Neuraxis, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023; filed November 20, 2023. Neuraxis develops and sells medical neuromodulation devices. Its only currently marketed product is IB-Stim, an FDA-cleared device for functional abdominal pain associated with irritable bowel syndrome in patients ages 11–18. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Three months ended Sept. 30, 2023 | Three months ended Sept. 30, 2022 | Nine months ended Sept. 30, 2023 | Nine months ended Sept. 30, 2022 |
|---|---|---|---|---|
| Net sales | $477,460 | $618,805 | $1,928,590 | $2,071,653 |
| Gross profit | $410,173 | $551,167 | $1,697,590 | $1,849,807 |
| Gross margin | 85.9% | 89.1% | 88.0% | 89.3% |
| Operating loss | $(3,022,339) | $(1,203,124) | $(5,041,290) | $(2,386,012) |
| Net loss | $(4,904,356) | $(2,079,682) | $(9,313,378) | $(4,766,433) |
| Basic and diluted loss per share | $(1.35) | $(1.14) | $(3.65) | $(2.70) |
- Cash and cash equivalents were $761,249 at September 30, 2023, compared with $253,699 at December 31, 2022.
- Total assets were $1.24 million and total liabilities were $2.30 million, resulting in stockholders’ deficit of $1.06 million.
- Working capital deficit was approximately $1.3 million. Current liabilities included $934,256 of share liabilities, $168,269 of warrant liabilities and $194,249 of notes payable.
- Net cash used in operating activities was $4.06 million for the nine months ended September 30, 2023, versus $2.08 million in the prior-year period.
- Net cash provided by financing activities was $4.63 million, including IPO proceeds and convertible-note financing, partly offset by $3.49 million of principal repayments.
- Capital expenditures and additions to intangible assets totaled $55,741 during the first nine months.
Material Changes Versus the Prior Comparable Period
- Third-quarter sales declined 23% to $477,460; nine-month sales declined 6.9% to $1.93 million. Management attributed the declines primarily to ordering patterns of major customers.
- Gross margin declined 3.2 percentage points in the quarter and 1.3 percentage points year to date, partly reflecting devices sold below regular pricing.
- General and administrative expense increased 110% in the quarter and 68.6% year to date, primarily due to higher wages and professional fees. Management expects public-company costs to increase during the remainder of 2023 and G&A to stabilize within two years after the IPO.
- Research and development expense decreased in the quarter but increased 18.9% year to date. Management expects approximately $0.3 million of 2023 R&D spending for cyclic vomiting syndrome clinical trials and expects R&D costs to decline in 2024 as trials are completed.
- Interest expense increased to $453,869 year to date. Amortization of debt discounts and issuance costs increased to $4.88 million, compared with $28,973 in the prior-year period, primarily because convertible debt was converted or repaid in connection with the IPO.
- The company completed its IPO on August 11, 2023, selling 1,098,667 shares at $6.00 per share. Gross proceeds were approximately $6.6 million, and the filing reports net proceeds of approximately $5.5 million in several sections. One going-concern disclosure instead states net proceeds of approximately $6.1 million; this inconsistency should be verified.
- Convertible debt and accrued interest totaling $6.76 million were converted into 1,605,841 common shares, while $737,453 of principal and interest was repaid. Preferred stock was converted into common stock upon the IPO.
- As of September 30, 2023, 1,231,772 authorized shares had not yet been issued and were recorded as a $934,256 share liability. The company expected the administrative delay to be resolved in the next quarter.
Guidance, Outlook, Risks and Unusual Items
- Management expects revenue to improve through broader commercial insurance coverage, increased marketing and potential FDA clearances for functional nausea, post-concussion syndrome and cyclic vomiting syndrome in children.
- Management stated that cash available at the time of filing was expected to fund operations only through the first quarter of 2024 under current operating plans.
- The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern. Continued operations depend on increased sales, insurance adoption, profitability and additional financing, which may be unavailable or available only on unfavorable or dilutive terms.
- Customer concentration is significant: three hospitals represented approximately 50% of quarterly sales and 43% of nine-month sales. Two customers represented approximately 15% and 14% of accounts receivable at September 30, 2023.
- The company had 1,828,012 common-stock warrants outstanding, with a weighted-average exercise price of $4.40, and 1,319,394 stock options outstanding at a weighted-average exercise price of $6.94. Future exercises or conversions may dilute shareholders.
- Executive employment arrangements include deferred or contingent benefits. The filing identifies approximately $14.82 million of special options bonuses, payable over 2024–2028 subject to specified conditions.
- Two Maryland lawsuits remain relevant. One previously dismissed case is on appeal and seeks damages exceeding $5 million. A related case had its RICO claims dismissed, while other claims remain pending; no trial date had been scheduled.
- Management reported ineffective disclosure controls and material weaknesses in internal control over financial reporting, including limited review controls and inadequate segregation of duties. Remediation efforts include reassignment of duties and potential hiring of additional accounting or internal-audit personnel.
- Subsequent to quarter-end, the company signed an agreement to sell $3.0 million of Series B preferred stock in 15 monthly installments beginning January 2024. The filing also states that 113,693 previously unissued shares were issued between October 1 and November 20, 2023, with the remaining 1,118,079 shares expected to be issued during the fourth quarter.
Most Important Facts for Investors to Verify
- Reconcile the inconsistent disclosures regarding IPO net proceeds of approximately $5.5 million versus $6.1 million.
- Assess the company’s ability to raise additional capital before its projected first-quarter 2024 cash runway expires.
- Track insurance coverage and reimbursement adoption for IB-Stim, which management identifies as the principal driver of future revenue.
- Review the status, timing and potential dilution associated with the 1.23 million unissued shares and outstanding warrants and options.
- Monitor remediation of the reported material weaknesses in financial reporting controls.
- Evaluate the potential financial and reputational exposure from the pending litigation and the concentration of sales among a small number of hospitals.
- Confirm the timing and collectability of the proposed $3.0 million Series B preferred-stock financing.