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 $2,278,684 and $2,120,651 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had stockholders’ equity of $258,479. 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 sales 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. 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. 22 Given the current economic environment, we cannot predict whether inflation will 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 IB-Stim device, 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, 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 device to our contract manufacturer along with shipping and handling costs and expired inventory charges. Expired inventory expense is related to our FDA clearance for our device in the treatment of functional abdominal pain associated with IBS in children. Specifically, a certain component of our IB-Stim device is cleared for a two-year period after the date the device is manufactured, and if the device is not sold in such period, we must take the device out of inventory and write it off. We had no expired inventory for the three months ended March 31, 2025 and 2024. Expired inventory has not been material to our results. We have a fixed-price contract with the manufacturer of our IB-Stim device to produce the device. We expect production costs to remain relatively constant and only nominal inventory expirations in the foreseeable future. Our core selling expenses primarily consist of commissions. Research and development expense is attributable to our clinical trials and related efforts to have our IB-Stim and RED devices cleared by the FDA for other indications. We expect to incur future R&D expenses for other indications, such as functional nausea, post-concussion syndrome and cyclic vomiting syndrome in children. General and administrative expense primarily consists of wages and benefits, professional fees, including legal, and audit, insurance, investor relations, advertising, facility costs, utilities and travel costs. Results of Operations The following table presents our statements of operations for the three months ended March 31, 2025 and 2024, respectively: (Unaudited) Three Months Ended March 31, 2025 2024 Net sales $ 895,655 $ 646,635 Cost of goods sold 139,475 75,081 Gross profit 756,180 571,554 Selling expenses 133,954 80,030 Research and development 60,556 5,570 General and administrative 2,856,768 2,318,074 Operating loss (2,295,098 ) (1,832,120 ) Other (expense) income: Financing charges - (230,824 ) Interest expense, net (2,237 ) (26,560 ) Change in fair value of warrant liability 1,831 (9,284 ) Amortization of debt discount and issuance costs - (21,683 ) Other income 16,820 - Other expense - (180 ) Total other (expense) income, net 16,414 (288,531 ) Net loss $ (2,278,684 ) $ (2,120,651 ) 23 Net Sales Net sales increased $249,020, or 38.5%, from $646,635 for the three months ended March 31, 2024, to $895,655 for the three months ended March 31, 2025, due to volume growth from customers that provide full insurance reimbursement coverage and those participating in our financial assistance programs that provide discounts to patients without insurance coverage. Gross Profit and Gross Margin Gross profit increased $184,626, or 32.3%, from $571,554 for the three months ended March 31, 2024, to $756,180 for the three months ended March 31, 2025, due to higher sales volume. Despite the increase in sales volume, the decrease in gross margin from 88.4% for the three months ended March 31, 2024, to 84.4% for the three months ended March 31, 2025, was due to higher growth in the Company’s financial assistance programs that are discounted to patients without insurance coverage compared to the Company’s undiscounted full reimbursement customers and higher device manufacturing and shipping costs. Selling Expenses Selling expenses increased $53,924, or 67.4%, from $80,030 for the three months ended March 31, 2024, to $133,954 for the three months ended March 31, 2025, due to higher sales volume and a temporary commission structure to facilitate growth and adoption in new states. Research and Development Research and development expenses increased $54,986, or 987.2%, from $5,570 for the three months ended March 31, 2024, to $60,556 for the three months ended March 31, 2025, due to higher quarter-to-date spending on a medical research project and costs to develop the RED device. General and Administrative General and administrative expenses increased $538,694, or 23.2%, from $2,318,074 for the three months ended March 31, 2024, to $2,856,768 for the three months ended March 31, 2025, primarily due to (i) expenses related to the introduction of annual short-term and long-term incentive plans that did not exist in 2024, (ii) higher advertising costs in order to expand market awareness, (iii) third party costs incurred to enhance the Company’s internal control environment and (iv) the settlement of a lawsuit, partially offset by a one-time hiring grant in 2024 to the Company’s Chief Financial Officer that did not recur in 2025 and lower legal, accounting, consulting, investor relations and insurance costs as new hires in 2024 have internally absorbed certain services. Operating Loss Our operating loss increased $462,978, or 25.3%, from $1,832,120 for the three months ended March 31, 2024, to $2,295,098 for the three months ended March 31, 2025, primarily due to higher general and administrative expenses as a result of the settlement of a lawsuit partially offset by higher sales volume. Other (Expense) Income, Net Other expense, net improved $304,945, or 105.7%, from $288,531 of expense for the three months ended March 31, 2024, to $16,414 of income for the three months ended March 31, 2025, primarily due to the absence of finance charges incurred in 2024 to settle a 2023 convertible note dispute and the full conversation of convertible notes to Series B Preferred Stock that eliminated any further interest expense and amortization of issuance costs. Net Loss Our net loss increased $158,033, or 7.5%, from $2,120,651 for the three months ended March 31, 2024, to $2,278,684 for the three months ended March 31, 2025, due to higher general and administrative expenses as a result of the settlement of a lawsuit partially offset by higher sales volume and the absence of financing charges, interest expense and issuance costs incurred on convertible notes. 24 Liquidity and Capital Resources We had cash on hand of $2,005,370 and $3,696,870 as of March 31, 2025, and December 31, 2024, respectively. We maintained a working capital surplus of $439,823 and $1,832,858 as of March 31, 2025, and December 31, 2024, respectively. The decrease in working capital was primarily due to the utilization of cash to fund the Company’s net loss during the three months ended March 31, 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 March 31, 2025, we had stockholders’ equity of $258,479 and short-term borrowings of $84,307. 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 three months ended March 31, 2025 and 2024: (Unaudited) Three Months Ended March 31, 2025 2024 Net cash used in operating activities $ (1,603,655 ) $ (1,332,160 ) Net cash used in investing activities (18,000 ) (14,722 ) Net cash (used in) provided by financing activities (69,845 ) 1,350,074 Net (decrease) increase in cash and cash equivalents (1,691,500 ) 3,192 Cash and cash equivalents at beginning of period 3,696,870 78,560 Cash and cash equivalents at end of period $ 2,005,370 $ 81,752 Operating Activities – Net cash used in operating activities increased 271,495, or 20.4%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to delayed vendor payments during the three months ended March 31, 2024 as a result of the Company’s liquidity position at that time. Investing Activities – Net cash used in investing activities increased $3,278, or 22.3%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, due to capital expenditures to manufacture the RED device. Financing Activities – Net cash (used in) provided by financing activities decreased $1,419,919, or 105.2%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the issuance of convertible notes in 2024 that did not recur in 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 25