Results of Operations
Comparison of the three months ended March 31, 2023 to the three months ended March 31, 2022
The following table sets forth amounts from our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022:
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For the three months ended
March 31,
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|
|
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2023
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2022
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Change
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(in thousands)
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Consolidated statements of operations:
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Net sales
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$
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2,780
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|
$
|
1,899
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|
$
|
881
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|
Cost of goods sold
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|
|
458
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|
|
|
360
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|
|
|
98
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|
Gross profit
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|
|
2,322
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|
|
|
1,539
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|
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|
783
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|
Operating expenses
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|
|
|
|
|
|
|
|
|
|
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Research and development
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|
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1,809
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|
|
|
934
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|
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875
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|
Selling, general and administrative
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|
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6,710
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|
|
|
6,186
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|
|
|
524
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|
Total operating expenses
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8,519
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|
|
|
7,120
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|
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1,399
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Loss from operations
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|
|
(6,197
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) |
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(5,581
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)
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|
(616
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) |
Other (income) expense
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|
|
|
|
|
|
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Interest and other income
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|
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(119
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) |
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(4
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) |
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(115
|
) |
Other expense
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|
|
—
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|
|
|
5
|
|
|
|
(5
|
) |
Total other (income) expense
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|
|
(119
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) |
|
|
1
|
|
|
|
(120
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) |
Loss before income taxes |
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|
(6,078 |
) |
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|
(5,582 |
) |
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(496 |
) |
Benefit from income taxes |
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|
211 |
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|
— |
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|
|
211 |
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Net loss
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$
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(5,867
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) |
|
$
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(5,582
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)
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|
$
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(285
|
) |
Net Sales
Net sales for the three months ended March 31, 2023 increased 46% as compared to the three months ended March 31, 2022. The increase of $881,000 is due to an increase in net sales across all major channels including the U.S. Department of Veteran Affairs, U.S. commercial channel, and sales from outside the U.S. which includes licensing revenue of $46,000. There was no licensing revenue in the comparable prior year period. We expect that the majority of remaining 2023 fiscal year revenue will continue to come from the U.S. Department of Veterans Affairs Additionally, we expect revenues to expand from our cash pay propositions which include direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy). In addition, we expect to generate additional revenue from sales of our Truvaga and TAC-STIM products.
Gross Profit
Gross profit increased by $783,000 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. Gross margin was 84% and 81% for the three months ended March 31, 2023 and 2022, respectively. Our evolving commercial strategy has resulted in the launch of cash payment models under which we license a portion of our devices. The cost of the licensed device is being recognized as cost of goods sold over the estimated useful life of the device. The incremental increase in gross margin associated with the licensing of a portion of our devices was 6.7% and 6.9% in the three months ended March 31, 2023 and 2022, respectively. In recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price, as well as selling an increased number of refill kits with a lower cost of goods. In addition, favorable absorption of labor and overhead costs associated with the increased number of units sold contributed to the increase in gross margin. Gross profit and gross margin in the remainder of 2023 will be largely dependent on revenue levels, product mix, and any changes in the estimated useful lives of licensed devices.
Research and Development
Research and development expense for the three months ended March 31, 2023 of $1.8 million increased by $875,000 compared to the prior year period. This increase was primarily due to targeted investments to support the future iterations of our therapy delivery platform, including the use of our intellectual property around the delivery of smart phone-integrated and smart phone-connected non-invasive therapies. In the remainder of 2023, we plan to continue to invest in the next generation of our therapy delivery platform.
Selling, General and Administrative
Selling, general and administration expense of $6.7 million for the three months ended March 31, 2023 increased by $524,000 as compared to $6.2 million for the previous year period. This increase was due to severance charges of $332,000, as well as our continuing targeted investments in sales and marketing to support our commercial efforts, offset by decreases in insurance and stock-based compensation expense. In the remainder of 2023, we plan on continuing to make targeted investments in sales and marketing to support our commercial efforts, particularly around sales and marketing efforts for our cash pay propositions which include ecommerce stores, direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).
Other (Income) Expense
The increase in Other (Income) Expense is primarily due to rising interest rates.
Benefit From Income Taxes
We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On January 10, 2023, we received a net cash amount of approximately $211,000 from the sale of our New Jersey state net operating losses.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods noted below:
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For the three months ended March 31,
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2023
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2022
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(in thousands)
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Net cash (used in) provided by
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Operating activities
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$
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(5,860
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) |
|
$
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(4,780
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) |
Investing activities
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$
|
—
|
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|
$
|
—
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|
Financing activities
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$
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—
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|
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$
|
—
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|
Operating Activities
Net cash used in operating activities was $5.9 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively. This increase is primarily due to the increase in our working capital and net loss from operations.
Investing Activities
No cash was provided by investing activities during the three months ended March 31, 2023 and 2022.
Financing Activities
No cash was provided by financing activities during the three months ended March 31, 2023 and 2022.
Liquidity Outlook
In the remainder of 2023, we expect to continue to incur substantial negative cash flows from operations. We intend to continue to make targeted investments in sales and marketing, as well as the next generation of our therapy delivery platform.
As a result, we will need to seek additional funds in the future or curtail or forgo some or all such activities. If we seek to and are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts or research and development activities, and the growth of our business may be negatively impacted. As a result, we may be unable to compete effectively.
We expect that a majority of our remaining 2023 sales will be made pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, as well as open market sales to individual facilities within the government channels. The FSS is scheduled to expire on January 15, 2024. We intend to request an extension of the FSS from the United States Department of Veteran Affairs, but there is no assurance the FSS agreement will be renewed, if at all, or at terms favorable to us. In addition, other possible changes including those relating to the payer and competitive landscape, our commercialization strategy, our development activities, and regulatory matters, may occur beyond our control that would cause us to consume our available capital more quickly.
Even if we are not required to curtail our activities sooner, our ability to execute our operating plan beyond the next 12 months from the date these financial statements are issued depends on our ability to increase revenue, control operating expenses and obtain additional funding from the sale of equity and or debt securities, a strategic transaction or otherwise. However, these alternatives may not be available to us on attractive terms, or at all. There is no assurance that we will generate sufficient cash flow and funding through our operating results or the sale of securities or from a strategic transaction or otherwise, raising substantial doubt about our ability to continue as a going concern within one year of the date these financial statements are issued. The accompanying Financial Statements do not include any adjustment that might occur from the outcome of this uncertainty.
On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which we refer to collectively as the Shelf Securities, up to an aggregate amount of $75.0 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75.0 million, the aggregate maximum offering price of all securities issued by us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.
On February 13, 2023, we held a special meeting (the “Special Meeting”) of our stockholders. At the Special Meeting, our shareholders voted to approve an amendment to our Certificate of Incorporation as amended to effect a Reverse Stock Split of our ordinary shares (the “Reverse Stock Split”) at a ratio of not less than 1-for 5 and not more than 1-for-50, with such ratio and the implementation and timing of the Reverse Stock Split to be determined by our board of directors in its sole discretion. Following the Special Meeting, our board of directors approved a 1-for-15 Reverse Stock Split and our Certificate of Incorporation, as amended was amended accordingly. The Reverse Stock Split became effective on February 15, 2023. The purpose of the Reverse Stock Split was to increase the per share trading price of our common stock on the Nasdaq Capital Market to regain compliance with the Bid Price Rule. On March 6, 2023, we received a letter from Nasdaq confirming that our common stock had regained compliance with the Bid Price Rule, and as a result, our common stock continues to trade on the Nasdaq Capital Market. If in the future we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the $1 Minimum Bid Price Rule, Nasdaq may take steps to delist our common stock.
The Reverse Stock Split of our common stock had the effect of reducing the number of shares of common stock outstanding. There can be no assurance that the value and liquidity of our common stock will not be adversely affected by the Reverse Stock Split, which in turn could have a material adverse effect on our ability to raise the additional capital that we may require or increase the dilutive impact of any such financing.