NRXS.AMEXNeuraxis, INC
10-Q: Neuraxis Inc. Reports Q3 2024 Results: Revenue Growth Amidst Ongoing Losses
Sentiment:
Quarterly Report
Neuraxis Inc. saw a revenue increase in Q3 2024, but continues to operate at a loss while addressing internal control weaknesses.
Delay expectedThe company experienced a delay in obtaining Stockholder Approval for the Series B Preferred Stock, which led to the issuance of a convertible promissory note.
Capital raiseThe company issued 2,073,524 shares of Series B Preferred Stock upon conversion of $4.935 million in convertible notes.The company entered into a $5,000,000 investment agreement with a life sciences fund, which is expected to close mid-November.
Worse than expectedThe company's net loss and operating loss, while improved compared to the previous year, are still significant and indicate ongoing financial challenges.The company's working capital deficit and the auditor's going concern warning raise concerns about its financial stability.The identification of material weaknesses in internal controls over financial reporting suggests potential risks in the accuracy and reliability of the company's financial statements.
Summary
- Neuraxis Inc. reported a net loss of $1.75 million for the three months ended September 30, 2024, a significant improvement from the $8.63 million loss in the same period of 2023.
- The company's net sales increased by 39.6% to $666,625 in Q3 2024 compared to $477,460 in Q3 2023.
- For the nine months ended September 30, 2024, the net loss was $6.79 million, compared to $13.03 million for the same period in 2023.
- The company's accumulated deficit stood at $1.79 million as of September 30, 2024.
- Neuraxis has identified material weaknesses in its internal controls over financial reporting due to limited resources and segregation of duties.
- The company is working to remediate these weaknesses by hiring additional staff and implementing new procedures.
- The company's cash balance was $260,885 as of September 30, 2024, with a working capital deficit of $2.03 million.
- The company's primary product is the IB-STIM device, which is sold for $1,195 per device.
- The company is focused on expanding insurance coverage for its IB-STIM device and seeking FDA clearance for other indications.
Sentiment
Score: 4
Explanation: The document shows some positive signs with revenue growth and reduced losses, but the ongoing financial challenges, internal control weaknesses, and going concern warning create a negative sentiment. The potential for future capital raises is also a concern.
Positives
- The company experienced a significant increase in net sales and gross profit in Q3 2024.
- The net loss decreased substantially in Q3 2024 compared to the same period in 2023.
- Operating loss also decreased significantly in Q3 2024.
- The company successfully converted $4.935 million in convertible notes to Series B Preferred Stock.
Negatives
- The company continues to operate at a loss, with a net loss of $1.75 million in Q3 2024.
- The company has a working capital deficit of $2.03 million as of September 30, 2024.
- The company has identified material weaknesses in its internal controls over financial reporting.
- The company's auditors have expressed substantial doubt about its ability to continue as a going concern.
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 faces risks related to the development, manufacturing, and marketing of its technologies.
- The company's financial results are subject to fluctuations due to changes in average selling prices and manufacturing costs.
- The company's internal control weaknesses could lead to material misstatements in its financial statements.
- The company is subject to litigation that could negatively affect its financial condition and operating results.
Future Outlook
The company expects to incur significant expenses and operating losses for the foreseeable future as it continues to pursue widespread insurance coverage of its IB-Stim device and seek FDA clearance for other indications. The company believes that increased sales and acceptance of their product by insurance providers will allow the Company to achieve profitability in the near term.
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 continues to take actions to remedy internal control weaknesses, including the review of current staff, reassignment of duties, and continued hiring of additional staff.
Industry Context
The company operates in the neuromodulation medical device industry, which is characterized by high research and development costs and regulatory hurdles. The company's focus on pediatric applications and non-invasive treatments positions it in a niche market within this industry. The company's success is heavily reliant on securing insurance coverage for its products, which is a common challenge for medical device companies.
Comparison to Industry Standards
- Compared to other early-stage medical device companies, Neuraxis's revenue growth is promising, but its continued losses and internal control issues are concerning.
- Companies like Nevro Corp. and Inspire Medical Systems, which are more established in the neuromodulation space, have significantly higher revenues and are closer to profitability, but they also have much higher operating expenses.
- The company's gross margin of 86.7% for the nine months ended September 30, 2024, is relatively high compared to some medical device companies, but this is offset by high operating expenses.
- The company's reliance on a single product, the IB-STIM device, makes it more vulnerable to market changes and regulatory risks compared to companies with diversified product portfolios.
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 Controls | The company identified material weaknesses in its internal controls over financial reporting due to limited resources and segregation of duties. | 2024-09-30 | The company is working to remediate these weaknesses by hiring additional staff and implementing new procedures. These weaknesses could lead to material misstatements in its financial statements. |
Legal Proceedings
- The company is involved in ongoing litigation related to alleged misrepresentations about the NeuroStim device and related procedures.
- The company believes it has meritorious defenses and intends to defend the matters 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 as of December 31, 2019.
- The company's former Chief Financial Officer is contracted for services through a third-party public accounting firm.
Stakeholder Impact
- Shareholders face the risk of further dilution due to potential capital raises.
- Employees may be affected by the company's financial instability and internal control issues.
- Customers may be impacted by the company's ability to continue operations and provide its products.
- Creditors face the risk of non-payment due to the company's financial challenges.
Next Steps
- The company will continue to pursue widespread insurance coverage for its IB-Stim device.
- The company will continue to seek FDA clearance for its device for other indications.
- The company will work to remediate the identified material weaknesses in its internal controls over financial reporting.
- The company will close the $5,000,000 investment agreement with a life sciences fund.
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 to Brian Hannasch. |
| 2019 | The company received FDA clearance for the IB-STIM device. |
| 2019-09-06 | The company issued a second warrant. |
| 2020-04-09 | The company issued a warrant to Masimo Corporation. |
| 2020-04 | The company licensed the NSS-2 Bridge device to Masimo Corporation. |
| 2020-08-21 | The company entered into a Manufacturing Services Agreement. |
| 2021-12-16 | The company borrowed $250,000 from Channel Partners Capital. |
| 2022-01-01 | The company's lease in Versailles started. |
| 2022-06-23 | The company filed a Certificate of Conversion to become a Delaware corporation. |
| 2022-07-14 | Plaintiffs filed a lawsuit against the company. |
| 2022-09-16 | The company borrowed $122,000 from Channel Partners Capital. |
| 2022-10-01 | The company entered into employment agreements with 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. |
| 2023-05-24 | The company borrowed $107,231 from Channel Partners Capital. |
| 2023-08-09 | The company consummated its initial public offering (IPO). |
| 2023-08-14 | The company converted Series A Preferred Stock warrants to common stock warrants. |
| 2023-11-08 | The company entered into a Securities Purchase Agreement (SPA) for Series B Convertible Preferred Stock. |
| 2023-12-28 | The company converted a warrant to 39,924 shares of common stock. |
| 2024-01-01 | The company's new lease in Carmel started. |
| 2024-01-02 | The company issued 75,000 shares of common stock pursuant to a consulting agreement. |
| 2024-01-19 | The 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 | 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. |
| 2024-04-10 | The employment of the company's Chief Operating Officer was terminated. |
| 2024-04-11 | The company issued 53,063 shares of common stock to an existing shareholder to settle a convertible note dispute. |
| 2024-05-21 | The company entered into three convertible promissory notes with related institutional accredited investors. |
| 2024-06-28 | The company issued shares of common stock to settle claims and for services. |
| 2024-08-09 | The company entered into a promissory note to finance insurance premiums. |
| 2024-08-15 | The company's shareholders authorized 5,000,000 shares of preferred stock and retired Series A and Seed Preferred Stock. |
| 2024-08-22 | The company issued 25,601 shares of common stock to holders of the Amended 2024 Convertible Promissory Notes. |
| 2024-08-28 | The company issued 102,860 shares of common stock to pre-IPO Series A Preferred Shareholders to settle certain claims. |
| 2024-09-17 | The company issued 10,145 shares of common stock to a vendor pursuant to a marketing agreement. |
| 2024-09-30 | End of the reporting period for the quarterly report. |
| 2024-10-01 | The company granted 481,312 restricted stock units to certain employees. |
| 2024-10-15 | The company received $145,000 in exchange for 60,924 shares of Series B Preferred Stock. |
| 2024-11-09 | The company entered into a $5,000,000 investment agreement. |
Keywords
Neuraxis, IB-STIM, neuromodulation, medical devices, financial results, internal controls, preferred stock, convertible notes, revenue growth, operating loss
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