NeurAxis, Inc. — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
NeurAxis develops and sells medical neuromodulation devices. Its only currently marketed product is IB-Stim, an FDA-cleared device for patients ages 11–18 with functional abdominal pain associated with irritable bowel syndrome. The company also has pipeline indications including functional nausea, post-concussion syndrome, and cyclic vomiting syndrome. The quarterly report covers the three months ended March 31, 2024, with comparisons to the three months ended March 31, 2023. The shares trade on NYSE American under the symbol NRXS.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $646,635 | $805,110 | Down 19.7% |
| Gross profit | $571,554 | $709,210 | Down 19.4% |
| Gross margin | 88.4% | 88.1% | Up 30 basis points |
| Operating loss | $(1,832,120) | $(896,274) | Loss increased 104.4% |
| Net loss | $(2,120,651) | $(2,173,410) | Loss improved 2.4% |
| Basic and diluted loss per share | $(0.32) | $(1.18) | Improved |
| Net cash used in operating activities | $(1,332,160) | $(622,912) | Use increased |
| Net cash provided by financing activities | $1,350,074 | $422,284 | Increased |
| Cash and cash equivalents at period-end | $81,752 | $45,463 | Increased |
Gross margin was 88.4%; operating margin was approximately negative 283.3%; and net margin was approximately negative 327.8%. General and administrative expense was $2.32 million, up 56.5% year over year, while selling expense was $80,030 and research and development expense was $5,570.
At March 31, 2024, total assets were $945,729, total liabilities were $4.13 million, and stockholders’ deficit was $3.18 million. Current liabilities were $3.82 million versus current assets of $407,834, resulting in a working capital deficit of $3.41 million. Short-term borrowings were $1.40 million, including $1.30 million of convertible notes net of unamortized financing fees and $96,456 of other notes payable. Operating lease liabilities totaled $350,225, including current and non-current portions.
Material Changes Versus the Prior Comparable Period
- Sales declined by $158,475, primarily because the company focused on expanding insurance coverage and capital funding, while certain customers transitioned to insurance reimbursement processes. Growth in the patient assistance program partially offset the decline.
- Gross margin increased modestly because of the mix of patient assistance program sales and lower discounts.
- General and administrative expense increased by $837,319 due to additional market access, sales, finance, and administrative personnel; higher public-company legal, insurance, investor-relations, and board costs; increased advertising; a $50,000 non-cash advisory charge; and a $237,000 non-cash stock-compensation charge.
- Operating loss more than doubled, reflecting lower sales and higher general and administrative expense.
- Net loss improved slightly because Q1 2024 did not include the substantial debt discount amortization, debt extinguishment, and derivative fair-value charges recorded in Q1 2023. This benefit was partly offset by increased operating expenses and a $230,824 financing charge related to settlement of a 2023 convertible note dispute.
- Shares outstanding increased from 6,508,897 at December 31, 2023 to 6,594,897 at March 31, 2024. The company also issued 75,000 shares for consulting services and 11,000 shares upon warrant exercise.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expects significant operating expenses and losses to continue while it seeks broader commercial insurance coverage for IB-Stim and pursues additional FDA clearances.
- The company states that existing cash is expected to fund anticipated operating needs only through the end of 2024. Management expects to require additional debt or equity financing, but there is no assurance that financing will be available on acceptable terms or at all.
- The filing explicitly states that substantial doubt exists regarding the company’s ability to continue as a going concern. The company has recurring losses, negative operating cash flow, a stockholders’ deficit, and a significant working capital deficit.
- During Q1, the company received $1.535 million of the $3.135 million aggregate principal amount committed under 2024 convertible promissory notes. The notes bear interest at 8.5% and are expected to mature or convert into Series B Convertible Preferred Stock, subject to stockholder approval. The company amended an arrangement with Flagstaff International to increase the planned investment to $5.0 million, payable in installments; the filing does not establish that the full amount had been funded by March 31.
- The company had 1,857,618 common-stock warrants outstanding at March 31, 2024, with a weighted-average exercise price of $2.05. It also had 1,319,394 outstanding and exercisable stock options with a weighted-average exercise price of $6.94. These instruments may create substantial future dilution.
- On April 4, 2024, the company issued 53,063 common shares to settle a 2023 convertible note dispute. The related $230,823 financing charge was recognized in Q1 because the underlying condition existed at March 31.
- On April 10, 2024, the company terminated its Chief Operating Officer. It expects salary-continuation payments based on an annual salary of $275,000 through October 10, 2024, and healthcare coverage through October 10, 2025.
- The company disclosed material weaknesses in internal control over financial reporting, including limited accounting resources, inadequate segregation of duties, limited review controls, and a prior restatement of 2023 interim financial statements. Management is pursuing remediation, but cannot assure that the weaknesses will be timely or successfully remediated.
- Litigation remains pending in Maryland involving allegations concerning representations about reimbursement of the company’s NeuroStim device. One related complaint was dismissed on summary judgment but remains on appeal; in a second case, the RICO claims were dismissed while other claims remain pending. Potential exposure is not clearly quantified in the filing.
Important Facts for Investors to Verify
- Whether the company obtains sufficient additional financing to fund operations beyond the end of 2024 and on what dilution and pricing terms.
- The status of stockholder approval and legal authorization for Series B Convertible Preferred Stock and the funding schedule for the related convertible notes.
- Progress toward national commercial insurance coverage and whether reimbursement adoption translates into sustained IB-Stim shipment and revenue growth.
- Whether management can reduce general and administrative spending while funding sales expansion, market access, and FDA-related development.
- The potential dilution from 1.86 million warrants, 1.32 million options, and convertible debt instruments.
- Resolution and financial impact of the pending Maryland litigation and the April 2024 note-dispute settlement.
- Remediation of the disclosed material weaknesses and whether future filings require additional corrections or restatements.
- The company’s ability to manage its $3.82 million current-liability balance against $407,834 of current assets and only $81,752 of cash at quarter-end.