UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ________________ to ________________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I. R. S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(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 | ||
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.
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).
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 ☐ |
| 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 August 8, 2024 was shares.
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
NeurAxis, Inc.
Condensed Balance Sheets
| June 30, 2024 | December 31, | |||||||
| (Unaudited) | 2023 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaids and other current assets | ||||||||
| Total current assets | ||||||||
| Property and Equipment, at cost: | ||||||||
| Less - accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
| Other Assets: | ||||||||
| Operating lease right of use asset, net | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease payable | ||||||||
| Notes payable | ||||||||
| Notes payable - convertible notes, net of unamortized debt discount of $ | ||||||||
| Customer deposits | ||||||||
| Share liability | ||||||||
| Warrant liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current Liabilities: | ||||||||
| Operating lease payable, net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (see note 12) | ||||||||
| Stockholders’ Deficit | ||||||||
| Convertible Series A Preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Convertible Series Seed Preferred stock, $ par value; shares authorized; shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
| 3 |
NeurAxis, Inc.
Condensed Statements of Operations (Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Selling Expenses | ||||||||||||||||
| Research and Development | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (Expense) Income: | ||||||||||||||||
| Financing charges | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Amortization of debt discount and issuance cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Extinguishment of debt liabilities | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (expense) income, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Per-Share Data | ||||||||||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Shares Outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
| 4 |
NeurAxis, Inc.
Condensed Statements of Stockholders’ Deficit (Unaudited)
| For the Three and Six Months Ended June 30, 2023 | ||||||||||||||||||||||||||||||||||||||
| Convertible Series A Preferred Stock | Convertible Series Seed Preferred Stock | Common Stock | Additional Paid | Accumulated | Stockholder’s | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances, June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| For the Three and Six Months Ended June 30, 2024 | ||||||||||||||||||||||||||||||||||||||
| Convertible Series A Preferred Stock | Convertible Series Seed Preferred Stock | Common Stock | Additional Paid | Accumulated | Stockholder’s | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | In Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Warrants exercised | - | - | $ | |||||||||||||||||||||||||||||||||||
| Additional paid in capital from warrants issued under consulting agreement | - | - | - | |||||||||||||||||||||||||||||||||||
| Additional paid in capital form warrants issued as debt discount | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued from agreements | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Additional paid in capital from warrants issued under consulting agreement | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued from agreements | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balances, June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
| 5 |
NeurAxis, Inc.
Condensed Statements of Cash Flows (Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Amortization of debt discount and issuance cost | ||||||||
| Depreciation and amortization | ||||||||
| Provisions for losses on accounts receivable | ||||||||
| Non-cash lease expense | ||||||||
| Stock-based compensation | ||||||||
| Extinguishment of derivative liability | ( | ) | ||||||
| Issuance of common stock for non-cash consideration | ||||||||
| Fair value of warrants issued for non-cash consideration | ||||||||
| Finance charges | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaids and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Customer deposits | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Additions to property and equipment | ( | ) | ( | ) | ||||
| Additions to intangible assets | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Offering costs paid | ( | ) | ||||||
| Proceeds from exercised warrants | ||||||||
| Principal payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from notes payable | ||||||||
| Proceeds from convertible notes, net of fees | ||||||||
| Net cash provided by financing activities | ||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | ||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Operating Activities | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | ||||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||
| Recognition of right of use asset | $ | $ | ||||||
| Fair value of warrant liabilities from convertible notes | ||||||||
| Fair value of derivative liabilities of conversion feature from convertible notes | ||||||||
| Fair value of warrants from debt discount in convertible notes classified as additional paid in capital | ||||||||
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 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
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) shares of Common Stock, par value $ per share (“Common Stock”) and (ii) shares of Preferred Stock, par value $ per share (“Preferred Stock”), of which is hereby designated as “Series A Preferred Stock” and 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
shares of its common stock at a price of $ per share, resulting in gross proceeds to the Company of $
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 IB-STIM is a percutaneous electrical nerve field stimulator (PENFS) device that is indicated in patients 11-18 years of age with functional abdominal pain associated with irritable bowel syndrome. The IB-STIM currently is the only product marketed and sold by the Company. | |
| ● | 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 was licensed to Masimo Corporation in April 2020, and the Company received a one-time licensing
fee of $ | |
| ● | The original 510(K) device was the EAD, an electroacupuncture device, 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, 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.
| 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.
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 assets/liabilities include cash, accounts receivable, accounts payable, prepaids, and other current assets. Management believes the estimated fair value of these accounts on June 30, 2024 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 assets/liabilities include derivative and 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 June 30, 2024 and December 31, 2023. In addition to assets and liabilities
that are recorded at fair value on a recurring basis, the Company’s assets and liabilities are also subject to nonrecurring fair
value measurements. As of June 30, 2024 and December 31, 2023, the Company had
Earnings
or loss per share (“EPS”) is computed by dividing net income (loss), net of preferred stock dividends, by the weighted average
number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted
average of all potentially dilutive shares of common stock that were outstanding during the periods presented. As of June 30, 2024 and
December 31, 2023, there were
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, which is the case for June 30, 2024 and 2023 presented in these financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.
| 2024 | 2023 | |||||||
| Convertible Series A Preferred Stock | ||||||||
| Convertible Series Seed Preferred Stock | ||||||||
| Options | ||||||||
| Pre-Funded Warrants for Common Stock | ||||||||
| Warrants | ||||||||
| Convertible Bridge Debt | ||||||||
| Totals | ||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividends | ( | ) | ( | ) | ||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares of common stock outstanding - basic and diluted | ||||||||||||||||
| Basic and diluted net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Revenue Recognition
Neuraxis, Inc. specializes in the development, production, and sale of medical neuromodulation devices to healthcare providers primarily located in the United States. Patented and trademarked neuromodulation devices is the Company’s major product line. Products are generally transferred at a point in time (rather than over time). Essentially all the Company’s revenue is generated from purchase order contracts.
| 9 |
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 estimates credit losses on accounts receivable by estimating expected credit losses over the contractual term of the receivable using a discounted cash flow method. When developing this estimate of expected credit losses, the Company considers all available information (past, current, and future) relevant to assessing the collectability of cash flows.
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.
The following economic factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows as indicated:
Type of customer: Based on dollar amounts of revenue, essentially all of the goods sold by the Company are sold to healthcare customers including hospitals and clinics. Sales to healthcare customers lack seasonality and have a mild correlation with economic cycles.
Geographical location of customers: Sales to customers located within the United States represent essentially all of the Company’s sales.
Type of contract: Sales contracts consist of purchase order contracts that tend to be short-term (i.e., less than or equal to one year in duration).
Company’s Performance Obligations with Customers:
Timing of Satisfaction
The Company typically satisfies its performance obligations as the goods are shipped.
Goods that are shipped to customers are typically shipped FOB shipping point with freight prepaid by the Company. As such, ownership of goods in transit transfer to the customer when shipped and the customer bears the associated risks (e.g., loss, damage, delay).
Shipping and handling costs are recorded as general and administrative expenses in the Statement of Operations.
| 10 |
Significant Payment Terms
Payment for goods sold by the Company is typically due after an invoice is sent to the customer, within 30 days. However, other payment terms are frequently negotiated with customers ranging from due upon receipt to due within 90 days. Some payment terms may call for payment only after the healthcare provider receives their insurance reimbursement. Invoices for goods are typically sent to customers within three calendar days of shipment. 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.
Nature
Medical devices that the Company contracts to sell and transfer to customers are manufactured by one specific third-party manufacturer. The manufacturer is located within the state of Indiana. 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).
Returns, Refunds, etc.
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. Historically, returns have been immaterial, and the Company currently does not provide a provision for this liability.
Going Concern
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 $
On
August 9, 2023, the Company consummated its initial public offering, conducted on a firm commitment basis, pursuant to which it sold
shares of its common stock at a price of $ per share, resulting in gross proceeds to the Company of $
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 2024 and beyond. Based on our current operating plans, we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs through the end of 2024.
| 11 |
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.
To date, the Company has experienced operating losses and negative cash flows from operations. Management believes that increased sales and acceptance of their product by insurance providers will allow the Company to achieve profitability in the near term.
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 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’ initial
balances were $, 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 $
| Loan | Interest | Interest | ||||||||||
| Receivable | Receivable | Income | ||||||||||
| June 30, 2024 | ||||||||||||
| Shareholder 1 | $ | $ | $ | |||||||||
| Shareholder 2 | ||||||||||||
| Allowance for Collection Risk | ( | ) | ( | ) | ( | ) | ||||||
| Net Balance | $ | $ | $ | |||||||||
| 12 |
| Loan | Interest | Interest | ||||||||||
| Receivable | Receivable | Income | ||||||||||
| December 31, 2023 | ||||||||||||
| Shareholder 1 | $ | $ | $ | |||||||||
| Shareholder 2 | ||||||||||||
| Allowance for Collection Risk | ( | ) | ( | ) | ( | ) | ||||||
| Net Balance | $ | $ | $ | |||||||||
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 $
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 $
4. Notes Payable
The
Company borrowed $
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 $
On
November 8, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with a shareholder for the issuance
shares of Series B Convertible Preferred Stock, par value $
In
February and March of 2024, the Company entered into a series of convertible promissory notes totaling $
The
2024 Original Convertible Promissory Notes bear interest at
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 $
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 $ 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 $
As
of June 30, 2024, the Company received $
Accrued
interest totaled $
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.
| 13 |
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.
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 $
| 14 |
The following table presents information related to the Company’s operating leases:
June 30, 2024 | December 31, 2023 | |||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Other current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| $ | $ | |||||||
| Weighted-average remaining lease term (in years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
As of June 30, 2024, the maturities of the Company’s operating lease liabilities were as follows:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total present value of lease payments | $ |
6. Common Stock and Warrants
The
Company authorized shares of common stock, of which and shares were issued and outstanding as of June
30, 2024 and December 31, 2023, respectively. In conjunction with common shares issued upon the completion of the initial public
offering on August 8, 2023, the Company also issued (i) common shares upon conversion of shares of Convertible Series
A Preferred Stock and shares of Convertible Series Seed Preferred Stock, (ii) common shares upon conversion of convertible
notes, (iii) common shares as payment to vendors for services and (iv) common shares upon the exercise of warrants. On
January 10, 2023, the Company’s board of directors authorized a
On
January 10, 2023, the Company’s board of directors authorized a
On
August 9, 2023, the Company consummated an initial public offering, conducted on a firm commitment basis, pursuant to which it sold
shares of its common stock at a price of $ per share, resulting in gross proceeds of $
On
January 2, 2024, the Company issued shares of common stock with a fair value of $
On
January 19, 2024, the Company received proceeds of $
On
April 11, 2024, the Company issued shares of common stock to an existing shareholder to settle a convertible note dispute. The
Company recorded the fair value of the settlement totaling $
On
June 28, 2024 the Company issued 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 $
On
June 28, 2024, the Company issued shares of common stock to holders of the Amended 2024 Convertible Promissory Notes in lieu of
$
On
June 28, 2024, the Company issued 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 $
On
June 28, 2024, the Company issued 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 $
On
June 28, 2024, the Company issued shares of common stock to it previous CFO for services provided during the IPO. The Company
recorded the fair value of the services totaling $
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 $ per share. The number of shares was based on a formula tied to the final amount of loans made by
the holder of $
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The
Company issued a second warrant on September 6, 2019, under similar terms but is a penny warrant that allows the holder to purchase
The
Company issued a third warrant to Masimo Corporation on April 9, 2020. This warrant was pre-funded in the amount of $
During
2022, the Company issued
From
March to June of 2023, the Company issued
On
August 9, 2023, the Company issued
On
August 14, 2023, the Company issued
From
January to March of 2024, the Company issued
From
March to June of 2024, the Company issued
| 16 |
The following is a summary of warrant activity for common stock during the periods ended June 30, 2024 and December 31, 2023:
| Number of | Weighted-Avg. | Weighted-Avg. | ||||||||||
| Warrants for | Exercise | Remaining | ||||||||||
| Common Stock | Price | Contractual Life | ||||||||||
| Outstanding as of January 1, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Converted Prefunded Warrants | — | |||||||||||
| Exercised | ( | ) | — | |||||||||
| Outstanding as of December 31, 2023 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | — | |||||||||
| Outstanding as of June 30, 2024 | $ | |||||||||||
The following is a summary of warrant activity for preferred stock during the year ended December 31, 2023:
| Number of | Weighted-Avg. | |||||||
| Warrants for | Exercise | |||||||
| Preferred Stock | Price | |||||||
| Outstanding as of January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Cancelled/Expired | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Outstanding as of December 31, 2023 | $ | |||||||
There was no preferred stock warrant activity for the three and six months ended June 30, 2024.
The following table summarizes the Company’s warrants outstanding and exercisable as of June 30, 2024:
| Number of | ||||||||||||
| Warrants | Exercise | Expiration | ||||||||||
| Outstanding | Price | Date | ||||||||||
| Brian Hannasch W-01 | $ | |||||||||||
| Masimo Corporation PSA-01 | $ | |||||||||||
| 2022 Convertible Notes | $ | |||||||||||
| 2023 Convertible Notes | $ | |||||||||||
| Consulting Agreement Warrants | $ | |||||||||||
| Underwriter’s Warrants | $ | |||||||||||
The
Company is a party to two investment banking and advisory agreements with a consulting firm engaged in connection with listing our common
stock for trading on NYSE. Pursuant to the first advisory agreement, dated March 3, 2022, the Company agreed to pay the consulting firm
a monthly consulting fee of $
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7. Preferred Stock
The Company has authorized shares of preferred stock of which has been designated Series A Preferred Stock and has been designated Series Seed Preferred Stock, of which shares of Series A Preferred Stock and shares of Series Seed Preferred Stock are issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.
The following is a summary of Preferred Stock terms:
Voting Rights - The Series A Preferred and Series Seed Preferred shall vote together with the Common Stock on an as-converted basis, and not as separate classes.
Conversion - The Series A Preferred and Series Seed initially convert 1:1 to Common Stock at any time at option of holder, subject to adjustments for stock dividends, splits, combinations, and similar events and as described below under “Anti-dilution Provisions.”
Dividends
- The Series A Preferred will carry an annual
Liquidation - In the event of any liquidation, dissolution or winding up of the Company, the proceeds shall be paid in the following priority:
First, to the Series A Preferred in proportion to each holder’s respective pro rata Series A Original Purchase Price, plus any pro rata share of the Accruing Dividend until the entire Series A Original Purchase Price and Accruing Dividend are paid;
Second, to the Series Seed Preferred in proportion to each holder’s respective pro rata Series Seed Original Purchase Price until the entire amount of the Series Seed Original Purchase Price is paid; and
Thereafter, the Series A Preferred and Series Seed Preferred participate with the Common Stock pro rata on an as-converted basis.
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 (a “Deemed Liquidation Event”), thereby triggering payment of the liquidation preferences described.
Anti-dilution
Provisions - The Series A Preferred have full-ratchet anti-dilution protection so that the conversion price will be reduced to
Preferred stock has all converted pursuant to the initial public offering.
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| Weighted | ||||||||||||||||
| Avg. | ||||||||||||||||
| Number of | Remaining Contractual Life | Weighted Avg. Exercise | Aggregate Intrinsic | |||||||||||||
| Options | (in years) | Price | Value | |||||||||||||
| Outstanding as of January 1, 2023 | $ | $ | ||||||||||||||
| Granted | — | — | — | |||||||||||||
| Forfeited | — | — | — | |||||||||||||
| Cancelled/Expired | — | — | — | |||||||||||||
| Exercised | — | — | — | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Granted | — | — | — | |||||||||||||
| Forfeited | — | — | — | |||||||||||||
| Cancelled/Expired | — | — | — | |||||||||||||
| Exercised | — | — | — | |||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Vested and Exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
Stock-based compensation expense is classified in the Company’s statements of operations as general and administrative expense. Compensation expense totaled $ and $ for the six months ended June 30, 2024 and 2023, respectively (See Note 9). As of June 30, 2024, there was unrecognized compensation expense related to unvested options granted under the Company’s share-based compensation plans.
As
of June 30, 2024, the Company had not issued (i) shares of its common stock pursuant to a hiring
grant of an executive officer, representing stock compensation expense of $
The Company expects to issue these shares to the respective shareholder as soon as the administrative delays are resolved. These shares will be recorded as issued and outstanding upon their issuance, and the corresponding share liability will be reclassified to shareholders’ equity. The administrative delays are not expected to have any material impact on the financial position or results of operations of the Company.
Management’s best estimate is that the administrative delays will be resolved within the next fiscal quarter, at which point the share liabilities will be eliminated, and the shares will be issued. However, the timing of resolution is subject to various factors, and actual timing may vary.
10. Warrant Liabilities
Management evaluates all of the Company’s financial instruments and contracts, including issued warrants to purchase its Class A common stock and Series B Preferred Stock, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
The Company utilizes a Monte Carlo simulation model for warrants that have an option to convert at a variable number of shares to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized in the application of the Monte Carlo model included a starting stock price, an expected remaining term of each warrant as of the valuation date, estimated volatility, drift, and a risk-free rate. The Company records the change in the fair value of the derivative as other income or expense in the statements of operations.
The
Company utilizes a Monte Carlo simulation model for warrants that have an option to convert at a variable number of shares to compute
the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs utilized
in the application of the Monte Carlo model included a starting stock price of $ per share, an expected remaining term of each warrant
as of the valuation date, estimated volatility ranging from
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Black-Scholes option-pricing model.
Dividend
yield: The Company uses a
Volatility: The Company calculates the expected volatility based on comparable company’s historical stock prices with a look back period commensurate with the period to maturity.
| 19 |
Expected term: The Company’s remaining term is based on the remaining contractual maturity of the warrants.
The following are the changes in the warrant liabilities during the periods ended June 30, 2024 and December 31, 2023.
| Level 1 | Level 2 | Level 3 | ||||||||||
| Warrant liabilities as of January 1, 2023 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Changes in fair value of warrant liabilities | ( | ) | ||||||||||
| Reclassify to equity | ( | ) | ||||||||||
| Warrant liabilities as of December 31, 2023 | ||||||||||||
| Changes in fair value of warrant liabilities | ||||||||||||
| Warrant liabilities as of March 31, 2024 | ||||||||||||
| Changes in fair value of warrant liabilities | ( | ) | ||||||||||
| Warrant liabilities as of June 30, 2024 | $ | $ | $ | |||||||||
11. Derivative Liabilities
The Company accounts for derivative financial instruments as either equity or liabilities in accordance with ASC Topic 815, Derivatives and Hedging, or ASC 815, based on the characteristics and provisions of each instrument. Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives are not clearly and closely related to the host instruments on the date of issuance. Derivative instrument liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
The Company identified derivative instruments arising from the conversion shares from convertible notes in Note 4 as of December 31, 2023.
The
Company utilizes a Monte Carlo simulation model for commitment shares that have an option to convert at a variable number of shares to
compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The inputs
utilized in the application of the Monte Carlo model included a starting stock price of $ per share, an expected remaining term of
each warrant as of the valuation date, estimated volatility of
Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note adjusted to be on a continuous return basis to align with the Black-Scholes option-pricing model.
Dividend
yield: The Company uses a
Volatility: The Company calculates the expected volatility based on comparable company’s historical stock prices with a look back period commensurate with the period to maturity.
Expected term: The Company’s remaining term is based on the remaining contractual maturity of the warrants.
| 20 |
The following are the changes in the derivative liabilities during the year ended December 31, 2023.
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liabilities as of January 1, 2023 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Changes in fair value of derivative liabilities | ( | ) | ||||||||||
| Extinguishment of derivative liabilities | ( | ) | ||||||||||
| Derivative liabilities as of December 31, 2023 | $ | $ | $ | |||||||||
There was no derivative liability activity for the three and six months ended June 30, 2024.
12. Commitments and Contingencies
Manufacturing Services Agreement
On August 21, 2020, the Company entered into a Manufacturing Services Agreement (MSA) for the manufacture and supply of the Company’s IB-STIM device based upon the Company’s product specifications as set forth in the MSA. This agreement terminated any prior manufacturing agreements.
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 MSA is initiated by orders issued by the Company and accepted by the manufacturer.
The term of the MSA is 24 months and shall automatically renew for renewal terms of twelve months unless either party provides a written termination notice to the other party within 180 days prior to the end of the then-current term.
Trademark Agreement
The
Company entered into an agreement for a trademark related to the Company’s name on July 11, 2022. The agreement called for an initial
payment of $
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 includes a monthly fee of $
Settlement Agreements
On June 28, 2024, the Company issued 90,032
shares of common stock to various pre-IPO Series A Preferred Stock shareholders to settle certain claims. The Company recorded the
fair value of the settlements totaling $
Furthermore,
the Company authorized the issuance of
shares of its common stock to settle remaining claims with pre-IPO Series A Preferred Stock shareholders classified as $
| 21 |
Executive Employment Agreements
The
Company, as authorized by the board of directors, entered into employment agreements with nine key 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
The
total base salaries for the nine key employees in the agreements are $
There
are seven key employees that have stock options of the Company totaling 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 (
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
Company has recorded the backpay portion of the incentive bonus noted above. The balance of the incentive bonuses of $
On
April 10, 2024, the employment of the Company’s Chief Operating Officer was terminated. Pursuant to the employment agreement, the
Company will (i) make salary continuation payments based on an annual salary of $
Litigation
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial condition as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a significant diversion of our resources, and there is no guarantee that we will be able to successfully defend against any such litigation regardless of particular merits. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available on favorable terms, at all, or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business, financial condition and the results of our operations.
On
February 6, 2019, plaintiff Ritu Bharnbhani, 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 $
| 22 |
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. The Company filed a motion to dismiss. On January 4, 2023, the Court issued an order that stated it was deferring a ruling on the motion to dismiss the appeal and that it would address those arguments at the same time that it addressed the substantive merits of the case. As of May 5, 2023, the parties have submitted their appellate briefs to the Fourth Circuit. No date has been set for either oral argument or for issuance of a decision by the court. While it is too early to predict the ultimate outcome of this matter, we continue to believe we have meritorious defenses, that the dismissal of the Complaint should be upheld, and intend to continue to defend this matter vigorously.
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 $
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 plaintiff’s 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. No mediation date has been set. 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.
13. Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed financial statements.
| 23 |
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 final prospectus filed with the United States Securities and Exchange Commission (the “SEC”) on August 11, 2023 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Prospectus”) (filed in connection with our IPO) 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 11-18 years of age with functional abdominal pain associated with IBS. Our device already has market clearance from FDA for functional abdominal pain associated with IBS in children. Other indications in our pipeline are comprised of functional nausea in children, post-concussion syndrome in children, and cyclic vomiting syndrome in children. For more information, see “Business—Our Pipeline” and “—Products.”
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.
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 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.
| 24 |
Inflation did not have a material impact on our operations for any applicable period, and we do not expect inflation to 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 revenue less cost of goods sold, and gross margin as gross profit divided by revenue. 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 revenue 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 expenses, 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 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.
Our core selling expenses primarily consist of commissions and shipping costs. These expense items are generally correlated with sales.
Research and development expense is attributable to our clinical trials and related efforts to have our IB-Stim device 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.
Results of Operations
The following table presents our statements of operations for the three and six months ended June 30, 2024 and 2023, respectively:
| (Unaudited) | (Unaudited) | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net sales | $ | 611,500 | $ | 646,021 | $ | 1,258,135 | $ | 1,451,131 | ||||||||
| Cost of goods sold | 73,458 | 67,813 | 148,539 | 163,713 | ||||||||||||
| Gross profit | 538,042 | 578,208 | 1,109,596 | 1,287,418 | ||||||||||||
| Selling expenses | 62,274 | 78,791 | 142,304 | 186,723 | ||||||||||||
| Research and development | 54,312 | 109,789 | 59,882 | 126,586 | ||||||||||||
| General and administrative | 2,628,288 | 1,507,169 | 4,946,362 | 2,987,923 | ||||||||||||
| Operating loss | (2,206,832 | ) | (1,117,541 | ) | (4,038,952 | ) | (2,013,814 | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Financing charges | - | - | (230,824 | ) | (2,772 | ) | ||||||||||
| Interest expense | (80,697 | ) | (194,690 | ) | (107,257 | ) | (356,378 | ) | ||||||||
| Change in fair value of warrant liability | 7,576 | (36,050 | ) | (1,708 | ) | 198,757 | ||||||||||
| Change in fair value of derivative financial instruments | - | 860 | - | 192,157 | ||||||||||||
| Amortization of debt discount and issuance costs | (63,817 | ) | (887,937 | ) | (85,500 | ) | (3,550,592 | ) | ||||||||
| Extinguishment of debt liabilities | - | - | - | 1,129,498 | ||||||||||||
| Other income | 2,961 | 2 | 2,961 | 1,552 | ||||||||||||
| Other expense | (576,901 | ) | (258 | ) | (577,081 | ) | (7,430 | ) | ||||||||
| Total other expense, net | (710,878 | ) | (1,118,073 | ) | (999,409 | ) | (2,395,208 | ) | ||||||||
| Net loss | $ | (2,917,710 | ) | $ | (2,235,614 | ) | $ | (5,038,361 | ) | $ | (4,409,022 | ) | ||||
| 25 |
Net Sales
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.
Gross Profit and Gross Margin
Gross profit decreased $40,166, or 6.9%, from $578,208 for the three months ended June 30, 2023, to $538,042 for the three months ended June 30, 2024; gross margin was 88.0% and 89.5% for the three months ended June 30, 2024 and 2023, respectively. Gross profit decreased $177,822, or 13.8%, from $1,287,418 for the six months ended June 30, 2023, to $1,109,596 for the six months ended June 30, 2024; gross margin was 88.2% and 88.7% for the six months ended June 30, 2024 and 2023, respectively. The decreases were due to (i) lower sales volume to certain customers as they transition through the full reimbursement insurance process and (ii) lower gross margin due to growth in our financial assistance programs that are discounted to patients without insurance coverage.
Selling Expenses
Selling expenses decreased $16,517, or 21.0%, from $78,791 for the three months ended June 30, 2023, to $62,274 for the three months ended June 30, 2024. Selling expenses decreased $44,419, or 23.8%, from $186,723 for the six months ended in the six months ended June 30, 2023, to $142,304 for the six months ended June 30, 2024. The decreases were due to lower sales volume.
Research and Development
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.
General and Administrative
General and administrative expenses increased $1,121,119, or 74.4%, from $1,507,169 for the three months ended June 30, 2023, to $2,628,288 for the three 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 $105,600, (v) expenses related to the introduction of an annual short-term incentive bonus program, and (vi) higher advertising costs in order to expand market awareness.
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.
Operating Loss
Our operating loss increased $1,089,291, or 97.5%, from $1,117,541 for the three months ended June 30, 2023, to $2,206,832 for the three months ended June 30, 2024. Our operating loss increased $2,025,138, or 100.6%, from $2,013,814 for the six months ended June 30, 2023, to $4,038,952 for the six months ended June 30, 2024. The increases were primarily due to lower sales volume, lower gross margin as the Company’s discounted financial assistance program grows and higher general and administrative expenses.
Other (Expense) Income, Net
Other expense decreased $407,195, or 36.4%, from $1,118,073 for the three months ended June 30, 2023, to $710,878 for the three 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 and fair value derivative valuation net charges and (ii) lower interest expense and issuance cost amortization from a lower debt burden, partially offset the settlement of certain claims of pre-IPO Series A Preferred Stock shareholders.
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.
Net Loss
Our net loss increased $682,096, or 30.5%, from $2,235,614 for the three months ended June 30, 2023, to $2,917,710 for the three months ended June 30, 2024. Our net loss increased $629,339, or 14.3%, from $4,409,022 for the six months ended June 30, 2023, to $5,038,361 for the six months ended June 30, 2024. The increases were primarily due to (i) higher general and administrative expenses and (ii) the settlements of a 2023 convertible note dispute and certain pre-IPO Series A Preferred Stock shareholders claims, partially offset by the elimination of debt discount, issuance costs, debt extinguishment and derivative fair valuation net charges.
| 26 |
Liquidity and Capital Resources
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.
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.
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 2024 and beyond. Based on our current operating plans, we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs through the end of 2024.
Additionally, we will 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 six months ended June 30, 2024 and 2023:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (2,947,295 | ) | $ | (1,248,137 | ) | ||
| Net cash used in investing activities | (23,408 | ) | (13,067 | ) | ||||
| Net cash provided by financing activities | 4,657,417 | 1,058,945 | ||||||
| Net increase (decrease) in cash and cash equivalents | 1,686,714 | (202,259 | ) | |||||
| Cash and cash equivalents at beginning of period | 78,560 | 253,699 | ||||||
| Cash and cash equivalents at end of period | $ | 1,765,274 | $ | 51,440 | ||||
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.
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
| 27 |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Application of U.S. GAAP and Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our (i) controls over the application of U.S. GAAP based on guidance and interpretations issued by the Financial Accounting Standards Board through the Accounting Standards Codification and Accounting Standards Updates and (ii) disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2024, our U.S. GAAP reporting and disclosure controls and procedures were not effective in ensuring that information required to be reported under U.S. GAAP and disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Due to accounting resource constraints, we have had limited review controls. These constraints have resulted in (i) a lack of segregation of duties since we have a limited administrative staff, (ii) a lack of internal controls structure review and (iii) a restatement of our unaudited financial statements as of and for the three and nine month periods ended September 30, 2023. As a result of these constraints, we had material weaknesses in our internal control over financing reporting as of June 30, 2024.
The Company’s assessment identified certain material weaknesses which are set forth below:
Functional Controls and Segregation of Duties
Because of the Company’s limited resources, there are limited controls over information processing. Additionally, there is inadequate segregation of duties consistent with control objectives. Our management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. All responsibility for accounting entries and the creation of financial statements is held by a single person, though the Company engages multiple accounting consultants for accounting, tax and audit support. To remedy this situation, we would need to hire additional staff or financial consultant support. We are assessing our capabilities to hire additional staff to facilitate greater segregation of duties.
Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented or detected on a timely basis by the Company’s internal controls.
Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management continues to take actions to remedy these weaknesses, including the review of current staff, reassignment of duties, and possible hiring of additional staff to create the necessary segregation of duties to improve controls over information processing.
Remediation Plan
We are starting the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, the Company has undertaken various actions, and will take additional actions, such as remediating the material weaknesses described above, implementing additional internal controls and procedures and hiring internal audit staff or financial consultants. While we believe that these remediation actions will improve the effectiveness of our internal control over financial reporting, the material weakness identified will not be considered remediated until the controls operate for a sufficient period of time, and we cannot provide assurance that the measures we have taken to date, or any measures we may take in the future will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses.
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 during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 28 |
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial condition as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a significant diversion of our resources, and there is no guarantee that we will be able to successfully defend against any such litigation regardless of particular merits. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available on favorable terms, at all, or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business, financial condition and the results of our operations.
Please reference the Litigation section of Note 11 to the unaudited financial statements for additional disclosure.
ITEM 1A: RISK FACTORS
Not applicable.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
On April 11, 2024, the Company issued 53,063 shares of common stock to Leonite Fund I, LP to settle a 2023 convertible note dispute.
On
May 21, 2024, the Company entered into three convertible promissory notes with related institutional accredited investors for an
additional amount of $
On June 28, 2024 the Company issued 90,032 shares of common stock to pre-IPO Series A Preferred Shareholders to settle certain claims.
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 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 services from the Company’s IPO on August 9, 2023 through March 31, 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.
On June 28, 2024, the Company issued 20,000 shares of common stock to it previous CFO for services provided during the IPO.
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.
During
the quarter ended June 30, 2024, no director or officer of the Company
| 29 |
ITEM 6: EXHIBITS
| Exhibit | ||
| Number | Exhibit Description | |
| 10.1 | ||
| 10.2 | ||
| 10.3 | ||
| 10.4 | ||
| 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
| 30 |
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: August 9, 2024 | ||
| By: | /s/ Brian Carrico | |
| Brian Carrico | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 9, 2024 | /s/ Timothy Henrichs | |
| Timothy Henrichs | ||
| Chief Financial Officer | ||
| (Principal Financial and Principal Accounting Officer) |
| 31 |
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Brian Carrico, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2024 of Neuraxis, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on Neuraxis, Inc.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
| Date: August 9, 2024 | By: | /s/ Brian Carrico |
| Brian Carrico | ||
| Chief Executive Officer |
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Timothy Henrichs, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended on June 30, 2024 of Neuraxis, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on Neuraxis, Inc.’s most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
| Date: August 9, 2024 | By: | /s/ Timothy Henrichs |
| Timothy Henrichs | ||
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Neuraxis, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 (the “Report”) I, Brian Carrico, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 9, 2024 | By: | /s/ Brian Carrico |
| Brian Carrico | ||
| Chief Executive Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Neuraxis, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 (the “Report”) I, Timothy Henrichs, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 9, 2024 | By: | /s/ Timothy Henrichs |
| Timothy Henrichs | ||
| Chief Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.