XML 37 R13.htm IDEA: XBRL DOCUMENT v3.24.1.u1
Notes Payable
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
Notes Payable

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.

 

 

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.

 

 

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.

 

 

Neuraxis, Inc.

Notes to Financial Statements