10-Q: Neuraxis Inc. Reports First Quarter 2024 Results with Increased Operating Loss Amidst Strategic Shifts

Sentiment:

Quarterly Report 20 May 2024 4:18 PM

Neuraxis Inc. reported a net loss of $2.12 million for the first quarter of 2024, with a decrease in sales and an increase in operating expenses, while focusing on insurance coverage and capital funding.

Delay expectedThere was a delay in Stockholder Approval for the issuance of Series B Preferred Stock, which led to the issuance of a convertible promissory note instead.

Capital raiseThe company entered into a series of convertible promissory notes totaling $3,135,000 in the first quarter of 2024.The company is dependent on raising additional funds by way of a public or private offering of its debt or equity securities.The company believes its current cash will only be sufficient to meet operating needs through the end of 2024.

Worse than expectedThe company's net sales decreased by 19.7% compared to the same period last year.The company's operating loss increased by 104.4% compared to the same period last year.The company's cash position is weak and is only expected to last through the end of 2024.

Summary

Neuraxis Inc. reported a net loss of $2.12 million for the first quarter of 2024, compared to a net loss of $2.17 million in the same period of 2023.
Net sales decreased by 19.7% to $646,635 due to a strategic focus on gaining insurance coverage and capital funding, and fewer shipments to some customers.
The company's operating loss increased to $1.83 million, primarily due to lower sales volume and higher general and administrative expenses.
General and administrative expenses rose by 56.5% to $2.32 million, driven by increased headcount, public company costs, and one-time non-cash charges.
The company's cash position was $81,752 as of March 31, 2024, with a working capital deficit of $3.41 million.
The company believes its current cash will only be sufficient to meet operating needs through the end of 2024.
The company is prioritizing the adoption of insurance coverage for its IB-Stim device to drive future revenue growth.

Sentiment

Score: 3

Explanation: The document indicates a challenging financial situation with declining sales, increasing losses, and a weak cash position. While there are some positive aspects, such as the gross margin and focus on insurance coverage, the overall sentiment is negative due to the company's financial instability and dependence on future capital raises.

Positives

The company's gross margin increased slightly to 88.4% for the three months ended March 31, 2024.
The company is prioritizing the adoption of insurance coverage for its IB-Stim device, which is expected to drive future revenue growth.
The company has secured $1,535,000 of the principal amount of the 2024 Convertible Promissory Notes, with the remainder due in monthly installments through March 2025.

Negatives

Net sales decreased by 19.7% to $646,635 for the three months ended March 31, 2024.
The operating loss increased by 104.4% to $1,832,120 for the three months ended March 31, 2024.
General and administrative expenses increased by 56.5% to $2,318,074 for the three months ended March 31, 2024.
The company's cash balance was $81,752 as of March 31, 2024.
The company has a working capital deficit of $3,407,877 as of March 31, 2024.
The company believes its current cash will only be sufficient to meet operating needs through the end of 2024.
The company has incurred losses since inception and has a stockholders deficit of $3,184,454.

Risks

The company's ability to continue as a going concern is dependent on generating sufficient revenues and raising additional funds.
The company has a working capital deficit and limited cash reserves.
The company is experiencing material weaknesses in its internal control over financial reporting.
The company is subject to ongoing litigation that could result in significant liabilities.
The company's future capital requirements depend on various factors, including the success of its product development and marketing efforts.
The company's transition to profitability is dependent on achieving a level of revenues adequate to support its cost structure.
The company may never achieve profitability and may need to rely on additional dilutive or non-dilutive financing.

Future Outlook

The company believes its existing cash will only be sufficient to meet its anticipated operating needs through the end of 2024. The company is prioritizing the adoption of insurance coverage for its IB-Stim device to drive future revenue growth and is also pursuing FDA clearance for other indications.

Management Comments

Management is focused on gaining further insurance coverage for our products and capital funding.
Management believes that increased sales and acceptance of their product by insurance providers will allow the Company to achieve profitability in the near term.
Management is taking actions to remedy material weaknesses in internal controls, including the review of current staff, reassignment of duties, and possible hiring of additional staff.

Industry Context

The company operates in the neuromodulation therapy market, which is focused on developing treatments for chronic conditions. The company's focus on pediatric applications and its IB-STIM device for functional abdominal pain associated with IBS positions it in a niche market. The company's success is dependent on securing insurance coverage and expanding its product pipeline.

Comparison to Industry Standards

The company's gross margin of 88.4% is relatively high compared to some medical device companies, but this is likely due to the nature of their product and the current stage of the company.
The company's operating loss is significant, which is not uncommon for early-stage medical device companies that are investing heavily in research and development and market access.
The company's cash position is weak, which is a concern for a company that is not yet profitable and requires significant capital to fund its operations. This is not uncommon for companies in this sector.
Compared to companies like Masimo, which licensed the NSS-2 Bridge device, Neuraxis is still in an early stage of commercialization and is focused on building its sales and marketing infrastructure.
The company's reliance on convertible notes for financing is a common practice for early-stage companies, but it also introduces risks related to dilution and debt obligations.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Operating Officer	Not specified	Not specified	2024-04-10	Employment terminated

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Weaknesses	The company identified material weaknesses in its internal control over financial reporting due to limited resources and inadequate segregation of duties.	2024-03-31	The material weaknesses could result in a material misstatement of the annual or interim financial statements.

Legal Proceedings

The company is involved in ongoing litigation related to alleged misrepresentations about the billing and reimbursement of its NeuroStim device.
The company has filed motions to dismiss the claims and is defending the matter vigorously.

Related Party Transactions

The company has two demand notes receivable from shareholders related to the sale of common stock on January 1, 2016, with an allowance for the entire balance of principal and interest.
The company paid a director, Mr. Bradley Mitch Watkins, $0 and $564 for consulting services for the three months ended March 31, 2024 and 2023, respectively.
The company paid $62,987 and $17,551 to a third-party public accounting firm for accounting and tax services for the three months ended March 31, 2024 and 2023, respectively.

Stakeholder Impact

Shareholders are impacted by the company's net losses, working capital deficit, and the need for additional capital raises.
Employees are impacted by the company's financial instability and the potential for future layoffs or restructuring.
Customers (healthcare providers) are impacted by the company's focus on insurance coverage and the potential for changes in pricing or product availability.
Suppliers are impacted by the company's financial instability and the potential for delays in payments or changes in order volumes.
Creditors are impacted by the company's debt obligations and the potential for default or restructuring.

Next Steps

The company will continue to pursue widespread insurance coverage of its IB-Stim device.
The company will seek FDA clearance of its device for other indications.
The company will work to remediate material weaknesses in its internal control over financial reporting.
The company will need to raise additional capital to fund its operations beyond 2024.

Key Dates

Date	Description
2011	Neuraxis, Inc. was established.
2012-04-17	The company was incorporated in Indiana as Innovative Health Solutions, Inc.
2014	The company received its original 510(K) clearance for the EAD device.
2017	The company received FDA clearance for the NSS-2 Bridge device.
2018-09-18	The company issued a warrant in connection with a bridge loan.
2019-02-06	A lawsuit was initiated against the company.
2019-09-06	The company issued a second warrant.
2019-12-31	The company provided an allowance for the entire balance of principal and interest on related party notes.
2020-04-09	The company issued a third warrant to Masimo Corporation.
2020-08-21	The company entered into a Manufacturing Services Agreement.
2022-03	The company changed its name to Neuraxis, Inc.
2022-03-03	The company entered into an advisory agreement with a consulting firm.
2022-06-20	The company entered into a second advisory agreement with a consulting firm.
2022-06-23	The company filed a Certificate of Conversion to become a Delaware corporation.
2022-07-11	The company entered into a trademark agreement.
2022-10-01	The company entered into employment agreements with nine key employees.
2023-01-10	The company's board of directors authorized a 1-for-2 reverse stock split.
2023-01-12	The reverse stock split became effective.
2023-08-09	The company consummated its initial public offering.
2023-08-14	The company converted 144,890 Series A Preferred Stock warrants to 289,779 common stock warrants.
2023-11-08	The company entered into a Securities Purchase Agreement for the issuance of Series B Convertible Preferred Stock.
2023-12-28	A warrant was converted to 39,924 shares of common stock.
2024-01-02	The company issued 75,000 shares of common stock pursuant to a consulting agreement.
2024-02-12	The company amended the SPA to issue a promissory note convertible into Series B Preferred Stock.
2024-03-18	The company terminated its private placement services agreement and entered into an advisory agreement.
2024-03-30	The company issued 7,563 warrants pursuant to an advisory agreement.
2024-03-31	End of the reporting period for the quarterly report.
2024-04-04	The Board approved the issuance of 53,063 shares of common stock to settle a 2023 convertible note dispute.
2024-04-10	The employment of the company's Chief Operating Officer was terminated.
2024-05-17	The number of shares of the company's common stock outstanding was 6,647,960.
2024-05-20	Date of the report.

Keywords

neuromodulation, IB-STIM, medical devices, financial results, operating loss, revenue, insurance coverage, convertible notes, internal controls, FDA clearance

Disclaimer:The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.