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, 2025 (the “2025 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 advance drug-free neuromodulation therapies that improve patient outcomes and reduce medication burden in complex disorders, while expanding access to effective care for populations with significant unmet needs. Our IB-Stim device is a PENFS system with FDA indications for patients 8 years and older with functional abdominal pain associated with IBS, functional dyspepsia (FD) and associated FD nausea symptoms. 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 post-concussion syndrome, cyclic vomiting syndrome, post-operative pain and fibromyalgia pain. Since our inception, we have incurred significant operating losses. Our net loss was $1,761,432 and $2,278,684 for the three months ended March 31, 2026 and 2025, respectively. Although we had stockholders’ equity of $5,747,550 as of March 31, 2026, 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 and RED devices and seek FDA clearance of our device for other indications. There are a number of milestones and conditions that we must satisfy before we are 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 patient being treated for functional abdominal pain associated with IBS, functional dyspepsia (FD) and/or associated FD with nausea symptoms will use four devices. 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. 23 Inflation did not have a material impact on our operations for any applicable period and we do not expect inflation to have a material impact on our operations for the foreseeable future. Gross Profit and Gross Margin Our management uses gross profit and gross margin to evaluate the efficiency of operations and as a key component to determining the effectiveness and allocation of resources. We calculate gross profit as 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 device, 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 (“R&D”), and general and administrative (“G&A”). 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 charge is recorded. Expired inventory charges totaled $758 and $0 for the three months March 31, 2026 and 2025, respectively. We have fixed-priced contracts with the manufacturers of our devices. Our selling expenses primarily consist of advertising, marketing and promotion of the Company’s products including salaries, commissions and other related personnel costs including travel expenses. The Company reclassified $366,165 of general and administrative expenses to selling expenses in the Condensed Statements of Operations for the three months ended March 31, 2025, to conform to current year presentation. Our research and development expenses primarily consist of clinical research studies, new product development, costs of materials and supplies used in research and development activities and salaries and other 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 $57,311 of general and administrative expenses to research and development expenses in the Condensed Statements of Operations for the three months ended March 31, 2025, to conform to current year presentation. We expect future R&D expenses for other indications, such as post-concussion syndrome, cyclic vomiting syndrome, post-operative pain and fibromyalgia pain. General and administrative expense primarily consists of wages and benefits, professional fees including legal and audit, insurance, investor relations, facility costs, utilities and travel. Results of Operations The following table presents our statements of operations for the three months ended March 31, 2026 and 2025, respectively: (Unaudited) Three Months Ended March 31, 2026 2025 Net sales $ 1,607,883 $ 895,655 Cost of goods sold 218,366 139,475 Gross profit 1,389,517 756,180 Selling expenses 824,336 500,119 Research and development 99,567 117,867 General and administrative 2,206,293 2,433,292 Operating loss (1,740,679 ) (2,295,098 ) Other (expense) income: Interest expense, net (26,189 ) (2,237 ) Change in fair value of warrant liability (31,506 ) 1,831 Other income 36,942 16,820 Total other (expense) income, net (20,753 ) 16,414 Net loss $ (1,761,432 ) $ (2,278,684 ) 24 Net Sales Net sales increased $712,228, or 79.5%, from $895,655 for the three months ended March 31, 2025, to $1,607,883 for the three months ended March 31, 2026, due to volume growth from customers with full insurance reimbursement coverage that is a function of IB-Stim’s Category I CPT code effective date of January 1, 2026 and broader insurance coverage year over year. Gross Profit and Gross Margin Gross profit increased $633,337, or 83.8%, from $756,180 for the three months ended March 31, 2025, to $1,389,517 for the three months ended March 31, 2026, due to higher unit volume from customers with full insurance reimbursement coverage. The increase in gross margin from 84.4% for the three months ended March 31, 2025, to 86.4% for the three months ended March 31, 2026, was due to higher growth from the Company’s undiscounted full reimbursement customers compared to the Company’s financial assistance programs that are discounted to patients without insurance coverage, partially offset by higher device manufacturing costs. Selling Expenses Selling expenses increased $324,217, or 64.8%, from $500,119 for the three months ended March 31, 2025, to $824,336 for the three months ended March 31, 2026, due to commission from higher sales volume and additional sales reps and marketing personnel to facilitate growth resulting from the IB-Stim Category I CPT code and broader insurance coverage. Research and Development Research and development expenses declined $18,300, or 15.5%, from $117,867 for the three months ended March 31, 2025, to $99,567 for the three months ended March 31, 2026, due to non-recurring RED device development costs in 2025 and proceeds received for devices used in 2026 clinical research studies. General and Administrative General and administrative expenses declined $226,999, or 9.3%, from $2,433,292 for the three months ended March 31, 2025, to $2,206,293 for the three months ended March 31, 2026, primarily due to a one-time, non-recurring charge in 2025 to settle a lawsuit partially offset by incremental stock compensation expense from the third year of a three-year vesting plan, higher benefit costs and consulting fees incurred to secure a Federal Supply Schedule agreement with the Veterans Administration. Operating Loss Our operating loss improved $554,419, or 24.2%, from $2,295,098 for the three months ended March 31, 2025, to $1,740,679 for the three months ended March 31, 2026, primarily due to higher sales volume and the corresponding gross profit and the absence of a one-time, non-recurring charge in 2025 to settle a lawsuit, partly offset by higher selling expenses. Other (Expense) Income, Net Other expense increased $37,167, or 226.4%, from $16,414 of income for the three months ended March 31, 2025, to $20,753 of expense for the three months ended March 31, 2026, primarily due to the change in fair value of warrants and interest expense associated with the settlement of the lawsuit. Net Loss Our net loss improved $517,252, or 22.7%, from $2,278,684 for the three months ended March 31, 2025, to $1,761,432 for the three months ended March 31, 2026, due to higher sales volume and the corresponding gross profit and the absence of a one-time, non-recurring charge in 2025 to settle a lawsuit, partly offset by higher selling expenses. 25 Liquidity and Capital Resources We had cash on hand of $7,078,659 and $4,965,072 as of March 31, 2026, and December 31, 2025, respectively. We maintained a working capital surplus of $5,328,867 and $2,941,091 as of March 31, 2026, and December 31, 2025, respectively. The increase in working capital was primarily due to (i) proceeds from the issuance of common stock pursuant to the At The Market capital facility and the exercise of warrants and (ii) higher accounts receivable driven by IB-Stim device sales. We have incurred losses since inception and have funded our operations primarily with a combination of sales, debt, and the sale of capital stock. As of March 31, 2026, we had stockholders’ equity of $5,747,550 and short-term borrowings of $100,735. 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 2026 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 three months ended March 31, 2026 and 2025: (Unaudited) Three Months Ended March 31, 2026 2025 Net cash used in operating activities $ (1,229,757 ) $ (1,603,655 ) Net cash used in investing activities - (18,000 ) Net cash provided by (used in) financing activities 3,343,344 (69,845 ) Net increase (decrease) in cash and cash equivalents 2,113,587 (1,691,500 ) Cash and cash equivalents at beginning of period 4,965,072 3,696,870 Cash and cash equivalents at end of period $ 7,078,659 $ 2,005,370 Operating Activities – Net cash used in operating activities decreased $373,898, or 23.3%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a lower operating loss attributable to growth from the Category I CPT code and increased payor coverage as well as more efficient working capital utilization during the three months ended March 31, 2026. Investing Activities – Net cash used in investing activities decreased $18,000, or 100.0%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, due to capital expenditures to manufacture the RED device in 2025 that did not recur in 2026 once the device was launched. Financing Activities – Net cash provided by (used in) financing activities increased $3,413,189, or 4,886.8%, for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to proceeds from the issuance of common stock pursuant to the At The Market capital facility and the exercise of warrants during the three months ended March 31, 2026. Critical Accounting Estimates There have been no material changes to the critical accounting estimates previously described in our Form 10-K for fiscal year ended December 31, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 26