Neuraxis, INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Application of U.S. GAAP The Company’s financial statements are maintained in accordance with U.S. GAAP. Our application and compliance with U.S. GAAP is based on guidance and interpretations issued by the Financial Accounting Standards Board through the Accounting Standards Codification and Accounting Standards Updates. Our conclusions are communicated to our management, including our principal executive officer and principal financial officer, to allow timely and accurate decisions and reporting. Our management, with the participation of our principal executive and principal financial officer, evaluated our Company’s controls over the application of U.S. GAAP as of the end of the period covered by this Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2023, our controls over the application of U.S. GAAP were not effective as evidenced by the restatement of our unaudited financial statements as of and for the three and nine month periods ended September 30, 2023 included in Note 19 to this Form 10-K that constituted a material weakness. Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2023, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses as a result of the (i) lack of segregation of duties, (ii) lack of internal controls structure review and (iii) misapplication of GAAP. 68 Management’s Annual Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by the rules of the SEC for newly public companies. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 69 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of April 12, 2024: Name Age Position Brian Carrico 42 President, Chief Executive Officer, and Director Timothy Henrichs (1) 51 Chief Financial Officer Dr. Adrian Miranda 54 Chief Medical Officer, Senior Vice President of Science and Technology Dr. Thomas Carrico 67 Chief Regulatory Officer, Compliance Officer and Privacy Officer Dr. Christopher Robin Brown 70 Director Bradley Mitch Watkins 49 Director Beth Keyser 55 Director Kristin Ferge 50 Director (1) On January 30, 2024, our former Chief Financial Officer John Seale resigned from his position, effective as of the close of business on January 30 th . On the same day, Timothy R. Henrichs resigned as a member of the board of directors, effective February 2, 2024. On January 26, 2024, the board of directors appointed Mr. Henrichs to serve as the CFO, effective on February 5, 2024. Brian Carrico, President, Chief Executive Officer and Director Brian Carrico joined the Company in 2012. During his tenure, Mr. Carrico has held multiple leadership positions of increasing responsibility, including Vice President of Sales and President before becoming CEO on January 1, 2018. As an early employee in the Company’s life cycle, Mr. Carrico was instrumental in setting the strategic agenda for the Company, raising start-up capital, championing new product development, and bringing the Company’s technology to market. Prior to joining Neuraxis, Mr. Carrico worked selling in the operating room at Bard Medical and in the Cath lab at St. Jude Medical. He attended Indiana State University and holds a Bachelor of Science in Business Marketing. Timothy Henrichs, Chief Financial Officer Timothy Henrichs currently serves as the Company’s Chief Financial Officer since February 5, 2024 and was a director of the Company from August 9, 2023 to February 2, 2024. Mr. Henrichs’ global leadership experience spans over 20 years and across several industries, including healthcare, home improvement, retail, software and education. Previously Mr. Henrichs served as the Chief Financial Officer of Renovo Home Partners since 2022. He also served as the Executive Vice President and Chief Financial Officer of Follett Corporation from 2008 to 2022 and Global Controller of General Electric Company’s Healthcare Clinical Systems division responsible for the manufacture and distribution of medical devices to the ultrasound, patient monitoring and anesthesiology markets form 2005 to 2008 in addition to leadership positions at Federal Signal Corporation and Ernst & Young LLP. Mr. Henrichs earned his bachelor’s degree in accounting from the University of Notre Dame and is a Certified Public Accountant with an inactive license in the State of Illinois. 70 Dr. Adrian Miranda, Chief Medical Officer, Senior Vice President of Science and Technology Dr. Adrian Miranda has served as our Chief Medical Officer since 2018 and brings a unique background of research and clinical expertise to his role. Prior to joining Neuraxis, Dr. Miranda was an Assistant professor at the Medical College of Wisconsin. He is a board-certified pediatric gastroenterologist. He obtained his undergraduate degree in Biology from San Diego State University and obtained his medical degree from the Medical College of Wisconsin. He completed his residency and subspecialty training in pediatric gastroenterology at Children’s Hospital of Wisconsin. As a physician scientist, he has spent the past 20 years of his career investigating the pathophysiology of visceral and somatic pain, as well as exploring new therapeutic options. His focus has been on studying the effects of adverse early life events, neuroplasticity and the development of chronic pain. He has an extensive publication record and has lectured nationally and internationally. Dr. Thomas Carrico, Chief Regulatory Officer, Compliance Officer and Privacy Officer Dr. Thomas Carrico has served as our Chief Regulatory Officer since November 2017. He joined the Company in February 2012 as Director of Regulatory Affairs. Prior to and during his early years with Neuraxis, he was President & Clinic Director at Spine and Neuromuscular Associates in Lawrenceburg, Indiana from January 2002 to December 2018. He has over 40 years of experience in the healthcare field and has been involved in the study and application of techniques and treatments that directly affect the autonomic nervous system, especially regarding homeostasis and balance of the parasympathetic and the sympathetic nervous system. Dr. Carrico has a history of working with attorneys while serving on state and national boards, which has positioned him to integrate into regulatory responsibilities at the Company. Dr. Carrico received his undergraduate education from Indiana University and his Doctorate from Palmer College of Chiropractic. Dr. Christopher Robin Brown, Director Dr. Chirstopher Robin Brown is a co-founder of the Company. He developed clinical protocol, initial practice guidelines, designed and implemented the practitioner certification program and personally financed the first two years of the Company. After developing the technique of transillumination to isolate auricular neurovascular bundles, he authored and designed the initial studies establishing neurovascular and tissue energy transfer theories upon which the devices’ use are based. Dr. Brown is listed as the sole or principal inventor on all Neuraxis patents and is currently active in further device development working closely with compliance, product design and engineering. Upon graduation from the Indiana University School of Dentistry in 1982, while serving as clinic chief in the United States Army Reserve (USAR) dental corps at Fort Benjamin Harrison in Indianapolis, Indiana, Dr. Brown started a private practice (current) concentrating in head, neck, and facial pain developing the first hospital based facial pain clinic in Indiana. He received his master’s degree in Biomechanical Trauma in 1996 from Lynn University, one of only 12 dentists in the United States to hold the combination of DDS and MPS degrees. Dr. Brown has authored several textbook chapters, published peer reviewed articles on the physics of soft tissue trauma, pain, financial management, was regional editor for a national facial pain management Journal, and has lectured extensively nationally and internationally. He served on the Board of Directors of the American Academy of Pain Management for 15 years, helping grow the organization from 800 members to over 5,000. Throughout his tenure, he developed educational tracks, served as Industry liaison, one term as treasurer and one term as President. He served on the national board of The Alliance of TMD practitioners, serving one term as president. Throughout his career, Dr. Brown has been active in the purchasing and management of several destressed clinics and re-structuring them into profitable enterprises. He has performed extensive volunteer work overseas providing surgical care in the Dominican Republic, local dental clinics serving the underprivileged, and recently provided dental screenings for the deployment of soldiers in the USAR and National Guard. 71 Bradley Mitch Watkins, Director Bradley Mitch Watkins has overseen four companies through their early commercialization periods within the medical device sector over the last 20 years. He has directly reported to the CEO or board of directors and operated as the lead for all field operations. Over his 20 years in a multitude of medical device markets, Mr. Watkins has overseen $410 million in company acquisitions in an array of leadership roles. He has thrived in early commercialization, recruitment, and strategic company direction. These duties have groomed Mr. Watkins with a wide array of responsibilities beyond sales, including marketing, clinical study design, manufacturing, R&D, FDA submissions, and fiscal oversight. Mr. Watkins has been the National Sales Manager of Terumo Interventional Systems since 2015, where he has led multiple new technology sales teams within the peripheral IV and Electrophysiology markets. Mr. Watkins received his bachelor’s degree in behavioral science from the University of Maryland. Beth Keyser, Director With more than 20 years of experience in executive roles in population health, Beth Keyser is skilled at understanding the unique, complex needs of multiple market segments and devises solutions that meet their specific goals. Ms.Keyser is the President, BCBS of Indiana at Anthem, Inc. since 2020. From 2018 to 2020, Ms. Keyser served as the President, Create at Brighton Health Plan Solutions. From 2015 to 2020, Ms. Keyser served as the Senior Vice President, International and Hawaii Markets at Sharecare, Inc. Ms. Keyser received her master’s degree in Executive Master of Science, Health Administration, from University of Alabama at Birmingham. Kristin Ferge, Director Kristin Ferge has been President and Chief Financial Officer of Capri Communities and Bridges Home Healthcare, a Wisconsin-based privately held senior living corporation, since 2016. Prior to joining Capri, Ms. Ferge was an executive for 18 years with Brookdale Senior Living Inc. or one of its predecessors. Ms. Ferge ended her tenure at Brookdale, a publicly traded senior living company, as Executive Vice President, Treasurer, and Chief Accounting Officer. Prior to Brookdale, Ms. Ferge was an auditor with KPMG. Ms. Ferge is a certified public accountant. Family Relationships Brian Carrico, our Chief Executive Officer and Director, is the son of Dr. Carrico, our Chief Regulatory Officer. There are no other family relationships between or among any of our executive officers or other directors. Role of the Board It is the paramount duty of the board to oversee our management in the competent and ethical operation of the Company on a day-to-day basis and to assure that the long-term interests of the stockholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their positions, and set standards to ensure that we are committed to business success through maintenance of ambitious standards of responsibility and ethics. Director Terms; Qualifications Our directors are elected for a term of one year and until their successors qualified, nominated, and appointed or elected. When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the board of directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the board of directors focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director. Director or Officer Involvement in Certain Legal Proceedings There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years. 72 Directors and Officers Liability Insurance The Company maintains directors’ and officers’ liability insurance insuring its directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance may also insure the Company against losses, which it may incur in indemnifying its officers and directors. In addition, officers and directors also have indemnification rights under applicable laws, and the Company’s Certificate of Incorporation and Bylaws. Director Independence The listing rules of NYSE American require that independent directors must comprise a majority of a listed company’s board of directors. In addition, the rules of NYSE American require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under the rules of NYSE American, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has undertaken a review of the independence of our directors and considered whether any director has a material relationship with it that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, the board of directors has determined that three are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of NYSE American. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with the Company and all other facts and circumstances our board of directors deemed relevant in determining their independence. Board Committees As of December 31, 2023, the following three standing committees have been established: Audit Committee; Compensation Committee; and Nominating and Corporate Governance Committee. Each of our independent directors, Bradley Mitch Watkins, Beth Keyser and Kristin Ferge, serve on each committee. Our board has adopted written charters for each of these committees. Copies of the charters are available on our website. Our board may establish other committees as it deems necessary or appropriate from time to time. Audit Committee The Audit Committee, among other things, is responsible for: ● appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor; ● reviewing the internal audit function, including its independence, plans, and budget; ● approving, in advance, audit and any permissible non-audit services performed by our independent auditor; ● reviewing our internal controls with the independent auditor, the internal auditor, and management; ● reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; ● overseeing our financial compliance system; and ● overseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology. 73 The board of directors has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rules and listing standards of NYSE American All members of the Audit Committee are able to read and understand fundamental financial statements, are familiar with finance and accounting practices and principles and are financially literate. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee. The board of directors has affirmatively determined that each member of the Audit Committee is financially literate, and that Kristin Ferge meets the qualifications of an Audit Committee financial expert. The Audit Committee consists of Kristin Ferge, Bradley Mitch Watkins, and Beth Keyser and Ms. Ferge serves as chair of the Audit Committee. The functioning of the Audit Committee complies with the applicable requirements of the rules and listing standards of NYSE American and the SEC. Compensation Committee The Compensation Committee is responsible for: ● reviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; ● overseeing and administering the Company’s executive compensation plans, including equity-based awards; ● negotiating and overseeing employment agreements with officers and directors; and ● overseeing how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking incentives. The Compensation Committee consists of Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge, and Mr. Watkins serves as chair of the Compensation Committee. The board of directors has affirmatively determined that each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SEC rules and listing standards of NYSE American. The Company believes that the composition of the Compensation Committee meets the requirements for independence under, and the functioning of such Compensation Committee comply with, any applicable requirements of the rules and regulations of listing standards of NYSE American and the SEC. Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee, among other things, is responsible for: ● reviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues; ● evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the board of directors as a whole; ● working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee; ● annually presenting to the Board a list of individuals recommended to be nominated for election to the board; ● reviewing, evaluating, and recommending changes to the Company’s committee charters; ● recommending to the Board individuals to be elected to fill vacancies and newly created directorships; ● overseeing the Company’s compliance program, including the Code of Conduct; and ● overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, that may affect the Company’s major risk exposures. The Nominating and Corporate Governance Committee consists of Bradley Mitch Watkins, Beth Keyser, and Kristin Ferge and Ms. Keyser serves as chair of the Nominating and Corporate Governance Committee. The Company’s board of directors has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director requirements for independence under the NYSE American listing standards and SEC rules and regulations. 74 Compensation Committee Interlocks and Insider Participation None of the Company’s executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of the Company’s board of directors or its compensation committee. None of the members of the Company’s compensation committee is, or has ever been, an officer or employee of the Company. Code of Business Conduct and Ethics The Company’s board of directors has adopted a code of business conduct and ethics (“Code of Conduct”) applicable to its employees, directors and officers, in accordance with applicable U.S. federal securities laws and the corporate governance rules of NYSE American. The Code of Conduct is effective and is publicly available on the Company’s website. Any substantive amendments or waivers of the Code of Conduct may be made only by the Company’s board of directors and will be promptly disclosed as required by applicable U.S. federal securities laws and the corporate governance rules of NYSE American. Item 11. Executive Compensation Summary Compensation Table The following table sets forth information concerning all compensation earned by our Chief Executive Officer and two other persons who served as executive officers as, at, or during the year ended December 31, 2023, and who earned compensation exceeding $100,000 during 2023 (the “Named Executive Officers”), for services as executive officers for the last two years. Name and Principal Position Year Salary ($) Bonus ($) Insurance ($) Total ($) Brian Carrico 2023 375,000 441,346 23,052 839,398 Chief Executive Officer 2022 373,578 — 18,601 392,179 Dr. Thomas Carrico 2023 278,837 116,716 15,544 411,097 Chief Regulatory Officer 2022 271,962 — 15,234 287,196 Dr. Adrian Miranda 2023 300,000 — 23,052 323,052 Chief Medical Officer 2022 266,346 — 18,601 284,947 (1) Represents payments to our executive officers pursuant to their respective employment agreements. For more information, see “ —Employment Agreements.” 75 Outstanding Equity Awards at Fiscal Year-End The following table sets forth information regarding equity awards held by the Named Executive Officers as of December 31, 2023. Name Number of Securities Underlying Unexercised Options, Exercisable (#) Number of Securities Underlying Unexercised Options, Not Exercisable (#) Option Exercise Price ($) Option Expiration Date Brian Carrico 320,000 — 6.94 09/13/29 Dr. Thomas Carrico 306,236 — 6.94 09/13/29 Dr. Adrian Miranda 337,204 — 6.94 09/13/29 (1) All option awards were granted under the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan and vested fully upon grant. Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, As Amended On October 12, 2017, the Company adopted the Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as amended on September 13, 2019, September 9, 2021, and November 1, 2022 (collectively, the “2017 Plan”). The purpose of the 2017 Plan is to grant incentive stock options, nonqualified stock options, or restricted stock awards to our officers, employees, directors, advisors, and consultants. The maximum numbers of shares of common stock that may be issued pursuant to awards granted were 1,319,394. Cancelled and forfeited stock options and stock awards may again become available for grant under the 2017 Plan. As of the date of December 31, 2023, options to purchase all 1,319,394 shares of common stock have been granted under the 2017 Plan and remain outstanding, and no shares remain available for issuance under the 2017 Plan. The following summary briefly describes the principal features of the 2017 Plan and is qualified in its entirety by reference to the full text of the 2017 Plan, which is filed as an exhibit to the registration statement of which this prospectus forms a part. Purpose of the 2017 Plan : The purposes of the 2017 Plan are to encourage ownership of shares by eligible employees and key non-employees in order to attract and retain such eligible employees in the employ of the Company or an affiliated entity, or to attract such key non-employees to provide services to the Company or an affiliated entity, and to provide additional incentive for such persons to promote the long-term success of the Company or an affiliated entity. Administration of the Plan : The 2017 Plan is administered by the board of directors, or the committee to which the board of directors delegates the power to act. Among other things, the administrator has the authority to select persons who will receive awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, restrictions and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations relating to the 2017 Plan. Eligible Recipients : Persons eligible to receive awards under the 2017 Plan are those officers, employees, directors, advisors, and consultants of the Company or an affiliated entity who are selected by the administrator. Shares Available under the 2017 Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2017 Plan is 1,319,394 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. No new grants will be made under the 2017 Plan, and shares subject to an award under the 2017 Plan for which the award is canceled, forfeited or expires will become available for grants under the 2022 Plan described below. Shares subject to an award that is settled in cash will not again be made available for grants under the 2017 Plan. 76 Stock Options General . Subject to the provisions of the 2017 Plan, the administrator has the authority to determine all grants of stock options, although there are currently no shares of common stock remaining reserved for grants under the 2017 Plan. Option Price . The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date. Exercise of Options . An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to the holder of the option based upon the fair market value of the shares on the date of exercise. Expiration or Termination . Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date only if the holder’s service with our Company or an affiliate terminates before the expiration date and the holder is terminated for cause. The option may remain exercisable until the expiration date of the option after terminations of employment for any reason other than for cause, including terminations as a result of death, disability or retirement. Incentive and Non-Qualified Options . An incentive stock option is an option that is intended to qualify under certain provisions of the Internal Revenue Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market value in excess of $100,000, measured at the grant date. Restricted Stock Awards: Restricted stock awards could have also been granted under the 2017 Plan, although there are currently no shares of common stock remaining reserved for grants under the 2017 Plan. A restricted stock award is a grant of shares of common stock or of a right to receive shares in the future. Other Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board of directors also has the authority, at any time, to discontinue the granting of awards. The Plan may be amended by the board of directors and such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment shall be subject to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company if such stockholder approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under the Plan can be made without the consent of the holder of such award. No new grants can be made under the 2017 Plan. The terms and conditions of awards granted under the 2017 Plan prior to the effective date of the 2022 Plan will not be affected by the adoption or approval of the 2022 Plan, and the 2017 Plan will remain effective with respect to such awards. 77 Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan, As Amended On November 1, 2022, the Company adopted the Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (as amended January 18, 2023, the “2022 Plan”). The purpose of the 2022 Plan is to attract, retain and provide incentives to key management employees and non-employee directors of, and non-employee consultants to, the Company and its affiliates, and to align the interests of such employees, non-employee directors and non-employee consultants with those of the Company’s stockholders. The maximum numbers of shares of common stock that may be issued pursuant to awards granted are 300,000. Cancelled and forfeited stock options and stock awards may again become available for grant under the 2022 Plan. As of the date of this prospectus, no awards have been granted under the 2022 Plan, and 300,000 shares of common stock remain available for issuance under the 2022 Plan. The following summary briefly describes the principal features of the 2022 Plan and is qualified in its entirety by reference to the full text of the 2022 Plan. Purpose of the 2022 Plan : The purposes of the 2022 Plan is to benefit the stockholders of the Company, by assisting the Company to attract, retain and provide incentives to key management employees and non-employee directors of, and non-employee consultants to, the Company and its affiliates, and to align the interests of such employees, non-employee directors and non-employee consultants with those of the Company’s stockholders. Administration of the 2022 Plan : The 2022 Plan shall be administered by the board of directors or the committee designated by the board of directors. Among other things, the administrator has the authority to select persons who will receive awards, determine the time or times when an award shall be made, what type of award shall be granted, the term of an award, the date or dates on which an award vests (including acceleration of vesting), the form of any payment to be made pursuant to an award, the terms and conditions of an award (including the forfeiture of the award (and/or any financial gain) if the holder of the award violates any applicable restrictive covenant thereof), the restrictions under a restricted stock award and the number of common stock which may be issued under an award, all as applicable. In addition, subject to the express provisions of the 2022 Plan, the administrator is authorized to construe the 2022 Plan and the respective award agreements executed thereunder, to prescribe such rules and regulations relating to the 2022 Plan as it may deem advisable to carry out the intent of the 2022 Plan, to determine the terms, restrictions and provisions of each award, and to make all other determinations necessary or advisable for administering the 2022 Plan. Eligible Recipients : Persons eligible to receive awards under the 2022 Plan will be those officers, employees, directors, advisors, and consultants of the Company or an affiliated entity who are selected by the administrator. Shares Available under the Plan : The maximum number of shares of our common stock that may be delivered to participants under the 2022 Plan is 300,000 shares, subject to adjustment for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the 2022 Plan for which the award is lapses, expires, is canceled, terminated unexercised or ceases to be exercisable again become available for grants under the 2022 Plan. Stock Options General. Subject to the provisions of the 2022 Plan, the administrator has the authority to determine all grants of stock options. Option Price. The exercise price for stock options is determined at the time of grant. The exercise price may not be less than the fair market value on the date of grant. Additionally, incentive stock option grants to any person owning more than 10% of our voting stock must have an exercise price of not less than 110% of the fair market value on the grant date. Exercise of Options. An option may be exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or, at the option of the administrator, by actual or constructive delivery of shares of common stock to the holder of the option based upon the fair market value of the shares on the date of exercise. 78 Expiration or Termination. Options, if not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term cannot exceed five years. Options will terminate before their expiration date if the holder’s service with our Company or a subsidiary terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment, including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised to be established by the administrator and reflected in the grant evidencing the award. Incentive and Non-Qualified Options. As described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example, generally, the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, to the extent that the aggregate fair market value of common stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary corporation thereof which provide for the grant of incentive stock options exceeds $100,000, the portion of such incentive stock options that exceeds such threshold shall be treated as non-qualified stock options. Incentive stock options shall be granted to employees only. Restricted Stock Awards: Restricted stock awards can be granted under the 2022 Plan. A restricted stock award is a grant of shares of common stock or of a right to receive shares in the future. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals. Unrestricted Stock Awards : Unrestricted stock awards can also be granted under the 2022 Plan. An unrestricted stock award is a grant of shares of common stock which is not subject to restrictions, in consideration for past services rendered thereby to the Company or an affiliate or for other valid consideration. Restricted Stock Unit Awards : Restricted stock unit awards (“RSUs”) can be granted under the 2022 Plan upon the satisfaction of predetermined individual service related vesting requirements. The holder of a restricted stock unit shall be entitled to receive a cash payment equal to the fair market value of shares of common stock, for each unit awarded to the holder. Performance Stock Unit Awards : Performance stock unit awards can be granted under the 2022 Plan. A holder of performance stock units shall be entitled to receive a cash payment equal to the dollar value or number of shares of common stock assigned to such units if the holder and/or the Company satisfy the predetermined performance goals and objectives. Distribution Equivalent Rights : Distribution equivalent right awards can be granted under the 2022 Plan. A distribution equivalent right award entitles the holder to receive bookkeeping credits, cash payments and/or common stock distributions equal in amount to the distributions that would have been made to the holder had the holder held a specified number of common stock during the period the holder held the distribution equivalent right. Stock Appreciation Right s: Stock appreciation rights can also be granted under the 2022 Plan, which is a right, granted alone or in connection with a related Option, to receive a payment on the date of exercise. The base value of the stock appreciation right shall be set forth by the administrator and shall not be less than the fair market value of the common stock at the date of grant for the stock appreciation right which is not a tandem stock appreciation right. No stock appreciation right shall be exercisable after the expiration of ten (10) years from the date of its grant. Upon the exercise of some or all of the portion of a stock appreciation right, the holder shall receive a payment from the Company, in cash or in the form of common stock having an equivalent fair market value or in a combination of both. If the administrator grants a stock appreciation right which is intended to be a tandem stock appreciation right, the tandem stock appreciation right shall be granted at the same time as the related option. 79 Other Material Provisions : Awards are evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the capitalization of our Company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change of control of our Company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant, awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board of directors also has the authority, at any time, to discontinue the granting of awards. The 2022 Plan may be amended by the board of directors and such amendment shall become effective upon adoption by the board of directors; provided, however, that any amendment shall be subject to the approval of the stockholders of the Company at or before the next annual meeting of the stockholders of the Company if such stockholder approval is required by applicable laws. No amendment that would adversely affect any outstanding award made under the 2022 Plan can be made without the consent of the holder of such award. The 2022 Plan shall continue in effect, unless sooner terminated, until the tenth (10th) anniversary of the date on which it is adopted by the board of directors. Employment Agreements Brian Carrico , our Chief Executive Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended on May 4, 2023, which has a five-year initial term and provides for a base salary of $330,000, which shall be increased each year by not less than 3% per annum. Mr. Carrico also will receive a one-time incentive payment in the amount of $435,577, which amount consists of accrued and unpaid salary and a bonus to incentivize Mr. Carrico to remain with the Company for future service. Neither the accrued and unpaid salary nor bonus was the subject of any contract or agreement between Mr. Carrico and the Company prior to the execution of the employment agreement. The agreement contemplated that the incentive payment would be paid by December 15, 2022, but due to administrative impracticability, payment was made with a portion of the proceeds from the IPO in August 2023. In addition, Mr. Carrico is entitled to payment of a deferred bonus in an amount equal to (i) the aggregate of the strike price or exercise price of all 320,000 unexercised options to purchase stock or shares of the Company held by Mr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably calculated by the Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, there remains an amount sufficient to pay such ordinary income taxes. The special deferred bonus will be paid in substantially equal 20% installments (the “Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled Payment Dates”), with a condition that on or before each Scheduled Payment Date, Mr. Carrico shall exercise at least 64,000 of the stock option. None of stock options has been exercised, therefore, no special deferred bonus has been paid as of the date of this prospectus. Mr. Carrico may exercise any portion of the stock options after a Scheduled Payment Date; provided, however, an exercise after the applicable Scheduled Payment Date shall result in forfeiture of the related Annual Deferred Bonus Payment. If the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Mr. Carrico will receive any accrued compensation (as defined in the employment agreement) and is entitled to severance payments as follows: ● If termination occurs during the initial term, the severance payment shall be the amount equal to the greater of (a) three times Mr. Carrico’s base salary as of the termination date; and (b) three times the total amount of Mr. Carrico’s bonus payments the Company paid Mr. Carrico over the one year prior to the termination date, to be paid in substantially equal monthly installments over the course of the three years. ● If termination occurs after the initial term, the severance payment shall be the amount equal to the greater of (a) one and one half (1.5) times Mr. Carrico’s base salary as of the termination date; and (b) one and one half (1.5) times the total amount of Mr. Carrico’s bonus payments the Company paid Mr. Carrico over the one (1) year prior to the termination date, to be paid in substantially equal monthly installments over the course of 18 months following the termination date. ● In addition, as part of the severance payment, we agreed to pay Mr. Carrico monthly COBRA premiums for continuation of health coverage for 18 months post termination. 80 If the employment agreement is terminated by the Company for cause, Mr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred prior to the Mr. Carrico’s termination date; and accrued and unused paid time off (“PTO”), if any, in accordance with the Company’s PTO policy in effect on Mr. Carrico’s termination date. Mr. Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid balance of the deferred bonus. In the event that Mr. Carrico is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred bonus tranche will be forfeited if its corresponding options have expired. On a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. Pursuant to the employment agreement, Mr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with Company; (iv) will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with the Company during his employment and, (v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or servicing of any service or product with which Mr. Carrico was involved during his last year of employment with the Company; or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about which Mr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months after his separation from the Company. Dr. Adrian Miranda , our Chief Medical Officer and Senior Vice President of Science and Technology, entered into an employment agreement with the Company, dated August 17, 2022, which has a two-year initial term and provides for a base salary of $300,000 with annual compensation increase. In addition, Dr. Miranda shall be entitled to payment of a special deferred bonus in an amount equal to (i) the aggregate of the strike price or exercise price of all 337,204 unexercised options to purchase stock or shares of the Company held by Dr. Miranda (the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably calculated by the Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, there remains an amount sufficient to pay such ordinary income taxes. The deferred bonus will be paid in substantially equal 20% installments (the “Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028, with a condition that on or before each scheduled payment date, Dr. Miranda shall exercise at least 67,441 of the stock options. 81 If the employment agreement is terminated by the Company without cause (as defined in the employment agreement) occurs during the term of the agreement, Dr. Miranda will receive any accrued compensation (as defined in the employment agreement) and is entitled to certain amount of severance payments as follows: ● If termination occurs during the initial term, the Company shall provide Dr. Miranda with severance compensation in the form of salary continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of the initial term. ● If termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Miranda’s Base Salary as of the termination date. ● In addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Miranda reimbursement of his monthly COBRA premiums for continuation of health coverage for 18 months post termination. If the employment agreement is terminated by the Company for cause, Dr. Miranda will forfeit any unpaid Annual Deferred Bonus Payment, but will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred prior to the Dr. Miranda’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO policy in effect on Dr. Miranda’s termination date. Dr. Miranda may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid balance of the special deferred bonus. In the event that Dr. Miranda is terminated without cause, non-forfeited portions of the deferred bonus will be paid in equal installments over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred bonus tranche will be forfeited if its corresponding options have expired. On a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. Pursuant to the employment agreement, Dr. Miranda also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or servicing of any service or product with which Dr. Miranda was involved during his last year of employment with the Company; or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about which Dr. Miranda gained any confidential information in the course of his employment with the Company for a period of 24 months after his separation from the Company. 82 Dr. Thomas Carrico , Chief Regulatory Officer, entered into an employment agreement with the Company, dated August 9, 2022 and amended on May 4, 2023, which has a two-year initial term and provides for a base salary of $275,000 with annual compensation increase. Dr. Carrico will also receive a one-time incentive payment in the amount of $135,655, which amount includes accrued and unpaid salary and a bonus to incentivize Dr. Carrico to remain with the Company for future service. Neither the accrued and unpaid salary nor bonus was the subject of any contract or agreement between Dr. Carrico and the Company prior to the execution of the employment agreement. The agreement contemplated that the incentive payment would be paid by December 15, 2022, but due to administrative impracticability, payment was made with a portion of the proceeds from the IPO in August 2023. In addition, Dr. Carrico shall be entitled to payment of a deferred bonus in an amount equal to (i) the aggregate of the strike price or exercise price of all 306,236 unexercised options to purchase stock or shares of the Company held by Dr. Carrico (the “Aggregate Strike Price”) plus (ii) a tax gross-up payment on the Aggregate Strike Price reasonably calculated by the Company at the highest marginal rates so that after payment of all ordinary income taxes on such Aggregate Strike Price, there remains an amount sufficient to pay such ordinary income taxes. The special deferred bonus will be paid in substantially equal 20% installments (the “Annual Deferred Bonus Payment”) on January 2 on each of 2024, 2025, 2026, 2027, and 2028 (the “Scheduled Payment Dates”), with a condition that on or before each Scheduled Payment Date, Dr. Carrico shall exercise at least 61,274 of the stock option. None of stock options has been exercised, therefore, no special deferred bonus has been paid as of the date of this prospectus. Dr. Carrico may exercise any portion of the stock options after a Scheduled Payment Date; provided, however, an exercise after the applicable Scheduled Payment Date shall result in forfeiture of the related Annual Deferred Bonus Payment. If the employment agreement is terminated by the Company without cause (as defined in the employment agreement), Dr. Carrico will receive any accrued compensation (as defined in the employment agreement) and is entitled to certain amount of severance payments as follows: ● If termination occurs during the initial term, the Company shall provide Dr. Carrico with severance compensation in the form of salary continuation at his Base Salary as of the termination date and ending the later of (i) 6 months or (ii) on the expiration date of the initial term. ● If termination occurs after the initial term, the severance payment shall be the amount equal to one half (1/2) of Dr. Carrico’s Base Salary as of the termination date. ● In addition, if termination occurs during the initial term, as part of the severance payment, we agreed to pay Dr. Carrico reimbursement of his Medicare, Medicare Supplement and prescription drug coverage insurance premiums for continuation of health coverage for 18 months post termination. If the employment agreement is terminated by the Company for cause, Dr. Carrico will forfeit any unpaid Annual Deferred Bonus Payment, but will receive any unpaid base salary that has been earned at the time of such termination, reimbursement of any expenses properly incurred prior to the Dr. Carrico’s termination date; and (iii) accrued and unused PTO, if any, in accordance with the Company’s PTO policy in effect on Dr. Carrico’s termination date. Dr. Carrico may terminate the employment agreement without good reason upon more than thirty (30) days’ prior written notice or for good reason without prior written consent, and will receive accrued compensation (as defined in the employment agreement) and the unpaid balance of the special deferred bonus. In the event that Dr. Carrico is terminated without cause after this offering, non-forfeited portions of the deferred bonus will be paid in equal installments over the remaining scheduled payment dates, if vested options as scheduled are exercised before the scheduled payment dates. A deferred bonus tranche will be forfeited if its corresponding options have expired. On a change in control (as defined in the employment agreement), full vesting of the Annual Deferred Bonus Payment will occur and be paid in a single lump sum within 30 days after the change in control. The offering shall not be considered a change in control. Pursuant to the employment agreement, Dr. Carrico also agreed to (i) not disclose to any unauthorized person or use for his own account any confidential information without the prior written consent of the Company or the board of directors, (ii) will not, directly or indirectly encourage, solicit, induce (or attempt to encourage, solicit or induce) any employee or agent of the Company that was employed (or otherwise engaged) at the time of his separation during his employment and for 24 months after his separation from that employment for any reason; (iii) will not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with Company; (iv) not, directly or indirectly, have any ownership interest in, work for, advise, manage, act as an agent or consultant for, or have any business connection or business or employment relationship with any entity or person which competes with the Company during his employment and (v) will not, directly or indirectly and in a competitive capacity own, manage, finance, operate, control or participate in ownership, management, or operation of, act as an agent, consultant, or be employed with, any business engaged in the design, manufacture, marketing, sale or servicing of any service or product with which Dr. Carrico was involved during his last year of employment with the Company; or which the Company is developing, producing, marketing, selling or servicing (or plans to develop, produce, market, sale or service) and about which Dr. Carrico gained any confidential information in the course of his employment with the Company for a period of 24 months after his separation from the Company. 83 Non-Employee Director Compensation The following table presents the compensation awarded to or earned by or paid to all individuals who served as non-employee directors during the year ended December 31, 2023. We do not provide additional compensation to directors who are our employees for also serving as a director. Name Fees Earned ($) Stock Awards Earned ($) Total ($) Timothy R. Henrichs (1) 23,836 19,863 43,699 Bradley M. Watkins 23,836 19,863 43,699 Jane E. Keyser 23,836 19,863 43,699 (1) On January 30, 2024, Timothy R. Henrichs resigned as a member of the board of directors, effective February 2, 2024 and became the Company’s Chief Financial Officer. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of April 12, 2024 based on 6,594,897 common shares outstanding. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities as well as any common stock that the person has the right to acquire within 60 days of April 12, 2024 through the exercise of stock options or other rights. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Beneficially Ownership Common Stock Shares Percentage Name of beneficial owner 5% shareholders: Masimo Corporation (1) 821,327 11.9 % Brian P. Hannasch (2) 562,420 8.5 % PBF Venture Group LLC (3) 415,258 6.3 % Gary Peterson 400,120 6.1 % 108 Sussex LLC (4) 372,171 5.6 % Named executive officers and directors: Brian Carrico 84,118 1.3 % Timothy Henrichs - * Adrian Miranda 67,441 1.0 % Thomas Carrico 66,247 1.0 % Christopher Robin Brown 792,837 12.0 % Bradley Mitch Watkins - * Beth Keyser - * Kristin Ferge - * All executive officers and directors as a group ( eight (8) persons) 1,010,643 14.9 % * Less than 1%. (1) The business address for Masimo Corporation is 52 Discovery, Irvine, California 92618. Shares of common stock beneficially owned includes 289,779 warrants. (2) Shares of common stock beneficially owned includes 12,852 warrants. (3) The business address for PBF Venture Group LLC is 5501 Woodrow Avenue, Austin, Texas 78756. (4) The business address for 108 Sussex LLC is 304 South Euclid Avenue, Westfield, New Jersey 07090. 84 Item 13. Certain Relationships and Related Transactions and Director Independence The following includes a summary of transactions since January 1, 2022, to which we have been a party in which the amount involved exceeded or will exceed the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two fiscal years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Item 11. Executive Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders. The Company has two demand notes receivable from its two founding shareholders, Christopher Robin Brown and Gary Peterson, related to the sale of common stock on January 1, 2016. The initial balances of both notes were $506,400, with interest calculated monthly based on applicable federal rates. No payments have been received on the notes. As of December 31, 2023, the balances of both notes were $506,400. The entire $1,012,800 balance has been fully reserved as of December 31, 2023. The Company has loans payable to Christopher Robin Brown, one of our founders and a member of our board of directors, related to funding needs for operations with original principal amounts of $55,000 and $50,000 each bearing interest at 15% per annum. In August 2023, the Company used a portion of the proceeds from the IPO to repay these loans payable in full, including $37,103 in interest. Mr. Watkins, Director, provided certain sales, marketing and commercialization consulting services to the Company prior to his appointment to the Board of Directors. For the fiscal years ended December 31, 2023 and 2022, the Company paid Mr. Watkins $11,083 and $3,523, respectively. John Seale, our former Chief Financial Officer, is also the managing partner of RBSK. Mr. Seale, through RBSK, has provided accounting services since 2017. For the fiscal years ended December 31, 2023 and 2022, the Company paid RBSK $312,803 and $116,542, respectively, for accounting services. We have adopted a formal policy that our executive officers, directors, holders of more than 5% of any class of our voting securities, and any member of the immediate family of and any entity affiliated with any of the foregoing persons, are not permitted to enter into a related party transaction with us without the prior consent of our Audit Committee, or other independent members of our Board of Directors if it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, principal shareholder, or any of their immediate family members or affiliates, in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our Audit Committee is to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Item 14. Principal Accounting Fees and Services Fees Billed for Audit and Non-Audit Services The following table presents for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial statements and other professional services rendered by our independent registered public accounting firm Rosenberg Rich Baker Berman, P.A. 2023 2022 Audit Fees (1) $ 221,570 $ 162,165 (1) Audit Fees . These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-K and Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements. 85 PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES (a) 1. Financial Statements The financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included from F-2 onwards. 2. Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein. 3. Exhibits (including those incorporated by reference). (b) Exhibits Exhibit Number Exhibit Description 3.1 Certificate of Incorporation (incorporated by reference to exhibit 3.1 to Registration Statement on Form S-1, filed on January 10, 2023) 3.2 Certificate of Amendment to Certificate of Incorporation (incorporated by reference to exhibit 3.2 to Registration Statement on Form S-1, filed on January 26, 2023) 3.3 Bylaws (incorporated by reference to exhibit 3.3 to Registration Statement on Form S-1, filed on January 10, 2023) 4.1* Description of the Company’s Securities 4.2 Second Amendment to Shareholders’ Agreement, dated January 8, 2023 (incorporated by reference to exhibit 4.21 to Registration Statement on Form S-1, filed on January 10, 2023) 4.3 Form of Warrant related to 2023 Private Placement (incorporated by reference to exhibit 4.23 to Registration Statement on Form S-1, filed on June 1, 2023) 10.1† Employment Agreement between Neuraxis, Inc. and Brian Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.12 to Registration Statement on Form S-1, filed on January 10, 2023) 10.2† First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Brian Carrico, dated as of May 4, 2023 (incorporated by reference to exhibit 10.13 to Registration Statement on Form S-1, filed on June 1, 2023) 10.3† Employment Agreement between Neuraxis, Inc. and Adrian Miranda, dated as of August 17, 2022 (incorporated by reference to exhibit 10.13 to Registration Statement on Form S-1, filed on January 10, 2023) 10.4† Employment Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of August 9, 2022 (incorporated by reference to exhibit 10.14 to Registration Statement on Form S-1, filed on January 10, 2023) 86 10.5† First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Thomas Carrico, dated as of May 4, 2023 (incorporated by reference to exhibit 10.16 to Registration Statement on Form S-1, filed on June 1, 2023) 10.6† Employment Agreement between Neuraxis, Inc. and Dan Clarence, dated as of August 9, 2022 (incorporated by reference to exhibit 10.15 to Registration Statement on Form S-1, filed on January 10, 2023) 10.7† First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Dan Clarence, dated as of May 4, 2023 (incorporated by reference to exhibit 10.18 to Registration Statement on Form S-1, filed on June 1, 2023) 10.8† Employment Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of August 9, 2022 (incorporated by reference to exhibit 10.16 to Registration Statement on Form S-1, filed on January 10, 2023) 10.9† First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Christopher Robin Brown, dated as of May 4, 2023 (incorporated by reference to exhibit 10.20 to Registration Statement on Form S-1, filed on June 1, 2023) 10.10† Employment Agreement between Neuraxis, Inc. and Gary Peterson, dated as of August 9, 2022 (incorporated by reference to exhibit 10.17 to Registration Statement on Form S-1, filed on January 10, 2023) 10.11† First Amendment to Executive Employment Agreement between Neuraxis, Inc. and Gary Peterson, dated as of May 4, 2023 (incorporated by reference to exhibit 10.22 to Registration Statement on Form S-1, filed on June 1, 2023) 10.12† Innovative Health Solutions, Inc. 2017 Stock Compensation Plan, as amended (incorporated by reference to exhibit 10.20 to Registration Statement on Form S-1, filed on January 10, 2023) 10.13† Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.21 to Registration Statement on Form S-1, filed on January 10, 2023) 10.14† First Amendment to Neuraxis, Inc. 2022 Omnibus Securities and Incentive Plan (incorporated by reference to exhibit 10.26 to Registration Statement on Form S-1, filed on January 26, 2023) 10.15 Form of Securities Purchase Agreement related to 2023 Private Placement (incorporated by reference to exhibit 10.32 to Registration Statement on Form S-1, filed on June 1, 2023) 10.16 Form of Senior Secured Convertible Note related to 2023 Private Placement (incorporated by reference to exhibit 10.33 to Registration Statement on Form S-1, filed on June 1, 2023) 10.17 Form of Security Agreement related to 2023 Private Placement (incorporated by reference to exhibit 10.34 to Registration Statement on Form S-1, filed on June 1, 2023) 10.18 Form of Registration Rights Agreement related to 2023 Private Placement (incorporated by reference to exhibit 10.35 to Registration Statement on Form S-1, filed on June 1, 2023) 10.19 Securities purchase agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.1 to current report on Form 8-K, furnished to the SEC on November 14, 2023) 10.20 Registration rights agreement, dated November 9, 2023, between the Company and Flagstaff International, LLC (incorporated by reference to exhibit 10.2 to current report on Form 8-K, furnished to the SEC on November 14, 2023) 87 21.1 List of Subsidiaries of Neuraxis, Inc. (incorporated by reference to exhibit 21.1 to Registration Statement on Form S-1, filed on January 10, 2023) 31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002 32.1** Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 97.1* NeurAxis, Inc. Compensation Recovery Policy 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 (formatted as Inline XBRL and contained in Exhibit 101). † Executive compensation plan or arrangement. * Filed herewith. ** Furnished herewith. ITEM 16. FORM 10-K SUMMARY Not Applicable. 88 Index to Financial Statements FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Page(s) Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 0089 ) F-1 Balance Sheets as of December 31, 2023 and 2022 F-2 Statements of Operations for the Years Ended December 31, 2023 and 2022 F- 4 Statements of Stockholders’ Deficit for the Years Ended December 31, 2023 and 2022 F- 5 Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-6 Notes to Financial Statements F- 7 89 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Neuraxis, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Neuraxis, Inc. (the Company) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Restatement of Previously Issued Financial Statements As discussed in Note 19 to the financial statements, the Company restated its 2023 quarterly information for an error in the classification of warrants. Emphasis of Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is not profitable, has recorded negative cash flows from operations, and will need substantial capital to support its operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Rosenberg Rich Baker Berman, P.A . We have served as the Company’s auditor since 2022. Somerset, New Jersey April 16, 2024 F- 1 Neuraxis, Inc. Balance Sheets December 31, 2023 December 31, 2022 Assets Current Assets: Cash and cash equivalents $ 78,560 $ 253,699 Accounts receivable, net 73,167 174,399 Inventories 21,220 48,133 Prepaids and other current assets 69,663 726 Total current assets 242,610 476,957 Property and Equipment, at cost: 436,626 405,845 Less - accumulated depreciation ( 348,074 ) ( 317,834 ) Property and equipment, net 88,552 88,011 Other Assets: Deferred offering costs — 736,736 Operating lease right of use asset, net 70,263 101,382 Intangible assets, net 108,073 77,558 Total Assets $ 509,498 $ 1,480,644 Notes to financial statements are an integral part of these statements. F- 2 Neuraxis, Inc. Balance Sheets December 31, 2023 December 31, 2022 Liabilities Current Liabilities: Accounts payable $ 1,204,219 $ 1,592,116 Accrued expenses 401,088 834,062 Notes payable 148,062 202,834 Current portion of operating lease payable 49,127 33,395 Notes payable - related party — 58,051 Notes payable — 58,051 Notes payable - convertible notes, net of unamortized discount of $ 0 and $ 3,327,213 as of December 31, 2023 and December 31, 2022 — 228,342 Customer deposits 74,947 59,174 Derivative liabilities — 1,735,700 Warrant liabilities 8,225 2,234,384 Total current liabilities 1,885,668 6,978,058 Non-current Liabilities: Operating lease payable, net of current portion 27,071 76,199 Total non-current liabilities 27,071 76,199 Total liabilities 1,912,739 7,054,257 Commitments and contingencies (see note 14) Stockholders’ Deficit Convertible Series A Preferred stock, $ 0.001 par value; 1,000,000 shares authorized; 0 issued and outstanding as of December 31, 2023 and 506,637 as of December 31, 2022 — 507 Convertible Series Seed Preferred Stock, $ 0.001 par value; 120,000 shares authorized; 0 issued and outstanding as of December 31, 2023 and 115,477 as of December 31, 2022 — 115 Preferred Stock, value — 115 Common stock, $ 0.001 par value; 100,000,000 shares authorized; 6,508,897 issued and outstanding as of December 31, 2023 and 1,963,322 as of December 31, 2022 6,509 1,963 Additional paid in capital 47,148,361 28,355,230 Accumulated deficit ( 48,558,111 ) ( 33,931,428 ) Total stockholders’ deficit ( 1,403,241 ) ( 5,573,613 ) Total Liabilities and Stockholders’ Deficit $ 509,498 $ 1,480,644 Notes to financial statements are an integral part of these statements. F- 3 Neuraxis, Inc. Statements of Operations 2023 2022 For the Years Ended December 31, 2023 2022 Net Sales $ 2,460,049 $ 2,684,735 Cost of Goods Sold 303,345 297,060 Gross Profit 2,156,704 2,387,675 Selling Expenses 323,569 410,883 Research and Development 169,315 225,610 General and Administrative 8,328,315 5,123,420 Operating Loss ( 6,664,495 ) ( 3,372,238 ) Other (Expense) Income: Financing charges ( 2,772 ) ( 2,322,216 ) Interest expense ( 476,416 ) ( 318,666 ) Change in fair value of warrant liability 844,854 606,049 Change in fair value of derivative liability 198,551 713,989 Amortization of debt discount and issuance cost ( 4,881,622 ) ( 98,935 ) Extinguishment of debt liabilities ( 3,649,561 ) — Other income 15,133 11,956 Other expense ( 10,355 ) — Total other (expense) income, net ( 7,962,188 ) ( 1,407,823 ) Net Loss $ ( 14,626,683 ) $ ( 4,780,061 ) Per-share Data Basic and diluted loss per share $ ( 4.50 ) $ ( 2.77 ) Weighted Average Shares Outstanding Basic and diluted 3,252,328 2,003,322 Notes to financial statements are an integral part of these statements. F- 4 Neuraxis, Inc. Statements of Stockholders’ Deficit For the Twelve Months Ended December 31, 2023 and 2022 Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit) Convertible Series A Preferred Stock Convertible Series Seed Preferred Stock Common Stock Additional Paid In Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Balances as of January 1, 2022 506,637 $ 507 115,477 $ 115 1,928,004 $ 1,928 $ 28,323,157 $ ( 29,151,367 ) $ ( 825,660 ) Stock based compensation — — — — — — 27,319 — 27,319 Common stock issued upon signing of notes payable — — — — 35,318 35 4,754 — 4,789 Net loss — — — — — — — ( 4,780,061 ) ( 4,780,061 ) Balances as of December 31, 2022 506,637 $ 507 115,477 $ 115 1,963,322 $ 1,963 $ 28,355,230 $ ( 33,931,428 ) $ ( 5,573,613 ) Common stock issued upon initial public offering — — — — 1,098,667 1,099 4,109,578 — 4,110,677 Common stock issued upon preferred stock conversion ( 506,637 ) ( 507 ) ( 115,477 ) ( 115 ) 1,244,228 1,244 ( 622 ) — — Common stock issued upon debt conversion — — — — 1,649,900 1,650 9,897,833 — 9,899,483 Common stock issued from agreements — — — — 425,000 425 749,575 — 750,000 Reclassification of warrant liability to equity — — — — — — 3,720,997 — 3,720,997 Warrants exercised — — — — 127,780 128 315,770 — 315,898 Net loss — — — — — — — ( 14,626,683 ) ( 14,626,683 ) Balances as of December 31, 2023 — $ — — $ — 6,508,897 $ 6,509 $ 47,148,361 $ ( 48,558,111 ) $ ( 1,403,241 ) Notes to financial statements are an integral part of these statements. F- 5 Neuraxis, Inc. Statements of Cash Flows 2023 2022 For the Years Ended December 31, 2023 2022 Cash Flows from Operating Activities Net Loss $ ( 14,626,683 ) $ ( 4,780,061 ) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of debt discount and issuance cost 4,881,622 98,935 Depreciation and amortization 40,725 37,133 Provisions for losses on accounts receivable 25,281 19,505 Non-cash lease expense 31,119 26,593 Non-cash interest expense 260,777 — Stock based compensation — 27,319 Extinguishment of debt liabilities 3,649,561 — Issuance of common stock for non-cash consideration 750,000 — Finance Charges 2,772 2,322,216 Change in fair value of derivative liabilities ( 198,551 ) ( 713,989 ) Change in fair value of warrant liabilities ( 844,854 ) ( 606,049 ) Changes in operating assets and liabilities: Accounts receivable 75,951 ( 78,603 ) Inventory 26,913 ( 8,953 ) Prepaids and other current assets ( 68,937 ) 14,944 Accounts payable ( 387,897 ) 1,108,326 Accrued expenses ( 294,154 ) 272,425 Customer deposits 15,773 ( 10,163 ) Operating lease liability ( 33,396 ) ( 27,582 ) Net cash used by operating activities ( 6,693,978 ) ( 2,298,004 ) Cash Flows from Investing Activities Additions to property and equipment ( 30,781 ) ( 1,390 ) Additions to intangible assets ( 41,000 ) ( 59,815 ) Net cash used by investing activities ( 71,781 ) ( 61,205 ) Cash Flows from Financing Activities Proceeds from issuance of common stock, net of issuance costs 4,847,457 — Deferred offering costs paid — ( 736,736 ) Proceeds from exercised warrants 209,097 — Principal payments on notes payable ( 3,533,765 ) ( 163,214 ) Proceeds from notes payable 159,831 122,000 Proceeds from convertible notes 5,460,000 3,200,000 Financing fees paid ( 552,000 ) ( 130,000 ) Net cash provided by financing activities 6,590,620 2,292,050 Net Decrease in Cash and Cash Equivalents ( 175,139 ) ( 67,159 ) Cash and Cash Equivalents at Beginning of Period 253,699 320,858 Cash and Cash Equivalents at End of Period $ 78,560 $ 253,699 Supplemental Disclosure of Non-Cash Operating Activities Cash paid for interest $ 214,562 $ 202,781 Cash paid for income taxes — — Supplemental Schedule of Non-Cash Investing and Financing Activities Fair value of warrant liabilities of warrants from convertible notes $ 2,446,502 $ 884,118 Fair value of derivative liabilities of conversion feature from convertible notes 2,375,378 1,075,098 Prior year offering costs paid 736,736 — Reclassification of warrant liability to equity 3,720,997 — Conversion of preferred stock to common stock 1,244 — Notes to financial statements are an integral part of these statements. F- 6 Neuraxis, Inc. Notes to Financial Statements 1. Basis of Presentation, Organization and Other Matters Neuraxis, Inc. (“we,” “us,” the “Company,” or “Neuraxis”) was established in 2011 and incorporated in the state of Indiana on April 17, 2012, under the name of Innovative Health Solutions, Inc. The name was changed to Neuraxis, Inc. in March of 2022. Additionally, the Company filed a Certificate of Conversion to become a Delaware corporation on June 23, 2022. The authorized shares were increased, and a par value established. On January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split . All per share information has been adjusted for this reverse stock split. The reverse split became effective on January 12, 2023. All share and per share amounts for the common stock have been retroactively restated to give effect to the splits. As part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation shall have authority to issue is (1) 100,000,000 shares of Common Stock, par value $ 0.001 per share (“Common Stock”) and (ii) 1,120,000 shares of Preferred Stock, par value $ 0.001 per share (“Preferred Stock”), 1,000,000 of which is hereby designated as “Series A Preferred Stock” and 120,000 of which is hereby designated as “Series Seed Preferred Stock” with the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth in this Article IV of the Delaware Certificate of Incorporation. All share amounts have been retroactively restated to give effect to these changes. On August 9, 2023, the Company consummated an initial public offering, conducted on a firm commitment basis, pursuant to which it sold 1,098,667 shares of its common stock at a price of $ 6.00 per share, resulting in gross proceeds to the Company of $ 6,592,002 . Net proceeds to the Company, after deducting underwriting discounts and commissions, 2022 deferred offering costs totaling $ 736,736 and offering expenses paid by the Company, were $ 4,110,721 . All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), as amended, declared effective by the SEC on August 9, 2023. Alexander Capital L.P. (“Alexander”) acted as sole book-running manager for the offering and Spartan Capital Securities, LLC acted as co-manager for the offering. The underwriters did not exercise their option to purchase up to an additional 164,801 shares of common stock. The Company paid the underwriters an underwriting discount of seven percent ( 7 % ) of the amount raised in the offering. In addition, we also paid the underwriters a non-accountable expense allowance in the amount of 1 % (such 8 % in commissions and fees amounted to a total of $ 527,000 ) at closing, as well as $ 175,000 for the reimbursement of certain of the underwriters’ expenses. Additionally, as partial consideration for services rendered in connection with the offering, the Company issued Alexander unregistered warrants to purchase an aggregate of 65,921 shares of Company common stock, representing 6.0 % of the aggregate shares sold in the offering. The warrants have an initial exercise price of $ 7.20 per share (equal to 120 % of the offering price per share), have a term of five years from the commencement of sales in the offering, and are exercisable at any time. The Company is headquartered in Carmel, Indiana. The Company specializes in the development, production, and sale of medical neuromodulation devices. The Company has developed three FDA cleared products, the IB-STIM (DEN180057, 2019), the NSS-2 Bridge (DEN170018, 2017), and the original 510(K) clearance (K140530, 2014). ● The 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 $ 250,000 from Masimo. Masimo markets and sells this product as its Masimo Bridge, and the Company will not receive any further licensing payments or other revenue from this product. ● 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. F- 7 Neuraxis, Inc. Notes to Financial Statements 2. Summary of Significant Accounting Policies The summary of significant accounting policies of Neuraxis, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Preparing the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Use of Estimates and Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with 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. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company did not hold any cash equivalents as of December 31, 2023 and 2022. Trade Accounts Receivable and Allowance for Credit Losses Trade accounts receivable are stated at the amount management expects to collect from outstanding balances, net of an allowance for credit losses. Management evaluates many factors when determining the collectability of specific customer accounts, including, but not limited to, creditworthiness, past transaction and payment history, current economic industry trends and changes in payment terms. We use assumptions and judgment based on the best available facts and circumstances to estimate and record an allowance. The allowance for credit losses was $ 11,993 and $ 31,275 as of December 31, 2023 and 2022, respectively. The Company recorded credit losses for the years ended December 31,2023 and 2022 of $ 25,281 and 64,197 , respectively. F- 8 Neuraxis, Inc. Notes to Financial Statements Customer Deposits Customer deposits consists of billings, payments, and returned devices from clients in advance of revenue recognition. The Company will recognize the customer deposits over the next year. As of December 31, 2023, and 2022, the Company had customer deposits of $ 74,947 and $ 59,174 , respectively. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined using the weighted average method. The inventory is comprised of finished medical devices on hand. Certain components within the devices have an expiration date that are removed from current inventory and expensed at the date of expiration. For the years ended December 31, 2023 and 2022, $ 25,008 and $ 10,026 were expensed as expired inventory, respectively. Deferred Offering Costs Deferred offering costs consist of costs incurred in connection with the preparation of an initial public offering. These costs, together with the underwriting discounts and commissions, were charged to additional paid in capital upon the IPO. As of December 31, 2023 and 2022, the Company had deferred offering costs of $ 0 and $ 736,736 , respectively. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Depreciation is calculated using the following estimated useful lives: Schedule of Estimated Useful Lives Classification Years Machinery and Equipment 5 - 10 Furniture and Fixtures 5 - 10 Computer Hardware 5 - 10 Leasehold Improvements 10 - 20 Depreciation expense was $ 30,240 and $ 30,920 during the years ended December 31, 2023 and 2022, respectively. Research and Development Costs for research and development are expensed as incurred. Research and development expenses consist primarily of clinical research studies and new product development. Intangible Assets Intangible assets consist of software, patents and a trademark. Intangible assets are stated at their historical cost and amortized on a straight-line basis over their expected useful lives. Capitalized patent costs, net of accumulated amortization, includes legal costs incurred for patent applications. In accordance with ASC 350, once a patent is granted, we amortize the capitalized patent costs over the remaining life of the patent using the straight-line method. If the patent is not granted, we write off any capitalized patent costs at that time. 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 $ 10,000 upon execution of the agreement. A second and final payment of $ 40,000 was contingent upon the completion of the Company’s planned initial public offering. The trademark does not have a determinate life and therefore the cost is not being amortized. The Company entered into an option agreement on April 12, 2023 to enter into a royalty-bearing licensing agreement to bring the optionor’s invention to commercialization. The agreement required an initial payment of $ 1,000 upon execution of the agreement. The agreement does not have a determinate life and therefore the cost is not being amortized. F- 9 Neuraxis, Inc. Notes to Financial Statements We review intangible assets for impairment annually or when events or circumstances indicate that their carrying amount may not be recoverable. During the years ended December 31, 2023, and 2022, the Company recorded no impairment charges for intangible assets. Amortization expense was $ 10,485 and $ 6,213 during the years ended December 31, 2023 and 2022, respectively. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts, and the tax bases of existing assets and liabilities for the loss and credit carryforwards using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized. The Company determines whether a tax position will be sustained upon examination. If it is more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. Based on the results of management’s evaluation, adoption of the rules did not have a material effect on the Company’s financial statements. Further, no interest or penalties have been accrued or charged to expense as of December 31, 2023 and 2022 and for the years then ended. The Company’s income tax returns are subject to examination by the taxing authorities until the expiration of the related statutes of limitations on those tax returns. In general, the federal and state income tax returns have a three-year statute of limitations. As of December 31, 2023, the following tax years are subject to examination: Jurisdiction Open Years for Filed Returns Return to File in 2024 Federal 2020 – 2022 2023 Various States 2020 – 2022 2023 Advertising Cost Advertising costs are expensed as incurred and amounted to $ 192,400 and $ 14,900 for the years ended December 31, 2023 and 2022, respectively. 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 utilizes a Monte Carlo simulation model for the common stock conversion feature of the notes payable 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 stock price, an expected remaining term of each note 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. F- 10 Neuraxis, Inc. Notes to Financial Statements Warrant Liabilities Management evaluates all of the Company’s financial instruments, including issued warrants to purchase its Class A common stock, to determine if such instruments are liabilities or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative financial 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 warrant as other income or expense in the statements of operations. 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 December 31, 2023 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. 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. F- 11 Neuraxis, Inc. Notes to Financial Statements The following tables provides a summary of the relevant assets and liabilities that are measured at fair value on recurring basis: Fair Value Measurements as of December 31, 2023 Schedule of Fair Value On a Recurring Basis Assets and Liability Total (Level 1) (Level 2) (Level 3) Liabilities: Warrant liabilities $ 8,225 $ — $ — $ 8,225 Derivative liabilities $ — $ — $ — $ — Total Liabilities $ 8,225 $ — $ — $ 8,225 Fair Value Measurements as of December 31, 2022 Total (Level 1) (Level 2) (Level 3) Liabilities: Warrant liabilities $ 2,234,384 $ — $ — $ 2,234,384 Derivative liabilities $ 1,735,700 $ — $ — $ 1,735,700 Total Liabilities $ 3,970,084 $ — $ — $ 3,970,084 The following table shows the valuation methodology and unobservable inputs for Level 3 assets and liabilities measured at fair value on recurring basis as of December 31, 2023 and December 31, 2022: Schedule of Unobservable Inputs for Level 3 Assets and Liabilities Fair Value As of Fair Value Valuation Unobservable December 31, 2023 December 31, 2022 Methodology Inputs Warrant liabilities $ 8,225 $ 2,234,384 Monte Carlo model Project simulated cash flows Derivative liabilities $ — $ 1,735,700 Monte Carlo model Project simulated cash flows There were no transfers between any of the levels during the years ended December 31, 2023 and year ended December 31, 2022. 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 December 31, 2023 and 2022, the Company had no assets that were measured on a nonrecurring basis. Basic and Diluted Net Income (Loss) per Share 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. Preferred stock dividends (not declared or paid) were $ 0 and $ 2,190,102 as of December 31, 2023 and 2022, respectively. 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 December 31, 2023 and 2022 presented in these financial statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. F- 12 Neuraxis, Inc. Notes to Financial Statements The Company had the following potentially dilutive common stock equivalents at December 31, 2023 and 2022: Schedule of Dilutive Common Stock Equivalents 2023 2022 Convertible Series A Preferred Stock — 1,013,270 Convertible Series Seed Preferred Stock — 230,954 Options 1,319,394 1,319,394 Pre-Funded Warrants for Convertible Series A Preferred Stock — 289,779 Warrants 1,822,358 365,962 Convertible Bridge Debt — 376,653 Totals 3,141,752 3,596,012 The following table shows the calculation of the basic and diluted net loss per share and the effect of preferred stock dividends. Schedule of Basic and Diluted Net Loss Per Share 2023 2022 For the Years Ended December 31, 2023 2022 Numerator Net loss $ ( 14,626,683 ) ( 4,780,061 ) Preferred stock dividends — ( 764,893 ) Net income (loss) available to common stockholders ( 14,626,683 ) ( 5,544,954 ) Denominator Weighted-average shares of common stock outstanding - basic and diluted 3,252,328 2,003,322 Basic and diluted net loss per share $ ( 4.50 ) $ ( 2.77 ) Stock-Based Compensation The Company accounts for all stock-based payments and awards at fair value. The Company recognizes its stock-based compensation expense using the straight-line method. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option. The Company accounts for the granting of stock options to employees and non-employees using the fair value method whereby all awards are measured at fair value on the date of the grant. The fair value of all employee stock options is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock options, the consideration paid by the option holder is recorded in additional paid-in capital, while the par value of the shares received is reclassified from additional paid in capital to common stock. Stock-based payments to non-employees are measured based on the fair value of the equity instrument issued. Compensation expense for non-employee stock awards is recognized over the requisite service period following the measurement of the fair value on the grant date. The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. Changes in these assumptions can materially affect the fair value estimate. 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. F- 13 Neuraxis, Inc. Notes to Financial Statements 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, 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 table disaggregates the Company’s revenue based on the customer’s location by state for the years ended December 31: Schedule of Disaggregation of Revenue 2023 2022 California $ 601,235 Wisconsin $ 670,245 Ohio 407,632 Ohio 500,260 Wisconsin 292,601 California 408,645 Florida 186,840 Florida 231,480 Massachusetts 127,300 Missouri 174,980 All other states 844,441 All other states 699,125 $ 2,460,049 $ 2,684,735 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. F- 14 Neuraxis, Inc. Notes to Financial Statements 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 delivered. 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. 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. F- 15 Neuraxis, Inc. Notes to Financial Statements Warranties In most cases, goods that customers purchase from the Company are covered by manufacturers’ warranties. The Company does not sell warranties separately. The manufacturer guarantees the product for the period up to the expiration date printed on the device’s label or twelve months from the date of purchase, whichever comes first. The guarantee applies to flaws of material and workmanship. The Company’s warranties provide customers with assurance that purchased devices comply with published specifications, inspection standards, and workmanship. At the time revenue is recognized, the Company estimates the cost of expected future warranty claims but does not exclude any amounts from revenue. The Company maintains appropriate accounts to reflect the effects of expected future warranty claims on the Company’s financial position and periodically adjusts those accounts to reflect its actual warranty claim experience. Historically, warranty claims have been immaterial, and the Company currently does not provide a provision for this liability. The Company typically satisfies its performance obligations for goods at a point in time. In most cases, goods are shipped by common carrier to customers under “FOB Shipping Point” terms. As such, customers typically obtain control of the goods upon shipment. The Company’s management exercises judgment in determining when performance obligations for goods have been satisfied. In making such judgments, management typically relies on shipping information obtained from common carriers to evaluate when the customer has obtained control of the goods. The Company’s contracts with customers typically do not involve variable consideration. The information that the Company uses to determine the transaction price for a contract is similar to the information that the Company’s management uses in establishing the prices of goods to be sold. Leases In accordance with Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense, or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date. The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease. Entities may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all the contract consideration to the lease component only. F- 16 Neuraxis, Inc. Notes to Financial Statements Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, we compare the carrying amount of the asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Concentrations of Credit Risk The Company’s business activity consists of the sale of medical neuromodulation devices to doctors, clinics, and hospitals across the country. Receivables consist of unsecured amounts due from customers. As of December 31, 2023, accounts receivable from four customers with balances due in excess of 10 % of total accounts receivable were approximately 28 %, 28 %, 17 % and 11 %, respectively. As of December 31, 2022, accounts receivable from three customers with balances due in excess of 10 % of total accounts receivable was 23 %, 15 %, and 12 %, respectively. The table below sets forth the Company’s customers that accounted for greater than 10 % of its revenues for the years ended December 31, 2023 and 2022, respectively. Schedule of Customers Accounted Revenues Percentage of Percentage of 2023 Sales 2022 Sales Hospital A $ 452,680 18 % $ 355,613 13 % Hospital B 382,082 16 % 484,900 18 % Hospital C 274,581 11 % 554,325 21 % $ 1,109,343 45 % $ 1,394,838 52 % From time to time, the Company’s bank balances may exceed the FDIC limit of $ 250,000 ; however, management does not feel that this has a material impact on the financial condition. At December 31, 2023 and 2022, the Company didn’t have any uninsured cash balance. 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 December 31, 2023, we had a stockholders’ deficit totaling $ 1,403,241 . At December 31, 2023, we had short-term outstanding borrowings of approximately $ 148,062 . As of December 31, 2023, we had cash of $ 78,560 and a working capital deficit of $ 1,643,058 . On August 9, 2023, the Company consummated its initial public offering, conducted on a firm commitment basis, pursuant to which it sold 1,098,667 shares of its common stock at a price of $ 6.00 per share, resulting in gross proceeds to the Company of $ 6,592,002 . Net proceeds to the Company, after deducting underwriting discounts and commissions, 2022 deferred offering costs totaling $ 736,736 and offering expenses paid by the Company, were $ 4,110,721 . All shares sold in our IPO were registered pursuant to a registration statement on Form S-1 (File No. 333- 269179), as amended, declared effective by the SEC on August 9, 2023. Alexander Capital L.P. acted as sole book-running manager for the offering and Spartan Capital Securities, LLC acted as co-manager for the offering. The underwriters did not exercise their option to purchase up to an additional 164,801 shares of common stock. F- 17 Neuraxis, Inc. Notes to Financial Statements 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. 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 future. 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 Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which amended the effective date of ASU 2016-13. Public business entities meeting the definition of an SEC filer, excluding entities eligible to be a Smaller Reporting Company (“SRC”) as defined by the SEC, are required to adopt the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are required to adopt the standard for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of an SRC and therefore the standard was adopted as of January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s financial statements. 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. F- 18 Neuraxis, Inc. Notes to 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 $ 506,400 , with interest calculated monthly based on applicable federal rates. No payments have been received on the notes. Since repayment is not assured, the Company provided an allowance for the entire balance of principal and interest as of December 31, 2019. The current allowance is $ 1,154,541 as of December 31, 2023. The current loan balances are as follows: Schedule of Related Party Transactions Loan Interest Interest December 31, 2023 Receivable Receivable Income Shareholder 1 $ 506,400 $ 70,938 $ 23,867 Shareholder 2 506,400 70,803 23,867 1,012,800 141,741 47,734 Allowance for Collection Risk ( 1,012,800 ) ( 141,741 ) ( 47,734 ) Net Balance $ — $ — $ — Loan Interest Interest December 31, 2022 Receivable Receivable Income Shareholder 1 $ 506,400 $ 47,071 $ 11,523 Shareholder 2 506,400 46,936 11,523 1,012,800 94,007 23,046 Allowance for Collection Risk ( 1,012,800 ) ( 94,007 ) ( 23,046 ) Net Balance $ — $ — $ — The Company has loans payable to shareholders related to funding needs for operations. The current loan details for all related party loans are as follows: Schedule of Related Party Loans payable to shareholder Interest & Interest Loan Service Fee Interest December 31, 2023 Due Date Rate Balance Accrued Paid Shareholder 1 June, 2019 15.00 % $ — $ — $ 10,047 Shareholder 1 June, 2019 15.00 % — — 27,056 Other Convertibles Various 5.00 % — 66,648 — Total $ — $ 66,648 $ 37,103 Interest & Interest Loan Service Fee Interest December 31, 2022 Due Date Rate Balance Accrued Paid Shareholder 1 June, 2019 15.00 % $ 20,051 $ 8,161 $ — Shareholder 1 June, 2019 15.00 % 38,000 23,481 — Other Convertibles Various 5.00 % — 66,648 — Total $ 58,051 $ 98,290 $ — 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 years ended December 31, 2023 and 2022, the Company paid Mr. Watkins $ 11,083 and $ 3,523 , respectively. No amounts were owed to Mr. Watkins as of December 31, 2023 and 2022. 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 $ 312,803 and $ 116,542 for the years ended December 31, 2023 and 2022, respectively. The Company owed RBSK for open invoices of $ 84,279 and $ 68,142 that are included in accounts payable as of December 31, 2023 and 2022, respectively. F- 19 Neuraxis, Inc. Notes to Financial Statements 4. Property and Equipment Property and equipment, net consists of the following: Schedule of Property And Equipment December 31, 2023 December 31, 2022 Machinery and equipment $ 282,181 $ 282,181 Furniture and fixtures 96,768 87,148 Computer hardware 36,613 15,452 Leasehold improvements 21,064 21,064 Total property and equipment 436,626 405,845 Less: accumulated depreciation ( 348,074 ) ( 317,834 ) Property and equipment, net $ 88,552 $ 88,011 Depreciation expense was $ 30,240 and $ 30,920 for the years ended December 31, 2023 and 2022, respectively. 5. Intangible Assets Intangible assets, net consists of the following: Schedule of Intangible Assets December 31, 2023 December 31, 2022 Software Implementation $ 49,815 $ 49,815 Patents 32,463 32,463 Trademark 50,000 10,000 Licenses 1,000 — Total intangible assets 133,278 92,278 Less: accumulated amortization ( 25,205 ) ( 14,720 ) Intangible assets, net $ 108,073 $ 77,558 Amortization expense was $ 10,485 and $ 6,213 for the years ended December 31, 2023 and 2022, respectively. 6. Accrued Expenses Accrued expenses consisted of the following: Schedule of Accrued Expenses December 31, 2023 December 31, 2022 Compensation and benefits $ 333,477 $ 539,558 Underwriter fees — 88,259 Interest 66,648 173,826 Related party interest — 31,642 Other 963 777 Total accrued expenses $ 401,088 $ 834,062 7. Notes Payable On February 15, 2023, The Company signed a note with Exchange Listing, LLC in the amount of $ 52,600 . The note carried an interest rate of 1 %. The note shall be paid on the earlier of (i) three months or (ii) the Company receiving financing in the minimum of $ 3,000,000 . In August 2023, the Company used proceeds from the initial public offering to pay the note back in full, including interest, in the amount of $ 52,858 . F- 20 Neuraxis, Inc. Notes to Financial Statements The Company borrowed $ 250,000 on December 16, 2021, from Channel Partners Capital. The note called for 65 weekly payments of $ 4,923 with the final payment scheduled for March 16, 2023. The note’s interest rate computes to a nominal rate of 40.9 %. The principal outstanding at January 1, 2022 was $ 244,048 . The Company borrowed $ 122,000 on September 16, 2022, to bring the principal balance back to $ 250,000 . After making scheduled payments, the Company borrowed $ 107,231 on May 24, 2023, to bring the principal balance back to $ 250,000 . The terms of the note are the same as the previous note with the final payment scheduled for August 22, 2024. The principal outstanding at December 31, 2023 and 2022 was $ 148,062 and $ 202,834 , respectively. The Company believes that the advancement of additional funds is a minor modification to the terms of the existing loan since the difference in present value of the cash flows under the terms of the new loan is less than 10% of the present value of the remaining cash flows under the terms of the original loan. As a result, the modification was accounted for as a modification of debt. The lender was granted and assigned a continuing security interest in all the Company’s personal property assets including, but not limited to, business equipment, inventory, accounts, accounts receivable, intellectual property, chattel paper, instruments, deposit accounts, commercial tort claims, contract rights, licenses, claims, and general intangibles. The future minimum principal payments to be paid in 2024 is $ 148,062 . Convertible Notes The following table presents a summary of the Company’s convertible notes: Schedule of Convertible Notes 2023 2022 December 31, 2023 2022 Principal $ - $ 3,555,556 Less: Original issue discount - ( 355,556 ) Less: Debt discount - ( 2,841,658 ) Less: Deferred financing fees - ( 130,000 ) Notes payable $ - $ 228,342 From March to July of 2023, the Company conducted multiple closings of a private placement offering to accredited investors for aggregate gross principal amounts of $ 6,066,667 and net proceeds of $ 4,908,000 . The offering consisted of a convertible promissory note that accrues interest at 12 % that can be paid in cash or PIK and an original issue discount of 10 %. The convertible promissory notes automatically convert into common shares at a 30 % discount to the IPO. The notes mature on the sooner of the six-month anniversary date from issuance or a successful IPO on primary exchange in the U.S. and include a five-year warrant to purchase common stock equal to fifty percent (50%) of the shares into which the convertible notes can be converted into at issuance. The warrants have a strike price at a 25 % premium to the conversion price subject to anti-dilution, issuable on a pro rata basis at each funding. As facilitators to the 2023 convertible notes, Signature Bank received a $ 6,000 escrow fee and Alexander Capital, L.P. received (i) a cash commission of nine percent (9%) of the proceeds raised in the offering from investors introduced to the Company and (ii) warrants for the purchase of a number of shares of Common Stock equal to 6% of the number of underlying securities. Alexander Capital, L.P., received (i) fees totaling $ 546,000 in 2023 which were recorded in deferred financing fees as a reduction to notes payable on the balance sheet and (ii) 120,235 warrants which were recorded at fair value in the warrant liability and debt discounts on the balance sheet. After the closing of the initial public offering on August 8, 2023, the Company converted the notes payable plus $ 226,391 in interest into 1,498,332 shares of common stock. The shares were to be issued at a discounted price of $ 4.20 per share resulting in a $ 4,115,223 loss to the Company which is recorded in extinguishment of debt liabilities. In March of 2023, the Company used borrowings from the 2023 convertible notes to pay the principal balance of some of the 2022 notes totaling $ 2,650,000 which resulted in a $ 1,129,653 gain to the Company which is recorded in extinguishment of debt liabilities. Upon payment, the terms for the remaining balance of those notes were also updated. The remaining balance accrued interest at 8 % per annum without maturity or default rights. The new balance shall also automatically convert into shares of common stock at a 27.5 % discount to the per share offering price in the Company’s initial public offering or $ 4.35 per share. After the closing of the initial public offering on August 8, 2023, the Company converted the notes payable plus $ 173,205 in interest into 107,509 shares of common stock. The shares are to be issued at a discounted price of $ 4.35 per share resulting in a $ 663,991 loss to the Company which is recorded in extinguishment of debt liabilities. The remaining investors of the 2022 notes did not convert their notes and, as such, the Company used proceeds from the initial public offering to pay the remaining promissory notes back in full, including interest in the amount of $ 445,554 . F- 21 Neuraxis, Inc. Notes to Financial Statements The convertible notes signed between June 3, 2022 and November 30, 2022 had aggregate gross principal amounts totaling $ 3,333,333 and net proceeds of $ 2,870,000 and consisted of an original issue discount of 10% with an interest rate of the greater of (i) Prime rate plus 8.5% or (ii) 12%. The notes convert into common shares at the lower of (i) $ 9.44 or (ii) a 30 % discount to the price per share of any subsequent offering. The notes matured on the one-year anniversary date from issuance and contain a five-year warrant to purchase common stock equal to one hundred percent (100%) of the shares into which the 2022 Convertible Notes can be converted into at issuance. The warrants have an exercise price at the lower of (i) $ 11.80 per share or (ii) a 12.5 % discount to the price per share of any subsequent offering, (c) shares of the Company’s common stock equal to 10 % of the principal amount of these notes, at a value per share equal to the conversion price. The 35,318 shares of common stock issued to investors had a relative fair value of $ 4,789 . Due to the second prong of the conversion equation after the IPO an additional 44,048 commitment shares are to be issued. The shares are to be issued at a discounted price of $ 4.20 per share resulting in a loss to the Company which is recorded in extinguishment of debt liabilities. The convertible notes signed on December 19, 2022 had aggregate gross principal amounts totaling $ 222,222 and net proceeds of $ 200,000 and consisted of an original issue discount of 10 % of the principal amount with an interest rate of 12 % per annum. The notes matured at the earlier of (i) twelve (12) months from the issue date or (ii) the date upon which the Company completes a registered public offering of shares of the Company, which encompasses the closing of the IPO. The notes are convertible into shares of common stock at the higher of (i) $ 9.44 per share or (ii) the price per share of common stock issued pursuant to the next registered public offering of shares of the Company made prior to the conversion of any portion of the note. Interest accrues on the aggregate principal amount (which includes original issue discount) and is payable on the maturity date, at the Company’s election, in cash or in-kind. The holders of the notes are entitled to piggyback registration rights on any registration statement filed by the Company, other than any registration statement filed on Form S-4 or Form S-8. The warrants and conversion shares are subject to anti-dilution provisions. The investors of the notes signed on December 19, 2022 above did not convert their notes and, as such the Company used proceeds from the initial public offering to pay the remaining promissory notes back in full, including interest in the amount of $ 239,104 . The Company paid $ 130,000 in fees to law firms related to the 2022 convertible note offerings and were recorded as deferred financing fees as a reduction to notes payable on the balance sheet. The Company has applied ASC 815 due to the potential for settlement in a variable quantity of shares. Since these convertible notes and warrants have the option to convert or be exercised at a variable amount, they are subject to derivative liability treatment. The conversion feature has been measured at fair value using a Monte Carlo model at the date of issuance and is adjusted to fair value at each reporting period. The fair value of the embedded derivative and the warrant liability at date of issuance was $ 2,375,378 and $ 2,446,502 , respectively. See Notes 12 and 13. The 2023 and 2022 convertible notes transferred fair value to investors in the form of principal, warrants and common shares totaling $ 11,947,212 . As the Company received cash proceeds of $ 8,660,000 , net of an original issue discount of $ 962,223 , the remaining fair value of incentives in excess of principal of $ 2,234,988 was expensed as finance charges totaling $ 2,772 and $ 2,322,216 for the years ended December 31, 2023 and 2022, respectively. On August 8, 2023, the Company amortized the remaining original issue discount, debt discount reflective of the fair value of embedded warrants and financing fees as the 2023 and 2022 convertible notes were either paid in full or converted to common stock pursuant to the initial public offering. During the years ended December 31, 2023 and 2022, the Company accrued interest on these convertible notes totaling $ 399,597 and $ 107,544 , respectively, which was paid or converted into common stock. F- 22 Neuraxis, Inc. Notes to Financial Statements 8. Leases The Company’s leases are comprised of operating leases for office space. At the inception of the lease, the Company determines whether the lease contract conveys the right to control the use of identified property for a period of time in exchange for consideration. Leases are classified as operating or finance leases at the commencement date of the lease. Operating leases are recorded as operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the Balance Sheets. The Company did not have any finance leases at December 31, 2023 and 2022. The Company had three leases primarily consisting of office space in Versailles, Indiana and Carmel, Indiana. Two of the leases in Versailles started January 1, 2017. Both have an initial term of five years with an option for an additional five-year term. The monthly lease payments for these leases are $ 550 and $ 1,600 with a 3 % per annum increase starting with the optional five-year term. The lease in Carmel started March 1, 2016. The initial term is five years and three months with an option for an additional three-year term. The monthly lease payment started at $ 1,472 with an annual increase of approximately 2.7 %. On December 16, 2020, the Company entered into an amendment of the Carmel lease that extended the initial term by two years. 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 years ended December 31, 2023 and 2022, the Company recognized $ 49,051 and $ 47,571 of operating lease expense, including short-term lease expense and variable lease costs, which are immaterial. The following table presents information related to the Company’s operating leases: Schedule of Operating Leases December 31, 2023 December 31, 2022 Operating lease right-of-use assets $ 70,263 $ 101,382 Other current liabilities 49,127 33,395 Operating lease liabilities 27,071 76,199 Total $ 76,198 $ 109,594 Weighted-average remaining lease term (in years) 3.75 4.00 Weighted-average discount rate 15.0 % 15.0 % As of December 31, 2023, the maturities of the Company’s operating lease liabilities were as follows: Schedule of Maturities Operating Lease Liabilities 2024 $ 27,072 2025 22,316 2026 26,810 Total lease payments 76,198 Less: imputed interest — Total present value of lease payments $ 76,198 9. Common Stock and Warrants The Company authorized 100,000,000 shares of common stock, of which 6,508,897 and 1,963,322 shares were issued and outstanding as of December 31, 2023 and 2022, respectively. In conjunction with 1,098,667 common shares issued upon the completion of the initial public offering on August 8, 2023, the Company also issued (i) 1,244,228 common shares upon conversion of 506,637 shares of Convertible Series A Preferred Stock and 115,477 shares of Convertible Series Seed Preferred Stock, (ii) 1,649,900 common shares upon conversion of convertible notes, (iii) 425,000 commons shares as payment to vendors for services and (iv) 127,780 common shares upon the exercise of warrants. On January 10, 2023, the Company’s board of directors authorized a 2-for-1 reverse stock split . All share information in these financial statements has been adjusted for this reverse stock split. On January 10, 2023, the Company’s board of directors authorized a 2-for-1 reverse stock split . All share information in these financial statements has been adjusted for this reverse stock split. On August 9, 2023, the Company consummated an initial public offering, conducted on a firm commitment basis, pursuant to which it sold 1,098,667 shares of its common stock at a price of $ 6.00 per share, resulting in gross proceeds of $ 6,592,002 . See Note 1. F- 23 Neuraxis, Inc. Notes to Financial Statements In connection with a bridge loan, the Company issued a warrant on September 18, 2018 that allows the holder to purchase common stock from the Company at a share price of $ 4.38 per share. The number of shares was based on a formula tied to the final amount of loans made by the holder of $ 375,000 , multiplied by 150 %, and divided by $ 70.03 . The number of shares based on this formula is 12,852 . The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. If the fair market value of one share is greater than the warrant price, the holder may elect to receive a number of shares equal to the value of the warrant. If the exercise is in connection with the sale of the Company, the holder may, at its option, condition its exercise of the warrant upon the consummation of such transaction. The warrant expires on September 18, 2028 and can be exercisable either in whole or from time to time in part prior to the expiration date. The Company issued a second warrant on September 6, 2019, under similar terms but is a penny warrant that allows the holder to purchase 40,000 shares of common stock and is subject to adjustment for certain equity events. The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. The warrant expires on September 6, 2029 . This warrant was converted to 39,924 shares of common stock on December 28, 2023. The fair market value of the stock on that day was calculated as the average of the daily closing prices per share for the 30 consecutive trading day period ending on the second trading day prior to such date or $ 2.61 per share. Since the fair value was greater than the warrant price of $0.01 per share the holder elected to receive the number of shares equal to 40,000 times the difference between the fair market value and the exercise price divided by the fair market value, resulting in 39,924. The Company issued a third warrant to Masimo Corporation on April 9, 2020. This warrant was pre-funded in the amount of $ 2,734,340 . The warrant allows the holder to purchase 289,779 shares of Series A Preferred Stock at $ 9.44 per share and is subject to adjustment for certain equity events. The warrant contains certain rights in the event of liquidation, merger, or consolidation of the Company. There will be no additional purchase price for the Warrants. In the event that all outstanding shares of Series A Preferred Stock are converted, automatically or by action of the holders thereof, into Common Stock, including, without limitation, in connection with the Company’s initial, underwritten public offering and sale of its Common Stock pursuant to an effective registration statement under the Act, then from and after the date on which all outstanding shares of Series A Preferred Stock have been so converted, this Warrant shall be exercisable for such number of shares of Common Stock into which the Warrant Shares would have been converted had the Warrant Shares been outstanding on the date of such conversion, and the Exercise Price shall equal the Exercise Price in effect as of immediately prior to such conversion divided by the number of shares of Common Stock into which one share of Series A Preferred Stock would have been converted, all subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. On August 14, 2023, the 144,890 Series A Preferred Stock warrants were converted to 289,779 common stock warrants after giving effect to the 2-for-1 common stock split. During 2022, the Company issued 793,655 five-year warrants to purchase common stock equal to one hundred percent (100%) of the shares into which the 2022 convertible notes can be converted at issuance. The warrants have an exercise price of $ 5.25 per share. From March to June of 2023, the Company issued 505,570 one-year warrants to purchase common stock equal to fifty percent (50%) of the shares into which the 2023 convertible notes can be converted at issuance. The warrants have an exercise price of $ 5.25 per share. On August 9, 2023, the Company issued 122,202 five-year warrants to purchase common stock pursuant to an advisory agreement with a consulting firm upon closing of the Company’s initial public offering. The warrants have an exercise price of $ 6.00 per share. On August 14, 2023, the Company issued 186,156 five-year warrants to purchase common stock pursuant to an agreement with an underwriter upon closing of the Company’s initial public offering. The warrants have an exercise price of $ 7.20 per share. The following is a summary of warrant activity for common stock during the years ended December 31, 2023 and 2022: Schedule of Warrant Activity for Common Stock Number of Warrants for Common Stock Weighted-Avg. Exercise Price Weighted-Avg. Remaining Contractual Life Outstanding as of January 1, 2022 52,852 $ 2.13 7.45 Granted 793,655 5.25 4.42 Cancelled/Expired — — — Exercised — — — Outstanding as of December 31, 2022 846,507 $ 5.06 4.72 Granted 813,928 $ 5.81 4.38 Converted Prefunded Warrants 289,779 0.01 — Exercised ( 127,856 ) — — Outstanding as of December 31, 2023 1,822,358 $ 4.69 3.05 F- 24 Neuraxis, Inc. Notes to Financial Statements The following is a summary of warrant activity for preferred stock during the years ended December 31, 2023 and 2022: Schedule of Warrant Activity for Preferred Stock Number of Weighted-Avg. Warrants for Exercise Preferred Stock Price Outstanding as of January 1, 2022 144,890 $ 0.01 Granted — — Cancelled/Expired — — Exercised — — Outstanding as of December 31, 2022 144,890 $ 0.01 Granted — — Cancelled/Expired — — Converted to Common Stock Warrant ( 144,890 ) ( 0.01 ) Outstanding as of December 31, 2023 — $ — The following table summarizes the Company’s warrants outstanding and exercisable as of December 31, 2023. Schedule of Warrants outstanding and Exercisable Number of Warrants Exercise Expiration Outstanding Price Date Investor Warrant W-01 12,852 $ 8.76 September 18, 2028 Investor Warrant PSA-01 289,779 $ 0.01 None 2022 Convertible Notes 793,655 $ 2.38 Various 2023 Convertible Notes 417,714 $ 2.38 Various Consulting Agreement Warrants 122,202 $ 2.38 August 8, 2028 Underwriter’s Warrants 186,156 $ 2.38 August 8, 2028 1,822,358 10. Preferred Stock The Company has authorized 1,120,000 shares of preferred stock of which 1,000,000 has been designated Series A Preferred and 120,000 has been designated Series Seed Preferred, of which 0 and 506,637 shares of Series A Preferred and 0 and 115,477 shares of Series Seed Preferred are issued and outstanding as of December 31, 2023 and 2022, respectively. The aggregate purchase price of the Series A Preferred Stock was $ 9,321,165 , of which $ 7,692,664 was comprised of cash and the remaining $ 1,628,501 was comprised of converted debt and common stock. The aggregate purchase price of the Series Seed Preferred shares was $ 0 , as all the Series Seed shares were converted from common stock as an incentive to reinvest in Series A Preferred Stock. F- 25 Neuraxis, Inc. Notes to Financial Statements 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 8 % cumulative dividend, payable upon any liquidation, dissolution or winding up of the Company (the “Accruing Dividend”). For any other dividends or distributions, participation with Common Stock on an as-converted basis. 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 80 % of the price at which any future shares are issued, if less than the Series A Original Purchase Price. In consideration for shareholders to make an additional investment in the Company, upon the purchase of the Series A Preferred stock by the shareholder, the Company converted the existing common shares held by shareholders to Series Seed Preferred Stock at a $ 100 million valuation and at a 120 % share premium. As of December 31, 2022, there were 97,702 common shares converted into 115,477 shares of Series Seed Preferred shares that have no par value and are outstanding. As of December 31, 2023, all preferred stock has been converted pursuant to the initial public offering. The Company signed a Convertible Promissory Note on November 8, 2023 for a principal amount of $ 3,000,000 bearing interest at 8.5 % per annum payable quarterly in either cash or common stock with a 15 month maturity date. The agreement calls for $ 200,000 monthly installments from January 2024 through March of 2025; there was no outstanding balance as of December 31, 2023. The Convertible Promissory Note allows for a voluntary conversion by the investor into Series B Preferred Stock at $ 2.38 per share any time prior to the maturity date with mandatory conversion by the Company at the maturity date. The Company shall use the proceeds solely for working capital and general corporate purposes and not pay any dividends or distributions or to advance any funds to its officers, directors or affiliates. 11. Stock Options and Awards On October 12, 2017, the Company adopted the 2017 Stock Compensation Plan authorizing the issuance of 1,435,652 shares of common stock. On September 13, 2019 the Company entered into a Stock Option Cancellation agreement with all holders of these stock options effective on that date. This plan was then amended on September 13, 2019, to increase the share amount to 2,638,788 . This plan was enacted to enable the Company to retain the services of certain key employees, officers, and directors of the Company. The Plan provides for the grant of stock options, including incentive stock options, or ISOs, and nonqualified stock options, or NSOs and restricted stock, and they were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: Schedule of Option-pricing Model with Following Weighted-average Assumptions Assumptions as of December 31, 2023 Fully Vested Number of Shares 1,319,394 Stock price $ 2.67 Exercise price $ 6.94 Expected term 5.75 years Expected volatility 31.90 % Risk-free interest rate 3.84 % Dividend rate 0 % F- 26 Neuraxis, Inc. Notes to Financial Statements The following is a summary of stock option activity for the years ended December 31, 2023 and 2022: Schedule of Stock Option Activity Number of Options Weighted Avg. Remaining Contractual Life (in years) Weighted Avg. Exercise Price Aggregate Intrinsic Value Outstanding as of January 1, 2022 1,319,394 7.69 $ 6.94 $ — Granted — Forfeited — Cancelled/Expired — Exercised — Outstanding as of December 31, 2022 1,319,394 6.69 $ 6.94 $ — Granted — Forfeited — Cancelled/Expired — Exercised — Outstanding as of December 31, 2023 1,319,394 5.69 $ 6.94 $ — Vested and Exercisable as of December 31, 2023 1,319,394 5.69 $ 6.94 $ — Stock-based compensation expense is classified in the Company’s statements of operations as general and administrative expense. The amounts were $ 0 and $ 27,319 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was no unrecognized compensation expense related to unvested options granted under the Company’s share-based compensation plans. 12. Warrant Liabilities The Company has evaluated financial instruments arising from an adjustable exercise price for warrants that are issued and outstanding as of December 31, 2023 and 2022. 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 liability 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 $ 7.91 per share, an expected remaining term of each warrant as of the valuation date, estimated volatility of 75 %, drift, and a risk-free rate ranging from 3.46 % to 59.01 %. 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 0 % expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future. F- 27 Neuraxis, Inc. Notes to Financial Statements 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. The following are the changes in the warrant liabilities during the years ended December 31, 2023 and 2022. Schedule of Changes in Warrant Liabilities Level 1 Level 2 Level 3 Warrant liabilities as of January 1, 2022 $ — $ — $ 32,102 Addition — — 2,808,331 Changes in fair value of warrant liabilities — — ( 606,049 ) Warrant liabilities as of December 31, 2022 — — 2,234,384 Addition — — 2,446,502 Changes in fair value of warrant liabilities — — ( 844,854 ) Reclassified to equity — — ( 3,827,807 ) Warrant liabilities as of December 31, 2023 $ — $ — $ 8,225 13. Derivative Liabilities The Company has identified derivative instruments arising from the conversion shares discussed in the Convertible Notes section of Note 7 as of December 31, 2023 and 2022. 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 $ 7.91 per share, an expected remaining term of each warrant as of the valuation date, estimated volatility of 70 %, drift, and a risk-free rate ranging from 3.46 % to 5.47 %. 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 0 % expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near future. 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. The following are the changes in the warrant liabilities during the years ended December 31, 2023 and 2022. Schedule of Changes in Derivative Liabilities Level 1 Level 2 Level 3 Derivative liabilities as of January 1, 2022 $ — $ — $ — Addition — — 2,449,689 Changes in fair value of Derivative liabilities — — ( 713,989 ) Derivative liabilities as of December 31, 2022 — — 1,735,700 Addition — — 2,375,378 Changes in fair value of Derivative liabilities — — ( 198,551 ) Extinguishment of Derivative liabilities — — ( 3,912,527 ) Derivative liabilities as of December 31, 2023 $ — $ — $ — F- 28 Neuraxis, Inc. Notes to Financial Statements 14. Retirement Plan The Company sponsors a 401(k)-retirement plan for its employees. Employees are eligible to participate in the elective deferral portion of the plan after twelve months and 1,000 hours of service. The Company matches the employees’ contribution up to 3 %. The Company can also make a discretionary profit-sharing contribution to the employee accounts on an annual basis. Expense totaled $ 6,980 and $ 17,183 for years ended December 31, 2023 and 2022, respectively. 15 . 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 $ 10,000 upon execution of the agreement. A second and final payment of $ 40,000 was contingent upon the completion of the Company’s planned initial public offering. The second payment has been accrued and is recorded in accounts payable and intangible assets on the balance sheet. The trademark does not have a determinate life and therefore the cost is not being amortized. 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 2 to 5 years and optional one-year renewals . The total base salaries for the nine key employees in the agreements are $ 1,920,000 per year with various provisions for annual increases. In addition to base salaries, eight of the employees have a provision for a special one-time incentive payment to be paid in a lump sum after the start date. The total amount of these special incentive payments is $ 1,100,000 . The special incentive payment amount includes any accrued backpay wages for the employee. The amount for backpay of $ 417,390 was accrued as of December 31, 2022 and paid in the year ended December 31, 2023. There are seven key employees that have stock options of the Company totaling 1,238,712 shares. These key employees have a provision in their agreements whereas the Company will pay a special bonus equal to the aggregate of the strike price or exercise price of all their stock options plus a tax gross-up payment. The special bonus shall be paid in twenty percent ( 20 %) installments starting January 2, 2024, and the same date each of the next four years. As a condition of the payment, the key employee must exercise at least 20 % of their stated number of stock options. There are additional provisions to cover termination and change of control events. None of the key employees exercised the options on January 2, 2024 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. F- 29 Neuraxis, Inc. Notes to Financial Statements The Company has recorded the backpay portion of the incentive bonus notes above. The balance of the incentive bonuses of $ 694,056 and the special options bonuses of $ 14,821,830 were contingent upon a successful IPO. The incentive bonuses have been paid in full while the special options bonuses will be recorded when paid. Litigation From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of the date of issuance, other than those described below, there were no pending or threatened legal proceedings that could reasonably be expected to have a material effect on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest. On February 6, 2019, plaintiff Ritu Bhambhani, M.D., initiated a lawsuit against Innovative Health Solutions, Inc. and others in the United States District Court for the District of Maryland. Plaintiffs Bhambhani and Sudhir Rao subsequently amended the complaint, with the Third Amended Complaint (“Complaint”) containing the most recent set of allegations. The Complaint asserted claims under the RICO Act, as well as of fraudulent misrepresentation, intentional misrepresentation by concealment, and civil conspiracy and sought compensatory damages in excess of $ 5 million, pre-judgment interest, punitive damages, attorney’s fees, court costs and designation of the case as a class action. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. On 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. 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 $ 75,000 , pre-judgment interest, punitive damages, attorney’s fees, and court costs. The Complaint states that the Company, distributors of the Company’s product, and medical billing and coding consultants allegedly made misrepresentations to the plaintiffs that the Company’s NeuroStim device and related procedures could be billed to, and reimbursed by, Medicare and other insurance payors as a surgically implantable neurostimulator. Plaintiffs claim to have suffered damages when Medicare administrative contractors declined to pay plaintiffs for their use of the device. On September 28, 2022, the Company filed a motion to dismiss all claims. On May 25, 2023, the Court issued an Order and a Memorandum Opinion which dismissed the plaintiffs’claims related to the RICO Act. The remaining claims are still pending, and no trial date has been set for the case. The Court has vacated its Scheduling Order at the parties’ request so that the parties could try to resolve the disputes in both cases through an independent third-party mediator. 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. F- 30 Neuraxis, Inc. Notes to Financial Statements 16. Health Benefit Plan The Company entered into a self-funded program employer agreement in 2018 in conjunction with a group health plan for the benefit of eligible employees. This plan is a level funded plan, and the services and products include: ● A self-funded employer health benefit plan. ● Stop loss insurance purchased from a stop loss insurance company. ● Third party administrator to provide administrative services with regard to the plan. The Company maintains a stop loss contract that reimburses the Company for claims paid under the plan if they exceed a predetermined level. The Company makes contributions for health care costs and associated expenses that are expected during the plan year. The amount of contributions is determined annually based on the Company’s maximum liability for expected claims, administrative expenses, and premiums for the stop loss policy. The Company paid premiums of $ 255,715 and $ 196,929 for the years ended December 31, 2023 and 2022, respectively. The Company is responsible for the monthly premiums, as established, and nothing further. The stop loss policy covers the claims if they exceed the claims funds. After a certain time, and if there is a surplus in the claims fund, the Company may be entitled to receive a 48.5 % refund from the fund. This amount is recognized by the Company when received. 17. Income Taxes The Inflation Reduction Act (IRA) was signed into law on August 16, 2022, imposing a 15% corporate alternative minimum tax on adjusted financial statement income and a 1% excise tax on stock repurchases after January 1, 2023. The IRA did not have an impact on the Company’s 2023 or 2022 financial statements. The Tax Cuts and Jobs Act (TCJA) requires taxpayers to capitalize and amortize research and developmental (“R&D”) expenditures undersection 174 for tax years beginning after December 31, 2021 and, therefore, became effective for the Company during the year ended December 31, 2022. The TCJA resulted in the capitalization of R&D costs of $ 169,315 and $ 225,466 for tax purposes for the years ended December 31, 2023 and 2022, respectively. The Company is amortizing these costs over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the US. The Company did not recognize a current provision for income taxes for 2023 and 2022 since there were net operating losses reported in both years. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Differences are primarily attributable to net operating loss carryforwards and stock-based compensation. The Company does not reflect any deferred taxes in its financial statements due to a full valuation allowance. The net deferred tax amounts include the following components: Schedule of Deferred Tax Asset December 31, 2023 December 31, 2022 Net deferred tax assets - Non-current Depreciation $ ( 15,175 ) $ ( 16,098 ) Amortization ( 14,195 ) ( 19,290 ) Accrual to cash 718,893 767,861 Stock based compensation 3,653,490 3,653,490 Expected income tax benefit from NOL carry-forwards 6,573,406 3,309,340 Less valuation allowance ( 10,916,419 ) ( 7,695,303 ) Deferred tax assets, net of valuation allowance $ — $ — F- 31 Neuraxis, Inc. Notes to Financial Statements A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows: Schedule of Federal Statutory Income Tax Rate and Effective Income Tax Rate 2023 2022 Federal statutory income tax rate 21.0 % 21.0 % State tax rate, net of federal benefit 4.9 4.7 Nondeductible expenses — — Nontaxable income — — Change in valuation allowance on net deferred tax assets ( 25.9 ) ( 25.7 ) Effective income tax rate — % — % The Company had no income tax expense due to the operating loss incurred for the years ended December 31, 2023 and 2022. The Company’s management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of the net deferred tax assets. As a result, the Company recorded a full valuation allowance at December 31, 2023 and 2022. The valuation allowance increased by $ 3,221,116 and $ 1,136,470 for the years ended December 31, 2023 and 2022, respectively, primarily due to net operating loss (NOL) carryforwards. On December 31, 2023, the Company had federal and state net operating loss (NOL) carryforwards totaling $ 28,238,445 and $ 25,543,000 , respectively. These loss carryforwards may be offset against future taxable income. There is no limitation on the number of years to utilize the federal NOL. The federal deduction will be limited to 80% of modified taxable income. The state NOL allows up to 100% of taxable income to be offset and can be carried forward no longer than 20 years after the year of the taxable loss. Federal and state tax laws impose limitations on the utilization of NOLs and credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company’s ability to utilize these carryforwards may be limited as a result of an ownership change. Such an ownership change could result in a limitation in the use of the net operating losses in future years and possibly a reduction of the net operating losses available. If not used, the state carryforwards will expire as follows: Schedule of State Carryforwards 2038 $ 888,389 2039 $ 1,039,949 2040 $ 4,457,495 2041 $ 2,406,225 2042 $ 2,730,141 2043 $ 12,915,439 State Carryforwards $ 12,915,439 18. Subsequent Events The Company evaluated events through the date of issuance. Subsequent to December 31, 2023, the Company entered into a series of Convertible Promissory Notes totaling $ 3,135,000 with terms identical to the $ 3,000,000 Convertible Promissory Note issued on November 8, 2023 (see Footnote 10). The Company has received $ 1,535,000 of the principal amount with the remainder due in monthly installments through the maturity date of March of 2025. The Convertible Promissory Notes bear interest at 8.5 % per annum payable quarterly in either cash or common stock. The Convertible Promissory Notes contain a provision that allows for a voluntary conversion by the investors into Series B Preferred Stock at $ 2.38 per share any time prior to the maturity date with mandatory conversion by the Company at the maturity date. The Company shall use the proceeds solely for working capital and general corporate purposes and not pay any dividends or distributions or to advance any funds to its officers, directors or affiliates. 19. Restatement of Interim Financial Statements (Unaudited) In connection with the preparation of the Company’s financial statements as of and for the year ended December 31, 2023, management identified a material accounting error in the unaudited interim financial statements as of and for the three and nine month periods ended September 30, 2023 relating to the improper classification of the reduction of the fair value of warrant liabilities as a reduction to the extinguishment of debt charge on the Statement of Operations rather than an increase to additional paid in capital on the Balance Sheet. Upon the consummation of the Company’s IPO, the exercise price of certain warrants issued prior to the IPO became known. As a result of the exercise price becoming known, our warrant liability was reduced by $ 3,721,007 . This warrant liability reduction should have triggered a reclassification to additional paid in capital instead of an extinguishment of debt charge. This accounting error resulted in a (i) $ 3,721,007 understatement of the extinguishment of debt expense on the Statement of Operations, (ii) $ 3,721,007 understatement of the net loss on the Statement of Operations, and (iii) $ 3,721,007 understatement of additional paid in capital on the Balance Sheet as of and for the three and nine month periods ended September 30, 2023. The Board of Directors of the Company, upon the recommendation of the Audit Committee and after discussion with management, concluded that the Company’s previously issued unaudited financial statements as of and for the three and nine month periods ended September 30, 2023 should no longer be relied upon and should be restated due to identification of the material accounting error. The following tables present the amounts previously reported, the restatement impact and the restated amount in the respective unaudited financial statements. F- 32 NeurAxis, Inc. Balance Sheet Schedule of Restatement of Interim Financial Statements (Unaudited) (Unaudited) As of September 30, As Reported Adjustments As Restated Assets Current assets: Cash and cash equivalents $ 761,249 $ - $ 761,249 Accounts receivable, net 132,382 - 132,382 Inventories 34,530 - 34,530 Prepaid and other current assets 38,693 - 38,693 Total current assets 966,854 - 966,854 Property and equipment, at cost 420,586 - 420,586 Less - accumulated depreciation ( 340,260 ) - ( 340,260 ) Property and equipment, net 80,326 - 80,326 Operating lease right of use asset, net 78,043 - 78,043 Intangible assets 110,695 - 110,695 Total assets $ 1,235,918 $ - $ 1,235,918 Liabilities and Stockholders’ Deficit Current liabilities: Accounts payable $ 566,649 $ - $ 566,649 Accrued expenses 280,063 - 280,063 Notes payable 194,249 - 194,249 Current portion of operating lease payable 45,194 - 45,194 Customer deposits 68,972 - 68,972 Share liabilities 934,256 - 934,256 Warrant liabilities 168,269 - 168,269 Total current liabilities 2,257,652 - 2,257,652 Operating lease payable, net of current portion 39,353 - 39,353 Total liabilities 2,297,005 - 2,297,005 Stockholders’ deficit: Convertible Series A preferred stock - - - Convertible Series Seed preferred stock - - - Common stock 5,149 - 5,149 Additional paid in capital 42,178,570 3,721,007 45,899,577 Accumulated deficit ( 43,244,806 ) ( 3,721,007 ) ( 46,965,813 ) Total stockholders’ deficit ( 1,061,087 ) - ( 1,061,087 ) Total liabilities and stockholders’ deficit $ 1,235,918 $ - $ 1,235,918 F- 33 NeurAxis, Inc. Statements of Operations (Unaudited) (Unaudited) For the Three Months Ended September 30, 2023 For the Nine Months Ended September 30, 2023 As Reported Adjustments As Restated As Reported Adjustments As Restated Net sales $ 477,460 $ - $ 477,460 $ 1,928,590 $ - $ 1,928,590 Cost of goods sold 67,287 - 67,287 231,000 - 231,000 Gross profit 410,173 - 410,173 1,697,590 - 1,697,590 Selling expenses 64,210 - 64,210 250,933 - 250,933 Research and development 44,950 - 44,950 171,536 - 171,536 General and administrative 3,323,352 - 3,323,352 6,316,411 - 6,316,411 Operating loss ( 3,022,339 ) - ( 3,022,339 ) ( 5,041,290 ) - ( 5,041,290 ) Other (expense) income, net: Financing charges - - - ( 2,772 ) - ( 2,772 ) Interest expense ( 102,628 ) - ( 102,628 ) ( 453,869 ) - ( 453,869 ) Interest income 2,103 - 2,103 2,103 - 2,103 Change in fair value of warrant liability 592,853 - 592,853 791,610 - 791,610 Change in fair value of derivative financial instruments 6,394 - 6,394 198,551 - 198,551 Amortization of debt discount and issuance cost ( 1,331,030 ) - ( 1,331,030 ) ( 4,881,622 ) - ( 4,881,622 ) Extinguishment of debt liabilities ( 1,058,062 ) ( 3,721,007 ) ( 4,779,069 ) 71,436 ( 3,721,007 ) ( 3,649,571 ) Other income 9,931 - 9,931 11,483 - 11,483 Other expense ( 1,578 ) - ( 1,578 ) ( 9,008 ) - ( 9,008 ) Total other (expense) income, net ( 1,882,017 ) ( 3,721,007 ) ( 5,603,024 ) ( 4,272,088 ) ( 3,721,007 ) ( 7,993,095 ) Net loss $ ( 4,904,356 ) $ ( 3,721,007 ) $ ( 8,625,363 ) $ ( 9,313,378 ) $ ( 3,721,007 ) $ ( 13,034,385 ) F- 34 NeurAxis, Inc. Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2023 As Reported Adjustments As Restated Cash flows from operating activities Net loss $ ( 9,313,378 ) $ ( 3,721,007 ) $ ( 13,034,385 ) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of debt discount and issuance cost 4,881,622 - 4,881,622 Depreciation and amortization 30,290 - 30,290 Provision for losses on accounts receivable 6,380 - 6,380 Non-cash lease expense 23,339 - 23,339 Non-cash interest expense 260,777 - 260,777 Stock based compensation - - - Extinguishment of derivative liability ( 71,436 ) 3,721,007 3,649,571 Issuance of common stock for non-cash consideration 2,550,000 - 2,550,000 Finance charges 2,772 - 2,772 Change in fair value of derivative liabilities ( 198,551 ) - ( 198,551 ) Change in fair value of warrant liabilities ( 791,610 ) - ( 791,610 ) Changes in operating assets and liabilities: Accounts receivable 35,637 - 35,637 Inventory 13,603 - 13,603 Prepaids and other current assets ( 37,967 ) - ( 37,967 ) Accounts payable ( 1,025,467 ) - ( 1,025,467 ) Accrued expenses ( 415,181 ) - ( 415,181 ) Customer deposits 9,798 - 9,798 Operating lease liability ( 25,047 ) - ( 25,047 ) Net cash used by operating activities ( 4,064,419 ) - ( 4,064,419 ) Cash flows from investing activities Additions to property and equipment ( 14,741 ) - ( 14,741 ) Additions to intangible assets ( 41,000 ) - ( 41,000 ) Net cash used by investing activities ( 55,741 ) - ( 55,741 ) Cash flows from financing activities Proceeds from issuance of common stock, net of issuance costs 5,464,642 - 5,464,642 Offering costs in advance of sale of common stock ( 2,417,185 ) - ( 2,417,185 ) Principal payments on notes payable ( 3,487,578 ) - ( 3,487,578 ) Proceeds from notes payable 159,831 - 159,831 Proceeds from convertible notes, net of fees 4,908,000 - 4,908,000 Net cash provided by financing activities 4,627,710 - 4,627,710 Net decrease in cash and cash equivalents 507,550 - 507,550 Cash and cash equivalents at beginning of period 253,699 - 253,699 Cash and cash equivalents at end of period $ 761,249 $ - $ 761,249 F- 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: April 16, 2024 By: /s/ Brian Carrico Brian Carrico Chief Executive Officer Dated: April 16, 2024 By: /s/ Timothy R. Henrichs Timothy R. Henrichs Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Brian Carrico Chief Executive Officer and Director April 16, 2024 Brian Carrico (Principal Executive Officer) /s/ Timothy R. Henrichs Chief Financial Officer (Principal April 16, 2024 Timothy R. Henrichs Financial Officer and Principal Accounting Officer) /s/ Christopher Robin Brown Director April 16, 2024 Christopher Robin Brown /s/ Bradley Mitch Watkins Director April 16, 2024 Bradley Mitch Watkins /s/ Beth Keyser Director April 16, 2024 Beth Keyser /s/ Kristin Ferge Director April 16, 2024 Kristin Ferge 90