NEUROMETRIX, INC. 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 toNeuroMetrix, Inc. Our Business Our mission is to reduce the impact of neurological disorders and pain syndromes on individuals and on population health through innovative non-invasive medical devices. Our business is fully integrated with in-house capabilities spanning research and development, manufacturing, regulatory affairs and compliance, sales and marketing, product fulfillment and customer support. We derive revenues from the sale of medical devices and after-market consumable products and accessories. Our products are proprietary and encompass point-of-care neuropathy diagnostic tests and wearable neurotherapeutic devices. DPNCheck is our testing technology for peripheral neuropathies. It is designed to address unmet physician needs in the assessment of peripheral neuropathy risk, particularly in value-based care models such as Medicare Advantage. The technology is well-suited to this task given its ease of use, rapid testing, quantitative results, and overall high sensitivity and specificity. DPNCheck has been evaluated in numerous clinical studies. It contributes attractive gross margins and has posted average revenue growth exceeding 20% over the past five years throughDecember 31, 2021 . We believe there is significant, accessible opportunity to expand DPNCheck usage. Towards that goal, we are investing in commercial resources and in the technology itself. Our next generation DPNCheck technology, targeted for commercial launch in 2022, will further enhance the user experience and improve our manufacturing efficiency. Quell is our wearable neuromodulation technology for chronic pain and associated syndromes. Patients control and personalize the technology via a mobile phone app and their utilization and certain clinical metrics may be tracked in the Quell Health Cloud. Quell is currently sold over-the-counter (OTC) for the management of lower extremity chronic pain. Its technological sophistication, combined with our extensive consumer experience and the compelling results of recent clinical studies provide the opportunity to leverage the technology platform into a portfolio of Quell-based prescription (Rx) wearable neurotherapeutics. The first product in that portfolio will be a Quell fibromyalgia indication which is currently under FDA regulatory review as a De Novo request. ADVANCE is our legacy neurodiagnostic technology primarily used for the diagnosis and screening of Carpal Tunnel Syndrome (CTS). The technology has been marketed since 2008. While we no longer market ADVANCE devices, we continue to provide disposable electrodes to a loyal base of hand surgeons and manufacturers for industrial health use. Recent Developments Breakthrough Device Designation for Quell fibromyalgia indication - In 2021, Quell received Breakthrough Device Designation (BDD) from the FDA for a fibromyalgia indication. A pivotal clinical study of Quell for fibromyalgia was completed, and the indication is currently the subject of an FDA De Novo request, the outcome of which is expected during the second half of 2022. A positive FDA decision could lead to commercial launch in late 2022 or early 2023. We plan a similar
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approach with other disease indications involving chronic pain and associated syndromes. These include chemotherapy induced peripheral neuropathy (CIPN) and, potentially, chronic overlapping pain conditions (COPC) and restless leg syndrome (RLS). We intend to end sales of the current OTC version of Quell in advance of the launch of the Quell fibromyalgia indication. Our focus would then be on the development of a Quell prescription portfolio for disease-specific indications where we would have unique product offerings without direct, non-pharmaceutical competition. Breakthrough Device Designation for Chronic Chemotherapy CIPN indication - InJanuary 2022 , Quell received BDD from the FDA for reducing moderate to severe symptoms of chemotherapy induced peripheral neuropathy that have persisted for at least six months following the end of chemotherapy. ANational Cancer Institute (NCI) funded, multi-center, double blind, randomized, sham-controlled trial of Quell in CIPN is currently ongoing. The study is expected to complete by the end of 2022. Depending on the outcome of the trial, we hope to be positioned for an FDA filing in 2023. Equity sales - We secured$1.94 million in net proceeds from equity sales in the first quarter of 2022. We maintain a debt-free, common stock only equity capital structure, and adequate cash resources to support operations and our growth initiatives. COVID-19 - The ongoing COVID-19 pandemic continues to adversely affect our business. It is difficult to quantify the disruption to our markets and customers; however, we believe the effects have been more pronounced in the diagnostic testing markets for DPNCheck and ADVANCE, and less pronounced in the consumer retail markets for Quell. Generally, we see continued purchases of testing consumables by existing customers but with less predictability than in the past. Also, our growth via new customer acquisition has been lower due to the marketing challenges resulting from COVID-19 restrictions. We have been able to maintain our business operations during the past two years while prioritizing employee safety. On-premises staffing in production and fulfillment has successfully met our business requirements. Other functional areas including R&D, sales and marketing, and administration have been a blend of on-premises and remote work. These functional areas have been disadvantaged to a degree by the pandemic. We plan to continue with our present blend of staff activity until we have greater clarity on the opportunities and risks of a more personally interactive business model. The extent to which COVID-19 affects future operations will depend on new developments which are uncertain and cannot be predicted with confidence, including the pandemic duration, severity, vaccination effectiveness, and treatments available to those with severe COVID-19 symptoms. Also uncertain are the potential effects on our business of the eventual economic recovery from the pandemic including inflation, electronic parts and components availability, labor availability and costs, and other issues.
Results of Operations
Comparison of Quarters Ended
Three months ended March 31, Increase (Decrease)
2022 2021 Amount Percent
Revenues $ 2,302,391 $ 2,155,472 $ 146,919 6.8 %
Gross profit 1,793,517 1,579,183 $ 214,334 13.6 %
-% of revenues 77.9 % 73.3 % 4.6 %
Operating expenses 2,755,507 1,639,378 $ 1,116,129 68.1 %
Other income, net 3,428 412 $ 3,016 732.0 %
Net loss $ (958,562) $ (59,783) $ 898,779 1,503.4 %
Net loss per common share $ (0.14) $ (0.02) $ 0.12 600.0 %
Revenues
Revenues for the first quarter of 2022 increased by $147 thousand or 6.8% from
the first quarter of 2021. DPNCheck contributed the majority of revenues in both
quarters. It posted revenue growth of 15.6% in the first quarter of 2022,
attributable to new Medicare Advantage customers and to sales price increases.
Quell revenue declined in the first quarter of 2022 with lower advertising
spending and an emphasis on product line profitability. Our legacy ADVANCE
revenues also declined with the continuing erosion of the customer base.
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Gross Profit Gross profit for the first quarter of 2022 increased by$214 thousand or 13.6% from the first quarter of 2021. The increase reflected growth in revenues plus increased weighting of our higher margin DPNCheck business within total revenues, which expanded by 460 basis points to 77.9% in comparison with the first quarter of 2021. Operating Expenses Operating expenses increased in the first quarter of 2022 by$1,116 thousand or 68.1% from the first quarter of 2021. The increase reflects investment in our DPNCheck initiatives to drive future growth, including the restructuring and expansion of our commercial capabilities and bringing to market our next generation testing technology. The increase also includes early regulatory costs and a market analysis related to potential Quell disease-specific indications. Research and development spending in the first quarter of 2022 of$711 thousand was$477 thousand higher than the first quarter of 2021 which benefited from a$450 thousand reversal of previously accrued technology costs upon the expiry of the relevant statute of limitations. Sales and marketing spending of$859 thousand increased by$465 thousand over the first quarter of 2021. The increase was attributable to personnel costs of$393 thousand greater than the prior year quarter reflecting new employee hires, employee severance costs and an increase in advertising and consulting costs of$61 thousand . General and administrative costs of$1,186 thousand included an increase of$147 thousand in personnel costs related to employee severance costs and the restoration of previously reduced executive compensation. Professional costs in the first quarter of 2022 were greater than the first quarter of 2021 by$58 thousand offset by a savings of$60 thousand upon vacating a previously leased facility.
Net loss
The net loss in 2022 increased by$899 thousand from 2021. Similarly, net loss per common share increased to ($0.14 ) per common share in the first quarter of 2022 from ($0.02 ) per common share in the first quarter of 2021. Increased common shares outstanding in the first quarter of 2022 partially offset the effect of a greater net loss in that period. 11
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Liquidity and Capital Resources
The following table contains certain key performance indicators we believe depict our liquidity and cash flow position:
Three months ended March 31, December 31,
2022 2021 2021
Cash and cash equivalents $ 23,769,380 $ 5,145,167 $ 22,572,104
Working capital $ 23,859,997 $ 4,877,410 $ 22,822,162
Current ratio 14.8 3.3 17.7
Net debt position $ (21,758,917) $ (2,685,347) $ (20,899,698)
Days sales outstanding 19.4 17.0 14.1
Inventory turnover 2.9 2.3 2.2
Our primary sources of liquidity are cash and cash equivalents, 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 of March 31, 2022 , we had $23.8 million in cash and cash equivalents, working
capital of $23.9 million , and a current ratio of 14.8. We had no term debt or
borrowings which contributes to negative net debt positions at the end of the
quarter.
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 at March 31,
2022 in comparison with December 31, 2021 reflects the timing of shipments
during the first quarter of 2022. Inventory turnover rate has improved slightly
during the quarter ended March 31, 2022 , reflecting the timing effects on
inventory receipts rather than a change in inventory management.
Cash Flows
Three months ended March 31,
2022 2021 Change
Net cash provided by (used in):
-Operating activities $ (740,381) $ (33,790) $ (706,591)
-Investing activities (5,395) (21,453) 16,058
-Financing activities 1,943,052 (25,803) 1,968,855
Net change in cash and cash equivalents $ 1,197,276 $ (81,046)
Operating activities
Operations cash usage in the first quarter of 2022 increased by $707 thousand
from the prior year quarter reflecting the increased net loss and non-cash
adjustments in the components of working capital.
Investing activities
Investing activities reflect our purchases of fixed assets for use in production and in research and development. There were$5 thousand of capitalized costs in the first quarter of 2022. Financing activities
Equity sales in the first quarter of 2022 contributed
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We continue to maintain an effective shelf registration statement covering the
sales of shares of our common stock and other securities, giving us the
opportunity to raise funding when needed or otherwise considered appropriate at
prices and on terms to be determined at the time of any such offerings. Pursuant
to the instructions to Form S-3, we have the ability to sell shares under the
shelf registration statement, during any 12-month period, in an amount less than
or equal to one-third of the aggregate market value of our common stock held by
non-affiliates. If we raise additional funds by issuing equity or debt
securities, either through the sale of securities pursuant to a registration
statement or by other means, our existing stockholders may experience dilution,
and the new equity or debt securities may have rights, preferences and
privileges senior to those of our existing stockholders.
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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, or 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, the effect of the COVID-19 pandemic on our operating capabilities, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to manage our expenses effectively and raise the funds needed to continue our business; our belief that there are unmet needs 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 inthe 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.
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