Neuraxis INC

Previous wording

Since our inception, we have incurred significant operating losses. Our net loss was $2,120,651 and $2,173,410 for the three months ended March 31, 2024 and 2023, respectively. 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. 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.

Current wording

Since our inception, we have incurred significant operating losses. Our net loss was $2,917,710 and $2,235,614 for the three months ended June 30, 2024 and 2023, respectively, and $5,038,361 and $4,409,022 for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $5,258,382. 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. 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.

Previous wording

Costs of goods sold consist of costs paid for the IB-Stim device to our contract manufacturer along with periodic inventory adjustments and expired inventory write-offs. 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, 2024 and 2023. Expired inventory has not been material to our results, averaging 1% or less of revenue over the last four years. 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.

Current wording

Costs of goods sold consist of costs paid for the IB-Stim device to our contract manufacturer along with periodic inventory adjustments and expired inventory write-offs. 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 and six months ended June 30, 2024 and 2023. 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.

Previous wording

The following table presents our statements of operations for the three months ended March 31, 2024 and 2023:

Current wording

The following table presents our statements of operations for the three and six months ended June 30, 2024 and 2023, respectively:

Previous wording

Net sales declined $158,475, or 19.7%, to $646,635 for the three months ended March 31, 2024 due to (i) management’s focus on gaining further insurance coverage for our products and capital funding and (ii) fewer shipments to certain customers as they transition to the insurance reimbursement process which requires alignment with physician protocols, billing and coding, partially offset by growth in our patient assistance program that provides discounts to patients without insurance coverage.

Current wording

Net sales decreased $34,521, or 5.3%, from $646,021 for the three months ended June 30, 2023, to $611,500 for the three months ended June 30, 2024. Net sales decreased $192,996, or 13.3%, from $1,451,131 for the six months ended June 30, 2023, to $1,258,135 for the six months ended June 30, 2024. The decreases were primarily due to (i) management’s focus on gaining further insurance coverage for our products and capital funding and (ii) fewer shipments to certain customers as they transition to the insurance reimbursement process which requires alignment with physician protocols, billing and coding, partially offset by growth in our financial assistance programs that provide discounts to patients without insurance coverage.

Previous wording

Research and development expense declined $11,227, or 66.8%, to $5,570 for the three months ended March 31, 2024 due to more patient trials conducted in the three months ended March 31, 2023 as the Company prepared for more FDA submissions.

Current wording

Research and development expenses decreased $55,477, or 50.5%, from $109,789 for the three months ended June 30, 2023, to $54,312 for the three months ended June 30, 2024. Research and development expenses decreased $66,704, or 52.7%, from $126,586 for the six months ended June 30, 2023 to $59,882 for the six months ended June 30, 2024. The decreases were due to more patient trials conducted in 2023 as the company prepared for more FDA submissions.

Previous wording

General and administrative expense increased $837,319, or 56.5%, to $2,318,074 for the three months ended March 31, 2024 due to (i) incremental headcount to build out the market access, sales and finance teams including recruiting costs, (ii) higher legal, insurance, investor relations and board of director costs as a publicly-held entity that the Company did not incur previously, (iii) one-time non-cash advisory costs of $50,000, (iv) one-time non-cash stock compensation charges of $237,000 for a hiring grant of stock and (v) higher advertising costs in order to expand market awareness.

Current wording

General and administrative expenses increased $1,958,439, or 65.5%, from $2,987,923 for the six months ended June 30, 2023, to $4,946,362 for the six months ended June 30, 2024 primarily due to (i) higher legal, insurance, investor relation and board of director costs as a publicly held entity that the Company did not incur prior to its IPO, (ii) incremental headcount to build out the market access, sales and finance teams including recruiting costs, (iii) a severance charge related to the Company’s prior Chief Operating Officer, (iv) one-time non-cash advisory costs of $155,600, (v) a one-time non-cash stock compensation charge of $227,000 for a hiring grant of stock, (vi) expenses related to the introduction of an annual short-term incentive bonus program, and (vii) higher advertising costs in order to expand market awareness.

Previous wording

Other expense decreased $988,605, or 77.4%, to $288,531 for the three months ended March 31, 2024 primarily due to (i) the full conversion of the convertible notes upon the IPO on August 9, 2023 that eliminated any further debt discount, issuance cost, debt extinguishment and derivative fair valuation net charges and (ii) lower interest expense and issuance cost amortization from a lower debt burden, partly offset by finance charges incurred to settle a 2023 convertible note dispute.

Current wording

Other expense decreased $1,395,799, or 58.3%, from $2,395,208 for the six months ended June 30, 2023, to $999,409 for the six months ended June 30, 2024 primarily due to (i) the full conversion of the convertible notes upon the IPO on August 9, 2023, that eliminated any further debt discount, issuance cost, debt extinguishment and fair value derivative valuation net charges and (ii) lower interest expense and issuance cost amortization from a lower debt burden, partially offset by finance charges incurred to settle a 2023 convertible note dispute and other expense to settle certain claims of pre-IPO Series A Preferred Stock shareholders.

Previous wording

We had cash on hand of $81,752 and $45,463 as March 31, 2024 and 2023, respectively. We maintained a working capital deficit of $3,407,877 and $8,755,744 as of March 31, 2024 and 2023, respectively. The increase in working capital was primarily due to (i) the conversion of notes payable upon the IPO on August 9, 2023 along with the corresponding elimination or reduction of the fair value liability of warrants and derivatives and (ii) payments of employee bonuses and vendors with proceeds from the IPO.

Current wording

We had cash on hand of $1,765,274 and $51,440 as June 30, 2024 and 2023, respectively. We maintained a working capital deficit of $5,482,316 and $1,643,058 as of June 30, 2024 and December 31, 2023, respectively. The decrease in working capital was primarily due to the issuance of $4,935,000 of convertible notes during the six months ended June 30, 2024, net of cash on hand as of June 30, 2024.

Previous wording

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, 2024, we had a stockholders’ deficit of $3,184,454 and short-term borrowings of $1,396,175.

Current wording

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 June 30, 2024, we had a stockholders’ deficit of $5,258,382 and short-term borrowings of $4,767,335, net of financing fees.

Previous wording

The following table summarizes our cash flow from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flow from operating, investing and financing activities for the six months ended June 30, 2024 and 2023:

Previous wording

Operating Activities– Net cash used in operating activities decreased $709,248, or 113.9% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to lower sales volume, higher general and administrative expenses and payment of past due vendors.

Current wording

Operating Activities– Net cash used in operating activities increased $1,699,158, or 136.1% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to lower sales volume, higher general and administrative expenses and payments of past due vendors.

Previous wording

Investing Activities– Net cash used in investing activities increased $7,114, or 93.5%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to purchases of equipment.

Current wording

Investing Activities– Net cash used in investing activities increased $10,341, or 79.1%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to purchases of equipment.

Previous wording

Financing Activities– Net cash provided by financing activities increased $927,790, or 219.7%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to proceeds from the issuance of convertible notes whereas the proceeds from convertible notes issued during the three months ended March 31, 2023 were used to repay previously issued notes payable.

Current wording

Financing Activities– Net cash provided by financing activities increased $3,598,472, or 339.8%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to proceeds from the issuance of convertible notes whereas the proceeds from convertible notes issued during the six months ended June 30, 2023 were used to repay previously issued notes payable.