Neuraxis, INC 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes appearing in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties, and assumptions. You should read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of our Form 10-K for the period ended December 31, 2024 (the “2024 Annual Report”) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a growth stage company focused on developing neuromodulation therapies to address chronic and debilitating conditions in children. Our mission is to provide solutions that create value and provide better and safer patient outcomes. Our IB-Stim device is a PENFS system intended to be used in patients 8-21 years of age with functional abdominal pain associated with IBS and has market clearance from FDA for functional abdominal pain associated with IBS in children. Our RED device is an easy-to-use, office-based, point-of-care test that identifies patients with chronic constipation due to pelvic floor dyssynergia and has FDA market clearance for adults. Other indications in our pipeline are comprised of functional nausea in children, post-concussion syndrome in children, cyclic vomiting syndrome in children and functional abdominal pain associated with IBS in adults. Since our inception, we have incurred significant operating losses. Our net loss was $2,122,796 and $1,755,234 for the three months ended September 30, 2025 and 2024, respectively, and $6,091,898 and $6,793,596 for the nine months ended September 30, 2025 and 2024, respectively. Although we had stockholders’ equity of $2,284,941 as of September 30, 2025, our auditors have expressed substantial doubt about our ability to continue as a going concern in their audit opinion. We expect to incur significant expenses and operating losses for the foreseeable future as we continue to pursue widespread insurance coverage of our IB-Stim device and seek FDA clearance of our device for other indications as we also fund selling and marketing efforts to expand the adoption of RED. There are a number of milestones and conditions that we must satisfy before we will be able to generate sufficient revenue to fund our operations, including FDA clearance of our IB-Stim device to treat future indications. Factors Affecting our Business and Results of Operations Revenue Our revenue is derived from the sale of our IB-Stim device to healthcare companies, primarily hospitals and clinics. Sales generally are not seasonal and only mildly correlated with economic cycles. Our IB-Stim device sells for $1,195 per device, and each child being treated for functional abdominal pain associated with IBS will use three to four devices. Potential patients with future indications are expected to use four to six or more devices per patient. In an effort to treat all patients, the Company provides devices at a discount to lower income patients without healthcare insurance. Our sales typically are made on a purchase order basis rather than through long-term purchase commitments. We enter into sales agreements with customers for IB-Stim devices based on purchase orders and standard terms, which vary slightly based on the customer’s form, and conditions of sale. Standard payment terms generally are that payment is due within 30 days. Given the current economic environment, we cannot predict whether inflation will have a material impact on our operations for the foreseeable future. 23 Gross Profit and Gross Margin Our management uses gross profit and gross margin to evaluate the efficiency of operations and as a key component to determining the effectiveness and allocation of resources. We calculate gross profit as net sales less cost of goods sold, and gross margin as gross profit divided by net sales. Our gross margin has been and will continue to be affected by a variety of factors, primarily the average selling price of our IB-Stim and RED devices, production volume, order flows, change in mix of customers, third-party manufacturing costs related to components of our devices and cost-reduction strategies. We expect our gross profit to increase for the foreseeable future as our net sales grows, both through broader insurer acceptance of our IB-Stim device in the near term and approval of our technology for the treatment of other indications over the longer term. Our gross margin may fluctuate from quarter to quarter due to changes in average selling prices and the mix of patient healthcare coverage (e.g. discounts are provided to lower income patients without healthcare insurance), particularly as we introduce enhancements to our IB-Stim device and new products to address other indications, and as we adopt new manufacturing processes and technologies. Expenses We have four categories of expenses: cost of goods sold, selling, research and development, and general and administrative. Costs of goods sold consist of costs paid for the IB-Stim and RED devices to our contract manufacturers along with shipping and handling costs and expired inventory charges. Expired inventory expense is related to the FDA clearance period from the date our devices are manufactured, and if the device is not sold in such period, a reserve is recorded. Expired and other inventory charges totaled $11,598 and $2,030 for the three months ended September 30, 2025 and 2024, respectively, and $24,339 and $2,030 for the nine months ended September 30, 2025 and 2024, respectively. We have fixed-price contracts with the manufacturers of our devices. Our selling expenses primarily consist of advertising, marketing and promotion of the Company’s products including salaries and related personnel costs and travel expenses. The Company reclassified $243,093 and $786,546 of General and Administrative Expenses to Selling Expenses in the Condensed Statements of Operations for the three and nine months ended September 30, 2024, respectively, to conform to current period presentation. Research and development expenses consist primarily of clinical research studies, new product development, costs of materials and supplies used in research and development activities and salaries and related personnel costs for employees engaged in research and development activities to have our IB-Stim and RED devices cleared by the FDA for other indications. The Company reclassified $53,825 and $164,396 of General and Administrative Expenses to Research and Development Expenses in the Condensed Statements of Operations for the three and nine months ended September 30, 2024, respectively, to conform to current period presentation. We expect to incur future research and development expenses for other indications, such as post-concussion syndrome and cyclic vomiting syndrome in children. General and administrative expense primarily consists of wages and benefits, professional fees, including legal, audit, insurance, investor relations, facility costs, utilities and travel costs. Results of Operations The following table presents our statements of operations for the three and nine months ended September 30, 2025 and 2024, respectively: (Unaudited) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Net sales $ 811,414 $ 666,625 $ 2,601,155 $ 1,924,760 Cost of goods sold 135,487 97,050 421,265 256,949 Gross profit 675,927 569,575 2,179,890 1,667,811 Selling expenses 762,548 338,523 1,694,354 1,012,920 Research and development 130,850 126,247 347,433 295,188 General and administrative 1,882,614 1,756,078 6,251,143 6,049,928 Operating loss (2,100,085 ) (1,651,273 ) (6,113,040 ) (5,690,225 ) Other (expense) income: Financing charges (30,240 ) - (30.240 ) (230,824 ) Interest expense, net (29,661 ) (64,676 ) (45,333 ) (171,934 ) Change in fair value of warrant liability (1,740 ) (6,726 ) (28 ) (8,434 ) Amortization of debt discount and issuance costs - (40,888 ) - (126,387 ) Other income 38,930 17,072 96,743 20,032 Other expense - (8,743 ) - (585,824 ) Total other (expense) income, net (22,711 ) (103,961 ) 21,142 (1,103,371 ) Net loss $ (2,122,796 ) $ (1,755,234 ) $ (6,091,898 ) $ (6,793,596 ) 24 Net Sales Net sales increased $144,789, or 21.7%, from $666,625 for the three months ended September 30, 2024, to $811,414 for the three months ended September 30, 2025, and increased $676,395, or 35.1%, from $1,924,760 for the nine months ended September 30, 2024, to $2,601,155 for the nine months ended September 30, 2025. The increases were due to volume growth from (i) customers with full health insurance reimbursement coverage and those participating in our financial assistance programs that provide discounts to patients without insurance coverage and (ii) device sales from the Company’s launch of its RED product in 2025. Unit growth from the discounted financial assistance programs outpaced the full health insurance reimbursement programs. Gross Profit and Gross Margin Gross profit increased $106,352, or 18.7%, from $569,575 for the three months ended September 30, 2024, to $675,927 for the three months ended September 30, 2025, due to higher sales volume. Despite the increase in sales volume, the decrease in gross margin from 85.4% for the three months ended September 30, 2024, to 83.3% for the three months ended September 30, 2025, was due to higher discounting in the Company’s financial assistance programs provided to patients without health insurance coverage, a higher unit growth rate of the discounted financial assistance programs compared to the full health insurance reimbursement programs and expired RED inventory. Gross profit increased $512,079, or 30.7%, from $1,667,811 for the nine months ended September 30, 2024, to $2,179,890 for the nine months ended September 30, 2025, due to higher sales volume. Despite the increase in sales volume, gross margin decreased from 86.7% for the nine months ended September 30, 2024, to 83.8% for the nine months ended September 30, 2025, due to higher discounting in the Company’s financial assistance programs provided to patients without health insurance coverage, a higher unit growth rate of the discounted financial assistance programs compared to the full health insurance reimbursement programs and expired RED inventory. Selling Expenses Selling expenses increased $424,025, or 125.3%, from $338,523 for the three months ended September 30, 2024, to $762,548 for the three months ended September 30, 2025, and increased $681,434, or 67.3%, from $1,012,920 for the nine months ended September 30, 2024, to $1,694,354 for the nine months ended September 30, 2025. The increases were due to higher commissions from sales volume, a temporary commission structure to facilitate growth and adoption in new states, incremental sales and marketing headcount and increased advertising and marketing costs targeting patients and health insurance carriers as IB-Stim’s new Current Procedural Terminology (CPT) Category I code becomes effective January 1, 2026. Research and Development Research and development expenses increased $4,603, or 3.6%, from $126,247 for the three months ended September 30, 2024, to $130,850 for the three months ended September 30, 2025, and increased $52,245, or 17.7%, from $295,188 for the nine months ended September 30, 2024 to $347,433 for the nine months ended September 30, 2025. The increases were due to higher year-over-year spending on a medical research project, improved IB-Stim design features and costs to develop the RED device. General and Administrative General and administrative expenses increased $126,536, or 7.2%, from $1,756,078 for the three months ended September 30, 2024, to $1,882,614 for the three months ended September 30, 2025, primarily due to the introduction of annual short-term and long-term incentive plans in 2024 that were not outstanding for the full fiscal year and headcount and related costs incurred to enhance the Company’s internal control environment and financial operations, partially offset by the absence of certain one-time, non-recurring severance, consulting and advisory costs incurred in 2024. General and administrative expenses increased $201,215, or 3.3%, from $6,049,928 for the nine months ended September 30, 2024, to $6,251,143 for the nine months ended September 30, 2025, primarily due to a one-time, non-recurring charge to settle a lawsuit, headcount and related costs incurred to enhance the Company’s internal control environment and the introduction of annual short-term and long-term incentive plans in 2024 that were not outstanding for the full fiscal year, partially offset by the absence of certain one-time, non-recurring severance, hiring, consulting and advisory costs incurred in 2024 and lower legal, accounting, investor relations and insurance costs as new hires in 2024 have internally absorbed certain services. Operating Loss Our operating loss increased $448,812, or 27.2%, from $1,651,273 for the three months ended September 30, 2024, to $2,100,085 for the three months ended September 30, 2025, primarily due to higher selling and general and administrative expenses, partially offset by higher sales volume. Our operating loss increased $422,815, or 7.4%, from $5,690,225 for the nine months ended September 30, 2024, to $6,113,040 for the nine months ended September 30, 2025, primarily due to higher selling and general and administrative expenses including a one-time non-recurring settlement of a lawsuit, partially offset by higher sales volume. Other (Expense) Income, Net Other expense decreased $81,250 or 78.2%, from $103,961 for the three months ended September 30, 2024, to $22,711 for the three months ended September 30, 2025, primarily due to the conversion of convertible notes into Series B Preferred Stock in 2024 which eliminated any related debt discount and interest charges, partially offset by the settlement of certain shareholder claims. Other expense decreased $1,124,513, or 101.9% from $1,103,371 of expense for the nine months ended September 30, 2024, to $21,142 of income for the nine months ended September 30, 2025, primarily due to the absence of one-time, non-recurring 2024 settlements relating to a 2023 convertible note dispute and certain pre-IPO Series A Preferred Stock shareholder claims and the conversion of convertible notes into Series B Preferred Stock in 2024 which eliminated any related debt discount and interest charges. Net Loss Our net loss increased $367,562, or 20.9%, from $1,755,234 for the three months ended September 30, 2024, to $2,122,796 for the three months ended September 30, 2025, due to higher selling and general and administrative expenses, partially offset by higher sales volume and the conversion of convertible notes into Series B Preferred Stock in 2024 which eliminated any related debt discount and interest charges. Our net loss decreased $701,698, or 10.3%, from $6,793,596 for the nine months ended September 30, 2024, to $6,091,898 for the nine months ended September 30, 2025, primarily due to higher sales volume and the absence of one-time, non-recurring 2024 settlements relating to a 2023 convertible note dispute and certain pre-IPO Series A Preferred Stock shareholder claims, partially offset by higher selling expenses and the one-time, non-recurring settlement of a lawsuit in 2025. 25 Liquidity and Capital Resources We had cash on hand of $4,377,109 and $3,696,870 as of September 30, 2025, and December 31, 2024, respectively. We maintained a working capital surplus of $1,840,599 and $1,832,858 as of September 30, 2025, and December 31, 2024, respectively. The increase in working capital was primarily due to proceeds from the issuance of common stock and the exercise of common stock warrants partially offset by liabilities incurred to settle a lawsuit and purchase the NSS-2 Bridge trademark during the nine months ended September 30, 2025. We have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital stock. As of September 30, 2025, we had stockholders’ equity of $2,284,941 and short-term borrowings of $195,658. Our future capital requirements will depend upon many factors, including progress with developing, manufacturing, and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well. The primary activity that will drive all customers and revenues is the adoption of insurance coverage by commercial insurance carriers nationally, so this is a top priority of the Company. These activities, including our planned research and development efforts, will require significant uses of working capital through the rest of 2025 and beyond. Additionally, we have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act. This additional corporate governance time required of management could limit the amount of time our management has to implement our business plan and may delay our anticipated growth plans. The following table summarizes our cash flow from operating, investing and financing activities for the nine months ended September 30, 2025 and 2024: (Unaudited) Nine Months Ended September 30, 2025 2024 Net cash used in operating activities $ (4,498,684 ) $ (4,340,097 ) Net cash used in investing activities (25,288 ) (27,776 ) Net cash provided by financing activities 5,204,211 4,550,198 Net increase in cash and cash equivalents 680,239 182,325 Cash and cash equivalents at beginning of period 3,696,870 78,560 Cash and cash equivalents at end of period $ 4,377,109 $ 260,885 Operating Activities – Net cash used in operating activities increased $158,587, or 3.7%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily due to higher inventory purchases to support current sales growth and readiness for the January 1, 2026 effective date for the IB-Stim Category I CPT code and the 2025 payment of the 2024 short-term incentive program, partially offset by increased cash collections. Investing Activities – Net cash used in investing activities decreased $2,488, or 9.0%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, due to lower office equipment purchases partially offset by expenditures to manufacture the RED device. Financing Activities – Net cash provided by financing activities increased $654,013, or 14.4%, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily due to proceeds received from the issuance of common stock and the exercise of common stock warrants in 2025 compared to the issuance of convertible notes in 2024. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 26