8-K: Neuraxis Secures $5 Million Investment via Convertible Promissory Note

Neuraxis, Inc. has amended its agreement with Flagstaff International, LLC, increasing the investment to $5 million through a convertible promissory note, replacing the previously planned Series B Preferred Stock issuance.

Summary

• Neuraxis, Inc. has modified its securities purchase agreement with Flagstaff International, LLC, increasing the investment amount from $3 million to $5 million.
• The investment will now be in the form of a convertible promissory note instead of Series B Preferred Stock.
• The $5 million will be paid in 15 monthly installments of varying amounts, starting with $200,000 in January, February and March 2024.
• The note can be converted into 2,100,841 shares of Series B Preferred Stock upon stockholder approval and filing of the Certificate of Designation.
• As of March 22, 2024, Neuraxis has received $400,000 from Flagstaff, with 13 more monthly payments scheduled.
• The proceeds from the note will be used for working capital and general corporate purposes, and not for dividends, distributions, or payments to officers, directors, or affiliates.

Sentiment

Score: 6

Explanation: The document indicates a successful increase in investment, but the change to a convertible note and the need for stockholder approval introduce some uncertainty. The restrictions on the use of funds also temper the positive sentiment.

Positives

• The company has successfully increased its investment from $3 million to $5 million.
• The structure of the investment has been changed to a convertible promissory note, which may provide more flexibility.
• The company has already received a portion of the investment, $400,000, providing immediate capital.
• The funds are specifically designated for working capital and general corporate purposes, which can support operations and growth.

Negatives

• The conversion of the note into Series B Preferred Stock is contingent on stockholder approval and the filing of the Certificate of Designation.
• The company is obligated to file a resale registration statement for the common stock underlying the Series B Preferred Stock within 15 business days of stockholder approval.
• The company is restricted from using the funds for dividends, distributions, or payments to officers, directors, or affiliates.

Risks

• The company needs to obtain stockholder approval to authorize the creation of the Series B Preferred Stock for the conversion of the note.
• There is a risk that the company may not be able to meet the obligations of the promissory note, including the payment of interest at 8.5% per annum.
• The company is subject to events of default, which could trigger immediate repayment of the note.
• The company is restricted from certain corporate actions without the consent of the note holder.

Future Outlook

The company plans to use the proceeds from the convertible promissory note for working capital and general corporate purposes. The note will convert into Series B Preferred Stock upon stockholder approval and filing of the Certificate of Designation.

Management Comments

• The company has agreed to use the proceeds from the issuance of the Note solely for the Company's working capital and general corporate purposes.
• The company shall not use any of such proceeds to pay any dividends or distributions or to pay or advance any funds to any of its officers, directors or affiliates.

Industry Context

This type of financing is common for companies seeking to raise capital, particularly in the biotech or emerging growth sectors. Convertible notes are often used as a bridge to equity financing, allowing investors to participate in potential upside while providing the company with immediate funding.

Comparison to Industry Standards

• The use of convertible promissory notes is a fairly standard practice for early-stage companies seeking funding, similar to companies like XOMA Corporation which have used convertible notes to raise capital.
• The interest rate of 8.5% is within the typical range for such notes, although it can vary based on the company's risk profile and market conditions.
• The conversion price of $2.38 per share will be a key factor in determining the value of the investment for Flagstaff International, LLC, similar to how conversion prices are set in other biotech financings.
• The requirement for stockholder approval is a common condition in such transactions, ensuring that existing shareholders have a say in the dilution of their equity.

Stakeholder Impact

• Shareholders will be impacted by the potential dilution of their equity upon conversion of the note.
• The company's employees may benefit from the increased working capital.
• The company's creditors may be impacted by the new debt obligations.

Next Steps

• The company needs to seek stockholder approval for the creation of the Series B Preferred Stock.
• The company needs to file the Certificate of Designation with the Secretary of State of the State of Delaware.
• The company will continue to receive monthly payments from Flagstaff International, LLC.
• The company will need to file a resale registration statement for the common stock underlying the Series B Preferred Stock within 15 business days of stockholder approval.

Key Dates

Keywords

convertible promissory note, Series B Preferred Stock, Flagstaff International, investment, working capital, securities purchase agreement, financing