npce-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40337

NEUROPACE, INC.

(Exact name of registrant as specified in its charter)


Delaware						22-3550230
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

455 N. Bernardo Avenue

Mountain View, CA 94043

(650) 237-2700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

NPCE

Nasdaq Global Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of August 1, 2023, there were approximately 25,859,643 shares of the registrant's common stock outstanding.

TABLE OF CONTENTS


		Page
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations and Comprehensive Loss	2
	Condensed Statements of Stockholders' Equity	3
	Condensed Statements of Cash Flows	5
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
Part II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	89
Item 4.	Mine Safety Disclosures	90
Item 5.	Other Information	90
Item 6.	Exhibits	91
Signatures

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements regarding results or events that may occur in the future contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, as well as expectations of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, factors and assumptions more thoroughly described in “Risk Factors.” These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q, as well as our other disclosures and filings, include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.

You should not rely on these forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or to changes in our expectations, whether as a result of any new information, future events, changed circumstances or otherwise. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our expected future growth;

•the size and growth potential of the markets for our products, and our ability to serve those markets;

•our ability to accurately forecast demand for our products;

•our expectations regarding the impact of COVID-19 and macroeconomic conditions on our sales, business, financial condition and results of operations;

•the rate and degree of market acceptance of our products;

•coverage and reimbursement for procedures performed using our products, including pre-implant evaluations, implant procedures, and follow-up care;

•the performance of third parties in connection with the manufacturing and development of our products, including single-source suppliers;

•regulatory developments in the United States and in any foreign countries in which we may seek to do business;

•our ability to retain regulatory approval for our products or obtain regulatory approval for updates to our products, or new products or indications in the United States and in any foreign countries in which we may seek to do business;

•our research and development for existing products and new products;

•our reliance on third-party suppliers for product components, some of which are single source suppliers;

•our ability to manufacture our products in conformity with FDA requirements and with regulatory requirements of any foreign countries in which we may seek to do business;

•our ability to predict product performance, including battery life of our RNS device;

•our expectations regarding the impact that our sales and marketing initiatives will have on our sales;

•our ability to retain or scale our organizational culture;

•the development, regulatory approval, efficacy and commercialization of competing products;

•our ability to attract and retain members of our board of directors, senior management, or operational personnel;

•our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act and as a smaller reporting company under the federal securities laws;

•our ability to develop and maintain our corporate infrastructure, including our ability to maintain an effective system of internal control;

•our financial performance and capital requirements; and

•our expectations regarding our ability to obtain, maintain and enforce intellectual property protection for our products and technology, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others.

You should read this Quarterly Report on Form 10-Q as well as the documents that we reference in, and have filed as exhibits to, this report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on them.

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

NeuroPace, Inc.

Condensed Balance Sheets

(unaudited)


	June 30,		December 31,
(in thousands, except share and per share amounts)	2023		2022
Assets
Current assets
Cash and cash equivalents	$	7,855	$	6,605
Short-term investments	55,716		70,804
Accounts receivable	10,876		7,482
Inventory	10,014		9,712
Prepaid expenses and other current assets	2,050		3,111
Total current assets	86,511		97,714
Property and equipment, net	976		1,064
Operating lease right-of-use asset	14,136		14,838
Restricted cash	122		122
Deferred offering costs	466		347
Other assets	21		21
Total assets	$	102,232	$	114,106
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	1,807	$	2,147
Accrued liabilities	8,182		7,414
Operating lease liability	1,519		1,415
Total current liabilities	11,508		10,976
Long-term debt	54,854		52,913
Operating lease liability, net of current portion	14,644		15,440
Total liabilities	81,006		79,329
Commitments and contingencies (Note 5)
Stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized and no shares issued and outstanding as of June 30, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value, 200,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 25,816,929 and 25,045,751 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	26		25
Additional paid-in capital	511,552		506,713
Accumulated other comprehensive loss	—		(1,108)
Accumulated deficit	(490,352)		(470,853)
Total stockholders’ equity	21,226		34,777
Total liabilities and stockholders’ equity	$	102,232	$	114,106

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

NeuroPace, Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share and per share amounts)	2023		2022		2023		2022
Revenue	$	16,510	$	10,200	$	30,982	$	21,574
Cost of goods sold	4,538		2,734		8,638		5,849
Gross profit	11,972		7,466		22,344		15,725
Operating expenses
Research and development	5,343		5,669		10,606		11,246
Selling, general and administrative	14,483		12,771		27,911		25,215
Total operating expenses	19,826		18,440		38,517		36,461
Loss from operations	(7,854)		(10,974)		(16,173)		(20,736)
Interest income	733		221		1,459		355
Interest expense	(2,125)		(1,852)		(4,090)		(3,682)
Other income (expense), net	122		(85)		(695)		(88)
Net loss	$	(9,124)	$	(12,690)	$	(19,499)	$	(24,151)
Unrealized loss on available-for-sale debt securities	—		(469)		—		(1,179)
Comprehensive loss	$	(9,124)	$	(13,159)	$	(19,499)	$	(25,330)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.36)	$	(0.52)	$	(0.77)	$	(0.99)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	25,472,526		24,503,552		25,285,933		24,406,100

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

NeuroPace, Inc.

Condensed Statements of Stockholders’ Equity

(unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share amounts)	Shares	Amount
Balances as of January 1, 2023	25,045,751	$	25	$	506,713	$	(1,108)	$	(470,853)	$	34,777
Net loss	—	—		—		—		(10,375)		(10,375)
Unrealized loss adjustment for short-term investment	—	—		—		1,108		—		1,108
Issuance of common stock pursuant to stock option exercises	17,608	—		1		—		—		1
Issuance of common stock upon vesting of restricted stock units	325,747	—		—		—		—		—
Shares withheld for taxes	(35,562)	—		(146)		—		—		(146)
Repurchase of common stock	(1,340)	—		—		—		—		—
Stock-based compensation	—	—		2,125		—		—		2,125
Balances as of March 31, 2023	25,352,204	25		508,693		—		(481,228)		27,490
Net loss	—	—		—		—		(9,124)		(9,124)
Issuance of common stock pursuant to stock option exercises	164,134	1		4		—		—		5
Issuance of common stock pursuant to Employee Stock Purchase Plan	164,710	—		240		—		—		240
Issuance of common stock upon vesting of restricted stock units	145,787	—		—		—		—		—
Shares withheld for taxes	(9,906)	—		(41)		—		—		(41)
Change in early exercise liability	—	—		1		—		—		1
Stock-based compensation	—	—		2,655		—		—		2,655
Balances as of June 30, 2023	25,816,929	$	26	$	511,552	$	—	$	(490,352)	$	21,226

The accompanying notes are an integral part of these unaudited interim condensed financial statements.

NeuroPace, Inc.

Condensed Statements of Stockholders’ Equity

(unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
(in thousands, except share amounts)	Shares	Amount
Balances as of January 1, 2022	24,452,999	$	24	$	497,522	$	(272)	$	(423,771)	$	73,503
Net loss	—	—		—		—		(11,461)		(11,461)
Unrealized loss on available-for-sale debt securities	—	—		—		(710)		—		(710)
Issuance of common stock pursuant to stock option exercises	38,635	—		1		—		—		1
Repurchase of common stock	(14,454)	—		—		—		—		—
Change in early exercise liability	—	—		2		—		—		2
Stock-based compensation	—	—		1,488		—		—		1,488
Balances as of March 31, 2022	24,477,180	24		499,013		(982)		(435,232)		62,823

SEC Form 10-Q filed by Neuropace Inc.