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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, 2025

 

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 001-41775

 

NEURAXIS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   45-5079684

(State or other jurisdiction of

incorporation or organization)

 

(I. R. S. Employer

Identification No.)

 

11611 N. Meridian Street, Suite 330

Carmel, IN

  46032
(Address of principal executive offices)   (Zip Code)

 

(812) 689-0791

(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 each exchange on which registered
Common Stock   NRXS   NYSE American LLC

 

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 and post 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 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

 

The number of shares of the registrant’s common stock outstanding as of March 31, 2025 was 7,215,864 shares.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I   3
     
ITEM 1: FINANCIAL STATEMENTS 3
  Condensed Balance Sheets as of March 31, 2025 (Unaudited) and December 31, 2024 3
  Condensed Statements of Operations for the Three Months Ended March 31, 2025 and 2024 (Unaudited) 4
  Condensed Statements of Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2025 and 2024 (Unaudited) 5
  Condensed Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (Unaudited) 6
  Notes to Condensed Financial Statements (Unaudited) 7
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 22
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 25
ITEM 4: CONTROLS AND PROCEDURES 26
     
PART II   27
     
ITEM 1: LEGAL PROCEEDINGS 27
ITEM 1A: RISK FACTORS 27
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 27
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 27
ITEM 5: OTHER INFORMATION 27
ITEM 6: EXHIBITS 28
SIGNATURES 29

 

2

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

NeurAxis, Inc.

Condensed Balance Sheets

 

   March 31,
2025
   December 31,
2024
 
   (Unaudited)     
Assets          
           
Current Assets:          
Cash and cash equivalents  $2,005,370   $3,696,870 
Accounts receivable, net of credit losses of $5,000 and $5,000 as of March 31, 2025 and December 31, 2024, respectively   243,708    244,618 
Inventories, net of reserves of $4,454 and $4,454 as of March 31, 2025 and December 31, 2024, respectively   37,421    44,328 
Prepaids and other current assets   254,527    280,367 
Total current assets   2,541,026    4,266,183 
           
Property and Equipment, at cost:   481,012    464,402 
Less - accumulated depreciation   (377,297)   (374,420)
Property and equipment, net   103,715    89,982 
           
Other Assets:          
Operating lease right of use asset, net   270,938    284,656 
Intangible assets, net   93,967    96,588 
Security Deposit   20,163    20,163 
Total Assets  $3,029,809   $4,757,572 
           
Liabilities          
           
Current Liabilities:          
Accounts payable  $535,017   $596,946 
Accrued expenses   1,370,960    1,577,780 
Current portion of operating lease payable   65,900    62,754 
Notes payable   84,307    154,152 
Customer deposits   37,684    32,527 
Warrant liabilities   7,335    9,166 
Total current liabilities   2,101,203    2,433,325 
           
Non-current Liabilities:          
Operating lease payable, net of current portion   238,530    256,499 
Other non-current liabilities   431,597     
Total non-current liabilities   670,127    256,499 
           
Total liabilities   2,771,330    2,689,824 
           
Commitments and contingencies (see note 14)        
           
Stockholders’ Equity          
Convertible Series B Preferred stock, $0.01 par value; 5,000,000 shares authorized, 4,280,939 shares issued and outstanding as of March 31, 2025 and December 31, 2024   4,281    4,281 
Common stock, $0.001 par value; 100,000,000 shares authorized; 7,215,864 and 6,990,227 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively   7,216    6,990 
Additional paid in capital   59,325,278    58,856,089 
Accumulated deficit   (59,078,296)   (56,799,612)
           
Total stockholders’ equity    258,479    2,067,748 
           
Total Liabilities and Stockholders’ Equity   $3,029,809   $4,757,572 

 

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

 

3

 

 

NeurAxis, Inc.

Condensed Statements of Operations (Unaudited)

 

   2025   2024 
  

For the Three Months Ended

March 31,

 
   2025   2024 
         
Net Sales  $895,655   $646,635 
Cost of Goods Sold   139,475    75,081 
           
Gross Profit   756,180    571,554 
           
Selling Expenses   133,954    80,030 
Research and Development   60,556    5,570 
General and Administrative   2,856,768    2,318,074 
           
Operating Loss   (2,295,098)   (1,832,120)
           
Other income (expense):          
Financing charges       (230,824)
Interest expense   (2,237)   (26,560)
Change in fair value of warrant liability   1,831    (9,284)
Amortization of debt discount and issuance cost       (21,683)
Other income   16,820     
Other expense       (180)
Total other income (expense), net   16,414    (288,531)
           
Net loss  (2,278,684)  (2,120,651)
Preferred stock dividends   (213,543)    
Net loss available to common stockholders  $ (2,492,227)  $ (2,120,651)
           
Per-Share Data          
Basic and diluted loss per share  $(0.33)  $(0.32)
           
Weighted Average Common Shares Outstanding          
Basic and diluted   7,463,578    6,550,567 

 

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

 

4

 

 

NeurAxis, Inc.

Condensed Statements of Stockholders’ Equity (Deficit) (Unaudited)

 

    Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
    Convertible Series B
Preferred Stock
   Common Stock   Additional
Paid In
   Accumulated   Stockholder’s
Equity
 
    Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
Balances at January 1, 2024    -   $-    6,508,897   $6,509   $47,148,361   $(48,558,111)  $    (1,403,241)
Warrants exercised    -    -    11,000    11    26,169    -    26,180 
Additional paid in capital from warrants issued under advisory agreement    -    -    -    -    15,543    -    15,543 
Additional paid in capital from warrants issued as debt discount    -    -    -    -    97,465    -    97,465 
Common stock issued from agreements    -    -    75,000    75    200,175    -    200,250 
Net loss    -    -    -    -    -    (2,120,651)   (2,120,651)
Balances at March 31, 2024    -   $-    6,594,897   $6,595   $47,487,713   $(50,678,762)  $(3,184,454)
                                     
Balances at January 1, 2025    4,280,939   $4,281    6,990,227   $6,990   $58,856,089   $(56,799,612)  $2,067,748 
Warrants exercised    -    -    186,166    186    (186)   -    - 
Common stock issued from agreements    -    -    39,471    40    112,453    -    112,493 
Issuance of restricted stock awards    -    -    -    -    356,922    -    356,922 
Net loss    -    -    -    -    -    (2,278,684)   (2,278,684)
Balances at March 31, 2025    4,280,939   $4,281    7,215,864   $7,216   $59,325,278   $(59,078,296)  $258,479 

 

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

 

5

 

 

NeurAxis, Inc.

Condensed Statements of Cash Flows (Unaudited)

 

   2025   2024 
   For the Three Months Ended
March 31,
 
   2025   2024 
Cash Flows from Operating Activities          
Net Loss  $(2,278,684)  $(2,120,651)
Adjustments to reconcile net loss to net cash used by operating activities:          
Amortization of debt discount and issuance cost       21,683 
Depreciation and amortization   6,356    10,737 
Provisions for losses on accounts receivable       13,634 
Loss on disposal of property and equipment   533     
Non-cash lease expense   13,719   17,316 
Stock-based compensation   105,811    227,000 
Issuance of common stock for non-cash consideration       50,062 
Issuance of warrants for non-cash consideration       15,543 
Change in fair value of warrant liabilities   (1,831)   9,284 
Changes in operating assets and liabilities:          
Accounts receivable   910    (31,001)
Inventory   6,907    1,026 
Prepaids and other current assets   25,840    4,497 
Accounts payable   (61,931)   32,821 
Accrued expenses   156,784   415,394 
Customer deposits   5,157    10,807 
Operating lease liability   (14,823)   (10,312)
Other non-current liabilities   431,597     
Net cash used in operating activities   (1,603,655)   (1,332,160)
           
Cash Flows from Investing Activities          
Additions to property and equipment   (18,000)   (14,722)
Net cash used in investing activities   (18,000)   (14,722)
           
Cash Flows from Financing Activities          
Proceeds from exercised warrants       26,180 
Principal payments on notes payable   (69,845)   (51,606)
Proceeds from convertible notes, net of fees       1,375,500 
Net cash (used in) provided by financing activities   (69,845)   1,350,074 
           
Net (Decrease) Increase in Cash and Cash Equivalents   (1,691,500)   3,192 
           
Cash and Cash Equivalents at Beginning of Period   3,696,870    78,560 
           
Cash and Cash Equivalents at End of Period  $2,005,370   $81,752 
           
Supplemental Disclosure of Operating Activities          
Cash paid for interest  $2,237   $16,889 
Cash paid for income taxes        
Supplemental Schedule of Non-Cash Investing and Financing Activities          
Recognition of right of use asset  $   $284,339 
Common stock issued for services   112,493    200,250 
Common stock issued upon cashless exercise of warrants   186     
Fair value of warrants from debt discount in convertible notes classified as additional paid in capital       97,465 

 

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

 

6

 

 

1. Basis of Presentation, Organization and Other Matters

 

NeurAxis, Inc. (“we,” “us,” the “Company,” or “NeurAxis”) was established in 2011 and incorporated in the state of Indiana in 2012 under the name of Innovative Health Solutions, Inc. The name was changed to NeurAxis, Inc. in 2022 when the Company filed a Certificate of Conversion and became a Delaware corporation.

 

The Company is headquartered in Carmel, Indiana, and specializes in the development, production, and sale of medical neuromodulation devices. The Company has developed four FDA cleared products: (i) the IB-STIM (DEN180057, 2019), (ii) the Rectal Expulsion Device (“RED”) (K242304,2024), (iii) the NSS-2 Bridge (DEN170018, 2017) and (iv) the original 510(K) clearance (K140530, 2014).

 

 

The IB-STIM is a percutaneous electrical nerve field stimulator (PENFS) device that is indicated in patients 8-21 years of age with functional abdominal pain associated with irritable bowel syndrome. The IB-STIM currently is one of two products marketed and sold by the Company.

     
  RED is indicated to evaluate the neuromuscular function of a patient’s ability to expel its contents from the rectum and as a qualitative test for rectal hypersensitivity patients who experience desire or urge to defecate at lower volumes of distention. RED is intended to be used in a clinical setting by trained health care providers in adult populations.
     
  The NSS-2 Bridge is a percutaneous nerve field stimulator (PNFS) device indicated for use in the reduction of the symptoms of opioid withdrawal. The NSS-2 Bridge device is licensed to Masimo Corporation. Masimo markets and sells this product as its Masimo Bridge.
     
  The original 510(K) device was an Electroacupuncture Device (“EAD”), now called NeuroStim. The EAD is no longer being manufactured, sold or distributed but reserved only for research purposes.

 

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments which are necessary for a fair presentation of the Company’s financial information. These unaudited interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2025, or any other interim period or for any other future year. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2024.

 

7

 

 

2. Summary of Significant Accounting Policies

 

Use of Estimates and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. The Company uses estimates in accounting for, among other items, revenue recognition, allowance for credit losses, stock-based compensation, income tax provisions, excess and obsolete inventory reserve, and impairment of property and equipment, and intellectual property. Actual results could differ from those estimates.

 

Accounts Receivable and Allowance for Credit Losses

 

Trade accounts receivable are stated at the amount management expects to collect from outstanding balances, net of an allowance for credit losses. Management evaluates many factors when determining the collectability of specific customer accounts, including, but not limited to, creditworthiness, past transaction and payment history, current economic industry trends and changes in payment terms. Management used assumptions and judgment based on the best available facts and circumstances to estimate and record an allowance. The Company estimates credit losses on accounts receivable by utilizing an aging schedule. The allowance for credit losses was $5,000 and $5,000 as of March 31, 2025 and December 31, 2024, respectively. The Company recorded credit losses for the three months ended March 31, 2025 and 2024 of $0 and $13,634, respectively.

 

Inventories

 

Inventories are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The inventory is comprised of finished medical devices on hand. Certain components within the devices have an expiration date that are removed from current inventory and expensed at the date of expiration. For the three months ended March 31, 2025 and 2024, there was no expired inventory expensed. Inventory reserves totaled $4,454 and $4,454 as of March 31, 2025 and December 31, 2024, respectively.

 

Fair Value Measurements

 

The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

 

Level 1 – Quoted prices (unadjusted) for identical unrestricted assets or liabilities in active markets that the reporting entity has the ability to access as of the measurement date.

 

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities: quoted prices in markets that are not active; or financial instruments for which all significant inputs are observable or can be corroborated by observable market date, either directly or indirectly.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These unobservable inputs reflect that reporting entity’s own assumptions about assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value require significant management judgment or estimation.

 

The Company’s Level 1 accounts include cash, accounts receivable, accounts payable, prepaids, and other current assets. Management believes the estimated fair value of these accounts on March 31, 2025 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.

 

8

 

 

The Company’s Level 3 accounts include warrant liabilities. Inputs to determine fair value are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. The valuation techniques involve management’s estimates and judgment based on unobservable inputs. The fair value estimates may not be indicative of the amounts that would be realized in a market exchange. Additionally, there may be inherent uncertainties or changes in the underlying assumptions used, which could significantly affect the current or future fair value estimates. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.

 

There were no transfers between any of the levels during the periods ended March 31, 2025 and December 31, 2024. In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company had no assets that were measured on a nonrecurring basis as of March 31, 2025 and December 31, 2024.

 

Basic and Diluted Net Income (Loss) per Share

 

Basic earnings or loss per share (“EPS”) is computed by dividing net income (loss), net of preferred stock dividends, by the weighted average number of common shares outstanding during the period. Diluted EPS is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents that were outstanding for the periods presented. In periods when losses are reported, which is the case for the three month periods ended March 31, 2025 and 2024 presented in these financial statements, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

 

The Company had the following potentially dilutive common stock equivalents:

 

 

   March 31, 
   2025   2024 
         
Options   1,319,394    1,319,394 
Restricted Stock Units   842,214     
Warrants   2,139,883    1,857,618 
Series B Preferred Stock   4,280,939     
Undeclared Cumulative Series B Preferred Stock Dividends   178,492    88,768 
Totals   8,760,992    3,265,780 

 

The following table presents the calculation of the basic and diluted net loss per share and the effect of preferred stock dividends:

 

   2025   2024 
  

Three Months Ended

March 31,

 
   2025   2024 
Numerator:          
Net loss  $(2,278,684)  $(2,120,651)
Preferred stock dividends   (213,543)   - 
Net loss available to common stockholders   (2,492,227)   (2,120,651)
Denominator:          
Weighted average shares of common stock outstanding - basic and diluted   7,463,578    6,550,567 
Basic and diluted net loss per share  $(0.33)  $(0.32)

  

Stock-Based Compensation

 

The Company accounts for all stock-based awards at fair value. The Company recognizes its stock-based compensation expense using the straight-line method. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon actual forfeiture.

 

The Company accounts for the granting of stock options and restricted stock units to employees and non-employees using the fair value method whereby all awards are measured at fair value on the date of the grant. The fair value of all employee stock options and restricted stock units is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock options, the consideration paid by the option holder is recorded in additional paid-in capital, while the par value of the shares received is reclassified from additional paid-in-capital to common stock. Upon vesting of restricted stock units, the par value of the shares issued are reclassified from additional paid-in-capital to common stock.

 

Stock-based awards to non-employees are measured based on the fair value of the equity instrument issued. Compensation expense for non-employee stock awards is recognized over the requisite service period following the measurement of the fair value on the grant date.

 

The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. Changes in these assumptions can materially affect the fair value estimate.

 

9

 

 

Revenue Recognition

 

In accordance with FASB’s ASC 606, Revenue from Contracts with Customers, (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps:

 

  (i) identify the contract(s) with a customer;
  (ii) identify the performance obligations in the contract;
  (iii) determine the transaction price;
  (iv) allocate the transaction price to the performance obligations in the contract; and
  (v) recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Company applies the five-step model to contracts when it determines that it is probable it will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price, after consideration of variability and constraints, if any, that is allocated to the respective performance obligation when the performance obligation is satisfied.

 

The Company offers a Patient Assistance Program for patients without insurance coverage for IB-Stim. This program extends potential self-pay discounts for IB-Stim devices, based upon household income and size.

 

Also, the Company offers providers an opt-in program to address adequate insurance claim payments on IB-Stim devices. This program may extend a rebate or invoice credit where the insurance payment and patient responsibility (i.e., deductible, co-payment, and/or co-insurance amounts required by the Payer) are less than the acquisition cost of the IB-Stim device. The Company recognizes revenue at such a time that collection of the amount due is assured.

 

Certain economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows. All of the Company’s products are sold to healthcare customers including hospitals, clinics and physician offices. Sales to healthcare customers lack seasonality and have a mild correlation with economic cycles. All of the Company’s sales are to customers located within the United States. Sales contracts consist of purchase orders that are short-term (i.e., less than or equal to one year).

 

The Company typically satisfies its performance obligations for goods at a point in time as they are received at the customer’s destination (rather than over time). Goods are shipped by common carrier to customers under FOB destination terms. As such, ownership of goods in transit is transferred to the customer upon receipt as the Company bears the associated risks (e.g., loss, damage, delay). Management typically relies on shipping information from common carriers to evaluate when the customer has obtained control of the goods. Shipping and handling costs are recorded as Cost of Goods Sold in the Statements of Operations.

 

The Company’s contracts with customers typically do not involve variable consideration. The information that the Company uses to determine the transaction price for a contract is similar to the information that the Company’s management uses in establishing the prices of goods to be sold.

 

Orders may not be cancelled after shipment. Customers may return devices within 10 days of delivery if the goods are found to be defective, nonconforming, or otherwise do not meet the stated technical specifications. At the option of the customer, the Company shall either:

 

  Refund the price paid for any defective or nonconforming products.
  Supply and deliver to the customer replacement conforming products.
  Reimburse the customer for the cost of repairing any defective or nonconforming products.

 

At the time revenue is recognized, the Company estimates expected returns and excludes those amounts from revenue. The Company also maintains appropriate accounts to reflect the effects of expected returns on the Company’s financial position and periodically adjusts those accounts to reflect its actual return experience. Estimated returns totaled $6,587 and $5,000 as of March 31, 2025 and December 31, 2024, respectively.

 

Payment for goods sold by the Company is typically due after an invoice is sent to the customer, within 30 days. The Company does not offer discounts if the customer pays some or all of an invoiced amount prior to the due date. None of the Company’s contracts have a significant financing component.

 

Medical devices that the Company contracts to sell and transfer to customers are manufactured by two third-party manufacturers located in Indiana and Michigan. In no case does the Company act as an agent (i.e., the Company does not provide a service of arranging for another party to transfer goods to the customer).

 

Going Concern

 

As of March 31, 2025, we had stockholders’ equity of $258,479 and short-term outstanding borrowings of $84,307. Additionally, we had cash of $2,005,370 and a working capital surplus of $439,823 as of March 31, 2025. However, we have incurred losses and negative cash flows from operations since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital stock.

 

Our future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial insurance carriers nationally, which is a top priority of the Company. These activities, including our planned research and development efforts, will require significant uses of working capital through the rest of 2025 and beyond.

 

10

 

 

Management evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date the financial statements are issued.

 

While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering of its debt or equity securities, there can be no assurance that it will be able to do so on reasonable terms, or at all. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering. Neither future cash generated from operating activities, nor management’s contingency plans to mitigate the risk and extend cash resources through the evaluation period, are considered probable. As a result, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. As we continue to incur losses, our transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. We may never achieve profitability, and unless and until doing so, we intend to fund future operations through additional dilutive or nondilutive financing. There can be no assurances, however, that additional funding will be available on terms acceptable to us, if at all.

 

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Recently Issued Accounting Pronouncements

 

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic (220-40): Disaggregation of Income Statement Expenses, which requires disclosures that disaggregate, in a tabular presentation, each relevant expense caption on the face of the income statement that includes inventory purchases, employee compensation, depreciation and intangible amortization expense. Additional disclosures are also required to provide a qualitative description of the amounts in an expense caption that are not separately disaggregated quantitatively and the total amount of selling expenses including a definition. Public business entities are required to adopt the standard for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Disclosures are required for all prior periods presented in the financial statements. Although the standard requires enhanced disclosures, the adoption is not expected to have a material impact on the Company’s financial statements.

 

In December 2023, the FASB issued ASU 2023-19, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires the enhancement of income tax disclosures to provide better insight into how an entity’s operations and related tax risks, planning and opportunities affect its tax rate and prospects for future cash flows. The enhanced disclosures require (i) specific categories in a tabular rate reconciliation including both amounts and percentages and (ii) additional information for reconciling items and income tax paid that meet a quantitative threshold. Public business entities are required to adopt the standard for annual periods beginning after December 15, 2024. All other entities are required to adopt the standard for annual periods beginning after December 15, 2025. The adoption of the standard is not expected to have a material impact on the Company’s financial statements.

 

3. Related Party Transactions

 

The Company has two demand notes receivable from shareholders related to the sale of common stock on January 1, 2016. Both notes’ principal balances are $506,400, with interest calculated monthly based on applicable federal rates. No payments have been received on the notes. Since repayment is not assured, the Company provided an allowance for the entire balance of principal and interest as of December 31, 2019. The current allowance is $1,012,800 as of March 31, 2025. The current loan balances are as follows:

 

   Loan   Interest   Interest 
   Receivable   Receivable   Income 
March 31, 2025               
Shareholder 1  $506,400   $99,640   $5,289 
Shareholder 2   506,400    99,505    5,289 
Principal Balance   1,012,800    199,145    10,578 
Allowance for Collection Risk   (1,012,800)   (199,145)   (10,578)
Net Balance  $   $   $ 

 

   Loan   Interest   Interest 
   Receivable   Receivable   Income 
December 31, 2024               
Shareholder 1  $506,400   $94,351   $23,413 
Shareholder 2   506,400    94,216    23,413 
Principal Balance   1,012,800    188,567    46,826 
Allowance for Collection Risk   (1,012,800)   (188,567)   (46,826)
Net Balance  $   $   $ 

 

The Company was granted an exclusive, worldwide non-transferable, royalty-free license for the auricular portion of certain patents owned by a limited liability company in which the Company’s President and Chief Executive Officer and Chief Regulatory, Compliance and Privacy Officer both maintain an ownership interest. The license allows for the development, marketing and sales of electro-therapy treatments by stimulation of cranial nerves, cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles and auricular anatomical structures in human patient. The exclusive license agreement expires on October 18, 2037, may be terminated by either party upon 60 days prior written notice and requires the Company to pay costs associated with the maintenance, prosecution and continuation of patent filings. The Company’s Board of Directors pre-approved the reimbursement of up to $10,000 for the year ending December 31,2025. The license costs totaled $1,317 and $0 for the three months ended March 31, 2025 and 2024, respectively. The Company owed the limited liability company $210 and $0 that are included in accounts payable in the Condensed Balance Sheets as of March 31, 2025 and December 31, 2024, respectively.

 

From time to time, a member of the Company’s Board of Directors purchases IB-STIM devices from the Company at cost to conduct research and development activities. The Company’s Board of Directors pre-approved the sale of these IB-STIM devices up to $10,000 for the year ended December 31,2025. The Company sold IB-STIM devices for a total of $1,957 and $0 for the three months ended March 31, 2025 and 2024, respectively.

 

The Company’s former Chief Financial Officer is contracted for services through a third-party public accounting firm. He is the firm’s managing partner and majority shareholder. The firm is engaged by the Company to provide accounting and tax services on a continuous basis. The services totaled $21,871 and $62,987 for the three months ended March 31, 2025 and 2024, respectively. The Company owed the firm $2,710 and $4,173 that are included in accounts payable as of March 31, 2025 and December 31, 2024, respectively. On June 28, 2024, the Company also issued 20,000 common shares with a fair value $55,600 to the former Chief Financial Officer for services rendered during the IPO process.

 

4. Prepaids and Other Current Assets

 

Prepaids and other current assets consisted of the following:

 

   March 31, 2025   December 31, 2024 
Prepaid insurance  $115,506   $186,028 
Prepaid software subscriptions   46,003    39,834 
Other   93,018    54,505 
Total prepaids and other current assets  $254,527   $280,367 

 

11

 

 

5. Accrued Expenses

 

Accrued expenses consisted of the following:

 

   March 31, 2025   December 31, 2024 
Compensation and benefits  $961,461   $1,261,317 
Settled litigation   187,500    - 
Interest   66,648    66,648 
Advisory fees   -    176,750 
Other   155,351    73,065 
Total accrued expenses  $1,370,960   $1,577,780 

 

6. Notes Payable

 

Promissory Notes

 

On August 9, 2024, the Company entered into a $210,000 promissory note to finance the premiums of a business insurance policy, bearing interest at a rate of 7.40% per annum and maturing on June 9, 2025. On November 1, 2024, the Company entered into a second promissory note with a principal balance of $64,328 to finance premiums of other business insurance policies, bearing interest at a rate of 7.65% per annum and maturing on September 1, 2025 (collectively referred to as the “2024 Promissory Notes”). The principal outstanding on 2024 Promissory Notes was $84,307 and $154,152 as of March 31, 2025 and December 31, 2024, respectively.

 

2024 Convertible Notes

 

On November 8, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with a shareholder for the issuance 1,260,504 shares of Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), for an aggregate purchase price of $3,000,000 paid in 15 monthly installments of $200,000 each, commencing on the later of January 10, 2024 or a date after stockholder approval of an amendment to the Company’s Certificate of Incorporation to authorize the creation of the Series B Preferred Stock. The Series B Preferred Stock was convertible at any time into shares of common stock of the Company without any further consideration. Following the issuance of the Series B Preferred Stock, it would rank senior to the common stock with respect to payments upon the liquidation, dissolution and winding up of the Company. Due to a delay in the stockholder approval, the Company amended the SPA on February 12, 2024 to issue a convertible promissory note, due and payable on the earlier of 15 months or 12 months if the Series B Preferred Stock has not been authorized, convertible into Series B Convertible Preferred Stock with identical funding amounts and terms (the “$3,000,000 Convertible Promissory Note”). The shareholder funded $800,000 of the $3,000,000 commitment in 2024.

 

The Company then proceeded to enter into a series of incremental convertible promissory notes with other investors totaling $1,135,000 with terms identical to the $3,000,000 Convertible Promissory Note (collectively referred to as the “Original 2024 Convertible Promissory Notes”) for an aggregate principal amount of $1,935,000.

 

The 2024 Original Convertible Promissory Notes earned interest at 8.5% per annum payable quarterly in either cash or common stock at the election of the Company. At any time following the date of shareholder approval to authorize the creation of Series B Preferred Stock prior to the maturity date, the investor may elect to convert all or part of the principal into the Company’s Series B Preferred Stock at a conversion price per share equal to $2.38. Without limiting the forgoing, all principal amounts outstanding on the maturity date will automatically convert into the Company’s Series B Preferred Stock. The Series B Preferred Stock is entitled to cumulative dividends at 8.5% per annum (whether or not declared) payable quarterly in either cash or common stock at the $2.38 conversion price at the election of the Company. Upon conversion to Series B Preferred Stock, the investor may elect, at its option at any time, to convert all or part of the Series B Preferred Stock plus accrued but unpaid dividends into an equivalent amount of common stock at the $2.38 conversion price.

 

12

 

 

Subsequently, the Company entered into three convertible promissory notes with related institutional accredited investors with terms similar to the Original 2024 Convertible Promissory Notes (collectively referred to as the “Amended 2024 Convertible Promissory Notes”) for an additional principal amount of $3,000,000. Certain provisions to the SPA and Certificate of Designation previously issued on February 12, 2024 changed, including (i) the number of shares of preferred stock to be designated as Series B Preferred Stock was increased to 4,000,000 shares, (ii) the stated value of the Series B Preferred Stock was changed to $2.38 per share, (iii) the right to receive dividends will expire automatically on June 30, 2025, (iv) the liquidation rights will automatically expire on June 30, 2025, and (v) the number of shares of the common stock that a holder of Series B Preferred Stock is entitled to receive shall not exceed the maximum percentage chosen by the holder, which is initially set at between 4.99% and 19.99% until shareholder approval is obtained, of the number of outstanding shares of the common stock at the time of the conversion of the Series B Preferred Stock shares.

 

The maturity date was on the earlier of (i) June 21, 2025, (ii) upon written demand occurring on or after March 21, 2025 in the event that the Series B Preferred Stock has not been duly authorized on or before such date, or (iii) immediately upon the occurrence of an event of default. Automatic conversion into shares of Series B Preferred Stock (at a conversion price of $2.38 per share) would occur following the date of shareholder approval. In the event the Company failed to obtain shareholder approval before August 15, 2024, rights existed to convert the outstanding amount into shares of the common stock, at a price per share of $2.38.

 

As of August 15, 2024, the Company received $4,935,000 of the principal amount of the Amended 2024 Convertible Notes with the remainder due in monthly installments through March of 2025 resulting in an effective interest rate of 12.5%. On August 15, 2024, the Company’s shareholders authorized 5,000,000 shares of preferred stock of which 4,000,000 shares were designated as $0.001 par value Series B preferred stock. Pursuant to the terms of the Amended 2024 Convertible Promissory Notes, the outstanding principal balance of $4,935,000 was mandatorily converted into 2,073,524 Series B Preferred Shares at a conversion price of $2.38 on August 15, 2024. Amortization of the debt discount on the Amended 2024 Convertible Notes totaled $21,683 for the three months ended March 31, 2024. There was no amortization of the debt discount for the three months ended March 31, 2025 as the unamortized debt discount of $165,577 was reclassified to Additional Paid-In-Capital in the Statements of Stockholders’ Equity (Deficit) on August 15, 2024 upon mandatory conversion.

 

Interest expense totaled $2,237 and $26,560 for the three months ended March 31, 2025 and 2024, respectively. The Company’s accrued interest totaled $66,648 as of March 31, 2025 and December 31, 2024.

 

7. Leases

 

The Company’s leases are comprised of operating leases for office space. At the inception of the lease, the Company determines whether the lease contract conveys the right to control the use of identified property for a period of time in exchange for consideration. Leases are classified as operating or finance leases at the commencement date of the lease. Operating leases are recorded as operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the Balance Sheets. The Company did not have any finance leases at March 31, 2025 and December 31, 2024.

 

The Company has two leases primarily consisting of office space in Versailles and Carmel, Indiana. The lease in Versailles started January 1, 2022 and had a term of one year, with automatic one year renewal, unless 60 day notice of vacating is given, commencing on the execution hereof and continuing through December 31st of each year. The current monthly lease payment for this lease is $1,800 with a 4% per annum increase. A new lease in Carmel, Indiana commenced January 1, 2024. The initial term is five years and five months. The monthly lease payment started at $6,721 with an annual increase of 2.5%. As long as the Company is not in default, it is only obligated to pay an amount equal to 50% of the monthly base rent for the first 10 months of the term.

 

The Company recognized operating lease expense of $25,523 and $25,756 for the three months ended March 31, 2025 and 2024, respectively, including short-term lease expense and variable lease costs.

 

13

 

 

The following table presents information related to the Company’s operating leases:

 

  

March 31,

2025

  

December 31,

2024

 
Operating lease right-of-use assets  $270,938   $284,656 
           
Other current liabilities   65,900    62,754 
Operating lease liabilities   238,530    256,499 
Total  $304,430   $319,253 
           
Weighted-average remaining lease term (in years)   3.88    2.75 
Weighted-average discount rate   15.0%   15.0%

 

As of March 31, 2025, the maturities of the Company’s operating lease liabilities were as follows:

 

 

     
2026  $105,874 
2027   102,794 
2028   87,399 
2029   89,586 
2030   15,210 
Total lease payments   400,863 
Less: imputed interest   (96,433)
Total present value of lease payments  $304,430 

 

8. Common Stock and Warrants

 

The Company authorized 100,000,000 shares of common stock, of which 7,215,864 and 6,990,227 shares were issued and outstanding as of March 31, 2025 and December 31, 2024, respectively.

 

On January 17, 2025, the Company issued (i) 39,471 shares of common stock with a fair value of $112,493 to its Board of Directors for their service from April 1, 2024 through December 31, 2024, which was recorded as general and administrative expense in the Condensed Statements of Operations and (ii) 186,166 shares of common stock to an investor in exchange for 502,647 warrants in a cashless exercise transaction with $186 reclassified from additional paid in capital to common stock in the Condensed Statements of Stockholders’ Equity (Deficit).

 

During the three months ended March 31, 2024, the Company issued (i) 11,000 common shares upon the exercise of warrants for $26,180, (ii) 75,000 shares as payment to a vendor for services.

 

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The following is a summary of warrant activity for common stock during the three months ended March 31, 2025 and year ended December 31, 2024:

 

   Number of   Weighted-Avg.   Weighted-Avg. 
   Warrants for   Exercise   Remaining 
   Common Stock   Price   Contractual Life 
Outstanding as of January 1, 2024   1,822,358   $      4.69       3.05 
Granted   861,424    2.38    3.49 
Canceled   (30,252)   2.38    4.79 
Exercised   (11,000)   2.38    3.61 
Outstanding as of December 31, 2024   2,642,530    2.41    2.93 
Exercised   (502,647)   2.38    3.07 
Outstanding as of March 31, 2025   2,139,883   $2.10    2.80 

 

The following table summarizes the Company’s warrants outstanding and exercisable as of March 31, 2025:

 

   Number of        
   Warrants   Exercise   Expiration
   Outstanding   Price   Date
Investor Warrant   12,852   $8.76   September 18, 2028
Investor Warrant   289,779   $0.01   None
2022 Convertible Notes   280,008   $2.38   Various in 2027
2023 Convertible Notes   1,149,586   $2.38   Various in 2028
Underwriter Warrants   331,146   $2.38   August 8, 2028
Advisory Agreement Warrants   76,512   $2.38   Various in 2029
    2,139,883         

 

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9. Preferred Stock

 

On August 15, 2024, the Company’s shareholders authorized 5,000,000 shares of preferred stock of which 4,000,000 shares were designated as $0.001 par value Series B Preferred Stock with 4,280,939 shares issued and outstanding as of March 31, 2025. Series B Preferred Stock shareholders vote with Common Stock shareholders on an as-converted basis and not as a separate class. Cumulative dividends accrue at 8.5% per annum and are due and payable in either cash for common shares as the Company’s discretion on a quarterly basis through June 30, 2025. Series B Preferred Stock converts to common stock on a 1:1 basis, subject to adjustments for stock dividends, splits, combinations and similar events as well as unpaid dividends thereon, solely at the election of the holder at any time.

 

Prior to August 15, 2024 the Company had 1,000,000 and 120,000 shares authorized as Series A and Series Seed Preferred Stock, respectively, of which zero shares are issued and outstanding for both classes of preferred stock as of December 31, 2023, respectively. The Series A and Series Seed Preferred Stock (i) voted together with common stock on an as-converted basis, and not as separate classes and (ii) converted 1:1 to common stock at any time at option of holder, subject to adjustments for stock dividends, splits, combinations, and similar events. The Series A Preferred Stock carried an annual 8% cumulative dividend, payable upon any liquidation, dissolution or winding up of the Company. For any other dividends or distributions, the Series A Preferred Stock participated with common stock on an as-converted basis. The Company’s 1,000,000 shares of Series A Preferred Stock and 120,000 shares of Series Seed Preferred Stock were retired on August 15, 2024.

 

Pursuant to the terms of the Amended 2024 Convertible Notes, the principal balance of $4,935,000 on August 15, 2024 was mandatorily converted into 2,073,524 Series B Preferred Shares at a conversion price of $2.38. Subsequently, the Company then proceeded to issue 64,913 shares of Series B Preferred Stock to various investors for $154,500.

 

On November 11, 2024, the Company’s shareholders authorized (i) an increase in the number of designated Series B Preferred Stock to 5,000,000 shares and (ii) an extension of the 8.5% per annum cumulative dividend period to December 31, 2026. Subsequently, the Company issued 2,100,840 shares of Series B Preferred Stock to a dedicated life sciences fund for $5,000,000 and 41,662 shares of Series B Preferred Stock to various investors for $99,164.

 

Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series B Preferred Stock shareholders maintain priority preference over all other classes of capital stock. A merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) and a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company will be treated as a liquidation event, thereby triggering payment of the liquidation preferences.

 

As of March 31, 2025 and December 31, 2024, there were no preferred stock dividends declared or paid. Series B Preferred Stock undeclared cumulative dividends totaled $424,811 and $211,268 as of March 31, 2025 and December 31, 2024, respectively.

 

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10. Stock-Based Compensation

 

Restricted Stock Units

 

Pursuant to the NeurAxis, Inc. 2022 Omnibus Securities and Incentive Plan, the Company initiated grants of restricted stock units (“RSUs”) on January 3, 2025 and March 4, 2025 to certain employees as follows:

 

  

Number of

RSUs

   Weighted Average Fair Value 
Outstanding as of December 31, 2024      $      
Granted   842,214    2.31 
Outstanding as of March 31, 2025   842,214   $2.31 
Vested as of March 31, 2025        

 

The RSUs are subject to a three-year cliff-vesting period and are payable in shares of the Company’s common stock. The RSUs fully vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon vesting; there were no accrued dividends on unvested RSUs as of March 31, 2025. No RSUs were granted during the year ended December 31, 2024.

 

Total stock-based compensation expense related to RSUs is classified in the Company’s Condensed Statements of Operations as general and administrative expense and amounted to $105,811 and $227,000 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, total unrecognized stock-compensation expense relating to unvested stock awards granted under the Company’s share-based compensation plans amounted to $1,654,312.

 

Stock Options

 

The following is a summary of the Company’s outstanding stock options as of March 31, 2025 and December 31, 2024:

 

   Number of Options   Weighted Avg. Remaining Contractual Life (in years)   Weighted Avg. Exercise Price   Aggregate Intrinsic Value 
Outstanding as of December 31, 2024   1,319,394    4.69   $6.94   $       
Outstanding as of March 31, 2025   1,319,394    4.44   $6.94   $ 
Vested and Exercisable as of March 31, 2025   1,319,394    4.44   $6.94   $ 

 

There was no stock-based compensation expense related to stock options recorded for the three months ended March 31, 2025 and 2024.

 

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11. Warrant Liabilities

 

The Company has evaluated financial instruments arising from warrants that are issued and outstanding as of March 31, 2025 and December 31, 2024. The Company utilizes a Black-Scholes option-pricing model to compute the fair value of the liability and to mark to market the fair value of the warrant at each balance sheet date. The inputs utilized in the application of the Black-Scholes option-pricing model included (i) an exercise price of $8.76 per share, (ii) an expected remaining term of each warrant based on the remaining contractual maturity of the each warrant, (iii) estimated volatility ranging from 75.0% to 84.5% based on historical stock prices of comparable companies with a look back period commensurate with the period to maturity, (iv) a risk-free interest rate ranging from 3.84% to 4.38% based on the interest rates of U.S. Treasury Notes consistent with the expected remaining contract term and (v) a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future.

 

The following are the changes in the warrant liabilities during the three months ended March 31, 2025 and year ended December 31, 2024:

 

   Level 3 
Warrant liabilities as of January 1, 2024  $8,225 
Changes in fair value of warrant liabilities   941 
Warrant liabilities as of December 31, 2024   9,166 
Changes in fair value of warrant liabilities   (1,831)
Warrant liabilities as of March 31, 2025  $7,335 

 

12. Segment Information

 

The Company evaluates the following factors to identify its reportable segments: (i) nature of products and services, (ii) type of customer for the products and services, (iii) sales, production and distribution methods of the products and services and (iv) the nature of the regulatory environment, if applicable. Based on an evaluation of these factors, management concluded that the Company’s operations are managed through one reportable segment, IB-STIM, that derives its revenues in the United States from a PENFS device that is used to treat patients 8-21 years of age with functional abdominal pain associated with irritable bowel syndrome. IB-STIM currently is the only product marketed and sold by the Company. The accounting policies of the IB-STIM segment are the same as those described in the Summary of Significant Accounting Policies (see Footnote 2). The CODM regularly evaluates the performance of the IB-STIM segment for the purpose of allocating resources based on net sales and operating loss, both of which are reported in the Statements of Operations. The CODM uses net sales to evaluate IB-STIM’s adoption and utilization by insurance carriers and physicians. As Neuraxis is an emerging growth company, operating loss is used to monitor the Company’s cost structure in order to achieve future segment profitability. Both net sales and operating loss are measured against the budget on a periodic basis to assess achievement toward annual compensation incentive targets. The Company’s CODM is its Chief Executive Officer.

 

18

 

 

The following reconciles the reportable segment net sales and operating loss to the Company’s reported net loss:

 

    2025    2024 
    Three months ended March 31, 
    2025    2024 
Net Revenue  $895,655   $646,635 
COGS   139,475    75,081 
Gross Profit   756,180    571,554 
Selling Expenses (a)   133,954    80,030 
Research & Development (a)   60,556    5,570 
Compensation and Benefits (a)   1,345,454    1,298,331 
Professional Services (a)   406,716    548,467 
Other Operating Expenses (a) (b)   1,104,598    471,276 
Segment Operating Loss   (2,295,098)   (1,832,120)
Financing Charges   -    (230,824)
Interest Expense   (2,237)   (26,560)
Change in Fair Value of Warrant Liability   1,831    (9,284)
Amortization of Debt Discount and Issuance Cost   -    (21,683)
Other Income   16,820    - 
Other Expense   -   (180)
Total Other (Expense) Income, Net   16,414    (288,531)
Net Loss  $(2,278,684)  $(2,120,651)

 

  (a) The significant expense categories and amounts align with the segment-level information provided on a regular basis to the CODM.
  (b) Other operating expenses include advertising, rent and utilities, insurance, depreciation and amortization, travel, software subscription fees, board fees and bad debt expense.

 

Total segment assets for IB-STIM amounted to $3,029,809 and $4,757,572 as of March 31, 2025 and December 31, 2024, respectively. Total segment capital expenditures for IB-STIM amounted to $18,000 and $14,722 for the three months ended March 31, 2025 and 2024, respectively. Total segment depreciation and amortization amounted to $6,356 and $10,737 for the three months ended March 31, 2025 and 2024, respectively.

 

Significant segment non-cash charges settled in common stock include (i) consulting and advisory fees totaling $112,493 and $200,250 for the three months ended March 31, 2025 and 2024, respectively.

 

13. Settled Litigation

 

On February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought compensatory damages in excess of $5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device.

 

On February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint.

 

On July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, 2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any further review or appeal of that judgment.

 

19

 

 

Also on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland. The plaintiffs in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and seeks compensatory damages in excess of $75,000, pre-judgment interest, punitive damages, attorney’s fees, and court costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device.

 

On September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims are still pending, and no trial date has been set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties could try to resolve the disputes in both cases through an independent third-party mediator.

 

On April 25, 2025, the parties reached a tentative $750,000 settlement payable in 12 equal monthly installments beginning in January of 2026. The Company recorded a charge of $619,097 classified as general and administrative expense in the Condensed Statements of Operations during the three months ended March 31, 2025, while interest expense will be recorded as incurred. As of March 31, 2025, the Company accrued $187,500 as accrued expenses and $431,597 as other non-current liabilities in the Condensed Balance Sheets.

 

14. Commitments and Contingencies

 

Manufacturing Services Agreement

 

The Company is party to a manufacturing services agreement for the manufacture and supply of the Company’s IB-STIM device based on the Company’s product specifications that automatically renews annually unless either party provides a written termination notice to the other party within 180 days prior to the end of the then-current term. The Company provides the necessary equipment to the manufacturer and retains ownership. The manufacturer bears the risk of loss of and damage to the equipment and consigned materials. Performance under the agreement is initiated by orders issued by the Company and accepted by the manufacturer.

 

Advisory Agreement

 

On March 18, 2024, the Company terminated its private placement services agreement and entered into an advisory agreement for debt, equity and public securities market services for one year. The advisory agreement included a monthly fee of $30,000 and 7,563 common stock warrants to be issued monthly at an exercise price of $2.38 with a term of five years. On December 31, 2024, the Company and the financial advisor terminated the advisory agreement subject to the cancelation of all common stock warrants issued after July 2024 and the payment for services rendered totaling $180,000 during the three months ended March 31, 2025.

 

Settlement Agreements

 

The Company settled a 2023 convertible note dispute with an existing shareholder for $230,824 during the three months ended March 31, 2024. The Board approved the issuance of 53,063 common shares on April 4, 2024 as consideration in lieu of payment recorded as financing charges in the Condensed Statements of Operations. There were no shares of common stock issued to settle any claims during the three months ended March 31, 2025.

 

Furthermore, the Company authorized the issuance of 1,518 shares of its common stock to settle remaining claims with pre-IPO Series A Preferred Stock shareholders classified as $4,220 of other expense for the three months ended June 30, 2024 in the Condensed Statements of Operations and accrued expenses in the Condensed Balance Sheets as of March 31, 2025 and December 31, 2024. These common shares have not yet been issued as of the reporting date as the Company awaits execution of the settlement agreements by the counterparties. There are no further settlement obligations as of March 31, 2025.

 

Executive Employment Agreements

 

The Company, as authorized by the board of directors, entered into employment agreements with certain employees to provide incentives to improve shareholder value and to contribute to the growth and financial success of the Company. The agreements had an employment start date of October 1, 2022, with initial terms from 2 to 5 years and optional one-year renewals.

 

There are seven key employees that have stock options of the Company totaling 1,238,712 shares. These key employees have a provision in their agreements whereas the Company will pay a special bonus equal to the aggregate of the strike price or exercise price of all their stock options plus a tax gross-up payment. The special bonus shall be paid in twenty percent (20%) installments starting January 2, 2024, and the same date each of the next four years. As a condition of the payment, the key employee must exercise at least 20% of their stated number of stock options. There are additional provisions to cover termination and change of control events.

 

20

 

 

In April 2023, the Company amended the employee agreements to, among other things, clarify that the special one-time incentive payment and the deferred bonus are contingent upon the effective date of the planned initial public offering. The amendment also sets forth a process for executives to exercise the stock options in accordance with the terms of the stock option agreement in effect as of the date of the employment agreement and to clarify that there is no modification to the stock option agreements.

 

The special options bonuses of $14,821,830 were contingent upon a successful initial public offering and will be recorded when paid.

 

On April 10, 2024, the employment of the Company’s Chief Operating Officer was terminated. Pursuant to the employment agreement, the Company (i) made salary continuation payments based on an annual salary of $275,000 through October 10, 2024, (ii) issued 25,832 shares of common stock at a fair value of $78,788 and (iii) made a $41,980 one-time payment in lieu of the exercise of 13,764 stock options that expired on January 2, 2024. The Company is contracted to provide health care coverage through October 2025 and has accrued for that obligation totaling $15,421and $21,418 classified as Accrued Expenses in the Condensed Balance Sheets as of March 31, 2025 and December 31, 2024, respectively.

 

Threatened Litigation

 

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of the date of issuance, other than those described below and in note 13, there were no pending or threatened legal proceedings that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest. Legal fees are expensed as incurred.

 

In January 2024, Dr. Arturo Taca served notice to the Company that asserted an interest in its U.S. Patent No. 10,413,719 valued at $2,000,000 based on his own work in neurostimulation. The Company denied both the neurostimulation patent and compensation claims. The case remains unresolved. While it is too early to predict the ultimate outcome of this matter, we believe the Company has meritorious defenses and intends to defend this matter vigorously.

 

15. Subsequent Events

 

On April 25, 2025, the parties reached a tentative $750,000 settlement payable in 12 equal monthly installments beginning in January of 2026. The Company recorded a charge of $619,097 classified as general and administrative expense in the Condensed Statements of Operations during the three months ended March 31, 2025, while interest expense will be recorded as incurred. As of March 31, 2025, the Company accrued $187,500 as accrued expenses and $431,597 as other non-current liabilities in the Condensed Balance Sheets.

 

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no other events that have occurred that would require adjustments to our disclosures in the condensed financial statements.

 

21

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes appearing in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties, and assumptions. You should read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of our Form 10-K for the period ended December 31, 2024 (the “2024 Annual Report”) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

We are a growth stage company focused on developing neuromodulation therapies to address chronic and debilitating conditions in children. Our mission is to provide solutions that create value and provide better and safer patient outcomes. Our IB-Stim device is a PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated with IBS and has market clearance from FDA for functional abdominal pain associated with IBS in children. Our RED device is an easy-to-use, office-based, point-of-care test that identifies patients with chronic constipation due to pelvic floor dyssynergia and has FDA market clearance for adults. Other indications in our pipeline are comprised of functional nausea in children, post-concussion syndrome in children, cyclic vomiting syndrome in children and functional abdominal pain associated with IBS in adults.

 

Since our inception, we have incurred significant operating losses. Our net loss was $2,278,684 and $2,120,651 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had stockholders’ equity of $258,479. Our auditors have expressed substantial doubt about our ability to continue as a going concern in their audit opinion. We expect to incur significant expenses and operating losses for the foreseeable future as we continue to pursue widespread insurance coverage of our IB-Stim device and seek FDA clearance of our device for other indications as we also fund sales and marketing efforts to expand the adoption of RED. There are a number of milestones and conditions that we must satisfy before we will be able to generate sufficient revenue to fund our operations, including FDA clearance of our IB-Stim device to treat future indications.

 

Factors Affecting our Business and Results of Operations

 

Revenue

 

Our revenue is derived from the sale of our IB-Stim device to healthcare companies, primarily hospitals and clinics. Sales generally are not seasonal and only mildly correlated with economic cycles. Our IB-Stim device sells for $1,195 per device, and each child being treated for functional abdominal pain associated with IBS will use three to four devices. Potential patients with future indications are expected to use four to six or more devices per patient.

 

Our sales typically are made on a purchase order basis rather than through long-term purchase commitments. We enter into sales agreements with customers for IB-Stim devices based on purchase orders and standard terms, which vary slightly based on the customer’s form, and conditions of sale. Standard payment terms generally are that payment is due within 30 days.

 

22

 

 

Given the current economic environment, we cannot predict whether inflation will have a material impact on our operations for the foreseeable future.

 

Gross Profit and Gross Margin

 

Our management uses gross profit and gross margin to evaluate the efficiency of operations and as a key component to determining the effectiveness and allocation of resources. We calculate gross profit as net sales less cost of goods sold, and gross margin as gross profit divided by net sales. Our gross margin has been and will continue to be affected by a variety of factors, primarily the average selling price of our IB-Stim device, production volume, order flows, change in mix of customers, third-party manufacturing costs related to components of our IB-Stim device, and cost-reduction strategies. We expect our gross profit to increase for the foreseeable future as our net sales grows, both through broader insurer acceptance of our IB-Stim device in the near term and approval of our technology for the treatment of other indications over the longer term. Our gross margin may fluctuate from quarter to quarter due to changes in average selling prices, particularly as we introduce enhancements to our IB-Stim device and new products to address other indications, and as we adopt new manufacturing processes and technologies.

 

Expenses

 

We have four categories of expenses: cost of goods sold, selling, research and development, and general and administrative.

 

Costs of goods sold consist of costs paid for the IB-Stim device to our contract manufacturer along with shipping and handling costs and expired inventory charges. Expired inventory expense is related to our FDA clearance for our device in the treatment of functional abdominal pain associated with IBS in children. Specifically, a certain component of our IB-Stim device is cleared for a two-year period after the date the device is manufactured, and if the device is not sold in such period, we must take the device out of inventory and write it off. We had no expired inventory for the three months ended March 31, 2025 and 2024. Expired inventory has not been material to our results. We have a fixed-price contract with the manufacturer of our IB-Stim device to produce the device. We expect production costs to remain relatively constant and only nominal inventory expirations in the foreseeable future.

 

Our core selling expenses primarily consist of commissions.

 

Research and development expense is attributable to our clinical trials and related efforts to have our IB-Stim and RED devices cleared by the FDA for other indications. We expect to incur future R&D expenses for other indications, such as functional nausea, post-concussion syndrome and cyclic vomiting syndrome in children.

 

General and administrative expense primarily consists of wages and benefits, professional fees, including legal, and audit, insurance, investor relations, advertising, facility costs, utilities and travel costs.

 

Results of Operations

 

The following table presents our statements of operations for the three months ended March 31, 2025 and 2024, respectively:

 

   (Unaudited) 
   Three Months Ended March 31, 
   2025   2024 
         
Net sales  $895,655   $646,635 
Cost of goods sold   139,475    75,081 
Gross profit   756,180    571,554 
Selling expenses   133,954    80,030 
Research and development   60,556    5,570 
General and administrative   2,856,768    2,318,074 
Operating loss   (2,295,098)   (1,832,120)
Other (expense) income:          
Financing charges   -    (230,824)
Interest expense, net   (2,237)   (26,560)
Change in fair value of warrant liability   1,831    (9,284)
Amortization of debt discount and issuance costs   -    (21,683)
Other income   16,820    - 
Other expense   -   (180)
Total other (expense) income, net   16,414    (288,531)
Net loss  $(2,278,684)  $(2,120,651)

 

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Net Sales

 

Net sales increased $249,020, or 38.5%, from $646,635 for the three months ended March 31, 2024, to $895,655 for the three months ended March 31, 2025, due to volume growth from customers that provide full insurance reimbursement coverage and those participating in our financial assistance programs that provide discounts to patients without insurance coverage.

 

Gross Profit and Gross Margin

 

Gross profit increased $184,626, or 32.3%, from $571,554 for the three months ended March 31, 2024, to $756,180 for the three months ended March 31, 2025, due to higher sales volume. Despite the increase in sales volume, the decrease in gross margin from 88.4% for the three months ended March 31, 2024, to 84.4% for the three months ended March 31, 2025, was due to higher growth in the Company’s financial assistance programs that are discounted to patients without insurance coverage compared to the Company’s undiscounted full reimbursement customers and higher device manufacturing and shipping costs.

 

Selling Expenses

 

Selling expenses increased $53,924, or 67.4%, from $80,030 for the three months ended March 31, 2024, to $133,954 for the three months ended March 31, 2025, due to higher sales volume and a temporary commission structure to facilitate growth and adoption in new states.

 

Research and Development

 

Research and development expenses increased $54,986, or 987.2%, from $5,570 for the three months ended March 31, 2024, to $60,556 for the three months ended March 31, 2025, due to higher quarter-to-date spending on a medical research project and costs to develop the RED device.

 

General and Administrative

 

General and administrative expenses increased $538,694, or 23.2%, from $2,318,074 for the three months ended March 31, 2024, to $2,856,768 for the three months ended March 31, 2025, primarily due to (i) expenses related to the introduction of annual short-term and long-term incentive plans that did not exist in 2024, (ii) higher advertising costs in order to expand market awareness, (iii) third party costs incurred to enhance the Company’s internal control environment and (iv) the settlement of a lawsuit, partially offset by a one-time hiring grant in 2024 to the Company’s Chief Financial Officer that did not recur in 2025 and lower legal, accounting, consulting, investor relations and insurance costs as new hires in 2024 have internally absorbed certain services.

 

Operating Loss

 

Our operating loss increased $462,978, or 25.3%, from $1,832,120 for the three months ended March 31, 2024, to $2,295,098 for the three months ended March 31, 2025, primarily due to higher general and administrative expenses as a result of the settlement of a lawsuit partially offset by higher sales volume.

 

Other (Expense) Income, Net

 

Other expense, net improved $304,945, or 105.7%, from $288,531 of expense for the three months ended March 31, 2024, to $16,414 of income for the three months ended March 31, 2025, primarily due to the absence of finance charges incurred in 2024 to settle a 2023 convertible note dispute and the full conversation of convertible notes to Series B Preferred Stock that eliminated any further interest expense and amortization of issuance costs.

 

Net Loss

 

Our net loss increased $158,033, or 7.5%, from $2,120,651 for the three months ended March 31, 2024, to $2,278,684 for the three months ended March 31, 2025, due to higher general and administrative expenses as a result of the settlement of a lawsuit partially offset by higher sales volume and the absence of financing charges, interest expense and issuance costs incurred on convertible notes.

 

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Liquidity and Capital Resources

 

We had cash on hand of $2,005,370 and $3,696,870 as of March 31, 2025, and December 31, 2024, respectively. We maintained a working capital surplus of $439,823 and $1,832,858 as of March 31, 2025, and December 31, 2024, respectively. The decrease in working capital was primarily due to the utilization of cash to fund the Company’s net loss during the three months ended March 31, 2025.

 

We have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital stock. As of March 31, 2025, we had stockholders’ equity of $258,479 and short-term borrowings of $84,307.

 

Our future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial insurance carriers nationally, so this is a top priority of the Company. These activities, including our planned research and development efforts, will require significant uses of working capital through the rest of 2025 and beyond.

 

Additionally, we have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act. This additional corporate governance time required of management could limit the amount of time our management has to implement our business plan and may delay our anticipated growth plans.

 

The following table summarizes our cash flow from operating, investing and financing activities for the three months ended March 31, 2025 and 2024:

 

   (Unaudited) 
   Three Months Ended March 31, 
   2025   2024 
Net cash used in operating activities  $(1,603,655)  $(1,332,160)
Net cash used in investing activities   (18,000)   (14,722)
Net cash (used in) provided by financing activities   (69,845)   1,350,074 
Net (decrease) increase in cash and cash equivalents   (1,691,500)   3,192 
Cash and cash equivalents at beginning of period   3,696,870    78,560 
Cash and cash equivalents at end of period  $2,005,370   $81,752 

 

Operating Activities – Net cash used in operating activities increased 271,495, or 20.4%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to delayed vendor payments during the three months ended March 31, 2024 as a result of the Company’s liquidity position at that time.

 

Investing Activities – Net cash used in investing activities increased $3,278, or 22.3%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, due to capital expenditures to manufacture the RED device.

 

Financing Activities – Net cash (used in) provided by financing activities decreased $1,419,919, or 105.2%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the issuance of convertible notes in 2024 that did not recur in 2025.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our principal executive officer and principal financial officer and oversight of the Audit Committee and the Board of Directors, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Our management, including our principal executive officer and principal financial officer, recognizes that internal controls over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

 

Based on our evaluation, management identified material weaknesses in our internal control over financial reporting as of March 31, 2025, as set forth below:

 

  Ineffective approval processes governing (i) timely Board of Directors authorization and (ii) segregation of duties and roles and responsibilities configurations within the Company’s financial reporting system; and
     
  Inadequate contract management process to capture all executed agreements prior to the commencement of services in order to ensure accuracy within the proper accounting period.
     
  Misapplication of U.S. GAAP as evidenced by the restatement of our unaudited financial statements as of and for the three and nine months ended September 30, 2023; and
     
  Ineffective disclosure controls and procedures a result of (i) lack of segregation of duties, (ii) lack of internal control structure review and (iii) misapplication of U.S. GAAP.

 

In order to remediate the identified material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, undertook measures to enhance the Company’s internal control environment, including the (i) hiring of a principal financial officer and other accounting personnel to ensure the appropriate application of U.S. GAAP, (ii) implementation of a documented internal control framework and program, (iii) documentation and communication of business policies such as a delegation of authority over company transactions and invoice approvals, (iv) completion of a formal monthly close process including account reconciliations with supporting documentation and (v) engagement of a third-party firm to properly segregate duties and approvals within the Company’s financial system. However, management has not fully implemented the remediation steps and expects remediation efforts to continue in fiscal year 2025.

 

While these remediation efforts are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of the Company’s internal controls over a sustained period of financial reporting cycles, management is committed to maintaining a strong internal control program over financial reporting and will take further actions and implement additional enhancements or improvements as necessary.

 

Changes in Internal Control Over Financial Reporting

 

Other than the remediation efforts described above, there were no changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarter ended March 31, 2025 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

 

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest. Legal fees are expensed as incurred.

 

On February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought compensatory damages in excess of $5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation of the case as a class action. The Complaint stated that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device.

 

On February 11, 2022, the Company filed a motion for summary judgment based upon the plaintiffs not being proper parties to assert claims against the Company. On June 14, 2022, the Court granted the Company’s motion for summary judgment and dismissed the Complaint.

 

On July 14, 2022, plaintiffs Ritu Bhambhani and Sudhir Rao filed a notice of appeal with the Fourth Circuit Court of Appeals. On June 3, 2024, the Fourth Circuit denied the plaintiff’s appeal and entered judgment against the plaintiffs. On June 25, 2024, the Fourth Circuit entered its mandate declaring that its judgment against the plaintiffs took effect that day. The plaintiffs did not seek any further review or appeal of that judgment.

 

Also on July 14, 2022, plaintiffs Ritu Bhambhani, LLC; Box Hill Surgery Center, LLC; Pain and Spine Specialists of Maryland, LLC; and SimCare ASC, LLC initiated a lawsuit against the Company and others in the United States District Court for the District of Maryland (the “2022 Lawsuit”). The plaintiffs in this lawsuit are business entities owned or partially owned by the plaintiffs that initiated the litigation described above. The Complaint asserted claims under the RICO Act, as well as fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and seeks compensatory damages in excess of $75,000, pre-judgment interest, punitive damages, attorney’s fees, and court costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device.

 

On September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion which dismissed the plaintiffs’ claims related to the RICO Act. The remaining claims are still pending, and no trial date has been set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties could try to resolve the disputes in both cases through an independent third-party mediator.

 

On April 25, 2025, the parties reached a tentative $750,000 settlement payable in 12 equal monthly installments beginning in January of 2026.

 

In January 2024, Dr. Arturo Taca served notice to the Company that asserted an interest in its U.S. Patent No. 10,413,719 valued at $2,000,000 based on his own work in neurostimulation. The Company denied both the neurostimulation patent and compensation claims. The case remains unresolved. While it is too early to predict the ultimate outcome of this matter, we believe the Company has meritorious defenses and intends to defend this matter vigorously.

 

ITEM 1A: RISK FACTORS

 

For information regarding the risk factors that could affect the Company’s business, results of operations, financial condition and liquidity, see the information under Part I, Item 1A. “Risk Factors” in the Form 10-K, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors previously disclosed in the Form 10-K.

 

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unregistered Sales of Equity Securities

 

The Company issued 360,902 and 481,312 restricted stock units (“RSUs”) on January 3, 2025 and March 4, 2025, respectively, to certain employees at fair values ranging from $2.18 to $2.43 per RSU. The RSUs are subject to a three-year cliff-vesting period and are payable in shares of the Company’s common stock. The RSUs fully vest upon (i) death or disability or (ii) change of control. Dividend equivalents accrue on RSUs and are paid upon vesting; there were no accrued dividends on unvested RSUs as of March 31, 2025.

 

On January 17, 2025, the Company issued 39,471 shares of common stock with a fair value of $112,493 to its Board of Directors for their service from April 1, 2024 through December 31, 2024.

 

On January 17, 2025, the Company issued 186,166 shares of common stock to an investor in exchange for 502,647 warrants in a cashless exercise transaction.

 

Unless otherwise stated above, the issuances of these securities were made in reliance upon exemptions provided by Section 4(a)(2) of the Securities Act, Regulation D promulgated thereunder, or Securities Act Rule 701 for the offer and sale of securities not involving a public offering.

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5: OTHER INFORMATION.

 

 Insider Trading Arrangements and Policies

 

During the quarter ended March 31, 2025, no director or officer of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

 

27

 

 

ITEM 6: EXHIBITS

 

Exhibit    
Number   Exhibit Description
31.1*   Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
31.2*   Certification pursuant to 18 U.S.C. Section 1350 Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
32.1**   Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Executive Officer
32.2**   Certification pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer
101.INS*   Inline XBRL Instance Document
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

 

** Furnished 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.

 

  NEURAXIS, INC.
Date: May 12, 2025    
  By: /s/ Brian Carrico
    Brian Carrico
   

Chief Executive Officer

(Principal Executive Officer)

 

Date: May 12, 2025 /s/ Timothy Henrichs
  Timothy Henrichs
  Chief Financial Officer
  (Principal Financial and Principal Accounting Officer)

  

29