NRXS.AMEXNeuraxis, INC
10-Q: NeurAxis Inc. Reports Q2 2024 Results: Revenue Declines Amidst Strategic Shift
Sentiment:
Quarterly Report
NeurAxis Inc. reported a decrease in revenue for the second quarter of 2024, alongside increased operating losses, as the company focuses on securing insurance coverage and managing its transition to a public entity.
Delay expectedThe company experienced a delay in Stockholder Approval for the issuance of Series B Preferred Stock, which led to an amendment of the Securities Purchase Agreement.
Capital raiseThe company issued $4.935 million in convertible notes during the six months ended June 30, 2024.The company may need to raise additional capital through public or private offerings to fund future operations.
Worse than expectedThe company's revenue decreased, operating losses increased, and general and administrative expenses rose significantly, indicating worse than expected financial performance.
Summary
- NeurAxis Inc. reported a net loss of $2.9 million for the three months ended June 30, 2024, and a net loss of $5.0 million for the six months ended June 30, 2024.
- Revenue decreased to $611,500 for the quarter and $1.26 million for the six-month period, down from $646,021 and $1.45 million respectively in the same periods of 2023.
- The company's operating loss widened to $2.2 million for the quarter and $4.0 million for the six-month period, compared to $1.1 million and $2.0 million in the corresponding periods of 2023.
- The decrease in revenue is attributed to a strategic focus on securing insurance coverage and a transition to insurance reimbursement processes, which has impacted shipment volumes.
- General and administrative expenses increased significantly due to costs associated with being a public company, including legal, insurance, and investor relations expenses, as well as increased headcount and one-time charges.
- The company's cash position was $1.76 million as of June 30, 2024, with a working capital deficit of $5.48 million.
- Management believes that current cash will only be sufficient to meet anticipated operating needs through the end of 2024.
Sentiment
Score: 3
Explanation: The document presents a concerning financial picture with declining revenue, increasing losses, and a going concern warning. While there are some positive aspects, such as the company's efforts to secure insurance coverage, the overall sentiment is negative due to the significant financial challenges and risks.
Positives
- The company is actively working to secure insurance coverage for its IB-Stim device, which is expected to drive future revenue growth.
- The company has successfully raised $4.935 million through convertible notes, providing additional capital for operations.
- Research and development expenses decreased due to fewer patient trials, which may indicate a shift towards commercialization efforts.
Negatives
- The company experienced a decrease in net sales for both the three and six-month periods ending June 30, 2024.
- Operating losses have significantly increased, indicating a growing gap between revenue and expenses.
- General and administrative expenses have risen sharply, driven by costs associated with being a public company and increased headcount.
- The company has a working capital deficit of $5.48 million, indicating potential short-term liquidity issues.
- The company has a going concern warning and believes that its existing cash will only be sufficient to meet its anticipated operating needs through the end of 2024.
Risks
- The company's ability to continue as a going concern is dependent on its ability to generate sufficient revenues and raise additional funds.
- The company is facing challenges in transitioning customers to the insurance reimbursement process, which is impacting sales.
- The company is incurring significant expenses related to being a public company, which is contributing to increased operating losses.
- The company's internal controls over financial reporting have been identified as having material weaknesses.
- The company is involved in ongoing litigation, which could result in significant liabilities and negatively affect operations.
Future Outlook
The company believes that its existing cash will only be sufficient to meet its anticipated operating needs through the end of 2024. The company's future success depends on securing insurance coverage for its IB-Stim device and achieving profitability through increased sales.
Management Comments
- 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 evaluates whether there are conditions or events that raise substantial doubt about the Company's ability to continue as a going concern for a period of one year from the date the financial statements are issued.
Industry Context
The neuromodulation industry is experiencing growth, but companies like NeurAxis face challenges in securing insurance coverage and achieving profitability. The company's focus on pediatric applications is a niche market with potential for growth, but also requires specific regulatory approvals and clinical trials.
Comparison to Industry Standards
- Compared to other medical device companies, NeurAxis's revenue is relatively low, reflecting its early stage of commercialization.
- The company's operating losses are significant, which is not uncommon for growth-stage companies in the medical device sector, but the magnitude of the losses is concerning.
- 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.
- The company's focus on securing insurance coverage is a critical step for long-term success, as reimbursement is a major factor in the adoption of medical devices.
- The company's internal control weaknesses are a concern and need to be addressed to ensure accurate financial reporting and compliance.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Operating Officer | Not specified | Not specified | 2024-04-10 | Termination of employment |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Internal Controls | The company identified material weaknesses in its internal control over financial reporting due to limited resources and inadequate segregation of duties. | 2024-06-30 | The company is taking steps to remediate these weaknesses, including reviewing current staff, reassigning duties, and potentially hiring additional staff. |
Legal Proceedings
- The company is involved in ongoing litigation related to alleged misrepresentations about the NeuroStim device and related procedures.
- 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 due to collection risk.
- The company paid a director, Mr. Bradley Mitch Watkins, for sales, marketing and commercialization consulting services prior to his appointment to the Board of Directors.
- The company contracted with a third-party public accounting firm, where the former Chief Financial Officer is the managing partner, for accounting and tax services.
Stakeholder Impact
- Shareholders are impacted by the company's declining revenue, increasing losses, and going concern warning.
- Employees are impacted by the company's financial challenges and potential restructuring.
- Customers may be impacted by the company's transition to insurance reimbursement processes.
- Creditors are impacted by the company's working capital deficit and reliance on debt financing.
Next Steps
- The company needs to focus on securing insurance coverage for its IB-Stim device to drive revenue growth.
- The company needs to address its internal control weaknesses to ensure accurate financial reporting.
- The company needs to manage its expenses and improve its operating efficiency to reduce losses.
- The company needs to explore additional financing options to ensure it has sufficient capital to continue operations beyond 2024.
Key Dates
| Date | Description |
|---|---|
| 2011 | NeurAxis, Inc. was established. |
| 2012-04-17 | NeurAxis, Inc. was incorporated in Indiana as Innovative Health Solutions, Inc. |
| 2014 | Original 510(K) clearance for the EAD device (now NeuroStim). |
| 2017 | FDA clearance for the NSS-2 Bridge device. |
| 2018-09-18 | Issuance of a warrant in connection with a bridge loan. |
| 2019-02-06 | Lawsuit initiated against Innovative Health Solutions, Inc. |
| 2019-09-06 | Issuance of a second warrant. |
| 2019 | Allowance for the entire balance of principal and interest of demand notes receivable from shareholders. |
| 2019 | FDA clearance for the IB-STIM device. |
| 2020-04-09 | Issuance of a third warrant to Masimo Corporation. |
| 2020-04 | NSS-2 Bridge device licensed to Masimo Corporation. |
| 2020-08-21 | Manufacturing Services Agreement (MSA) for the IB-STIM device. |
| 2021-12-16 | Company borrowed $250,000 from Channel Partners Capital. |
| 2022-01-01 | Start date of two leases in Versailles, Indiana. |
| 2022-03 | Name changed to NeurAxis, Inc. |
| 2022-03-03 | First advisory agreement with a consulting firm. |
| 2022-06-20 | Second advisory agreement with a consulting firm. |
| 2022-06-23 | Company filed a Certificate of Conversion to become a Delaware corporation. |
| 2022-07-11 | Trademark agreement entered into. |
| 2022-07-14 | Lawsuit initiated against the Company and others. |
| 2022-09-16 | Company borrowed $122,000 from Channel Partners Capital. |
| 2022-10-01 | Employment agreements with nine key employees. |
| 2022-12-20 | Amended second advisory agreement with a consulting firm. |
| 2023-01-10 | Board of directors authorized a 1-for-2 reverse stock split. |
| 2023-01-12 | Reverse stock split became effective. |
| 2023-03-16 | Company borrowed $107,231 from Channel Partners Capital. |
| 2023-05-24 | Company borrowed $107,231 from Channel Partners Capital. |
| 2023-08-09 | Company consummated its initial public offering (IPO). |
| 2023-08-14 | 144,890 Series A Preferred Stock warrants were converted to 289,779 common stock warrants. |
| 2023-11-08 | Company entered into a Securities Purchase Agreement (SPA) for the issuance of Series B Convertible Preferred Stock. |
| 2023-12-28 | Second warrant was converted to 39,924 shares of common stock. |
| 2024-01-01 | Start date of a new lease in Carmel, Indiana. |
| 2024-01-02 | Company issued 75,000 shares of common stock pursuant to a consulting agreement. |
| 2024-01-19 | Company received proceeds of $26,180 from an existing shareholder and issued 11,000 shares of common stock upon the exercise of a warrant agreement. |
| 2024-02-12 | SPA amended to issue a promissory note convertible into Series B Preferred Stock. |
| 2024-03-18 | Company terminated its private placement services agreement and entered into an advisory agreement. |
| 2024-04-10 | Employment of the Company's Chief Operating Officer was terminated. |
| 2024-04-11 | Company issued 53,063 shares of common stock to settle a convertible note dispute. |
| 2024-05-21 | Company entered into three convertible promissory notes with related institutional accredited investors. |
| 2024-06-28 | Company issued 90,032 shares of common stock to pre-IPO Series A Preferred Stock shareholders to settle certain claims. |
| 2024-06-28 | Company issued 33,454 shares of common stock to holders of the Amended 2024 Convertible Promissory Notes in lieu of cash payments for interest. |
| 2024-06-28 | Company issued 24,343 shares of common stock to its Board of Directors for their service from the Companys IPO on August 9, 2023 through March 31, 2024. |
| 2024-06-28 | Company issued 25,832 shares of common stock to its previous Chief Operating Officer in accordance with a severance agreement. |
| 2024-06-28 | Company issued 20,000 shares of common stock to it previous CFO for services provided during the IPO. |
| 2024-06-30 | End of the quarterly period covered by the report. |
| 2024-08-08 | Number of shares of the registrants common stock outstanding was 6,841,621 shares. |
| 2024-08-09 | Date of the report. |
Keywords
NeurAxis, IB-STIM, neuromodulation, medical devices, financial results, quarterly report, insurance coverage, convertible notes, operating loss, revenue, FDA, internal controls, litigation
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