NeuroMetrix(NURO) - 2020 Q1 - Quarterly Report

Part I Item 1. Financial Statements The company's Q1 2020 financial statements reflect decreased assets and liabilities, a net loss, negative operating cash flow, and a going concern uncertainty Balance Sheets Total assets decreased to $6.2 million by March 31, 2020, driven by reduced cash, while total liabilities also declined Balance Sheet Highlights (in USD) | Balance Sheet Highlights | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,816,485 | $3,126,206 | | Total current assets | $4,877,868 | $5,430,814 | | Total assets | $6,206,496 | $6,893,686 | | Total current liabilities | $2,882,143 | $3,446,778 | | Total liabilities | $3,692,378 | $4,363,452 | | Total stockholders' equity | $2,514,118 | $2,530,234 | Statements of Operations Q1 2020 revenues decreased to $2.2 million, but gross profit more than doubled, resulting in a net loss compared to prior-year income Statement of Operations (in USD) | Statement of Operations | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Revenues | $2,172,036 | $3,122,935 | | Gross profit | $1,551,846 | $798,704 | | Loss from operations | ($657,869) | ($3,701,155) | | Collaboration income | $0 | $5,734,849 | | Net (loss) income | ($657,371) | $2,050,507 | | Basic EPS | ($0.45) | $2.65 | | Diluted EPS | ($0.45) | $1.47 | Statements of Cash Flows Net cash used in operating activities was $763,178 in Q1 2020, leading to a $309,721 decrease in cash despite financing inflows Cash Flow Summary (in USD) | Cash Flow Summary | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($763,178) | $420,366 | | Net cash provided by financing activities | $453,457 | $0 | | Net (decrease) increase in cash | ($309,721) | $420,366 | | Cash and cash equivalents, end of period | $2,816,485 | $7,200,795 | Notes to Unaudited Financial Statements Notes highlight a 'going concern' uncertainty, an FTC settlement, and recent capital raises through stock offerings - The company's ability to continue as a going concern is in substantial doubt, as it has recurring losses and negative cash flows[22] - Current cash of $2.8 million is projected to fund operations only into the first quarter of 2021, necessitating additional fundraising[22] - In March 2020, the company settled an investigation by the Federal Trade Commission (FTC) regarding advertising for its Quell® product[49] - The settlement involved a $4 million payment by the CEO and a pledge of future commercial milestone payments by the company[49] - During Q1 2020, the company raised $453,457 in proceeds by issuing 256,078 shares through its at-the-market (ATM) offering program[45] - Subsequent to the quarter end, from April 1 to April 16, 2020, the company raised an additional $1,680,356 in net proceeds by issuing 1,048,455 shares under its ATM program[50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 30.4% revenue decline, significant gross margin improvement, reduced operating expenses, and reiterates the 'going concern' risk Overview NeuroMetrix focuses on DPNCheck and Quell products, aiming for DPNCheck growth and Quell profitability through commercial restructuring - The company's two principal product lines are point-of-care neuropathy diagnostic tests and wearable neurostimulation devices[52] - The primary commercial products and strategic focus are DPNCheck, a test for diabetic peripheral neuropathy (DPN), and Quell, a wearable technology for chronic pain[57] - The company is restructuring the Quell commercial model to achieve a positive net operating contribution during 2020, with most sales now direct-to-consumer via its e-commerce platform[59] Results of Operations Q1 2020 revenues declined 30.4% due to reduced Quell sales, while gross margin surged to 71.4% and operating expenses halved Financial Performance (in USD) | Financial Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $2.2M | $3.1M | (30.4)% | | Gross Profit | $1.55M | $0.8M | 94.3% | | Gross Margin | 71.4% | 25.6% | N/A | | Total Operating Expenses | $2.21M | $4.5M | (50.9)% | - The decrease in revenue was primarily due to Quell revenues declining from $1.6 million to $0.6 million, reflecting reduced advertising spending[63] - Sales and marketing expenses decreased by 79.1% ($1.6 million), mainly from a $1.2 million reduction in Quell advertising[67] Liquidity and Capital Resources The company ended Q1 2020 with $2.8 million cash, facing 'going concern' doubt and needing additional capital beyond Q1 2021 - Cash and cash equivalents stood at $2.8 million as of March 31, 2020[71] - The company has substantial doubt about its ability to continue as a going concern and will need to raise additional funds to support operations beyond the first quarter of 2021[76] Working Capital Metrics | Working Capital Metrics | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Days sales outstanding (DSO) | 14 days | 30 days | | Inventory turnover rate | 2.1x | 3.5x | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk is minimal, primarily related to interest rate fluctuations on cash, with no material impact expected from rate changes - The company's market risk is primarily related to interest rate fluctuations on its cash and cash equivalents, but this exposure is not considered material[81] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of the end of the quarter[82] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[83] Part II Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings, with no significant financial impact expected from ordinary course items - As of the report date, the company is not involved in any material legal proceedings[84] Item 1A. Risk Factors No material changes to risk factors except for new risks related to the COVID-19 pandemic, potentially impacting operations and supply chain - A new risk factor has been added regarding the potential adverse effects of the COVID-19 outbreak on the company's financial condition and results of operations[85][86] - Potential COVID-19 impacts include disruptions to the supply chain, manufacturing, distribution, and employee resources, as well as a diversion of healthcare resources away from the company's products[87][90] Item 5. Other Information Key events include the March 2020 FTC settlement regarding Quell advertising and a separation agreement with the former Chief Commercial Officer - The company finalized a settlement with the FTC regarding an investigation into Quell® advertising[91] - The settlement involved a $4 million payment by the CEO and a company pledge of future milestone payments[91] - The company entered into a Separation Agreement with Francis X. McGillin, the former Chief Commercial Officer, effective March 31, 2020, which included cash and stock benefits[92] Item 6. Exhibits This section refers to the Exhibit Index, which lists all exhibits filed as part of the quarterly report - A list of exhibits filed with the Form 10-Q is provided in the Exhibit Index[93]