Neuraxis, INC Commitments Disclosure

17. Commitments and Contingencies

 

Manufacturing Services Agreements

 

The Company is party to two separate manufacturing services agreements for the manufacture and supply of the Company’s IB-Stim and RED devices based on the Company’s product specifications that expire in March and August, 2027, respectively, and automatically renew annually unless either party provides a written termination notice to the other party within 180 days prior to the end of the then-current term. The Company’s IB-Stim and RED devices are manufactured in Indiana and Michigan, respectively. The Company provides the necessary equipment to the manufacturers and retains ownership. The manufacturers bear the risk of loss of and damage to the equipment and consigned materials. Performance under the agreement is initiated by orders issued by the Company and accepted by the manufacturers. The Company also entered into quality agreements with the manufacturers to perform quality assurance services on product provided by the Company.

 

Advisory Agreement

 

On March 18, 2024, the Company terminated its private placement services agreement and entered into an advisory agreement with a financial advisor for debt, equity and public securities market services for one year. The advisory agreement included a monthly fee of $30,000 and 7,563 common stock warrants to be issued monthly at an exercise price of $2.38 with a term of five years. On December 31, 2024, the Company and the financial advisor terminated the advisory agreement subject to the cancelation of 30,252 common stock warrants issued after July 2024 and the payment for services rendered totaling $180,000 during the year ended December 31, 2025.

 

Settlement Agreements

 

The Company issued 13,518 and 245,955 shares of common stock to various pre-IPO 2022 Convertible Note, warrant and Series A Preferred Stock holders to settle certain claims for the years ended December 31, 2025 and 2024, respectively. The Company recorded the fair value of the settlements totaling $30,240 as Finance Charges for the year ended December 31, 2025 and $230,824 of Finance Charges and $580,250 of Other Expense for the year ended December 31, 2024 in the Statements of Operations.

 

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 two2 to five years and optional one-year renewals.

 

There are nine key employees and two non-employees that have stock options of the Company totaling 1,319,394 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 any of options as of January 2, 2026.

 

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.

 

 

Neuraxis, Inc.

Notes to Financial Statements

 

The Company recorded the fair value of the stock options totaling $8,596,661 on the grant date. In addition, a $6,225,169 incremental tax gross up payment is contingent upon the employees exercising their deferred bonus provision which will be recorded when probable.

 

On April 10, 2024, the Company terminated the employment of the Company’s Chief Operating Officer. Pursuant to the employment agreement, the Company made (i) salary continuation payments for six months during the year ended December 31, 2024, (ii) issued 25,832 shares of common stock at a fair value of $78,788 and (iii) made a $41,980 one-time payment in lieu of the exercise of 13,764 stock options that expired on January 2, 2024. The Company was also obligated to provide health care coverage through October 2025.

 

Threatened 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. Legal fees are expensed as incurred.

 

In January 2024, Dr. Arturo Taca served notice to the Company that asserted an interest in its U.S. Patent No. 10,413,719 valued at $2,000,000 based on his own work in neurostimulation. The Company denied both the neurostimulation patent and compensation claims. The case remains unresolved. While it is too early to predict the ultimate outcome of these matters, we believe the Company has meritorious defenses and intends to defend these matters vigorously.