Neuraxis, Inc. 2023 Form 10-K Summary
Business context and reporting period
Neuraxis is a medical technology company developing neuromodulation therapies. Its only marketed product is IB-Stim, an FDA-cleared Class II device for functional abdominal pain associated with irritable bowel syndrome in patients ages 11–18. The company also has clinical programs for chronic nausea, post-concussion syndrome, chemotherapy-induced nausea and vomiting, and cyclic vomiting syndrome.
This filing covers the fiscal year ended December 31, 2023. It is not a standalone fourth-quarter filing; the filing provides annual results and selected interim restatement information. Neuraxis began trading on the NYSE American under the symbol NRXS on August 9, 2023.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $2.460 million | $2.685 million | Down 8.4% |
| Gross profit | $2.157 million | $2.388 million | Down 9.7% |
| Gross margin | 87.7% | 88.9% | Down 120 basis points |
| Operating loss | $6.664 million | $3.372 million | Increased 97.6% |
| Net loss | $14.627 million | $4.780 million | Increased 206.0% |
| Net loss per share | $4.50 | $2.77 | More unfavorable |
| Cash used in operations | $6.694 million | $2.298 million | Increased $4.396 million |
| Cash and equivalents at year-end | $78,560 | $253,699 | Down $175,139 |
Cost of goods sold was $303,345, producing an 87.7% gross margin. Selling expense declined to $323,569 and research and development expense declined to $169,315. General and administrative expense increased 62.6% to $8.328 million, driven by post-IPO costs, additional market-access and patient-assistance personnel, higher insurance and investor-relations expenses, advertising, and other public-company costs.
Other expense was $7.962 million, including $4.882 million of debt discount and issuance-cost amortization and $3.650 million of debt extinguishment expense, partially offset by favorable changes in warrant and derivative liabilities. The filing states that these items were substantially related to the IPO and conversion or settlement of convertible debt.
At December 31, 2023, total assets were $509,498, total liabilities were $1.913 million, and stockholders’ deficit was $1.403 million. The company had $148,062 of notes payable due in 2024, no outstanding long-term debt, negative working capital of $1.643 million, and $1.204 million of accounts payable.
Material changes versus the prior comparable period
- Sales declined because management prioritized insurance coverage, financing, and the IPO, while certain customers reduced shipments during the insurance reimbursement process.
- Gross margin decreased primarily because of increased discounts under the patient-assistance program.
- General and administrative expense rose substantially as the company expanded market-access and patient-support functions and incurred IPO-related and public-company expenses.
- Operating cash burn increased materially, and year-end cash declined despite $6.591 million of net financing cash inflows.
- The company completed an IPO of 1,098,667 common shares at $6.00 per share, generating gross proceeds of $6.592 million and net proceeds of approximately $4.111 million after specified costs.
- Convertible notes and related interest were converted into common stock or repaid following the IPO. Convertible notes outstanding declined from $228,342 at year-end 2022 to zero at year-end 2023.
- Outstanding warrant liabilities declined from $2.234 million to $8,225, and derivative liabilities declined from $1.736 million to zero, primarily through reclassification, conversion, or settlement.
Guidance, outlook, risks, contingencies, and unusual items
Management expects continued operating losses and significant expenses while it seeks broader insurance coverage, expands commercialization, and pursues FDA clearance for additional indications. Based on its operating plan, management stated that cash available at the filing date was expected to fund operations only through the end of 2024. The company expects to require additional financing, but there is no assurance that financing will be available on acceptable terms.
The independent auditor included an emphasis of matter regarding substantial doubt about the company’s ability to continue as a going concern. Neuraxis has a history of operating losses and negative operating cash flow, and management’s plans to increase sales and raise additional capital are not considered probable enough to eliminate the substantial doubt.
The filing reports a material weakness in internal control over financial reporting and ineffective disclosure controls as of December 31, 2023. The weakness involved inadequate segregation of duties, insufficient review of the internal-control structure, and a GAAP misapplication that required restatement of the unaudited September 30, 2023 interim financial statements. The restatement increased reported nine-month net loss by $3.721 million and reclassified the corresponding amount to additional paid-in capital.
Key operating risks include dependence on a single marketed product, reliance on one contract manufacturer, uncertain FDA clearance for pipeline indications, limited and evolving insurance reimbursement, customer concentration, competition, potential product liability, intellectual-property disputes, cybersecurity exposure, and the need to maintain NYSE American listing requirements.
Two Maryland legal matters remain relevant. One case was dismissed but remains subject to appeal. In a related case, RICO claims were dismissed, while other claims remain pending. The filing states that the company believes it has meritorious defenses; no material loss estimate is provided.
Subsequent to year-end, the company entered into additional convertible promissory notes totaling $3.135 million, of which $1.535 million had been received as of the filing. These notes bear interest at 8.5%, mature in March 2025, and may convert into Series B Preferred Stock at $2.38 per share.
Most important facts for investors to verify
- Whether additional financing was obtained after the filing and whether it is sufficient to fund operations beyond 2024.
- The status of insurance coverage expansion, prior-authorization activity, and the impact of reimbursement on IB-Stim demand and collections.
- Progress, enrollment, results, and FDA submission timing for the four pipeline indications.
- Whether the reported material weakness and ineffective disclosure controls have been remediated.
- The terms, funding status, conversion mechanics, and potential dilution from the Series B financing and outstanding warrants.
- The status and potential financial exposure of the remaining Maryland litigation.
- Sales concentration among the three largest hospitals, which represented 45% of 2023 revenue.
- Actual quarterly performance for the fourth quarter, which is not separately presented in the filing text provided.