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 March 31, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ____ to ____
Commission File Number 001-33351
_________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | ||||
| incorporation or organization) | |||||
| (Address of principal executive offices) | (Zip Code) | ||||
(781 ) 890-9989
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||
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.
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 and post such files).
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 definition 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 | 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,011,485 shares of common stock, par value $0.0001 per share, were outstanding as of May 14, 2024.
.
NeuroMetrix, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2024
TABLE OF CONTENTS
| Item 1. | ||||||||
| Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 | ||||||||
| Statements of Operations (unaudited) for the Quarters Ended March 31, 2024 and 2023 | ||||||||
| Statements of Comprehensive Loss (unaudited) for the Quarters Ended March 31, 2024 and 2023 | ||||||||
| Statements of Changes in Stockholders' Equity (unaudited) for the Quarters Ended March 31, 2024 and 2023 | ||||||||
| Statements of Cash Flows (unaudited) for the Quarters Ended March 31, 2024 and 2023 | ||||||||
| Item 2. | 11 | |||||||
| Item 3. | 16 | |||||||
| Item 4. | 17 | |||||||
| Item 1. | 18 | |||||||
| Item 1A. | 18 | |||||||
| Item 2. | 18 | |||||||
| Item 3. | 18 | |||||||
| Item 4. | 18 | |||||||
| Item 5. | 18 | |||||||
| Item 6. | 19 | |||||||
| 20 | ||||||||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
NeuroMetrix, Inc.
Balance Sheets
| March 31, 2024 | December 31, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
| Available-for-sale securities | |||||||||||
Accounts receivable, net | |||||||||||
Inventories | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Total current assets | |||||||||||
| Fixed assets, net | |||||||||||
| Right of use asset | |||||||||||
| Other long-term assets | |||||||||||
Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and compensation | |||||||||||
Lease obligation, current | |||||||||||
Total current liabilities | |||||||||||
Lease obligation, net of current portion | |||||||||||
Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock | |||||||||||
Convertible preferred stock | |||||||||||
Common stock, $ | |||||||||||
Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
Accumulated deficit | ( | ( | |||||||||
Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these interim financial statements.
1
NeuroMetrix, Inc.
Statements of Operations
(Unaudited)
| Quarters Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenues | $ | $ | |||||||||
| Cost of revenues | |||||||||||
Gross profit | |||||||||||
| Operating expenses: | |||||||||||
Research and development | |||||||||||
Sales and marketing | |||||||||||
General and administrative | |||||||||||
Total operating expenses | |||||||||||
Loss from operations | ( | ( | |||||||||
| Other income: | |||||||||||
| Interest income | |||||||||||
| Other income | |||||||||||
| Total other income | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Net loss per common share, basic and diluted | $ | ( | $ | ( | |||||||
| Weighted average number of common shares outstanding, basic and diluted | |||||||||||
The accompanying notes are an integral part of these interim financial statements.
Statements of Comprehensive Loss
(Unaudited)
| Quarters Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Other comprehensive income: | |||||||||||
| Unrealized gain on available-for-sale securities | |||||||||||
| Reclassification of realized gain on available-for-sale securities to other income | ( | ||||||||||
| Comprehensive loss | ( | ( | |||||||||
2
NeuroMetrix, Inc.
Statements of Changes in Stockholders' Equity
(Unaudited)
| Series B Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under at the market offering | — | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock under option plan | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Realized gain on available-for-sale securities | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Series B Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock under option plan | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim financial statements.
3
NeuroMetrix, Inc.
Statements of Cash Flows
(Unaudited)
| Quarters Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Inventory reserve charged to cost of revenues | |||||||||||
| Amortization of premiums and discounts on held-to-maturity securities | ( | ||||||||||
| Realized gain on available-for-sale securities | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current and long-term assets | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and compensation | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of available-for-sale securities | ( | ( | |||||||||
| Proceeds from maturities of available-for-sale securities | |||||||||||
| Proceeds from maturities of held-to-maturity securities | |||||||||||
| Net cash provided by (used) in investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Net proceeds from issuance of stock | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these interim financial statements.
4
NeuroMetrix, Inc.
Notes to Unaudited Financial Statements
For the Quarter Ended March 31, 2024
1.Business and Basis of Presentation
NeuroMetrix, Inc. (the "Company" or "NeuroMetrix") develops and commercializes health care products that utilize non-invasive neurostimulation. Revenues are derived from the sale of medical devices and after-market consumable products and accessories. The Company’s products are sold in the United States and select overseas markets. They are cleared by the U.S. Food and Drug Administration ("FDA") and regulators in foreign jurisdictions where appropriate. The Company has two primary products. DPNCheck® is a point-of-care test for diabetic peripheral neuropathy, which is the most common long-term complication of Type 2 diabetes. Quell is an app-enabled, wearable device for lower extremity chronic pain and for the symptoms of fibromyalgia.
The Company held cash, cash equivalents and investment grade securities totaling $17.6 million on March 31, 2024. The Company believes that its present balance of cash resources and securities coupled with cash inflows from product sales will enable the Company to fund its operations for at least the next twelve months from the date of issuance of the financial statements. Actual cash requirements could differ from management's projections for many reasons, including changes the Company may make to its business strategy, commercial challenges, regulatory developments, changes to research and development programs, supply chain issues, staffing challenges and other items affecting the Company's projected uses of cash.
During February 2024, the Company announced that it would undertake a review of its strategic options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction. A timetable for completion of this evaluation process has not been established, and even if certain strategic alternatives may be available, the Company cannot provide any assurance that the strategic alternatives review process will result in the successful realization of any particular alternative, transaction or value. Accordingly, the unaudited financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Unaudited Interim Financial Statements
The accompanying unaudited balance sheet as of March 31, 2024, unaudited statements of operations, statements of comprehensive loss, changes in stockholders' equity and cash flows for the quarters ended March 31, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet as of December 31, 2023 has been derived from the audited balance sheet as of December 31, 2023 included in the Company's Form 10-K referenced below and does not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the "SEC"), on March 1, 2024 (File No. 001-33351).
Revenues
Revenues include product sales, net of estimated returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product transferred. Revenue is recognized at the point in time when contractual performance obligations have been satisfied and control of the product has been transferred to the customer. The Company has a single product delivery performance obligation. Accrued product returns using the most likely amount method are estimated based on historical data and evaluation of current information and variable consideration is not constrained. Revenue from product sales that occur via an online pharmacy agent are recognized on a gross basis and the related fulfillment fees are expensed within cost of revenues.
5
Accounts receivable are recorded in the amount the Company expects to collect, net of the allowance for credit losses. The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses based on customer past payment history, product usage activity, and recent communications with the customer. Individual customer balances which are over 90 days past due are reviewed individually for collectability and written-off when recovery is not probable. The Company does not have any off-balance sheet credit exposure related to its customers. Allowance for credit losses was $25,000
Two customers accounted for 25 % and 39 % of total revenues in the quarters ended March 31, 2024 and 2023, respectively. Three customers accounted for 64 % and 74 % of accounts receivable as of March 31, 2024 and December 31, 2023, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government securities.
Securities
The Company invests in highly liquid, marketable debt securities with high credit ratings and typically with maturities of two years or less. Individual securities are designated by the Company as either "held-to-maturity" ("HTM") or “available-for-sale” ("AFS") at the point of investment. Securities classified as short-term have maturities of less than one year. As of March 31, 2024, all marketable securities held by the Company are classified as available for sale and had remaining contractual maturities of one year or less.
Fair Value
The Company follows the provisions of Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10"), which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, ASC 820-10 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 observable inputs such as quoted prices in active markets; Level 2 inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value (See Note 5).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during reporting periods. Actual results could differ from those estimates.
6
Recent Accounting Pronouncements
Accounting Standards Updates ("ASUs") issued by the FASB are evaluated for their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or not expected to have a material impact on our financial statements.
Recently adopted accounting pronouncement
2. Comprehensive Income (Loss)
For the quarter ended March 31, 2024, the Company had comprehensive income of $7,006 for net unrealized gains on AFS, in addition to net loss of $3,029,574 in the statements of operations. The Company had comprehensive income of $65,874 for net unrealized gains on AFS, in addition to net loss of $1,574,174 in the statements of operations for the quarter ended March 31, 2023.
3. Net Loss Per Common Share
Basic and dilutive net loss per common share were as follows:
| Quarters Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net loss applicable to common stockholders | $ | ( | $ | ( | |||||||
| Weighted average number of common shares outstanding, basic and diluted | |||||||||||
| Net loss per common share applicable to common stockholders, basic and diluted | $ | ( | $ | ( | |||||||
Shares underlying the following potentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net loss per common share because their effect was anti-dilutive for each of the periods presented:
| Quarters Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Options | |||||||||||
| Unvested restricted stock awards | |||||||||||
| Unvested restricted stock units | |||||||||||
| Convertible preferred stock | |||||||||||
| Total | |||||||||||
4. Securities
7
The Company's marketable debt securities are classified as either HTM or AFS pursuant to ASC 320 - Investments - Debt Securities. HTM securities are valued at amortized cost. The following table summarizes the valuations and unrealized gains and losses of AFS securities which are recorded at estimated fair value as of March 31, 2024 and December 31, 2023.
| March 31, 2024 | |||||||||||||||||||||||||||||
| Gross Unrealized | |||||||||||||||||||||||||||||
| Available-for-sale securities | Cost | Gains | Losses | Credit Losses | Estimated Fair Value | ||||||||||||||||||||||||
| U.S. government bonds | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||||
| Commercial paper | ( | — | |||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | — | $ | ||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||
| Gross Unrealized | |||||||||||||||||||||||||||||
| Available-for-sale securities | Cost | Gains | Losses | Credit Losses | Estimated Fair Value | ||||||||||||||||||||||||
| U.S. government bonds | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||||
| Commercial paper | — | — | $ | ||||||||||||||||||||||||||
| Total | $ | $ | $ | — | $ | — | $ | ||||||||||||||||||||||
5. Fair Value Measurements
The following tables set forth the Company’s financial instruments that were measured at fair value:
| March 31, 2024 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | — | $ | — | |||||||||||||||||
| U.S. government bonds | — | — | |||||||||||||||||||||
| Commercial paper | — | — | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | — | $ | — | |||||||||||||||||
| U.S. government bonds | — | — | |||||||||||||||||||||
| Commercial paper | — | — | |||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
8
6. Inventories
Inventories consist of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Purchased components | $ | $ | |||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
7. Accrued Expenses and Compensation
Accrued expenses and compensation consist of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Professional services | $ | $ | |||||||||
| Compensation | |||||||||||
| Severance | |||||||||||
| Clinical | |||||||||||
| Warranty | |||||||||||
| Sales Tax | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
8. Operating Leases
The Company's lease on its Woburn, Massachusetts corporate office and manufacturing facilities extends through mid September 2025 at a monthly base rent of $13,846 and with a 5 -year extension option.
The following is a maturity analysis of the annual cash flows of the operating lease liabilities as of March 31, 2024:
| 2024 | $ | |||||||
| 2025 | ||||||||
| Total minimum lease payments | $ | |||||||
Discount rate, | $ | |||||||
| Lease obligation, current portion | ||||||||
| Lease obligation, net of current portion | ||||||||
| $ | ||||||||
Total recorded rent expense was $50,377 and $49,232 , for the quarters ended March 31, 2024 and 2023, respectively. The Company records rent expense on its facility leases on a straight-line basis over the lease term. The remaining operating lease term was 1.5 years as of March 31, 2024.
9
9. Stockholders’ Equity
Preferred stock and convertible preferred stock consist of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
Preferred stock, $ | $ | $ | |||||||||
Series B convertible preferred stock, $ | $ | $ | |||||||||
2024 equity activity
In January and February 2024, the Company issued 458,380 shares of its common stock, under an at-the-market ("ATM") program for net proceeds of $1,471,099 . As of April 18, 2024, the Company terminated the ATM program.
In March 2024, 1,015 restricted stock awards and 5,912 restricted stock units were forfeited due to the employee reduction described in Note 10. As of March 31, 2024, the Company had 3,201 restricted stock awards and 48,565 restricted stock units that remain unvested. At December 31, 2023 the Company had 6,222 restricted stock awards and 60,492 restricted stock units that were unvested.
2023 equity activity
10. Employee Reduction
As indicated in Note 1., the Company has initiated a review of its strategic options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction.
The Company incurred severance charges related to a reduction of 10 full time employees in the first quarter of 2024. The reduction was implemented in order to better align staffing with work responsibilities and to reduce operating expenses. Cash payments of approximately $207,000 for a majority of the employees will be made by the end of May 2024 and approximately $348,000 in cash payments related to two employees who have extended agreements will be ratably paid through December 2024.
The following table sets forth the activity during the quarter in accrued severance.
| Quarter ended March 31, 2024 | |||||
| Severance | |||||
| Beginning balance | $ | — | |||
| Additions | |||||
| Amounts paid out | ( | ||||
| Ending balance | $ | ||||
Within the Company's Statements of Operations for the quarter ended March 31, 2024, $580,427 in severance charges were recorded as follows: $310,200 within research and development, $234,527 within sales and marketing, $4,200 within general and administrative and $31,500 within cost of revenues.
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the accompanying notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Quarterly Report on Form 10-Q titled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Quarterly Report on Form 10-Q refer to NeuroMetrix, Inc.
Business Overview
NeuroMetrix is a commercial stage neurotechnology company based in Woburn, Massachusetts. The Company’s mission is to improve individual and population health through innovative medical devices and technology solutions for pain syndromes and neurological disorders. Our core expertise in biomedical engineering has been refined over two decades of designing, building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We are fully integrated with in-house capabilities spanning research and development, manufacturing, regulatory affairs and compliance, sales and marketing, product fulfillment and customer support. We hold extensive, proprietary intellectual property.
NeuroMetrix created the market for point-of-care nerve testing and introduced sophisticated wearable technology for chronic pain syndromes. Nearly five million patients have been served with our products. Revenue is derived from the sale of medical devices, after-market consumable products and accessories in the United States and select overseas markets. Products are authorized by the U.S. Food and Drug Administration (FDA) and regulators in foreign jurisdictions where appropriate. We have two principal product categories:
•Therapeutic technology – wearable neuromodulation for chronic pain syndromes
•Diagnostic technology - point-of-care peripheral neuropathy assessment
Chronic pain is a significant public health problem. It is defined by the National Institutes of Health (the "NIH") as pain lasting more than 12 weeks. This contrasts with acute pain which is a normal bodily response to injury or trauma. Chronic pain conditions include low back pain, arthritis, fibromyalgia, neuropathic pain, and cancer pain, among many others. Chronic pain
may be triggered by an injury or there may be an ongoing cause such as disease or illness. There may also be no clear cause. Chronic pain can also lead to other health problems which can include fatigue, sleep disturbance and mood changes, which cause difficulty in carrying out important activities and contributing to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective pain management.
Chronic pain affects nearly 100 million adults in the United States and more than 1.5 billion people worldwide. The estimated incremental impact of chronic pain on health care costs in the United States is over $250 billion per year, and lost productivity is estimated to exceed $300 billion per year. The most common approach to chronic pain management is pain medication. This includes over-the-counter internal and external analgesics as well as prescription pain medications, both non-opioid and opioids. The approach to treatment is individualized, drug combinations may be employed, and the results are often inadequate. Side effects, including the potential for addiction are substantial. Reflecting the complexity of chronic pain and the difficulty in treating it, we believe that inadequate relief leads 25% to 50% of pain sufferers to seek alternatives to prescription pain medications. These alternatives include nutraceuticals, acupuncture, chiropractic care, non-prescription analgesics, electrical stimulators, braces, sleeves, pads and other items. In total, these pain relief products and services account for approximately $20 billion in annual out-of-pocket spending in the United States.
Nerve stimulation is a long-established category of treatment for chronic pain. This treatment approach is available through implantable devices which have both surgical and ongoing risks, such as migration of the implanted nerve stimulation leads. Non-invasive approaches involving transcutaneous electrical nerve stimulation ("TENS") have achieved limited efficacy in practice due to power limitations, inadequate dosing and low patient adherence. We believe that our Quell wearable technology for chronic pain is designed to address many of the limitations of traditional TENS.
Peripheral neuropathies, or polyneuropathies, are diseases of the peripheral nerves. They affect about 10% of adults in the United States, with the prevalence rising to over 30% among individuals 65 years and older. Peripheral neuropathies are associated with loss of sensation, pain, increased risk of falling, weakness, and other complications. People with peripheral
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neuropathies have a diminished quality of life, poor overall health and higher mortality. The most common specific cause of peripheral neuropathies, accounting for about one-third of cases, is diabetes. Diabetes is a worldwide epidemic with an estimated affected population of over 400 million people. Within the United States there are over 30 million people with diabetes and another 80 million with pre-diabetes. The annual direct cost of treating diabetes in the United States exceeds $100 billion. Although there are dangerous acute manifestations of diabetes, the primary burden of the disease is in its long-term complications, which include cardiovascular disease, nerve disease and resulting conditions such as foot ulcers which may require amputation, eye disease leading to blindness, and kidney failure. The most common long-term complication of diabetes, affecting over 50% of the diabetic population, is peripheral neuropathy. Diabetic peripheral neuropathy ("DPN") is the primary trigger for diabetic foot ulcers which may progress to the point of requiring amputation. People with diabetes have a 15 to 25% lifetime risk of foot ulcers and approximately 15% of foot ulcers lead to amputation. Foot ulcers are the most expensive complication of diabetes with a typical cost of $5,000 to $50,000 per episode. In addition, between 16% and 26% of people with diabetes suffer from chronic pain in their feet and lower legs.
Early detection of peripheral neuropathies, such as DPN, is important because there are no treatment options once the nerves have degenerated. Currently available diagnostic methods for peripheral neuropathies range from a simple monofilament test for lack of sensory perception in the feet to a nerve conduction study performed by a specialist. Our DPNCheck nerve conduction technology provides a rapid, low cost, quantitative test for peripheral neuropathies, including DPN. It addresses an important medical need and is particularly effective in screening large populations. DPNCheck has been validated in multiple clinical studies.
Business Strategy
Our leading commercial products, and the focus of our strategic attention, are Quell and DPNCheck.
Quell is our wearable neuromodulation technology for chronic pain. It has been refined over the past seven years with feedback from over 204,000 chronic pain patients and is protected by over 20 U.S. utility patents. Patients control and personalize the technology with a mobile phone app, and their utilization of the devices and certain clinical metrics may be tracked in the Quell Health Cloud. The degree of technological sophistication, combined with our extensive consumer experience and the compelling results of clinical studies, gives us the opportunity to leverage this technology base into a portfolio of Quell-based prescription ("Rx") wearable neurotherapeutics.
In 2021, Quell received Breakthrough Device Designation from the FDA for a fibromyalgia indication. A pivotal double-blind, randomized, sham-controlled clinical study of Quell - Fibromyalgia was completed, and a De Novo marketing authorization was obtained from the FDA in 2022. Quell – Fibromyalgia is indicated for use as an aid for reducing the symptoms of fibromyalgia in adults with high pain sensitivity. This Rx product was introduced to the domestic market in late 2022 under the auspices of a controlled, strategic commercial launch in order to broaden market awareness and our understanding of market dynamics. During the first quarter of 2024, we introduced a telemedicine option to facilitate patient prescriptions, increased our refill pricing, and expanded our target market to include Veterans Administration patients.
Quell also received FDA Breakthrough Device Designation in early 2022 for the treatment of chronic Chemotherapy Induced Peripheral Neuropathy ("CIPN"). A CIPN double-blind, randomized, sham-controlled clinical study employing Quell, funded by the National Cancer Institute and the NIH, was completed in 2023. A 510(k) application, which is required for pre-market review and clearance by FDA of pre-market notification, has been filed with FDA for marketing authorization for CIPN patients with moderate to severe neuropathic pain and cramps. Review and approval of the application by FDA could lead to market introduction of Quell - CIPN in late 2024. This would be the second product in our emerging portfolio of Quell-based Rx wearable therapeutics. We plan a similar approach to other disease indications involving chronic pain. These potentially include Fibromyalgia-like Long COVID, Chronic Low Back Pain, and Chronic Overlapping Pain Conditions.
DPNCheck is our well-established testing technology for peripheral neuropathies. This technology has been evaluated in multiple clinical studies and promoted both in the domestic Medicare Advantage ("MA") market and also in the Asian markets of Japan and China. MA has historically contributed the majority of DPNCheck revenue and been the driver of product-line growth.
During 2023, the Centers for Medicare and Medicaid ("CMS") implemented significant changes to its MA Hierarchical Condition Categories ("HCC") risk adjustment payments and to its MA Risk Adjustment Data Validation ("RADV") audit practices. The changes to HCC risk factor coding significantly reduced CMS payments for population screening for various
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conditions, including for neuropathy, and resulted in a significant reduction in our DPNCheck sales. As a result, we have reduced our commercial sales team while continuing to support our customer base and attract new accounts. It is unlikely that there will be a near-term recovery from the decline in revenue of the DPNCheck MA business. DPNCheck sales in Asian markets have remained consistent between the past two years and unaffected by the reimbursement changes in MA.
ADVANCE is our legacy, point-of-care neurodiagnostic technology primarily used for the diagnosis and screening for carpal tunnel syndrome. Manufacturing of ADVANCE devices was discontinued in 2012. While we have continued to service devices and provide disposable electrodes to our eroding customer base, in the first quarter of 2024, we concluded that the remaining business was not viable. During the quarter ended March 31, 2024, the Company recorded a charge of $74,209 to reserve the value of ADVANCE inventory and a $50,000 estimated liability to exit the business within cost of revenues. We have implemented a plan to discontinue ADVANCE during the second quarter of 2024.
Strategy Review
During February 2024, we reported that we would undertake a review of a wide range of Company options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction. We have not set a timetable for completion of this evaluation process and may not disclose further developments unless disclosure is appropriate or necessary. An independent financial advisor has been retained to assist in the process.
Results of Operations
Comparison of Quarters Ended March 31, 2024 and March 31, 2023
| Quarters ended March 31, | Increase (Decrease) | ||||||||||||||||||||||
| 2024 | 2023 | Amount | Percent | ||||||||||||||||||||
| 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) | % | |||||||||||||||||
| Operating expenses | 3,771,008 | 2,908,468 | $ | 862,540 | 29.7 | % | |||||||||||||||||
| Other income, net | 224,417 | 135,895 | $ | 88,522 | 65.1 | % | |||||||||||||||||
| 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
Revenues for the first quarter of 2024 decreased by $631 thousand or 36.6% from the first quarter of 2023. DPNCheck sales accounted for the majority of revenues in both quarters and were the primary contributor to the revenue decline in the first quarter of 2024. The DPNCheck sales decline was primarily attributable to adverse CMS reimbursement changes in the Medicare Advantage market initiated in 2023 and scheduled to be phased in over a three year period which have reduced patient screening by healthcare providers for various conditions, including neuropathy. Sales of Quell - Fibromyalgia, Quell – lower extremity chronic pain and ADVANCE consumables have made a small contribution to offsetting the DPNCheck sales reduction.
Gross Profit
Gross profit for the first quarter of 2024 decreased by $681 thousand or 56.9% from the first quarter of 2023. Gross profit reflected a 47.3% gross margin rate in comparison with 69.5% in the prior year quarter. The decline in revenue, particularly DPNCheck revenue, was the largest contributor to the reduction in gross profit. The gross profit rate contraction reflected reduced weighting by DPNCheck, the Company’s highest margin product line and lower absorption of indirect manufacturing costs. In addition, the Company recorded a $74,209 charge to reserve ADVANCE inventory and a $50,000 charge to record the estimated liability to discontinue the ADVANCE product line within cost of revenues.
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Operating Expenses
Operating expenses increased in the first quarter of 2024 by $863 thousand or 29.7% from the first quarter of 2023. The primary contributor across all operating expense categories was increased personnel costs reflecting employee severance costs due to a reduction in headcount. Research and development spending in the first quarter of 2024 of $944 thousand increased by $244 thousand from the first quarter of 2023 due to employee severance costs of $310 thousand offset by a reduction in clinical work of $47 thousand. Sales and marketing spending of $1.1 million in the first quarter of 2024 increased by $245 thousand from the first quarter of 2023, primarily attributable to increased personnel costs including employee severance costs of $235 thousand. General and administrative costs of $1.8 million in the first quarter of 2024 increased by $373 thousand from the first quarter of 2023, due to increased professional fees of $268 thousand, taxes, licenses and fees of $164 thousand, offset by lower personnel costs of $66 thousand.
Net loss
The net loss in the first quarter of 2024 increased by $1.5 million from the first quarter of 2023. Similarly, net loss per common share increased to ($1.67) per common share in the first quarter of 2024 from ($1.64) per common share in the first quarter of 2023.
Liquidity and Capital Resources
The following table contains certain metrics relating to our liquidity and key performance indicators:
| March 31, | December 31, | ||||||||||||||||
| 2024 | 2023 | 2023 | |||||||||||||||
| Cash, cash equivalents and marketable securities | $ | 17,599,110 | $ | 20,253,382 | $ | 17,997,151 | |||||||||||
| Working capital | $ | 18,304,763 | $ | 21,669,214 | $ | 19,613,803 | |||||||||||
| Current ratio | 10.9 | 16.3 | 16.8 | ||||||||||||||
| Net debt position | $ | (15,690,994) | $ | (18,656,082) | $ | (16,664,027) | |||||||||||
| Days sales outstanding | 40.7 | 31.9 | 35.6 | ||||||||||||||
| Inventory turnover | 1.5 | 1.3 | 1.2 | ||||||||||||||
Our primary sources of liquidity are cash and cash equivalents, securities, revenues from the sales of our products, and net proceeds from equity sales. Our expected cash outlays relate to funding operations. We believe that our resources are sufficient to fund our cash requirements over at least the next twelve months from the date of issuance of the financial statements. As indicated above, we have initiated a review of our strategic options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction, which could affect our future liquidity.
As of March 31, 2024, we had, working capital of $18.3 million, including $17.6 million in cash, cash equivalents and marketable securities, and a current ratio of 10.9. We had no term debt or borrowings. Net debt, defined as short and long-term debts, less cash, cash equivalents and securities, continues to be negative.
Days sales outstanding ("DSO") reflect our customer payment terms which vary from payment on order to 60 days from shipment date. The increase in DSO in 2024 in comparison with the prior year reflects a greater weighting during 2024 of sales with terms of 30 to 60 days plus extended payment terms provided to a long-term DPNCheck customer related to a volume-based contract. Inventory turnover rate increased during the quarter ended March 31, 2024 due to reduced inventory on-hand.
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Cash Flows
| Three months ended March 31, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||
–Operating activities | $ | (2,081,401) | $ | (1,121,417) | $ | (959,984) | |||||||||||
–Investing activities | 138,286 | (836,984) | 975,270 | ||||||||||||||
–Financing activities | 1,471,099 | — | 1,471,099 | ||||||||||||||
| Net change in cash and cash equivalents | $ | (472,016) | $ | (1,958,401) | |||||||||||||
Operating activities
Operations cash usage in the first quarter of 2024 increased by $960 thousand from the first quarter of 2023, reflecting an increase in net loss of $1.5 million partially offset by the benefits of working capital which included a reduction in inventory of $210 thousand, an increase to accrued expenses of $399 thousand, and a reduction to accounts receivable of $21 thousand.
Investing activities
Investing activities in the first quarter of 2024 reflect $7.4 million in purchases of AFS securities offset by proceeds from maturity of AFS securities of $7.5 million.
Financing activities
During the first quarter of 2024, net proceeds from financing activities totaled $1.5 million from the sale of common stock to investors, under a shelf registration statement for the Company’s ATM facility and administered by an investment bank. As of April 18, 2024, the Company terminated the ATM program. There were no financing activities for the first quarter of 2023.
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Cautionary Note Regarding Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future revenues and projected expenses, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our plan to pursue strategic alternatives to maximize shareholder value and the outcome of such pursuant; our ability to maintain the listing of our common stock on the Nasdaq Capital Market; our ability to manage our expenses effectively and raise the funds needed to continue our business; our belief that there are unmet needs and our estimates regarding the addressable market for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding our commercialized neurostimulation and neuropathy diagnostic products; our expected timing and our plans to develop and commercialize our products; our ability to meet our proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of our existing products and any future products we may develop; regulatory and legislative developments in the United States and foreign countries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for our products; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; our estimate of our customer returns of our products; the rate and degree of market acceptance of any future products; our reliance on key scientific management or personnel; the payment and reimbursement methods used by private or government third party payers; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents and available for sale debt securities. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in cash equivalents and investments with a maturity of twelve months or less and we maintain an average maturity of twelve months or less. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio or our interest income.
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Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2024, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls. There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
While we are not currently a party to any material legal proceedings, we could become subject to legal proceedings in the ordinary course of business. We are not aware of and do not expect any such potential issues. However, should they occur, we would not expect them to have a significant impact on our financial position.
Item 1A. Risk Factors
We are supplementing the risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 to add the following new risk factor.
In February 2024, the Company announced that it would undertake a review of its strategic options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction. We have engaged Lucid Capital Markets as financial advisor to the Company to assist in the process. A timetable for completion of this evaluation process has not been established, and even if certain strategic alternatives may be available, the Company cannot provide any assurance that the strategic alternatives review process will result in the successful realization of any particular alternative, transaction or value. We do not expect to disclose developments with respect to any strategic transaction or other alternatives unless and until our board of directors has concluded that disclosure is appropriate or required. If we determine to change our business strategy or to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our business strategy and future funding requirements.
Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common stock and may make it more difficult for us to attract and retain qualified personnel and business partners.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the first quarter of 2024, none of our directors or executive officers adopted terminated
On April 25, 2024, the Company entered into addenda to the Employment Agreements with each of Dr. Shai N. Gozani and Thomas T. Higgins to extend such agreements for an additional term of one (1) year, beyond the initial term of three (3) years commencing on January 1, 2021, and ending on December 31, 2023.
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Item 6. Exhibits
| Exhibit No. | Description | |||||||
| NeuroMetrix, Inc. Form of Indemnification Agreement, as amended on April 24, 2024, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on April 19, 2024 (SEC File No. 001-33351). | ||||||||
| Addendum dated April 25, 2024 to Employment Agreement, dated December 30, 2020, by and between Shai N. Gozani, M.D.,Ph.D and NeuroMetrix, Inc. | ||||||||
| Addendum dated April 25, 2024 to Employment Agreement, dated December 30, 2020, by and between Thomas T. Higgins and NeuroMetrix, Inc. | ||||||||
| Certification of Principal Executive Officer Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. Filed herewith. | ||||||||
| Certification of Principal Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. | ||||||||
| Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. Furnished herewith. | ||||||||
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). Filed herewith. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. Filed herewith. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. Filed herewith. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). Filed herewith. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NEUROMETRIX, INC. | ||||||||
| May 15, 2024 | /s/ | SHAI N. GOZANI, M.D., PH. D. | ||||||
| Shai N. Gozani, M.D., Ph. D. | ||||||||
| Chairman, President and Chief Executive Officer | ||||||||
| May 15, 2024 | /s/ | THOMAS T. HIGGINS | ||||||
| Thomas T. Higgins | ||||||||
| Senior Vice President, Chief Financial Officer and Treasurer | ||||||||
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