Neuraxis, Inc. 10-Q Summary
Reporting period: Three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The financial statements are unaudited. Neuraxis develops and sells medical neuromodulation devices; IB-Stim is its only currently marketed product.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $646,021 | $682,581 | $1,451,131 | $1,452,848 |
| Gross profit | $578,208 | $603,572 | $1,287,418 | $1,298,639 |
| Gross margin | 89.5% | 88.4% | 88.7% | 89.4% |
| Operating loss | $(1,117,541) | $(669,582) | $(2,013,814) | $(1,182,889) |
| Net loss | $(2,235,614) | $(1,516,530) | $(4,409,022) | $(2,686,751) |
| Basic and diluted loss per share | $(1.21) | $(0.87) | $(2.39) | $(1.56) |
- Cash flow: Six-month operating cash use was $1.25 million, compared with $1.17 million in 2022. Investing cash use was $13,067, and financing activities provided $1.06 million.
- Liquidity: Cash and cash equivalents declined to $51,440 from $253,699 at December 31, 2022. Working capital deficit was approximately $11.0 million.
- Balance sheet: Total liabilities were $11.52 million versus $7.05 million at year-end 2022. Stockholders’ deficit was $9.98 million versus $5.57 million.
- Debt and financing liabilities: Current convertible notes, net of discount, were $1.22 million. Warrant liabilities were $3.92 million and derivative liabilities were $2.28 million, both classified as current Level 3 liabilities. The remaining convertible debt discount was $4.42 million.
- Customer concentration: Three hospitals generated approximately 37% of Q2 sales and 42% of six-month sales.
Material Changes Versus Prior Period
- Q2 sales decreased 5.4% year over year, while six-month sales were essentially flat, down 0.1%.
- Operating loss increased 66.9% in Q2 and 70.2% for the six-month period, primarily due to higher wages and professional fees within general and administrative expense.
- General and administrative expense increased 33.1% in Q2 and 38.3% for the six-month period.
- Research and development expense increased to $109,789 in Q2 from $13,665 and to $126,586 for the six-month period from $58,063, reflecting new product development and clinical efforts.
- Interest expense and amortization of debt discounts increased materially. Six-month amortization of debt discount and issuance costs was $3.55 million, compared with $12,944 in 2022.
- Net loss increased 47.4% in Q2 and 64.1% for the six-month period.
Guidance, Outlook, Risks and Unusual Items
- Management expected approximately $10 million of sales over the following 12 months, assuming broader insurance-provider acceptance, and estimated additional liquidity needs of approximately $4 million. These are expectations, not firm guidance.
- Management expected approximately $300,000 of 2023 research and development spending for cyclic vomiting syndrome clinical trials and anticipated higher R&D expense during the remainder of 2023.
- Management expected public-company costs of approximately $500,000 over the following 12 months and anticipated increased G&A expense during the remainder of 2023.
- The filing states that substantial doubt existed regarding the Company’s ability to continue as a going concern. Management indicated that cash at the time of filing was expected to fund operations only through the first quarter of 2024, absent improved revenue or additional financing.
- On August 11, 2023, after quarter-end, the Company completed an IPO of 1,098,667 shares at $6.00 per share, generating approximately $6.6 million of gross proceeds and approximately $6.1 million of net proceeds.
- Following the IPO, $6.76 million of convertible debt principal and interest converted into 1,605,841 common shares, and $737,453 was repaid. The remaining derivative liabilities, warrant liabilities and debt discount were extinguished.
- All preferred stock converted into 1,244,228 common shares upon the IPO. The IPO also triggered $1.1 million of executive incentive payments and future cash reimbursements related to certain stock-option exercises.
- The Company disclosed material weaknesses in internal control over financial reporting, including limited accounting resources, inadequate segregation of duties and limited review controls. Disclosure controls and procedures were concluded to be ineffective as of June 30, 2023.
- Pending litigation includes an appeal involving claims exceeding $5 million and a separate lawsuit seeking more than $75,000, both related to alleged representations concerning reimbursement of NeuroStim procedures. Outcomes were not determinable from the filing.
Most Important Facts to Verify
- Whether IPO proceeds and post-IPO debt conversions provide sufficient liquidity to fund operations and planned clinical, regulatory and commercialization activities.
- The effect of the IPO, preferred-stock conversion, convertible-debt conversion, warrants and employee option-related reimbursements on fully diluted shares and future dilution.
- Progress toward broader commercial insurance coverage, which management identifies as the primary driver of future sales.
- Actual sales growth relative to the approximately $10 million management expectation and the ability to reduce operating losses.
- Remediation of the disclosed material weaknesses and whether future filings report effective internal controls.
- Potential exposure from the pending litigation, executive employment obligations, and other contingent payments not fully recorded at June 30, 2023.