NeuroMetrix(NURO) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited financial statements and management's analysis for NeuroMetrix, Inc. for the quarter ended March 31, 2024 Item 1. Financial Statements NeuroMetrix, Inc.'s unaudited financial statements for Q1 2024 detail assets, liabilities, equity, operations, cash flows, and accompanying notes Balance Sheets The balance sheets present the company's financial position, highlighting changes in assets, liabilities, and stockholders' equity Balance Sheets | Metric | March 31, 2024 | December 31, 2023 | Change | | :-------------------------------- | :--------------- | :---------------- | :----- | | Total Assets | $20,664,128 | $21,424,441 | $(760,313) | | Total Liabilities | $1,908,116 | $1,333,124 | $574,992 | | Total Stockholders' Equity | $18,756,012 | $20,091,317 | $(1,335,305) | | Cash and cash equivalents | $1,259,930 | $1,731,946 | $(472,016) | | Available-for-sale securities | $16,339,180 | $16,265,205 | $73,975 | | Total current liabilities | $1,847,170 | $1,240,639 | $606,531 | Statements of Operations The statements of operations detail the company's revenues, costs, and net loss for the reporting periods Statements of Operations | Metric | Q1 2024 | Q1 2023 | Change (YoY) | Change (%) | | :-------------------------------- | :---------- | :---------- | :----------- | :--------- | | Revenues | $1,093,556 | $1,724,771 | $(631,215) | (36.6)% | | Cost of revenues | $576,539 | $526,372 | $50,167 | 9.5% | | Gross profit | $517,017 | $1,198,399 | $(681,382) | (56.9)% | | Operating expenses | $3,771,008 | $2,908,468 | $862,540 | 29.7% | | Loss from operations | $(3,253,991) | $(1,710,069) | $(1,543,922) | 90.3% | | Net loss | $(3,029,574) | $(1,574,174) | $(1,455,400) | 92.5% | | Net loss per common share, basic and diluted | $(1.67) | $(1.64) | $(0.03) | 1.8% | Statements of Comprehensive Loss The statements of comprehensive loss report the net loss and other comprehensive income items, such as unrealized gains on securities Statements of Comprehensive Loss | Metric | Q1 2024 | Q1 2023 | Change (YoY) | | :-------------------------------- | :---------- | :---------- | :----------- | | Net loss | $(3,029,574) | $(1,574,174) | $(1,455,400) | | Unrealized gain on available-for-sale securities | $212,261 | $65,874 | $146,387 | | Reclassification of realized gain on available-for-sale securities to other income | $(205,255) | — | $(205,255) | | Comprehensive loss | $(3,022,568) | $(1,508,300) | $(1,514,268) | Statements of Changes in Stockholders' Equity The statements of changes in stockholders' equity outline the changes in equity components, including net loss and stock issuances Statements of Changes in Stockholders' Equity | Metric | Dec 31, 2023 Balance | Q1 2024 Activity | March 31, 2024 Balance | | :-------------------------------- | :------------------- | :----------------- | :------------------- | | Total Stockholders' Equity | $20,091,317 | $(1,335,305) | $18,756,012 | | Net loss | N/A | $(3,029,574) | N/A | | Issuance of common stock under ATM offering | N/A | $1,471,099 | N/A | | Stock-based compensation expense | N/A | $216,164 | N/A | | Unrealized gain on available-for-sale securities | N/A | $212,261 | N/A | | Realized gain on available-for-sale securities | N/A | $(205,255) | N/A | Statements of Cash Flows The statements of cash flows summarize cash inflows and outflows from operating, investing, and financing activities Statements of Cash Flows | Cash Flow Activity | Q1 2024 | Q1 2023 | Change (YoY) | | :-------------------------------- | :---------- | :---------- | :----------- | | Net cash used in operating activities | $(2,081,401) | $(1,121,417) | $(959,984) | | Net cash provided by (used in) investing activities | $138,286 | $(836,984) | $975,270 | | Net cash provided by financing activities | $1,471,099 | — | $1,471,099 | | Net decrease in cash and cash equivalents | $(472,016) | $(1,958,401) | $1,486,385 | | Cash and cash equivalents, end of period | $1,259,930 | $2,376,619 | $(1,116,689) | Notes to Unaudited Financial Statements This section provides detailed explanations and disclosures supporting the financial statements 1. Business and Basis of Presentation This note describes NeuroMetrix's core business, products, and financial position as of March 31, 2024 - NeuroMetrix develops and commercializes health care products utilizing non-invasive neurostimulation, with revenues from medical devices and after-market consumables[23] - The Company's primary products are DPNCheck (point-of-care test for diabetic peripheral neuropathy) and Quell (app-enabled, wearable device for chronic pain and fibromyalgia symptoms)[23] - As of March 31, 2024, the Company held $17.6 million in cash, cash equivalents, and investment grade securities, believed to be sufficient to fund operations for at least the next twelve months[24] - In February 2024, the Company announced a review of strategic options to maximize shareholder value, including changes in marketing strategies, asset acquisition/sale, or a merger[25] 2. Comprehensive Income (Loss) This note explains the components of comprehensive income, including net loss and unrealized gains on securities - For Q1 2024, comprehensive income was $7,006, primarily from net unrealized gains on available-for-sale (AFS) securities, in addition to a net loss of $(3,029,574)[38] - For Q1 2023, comprehensive income was $65,874 from net unrealized gains on AFS securities, in addition to a net loss of $(1,574,174)[38] 3. Net Loss Per Common Share This note details the calculation of net loss per common share and potentially dilutive equivalents Net Loss Per Common Share | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------------ | :---------- | :---------- | | Net loss applicable to common stockholders | $(3,029,574) | $(1,574,174) | | Weighted average number of common shares outstanding | 1,812,455 | 961,153 | | Net loss per common share, basic and diluted | $(1.67) | $(1.64) | Potentially Dilutive Common Stock Equivalents | Potentially Dilutive Common Stock Equivalents | Q1 2024 | Q1 2023 | | :-------------------------------------------- | :------ | :------ | | Options | 63,755 | 65,683 | | Unvested restricted stock awards | 3,201 | 10,745 | | Unvested restricted stock units | 48,565 | 22,477 | | Convertible preferred stock | 8 | 8 | | Total | 115,529 | 98,913 | 4. Securities This note provides a breakdown of available-for-sale securities and their fair value measurements Available-for-sale securities (March 31, 2024) | Available-for-sale securities (March 31, 2024) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :------------------------------------- | :--------- | :--------------------- | :---------------------- | :------------------- | | U.S. government bonds | $7,842,359 | $51,676 | — | $7,894,035 | | Commercial paper | $8,249,644 | $196,488 | $(987) | $8,445,145 | | Total | $16,092,003 | $248,164 | $(987) | $16,339,180 | Available-for-sale securities (December 31, 2023) | Available-for-sale securities (December 31, 2023) | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :-------------------------------------- | :--------- | :--------------------- | :---------------------- | :------------------- | | U.S. government bonds | $4,412,935 | $5,665 | — | $4,418,600 | | Commercial paper | $11,612,099 | $234,506 | — | $11,846,605 | | Total | $16,025,034 | $240,171 | — | $16,265,205 | - Changes in fair value of securities at March 31, 2024, primarily resulted from interest rate fluctuations, with no credit losses recorded[42] 5. Fair Value Measurements This note categorizes financial instruments by fair value hierarchy levels Financial Instruments (March 31, 2024) | Financial Instruments (March 31, 2024) | Total | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :---------- | :---------- | :---------- | :------ | | Money market funds | $1,255,736 | $1,255,736 | — | — | | U.S. government bonds | $7,894,035 | $7,894,035 | — | — | | Commercial paper | $8,445,145 | — | $8,445,145 | — | | Total | $17,594,916 | $9,149,771 | $8,445,145 | — | Financial Instruments (December 31, 2023) | Financial Instruments (December 31, 2023) | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :---------- | :---------- | :---------- | :------ | | Money market funds | $1,284,290 | $1,284,290 | — | — | | U.S. government bonds | $4,418,600 | $4,418,600 | — | — | | Commercial paper | $11,846,605 | — | $11,846,605 | — | | Total | $17,549,495 | $5,702,890 | $11,846,605 | — | 6. Inventories This note details the composition of inventories and related write-down charges Inventories | Inventory Type | March 31, 2024 | December 31, 2023 | | :--------------- | :--------------- | :---------------- | | Purchased components | $1,093,201 | $1,151,381 | | Finished goods | $378,237 | $408,047 | | Total Inventories | $1,471,438 | $1,559,428 | - In Q1 2024, a $74,209 charge was recorded to write down ADVANCE inventory within cost of revenues[43] 7. Accrued Expenses and Compensation This note itemizes accrued liabilities, including professional services, compensation, and severance Accrued Expenses and Compensation | Category | March 31, 2024 | December 31, 2023 | | :------------------------ | :--------------- | :---------------- | | Professional services | $547,498 | $298,534 | | Compensation | $202,424 | $346,245 | | Severance | $555,000 | — | | Clinical | $37,383 | $39,000 | | Warranty | $8,000 | $9,400 | | Sales Tax | $143,185 | $141,672 | | Other | $60,736 | $41,888 | | Total | $1,554,226 | $876,739 | - In Q1 2024, a $50,000 estimated liability was recorded for additional costs related to a discontinued product line, and a $555,000 severance accrual was recorded[44] 8. Operating Leases This note outlines the company's lease obligations and related rent expenses - The Company's corporate office and manufacturing facility lease extends through mid-September 2025, with a monthly base rent of $13,846[45] Lease Maturity Analysis (March 31, 2024) | Lease Maturity Analysis (March 31, 2024) | Amount | | :-------------------------- | :---------- | | 2024 | $124,339 | | 2025 | $117,431 | | Total minimum lease payments | $241,770 | | Discount rate, 15% | $32,433 | | Lease obligation, current portion | $148,391 | | Lease obligation, net of current portion | $60,946 | - Total recorded rent expense was $50,377 for Q1 2024, compared to $49,232 for Q1 2023[46] 9. Stockholders' Equity This note describes changes in stockholders' equity, including ATM program activities and restricted stock - In January and February 2024, the Company issued 458,380 shares of common stock under an at-the-market (ATM) program for net proceeds of $1,471,099, which was terminated as of April 18, 2024[48] - In March 2024, 1,015 restricted stock awards and 5,912 restricted stock units were forfeited due to employee reduction[49] - As of March 31, 2024, 3,201 restricted stock awards and 48,565 restricted stock units remained unvested[49] 10. Employee Reduction This note details severance charges incurred due to a reduction in workforce - The Company incurred severance charges related to a reduction of 10 full-time employees in Q1 2024 to align staffing and reduce operating expenses[52] - Total severance charges of $580,427 were recorded in Q1 2024, allocated across research and development ($310,200), sales and marketing ($234,527), general and administrative ($4,200), and cost of revenues ($31,500)[54] Severance Activity (Q1 2024) | Severance Activity (Q1 2024) | Amount | | :------------------- | :---------- | | Beginning balance | — | | Additions | $580,427 | | Amounts paid out | $(25,427) | | Ending balance | $555,000 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes NeuroMetrix's business, strategic initiatives, and financial performance for Q1 2024, including liquidity and cash flows Business Overview This overview describes NeuroMetrix's neurotechnology focus, principal products, and market context for chronic pain and peripheral neuropathies - NeuroMetrix is a commercial-stage neurotechnology company focused on innovative medical devices and technology solutions for pain syndromes and neurological disorders[56] - The company's principal product categories are therapeutic wearable neuromodulation for chronic pain (Quell) and diagnostic point-of-care peripheral neuropathy assessment (DPNCheck)[57] - Chronic pain affects nearly 100 million adults in the United States, with an estimated incremental impact of over $250 billion per year on healthcare costs and over $300 billion per year in lost productivity[58] - Peripheral neuropathies affect about 10% of U.S. adults, with diabetic peripheral neuropathy (DPN) being the most common long-term complication of diabetes, affecting over 50% of the diabetic population[60][61] Business Strategy This section outlines the company's strategic focus on Quell and DPNCheck, including recent commercial and operational changes - The company's strategic attention is focused on Quell and DPNCheck, with Quell being leveraged into a portfolio of prescription (Rx) wearable neurotherapeutics[63][64] - Quell received FDA Breakthrough Device Designation for fibromyalgia in 2021 and obtained De Novo marketing authorization in 2022, with a strategic commercial launch in late 2022[65] - In Q1 2024, Quell – Fibromyalgia introduced a telemedicine option, increased refill pricing, and expanded its target market to Veterans Administration patients[65] - DPNCheck sales significantly declined due to adverse CMS reimbursement changes in the Medicare Advantage market, leading to a reduction in the commercial sales team[68][69] - The legacy ADVANCE neurodiagnostic technology product line is being discontinued in Q2 2024, with related inventory write-down and exit liability charges recorded in Q1 2024[70] - In February 2024, the company initiated a review of strategic options to maximize shareholder value, including marketing strategy changes, asset acquisition/sale, or a merger[71] Results of Operations This section provides a comparative analysis of the company's financial performance for the first quarters of 2024 and 2023 Results of Operations | Metric | Q1 2024 | Q1 2023 | Increase (Decrease) | Percent Change | | :---------------- | :---------- | :---------- | :------------------ | :------------- | | Revenues | $1,093,556 | $1,724,771 | $(631,215) | (36.6)% | | Gross profit | $517,017 | $1,198,399 | $(681,382) | (56.9)% | | – % of revenues | 47.3 % | 69.5 % | (22.2)% | N/A | | Operating expenses | $3,771,008 | $2,908,468 | $862,540 | 29.7 % | | Net loss | $(3,029,574) | $(1,574,174) | $(1,455,400) | 92.5 % | | Net loss per common share | $(1.67) | $(1.64) | $0.03 | 1.8 % | Revenues This section explains the decrease in revenues, primarily driven by DPNCheck sales decline - Revenues for Q1 2024 decreased by $631 thousand (36.6%) from Q1 2023, primarily due to a decline in DPNCheck sales[73] - The DPNCheck sales decline was mainly attributable to adverse CMS reimbursement changes in the Medicare Advantage market[73] Gross Profit This section details the reduction in gross profit and margin rate due to revenue decline and specific charges - Gross profit for Q1 2024 decreased by $681 thousand (56.9%) from Q1 2023, with the gross margin rate contracting from 69.5% to 47.3%[74] - The decline was due to reduced DPNCheck revenue (the highest margin product), lower absorption of indirect manufacturing costs, and charges for ADVANCE inventory write-down ($74,209) and discontinuation liability ($50,000)[74] Operating Expenses This section discusses the increase in operating expenses, mainly due to personnel and severance costs - Operating expenses increased by $863 thousand (29.7%) in Q1 2024 compared to Q1 2023, primarily due to increased personnel costs, including employee severance costs[75] - Research and development spending increased by $244 thousand, mainly due to $310 thousand in employee severance costs, partially offset by reduced clinical work[75] - Sales and marketing spending increased by $245 thousand, primarily due to $235 thousand in employee severance costs[75] - General and administrative costs increased by $373 thousand, driven by increased professional fees ($268 thousand) and taxes, licenses, and fees ($164 thousand)[75] Net loss This section reports the significant increase in net loss for the first quarter of 2024 - The net loss in Q1 2024 increased by $1.5 million from Q1 2023, resulting in a net loss per common share of $(1.67) compared to $(1.64) in the prior year[76] Liquidity and Capital Resources This section assesses the company's financial position, including cash, working capital, and debt Liquidity and Capital Resources | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :--------------- | :---------------- | | Cash, cash equivalents and marketable securities | $17,599,110 | $17,997,151 | | Working capital | $18,304,763 | $19,613,803 | | Current ratio | 10.9 | 16.8 | | Net debt position | $(15,690,994) | $(16,664,027) | - The company had $18.3 million in working capital and $17.6 million in cash, cash equivalents, and marketable securities as of March 31, 2024[78] - The company has no term debt or borrowings, maintaining a negative net debt position[78] - Days sales outstanding (DSO) increased in 2024 due to a greater weighting of sales with longer payment terms and extended terms for a DPNCheck customer[79] Cash Flows This section analyzes cash movements from operating, investing, and financing activities Cash Flows | Cash Flow Activity | Q1 2024 | Q1 2023 | Change | | :-------------------------------- | :---------- | :---------- | :----------- | | Net cash used in operating activities | $(2,081,401) | $(1,121,417) | $(959,984) | | Net cash provided by (used in) investing activities | $138,286 | $(836,984) | $975,270 | | Net cash provided by financing activities | $1,471,099 | — | $1,471,099 | - Operations cash usage increased by $960 thousand in Q1 2024, reflecting a $1.5 million increase in net loss, partially offset by working capital benefits[82] - Investing activities in Q1 2024 included $7.4 million in purchases and $7.5 million in proceeds from maturities of available-for-sale securities[82] - Financing activities provided $1.5 million from the sale of common stock under an ATM program in Q1 2024, which was terminated on April 18, 2024[83] Cautionary Note Regarding Forward-Looking Statements This note warns about the inherent risks and uncertainties in forward-looking statements within the report - The report contains forward-looking statements regarding future expectations, financial performance, strategic plans, and regulatory matters, which are subject to risks and uncertainties[84] - Actual results may differ materially from those projected due to various risks, including those described in the 'Risk Factors' section of the Annual Report on Form 10-K[84] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily interest rate risk on its investment portfolio - The company's financial instruments consist of cash, cash equivalents, and available-for-sale debt securities[85] - The primary objectives of the investment strategy are to preserve principal, maintain liquidity, and maximize yields, with investments typically having maturities of twelve months or less[85] - A hypothetical 10% change in interest rates is not expected to have a material impact on the fair value of the investment portfolio or interest income[85] Item 4. Controls and Procedures The principal executive and financial officers have evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of March 31, 2024 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[86] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[87] PART II – OTHER INFORMATION This section presents additional information not covered in the financial statements, including legal, risk, and equity matters Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings and does not anticipate any significant financial impact from potential future legal issues - The company is not currently a party to any material legal proceedings[88] - No significant impact on financial position is expected from potential future legal issues in the ordinary course of business[88] Item 1A. Risk Factors This section supplements the annual report's risk factors, focusing on uncertainties from the strategic options review - The company's review of strategic options (marketing changes, asset acquisition/sale, merger) creates significant uncertainty regarding future plans and funding requirements[90] - Perceived uncertainties related to the strategic review may lead to loss of business opportunities, stock price volatility, and difficulty attracting/retaining personnel and partners[91] - The company cannot provide assurance that the strategic alternatives review process will result in the successful realization of any particular alternative, transaction, or value[90] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[92] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities occurred during the period - No defaults upon senior securities occurred during the period[93] Item 4. Mine Safety Disclosures This disclosure item is not applicable to the company's operations - This disclosure item is not applicable to the company[94] Item 5. Other Information This section provides updates on Rule 10b5-1 trading plans and executive employment agreements - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers in Q1 2024[95] - Employment agreements for Dr. Shai N. Gozani (Chairman, President, CEO) and Thomas T. Higgins (SVP, CFO, Treasurer) were extended for one year beyond December 31, 2023[96][102] Item 6. Exhibits This section lists all supporting documents and certifications filed with the Form 10-Q - Exhibits include addenda to employment agreements for key executives, certifications (Rule 13a-14(a), Section 302, 18 U.S.C. 1350), and Inline XBRL documents[97] Signatures This section confirms the official signing of the report by authorized executive officers - The report was signed by Thomas T. Higgins (SVP, CFO, Treasurer) and Shai N. Gozani (Chairman, President, CEO) on May 15, 2024[101][102]