NRXS Neuraxis Inc

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 on April 17, 2012, under the name of Innovative Health Solutions, Inc. The name was changed to NeurAxis, Inc. in March of 2022. Additionally, the Company filed a Certificate of Conversion to become a Delaware corporation on June 23, 2022. The authorized shares were increased, and a par value established.

On January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split. All per share information has been adjusted for this reverse stock split. The reverse split became effective on January 12, 2023. All share and per share amounts for the common stock have been retroactively restated to give effect to the splits.

As part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation shall have authority to issue is (1) 100,000,000 shares of Common Stock, par value $0.001 per share (“Common Stock”) and (ii) 1,120,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”), 1,000,000 of which is hereby designated as “Series A Preferred Stock” and 120,000 of which is hereby designated as “Series Seed Preferred Stock” with the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth in this Article IV of the Delaware Certificate of Incorporation. All share amounts have been retroactively restated to give effect to these changes.

On August 9, 2023, the Company consummated an initial public offering, conducted on a firm commitment basis, pursuant to which it sold 1,098,667 shares of its common stock at a price of $6.00 per share, resulting in gross proceeds to the Company of $6,592,002. Net proceeds to the Company, after deducting underwriting discounts and commissions, 2022 deferred offering costs totaling $736,736 and offering expenses paid by the Company, were $4,110,721. All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), as amended, declared effective by the SEC on August 9, 2023. Alexander Capital L.P. (“Alexander”) acted as sole book-running manager for the offering and Spartan Capital Securities, LLC acted as co-manager for the offering. The underwriters did not exercise their option to purchase up to an additional 164,801 shares of common stock. The Company paid the underwriters an underwriting discount of seven percent (7%) of the amount raised in the offering. In addition, we also paid the underwriters a non-accountable expense allowance in the amount of 1% (such 8% in commissions and fees amounted to a total of $527,000) at closing, as well as $175,000 for the reimbursement of certain of the underwriters’ expenses. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued Alexander unregistered warrants to purchase an aggregate of 65,921 shares of Company common stock, representing 6.0% of the aggregate shares sold in the offering. The warrants have an initial exercise price of $7.20 per share (equal to 120% of the offering price per share), have a term of five years from the commencement of sales in the offering, and are exercisable at any time.

The Company is headquartered in Carmel, Indiana. The Company specializes in the development, production, and sale of medical neuromodulation devices.

The Company has developed three FDA cleared products, the IB-STIM (DEN180057, 2019), the NSS-2 Bridge (DEN170018, 2017), and the original 510(K) clearance (K140530, 2014).

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, 2024, 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, 2023.

2. Summary of Significant Accounting Policies

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’ initial balances were $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 June 30, 2024. The current loan balances are as follows:

Mr. Bradley Mitch Watkins, Director, provided certain sales, marketing and commercialization consulting services to the Company prior to his appointment to the Board of Directors. For the six months ended June 30, 2024 and 2023, the Company paid Mr. Watkins $0 and $4,708, respectively, for these services. No amounts were owed to Mr. Watkins as June 30, 2024 and December 31, 2023, respectively, for these services.

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. Fees paid for services were $127,550 and $64,932 for the six months ended June 30, 2024 and 2023, respectively. The Company owed RBSK for open invoices of $47,897 and $84,279 that are included in accounts payable as of June 30, 2024 and December 31, 2023, respectively.

4. Notes Payable

The Company borrowed $250,000 on December 16, 2021, from Channel Partners Capital. The note called for 65 weekly payments of $4,923 with the final payment scheduled for March 16, 2023. The note’s interest rate computes to a nominal rate of 40.9%. The principal outstanding as of January 1, 2022 was $244,048. The Company borrowed $122,000 on September 16, 2022, to bring the principal balance back to $250,000. After making scheduled payments, the Company borrowed $107,231 on May 24, 2023, to bring the principal balance back to $250,000. The terms of the note are the same as the previous note with the final payment scheduled for August 22, 2024. The principal outstanding as of June 30, 2024 and December 31, 2023 was $38,797 and $148,062, respectively. The Company believes that the advancement of additional funds is a minor modification to the terms of the existing loan since the difference in present value of the cash flows under the terms of the new loan is less than 10% of the present value of the remaining cash flows under the terms of the original loan. As a result, the modification was accounted for as a modification of debt. 

The lender was granted and assigned a continuing security interest in all the Company’s personal property assets including, but not limited to, business equipment, inventory, accounts, accounts receivable, intellectual property, chattel paper, instruments, deposit accounts, commercial tort claims, contract rights, licenses, claims, and general intangibles.

Interest expense totaled $7,840 and $21,735 for the three and six months ended June 30, 2024. The future minimum principal payments to be paid in 2024 is $38,797.

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 stockholders approve an amendment to the Company’s Certificate of Incorporation to authorize the creation of the Series B Preferred Stock (the “Stockholder Approval”). The Series B Preferred Stock is 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 will 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 Stockholder Approval, the Company amended the SPA on February 12, 2024 to issue a 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 Preferred Stock with identical funding amounts and terms.

In February and March of 2024, the Company entered into a series of convertible promissory notes totaling $3,135,000 with terms identical to the $3,000,000 convertible promissory note issued on February 12, 2024 (collectively referred to as the “Original 2024 Convertible Promissory Notes”).

The 2024 Original Convertible Promissory Notes bear 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. As of June 30, 2024, no investor has converted any portion of the Original 2024 Convertible Notes into Series B Preferred Stock as the shareholders have not yet authorized its issuance.

On May 21, 2024, 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 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 from 1,500,000 to 5,000,000, (ii) the stated value of the Series B Preferred Stock was changed from $1.00 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 shall be 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 shares have 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) will occur following the date of shareholder approval. In the event the Company fails to obtain shareholder approval before August 15, 2024, rights exist to convert the outstanding amount into shares of the common stock, at a price per share of $2.38.

As of June 30, 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.

The Company’s private placement agent fees included (i) 10% of the Original 2024 Convertible Promissory Notes funded principal amount and (ii) warrants calculated as 6.0% of the funded principal amount divided by the $2.38 exercise price. The fair value of the warrants of $97,465 were deferred as a financing fee and classified as additional paid in capital. The private placement agreement was terminated on March 18, 2024 pursuant to an new advisory agreement (See Note 12).

Accrued interest totaled $66,648 as of June 30, 2024 and December 31, 2023, respectively. On June 28, 2024, the Company paid $79,588 in accrued interest for the first and second quarters of 2024 on the Amended 2024 Convertible Promissory Notes in the form of 33,454 shares of the Company’s common stock . The unamortized debt discount on the Amended 2024 Convertible Promissory Notes total $206,464 as of June 30, 2024. Interest expense totaled $72,857 and $85,522 for the three and six months ended June 30, 2024, respectively. Amortization of the debt discount on the Amended 2024 Convertible Notes totaled $63,817 and $85,500 for the three and six months ended June 30, 2024, respectively.

5. Leases

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense, or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date. The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Entities may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all the contract consideration to the lease component only.

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 as of June 30, 2024 and December 31, 2023.

The Company had three leases primarily consisting of office space in Versailles and Carmel, Indiana. Two of the leases in Versailles started January 1, 2022. Both have an 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 31^st of each year. The monthly lease payments for these leases are $470 and $1,664 with a 4% per annum increase. The new lease in Carmel started 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 months 1-10.

Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the implicit interest rate is generally not readily determinable, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar economic environment. Lease expense for the operating lease is recognized on a straight-line basis over the lease term.

Leases may include renewal options, and the renewal option is included in the lease term if the Company concludes that it is reasonably certain that the option will be exercised. Certain leases may contain rent escalation clauses, either fixed or adjusted periodically for inflation of market rates, that are factored into the calculation of lease payments to the extent they are fixed and determinable at lease inception. The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance and real estate taxes, which are recorded as expenses when incurred.

For the six months ended June 30, 2024 and 2023, the Company recognized $46,423 and $23,704 of operating lease expense, including short-term lease expense and variable lease costs.

6. Common Stock and Warrants

The Company authorized 100,000,000 shares of common stock, of which 6,841,621 and 6,508,897 shares were issued and outstanding as of June 30, 2024 and December 31, 2023, respectively. In conjunction with 1,098,667 common shares issued upon the completion of the initial public offering on August 8, 2023, the Company also issued (i) 1,244,228 common shares upon conversion of 506,637 shares of Convertible Series A Preferred Stock and 115,477 shares of Convertible Series Seed Preferred Stock, (ii) 1,649,900 common shares upon conversion of convertible notes, (iii) 425,000 common shares as payment to vendors for services and (iv) 127,780 common shares upon the exercise of warrants. On January 10, 2023, the Company’s board of directors authorized a 2-for-1 reverse stock split. All share information in these financial statements has been adjusted for this reverse stock split.

On January 10, 2023, the Company’s board of directors authorized a 2-for-1 reverse stock split. All share information in these financial statements has been adjusted for this reverse stock split.

On August 9, 2023, the Company consummated an initial public offering, conducted on a firm commitment basis, pursuant to which it sold 1,098,667 shares of its common stock at a price of $6.00 per share, resulting in gross proceeds of $6,592,002. See Note 1.

On January 2, 2024, the Company issued 75,000 shares of common stock with a fair value of $200,250 pursuant to a consulting agreement related to the Company’s transition to a public company. As the term of the consulting agreement covers the full fiscal year ending December 31, 2024, the Company expensed $50,062 and $100,125 in the three month and six months ended June 30, 2024, respectively, with the remaining $100,125 recorded in prepaids and other current assets in the condensed balance sheets as of June 30, 2024.

On January 19, 2024, the Company received proceeds of $26,180 from an existing shareholder and issued 11,000 shares of common stock upon the exercise of a warrant agreement at $2.38 per share.

On April 11, 2024, the Company issued 53,063 shares of common stock to an existing shareholder to settle a convertible note dispute. The Company recorded the fair value of the settlement totaling $230,823 as financing charge in the condensed statements of operations.

On June 28, 2024 the Company issued 90,032 shares of common stock to pre-IPO Series A Preferred Shareholders to settle certain claims. The Company recorded the fair value of the settlement totaling $286,458 as other expense in the condensed statements of operations.

On June 28, 2024, the Company issued 33,454 shares of common stock to holders of the Amended 2024 Convertible Promissory Notes in lieu of $79,588 in cash payments for interest through June 30, 2024.

On June 28, 2024, the Company issued 24,343 shares of common stock to its Board of Directors for their service from the Company’s IPO on August 9, 2023 through March 31, 2024. The fair value of the services were recorded as general and administrative expense in the condensed statements of operations totaling $39,452 from August 9, 2023 through December 31, 2023 and $28,219 during the six months ended June 30, 2024.

On June 28, 2024, the Company issued 25,832 shares of common stock to its previous Chief Operating Officer in accordance with a severance agreement executed on April 10, 2024. The Company recorded the fair value of the severance provision totaling $78,788 as general and administrative expense in the condensed statements of operations.

On June 28, 2024, the Company issued 20,000 shares of common stock to it previous CFO for services provided during the IPO. The Company recorded the fair value of the services totaling $55,600 as general and administrative expense in the condense statements of operations.

In connection with a bridge loan, the Company issued a warrant on September 18, 2018 that allows the holder to purchase common stock from the Company at a share price of $4.38 per share. The number of shares was based on a formula tied to the final amount of loans made by the holder of $375,000, multiplied by 150%, and divided by $70.03. The number of shares based on this formula is 12,852. The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. If the fair market value of one share is greater than the warrant price, the holder may elect to receive a number of shares equal to the value of the warrant. If the exercise is in connection with the sale of the Company, the holder may, at its option, condition its exercise of the warrant upon the consummation of such transaction. The warrant expires on September 18, 2028 and can be exercisable either in whole or from time to time in part prior to the expiration date.

The Company issued a second warrant on September 6, 2019, under similar terms but is a penny warrant that allows the holder to purchase 40,000 shares of common stock and is subject to adjustment for certain equity events. The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. The warrant expires on September 6, 2029. This warrant was converted to 39,924 shares of common stock on December 28, 2023. The fair market value of the stock on that day was calculated as the average of the daily closing prices per share for the 30 consecutive trading day period ending on the second trading day prior to such date or $2.61 per share. Since the fair value was greater than the warrant price of $0.01 per share the holder elected to receive the number of shares equal to 40,000 times the difference between the fair market value and the exercise price divided by the fair market value, resulting in 39,924.

The Company issued a third warrant to Masimo Corporation on April 9, 2020. This warrant was pre-funded in the amount of $2,734,340. The warrant allows the holder to purchase 289,779 shares of Series A Preferred Stock at $9.44 per share and is subject to adjustment for certain equity events. The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. There will be no additional purchase price for the Warrants. In the event that all outstanding shares of Series A Preferred Stock are converted, automatically or by action of the holders thereof, into Common Stock, including, without limitation, in connection with the Company’s initial, underwritten public offering and sale of its Common Stock pursuant to an effective registration statement under the Act, then from and after the date on which all outstanding shares of Series A Preferred Stock have been so converted, this Warrant shall be exercisable for such number of shares of Common Stock into which the Warrant Shares would have been converted had the Warrant Shares been outstanding on the date of such conversion, and the Exercise Price shall equal the Exercise Price in effect as of immediately prior to such conversion divided by the number of shares of Common Stock into which one share of Series A Preferred Stock would have been converted, all subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. On August 14, 2023, the 144,890 Series A Preferred Stock warrants were converted to 289,779 common stock warrants.

During 2022, the Company issued 793,655 five-year warrants to purchase common stock equal to one hundred percent (100%) of the shares into which the 2022 convertible notes can be converted at issuance. The 2024 Convertible Promissory Notes triggered the anti-dilution clause of the original agreement and decreased the exercise price to $2.38.

From March to June of 2023, the Company issued 505,570 one-year warrants to purchase common stock equal to fifty percent (50%) of the shares into which the 2023 convertible notes can be converted at issuance. The warrants have an exercise price of $5.25 per share. The 2024 Convertible Promissory Notes triggered the anti-dilution clause of the original agreement and decreased the exercise price to $2.38.

On August 9, 2023, the Company issued 122,202 five-year warrants to purchase common stock pursuant to an advisory agreement with a consulting firm upon closing of the Company’s initial public offering. The warrants have an exercise price of $6.00 per share. The 2024 Convertible Promissory Notes triggered the anti-dilution clause of the original agreement and decreased the exercise price to $2.38.

On August 14, 2023, the Company issued 186,156 five-year warrants to purchase common stock pursuant to an agreement with an underwriter upon closing of the Company’s initial public offering. The warrants have an exercise price of $7.20 per share. The 2024 Convertible Promissory Notes triggered the anti-dilution clause of the original agreement and decreased the exercise price to $2.38.

From January to March of 2024, the Company issued 38,697 warrants to its private placement agent in conjunction with the 2024 Convertible Promissory Notes at an exercise price of $2.38 to purchase common stock. The Company recorded the fair value of the services totaling $74,278 as financing fees in the condensed balance sheets as of June 30, 2024.

From March to June of 2024, the Company issued 30,252 warrants pursuant to a capital markets advisory agreement at an exercise price of $2.38 to purchase common stock (See Note 12). The Company recorded the fair value of the advisory services totaling $59,370 as general and administrative expense in the condensed statements of operations.