npce-20240630

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, 2024


☐			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 8, 2024, there were approximately 29,196,985 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 Interim 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	29
Item 4.	Controls and Procedures	30
Part II. Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	88
Item 5.	Other Information	88
Item 6.	Exhibits	89
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;

•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 expectations regarding the impact of public health crises and geopolitical tensions, such as the Russia-Ukraine war and ongoing conflicts in the Middle East, on our business, our industry and the economy;

•the impact of adverse economic conditions, including as a result of unfavorable global economic and political conditions, increased interest rates and inflation;

•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)	2024		2023
Assets
Current assets
Cash and cash equivalents	$	12,844	$	18,058
Short-term investments	42,693		48,396
Accounts receivable	11,242		12,314
Inventory	11,363		11,214
Prepaid expenses and other current assets	2,084		2,737
Total current assets	80,226		92,719
Property and equipment, net	998		1,003
Operating lease right-of-use asset	12,641		13,405
Restricted cash	122		122
Deferred offering costs	387		387
Other assets	15		15
Total assets	$	94,389	$	107,651
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	2,290	$	2,332
Accrued liabilities	7,745		11,180
Operating lease liability	1,741		1,627
Deferred revenue	809		1,090
Total current liabilities	12,585		16,229
Long-term debt	59,016		56,954
Operating lease liability, net of current portion	12,903		13,814
Total liabilities	84,504		86,997
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, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value, 200,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 29,139,206 and 27,823,465 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	29		28
Additional paid-in capital	530,104		524,435
Accumulated deficit	(520,248)		(503,809)
Total stockholders’ equity	9,885		20,654
Total liabilities and stockholders’ equity	$	94,389	$	107,651

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)	2024		2023		2024		2023
Revenue	$	19,256	$	16,510	$	37,380	$	30,982
Cost of goods sold	5,122		4,538		9,903		8,638
Gross profit	14,134		11,972		27,477		22,344
Operating expenses
Research and development	6,065		5,343		11,849		10,606
Selling, general and administrative	14,299		14,483		29,403		27,911
Total operating expenses	20,364		19,826		41,252		38,517
Loss from operations	(6,230)		(7,854)		(13,775)		(16,173)
Interest income	762		733		1,589		1,459
Interest expense	(2,166)		(2,125)		(4,424)		(4,090)
Other income (expense), net	120		122		171		(695)
Net loss and comprehensive loss	$	(7,514)	$	(9,124)	$	(16,439)	$	(19,499)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.26)	$	(0.36)	$	(0.58)	$	(0.77)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	28,853,216		25,472,526		28,569,196		25,285,933

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 Deficit		Total Stockholders’ Equity
(in thousands, except share amounts)	Shares	Amount
Balances as of January 1, 2024	27,823,465	$	28	$	524,435	$	(503,809)	$	20,654
Net loss	—	—		—		(8,925)		(8,925)
Issuance of common stock pursuant to stock option exercises	409,045	—		721		—		721
Issuance of common stock upon vesting of restricted stock units	522,483	1		(1)		—		—
Shares withheld for taxes	(37,541)	—		(649)		—		(649)
Stock-based compensation	—	—		2,540		—		2,540
Balances as of March 31, 2024	28,717,452	29		527,046		(512,734)		14,341
Net loss	—	—		—		(7,514)		(7,514)
Issuance of common stock pursuant to stock option exercises	95,008	—		53		—		53
Issuance of common stock pursuant to Employee Stock Purchase Plan	94,743	—		528		—		528
Issuance of common stock upon vesting of restricted stock units	242,518	—		—		—		—
Shares withheld for taxes	(9,233)	—		(72)		—		(72)
Repurchase of common stock	(1,282)	—		—		—		—
Change in early exercise liability	—	—		1		—		1
Stock-based compensation	—	—		2,548		—		2,548
Balances as of June 30, 2024	29,139,206	$	29	$	530,104	$	(520,248)	$	9,885

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 Cash Flows

(unaudited)


	Six Months Ended June 30,
(in thousands)	2024		2023
Cash flows from operating activities
Net loss	$	(16,439)	$	(19,499)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation expense	5,088		4,780
Depreciation	103		96
Amortization of debt discount and issuance costs	132		133
Non-cash interest expense	540		494
PIK interest incurred but not paid on term loan	1,389		1,314
Amortization of right-of-use asset	764		702
(Gain) loss on short-term investments	(96)		695
Inventory write-downs	89		88
Changes in operating assets and liabilities
Accounts receivable	1,071		(3,395)
Inventory	(238)		(389)
Prepaid expenses and other assets	653		1,061
Accounts payable	28		(215)
Accrued liabilities	(3,436)		769
Deferred revenue	(280)		—
Operating lease liabilities	(796)		(692)
Net cash used in operating activities	(11,428)		(14,058)
Cash flows from investing activities
Acquisition of property and equipment	(167)		(132)
Proceeds from sale of short-term investments	5,800

SEC Form 10-Q filed by Neuropace Inc.