March 31,        |       
|                                           |  | 2015             |       
|                                           |  |                  |       
|Revenues                                   |  |                  | 100   
|Cost of revenues                           |  |                  | 7     
|Gross profit                               |  |                  | 93    
|Research                                   |  |                  | 107   
|Product development                        |  |                  | 1,001 
|Sales and marketing                        |  |                  | 606   
|General and administrative expenses        |  |                  | 1,945 
|Operating loss                             |  |                  | (3,566
|Other income (expense), net                |  |                  | (25   
|Net expense before Discontinued Operations |  |                  | (3,591
|Loss from Discontinued Operations          |  |                  | (4    
|Net loss                                   |  |                  | (3,595



Revenues



|                             |  | Six months ended |        |  | Percent |  
|---------------------------- |  | ---------------- | ------ |  | ------- | -
|                             |  | March 31,        |        |  | Change  |  
|                             |  | 2015             |        |  | 2014    |  
|Neurometric Service Revenues |  | $                | 43,700 |  |         | $



With respect to
our Neurometric Services business, the number of third party paid PEER Reports delivered decreased to 102 for the six months ended
March 31, 2015, down from 192 for the prior year’s three month period. The decrease was due to the halt of enrollment into
the Walter Reed Clinical trial in May, 2014, pending an internal review. Consequently, no PEER Reports were ordered for the trial
during the 2015 period. Our standard price per report is $400 to our non-military providers plus the fee for Company recorded
EEGs and ancillary services; the price to our military clinical trial providers is $540, which includes the collection of the
EEG. The average revenue per report was $417 per report for the 2015 period. The total number of free non-military PEER Reports
processed were 4 and 49 for the six months ended March 31, 2015 and 2014 respectively. These free PEER Reports are used for training,
database-enhancement and compassionate-use purposes.



Cost of Revenues



|                                          |  | Six months ended |       |  | Percent |  
|----------------------------------------- |  | ---------------- | ----- |  | ------- | -
|                                          |  | March 31,        |       |  | Change  |  
|                                          |  | 2015             |       |  | 2014    |  
|Cost of revenues for Neurometric Services |  | $                | 2,900 |  |         | $



Cost of Neurometric
Services revenues consisting of payroll costs (including stock-based compensation) and consulting costs which were as follows:



|                                    |  | Six months ended |      
|----------------------------------- |  | ---------------- | -----
|                                    |  | March 31,        |      
|Key Expense Categories              |  | 2015             |      
|(1)      Salaries and benefit costs |  | $                | -    
|(2)      Consulting fees            |  |                  | 2,900
|Total Costs of Revenues             |  | $                | 2,900



Consulting costs
associated with the processing of second generation of PEER Online reports are between $10 and $60 per report. We expect the cost
of revenues to decrease as a percentage of revenues as we improve our operating efficiency and increase the automation of certain
processes.



33







Comparing the six months ended March 31, 2015
with the corresponding period in 2014:



| | (1) | Salary and benefit expenses for the 2015 period were $0 as a                                          member of staff
                                                             had                                                              left in 2014. This function was re-assigned to a consultant
                                                             and other                                          members of
                                                             staff along with the rollout of our second generation of PEER Online which                                          is more
                                                             automated, and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting fees declined for the 2015 period as we utilized a
                                         different consulting resource to artifact EEGs which were generated with our second release
                                         of the PEER Online reports.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Research



|                              |  | Six months ended |        |  | Percent |  
|----------------------------- |  | ---------------- | ------ |  | ------- | -
|                              |  | March 31,        |        |  | Change  |  
|                              |  | 2015             |        |  | 2014    |  
|Neurometric Services Research |  | $                | 46,700 |  |         | $



Research expenses
consist of payroll costs (including stock-based compensation), consulting fees, and other miscellaneous costs which were as follows:



|                                   |  | Six months ended |       
|---------------------------------- |  | ---------------- | ------
|                                   |  | March 31,        |       
|Key Expense Categories             |  | 2015             |       
|(1)      Salary and benefit costs  |  | $                | 20,800
|(2)      Consulting fees           |  |                  | 20,000
|(3)      Other miscellaneous costs |  |                  | 5,900 
|Total Research                     |  | $                | 46,700



Comparing the six months ended March 31, 2015
with the corresponding period in 2014:



| | (1) | Salary and benefit costs, which are solely comprised of stock-based
                                         compensation, decreased for the 2015 period as options grants for our medical consultants are
                                         becoming fully vested, therefore reducing the amortization for the stock-based compensation;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting costs remained the same for 2015 period as we entered
                                         into a consulting agreement with Dr. Schiller for the medical monitoring of the Walter
                                         Reed study, the training of clinical trial investigators and new PEER Online users. Additionally
                                         Dr. Schiller is advising on product development; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Other miscellaneous costs for the 2015 and 2014 periods were substantially
                                                             similar.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



Product Development



|                                         |  | Six months ended |         |  | Percent |  
|---------------------------------------- |  | ---------------- | ------- |  | ------- | -
|                                         |  | March 31,        |         |  | Change  |  
|                                         |  | 2015             |         |  | 2014    |  
|Neurometric Services Product Development |  | $                | 437,500 |  |         | $



Product Development
expenses consist of payroll costs (including stock-based compensation), consulting fees, system development costs, travel and
miscellaneous costs as follows:



|                                   |  | Six months ended |        
|---------------------------------- |  | ---------------- | -------
|                                   |  | March 31,        |        
|Key Expense Categories             |  | 2015             |        
|(1)     Salaries and benefit costs |  | $                | 238,900
|(2)     Consulting fees            |  |                  | 138,500
|(3)     System development costs   |  |                  | 28,200 
|(4)     Conference and travel      |  |                  | -      
|(5)     Other miscellaneous costs  |  |                  | 31,900 
|Total Product Development          |  | $                | 437,500



34







Comparing the six months ended March 31, 2015
with the corresponding period in 2014:



| | (1) | Salaries and benefits increased by
                                         a net $53,300 in the 2015 period as managers had agreed to forfeit a portion of their
                                         salaries during the 2014 period in favor of receiving stock-based compensation in the
                                         form of options with an exercise price of $0.25 per share of Common Stock along with
                                         the payout of their accrued salaries from prior periods. These accrued salaries were
                                         paid out over an extended period in place of their forfeited salaries; and consequently,
                                         the aforementioned reduction in salary expense was partially offset by the associated
                                         increase in stock-based compensation. Effective March 2015, managers have voluntarily
                                         agreed to reduce their salaries to $4,000 per month, for the time being, in order to
                                         conserve cash: deferred salaries are being accrued;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting fees decreased by $220,400
                                         for the 2015 period primarily due to a reduction of staffing associated with the Walter Reed clinical
                                         trial. As enrollment into the clinical trial was suspended on May 2014, consequently
                                         staff was adjusted to the reduced workload. During the 2014 period we had a research
                                         staff of five while during the 2015 period it was reduced to two until the beginning
                                         of February when the last staff member rolled off the clinical trial. The staff, which
                                         included clinical research coordinators and EEG technologists, were engaged as consultants
                                         through the Henry Jackson Foundation.  Similarly, as result of the reduced workload,
                                         we have reduced the costs for the clinical research organization which oversees the clinical
                                         trial and data management processes;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | System development and maintenance
                                         costs decreased in the 2015 due to the stage in the development cycle and in order to
                                         conserve cash. In the 2014 period, system development focused on updating our PEER Online
                                         system and Administrative dashboard applications;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Conference and travel costs were
                                         eliminated for the 2015 period as there were no visits to Walter Reed as the clinical
                                         trial enrollment had been suspended for the internal review. In the 2014 period we had
                                         personnel who had relocated to Bethesda, MD, to manage the trial; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Other miscellaneous costs decreased
                                         $11,400 in the 2015 period due to the suspension of the clinical trial. In the 2014 period
                                         we incurred a $28,000 expense as we had entered into an agreement with a manufacturer
                                         of EEG equipment to modify their equipment to be compatible with the Neuroguide system
                                         which is used in the generation of the PEER Online reports.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sales and marketing



|                     |  | Six months ended |         |  | Percent |  
|-------------------- |  | ---------------- | ------- |  | ------- | -
|                     |  | March 31,        |         |  | Change  |  
|                     |  | 2015             |         |  | 2014    |  
|Sales and Marketing  |  |                  |         |  |         |  
|Neurometric Services |  | $                | 264,900 |  |         | $



Sales and marketing
expenses associated with our Neurometric Information Services business consist primarily of payroll and benefit costs, including
stock-based compensation, advertising and marketing, consulting fees and conference and travel expenses.



|                                       |  | Six months ended |        
|-------------------------------------- |  | ---------------- | -------
|                                       |  | March 31,        |        
|Key Expense Categories                 |  | 2015             |        
|(1)    Salaries and benefit costs      |  | $                | 117,500
|(2)    Consulting fees                 |  |                  | 108,900
|(3)    Advertising and marketing costs |  |                  | 29,000 
|(4)    Conferences and travel costs    |  |                  | 7,700  
|(5)    Other miscellaneous costs       |  |                  | 1,800  
|Total Sales and marketing              |  | $                | 264,900



Comparing the six months ended March 31, 2015
with the corresponding period in 2014:



35







| | (1) | Salaries and benefits for the 2015 period had an increase of
                                         $10,900 over the 2014 period. This was primarily due to net increase in stock-based compensation
                                         as a result of an option grant to a U.K. based consultant tasked with obtaining a licensing
                                         agreement in the U.K. This expense was offset by older option grants becoming fully vested
                                         thereby reducing the option amortization expense incurred;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Consulting fees for the 2015 period increased by $48,900: primarily due to $30,000 of the consulting fees for the
                                                             abovementioned U.K.                                                              based consultant; the
                                                             remaining increase in expenses were for the placement of                                                              public
                                                             relations opportunities,                                          including “The Doctor’s” show on
                                                             CBS television and for improvement                                          in our website design. For the 2014 period the
                                                             Company had engaged a marketing consultant,                                          Decision Calculus Associates
                                                             (“DCA”), to assist with social media and general                                          marketing efforts. The
                                                             DCA continued through February of 2015;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Advertising and marketing expenses increased in the 2015 period
                                         primarily because we engaged in six-week test marketing campaign using social media.
                                         Results from the campaign were encouraging and showed a demonstrable increase in leads
                                         at a cost of approximately $75 per lead. During the 2014 period these expenses were limited
                                         to marketing for the Walter Reed clinical trial;
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Conference and travel costs increased for the 2015 period due
                                         to travel expenses related to being on “The Doctor’s” show in Los Angeles.
                                         In the 2014 period costs were minimal; and
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Miscellaneous expenditures for the 2015 and 2014 periods were
                                         immaterial.
| | --- | ------------------------------------------------------------------------------------------------------------------



General and administrative



|                           |  | Six months ended |         |  | Percent |  
|-------------------------- |  | ---------------- | ------- |  | ------- | -
|                           |  | March 31,        |         |  | Change  |  
|                           |  | 2015             |         |  | 2014    |  
|General and administrative |  |                  |         |  |         |  
|Neurometric Services       |  | $                | 850,100 |  |         | $



General and administrative
expenses for our Neurometric Services business are largely comprised of payroll and benefit costs, including stock based compensation,
legal fees, patent costs, other professional and consulting fees, general administrative and occupancy costs, dues and subscriptions,
conference and travel costs and miscellaneous costs.



|                                               |  | Six months ended |        
|---------------------------------------------- |  | ---------------- | -------
|                                               |  | March 31,        |        
|Key Expense Categories                         |  | 2015             |        
|(1)     Salaries and benefit costs             |  | $                | 363,600
|(2)     Legal fees                             |  |                  | 120,500
|(3)     Other professional and consulting fees |  |                  | 71,500 
|(4)     Patent costs                           |  |                  | 58,500 
|(5)     Marketing and investor relations costs |  |                  | 48,600 
|(6)     Conference and travel costs            |  |                  | 42,900 
|(7)     Dues & subscriptions fees              |  |                  | 38,500 
|(8)     General admin and occupancy costs      |  |                  | 106,000
|Total General and administrative costs         |  | $                | 850,100



Comparing the six months ended March 31, 2015
with the corresponding period in 2014:



| | (1) | Salaries and benefit expenses decreased for the 2015 period
                                         for several reasons: (a) Stock option grants for officers, directors and consultants
                                         became fully vested and consequently the amortization of option expenses were reduced
                                         by $381,600. This reduction was offset by (b) in the 2014 period, corporate officers
                                         had agreed to forfeit their current salaries in favor of receiving stock-based compensation
                                         in the form of options with an exercise price of $0.25 per share of Common Stock along
                                         with the payout of their accrued salaries from prior periods which were owed to them.
                                         These accrued salaries were paid out in the first part of the fiscal year 2014 in place
                                         of their forfeited current salaries. The resultant increase in salaries in the 2015 over
                                         the 2014 period was $154,200. Effective February 28, 2015, corporate officers have voluntarily
                                         agreed to reduce their salaries to $4,000 per month, for the time being, in order to
                                         conserve cash: deferred salaries are being accrued.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36







| | (2) | Legal fees showed a net decrease for the 2015 period: (a)
                                         since activity on the Brandt litigation is on hold, no legal expenses were incurred during
                                         the 2015 period compared to $21,700 in the 2014 period; (b) general and securities legal
                                         expenses were substantially similar for the two periods; (c) other legal fees associated
                                         with our lobbying efforts decreased slightly.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Other professional and consulting fees decreased by $26,600
                                         in the 2015 period as (a) $16,500 in Public Relations consulting fees incurred in the
                                         2014 period did not reoccur in the 2015 period, and (b) the balance of the expenditure
                                         which were for audit and tax fees decreased by $10,100 as the tax fees had not yet been
                                         incurred for the 2015 period;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Patent costs were substantially similar for the two periods;
| | --- | ------------------------------------------------------------



| | (5) | Marketing and investor relations costs increased in the 2015
                                         period by $45,700 of which $22,500 was for the monthly engagement fees of the RedChip
                                         Companies, Inc. and $21,600 was the fair value of the warrant to purchase Common Stock
                                         at $0.25 share issued to RedChip for their services;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Conference and travel costs for the 2015 period increased
                                         by $17,900 due to (a) travel to the U.K. to investigate a licensing opportunity; and
                                         (b) a non-deal investor roadshow set up by our investor relations firm, Red Chip Companies,
                                         Inc.;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Dues and subscription costs increased marginally in the 2015
                                         period with the increase of software licenses for providers accessing PEER Online portal;
                                         and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | General and administrative expenses decreased marginally in
                                         the 2015 period with minor decreases in telecommunications costs.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Income and Expenses



|                                           |  | Six months ended |        |   | Percent |  
|------------------------------------------ |  | ---------------- | ------ | - | ------- | -
|                                           |  | March 31,        |        |   | Change  |  
|Other Income (Expenses)                    |  | 2015             |        |   | 2014    |  
|Neurometric Services income (expense), net |  | $                | (6,700 | ) |         | $

* (Not Meaningful)



For the six months ended
March 31, 2015 and 2014 net other non-operating income for Neurometric Information Services was as follows:



| | • | For the 2015 period, we incurred non-cash interest charges
                                         totaling $6,700 of which $42,800 was accrued interest on our convertible promissory notes
                                         at 5% per annum; the remaining balance was comprised of $61,900 of beneficial conversion
                                         discount amortization on convertible promissory notes; only $1,400 was for actual net
                                         interest paid in cash during that period. For the 2014 period we incurred only $1,700
                                         in net interest expense which was paid in cash; we incurred no non-cash interest charges.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Under ASC 815, all derivative instruments are required
                                         to be measured periodically at fair value and the change in fair value of non-hedging
                                         derivative instrument are to be recognized in current earnings. For the 2015 period we
                                         revaluated our derivative liabilities for the promissory note beneficial conversion feature
                                         which resulted in a non-cash gain on derivative liabilities of $99,300. For the 2014
                                         period we had no derivative instruments to value and consequently no associate expense
                                         or gain.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | For the 2014 period we experience a non-cash gain on
                                         the extinguishment of debt of $1,105,200 related to the settlement of a long-outstanding
                                         trade payable balance which was renegotiated. For the 2015 period we had no similar transaction.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37







Net Loss from Continuing Operations



|                              |  | Six months ended |            |   | Percent |  
|----------------------------- |  | ---------------- | ---------- | - | ------- | -
|                              |  | March 31,        |            |   | Change  |  
|                              |  | 2015             |            |   | 2014    |  
|Neurometric Services net loss |  | $                | (1,569,100 | ) |         | $



The net loss for our Neurometric
Services business of $1,569,100 for the six months ended March 31, 2015 compared to the approximately $803,700 loss for the same
period in the prior year is primarily due to the approximately $1.1 million in non-cash Other Income from the extinguishment of
debt transaction as described above.



In general for the six
months ended March 31, 2015, all cost centers, except for Sales & Marketing, reduced their expenditures when compared to the
prior year’s period. However due to the suspension of enrollment into the Walter Reed trial, revenues were also reduced
during the 2015 period. We anticipate that enrollment into the clinical trial will resume later in fiscal 2015.



Loss from Discontinued operations:



|                           |  | Six months ended |        |   | Percent | 
|-------------------------- |  | ---------------- | ------ | - | ------- | 
|                           |  | March 31,        |        |   | Change  | 
|                           |  | 2015             |        |   | 2014    | 
|Clinical Services net loss |  |                  | (1,800 | ) |         | 



For our Clinical Services,
the net loss for the six months ended March 31, 2015 of $1,800 is a decrease of $1,500 over the same period in the prior year.
As there were no ongoing operations during either the 2015 or 2014 period, the losses incurred were due to medical record storage
fees and, in 2014, charges associated with the lease.



Liquidity and Capital Resources



Since our inception,
we have incurred significant losses.  As of March 31, 2015, and 2014 we had accumulated deficits of approximately
$60.8 million and $57.4 million respectively. We have not yet achieved profitability and anticipate that we will
continue to incur net losses for the foreseeable future. Our management expects that with our Walter Reed clinical trial,
sales and marketing and general and administrative cost, our expenditures will continue to grow and, as a result, we will
need to generate significant product revenues to achieve profitability. We may never achieve profitability.



As of March 31, 2015,
we had approximately $310,000 in cash and cash equivalents and a working capital deficit of approximately $3.2 million. This is
comparable to our cash position of approximately $783,800 in cash and cash equivalents as of March 31, 2014, and a working capital deficit
of $536,400. The increase in our working capital deficit is due to the maturity date of our Secured Convertible Notes, and interest
thereon, being March 21, 2016; since this maturity date is within a year, these liabilities are now classified as current instead
of long-term.



Between September 22,
2014, through March 18, 2015, the Company entered into a new Note Purchase Agreement (the “Note Purchase Agreement”)
in connection with a bridge financing, with nine accredited investors, including lead investor RSJ Private Equity (“RSJ
PE”).  Pursuant to the Note Purchase Agreement, the Company issued twelve secured convertible promissory notes
(each, a “September 2014 Note”) in the aggregate principal amount of $2.07 million. Of this amount, RSJ PE purchased
a September 2014 Note for $750,000. The September 2014 Notes were also purchased by the following affiliates of the Company or
entities under their control: The Tierney Family Trust, of which the Company’s Chairman of the Board, Thomas Tierney, is
a trustee, purchased a three September 2014 Notes for $415,000; the Company’s Director, John Pappajohn, purchased two September
2014 Notes for $300,000; the Follman Family Trust of which Robert Follman is a Director of the Company, purchased a September
2014 Note for $100,000; and Oman Ventures, of which Mark Oman, a greater than 5% stockholder of the Company, is the President,
purchased a September 2014 Note for $200,000. The obligations represented by these September 2014 Notes are secured by substantially
all of the assets of the Company and mature on March 21, 2016. We do not now have, and will not likely have on the maturity date
thereof, the cash necessary to repay the Notes when they become due.  If we are unable to repay the Notes when due, the holders
could pursue any remedies available to them, which could result in a complete foreclosure on their security interest in the assets
of the Company.



Operating Capital and Capital Expenditure
Requirements



Our
continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern.
We have limited ability to meet our current obligations as they become due and we are in arrears with certain
of our creditors.  Because of our substantial indebtedness, we are insolvent and need to
raise additional funds and restructure our debt in order to continue our operations. Our financial statements
include an opinion of our auditors that our continued operating losses and limited capital raise substantial doubt about our
ability to continue as an ongoing concern.



38







We need additional funds
to complete our Walter Reed clinical trial and to continue our operations and will need substantial additional funds before we
can increase demand for our PEER Online services. We are continuing to explore additional sources of capital; however, we do not
know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that
currently prevail. Furthermore, any additional equity funding may result in significant dilution to existing stockholders and,
if we incur debt financing, a substantial portion of our operating cash flow may be dedicated to the repayment of principal and
interest on such indebtedness, thus limiting funds available for our business activities.



We expect to
continue to incur operating losses in the future. We anticipate that our cash on hand and cash generated through our
operations will not be sufficient to fund our operations beyond the next few months. If adequate funds are not available, it
would have a material adverse effect on our business, financial condition and/or results of operations, and could cause us to
have to cease operations.



The amount of capital
we will need to conduct our operations and the time at which we will require such capital may vary significantly depending upon
a number of factors, such as:



| | · | the
                                         amount and timing of costs we incur in connection with our Walter Reed clinical trial
                                         and product development activities, including enhancements to our PEER Online Database
                                         and costs we incur to further validate the efficacy of our referenced EEG 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 conducting a Non-Significant
                                         Risk study under an FDA requirements which will enable us to obtain a 510(k) clearance
                                         from the FDA; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | if
                                         we expand our business by acquiring or investing in complimentary businesses.
| | - | -------------------------------------------------------------------------------------------------------------------------



Sources of Liquidity



Since our inception, substantially
all of our operations have been financed from equity and debt financings. From June, 2010, through to November, 2012, we raised
$9.6 million through five rounds of private placements of convertible secured notes with 34 accredited investors. All the aforementioned
notes were converted, along with the interest thereon, by September 30, 2013. Of these notes, $5.6 million, or 58% in principal
amount, were purchased by directors, officers and affiliates of the Company.



Since February, 2013,
through July 2014 we raised $4.8 million through the private placement of equity at $0.25 per share of Common Stock. Of this equity
offerings $2.1 million, or 44%, were purchased by directors, officers and affiliates of the Company.



Between September 2014,
and March 2015 we raised $2.1 million through the private placement of secured convertible debt with an exercise price of $0.25.
Of this funding $1.0 million, or 49%, was acquired by directors, officers and affiliates of the Company.



For details of these
financings please See Note 4 and Note 7 of the Notes to the Consolidated Financial Statements.



Cash Flows



Net cash used in
operating activities was $1.3 million for the six months ended March 31, 2015 compared to $1.88 million for the same period
in 2014.  The $0.58 million reduction in the use of cash was primarily due to (1) accounts payable settlements that
occurred during the 2014 period. Furthermore, operational expenses during the 2014 period were also reduced as enrollment
into the Walter Reed Trial was on hold pending the internal review.



No cash was used in
or provided by investing activities for the six months ended March 31, 2015 or 2014.



Financing activities for
the six months ended March 31, 2015, were $0.4 million in cash proceeds from the private placement with accredited investors of
Secured Convertible Notes, which convert at $0.25 per share.For the six months ended March
31, 2014, net proceeds of $1.4 million were raised through the sale of Common Stock in a private placement with accredited investors
at $0.25 per share. Cash used in the repayment of capital leases during the six months ended March 31, 2015 and 2014 was $1,900
and $3,500 respectively.



Net cash used in discontinued
operations for the six months ended March 31, 2015 was $21,300 which was primarily for costs associated with NTC’s accounts
payable and the cost of medical record storage. For the same period ended March 31, 2014, the net cash used was $39,500 which
was primarily for NTC’s accounts payable, medical record storage and costs associated with the lease.



39







Income Taxes



Current and non-current
deferred taxes have been recorded on a net basis in the accompanying balance sheet. As of September 30, 2014, the Company had
Federal net operating loss carryforwards of approximately $31.6 million and State net operating loss carryforwards of approximately
$51.0 million. Both the Federal and State net operating loss carryforwards will begin to expire in 2034. Our 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.



Off-Balance Sheet Arrangements



We have no off-balance
sheet arrangements or financing activities with special purpose entities.



Item 3.    Quantitative
and Qualitative Disclosures about Market Risk.



Not applicable.



Item 4.    Controls and Procedures.



Disclosure Controls and Procedures



Our management, including
our principal executive officer (PEO) and principal financial officer (PFO), conducted an evaluation of the effectiveness of our
disclosure controls and procedures, as defined by paragraph (e) of Exchange Act Rule 13a-15, as of March 31, 2015, the end
of the period covered by this report.  Based on this evaluation, our PEO and PFO concluded that our disclosure controls
and procedures were effective as of March 31, 2015.



A “material weakness”
is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis.



A “significant deficiency”
is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material
weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.



To the knowledge of our
management, including our PEO and PFO, none of the aforementioned significant deficiencies led to a misstatement of our results
of operations for the six months ended March 31, 2015, or statement of financial position as of March 31, 2015.



Changes in Internal Control Over Financial
Reporting



During the quarterly period
ending March 31, 2015, there were no changes in our internal controls over financial reporting that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.



40







PART II

OTHER INFORMATION



Item 1.           
Legal Proceedings



Please see Note 9 of our
Notes to Unaudited Condensed Consolidated Financial Statements for a description of our litigation with Leonard Brandt,
which disclosure is incorporated herein by reference.



Item 1A.         Risk
Factors



There have been no material
changes to the risk factors included in the Risk Factors section in our Annual Report on Form 10-K for the year ended September
30, 2014.



Item 2.           
Unregistered Sales of Equity Securities and Use of Proceeds



Private Placement Transactions



From October 4, 2013,
through February 14, 2014, 29 accredited investors purchased an aggregate of 5,900,000 shares of Common Stock, at a price of $0.25
per share pursuant to private placements. The Company received gross aggregate cash proceeds of $1,475,000.



From July 8, 2014 through
July 23, 2014, 8 accredited investors purchased an aggregate of 1,040,000 shares of Common Stock, at a price of $0.25 per share
pursuant to private placements. The Company received gross aggregate cash proceeds of $260,000.



Refer to Note 6. Stockholders’
Deficit and Note 7. Related Party Transactions for details of the abovementioned transaction, which detail is herewith
incorporated herein by reference to such note.



From September 22, 2014,
through March 18, 2015, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) in connection
with a bridge financing, with nine accredited investors. Pursuant to the Note Purchase Agreement, the Company issued twelve secured
convertible promissory notes (each, a “September 2014 Note”) in the aggregate principal amount of $2.1 million.



Refer to Note 4. Convertible
debt and Equity Financings, Note 7. Related Party Transactions for details of the abovementioned transaction, which detail
is herewith incorporated herein by reference to such note.



The issuance of the securities
described above was not registered under the Securities Act.  No general solicitation or advertising was used in connection
with the issuance.  In making the issuance to accredited investors without registration under the Securities Act, the
Company relied upon the exemption from registration contained in Section 4(2) of the Securities Act and/or Regulation D thereunder.



Item 6.           
Exhibits



The following exhibits are filed as part of
this report or incorporated by reference herein:



|Exhibit
        Number |  | Exhibit Title                                                                                                                                                                                 
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.
|101.INS*               |  | XBRL Instance Document                                                                                                                                                                        
|101.SCH*               |  | XBRL Taxonomy Extension Schema                                                                                                                                                                
|101.CAL*               |  | XBRL Taxonomy Extension Calculation
    Linkbase                                                                                                                                              
|101.DEF*               |  | XBRL Taxonomy Extension Definition
    Linkbase                                                                                                                                               
|101.LAB*               |  | XBRL Taxonomy Extension Label Linkbase                                                                                                                                                        
|101.PRE*               |  | XBRL Taxonomy Extension Presentation
    Linkbase                                                                                                                                             





* Will be filed by amendment



41







SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                   | CNS
    Response, Inc.
|------------------ | ----------------------
|                   |                       
|Date: May 15, 2015 |                       
|                   | By:                   
|                   | Its:                  
|                   |                       
|                   |                       
|                   |                       
|                   | By:                   
|                   | Its:                  



42