UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

~~[X]~~☒

QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022

~~For the quarterly period ended~~ ~~June 30, 2018~~

~~[ ]~~☐

TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______

~~For the transition period from _______ to _______~~

Commission File Number:001-38546

NEURONETICS, INC.

(Exact name of registrant as specified in its charter)

~~Delaware~~
Delaware	33-1051425
(State or other jurisdiction of ~~incorporation or organization)~~	(I.R.S. Employer Identification No.)
incorporation or organization)

3222 Phoenixville Pike, Malvern, PA	19355
(Address of principal executive offices)	(Zip Code)
(610) 640-4202
(Registrant’s telephone number, including area code)

~~(610) 640-4202~~

~~(Registrant’s telephone number, including area code)~~

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol (s)	Name on each exchange on which registered
Common Stock ($0.01 par value)	STIM	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ~~[X]~~☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	~~[ ]~~	☐	Accelerated filer	~~[ ]~~☐
Non-accelerated filer	~~[X]~~	~~(Do not check if a smaller reporting company)~~☒	Smaller reporting company	~~[ ]~~☒
			Emerging growth company	~~[X]~~☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No ~~[X]~~☒

There were ~~17,577,047~~27,221,490 shares of the registrant’s common stock outstanding as of ~~July 31, 2018.~~November 4, 2022.

Table of Contents

NEURONETICS, INC.

Quarterly Report on Form 10-Q for the quarterly period ended ~~June~~September 30, ~~2018~~2022

Table of Contents


				Page
PART I – FINANCIAL INFORMATION
~~Item 1.~~		~~Financial Statements.~~	3
Item 1.	Financial Statements.		3
		Balance Sheets as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021	3

		Statements of Operations for the Three and ~~Six~~Nine Months ended ~~June~~September 30, ~~2018~~2022 and ~~2017~~2021	4
	Statements of Changes in Stockholders’ Equity for the Three and Nine Months ended September 30, 2022 and 2021		5
		~~Statement of Changes in Convertible Preferred Stock and Stockholders’ Deficit for the Six Months ended June 30, 2018~~	5

		Statements of Cash Flows for the ~~Six~~Nine Months ended ~~June~~September 30, ~~2018~~2022 and ~~2017~~2021	6

		Notes to Interim Financial Statements	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2024

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.	3136
Item 4.	Controls and Procedures.		36
~~Item 4.~~			~~Controls and Procedures.~~		31

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.		37
Item 1.	1A.	~~Legal Proceedings.~~Risk Factors.	3337

Item ~~1A.~~	2.	~~Risk Factors.~~	33

~~Item 2.~~		Unregistered Sales of Equity Securities and Use of Proceeds.	3337

Item 3.		Defaults Upon Senior Securities.	33

~~Item 4.~~		~~Mine Safety Disclosures.~~	33

~~Item 5.~~		~~Other Information.~~	33

~~Item 6.~~		~~Exhibits.~~	34
			37
~~SIGNATURES~~Item 4.	Mine Safety Disclosures.	37
Item 5.	Other Information.	37
Item 6.	Exhibits.	37
	SIGNATURES	39

Table of Contents

PART I - ~~FINANCI~~ALFINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements.~~

Item 1. Financial Statements.

NEURONETICS, INC.

Balance Sheets

(Unaudited; In thousands, except per share data)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	73,698	$	94,141
Accounts receivable, net		11,963		7,706
Inventory		8,573		6,563
Current portion of net investments in sales-type leases		1,874		2,198
Current portion of prepaid commission expense		1,871		1,559
Current portion of note receivables		80		74
Prepaid expenses and other current assets		3,037		3,090
Total current assets		101,096		115,331
Property and equipment, net		2,109		1,220
Operating lease right-of-use assets		3,459		3,884
Net investments in sales-type leases		1,617		1,697
Prepaid commission expense		7,305		6,763
Long-term note receivable		94		10,110
Other assets		3,555		2,218
Total Assets	$	119,235	$	141,223
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,350	$	4,299
Accrued expenses		11,493		8,233
Deferred revenue		1,732		2,501
Current portion of operating lease liabilities		818		670
Current portion of long-term debt, net		8,750		—
Total current liabilities		25,143		15,703
Long-term debt, net		27,009		35,335
Deferred revenue		981		1,471
Operating lease liabilities		3,111		3,539
Total Liabilities		56,244		56,048
Commitments and contingencies (Note 17)		—		—
Stockholders’ Equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or
outstanding on September 30, 2022, and December 31, 2021		—		—
Common stock, $0.01 par value: 200,000 shares authorized; 27,060 and 26,395
shares issued and outstanding on September 30, 2022, and December 31, 2021, respectively		270		264
Additional paid-in capital		400,323		393,644
Accumulated deficit		(337,602)		(308,733)
Total Stockholders' Equity		62,991		85,175
Total Liabilities and Stockholders’ Equity	$	119,235	$	141,223

June 30,
2018

December 31,
2017

Assets

Current assets:

Cash and cash equivalents

$
14,544

$
29,147

Accounts receivable, net

4,724

4,267

Inventory

2,441

2,468

Prepaid expenses and other current assets

4,292

1,123

Total current assets

26,001

37,005

Property and equipment, net

1,493

1,359

Other assets

851

574

Total Assets

$
28,345

$
38,938

Liabilities, Convertible Preferred Stock and Stockholders’ Deficit

Current liabilities:

Accounts payable

$
2,928

$
2,513

Accrued expenses

7,731

7,511

Deferred revenue

1,686

1,970

Current portion of long-term debt

2,500

-

Total current liabilities

14,845

11,994

Long-term debt, net

27,497

29,556

Deferred revenue

2,124

2,275

Convertible preferred stock warrant liability

1,893

478

Deferred rent

121

151

Total Liabilities

46,480

44,454

Commitments and contingencies (Note 14)

Convertible preferred stock, $0.01 par value: 308,593 shares authorized, issuable in
   series; 304,958 shares issued and outstanding at June 30, 2018 and
   December 31, 2017; aggregate liquidation value of $108,324 at June 30, 2018

187,136

187,136

Stockholders’ deficit:

Preferred stock, $0.01 par value: no shares authorized, issued or outstanding
   at June 30, 2018 and December 31, 2017

-

-

Common stock, $0.01 par value: 413,918 shares authorized; 257 and 231 shares
   issued and outstanding at June 30, 2018 and December 31, 2017, respectively

3

2

Additional paid-in capital

4,665

4,292

Accumulated deficit

(209,939
)

(196,946
)
Total Stockholder’s Deficit

(205,271
)

(192,652
)
Total Liabilities, Convertible Preferred Stock and Stockholders’ Deficit

$
28,345

$
38,938

The accompanying notes are an integral part of these unaudited interim financial statements.

Table of Contents

NEURONETICS, INC.

Statements of Operations

(Unaudited; In thousands, except per share data)

Three Months ended June 30,

Six Months ended June 30,

2018

2017

2018

2017

Revenues

$
13,252

$
10,308

$
23,404

$
17,834

Cost of revenues

3,245

2,501

5,702

4,039

Gross Profit

10,007

7,807

17,702

13,795

Operating expenses:

Sales and marketing

9,835

6,400

17,944

12,706

General and administrative

3,078

1,837

5,714

3,479

Research and development

2,330

2,147

3,885

4,175

Total operating expenses

15,243

10,384

27,543

20,360

Loss from Operations

(5,236
)

(2,577
)

(9,841
)

(6,565
)
Other (income) expense:

Interest expense

900

711

1,821

1,261

Other expense (income), net

1,360

(420
)

1,331

(444
)
Net Loss

$
(7,496
)

$
(2,868
)

$
(12,993
)

$
(7,382
)
Net loss per share of common stock outstanding, basic and diluted

$
(30.60
)

$
(16.58
)

$
(55.29
)

$
(43.42
)
Weighted-average common shares outstanding, basic and diluted

245

173

235

170


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues	$	16,498	$	13,799	$	47,008	$	40,290
Cost of revenues		3,570		3,144		11,093		8,115
Gross Profit		12,928		10,655		35,915		32,175
Operating expenses:
Sales and marketing		11,643		9,827		37,977		27,431
General and administrative		6,391		6,435		19,125		19,220
Research and development		2,348		1,575		6,197		6,179
Total operating expenses		20,382		17,837		63,299		52,830
Loss from Operations		(7,454)		(7,182)		(27,384)		(20,655)
Other (income) expense:
Interest expense		1,061		993		3,039		2,955
Other income, net		(906)		(24)		(1,554)		(53)
Net Loss	$	(7,609)	$	(8,151)	$	(28,869)	$	(23,557)
Net loss per share of common stock outstanding, basic and diluted	$	(0.28)	$	(0.31)	$	(1.08)	$	(0.94)
Weighted-average common shares outstanding, basic and diluted		26,965		26,301		26,797		25,179

The accompanying notes are an integral part of these unaudited interim financial ~~statements.~~statements.

Table of Contents

NEURONETICS, INC.

~~Statement~~

Statements of Changes in ~~Convertible Preferred Stock and~~ Stockholders’ ~~Deficit~~Equity

(Unaudited; In thousands)

Convertible
Preferred Stock

Common Stock

Additional
Paid-in

Accumulated

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Deficit

Balance at December 31, 2017

304,958

$
187,136

231

$
2

$
4,292

$
(196,946
)

$
(192,652
)
Exercises of stock options

-

-

26

1

37

-

38

Share-based compensation expense

-

-

-

-

336

-

336

Net loss

-

-

-

-

-

(12,993
)

(12,993
)
Balance at June 30, 2018

304,958

$
187,136

257

$
3

$
4,665

$
(209,939
)

$
(205,271
)


				Additional				Total
	Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Capital		Deficit		Equity
Balance at December 31, 2020	19,114	$	191	$	302,842	$	(277,540)	$	25,493
Share-based awards and options exercises	1,076		11		1,581		—		1,592
Issuance of common stock, net of issuance costs of $401	5,566		56		80,515		—		80,571
Share-based compensation expense	—		—		2,196		—		2,196
Net loss	—		—		—		(7,881)		(7,881)
Balance at March 31, 2021	25,756	$	258	$	387,134	$	(285,421)	$	101,971
Share-based awards and options exercises	411		4		707		—		711
Share-based compensation expense	—		—		2,009		—		2,009
Net loss	—		—		—		(7,525)		(7,525)
Balance at June 30, 2021	26,167	$	262	$	389,850	$	(292,946)	$	97,166
Share-based awards and options exercises	168		1		99		—		100
Share-based compensation expense	—		—		1,961		—		1,961
Net loss	—		—		—		(8,151)		(8,151)
Balance at September 30, 2021	26,335	$	263	$	391,910	$	(301,097)	$	91,076

Balance at December 31, 2021	26,395	$	264	$	393,644	$	(308,733)	$	85,175
Share-based awards and options exercises	322		3		6		—		9
Share-based compensation expense	—		—		2,252		—		2,252
Net loss	—		—		—		(10,838)		(10,838)
Balance at March 31, 2022	26,717	$	267	$	395,902	$	(319,571)	$	76,598
Share-based awards and options exercises	139		1		42		—		43
Share-based compensation expense	—		—		2,203		—		2,203
Net loss	—		—		—		(10,422)		(10,422)
Balance at June 30, 2022	26,856	$	268	$	398,147	$	(329,993)	$	68,422
Share-based awards and options exercises	204		2		(2)		—		—
Share-based compensation expense	—		—		2,178		—		2,178
Net loss	—		—		—		(7,609)		(7,609)
Balance at September 30, 2022	27,060	$	270	$	400,323	$	(337,602)	$	62,991

The accompanying notes are an integral part of these unaudited interim financial ~~statements.~~statements.

Table of Contents

NEURONETICS, INC.

Statements of Cash Flows

(Unaudited; In thousands)

Six Months ended June 30,

2018

2017

Cash Flows from Operating Activities:

Net loss

$
(12,993
)

$
(7,382
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

463

307

Share-based compensation

336

198

Non-cash interest expense

441

285

Change in fair value of convertible preferred stock warrant liability

1,415

(411
)
Cost of rental units purchased by customers

79

54

Changes in certain assets and liabilities:

Accounts receivable, net

(457
)

37

Inventory

(378
)

(569
)
Prepaid expenses and other assets

380

152

Accounts payable

(89
)

(1,270
)
Accrued expenses

(2,130
)

(763
)
Deferred revenue

(435
)

(101
)
Deferred rent

(29
)

(18
)
Net Cash Used in Operating Activities

(13,397
)

(9,481
)
Cash Flows from Investing Activities:

Purchases of property and equipment and capitalized software

(513
)

(152
)
Net Cash Used in Investing Activities

(513
)

(152
)
Cash Flows from Financing Activities:

Payments of initial public offering costs

(731
)

-

Proceeds from exercises of stock options

38

16

Proceeds from issuance of Series G convertible preferred stock, net

-

14,825

Borrowings under credit facilities

-

5,000

Payments of debt issuance costs

-

(1,015
)
Net Cash (Used in) Provided by Financing Activities

(693
)

18,826

Net (Decrease) Increase in Cash and Cash Equivalents

(14,603
)

9,193

Cash and Cash Equivalents, Beginning of Period

29,147

17,040

Cash and Cash Equivalents, End of Period

$
14,544

$
26,233

Supplemental disclosure of cash flow information:

Cash paid for interest

$
1,334

$
992

Transfer of inventory to property and equipment

$
261

$
205

Supplemental disclosure of non-cash financing activities:

Allocation of proceeds from debt financing to convertible preferred stock warrant
liability

$
-

$
171

Deferred initial public offering costs included in accounts payable and accrued
expenses

$
2,542

$
-


	Nine Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities:
Net loss	$	(28,869)	$	(23,557)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,044		768
Share-based compensation		6,633		6,166
Non-cash interest expense		513		484
Cost of rental units purchased by customers		92		137
Changes in certain assets and liabilities:
Accounts receivable, net		(4,257)		(3,097)
Inventory		(2,299)		(1,870)
Net investments in sales-type leases		381		341
Prepaid commission expense		(854)		(602)
Prepaid expenses and other assets		176		(453)
Accounts payable		(2,199)		(840)
Accrued expenses		3,260		(405)
Deferred revenue		(1,260)		(531)
Net Cash Used in Operating Activities		(27,639)		(23,459)

Cash Flows from Investing Activities:
Purchases of property and equipment and capitalized software		(2,766)		(1,552)
Repayment (Issuance) of promissory note		10,000		(7,486)
Net Cash provided by (used in) Investing Activities		7,234		(9,038)

Cash Flows from Financing Activities:
Payments of debt issuance costs		(90)		—
Proceeds from exercises of stock options		52		2,403
Proceeds from the issuance of common stock		—		80,972
Payments of common stock offering issuance costs		—		(401)
Net Cash (used in) Provided by Financing Activities		(38)		82,974
Net (Decrease) Increase in Cash and Cash Equivalents		(20,443)		50,477
Cash and Cash Equivalents, Beginning of Period		94,141		48,957
Cash and Cash Equivalents, End of Period	$	73,698	$	99,434
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,525	$	2,471
Transfer of Inventory to PP&E		285		235
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment and capitalized software in accounts payable and accrued expenses	$	251	$	398
Reduction of accounts receivable in long-term note receivable		—		2,514

The accompanying notes are an integral part of these unaudited interim financial ~~statements.~~statements.

Table of Contents

NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

1.	1. DESCRIPTION OF BUSINESS

Neuronetics, Inc., or the Company, is a commercial stage medical technology company focused on designing, developing and marketing products that improve the quality of life for patients who suffer from ~~psychiatric~~neurohealth disorders. The Company’s first commercial product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses transcranial magnetic stimulation, or TMS, to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system was cleared in 2008 by the United States Food and Drug Administration, or the FDA, to treat adult patients with major depressive disorder, or MDD, who have failed to achieve satisfactory improvement from prior antidepressant medication in the current episode. Our NeuroStar Advanced Therapy system was also cleared in 2022 by the FDA to treat people suffering from obsessive-compulsive disorder as well as for the treatment of comorbid anxiety symptoms for adults with MDD suffering from anxiety symptoms (“anxious depression”). NeuroStar Advanced Therapy is also available in other parts of the world, including Japan, where it is listed under Japan’s national health insurance. The Company intends to continue to pursue development of its NeuroStar Advanced Therapy System for additional indications.

~~Initial Public Offering~~COVID-19

~~On July 2, 2018,~~The Company is continuing to monitor the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will continue to impact the Company’s customers, supply chain, employees and other business partners. While the Company ~~closed~~experienced significant disruptions in March 2020 through the end of September 30, 2022 from the COVID-19 pandemic, it is unable to predict the full impact that the pandemic may have on its ~~initial public offering, or IPO, in which~~financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the ~~Company issued~~scope, severity and ~~sold 6.325 million shares of its common stock, which included the exercise~~duration of the ~~underwriters’ option~~ongoing pandemic, the actions taken to ~~purchase an additional 0.825 million shares of common stock, at a public offering price of $17.00 per share. The Company received net proceeds of $100.0 million after deducting underwriting discounts~~contain the pandemic or mitigate its impact and ~~commissions of $7.5 million but before deducting other offering expenses. The Company’s common stock is listed on~~ the ~~Nasdaq Global Market under the trading symbol “STIM.” In addition, upon the closing~~direct and indirect economic effects of the ~~IPO on July 2, 2018, (i) all~~pandemic, vaccination rates, effectiveness of treatments, and containment measures, among others. The pandemic has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets, and may contribute to periods of economic uncertainty in the Company’s outstanding shares of convertible preferred stock converted into 11.0 million shares of common stock; (ii) all of the Company’s outstanding warrants to purchase convertible preferred stock converted into warrants to purchase common stock; and (iii) the Company filed an amended and restated certificate of incorporation to, among other things, decrease the number of shares of common stock, $0.01 par value per share, authorized for issuance to 200.0 million and to authorize the board of directors to issue up to 10.0 million shares of “blank check” preferred stock, $0.01 par value per share.future.

Liquidity

As of ~~June~~September 30, ~~2018,~~2022, the Company had cash and cash equivalents of ~~$14.5~~$73.7 million and an accumulated deficit of ~~$209.9~~$337.6 million. The Company incurred negative cash flows from operating activities of ~~$11.1~~$27.6 million for the nine months ended September 30, 2022 and $28.0 million for the year ended December 31, ~~2017 and $13.4 million for the six months ended June 30, 2018.~~2021. The Company has incurred operating losses since its inception, and management anticipates that its operating losses will continue in the near term as the Company ~~seeks~~continues to ~~expand its sales and marketing initiatives to support its growth into existing and new markets and~~ invest in ~~additional research~~sales, marketing and product development activities. The Company’s primary sources of capital to date have been proceeds from its ~~IPO,~~initial public offering (“IPO”) of common stock, private placements of its convertible preferred securities, borrowings under its credit ~~facilities~~facility, proceeds from its secondary public offering of common stock and revenues from sales of its products. As of ~~June~~September 30, ~~2018,~~2022, the Company had ~~$30.0~~$35.0 million of borrowings outstanding under its credit facility, which ~~matures~~has a final maturity in ~~March 2022.~~February 2025. Management believes that the Company’s cash and cash equivalents as of ~~June~~September 30, ~~2018, proceeds from its IPO~~2022, and anticipated revenues from sales of its products are sufficient to fund the Company’s operations for at least the next 2412 months ~~after June 30, 2018.~~from the issuance of these financial statements.

2.	2. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with ~~accounting principles~~United States generally accepted ~~in the United States,~~accounting principles, or GAAP. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ~~ASU,~~ASUs, promulgated by the Financial Accounting Standards Board, or FASB.

Table of Contents

NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the United States Securities and Exchange Commission, or SEC, which permit reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying balance sheets and statements of operations ~~changes in convertible preferred stock~~ and stockholders’ ~~deficit~~equity and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. Unaudited interim results of operations and cash flows for the three and ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 are not necessarily indicative of the results that may be expected for the full year. Unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in the Company’s ~~IPO prospectus~~Form 10-K filed with the SEC on ~~June 29, 2018,~~March 8, 2022, wherein a more complete discussion of significant accounting policies and certain other information can be found.

Use of Estimates

The preparation of financial statements in accordance with GAAP and the rules and regulations of the SEC requires the use of estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions, including those related to the COVID-19 pandemic, and given the subjective element of the estimates and assumptions made, actual results may differ materially from estimated results. ~~The most significant estimates and judgments impact share-based compensation, product warranty accruals and the net realizable value of inventory.~~

~~Recapitalization~~

The Company effected a 0.0345-for-1 reverse split of its common stock on June 14, 2018. The reverse split combined each approximately 29 shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion price of its outstanding convertible preferred stock. No fractional shares were issued in connection with the reverse split. Any fractional share resulting from the reverse split was rounded down to the nearest whole share, and in lieu of any fractional share, the Company will pay in cash to the holders of such fractional shares an amount equal to the fair market value, as determined by the board of directors, of such fractional shares. All share, per share and related information presented in these interim financial statements and the related notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split.

3.	3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s complete summary of significant accounting policies can be found in “Note 3. Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s ~~IPO prospectus~~Form 10-K filed with the SEC on ~~June 29, 2018.~~March 8, 2022.

4.	~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~JOBS Act~~

4. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting ~~Election~~

~~The~~Standards Not Yet Adopted by the Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these interim financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In ~~May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers~~” ~~(Topic 606)~~, regarding the accounting for and disclosures of revenue recognition, with an effective date for public companies of annual and interim periods beginning after December 15, 2016. In July 2015, the FASB issued ASU 2015-14, “~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~,” which deferred the effective date of the previously issued revenue recognition guidance by one year. This guidance is effective for public companies for annual and interim periods beginning after December 15, 2017. For all other entities, including emerging growth companies, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods with annual periods beginning after December 15, 2019. Early adoption is permitted. This update provides a single comprehensive model for accounting for revenue from contracts with customers. The model requires that revenue recognized reflects the actual consideration to which the entity expects to be entitled in exchange for the goods or services defined in the contract, including in situations with multiple performance obligations. In April 2016 and MayJune 2016, the FASB issued ASU ~~2016-10, “Revenue from Contracts with Customers~~2016-13, Financial Instruments - Credit Losses (Topic ~~606)~~326): ~~Identifying Performance Obligations~~Measurement of Credit Losses on Financial Instruments (“Topic 326”). This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. The FASB subsequently issued ASU 2019-04, to clarify and ~~Licensing” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” respectively. Both of these updates provide improvements and clarification~~address certain items related to the ~~previously~~amendments in Topic 326.

ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief, was issued ~~revenue recognition guidance. The new standard can be adopted using one~~to provide entities that have certain instruments within the scope of two methods: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The new standard will result in additional revenue-related disclosures in the notes to the Company’s financial statements. The majority of the Company’s revenue relates to the sales of NeuroStar Advanced Therapy Systems and treatment sessions to various customers. While the Company is still analyzing the impact of ASU 2014-09 on its financial statements and disclosures, it currently anticipates no significant changes to its revenue recognition practices as a result of the adoption of Topic 606. However, the Company currently expects the adoption of Topic 606 to change the accounting treatment for sales commissions and is analyzing the impact such change will have on its financial statements and disclosures. The Company historically expensed sales commissions as incurred. In addition, the new standard will require changes to the Company’s processes and controls to support additional disclosures, and the Company is in the process of identifying and designing such changes to processes and controls to ensure readiness.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance will be effective for public companies for annual and interim periods beginning after December 15, 2018. For all other entities, including emerging growth companies, this standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on its financial statements and related disclosures. The Company expects the implementation of this standard to have an impact on its financial statements and related disclosures as its aggregate future minimum lease payments under its current non-cancelable off lease were $1.4 million as of June 30, 2018,ASC 326 with an ~~expiration~~option to irrevocably elect the fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments. ASU 2019-10, Topic 326, Topic 815, and Topic 842 amends the mandatory effective date ~~in 2021. The Company anticipates recognition on its balance sheet~~for Topic 326.

Table of ~~an additional asset and corresponding liability related~~Contents

NEURONETICS, INC.

Notes to ~~this office lease. The Company is currently evaluating the impact the new standard may have on other types of leasing arrangements.~~Interim Financial Statements

~~In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): “Improvements to Nonemployee Share-Based Payment Accounting~~,” which largely aligns the accounting for share-based payment awards issued to nonemployees with the accounting for share-based payment awards issued to employees. Under previous GAAP, the accounting for nonemployee share-based payments differed from that applied to employee awards, particularly with regard to the measurement date and the impact of performance conditions. Under the new guidance, (i) equity-classified share-based payment awards issued to nonemployees will be measured at the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (ii) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (iii) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. This new guidance will be(Unaudited)

These ASUs are effective ~~for public companies~~ for fiscal years beginning after December 15, ~~2018, including interim periods within~~2022 for entities that ~~fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.~~are eligible to be defined by the SEC as a smaller reporting company. The Company ~~currently has no outstanding nonemployee share-based payment awards for which there~~ is ~~unrecognized compensation expense and therefore~~a smaller reporting company. Although the impact upon adoption will depend on the financial instruments held by the Company at that time, the Company does not ~~currently expect the adoption of the new guidance to have an effect~~anticipate a significant impact on its financial statements based on the instruments currently held and its historical trend of bad debt expense relating to trade accounts receivable.

Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited interim financial statements.

5.	5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS

The carrying values of cash equivalents, accounts receivable, prepaids and other current assets, and accounts payable on the Company’s balance sheets approximated their fair values as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 due to their short-term nature. The carrying values of the Company’s ~~current~~ credit facility approximated its fair value as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 due to its variable interest rate. The carrying value of the Company’s note receivable approximated its fair value as of December 31, 2021 due to its variable interest rate.

Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1:

Inputs are quoted prices for identical instruments in active markets.


Level 2:	Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.


Level 3:	Inputs are unobservable and reflect the Company’s own assumptions, based on the best information available, including the Company’s own ~~data.~~data.

The following tables set forth the carrying amounts and fair values of the Company’s financial instruments as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 (in thousands):

	June 30, 2018
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices In Active Markets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

											September 30, 2022
															Fair Value Measurement Based on
															Quoted		Significant
															Prices In		other		Significant
															Active		Observable		Unobservable
											Carrying				Markets		Inputs		Inputs
											Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Money market funds (cash equivalents)	$	11,229	$	11,229	$	11,229	$	-	$	-	$	69,405	$	69,405	$	69,405	$	—	$	—
Liabilities
Convertible preferred stock warrant liability	$	1,893	$	1,893	$	-	$	-	$	1,893

December 31, 2021

Fair Value Measurement Based on

Quoted

Significant

Prices In

other

Significant

Active

Observable

Unobservable

Carrying

Markets

Inputs

Amount

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets

Money market funds (cash equivalents)

91,236

—

December 31, 2017

Fair Value Measurement Based on

Carrying
Amount

Fair Value

Quoted
Prices In
Active
Markets
(Level 1)

Significant
other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Assets

Money market funds (cash equivalents)

$
11,149

$
11,149

$
11,149

$
-

$
-

Liabilities

Convertible preferred stock warrant liability

$
478

$
478

$
-

$
-

$
478

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The fair value of the convertible preferred stock warrant liability was estimated using the Black-Scholes option pricing model and the following inputs and assumptions as of June 30, 2018 and December 31, 2017:NEURONETICS, INC.

June 30, 2018

December 31, 2017

Series E

Series F

Series E

Series F
Estimated fair value of convertible preferred stock

$0.92

$0.92

$0.33

$0.38
Exercise price

$0.6746

$0.3356

$0.6746

$0.3356
Remaining term (in years)

4.5

2.6 - 6.5

5.0

3.1 - 7.0
Risk-free interest rate

2.7%

2.6% - 2.8%

2.2%

2.0% - 2.3%
Expected volatility

43%

43%

43%

43% - 44%
Dividend yield

0%

0%

0%

0%

Notes to Interim Financial Statements

~~The following table presents the changes in Level 3 instruments measured on a recurring basis for the six months ended June 30, 2018 (in thousands):~~(Unaudited)

Balance at December 31, 2017

$
478

Change in fair value

1,415

Balance at June 30, 2018

$
1,893

6.	6. ACCOUNTS RECEIVABLE

The following table presents the composition of accounts receivable, net as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 (in thousands):

	June 30, 2018			December 31, 2017

							September 30,		December 31,
							2022		2021
Gross accounts receivable - trade	$	5,149		$	4,684		$	13,754	$	9,168
Less: Allowances for doubtful accounts		(425	)		(417	)		(1,791)		(1,462)
Accounts receivable, net	$	4,724		$	4,267		$	11,963	$	7,706

7. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE

~~PROPERTY AND EQUIPMENT~~

The following table presents the composition of property and equipment, net as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 (in thousands):

	June 30, 2018			December 31, 2017

							September 30,		December 31,
							2022		2021
Laboratory equipment	$	150		$	150		$	466	$	249
Office equipment		493			487			508		497
Computer equipment and software		874			680			1,711		1,598
Manufacturing equipment		273			273			344		341
Leasehold improvements		172			153			1,422		471
Rental equipment		1,459			1,447			575		601
Property and equipment, gross		3,421			3,190			5,026		3,757
Less: Accumulated depreciation		(1,928	)		(1,831	)		(2,917)		(2,537)
Property and equipment, net	$	1,493		$	1,359		$	2,109	$	1,220

As of September 30, 2022 and December 31, 2021, the Company had capitalized software costs, net of $3.7 million and $2.5 million, respectively, which are included in “Prepaid expenses and other current assets” and “Other assets” on the balance sheet.

Depreciation and amortization expense was ~~$0.3~~$0.4 million and ~~$0.1~~$0.2 million for the three months ended ~~June~~September 30, ~~2018~~2022 and ~~2017,~~2021, respectively, and $1.0 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.

8. NOTE RECEIVABLE

On September 29, 2021, Neuronetics, Inc. the Company entered into an exclusive, five-year master sales agreement (the “Commercial Agreement”) with Check Five, LLC d/b/a Success TMS (“Success TMS”). In connection with the Commercial Agreement, the Company agreed to loan Success TMS the principal amount of $10.0 million for a period of five years pursuant to a secured promissory note (the “Note”). The Note bore interest at a floating rate equal to the prime rate plus 6.00% per annum. The Note included an interest-only period through October 1, 2022, after which time Success TMS was required to make monthly payments of principal and interest. Under the terms of the Note, the Company had received a first priority security interest in substantially all of the assets of Success TMS. Success TMS has also granted the Company an observer seat on the Board of Managers of Success TMS.

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

In the Note, Success TMS made certain representations and warranties and was required to comply with certain customary affirmative and negative covenants during the term of the Note.

On April 29, 2022, the Company entered into a Subordination Agreement (the “Subordination Agreement”) with ZW Partners, LLC, a New Jersey limited liability company (“ZW Partners”), pursuant to which the Company agreed to subordinate its rights under the Note to the rights of ZW Partners under a revolving promissory note, dated as of April 29, 2022 (the “Senior Note”), issued by Success TMS to ZW Partners in an amount up to $10.0 million. As a result, payments in respect of the Note were subordinate and subject in right and time of payment to payment in full of the Senior Note, and ZW Partners’ liens and security interests upon the collateral securing both the Senior Note and the Note are superior in priority to the Company’s liens and security interests upon such collateral. Under the Agreement, the Company had the right to purchase, at par, the entire aggregate amount of debt under the Senior Note at any time.

On July 14, 2022, Success TMS repaid in full the Note issued on September 29, 2021 with a cash payment of $10.5 million, which included all outstanding principal, prepayment premium and accrued but unpaid interest. The repayment extinguished the Note in its entirety and terminated the Subordination Agreement entered into by the Company and ZW Partners.

Interest income recognized by the Company was $0.5 million and $1.0 million for the three and nine months ended September 30, 2022, respectively.

9. LEASES

Lessee:

The Company has operating leases for its corporate headquarters, a training facility and office equipment, including copiers. The Company leases an approximately 32,000 square foot facility in Malvern, Pennsylvania for its corporate headquarters, which includes office and warehouse space. The Company leases an approximately 9,600 square foot facility in Charlotte, North Carolina as a training facility for its NeuroStar Advanced Therapy Systems. The Company does not currently have any finance leases or executed leases that have not yet commenced.

Operating lease rent expense was $0.2 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.6 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the weighted-average remaining lease term of operating leases was 5.3 years and the weighted-average discount rate was 7.1%.

The following table presents the supplemental cash flow information as a lessee related to leases (in thousands):


	Nine Months Ended
	September 30, 2022		September 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	632	$	526

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

The following table sets forth by year the required future payments of operating lease liabilities (in thousands):


	September 30, 2022
Remainder of 2022	$	209
2023		852
2024		875
2025		898
2026		921
Thereafter		999
Total lease payments		4,754
Less imputed interest		(825)
Present value of operating lease liabilities	$	3,929

Lessor sales-type leases:

Certain customers have purchased NeuroStar Advanced Therapy Systems on a rent-to-own basis. The lease term is three or four years with a customer option to purchase the NeuroStar Advanced Therapy System at the end of the lease or automatic transfer of ownership of the NeuroStar Advanced Therapy System at the end of the lease.

The following table sets forth the profit recognized on sales-type leases (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Profit recognized at commencement, net	$	122	$	262	$	543	$	543
Interest income		—		—		—		—
Total sales-type lease income	$	122	$	262	$	543	$	543

The following table sets forth a maturity analysis of the undiscounted lease receivables related to sales-type leases (in thousands):


	September 30,
	2022
Remainder of 2022	$	605
2023		1,572
2024		858
2025		368
2026		88
Total sales-type lease receivables	$	3,491

As of September 30, 2022, the carrying amount of the lease receivables is $3.5 million. The Company does not have any unguaranteed residual assets.

Lessor operating leases:

NeuroStar Advanced Therapy Systems sold for which collection is not probable are accounted for as operating leases. For the three months ended September 30, 2022 and 2021, the Company recognized operating lease income of $0.07 million and $0.03 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized operating lease income of $0.2 million and $0.2 million, respectively.

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

The Company maintained Rental Equipment, net of $0.5 million and $0.6 million as of September 30, 2022 and December 31, 2021, respectively, which are included in “Property and equipment, net” on the balance sheet. Rental equipment depreciation expense was $0.02 million and $0.01 million for the three months ended September 30, 2022 and 2021, respectively, and $0.07 million and $0.03 million for the nine months ended September 30, 2022 and 2021.

10. PREPAID COMMISSION EXPENSE

The Company pays a commission on both NeuroStar Advanced System sales and Treatment Session sales. Since the commission paid for System sales is not commensurate with the commission paid for Treatment Sessions, the Company capitalizes commission expense associated with NeuroStar Advanced Therapy System sales commissions paid that is incremental to specifically anticipated future Treatment Session orders. In developing this estimate, the Company considered its historical Treatment Session sales and customer retention rates, as well as technology development life cycles and other industry factors. These costs are periodically reviewed for impairment.

NeuroStar Advanced Therapy System commissions are deferred and amortized on a straight-line basis over a seven-year period equal to the average customer term, which the Company deems to be the expected period of benefit for these costs.

On the Company’s balance sheets, the current portion of capitalized contract costs is represented by the current portion of prepaid commission expense, while the long-term portion is included in prepaid commission expense. Amortization expense was $0.5 million and $0.3 million for the ~~six~~three months ended ~~June~~September 30, ~~2018~~2022 and ~~2017,~~2021, respectively, and $1.3 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively.

11. ACCRUED EXPENSES

~~ACCRUED EXPENSES~~

The following table presents the composition of accrued expenses as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 (in thousands):


	September 30,		December 31,
	2022		2021
Compensation and related benefits	$	8,022	$	5,090
Consulting and professional fees		760		537
Research and development expenses		637		388
Sales and marketing expenses		246		268
Warranty		337		306
Sales and other taxes payable		558		664
Other		933		980
Accrued expenses	$	11,493	$	8,233

12. DEFERRED REVENUE

Payment terms typically require payment upon shipment or installation of the System and additional payments as access codes for Treatment Sessions are delivered, which can span several years after the System is first delivered and installed. The timing of revenue recognition compared to billings and cash collections typically results in accounts receivable. However, sometimes customer advances and deposits might be required for certain customers and are recorded as contract liabilities (deferred revenue). For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual coverage period and recognizes revenue over the term of the coverage period.

June 30,
2018

December 31,
2017

Compensation and related benefits

$
2,642

$
4,465

Consulting and professional fees

2,701

461

Research and development expenses

303

497

Sales and marketing expenses

156

620

Warranty

653

570

Sales tax payable

331

322

Interest payable

235

188

Other

710

388

Accrued expenses

$
7,731

$
7,511

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

As of September 30, 2022, the Company expects to recognize approximately the following percentages of deferred revenue by year:


	Revenue
Year:	Recognition
Remainder of 2022	25	%
2023	40	%
2024	25	%
2025	8	%
2026	2	%
Total	100	%

Revenue recognized for the three and nine months ended September 30, 2022 that was included in the contract liability balance at the beginning of the year was $0.4 million and $2.2 million, respectively, and primarily represented revenue earned from separately priced extended warranties, customer deposits, milestone revenue, and clinical training.

Customers

For the three months ended September 30, 2022 and 2021, one customer accounted for more than 10% of the Company’s revenues, respectively. For the nine months ended September 30, 2022 and 2021, one customer accounted for more than 10% of the Company’s revenues, respectively.

13. DEBT

The following table presents the composition of debt as of ~~June~~September 30, ~~2018~~2022 and December 31, ~~2017~~2021 (in thousands):

	June 30, 2018			December 31, 2017

							September 30,		December 31,
							2022		2021
Outstanding principal	$	30,000		$	30,000		$	35,000	$	35,000
Accrued final payment fees		1,286			940			1,925		1,925
Less debt discounts		(1,289	)		(1,384	)		(1,166)		(1,590)
Total long-term debt, net		29,997			29,556
Less current portion of long-term debt		(2,500	)		-
Total debt, net								35,759		35,335
Less current portion								(8,750)		—
Long-term debt, net	$	27,497		$	29,556		$	27,009	$	35,335

For the three months ended ~~June~~September 30, ~~2018,~~2022, the Company recognized interest expense of ~~$0.9~~$1.1 million, of which ~~$0.7~~$0.9 million was cash and $0.2 million was non-cash interest expense related to the amortization of deferred debt issuance costs and accrual of final payment fees. For the three months ended ~~June~~September 30, ~~2017,~~2021, the Company recognized interest expense of ~~$0.7~~$1.0 million, of which ~~$0.5~~$0.8 million was cash and $0.2 million was non-cash interest expense related to the amortization of deferred debt issuance costs and accrual of final payment fees.

For the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2022, the Company recognized interest expense of ~~$1.8~~$3.0 million, of which ~~$1.4~~$2.5 million was cash and $0.4 million was non-cash interest expense related to the amortization of deferred debt issuance costs and accrual of final payment fees. For the six months ended June 30, 2017, the Company recognized interest expense of $1.3 million, of which $1.0 million was cash and $0.3$0.5 million was non-cash interest expense related to the amortization of deferred debt issuance costs and accrual of final payment fees.

~~Current $35.0 Million~~Solar Credit Facility

InOn March ~~2017,~~2, 2020, the Company entered into a ~~new~~ loan and security agreement with Solar Capital Ltd., or Solar, as collateral agent, and other lenders defined in the agreement, for a credit facility, or the Solar Facility, that

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

replaced the Company’s previous $35.0 million credit facility with Oxford Finance LLC, or Oxford, ~~for a credit~~and such facility, ~~that replaced its previous $25.0 million credit facility with~~the Oxford ~~and which allows it~~Facility.

The Solar Facility originally permitted the Company to borrow up to ~~$35.0~~an aggregate amount of $50.0 million in ~~three~~two tranches of term ~~loans:~~loans, a “Term A Loan” and “Term B Loan.” On March 2, 2020, the Company borrowed an aggregate amount of $35.0 million, which was the aggregate amount available under the Term A Loan inportion of the ~~amount~~Solar Facility. The Term A Loan portion of ~~$25.0 million, which was drawn down immediately upon closing in March 2017, a~~the Solar Facility matures, and all amounts borrowed thereunder are due, on February 28, 2025. Under the Term B Loan inportion of the Solar Facility, the Company is permitted to borrow, at its election, up to an aggregate amount of ~~$5.0~~$15.0 million, ~~which was drawn down in December 2017, and~~(i) upon the Company achieving a ~~Term C Loan in the~~specified amount of ~~$5.0 million, which became available~~trailing twelvemonths net product revenue, and (ii)assuming there has been no event of default under the Solar Facility prior to such election. Once the net product revenue condition has been satisfied, the Company ~~upon~~may make an election to borrow under the Term B Loan portion of the Solar Facility until the earlier of (a)December15, 2021, (b)30days following achievement of ~~$45.0 million~~the net product revenue condition or (c)the occurrence of ~~trailing twelve month revenues during the second quarter~~an event of ~~2018. Upon achieving the required revenue milestone, the Company had 60 days to notify its lender if it elected to borrow~~default.

Each of the Term ~~C Loan. As a result of completing its IPO on July 2, 2018~~A Loan and ~~receiving net proceeds of $100.0 million, the Company elected not to borrow the additional $5.0 million. Each term loan accrues~~Term B Loan accrue interest from the date of borrowing through the date of repayment at a floating per annum rate of interest, which resets monthly and is equal to 7.65% plus the greater of (a) ~~8.15%~~1.66% or (b) the ~~30 day U.S. LIBOR on~~rate per annum rate published by the last business day of the month plus 7.38%. The Company was also required to issue to Oxford at the date of each borrowing warrants to purchase its Series F or later series of convertible preferred stock with a seven year term and in an amount equal to 3.95% of the first $5.0 million of each tranche borrowed. The credit facility matures and all amounts borrowed thereunder are due on March 1, 2022. As of June 30, 2018, the Company had borrowed and had outstanding an aggregate of $30.0 million of principal under the credit facility.

Intercontinental Exchange Benchmark Administration Ltd. The Term A Loan ~~features~~and the Term B Loan both include an interest-only period through March ~~2019, during which time the Company is required to make monthly interest payments,~~ 1, 2022, after which time the Company iswill be required to make monthly payments of principal and ~~interest based~~interest. Monthly principal payments are to be paid in equal amounts on a ~~36-month amortization schedule. However, upon~~pro rata basis to lenders. At the ~~achievement of $45.0 million of revenues during fiscal 2018,~~Company’s election, the ~~interest-only~~interest only period ~~can~~may be extended ~~for an additional 12 months~~through February 2023 if the Company satisfies a minimum net product revenue covenant through March ~~2020~~1, 2022 and ~~the amortization period then becomes 24 months. In connection with the drawdown~~no event of the Term A Loan, the Company issued to the lender warrants to purchase 588,498 shares of its Series F convertible preferred stock, which had an exercise price of $0.3356 per share and which expire in March 2024. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of the Company’s IPO on July 2, 2018.

The Term B Loan features an interest-only period through March 2019, during which time the Company is required to make monthly interest payments, after which time the Company is required to make monthly payments of principal and interest based on a 36-month amortization schedule. However, upon the achievement of $45.0 million of revenues during fiscal 2018, the interest-only period can be extended for an additional 12 months through March 2020 and the amortization period then becomes 24 months. In connection with the drawdown of the Term B Loan, the Company issued to the lender warrants to purchase 588,498 shares of its Series F convertible preferred stock, which had an exercise price of $0.3356 per share and which expire in December 2024. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of the Company’s IPO on July 2, 2018.default shall have occurred.

In addition to the principal and interest payments due under the ~~credit facility,~~Solar Facility, the Company is required to ~~make~~pay a final payment ~~fees~~fee to ~~the lender~~Solar due upon the earlier of prepayment, acceleration or the maturity ~~of each tranche, which are equal to 8% and 7% of the principal amounts~~date of the Term A ~~and~~Loan or Term B ~~Loans, respectively, except that if~~Loan portion of the ~~interest-only periods on the Term A and Term B Loans are extended then the final payment fees increase~~Solar Facility equal to ~~8.5% and 7.5%~~5.50% of the principal ~~amounts~~amount of the ~~Term A and Term B Loans, respectively.~~term loans actually funded. The Company ~~accrues~~is accruing the ~~estimated~~ final payment fees using the effective interest rate, with a charge to non-cash interest expense, over the term of ~~borrowing for each tranche. As of both June 30, 2018 and December 31, 2017, the effective interest rates for the Term A and Term B Loans were 10.7% and 11.6%, respectively.~~borrowing. If the Company prepays ~~its term loans~~either of the Term A Loan or Term B Loan prior to their respective scheduled maturities, itthe Company will also be required to ~~make~~pay prepayment fees to ~~the lender~~Solar equal to 3% of the principal amount of such term loan then-prepaid if prepaid on or before the first anniversary of funding, 2% of the principal amount of such term loan then-prepaid if prepaid after the first anniversary and on or before the second anniversary of funding, or 1% of the principal amount of such term loan then-prepaid if prepaid after the second anniversary of funding of the principal amounts borrowed.

The Company is also required to pay Solar an exit fee upon the occurrence, prior to March 2, 2030, of (a) any liquidation, dissolution or winding up of the Company, (b) transaction that results in a person obtaining control over the Company, (c) the Company achieving $100 million in trailing twelve month net product revenue or (d) the Company achieving $125 million in trailing twelve month net product revenue. The exit fee for liquidation, dissolution, winding up or change of control of the Company is equal to 4.50% of the principal amount of the term loans actually funded. The exit fee for achieving either $100 million or $125 million in trailing twelve-month net product revenue is equal to 2.25% of the principal amount of the term loans actually funded or, if both net product revenue milestones are achieved, 4.50% of the principal amount of the term loans actually funded. The exit fee is capped at 4.50% of the principal amount of the term loans actually funded.

Table of Contents

NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

The Company’s obligations under the ~~credit facility~~Solar Facility are secured by a first priority security interest in substantially all of its assets, ~~other than its intellectual property. The Company has agreed not to pledge or otherwise encumber any of~~including its intellectual property. The loan and security agreement ~~related to the credit facility includes a financial maintenance covenant that~~ requires the Company to ~~achieve at least 75%~~comply with certain financial covenants, including the attainment of ~~its~~a minimum trailing 12-month forecasted revenues, as measured each month in accordance with a forecast that the Company provided to Oxford upon signing the agreement and future forecasts that the Company is required to deliver to the lenders each year for the life of the credit facility,net revenue amount beginning on December 31, 2020, as well as customary affirmative and negative covenants.

The ~~Company was in compliance with all of the covenants under its credit facility as of June 30, 2018.~~

~~The loan and security agreement related to the credit facility~~Solar Facility contains events of default, including, without limitation, events of default upon: (i) failure to make payment pursuant to the terms of the agreement; (ii) violation of covenants; (iii) material adverse changes to the Company’s business; (iv) attachment or levy on the Company’s assets or judicial restraint on its business; (v) insolvency; (vi) material cross-defaults; (vii) significant judgments, orders or decrees for payments by the Company not covered by insurance; ~~(vii)~~(viii) incorrectness of representations and warranties; ~~(viii)~~(ix) incurrence of subordinated debt; ~~(ix)~~(x) a termination or breach of a guaranty; (xi) revocation of governmental approvals necessary for the Company to conduct its business; and ~~(x)~~(xii) failure by the Company to maintain a valid and perfected lien on the collateral securing the borrowing.

~~Based~~ The Solar Facility includes subjective acceleration clauses which permit the lenders to accelerate the maturity date under certain circumstances, including, but not limited to, material adverse effects on a ~~36-month amortization of~~Company’s financial status or otherwise.

On December 8, 2020, the ~~outstanding principal amounts of~~Company, Solar Capital Ltd., and our other lenders defined in the ~~Term A and~~Solar Facility, executed an amendment to the Solar Facility (the “Solar Amendment”). The Solar Amendment divided the aggregate Term B ~~Loans beginning on April 1, 2019 as discussed above, the following table sets forth by year the Company’s required future principal payments (in thousands):~~

Year:

Principal
Payments

2018

$
-

2019

7,500

2020

10,000

2021

10,000

2022

2,500

Total principal payments

$
30,000

~~Previous $25.0 Million Credit Facility~~

Prior to March 2017, the Company had a $25.0 million credit facility in place with Oxford, which it entered into in February 2014 and which allowed it to borrow up to $25.0 million in three tranches of term loans: a Term A Loan ~~in the~~borrowing amount of $15.0 million aallowable upon our achievement of specific trailing twelve-month net product revenue targets into three separate $5.0 million tranches (“Amended Term B Loan”, “Term C Loan” and “Term D Loan”). The three tranches are available through June 20, 2021, December 20, 2021, and June 20, 2022, respectively, based on the achievement of agreed upon trailing twelve-month net product revenue targets for each tranche.

The Solar Amendment also reduced the trailing twelve-month net product revenue requirement for the Amended Term B Loan inportion of the ~~amount of $5.0 million and a Term C Loan in~~facility. Subject to certain conditions, the ~~amount of $5.0 million, which was never drawn down. Each term loan accrued~~Company has the ability to extend the interest ~~at per annum rates ranging from 8.5% to 8.9%. This facility featured an interest-only~~only period on ~~all tranches through March 2017, and~~ the ~~Company was also required~~initial Term A Loan to ~~issue convertible preferred stock warrants to~~36 months from 24 months upon achieving the ~~lender at~~revenue targets associated with the ~~time of borrowing of each tranche. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of the Company’s IPO on July 2, 2018.~~

~~In addition to principal and interest payments due under the previous $25.0 million credit facility, the~~Amended Term B Loan. The Company was required to ~~make final payment fees~~pay an amendment fee of $0.1 million to ~~the lender upon the earlier~~Solar, which was recognized as a deferred debt issuance cost as of ~~prepayment or maturity and equal~~December 31, 2020 that will be amortized to ~~8.5% and 4.7% of the principal amounts of the Term A and Term B Loans, respectively. The Company accrued final payment fees~~interest expense using the effective interest ~~rate, with a charge to non-cash interest expense, over the term of borrowing and until its entry into the current credit facility in March 2017, at which time~~method.

On February 15, 2022, the Company, ~~paid~~SLR Investment Corp. (formerly known as Solar Capital Ltd.) (“Solar”), and our other lenders defined in the ~~lender $1.0 million in satisfaction of all final payment fee liabilities due~~Solar Facility, executed an amendment to the Solar Facility and the Solar Amendment (the “2022 Solar Amendment”). The 2022 Solar Amendment waived any default under the ~~prior credit facility.~~

~~Management evaluated whether~~Solar Facility and Solar Amendment that resulted from the ~~current credit facility entered into in March 2017 represented a debt modification or extinguishment in accordance~~Company’s failure to comply with ~~ASC 470-50, Debt—Modifications~~the minimum monthly trailing twelve months net product revenue financial covenant, beginning with the testing period for the calendar month ending December 31, 2021 and ~~Extinguishments. Upon determining~~continuing to the execution date of the 2022 Solar Amendment; (ii) decreased the amount of trailing twelve months net product revenue that the ~~change in cash flows between~~Company is required to achieve, for testing periods on and from the ~~previous~~calendar month ending January 31, 2022; (iii) modified the definition of the fourth draw period with respect to the Company’s ability to borrow the Term D Loan portion of the Solar Facility, such that after giving effect to the 2022 Solar Amendment, the Term D Loan portion of the Solar Facility is no longer available to be drawn by the Company; and ~~current credit facilities~~(iv) modified the definition of interest only extension conditions to allow commencement of loan principal amortization under the Solar Facility to be extended to March 1, 2023. The Company was ~~not greater than 10%, management accounted for the transaction~~required to pay an amendment fee of $0.06 million to Solar, which has been recognized as a ~~debt modification. As of March 2017, the unamortized balance of~~ deferred debt issuance ~~costs incurred in connection with the $25.0 million credit facility, and certain additional deferred debt issuance costs incurred in connection with entry into the current credit facility, are being~~cost as of March 31, 2022 that will be amortized to interest expense ~~through March 2022 utilizing~~using the effective interest method.

As of September 30, 2022, the Company is in compliance with all covenants in the Solar Facility and is projected to be in compliance with the reduced minimum revenue covenant amounts going forward.

~~10.~~

~~CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT~~

~~Initial Public~~Table of Contents

NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

14. COMMON STOCK

Common Stock Offering

On ~~July~~February 2, ~~2018, the Company~~2021, we closed ~~its IPO,~~on our public offering and sale (the “Offering”) of our common stock in which ~~the Company~~we issued and sold ~~6.325 million~~5,566,000 shares of ~~its~~our common stock, which included ~~the exercise of the underwriters’~~shares pursuant to an option granted to underwriters to purchase an additional ~~0.825 million~~ shares, ~~of common stock,~~ at a public offering price of ~~$17.00~~$15.50 per share. ~~The Company~~We received net proceeds of ~~$100.0~~$80.6 million after deducting underwriting discounts, ~~and~~ commissions ~~of $7.5 million but before deducting other~~and offering expenses. In addition, upon the closing of the IPO on July 2, 2018, (i) all of the Company’s outstanding shares of convertible preferred stock converted into 11.0 million shares of common stock; (ii) all of the Company’s outstanding warrants to purchase convertible preferred stock converted into warrants to purchase common stock; and (iii) the Company filed an amended and restated certificate of incorporation to, among other things, decrease the number of shares of common stock, $0.01 par value per share, authorized for issuance to 200.0 million and to authorize the board of directors to issue up to 10.0 million shares of “blank check” preferred stock, $0.01 par value per share.

Common Stock

The Company’s amended certificate of incorporation as of June 30, 2018 authorized the issuance of 413.9 million shares of common stock, $0.01 par value per share, of which 0.3 million were issued and outstanding as of June 30, 2018. In addition, the Company was required to reserve and keep available out of its authorized but unissued shares of common stock a number of shares sufficient to effect the conversion into common stock of all outstanding shares of convertible preferred stock and convertible preferred stock warrants, convertible preferred stock or common stock warrants issuable upon borrowing the Term C Loan under the current $35.0 million credit facility, stock options granted and shares available for grant under its stock incentive plan.

The following table summarizes the total number of shares of the Company’s common stock issued and reserved for issuance as of ~~June~~September 30, ~~2018 (in thousands):~~

	~~June 30, 2018~~
~~Shares of common stock issued~~		~~257~~
~~Shares of common stock reserved for issuance for:~~
~~Convertible preferred stock outstanding:~~
~~Series A-1~~		~~166~~
~~Series A-2~~ ⁽¹⁾		~~898~~
~~Series B~~ ⁽²⁾		~~697~~
~~Series C~~ ⁽³⁾		~~1,063~~
~~Series D~~		~~1,705~~
~~Series E~~		~~1,534~~
~~Series F~~		~~3,531~~
~~Series G~~		~~1,400~~
~~Convertible preferred stock warrants outstanding:~~
~~Series E~~		14
~~Series F~~		91
~~Warrants issuable upon Term C Loan borrowing~~		20
~~Stock options outstanding~~		~~2,855~~
~~Shares available for grant under stock incentive plan~~		48
~~Total shares of common stock issued and reserved for~~ ~~issuance~~		~~14,279~~

~~___________________________~~

⁽¹⁾	~~Shares of Series A-2 convertible preferred stock convert to common stock at a ratio of 0.03539 shares of common stock per share of Series A-2 convertible preferred stock.~~

⁽²⁾	~~Shares of Series B convertible preferred stock convert to common stock at a ratio of 0.04103 shares of common stock per share of Series B convertible preferred stock.~~

⁽³⁾	~~Shares of Series C convertible preferred stock convert to common stock at a ratio of 0.05071 shares of common stock per share of Series C convertible preferred stock.~~

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Subject to preferences that may apply to any outstanding convertible preferred stock, holders of common stock are entitled to receive proportionally any dividends that the Company’s board of directors may declare out of funds legally available for that purpose on a non-cumulative basis. The Company has never paid, and for the foreseeable future does not expect to pay, a dividend on its common stock.

~~Convertible Preferred Stock~~

The Company’s amended certificate of incorporation as of June 30, 2018 authorized the issuance of 308.6 million shares of convertible preferred stock, $0.01 par value per share, of which the Company had designated and issued Series A-1, Series A-2, Series B, Series C, Series D, Series E, Series F and Series G shares. Series A-1 through Series E shares of convertible preferred stock are referred to collectively as Junior Securities and are subordinate to shares of Series G and Series F convertible preferred stock. All of the Company’s convertible preferred stock was classified outside of stockholders’ deficit as of June 30, 2018 because the shares contain deemed liquidation rights that are a contingent redemption feature not solely within the control of the Company and the IPO had not yet closed.

~~The following table summarizes the Company’s outstanding convertible preferred stock as of June 30, 2018~~2022 and December 31, ~~2017:~~2021 (in thousands):

Shares
Authorized
and
Designated
(in thousands)

Shares
Issued and
Outstanding
(in thousands)

Carrying
Value
(in thousands)

Liquidation
Value
per Share

Liquidation
Value
(in thousands)

Series A-1

4,800

4,800

$
900

$
0.0617

$
296

Series A-2

25,385

25,385

16,428

$
0.2052

5,209

Series B

17,000

17,000

16,859

$
0.3168

5,386

Series C

20,958

20,958

34,841

$
0.5253

11,009

Series D

49,426

49,426

29,970

$
0.2874

14,205

Series E

44,873

44,471

29,800

$
0.5144

22,876

Series F

105,567

102,334

43,513

$
0.3356

34,343

Series G

40,584

40,584

14,825

$
0.3696

15,000

Balance at June 30, 2018 and December 31, 2017

308,593

304,958

$
187,136

$
108,324


	September 30, 2022	December 31, 2021
Shares of common stock issued	27,060	26,395
Shares of common stock reserved for issuance for:
Common stock warrants outstanding	75	75
Stock options outstanding	1,424	1,499
Restricted stock units outstanding	4,060	2,124
Shares available for grant under stock incentive plan	1,067	2,037
Shares available for sale under employee stock purchase plan	1,063	799
Total shares of common stock issued and reserved for issuance	34,749	32,929

~~Conversion~~

Each share and series of convertible preferred stock is convertible into common stock at any time at the option of the holder thereof at the conversion price then in effect (each subject to adjustments upon the occurrence of certain dilutive events). At June 30, 2018 and immediately prior to the closing of the Company’s IPO on July 2, 2018, the conversion price for Series A-1, Series D, Series E, Series F and Series G shares was equal to the original issue price, resulting in a common stock conversion ratio of 1:0.0345. At June 30, 2018 and immediately prior to the closing of the Company’s IPO on July 2, 2018, as a result of past anti-dilution adjustments, the conversion price for Series A-2, Series B and Series C shares was below the original issue price, resulting in common stock conversion ratios of 1:0.03539, 1:0.04103 and 1:0.05071, respectively. Immediately prior to the closing of the Company’s IPO on July 2, 2018, all of the Company’s outstanding shares of convertible preferred stock converted into 11.0 million shares of common stock.

~~Liquidation Preferences~~

~~As of June 30, 2018~~

In the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or in the event of a deemed liquidation event, which includes a sale of the Company as defined in the Company’s certificate of incorporation, holders of Series G convertible preferred stock were entitled to receive, in preference to all other stockholders, an amount equal to their original investment amount plus any declared and unpaid dividends. If upon the occurrence of such event the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of the Series G convertible preferred stock in proportion to the full amounts to which they would otherwise be entitled.

After payment in full of the liquidation preference of the Series G convertible preferred stock, holders of Series F convertible preferred stock were entitled to receive, in preference to all holders of Junior Securities and common stock, an amount equal to their original investment amount plus any declared and unpaid dividends. If upon the occurrence of such event the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire remaining assets and funds legally available for distribution shall be distributed ratably among the holders of the Series F convertible preferred stock in proportion to the full amounts to which they would otherwise be entitled.

After payment in full of the liquidation preferences of the Series G and Series F convertible preferred stock, holders of Junior Securities were entitled to receive an amount equal to $59.2 million in the aggregate. If upon the occurrence of such event the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of the Junior Securities in proportion to the full amounts to which they would otherwise be entitled.

After payment in full of the liquidation preferences of the Series G, Series F and Junior Securities convertible preferred stock, holders of Series F convertible preferred stock were entitled to receive an additional liquidation preference at an amount equal to $0.1678 per share. If upon the occurrence of such event the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire assets and funds legally available for distribution shall be distributed ratably among the holders of the Series F convertible preferred stock in proportion to the full amounts to which they would otherwise be entitled.

After payment in full of the liquidation preferences of the Series G, Series F and Junior Securities convertible preferred stock and the additional liquidation preference for holders of Series F convertible preferred stock, holders of common stock and holders of Junior Securities, Series F and Series G convertible preferred stock are entitled to receive a liquidation preference until the amount distributed to holders of the Series F convertible preferred stock equals $1.0068 plus declared but unpaid dividends on each share and then to the holders of common stock and holders of Junior Securities and Series G convertible preferred stock until the aggregate amount distributed to such holders equals the amount distributed to holders of Series F convertible preferred stock divided by the Series F ownership percentage.

After payments of the above liquidation preferences have been made, any remaining assets shall be distributed ratably to holders of common stock and holders of Series G, Series F and Junior Securities convertible preferred stock on an “as-converted” basis.

~~As of July 2, 2018~~

Immediately prior to the closing of the Company’s IPO on July 2, 2018, all of the Company’s outstanding shares of convertible preferred stock converted into 11.0 million shares of common stock, resulting in the elimination of the Company’s outstanding liquidation preferences.

~~Dividends~~

Each class of convertible preferred stock was entitled to receive non-cumulative annual dividends at a rate of 9.0%, if and when declared by the Company’s board of directors. The holders of Series G convertible preferred stock were entitled to dividends in preference to holders of any other class or series of the Company’s stock. The holders of Series F convertible preferred stock were entitled to dividends in preference to all holders of Junior Securities and holders of common stock. The holders of Junior Securities were entitled to dividends in preference to holders of common stock.

In the event a dividend is declared to common stockholders, holders of each class of convertible preferred stock will also receive an equivalent dividend on an “as-converted” basis. The Company has never paid, and for the foreseeable future does not expect to pay, a dividend on its common stock.

~~Voting~~

The holders of each class of convertible preferred stock were entitled to one vote for each share of common stock into which their shares of convertible preferred stock may be converted and, subject to certain convertible preferred stock class votes specified in the Company’s certificate of incorporation or as required by law, the holders of convertible preferred stock and common stock vote together on an “as-converted” basis.

~~Convertible Preferred~~Common Stock Warrants

The following ~~table summarizes~~tables summarize the Company’s outstanding ~~convertible preferred~~common stock warrants as of ~~June~~September 30, ~~2018:~~2022, and December 31, 2021:

Warrants
Outstanding
(in thousands)

Exercise
Price

Expiration
Date
Series E

402

$
0.6746

Dec-2022
Series F

878

$
0.3356

Feb-2021
Series F

589

$
0.3356

Aug-2023
Series F

589

$
0.3356

Mar-2024
Series F

588

$
0.3356

Dec-2024

3,046


September 30, 2022
Warrants
Outstanding
(in thousands)	Exercise Price		Expiration Date
14	$	19.55	Dec-2022
20	$	9.73	Aug-2023
20	$	9.73	Mar-2024
21	$	9.73	Dec-2024
75


December 31, 2021
Warrants
Outstanding
(in thousands)	Exercise Price		Expiration Date
14	$	19.55	Dec-2022
20	$	9.73	Aug-2023
20	$	9.73	Mar-2024
21	$	9.73	Dec-2024
75

~~Immediately prior to the closing of the Company’s IPO on July 2, 2018, all of the Company’s outstanding convertible preferred stock warrants converted into 0.1 million common stock warrants.~~

~~11.~~

15. LOSS PER SHARE

The Company’s basic loss per common share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. The Company’s restricted stock awards ~~(non-vested~~

Table of Contents

NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

(non-vested shares) are issued and outstanding at the time of grant but are excluded from the Company’s computation of weighted-average shares outstanding in the determination of basic loss per share until vesting occurs.

A net loss cannot be diluted, so when the Company is in a net loss position, basic and diluted loss per common share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings per common share calculation will include both the weighted-average number of shares outstanding and the number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants, stock options, ~~and~~ non-vested restricted stock ~~awards~~units and non-vested performance restricted stock units using the treasury stock method, along with the effect, if any, from the potential conversion of outstanding securities, such as convertible preferred stock.

The following potentially dilutive securities outstanding as of ~~June~~September 30, ~~2018~~2022 and ~~2017~~2021 have been excluded from the denominator of the diluted loss per share of common stock outstanding calculation (in thousands):

June 30,

2018

2017

Stock options

2,855

2,076

Non-vested restricted stock awards

10

17

Convertible preferred stock warrants

105

85

Shares of convertible preferred stock “as-converted”

10,994

10,994


	September 30,
	2022	2021
Stock options	1,424	1,567
Non-vested performance restricted stock units	395	395
Non-vested restricted stock units	3,665	1,647
Common stock warrants	75	75

~~12.~~

16. SHARE-BASED COMPENSATION

~~SHARE-BASED COMPENSATION~~

The amount of share-based compensation expense recognized by the Company by location in its statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 and ~~2017~~2021 is as follows (in thousands):

	Three Months ended June 30,				Six Months ended June 30,
	2018		2017		2018		2017

									Three Months Ended September 30,				Nine Months Ended September 30,
									2022		2021		2022		2021
Cost of revenues	$	5	$	7	$	9	$	7	$	35	$	23	$	94		56
Sales and marketing		65		43		119		56		1,074		515		3,258		1,608
General and administrative		87		92		142		108		939		1,368		2,950		4,368
Research and development		35		14		66		27		130		55		331		134
Total	$	192	$	156	$	336	$	198	$	2,178	$	1,961	$	6,633	$	6,166

~~2003 Stock~~

2018 Equity Incentive Plan

In ~~April 2003 (and as subsequently amended),~~June 2018, the Company adopted the ~~2003 Stock~~2018 Equity Incentive Plan, or ~~2003~~2018 Plan, which authorized the issuance of up to ~~3.1~~1.4 million shares, subject to an annual 4% increase based on the number of shares of common stock outstanding, in the form of restricted stock, stock appreciation rights and stock options to the Company’s directors, employees and consultants. The amount and terms of grants are determined by the Company’s board of directors. ~~To date, the Company has granted restricted stock awards only to an independent member of its board of directors and only as compensation for board service.~~ All stock options granted to date have had exercise prices equal to the ~~estimated~~ fair value, as determined by the ~~board of directors,~~closing price as reported by the Nasdaq Global Market, of the underlying common stock on the date of ~~the~~ grant. The contractual term of stock options is up to 10 years, and stock options are exercisable in cash or as otherwise determined by the board of directors. Generally, stock options vest 25% upon the first anniversary of the date of grant and the remainder ratably monthly thereafter for 36 months. Restricted stock units generally vest ratably in three equal installments on the first, second and third anniversaries of the grant date. Performance restricted stock units (“PRSUs”) generally vest based on appreciation of the Company’s common stock to a certain price as determined by the Company’s board of directors measured using a trailing 30-day volume weighted average price of a share of the Company’s common stock. The fair value of the PRSU awards are determined using a risk neutral Monte Carlo

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

simulation valuation model. As of ~~June~~September 30, ~~2018,~~2022, there were ~~0.05~~0.6 million shares available for future issuance under the ~~2003~~2018 Plan. As

2020 Inducement Incentive Plan

In December 2020, the Company adopted the 2020 Inducement Incentive Plan, which authorized the issuance of ~~the closing~~up to 0.4 million shares, subject to increase by approval of the Company’s ~~IPO, all~~board of directors, in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards and other stock awards to eligible employees who satisfy the standards for inducement grants under Nasdaq Global Market rules. In March 2022, the Company’s board of directors approved an additional 500,000 shares for the issuance under the plan. An individual who previously served as an employee or director of the Company is not eligible to receive awards under this plan. The amount and terms of grants are determined by the Company’s board of directors. As of September 30, 2022, there were 0.5 million shares available for future issuance under the ~~2003 Plan were carried over to the newly adopted 2018 Stock~~2020 Inducement Incentive ~~Plan, or 2018~~ Plan. ~~Therefore, the Company will not issue any additional equity awards under the 2003 Plan.~~

Stock Options

The following table summarizes the Company’s stock option activity for the ~~six~~nine months ended ~~June~~September 30, ~~2018:~~2022:

Number of
Shares under
Option
(in thousands)

Weighted-
average
Exercise Price
per Option

Weighted-
average
Remaining
Contractual
Life (in years)

Aggregate
Intrinsic
Value
(in thousands)

Outstanding at December 31, 2017

2,444

$
2.39

Granted

502

$
5.94

Exercised

(26
)

$
1.43

Forfeited

(65
)

$
3.20

Outstanding at June 30, 2018

2,855

$
3.00

7.6

$
67,395

Exercisable at June 30, 2018

1,426

$
2.22

6.3

$
34,779

Vested and expected to vest at June 30, 2018

2,855

$
3.00

7.6

$
67,395


					Aggregate
	Number of	Weighted-		Weighted-	average
	Shares under	average		Remaining	Intrinsic
	Option	Exercise Price		Contractual	Value
	(in thousands)	per Option		Life (in years)	(in thousands)
Outstanding at December 31, 2021	1,499	$	4.01
Granted	—	$	—
Exercised	(51)	$	1.01
Forfeited	(24)	$	13.41
Outstanding at September 30, 2022	1,424	$	3.96	7.2	$	1,260
Exercisable at September 30, 2022	913	$	4.62	6.9	$	708
Vested and expected to vest at September 30, 2022	1,424	$	3.96	7.2	$	1,260

The Company recognized share-based compensation expense related to stock options of $0.2 million and $0.2 million for the three months ended ~~June~~September 30, ~~2018~~2022 and ~~2017,~~2021, respectively, and ~~$0.3~~$0.5 million and ~~$0.2~~$0.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 and ~~2017,~~2021, respectively. As of ~~June~~September 30, ~~2018,~~2022, there was ~~$2.7~~$0.7 million of total unrecognized compensation cost related to non-vested stock options which the Company expects to recognize over a weighted-average period of ~~3.2~~1.4 years. ~~The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2018 was estimated at $3.64 per option.~~ The total intrinsic value of stock options exercised during the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 was $0.1 million.

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For the six months ended June 30, 2018, the grant-date fair value of stock options was estimated at the time of grant using the following weighted-average inputs and assumptions in the Black-Scholes option pricing model:NEURONETICS, INC.

Notes to Interim Financial Statements

Estimated fair value of common stock

$
5.94

Exercise price

$
5.94

Expected term (in years)

6.0

Risk-free interest rate

2.7
%
Expected volatility

65.8
%
Dividend yield

0
%

(Unaudited)

In April 2018, the Company’s board of directors granted options to purchase 54,794 shares of common stock to the members of the board. These options have an exercise price of $5.22 and vest in 12 equal monthly installments beginning in March 2018; however, the entire grant was subject to forfeiture if an initial public offering of the Company’s common stock did not occur by December 31, 2018. The estimated grant-date fair value of the options awards was $0.2 million. Upon the closing of the Company’s IPO on July 2, 2018, the Company will immediately recognize the fair value of the vested portion of the awards as share-based compensation expense, with the unvested portion to be recognized as share-based compensation expense ratably over the remaining service period.

Restricted Stock ~~Awards~~Units and Performance Restricted Stock Units

The following table summarizes the Company’s restricted stock ~~award~~unit and performance restricted stock unit activity for ~~the six months ended June~~September 30, ~~2018:~~2022:

Non-vested
Restricted
Stock Awards
(in thousands)

Weighted-
average
Grant-date
Fair Value

Non-vested at December 31, 2017

16

$
2.32

Vested

(6
)

$
2.32

Non-vested at June 30, 2018

10

$
2.32


	Non-vested		Weighted-	Non-vested		Weighted-
	Restricted		average	Performance Restricted		average
	Stock Units		Grant-date	Stock Units		Grant-date
	(in thousands)		Fair Value	(in thousands)		Fair Value
Non-vested at December 31, 2021	1,729	$	7.29	395	$	6.77
Granted	2,775	$	3.32	—	$	—
Vested	(613)	$	7.64	—	$	—
Forfeited	(226)	$	6.12	—	$	—
Non-vested at September 30, 2022	3,665	$	4.29	395	$	6.77

The Company recognized ~~minimal~~$2.0 million and $1.8 million in share-based compensation expense related to the restricted stock ~~awards during~~units and performance restricted stock units for the three ~~and six~~ months ended ~~June~~September 30, ~~2018~~2022 and ~~2017.~~2021, respectively, and $6.1 million and $5.5 million the nine months ended September 30, 2022 and 2021, respectively. As of ~~June~~September 30, ~~2018,~~2022, there was ~~minimal~~$11.0 million of unrecognized compensation cost related to non-vested restricted stock ~~awards~~units and performance restricted stock units, which the Company expects to recognize over a weighted-average period of ~~9 months.~~1.9 years. The total fair value at the vesting date of restricted stock ~~awards~~units and performance restricted stock units vested during the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022, was ~~$0.05~~$2.2 million.

~~13.~~

~~EMPLOYEE BENEFIT PLANS~~

~~401(k) Defined Contribution Plan~~

The Company ~~maintains a 401(k) defined contribution retirement plan which covers all of its employees. Employees are eligible to participate on~~did not grant performance restricted stock units during the ~~first~~period ended September 30, 2022. For the period ended December 31, 2021, the grant-date fair value of the ~~month~~performance restricted stock units was estimated at the time of grant using the following ~~their date of hire. Under~~inputs and assumptions in the 401(k) plan, participating employees may defer up to 100% of their pre-tax salary but not more than statutory limits. There is currently no employer matching of employee contributions and employee contributions vest immediately.Monte Carlo simulation valuation model:

~~14.~~


		December 31, 2021
Closing price of common stock	$	15.92
Risk-free interest rate		1.15	%
Expected volatility		99.7	%

17. COMMITMENTS AND CONTINGENCIES

~~Executive Employment Agreements~~

~~The Company has entered into an employment agreement and offer letters with certain key executives, providing for compensation and severance in certain circumstances, as defined in the agreements.~~

~~Leases~~

In January 2013, the Company entered into a 93-month lease for its headquarters office and warehouse. The Company also rents certain office equipment. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not yet paid. Landlord allowances for tenant improvements are deferred and recognized as a reduction to rent expense on a straight-line basis and over the remaining lease term.

Legal Matters

The Company is subject from time to time to various claims and legal actions arising during the ordinary course of its business. Management believes that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on the Company’s results of operations, financial condition, or cash flows.

~~15.~~

18. GEOGRAPHICAL SEGMENT INFORMATION

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or ~~decision making~~decision-making group, in deciding how to allocate resources and in assessing performance. The Company currently operates in one business segment as it is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its products or product development.

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

The following geographic data includes revenue generated from the Company’s third-party distributors. The Company’s revenue was generated in the following geographic regions and by product line for the ~~years~~periods indicated (in thousands):


											Revenues by Geography
											Three Months Ended September 30,
											2022				2021
													% of				% of
											Amount		Revenues		Amount		Revenues
	Revenues by Geography
	Three Months ended June 30,
	2018					2017
	Amount		% of Revenues			Amount		% of Revenues
											(in thousands, except percentages)
United States	$	12,898		97	%	$	10,225		99	%	$	16,244	98	%	$	13,280	96	%
International		354		3	%		83		1	%		254	2	%		519	4	%
Total revenues	$	13,252		100	%	$	10,308		100	%	$	16,498	100	%	$	13,799	100	%

Revenues by Geography

Six Months ended June 30,

2018

2017

Amount

% of
Revenues

Amount

% of
Revenues

United States

$
22,870

98
%

$
17,619

99
%
International

534

2
%

215

1
%
Total revenues

$
23,404

100
%

$
17,834

100
%


	U.S. Revenues by Product Category
	Three Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	3,934	24	%	$	2,612	20	%
Treatment sessions		11,864	73	%		10,259	77	%
Other		446	3	%		409	3	%
Total U.S. revenues	$	16,244	100	%	$	13,280	100	%


	International Revenues by Product Category
	Three Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	96	38	%	$	306	59	%
Treatment sessions		31	12	%		90	17	%
Other		127	50	%		123	24	%
Total International revenues	$	254	100	%	$	519	100	%


	Revenues by Geography
	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
United States	$	45,893	98	%	$	38,891	97	%
International		1,115	2	%		1,399	3	%
Total revenues	$	47,008	100	%	$	40,290	100	%

~~Item 2.~~

~~Management’s Discussion and~~ ~~Analysis of~~ ~~Financial Condition and Results of Operations.~~

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)


	U.S. Revenues by Product Category
	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	11,959	26	%	$	6,945	18	%
Treatment sessions		32,627	71	%		30,688	79	%
Other		1,307	3	%		1,258	3	%
Total U.S. revenues	$	45,893	100	%	$	38,891	100	%


	International Revenues by Product Category
	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	460	41	%	$	797	57	%
Treatment sessions		214	19	%		235	17	%
Other		441	40	%		367	26	%
Total International revenues	$	1,115	100	%	$	1,399	100	%

19. SEVERANCE

The Company entered into transition agreements outlining the separation with certain former employees during the period ended September 30, 2022 and 2021. In connection with these agreements, the Company recorded $0.0 million and $0.3 million of charges in salary, payroll tax and bonus expenses for the three months ended September 30, 2022 and 2021, respectively, and $0.2 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, $0.4 million and $1.1 million of termination benefits were paid associated with the termination of the employees and charged against this liability. As of September 30, 2022 and December 31, 2021, $0.0 million and $0.1 million, respectively, remain in accrued liabilities for the unpaid portion of the separation benefits.

20. RISKS AND UNCERTAINTIES

Information About Significant Customers

Significant customers are those which represent more than 10% of the Company’s total revenue or are considered significant based on combination of quantitative and qualitative factors during the periods. For each significant customer, revenue as a percentage of total revenue was as follows (in thousands, except for percentages):


	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
Customer 1	$	9,183	20	%	$	8,759	22	%
Total	$	9,183	20	%	$	8,759	22	%

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NEURONETICS, INC.

Notes to Interim Financial Statements

(Unaudited)

Accounts receivable outstanding related to these customers as of September 30, 2022 was as follows (in thousands):


		September 30,
		2022
Customer 1	$	4,886
Total accounts receivable	$	4,886

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations, as well as other sections in this Quarterly Report on Form 10-Q, should be read in conjunction with our unaudited interim financial statements and related notes thereto included elsewhere herein. In addition to historical financial information, some of the information contained in the following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts, including statements regarding our future results of operations and financial position, business strategy, current and prospective products, product approvals, research and development costs, current and prospective collaborations, timing and likelihood of success, plans and objectives of management for future operations and future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, without limitation, risks and uncertainties related to: the ongoing impact of the novel coronavirus, or COVID-19, pandemic on general political and economic uncertainty, including as a result of efforts by governmental authorities to mitigate the COVID-19 pandemic and the related impact on resource allocations, manufacturing and supply chains and patient access to commercial products; our ability to execute our business continuity as well as our operational and budget plans in light of the COVID-19 pandemic; our ability to achieve or sustain profitable operations due to our history of losses; our reliance on the sale and usage of our NeuroStar Advanced Therapy System to generate revenues; the scale and efficacy of our salesforce; availability of coverage and reimbursement from third-party payors for treatments using our products; physician and patient demand for treatments using our products; developments in respect of competing technologies and therapies for the indications that our products treat; product defects; our ability to obtain and maintain intellectual property protection for our technology; developments in clinical trials or regulatory review of NeuroStar Advanced Therapy System for additional indications; developments in regulation in the United States and other applicable jurisdictions; and the impacts on our operational and budget plans due to inflation. For a discussion of these and other related risks, please refer to our recent SEC filings which are available on the SEC’s website at www.sec.gov. These forward-looking statements are based on our expectations and assumptions as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no duty or obligation to update any forward-looking statements contained in this Quarterly Report on Form 10-Q as a result of new information, future events or changes in our expectations.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~IPO prospectus~~Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission, or~~ SEC, on ~~June 29, 2018.~~March 8, 2022. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

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Overview

We are a commercial stage medical technology company focused on designing, developing and marketing products that improve the quality of life for patients who suffer from ~~psychiatric~~neurohealth disorders. Our first commercial product, the ~~NeuroStar~~NeuroStar® Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses transcranial magnetic stimulation, or TMS, to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared by the United States Food and Drug Administration, or FDA, to treat adult patients with major depressive disorder, or MDD, that have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. Our NeuroStar Advanced Therapy system was also cleared in 2022 by the FDA to treat people suffering from obsessive-compulsive disorder as well as for the treatment of anxious depression. NeuroStar Advanced Therapy is also available in other parts of the world, including Japan, where it is listed under Japan’s national health insurance. NeuroStar Advanced Therapy is safe, clinically effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe we are the market leader in TMS therapy based on ~~our U.S. installed base of 816 active NeuroStar Advanced Therapy Systems in approximately 637 psychiatrist offices as of June 30, 2018 and the estimated 54,000~~over 141,070 global patients treated with ~~approximately 1.9~~over 5.1 million ~~treatment sessions~~of our Treatment Sessions through ~~such date.~~September 30, 2022. We generated revenues of ~~$13.3~~$16.5 million and ~~$23.4~~$13.8 million for the three ~~and six~~ months ended ~~June~~September 30, ~~2018,~~2022 and 2021, respectively, and $47.0 million and $40.3 million for the nine months ended September 30, 2022 and 2021, respectively.

We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat patients who suffer from MDD and to address many of the key limitations of ~~existing~~other treatment options. We generate revenues from initial capital sales of our systems, recurring ~~treatment sessions~~Treatment Sessions and service and repair and extended warranty contracts. We derive the majority of our revenues from recurring ~~treatment sessions.~~Treatment Sessions. For the three months ended ~~June~~September 30, ~~2018,~~2022, revenues from sales of our ~~treatment sessions~~Treatment Sessions and NeuroStar Advanced Therapy Systems represented ~~69%~~73% and ~~28%~~24% of our U.S. revenues, ~~respectively. For the six months ended June 30, 2018, revenues from sales of our treatment sessions~~respectively, and ~~NeuroStar Advanced Therapy Systems represented~~ 71% and 26% ~~of our U.S. revenues,~~for the nine months ended September 30, 2022 and 2021, respectively.

We currently sell our NeuroStar Advanced Therapy System and recurring ~~treatment sessions~~Treatment Sessions in the United States ~~through~~with the collaborative support of our ~~direct sales and customer support team, which was comprised of 132 people~~198 employees as of ~~June~~September 30, ~~2018.~~2022. Our sales force ~~primarily~~ targets ~~15,100~~an estimated 50,000 psychiatrists ~~at 3,600 high-decile~~across 26,000 psychiatric practices ~~that we estimate,~~in the United States, based on data from Symphony Health and our own internal estimates that treat approximately ~~33%~~42% of the total MDD patients in the United States who meet our labeled indication and are insured. We expect to continue to expand our direct sales and customer support team to further penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy to psychiatrists and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced Therapy System. Based on our commercial data, we believe ~~psychiatrists~~our customers can recoup their initial capital investment in our system by providing a standard course of treatment to approximately 12 patients. We believe ~~psychiatrists~~our customers can generate approximately ~~$7,500 to $10,000~~$8,500 of average revenue per patient for a standard course of treatment, which may provide meaningful incremental income to their practices. We have a diverse customer base, ofincluding psychiatrists in group psychiatric practices, pain management physicians and other medical professionals in the United States. ~~No single~~For the three and nine months ended September 30, 2022, one customer accounted for more than 10% of our revenues for the three and six months ended June 30, 2018. Patients are reimbursed by Medicare and the vast majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced Therapy System.revenues.

We market our products in a few select markets outside the United States through independent distributors. International revenues represented 3%2% and 2%4% of our total revenues for the three ~~and six~~ months ended ~~June~~September 30, ~~2018,~~2022 and 2021, respectively, and 2% and 3% for the nine months ended September 30, 2022 and 2021, respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin Pharma Limited, or Teijin, for the distribution of our NeuroStar Advanced Therapy Systems and ~~treatment sessions~~Treatment Sessions to customers who will treat patients with MDD in Japan. We received regulatory approval for our system in Japan in September 2017 and we ~~plan to work with Teijin to obtain~~received the initial reimbursement ~~or approval for NeuroStar Advanced Therapy in Japan in 2018.~~of JPY 12,000 per Treatment Session, which went into effect on June 1, 2019. We expect our international revenues to increase over time as a percentage of our total revenues as we grow ~~our presence~~system placements and utilization in Japan.

Our research and development efforts are focused on the following: hardware and software product developments and enhancements of our NeuroStar Advanced Therapy System and clinical ~~development~~developments relating to additional ~~indications, which may include bipolar depression and post-traumatic stress disorder.~~indications. We outsource the manufacture of components of our NeuroStar Advanced

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Therapy Systems that are produced to our specifications, and individual components are either shipped directly from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern, Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.

Our total revenues increased by ~~$2.9~~$2.7 million, or ~~29%~~20%, from ~~$10.3~~$13.8 million for the three months ended ~~June~~September 30, ~~2017~~2021 to ~~$13.3~~$16.5 million for the three months ended ~~June~~September 30, ~~2018~~2022 and increased by ~~$5.6~~$6.7 million, or ~~31%~~17%, from ~~$17.8~~$40.3 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~$23.4~~$47.0 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2022. For the three and ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2022, our U.S. revenues were ~~$12.9~~$16.2 million and ~~$22.9~~$45.9 million ~~respectively,~~ compared to ~~$10.2~~$13.3 million and ~~$17.6~~$38.9 million for three and nine months ended September 30, 2021, which represents an increase of 22% and 18% period over period. The increase was primarily attributable to an increase in Treatment Session sales period over period. We incurred net losses of $7.6 million and $28.9 million for the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, which represent increases of 26% and 30% period over period. Due to the seasonality of our sales, during the first quarter of each year, we typically experience reduced revenues compared to our other quarters. We incurred net losses of $7.5 million and $13.0 million for the three and six months ended June 30, 2018, respectively,2022 compared to net losses of ~~$2.9~~$8.2 million and ~~$7.4~~$23.6 million for ~~the~~ three and ~~six~~nine months ended ~~June~~September 30, ~~2017, respectively.~~2021. We expect to continue to incur losses for the next several years as we ~~expand~~invest in our commercial organization to support our planned sales growth and while continuing to invest in our pipeline indications. As of ~~June~~September 30, ~~2018,~~2022, we had an accumulated deficit of ~~$209.9~~$337.6 million.

~~On July 2, 2018, we closed our initial public offering, or IPO, in which we issued~~COVID-19

Throughout 2020, 2021 and ~~sold 6.325 million shares~~the nine months ended September 30, 2022, the Company experienced a material impact to revenue, particularly with regards to U.S. Treatment Session revenues as a result of the COVID-19 pandemic. The Company expects that capital equipment sales and Treatment Session revenues will continue to be impacted by the pandemic as customers defer capital purchase decisions and delay new patient treatment starts. System utilization has also declined compared to pre-COVID-19 projections.

We have monitored the impact of the COVID-19 pandemic on all aspects of our ~~common stock, which included~~business and geographies, including how it has and will continue to impact the ~~exercise~~Company’s customers, supply chain, employees and other business partners. While we experienced significant disruptions in the current period and the nine months ended September 30, 2022 from the COVID-19 pandemic, we are unable to predict the ultimate impact that the COVID-19 pandemic may have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the ~~underwriters’ option~~ongoing pandemic, the actions taken to ~~purchase an additional 0.825 million shares~~contain the pandemic or mitigate its impact and the direct and indirect economic effects of ~~common stock, at a public offering price~~the pandemic, vaccination rates and containment measures, among others. The outbreak of ~~$17.00 per share. We received net proceeds~~COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity.

The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of ~~$100.0 million after deducting underwriting discounts and commissions of $7.5 million but before deducting other offering expenses. Our common stock is listed~~COVID-19 on the ~~Nasdaq Global Market under the trading symbol “STIM.” Our primary sources of capital to date have been from our IPO, private placements~~Company, see Item 1A titled “Risk Factors” of our ~~convertible preferred securities, borrowings under our credit facilities and revenues from sales of our products.~~Annual Report on Form 10-K for the year ended December 31, 2021.

Components of Our Results of Operations

Revenues

To date, we have generated revenues primarily from the capital portion of our business and related sales and rentals of the NeuroStar Advanced Therapy System and the recurring revenues from our sale of ~~treatment sessions~~Treatment Sessions in the United States.

NeuroStar Advanced Therapy System Revenues. NeuroStar Advanced Therapy System revenues consist primarily of sales or rentals of a capital component, including upgrades to the equipment attributable to the initial sale of the system. NeuroStar Advanced Therapy Systems can be purchased outright or on a rent-to-own basis by certain customers. ~~We had an installed base~~

Table of ~~816 and 690 active NeuroStar Advanced Therapy Systems as of June 30, 2018 and 2017, respectively.~~Contents

Treatment Session Revenues. Treatment ~~session~~Session revenues primarily include sales of NeuroStar Treatment Sessions and SenStar treatment links. The NeuroStar Treatment Sessions are access codes that are delivered electronically in the United States. The SenStar treatment links are disposable units containing single-use access codes that are sold and used outside the United States. Access codes are purchased separately by our customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in order to deliver ~~treatment sessions.~~Treatment Sessions.

Other Revenues. Other revenues are derived primarily from service and repair, ~~and~~ extended warranty contracts and D-tect sales with our existing customers.

We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition” appearing in our ~~IPO prospectus~~Form 10-K filed with the SEC on ~~June 29, 2018 for additional information regarding how we account for revenues.~~March 8, 2022. We also refer you to “Note 3. Summary of Significant Accounting Policies.”

Cost of Revenues and Gross Margin

Cost of revenues primarily consists of the costs of components and products purchased from our third-party contract manufacturers of our NeuroStar Advanced Therapy Systems as well as the cost of treatment packs for individual ~~treatment sessions.~~Treatment Sessions. We use third-party contract manufacturing partners to produce the components for and assemble the completed NeuroStar Advanced Therapy Systems. Cost of revenues also includes costs related to personnel, ~~royalties,~~ warranty, shipping, and our operations and field service departments. We expect our total cost of revenues to increase ~~in absolute dollars as and~~ to the extent our revenues grow.

Our gross profit is calculated by subtracting our cost of revenues from our revenues. We calculate our gross margin as our gross profit divided by our revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily product sales mix, pricing and third-party contract manufacturing costs. Our gross margins on revenues from sales of NeuroStar Advanced Therapy Systems are lower than our gross margins on revenues from sales of ~~treatment sessions~~Treatment Sessions and, as a result, the sales mix between NeuroStar Advanced Therapy Systems and ~~treatment sessions~~Treatment Sessions can affect the gross margin in any reporting period.

Sales and Marketing Expenses

Sales and marketing expenses consist of market research and commercial activities related to the sale of our NeuroStar Advanced Therapy Systems and ~~treatment sessions~~Treatment Sessions and salaries and related benefits, sales commissions and share-based compensation for employees focused on these efforts. Other significant sales and marketing costs ~~included~~include conferences and trade shows, promotional and marketing activities, including direct and online marketing, practice support programs ~~television~~ and radio media campaigns, travel and training expenses.

We anticipate ~~a significant~~that our sales and marketing expenses will increase ~~in headcount in our commercial organization and in~~for the remainder of 2022 compared to same-period 2021 expenses ~~in executing~~as we continue to execute on our growth initiatives ~~as we continue to~~and expand our business in the United ~~States and internationally. As a result, we expect our sales and marketing expenses to continue to increase in absolute dollars.~~States.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries and related benefits, share-based compensation and travel expenses, for employees in executive, finance, information technology, legal and human resource functions. General and administrative expenses also include the cost of insurance, outside legal fees, accounting and other consulting services, audit fees from our independent registered public accounting firm, board of directors’ fees and other administrative costs, such as corporate facility costs, including rent, utilities, depreciation and maintenance not otherwise included in cost of revenues.

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We anticipate that our general and administrative expenses will ~~increase in absolute dollars because of an expanded infrastructure and an increased headcount. We anticipate higher corporate infrastructure costs including, but not limited~~remain flat compared to accounting, legal, human resources, consulting and investor relations fees, listing fees on the Nasdaq Global Market, costs associated with SEC reporting and compliance, as well as increased director and officer insurance premiums, as a result of becoming a public company.our 2021 expenses.

Research and Development Expenses

Research and development expenses consist primarily of personnel expenses, including salaries and related benefits and share-based compensation for employees in clinical development, product development, regulatory and quality assurance functions, as well as expenses associated with outsourced professional scientific development services and costs of investigative sites and consultants that conduct our preclinical and clinical development programs. We typically use our employee, consultant and infrastructure resources across our research and development programs.

We plan to incur additional research and development expenses ~~for~~in the near future as we expect to continue our development of TMS Therapy for the treatment of additional patient populations and new indications ~~which may include bipolar depression, post-traumatic stress disorder and potential other clinical indications yet~~related to ~~be determined,~~neurohealth disorders, as well as for various hardware and software development projects. As a result, we expect our research and development expenses to ~~continue~~increase for the remainder of 2022 compared to ~~increase in absolute dollars.~~same-period 2021 expenses.

Interest Expense

Interest expense consists of cash interest payable under our credit facility and non-cash interest attributable to the accrual of final payment fees and the amortization of deferred financing costs related to our indebtedness.

Other ~~Expense (Income),~~Income, Net

Other ~~expense (income),~~income, net consists primarily of the revaluation related to our convertible preferred stock warrants, which are accounted for as a liability as of June 30, 2018 and marked-to-market at each reporting period, as well as gains and losses on the disposal of fixed assets and interest income earned on our money market account balances. Upon the closing of our IPO on July 2, 2018, all of our outstanding convertible preferred stock warrants converted into common stock warrants, resulting in the reclassification of the convertible preferred stock warrant liability into additional paid-in capital.balances and note receivables.

Results of Operations

Comparison of the ~~Three Months~~three months ended ~~June~~September 30, ~~2018~~2022 and ~~2017~~2021


	Three Months Ended
	September 30,						Increase / (Decrease)
	2022			2021			Dollars		Percentage

	(in thousands, except percentages)
Revenues	$	16,498		$	13,799		$	2,699	20	%
Cost of revenues		3,570			3,144			426	14	%
Gross Profit		12,928			10,655			2,273	21	%
Gross Margin		78.4	%		77.2	%

Operating expenses:
Sales and marketing		11,643			9,827			1,816	18	%
General and administrative		6,391			6,435			(44)	(1)	%
Research and development		2,348			1,575			773	49	%
Total operating expenses		20,382			17,837			2,545	14	%
Loss from Operations		(7,454)			(7,182)			(272)	(4)	%
Other (income) expense:
Interest expense		1,061			993			68	7	%
Other income, net		(906)			(24)			(882)	3,675	%
Net Loss	$	(7,609)		$	(8,151)		$	542	7	%

Three Months ended
June 30,

Increase / (Decrease)

2018

2017

Dollars

Percentage

(in thousands, except percentages)

Revenues

$
13,252

$
10,308

$
2,944

29
%
Cost of revenues

3,245

2,501

744

30
%
Gross Profit

10,007

7,807

2,200

28
%
Gross Margin

76
%

76
%

Operating expenses:

Sales and marketing

9,835

6,400

3,435

54
%
General and administrative

3,078

1,837

1,241

68
%
Research and development

2,330

2,147

183

9
%
Total operating expenses

15,243

10,384

4,859

47
%
Loss from Operations

(5,236
)

(2,577
)

(2,659
)

-103
%
Other (income) expense:

Interest expense

900

711

189

27
%
Other expense (income), net

1,360

(420
)

1,780

424
%
Net Loss

$
(7,496
)

$
(2,868
)

$
(4,628
)

-161
%

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											Revenues by Geography
											Three Months Ended September 30,
											2022				2021
													% of				% of
											Amount		Revenues		Amount		Revenues
	Revenues by Geography Three Months ended June 30,
	2018					2017
	Amount		% of Revenues			Amount		% of Revenues
	(in thousands, except percentages)
											(in thousands, except percentages)
United States	$	12,898		97	%	$	10,225		99	%	$	16,244	98	%	$	13,280	96	%
International		354		3	%		83		1	%		254	2	%		519	4	%
Total revenues	$	13,252		100	%	$	10,308		100	%	$	16,498	100	%	$	13,799	100	%


											U.S. Revenues by Product Category
											Three Months Ended September 30,
											2022				2021
													% of				% of
											Amount		Revenues		Amount		Revenues
	U.S. Revenues by Product Category Three Months ended June 30,
	2018					2017
	Amount		% of Revenues			Amount		% of Revenues
	(in thousands, except percentages)
											(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	3,568		28	%	$	2,510		25	%	$	3,934	24	%	$	2,612	20	%
Treatment sessions		8,920		69	%		7,388		72	%		11,864	73	%		10,259	77	%
Other		410		3	%		327		3	%		446	3	%		409	3	%
Total U.S. revenues	$	12,898		100	%	$	10,225		100	%	$	16,244	100	%	$	13,280	100	%

Revenues

Total ~~revenues increased by $2.9 million, or 29%, from $10.3 million~~revenue for the three months ended ~~June~~September 30, ~~2017 to $13.3~~2022 was $16.5 million, ~~for the three months ended June 30, 2018. Revenues in the United States increased by $2.7 million for the three months ended June 30, 2018~~an increase of 20% compared to the three months ended ~~June~~September 30, ~~2017 due to higher unit~~2021 revenue of $13.8 million. During the quarter, total U.S. revenue increased by 22% and international revenue decreased by 51% over the prior year quarter. The U.S. revenue growth was primarily driven by an increase in Treatment sessions sales ~~of both~~and the decline in international revenue was primarily driven by a decrease in international NeuroStar Advanced Therapy Systems ~~and treatment sessions. International revenues increased~~sales.

U.S. NeuroStar Advanced Therapy System revenue for the three months ended ~~June~~September 30, ~~2018~~2022 was $3.9 million, an increase of 50% compared to the three months ended ~~June~~September 30, ~~2017, primarily due to~~2021 revenue of $2.6 million. For the ~~recognition of deferred~~three months ended September 30, 2022 and 2021, the Company sold 49 and 33 systems, respectively, that were recognized as NeuroStar capital revenue ~~related to the upfront and milestone payments received in the fourth quarter of 2017 and an initial order, both related to our distribution agreement with Teijin for Japan.~~

~~Revenues in the United States increased by $2.7 million, or 26%, from $10.2 million~~during each period. Additionally, for the three months ended ~~June~~September 30, ~~2017~~2022 and 2021, the Company executed 1 and 7 operating lease agreements, respectively, that contributed to ~~$12.9 million~~operating lease revenue.

U.S. Treatment Session revenue for the three months ended ~~June~~September 30, ~~2018. NeuroStar Advanced Therapy System revenues in the United States grew by $1.1~~2022 was $11.9 million, ~~or 42%, in the three months ended June 30, 2018~~an increase of 16% compared to the three months ended ~~June~~September 30, 2017, based on 44% higher unit volume, partially offset by 2% lower average selling prices. Included in the U.S. NeuroStar Advanced Therapy System revenues for the three months ended June 30, 2018 was a multi-unit order in the amount2021 revenue of ~~$0.5~~$10.3 million. ~~NeuroStar Advanced Therapy System revenues represented 28% and 25% of U.S. revenues for the three months ended June 30, 2018 and 2017, respectively. We believe the~~The revenue growth in NeuroStar Advanced Therapy System revenues between these two periods was the result of the efforts of our expanded commercial organization and increased marketing efforts. As of June 30, 2018, we had an installed base of 816 active systems in the United States, compared to 690 as of June 30, 2017.

Treatment session revenues in the United States represented 69% and 72% of total revenues in the United States for the three months ended June 30, 2018 and 2017, respectively, and increased by 21% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017. The increase in United States treatment session revenues was primarily ~~the result of a 25%~~driven by an increase in the number of accounts utilizing our PHQ 10 tool. As a result, our treatment ~~sessions performed. This was partially offset by a 4% decline~~session volume in ~~average selling price due~~our local per click accounts, those utilizing our PHQ 10 tool increased 36.9% compared to ~~certain volume pricing discounts within our existing customer base.~~third quarter of 2021.

Cost of Revenues and Gross Margin

Cost of revenues increased by ~~$0.7~~$0.5 million, or ~~30%~~14%, from ~~$2.5~~$3.1 million for the three months ended ~~June~~September 30, ~~2017~~2021 to ~~$3.2~~$3.6 million for the three months ended ~~June~~September 30, ~~2018. The increase was primarily due to increased NeuroStar Advanced Therapy System sales becoming a slightly larger portion of the sales mix.~~2022. Gross margin ~~decreased slightly~~increased from ~~75.7%~~77.2% for the three months ended ~~June~~September 30, ~~2017~~2021 to ~~75.5%~~78.4% for the three months ended ~~June~~September 30, ~~2018.~~2022. The increase was primarily a result of a change in product mix compared to the prior year quarter.

Sales and Marketing Expenses

Sales and marketing expenses increased by ~~$3.4~~$1.8 million, or ~~54%~~18%, from ~~$6.4 million for the three months ended June 30, 2017 to~~ $9.8 million for the three months ended ~~June~~September 30, ~~2018.~~2021 to $11.6 million for the three months ended September 30, 2022. The increase was expected and primarily due to ~~increased~~new marketing initiative related costs, including trade shows, digital paid

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media costs and market research, and sales personnel ~~costs as a result of our sales expansion activities, as well as higher sales~~expenses related to salary, benefits, commissions and ~~marketing expenses, consistent with our growth~~share-based compensation incurred in ~~revenues.~~the current period versus the prior year quarter.

General and Administrative Expenses

General and administrative expenses ~~increased by $1.2 million, or 68%,~~remained materially consistent from ~~$1.8~~$6.4 million for the three months ended ~~June~~September 30, ~~2017~~2021 to ~~$3.1~~$6.3 million for the three months ended ~~June~~September 30, 2018. The increase was primarily due to an increase in personnel and legal, accounting and other professional services expenses required to support the growth of our business and to ready the infrastructure for public company reporting.2022.

Research and Development Expenses

Research and development expenses increased ~~$0.2~~by $0.7 million, or 9%49%, from ~~$2.1~~$1.6 million for the three months ended ~~June~~September 30, ~~2017~~2021 to $2.3 million for the three months ended ~~June~~September 30, ~~2018.~~2022. The increase was primarily due to ~~higher~~a reduction in product development costs related to the ~~launch~~capitalization of certain of the ~~next generation of our NeuroStar Advanced Therapy System and TrakStar practice management system,~~Company’s software project costs, which ~~were~~was partially offset by ~~a decline~~an increase in ~~spending on~~ clinical ~~studies.~~development costs versus the prior year quarter.

Interest Expense

Interest expense ~~increased $0.2 million, or 27%, from $0.7~~remained constant at $1.0 million for the three months ended ~~June~~September 30, ~~2017~~2022.

Other Income, Net

Other income, net increased by $0.9 million from $0.02 million for the three months ended September 30, 2021 to $0.9 million for the three months ended ~~June~~September 30, ~~2018,~~2022, primarily as a result of ~~higher cash~~increased interest ~~expenses related~~income earned on the Company’s note receivables.

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Comparison of the nine months ended September 30, 2022 and 2021


	Nine Months Ended
	September 30,						Increase / (Decrease)
	2022			2021			Dollars		Percentage

	(in thousands, except percentages)
Revenues	$	47,008		$	40,290		$	6,718	17	%
Cost of revenues		11,093			8,115			2,978	37	%
Gross Profit		35,915			32,175			3,740	12	%
Gross Margin		76.4	%		79.9	%

Operating expenses:
Sales and marketing		37,977			27,431			10,546	38	%
General and administrative		19,125			19,220			(95)	(0)	%
Research and development		6,197			6,179			18	0	%
Total operating expenses		63,299			52,830			10,469	20	%
Loss from Operations		(27,384)			(20,655)			(6,729)	(33)	%
Other (income) expense:
Interest expense		3,039			2,955			84	3	%
Other income, net		(1,554)			(53)			(1,501)	(2,832)	%
Net Loss	$	(28,869)		$	(23,557)		$	(5,312)	(23)	%


	Revenues by Geography
	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
United States	$	45,893	98	%	$	38,891	97	%
International		1,115	2	%		1,399	3	%
Total revenues	$	47,008	100	%	$	40,290	100	%


	U.S. Revenues by Product Category
	Nine Months Ended September 30,
	2022				2021
			% of				% of
	Amount		Revenues		Amount		Revenues

	(in thousands, except percentages)
NeuroStar Advanced Therapy System	$	11,959	26	%	$	6,945	18	%
Treatment sessions		32,627	71	%		30,688	79	%
Other		1,307	3	%		1,258	3	%
Total U.S. revenues	$	45,893	100	%	$	38,891	100	%

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Revenues

Total revenue for the nine months ended September 30, 2022 was $47.0 million, an increase of 17% compared to the ~~$10.0 million increase during 2017 in principal borrowings under our $35.0 million credit facility, a coupon rate~~nine months ended September 30, 2021 revenue of ~~interest on~~$40.3 million. During the nine months ended September 30, 2022, total $30.0 million of principal borrowings outstanding which is currently approximately 1% higher versus the prior year period and higher non-cash interest expenses accrued in connection with the final payment fees due to the lender under the agreement.

~~Other Expense (Income), Net~~

~~Other expense (income), net, which includes the change in the fair value of the liability related to our outstanding convertible preferred stock warrants,~~U.S. revenue increased by ~~$1.8 million, from $(0.4) million for~~18% and international revenue decreased by 20% over the ~~three~~nine months ended ~~June~~September 30, ~~2017 to $1.4 million for~~2021. The U.S. revenue growth was primarily driven by an increase in Treatment Session sales and the ~~three months ended June 30, 2018. The increase~~decline in international revenue was primarily driven by a non-cash charge of $1.4 million to revalue our convertible preferred stock warrant liability based on the closing stock price on June 29, 2018, following the pricing of our IPO on June 27, 2018. Upon the closing of our IPO on July 2, 2018, all of our outstanding convertible preferred stock warrants converted into common stock warrants, resultingdecrease in the reclassification of our convertible preferred stock warrant liability into additional paid-in capital. The three months ended June 30, 2017 included a non-cash gain of $0.4 million to revalue our convertible preferred stock warrant liability as a result of the closing of our sale of Series G convertible preferred stock.

~~Comparison of the Six Months ended June 30, 2018 and 2017~~

Six Months ended June 30,

Increase / (Decrease)

2018

2017

Dollars

Percentage

(in thousands, except percentages)

Revenues

$
23,404

$
17,834

$
5,570

31
%
Cost of revenues

5,702

4,039

1,663

41
%
Gross Profit

17,702

13,795

3,907

28
%
Gross Margin

76
%

77
%

Operating expenses:

Sales and marketing

17,944

12,706

5,238

41
%
General and administrative

5,714

3,479

2,235

64
%
Research and development

3,885

4,175

(290
)

-7
%
Total operating expenses

27,543

20,360

7,183

35
%
Loss from Operations

(9,841
)

(6,565
)

(3,276
)

-50
%
Other (income) expense:

Interest expense

1,821

1,261

560

44
%
Other expense (income), net

1,331

(444
)

1,775

400
%
Net Loss

$
(12,993
)

$
(7,382
)

$
(5,611
)

-76
%

Revenues by Geography
Six Months ended June 30,

2018

2017

Amount

% of Revenues

Amount

% of Revenues

(in thousands, except percentages)

United States

$
22,870

98
%

$
17,619

99
%
International

$
534

2
%

$
215

1
%
Total revenues

$
23,404

100
%

$
17,834

100
%

U.S. Revenues by Product Category
Six Months ended June 30,

2018

2017

Amount

% of Revenues

Amount

% of Revenues

(in thousands, except percentages)

NeuroStar Advanced Therapy System

$
5,941

26
%

$
3,831

22
%
Treatment sessions

16,160

71
%

13,137

75
%
Other

769

3
%

651

3
%
Total U.S. revenues

$
22,870

100
%

$
17,619

100
%

~~Revenues~~

Total revenues increased by $5.6 million, or 31%, from $17.8 million for the six months ended June 30, 2017 to $23.4 million for the three months ended June 30, 2018. Revenues in the United States increased by $5.3 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 due to higher unit sales of bothinternational NeuroStar Advanced Therapy Systems and treatment sessions. International revenues increased for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to the recognition of deferred revenue related to the upfront and milestone payments received in the fourth quarter of 2017 and an initial order, both related to our distribution agreement with Teijin for Japan.sales.

Revenues in the United States increased by $5.3 million, or 30%, from $17.6 million for the six months ended June 30, 2017 to $22.9 million for the six months ended June 30, 2018. NeuroStar Advanced Therapy System revenues in the United States grew by $2.1 million, or 55%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017, based on 54% higher unit volume and 1% higher average selling prices. Included in the U.S. NeuroStar Advanced Therapy System ~~revenues~~revenue for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 was ~~a multi-unit order during the second quarter in the amount~~$12.0 million, an increase of $0.5 million. NeuroStar Advanced Therapy System revenues represented 26% and 22% of U.S. revenues for the six months ended June 30, 2018 and 2017, respectively. We believe the growth in NeuroStar Advanced Therapy System revenues between these two periods was the result of the efforts of our expanded commercial organization and increased marketing efforts. As of June 30, 2018, we had an installed base of 816 active systems in the United States, compared to 690 as of June 30, 2017.

Treatment session revenues in the United States represented 71% and 75% of total revenues in the United States for the six months ended June 30, 2018 and 2017, respectively, and increased by 23% for the six months ended June 30, 201872% compared to the ~~six~~nine months ended ~~June~~September 30, ~~2017. The increase in United States~~2021 revenue of $6.9 million. For the nine months ended September 30, 2022 and 2021, the Company sold 153 and 92 systems, respectively, that were recognized as NeuroStar capital revenue during each period. Additionally, for the nine months ended September 30, 2022 and 2021, the Company executed 2 and 7 operating lease agreements, respectively, that contributed to operating lease revenue.

U.S. treatment session ~~revenues~~revenue for the nine months ended September 30, 2022 was $32.6 million, an increase of 6% compared to the nine months ended September 30, 2021 revenue of $30.7 million. The revenue growth was primarily ~~the result of a 27%~~driven by an increase in the number of accounts utilizing our PHQ 10 tool. As a result, our treatment ~~sessions performed. This was partially offset by a 4% decline~~session volume in ~~average selling price due~~our local per click accounts, those utilizing our PHQ 10 tool increased 36.3% compared to ~~certain volume pricing discounts within our existing customer base.~~prior year period.

Cost of Revenues and Gross Margin

Cost of revenues increased by ~~$1.7~~$3.0 million, or ~~41%~~37%, from ~~$4.0~~$8.1 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~$5.7~~$11.1 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2022. The increase was ~~primarily~~ due to ~~increased NeuroStar Advanced Therapy System sales becoming a larger portion of~~revenue growth versus the ~~sales mix.~~prior year period. Gross margin decreased from ~~77.4%~~79.9% for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~75.6%~~76.4% for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2022. The ~~decline~~decrease was primarily a result of a change in ~~gross margin was due to~~ the ~~higher~~product mix of ~~NeuroStar Advanced Therapy System~~ revenues inversus the ~~six months ended June 30, 2018 in relation to treatment session revenues, as well as the reduction in the average selling price of our treatment sessions discussed above.~~prior year period.

Sales and Marketing Expenses

Sales and marketing expenses increased by ~~$5.2~~$10.6 million, or ~~41%~~38%, from ~~$12.7~~$27.4 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~$17.9~~$38.0 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2022. The increase was expected and primarily due to ~~increased~~new marketing initiative related costs, including trade shows, digital paid media costs and market research, and sales personnel ~~costs as a result of our sales and marketing expansion activities, as well as higher sales~~expenses related to salary, benefits, commissions and ~~marketing expenses, consistent with our growth in revenues.~~share-based compensation incurred versus the prior year period.

General and Administrative Expenses

General and administrative expenses ~~increased by $2.2 million, or 64%,~~remained materially consistent from ~~$3.5~~$19.2 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~$5.7~~$19.1 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The increase was primarily due to an increase in personnel and legal, accounting and other professional services expenses required to support the growth of our business and to ready the infrastructure for public company reporting.2022.

Research and Development Expenses

Research and development expenses ~~decreased $0.3 million, or 7%, from $4.2~~remained materially consistent at $6.2 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017 to $3.9~~2022 and 2021.

Interest Expense

Interest expense remained constant at $3.0 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018. The decrease was primarily due to a decline in spending on clinical studies, which was partially offset~~2021 and 2022.

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Other Income, Net

Other income, net increased by ~~expenses relating to the launch of the next generation of our NeuroStar Advanced Therapy System and TrakStar practice management system.~~

~~Interest Expense~~

~~Interest expense increased $0.6~~$1.5 million ~~or 44%,~~ from ~~$1.3~~$0.05 million for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 to ~~$1.8~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2022, primarily as a result of ~~higher cash~~increased interest ~~expenses related to the $10.0 million increase during 2017 in principal borrowings under our $35.0 million credit facility, a coupon rate of interest~~income earned on the total $30.0 million of principal borrowings outstanding which is currently approximately 1% higher versus the prior year period and higher non-cash interest expenses accrued in connection with the final payment fees due to the lender under the agreement.

~~Other Expense (Income), Net~~

Other expense (income), net, which includes the change in the fair value of the liability related to our outstanding convertible preferred stock warrants, increased by $1.8 million, from $(0.4) million for the six months ended June 30, 2017 to $1.3 million for the six months ended June 30, 2018. The increase was driven by a non-cash charge of $1.4 million to revalue the convertible preferred stock warrant liability based on the closing stock price on June 29, 2018, following the pricing of our IPO on June 27, 2018. Upon the closing of our IPO on July 2, 2018, all of our outstanding convertible preferred stock warrants converted into common stock warrants, resulting in the reclassification of our convertible preferred stock warrant liability into additional paid-in capital. The six months ended June 30, 2017 included a non-cash gain of $0.4 million to revalue our convertible preferred stock warrant liability as a result of the closing of our sale of Series G convertible preferred stock.Company’s note receivables.

Liquidity and Capital Resources

Overview

On ~~July~~February 2, ~~2018,~~2021, we closed on our ~~IPO,~~secondary public offering and sale (the “Offering”) of our common stock in which we issued and sold ~~6.325 million~~5,566,000 shares of our common stock, which included ~~the exercise of the underwriters’~~shares pursuant to an option granted to underwriters to purchase an additional ~~0.825 million~~ shares, ~~of common stock,~~ at a public offering price of ~~$17.00~~$15.50 per share. We received net proceeds of ~~$100.0~~$80.6 million after deducting underwriting discounts, ~~and~~ commissions ~~of $7.5 million but before deducting other~~and offering expenses. Our common stock is listed on the Nasdaq Global Market under the trading symbol ~~“STIM.”~~“STIM”.

As of ~~June~~September 30, ~~2018,~~2022, we had cash and cash equivalents of ~~$14.5~~$73.7 million and an accumulated deficit of ~~$209.9~~$337.6 million, compared to cash and cash equivalents of ~~$29.1~~$94.1 million and an accumulated deficit of ~~$196.9~~$308.7 million as of December 31, ~~2017.~~2021. We incurred negative cash flows from operating activities of ~~$13.4~~$27.6 million and ~~$9.5~~$23.5 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 and ~~2017,~~2021, respectively. We have incurred operating losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in additional research and development activities and utilize cash for other corporate purposes. ~~Our~~The Company’s primary sources of capital to date have been proceeds from ~~our~~its IPO, the Offering, private placements of ~~our~~its convertible preferred securities, borrowings under ~~our~~its credit ~~facilities~~facility and revenues from sales of ~~our~~its products. As of ~~June~~September 30, ~~2018, we~~2022, the Company had ~~$30.0~~$35.0 million of borrowings outstanding under ~~our~~its credit facility, which ~~matures~~has a final maturity in ~~March 2022.~~

We expect our revenues and expenses to increase in connection with our on-going activities, particularly as we continue to execute on our growth strategy, including expansion of our sales and customer support teams. We also expect to incur additional costs nowFebruary 2025. Management believes that ~~we are a public company. Based on our current business plan, we believe that our IPO proceeds,~~the Company’s cash and cash equivalents as of ~~June~~September 30, ~~2018~~2022 and anticipated revenues from sales of ~~our~~its products ~~will be~~are sufficient to ~~meet our anticipated cash requirements~~fund the Company’s operations for at least 12 months from the ~~next 24 months after June 30, 2018. However, if~~issuance of these ~~sources~~financial statements.

If our cash and cash equivalents and anticipated revenues from sales or our products are insufficient to satisfy our liquidity requirements, we may seek to sell additional common or preferred equity or debt securities or enter into a new credit ~~facility.~~facility or another form of third-party funding or seek other debt financing. If we raise additional funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. We cannot be assured that additional equity, equity-linked or debt financing will be available on terms favorable to us or our stockholders, or at all. It is also possible that we may allocate significant amounts of capital towards products or technologies for which market demand is lower than expected and, as a result, abandon such efforts. If we are unable to maintain our current financing or obtain adequate additional financing when we require it, or if we obtain financing on terms which are not favorable to us, or if we expend capital on products or technologies that are unsuccessful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may be required to delay the development, commercialization and marketing of our products.

Our current and future funding requirements will depend on many factors, including:

●

the impact of COVID-19 and related governmental responses;

●

our ability to achieve revenue growth and improve operating margins, particularly in light of a high interest rate and high inflation environment;

●

compliance with the terms and conditions, including covenants, set forth in our credit facility;

~~our ability to achieve revenue growth and improve operating margins;~~33

~~the cost of expanding our operations and offerings, including our sales and marketing efforts;~~

~~our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party and government payors;~~Table of Contents

~~our rate of progress in establishing coverage and reimbursement arrangements from international commercial third-party and government payors, particularly in Japan;~~

● the cost of expanding our operations and offerings, including our sales and marketing efforts;
● our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party and government payors;
● our rate of progress in establishing coverage and reimbursement arrangements from international commercial third-party and government payors, particularly in Japan;
● our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our products and maintaining or improving our sales to our current customers;
● the cost of research and development activities, including research and development relating to additional indications of neurohealth disorders;
● the effect of competing technological and market developments;
● costs related to international expansion; and
● the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.

As of September 30, 2022, there were no significant changes to our ~~current customers;~~

material cash requirements as set forth in our Form 10-K, filed with the ~~cost of research and development activities, including research and development relating to additional indications, which may include bipolar depression and PTSD;~~SEC on March 8, 2022.

~~the effect of competing technological and market developments;~~

~~costs related to international expansion; and~~

~~the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.~~

Cash Flows

The following table sets forth a summary of our cash flows for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 and ~~2017:~~2021:


							Nine Months Ended September 30,
							2022		2021
	Six Months ended June 30,
	2018			2017
	(in thousands)
							(in thousands)
Net Cash Used in Operating Activities	$	(13,397	)	$	(9,481	)	$	(27,639)	$	(23,459)
Net Cash Used in Investing Activities		(513	)		(152	)
Net Cash Provided by (Used in) Investing Activities								7,234		(9,038)
Net Cash (Used in) Provided by Financing Activities		(693	)		18,826			(38)		82,974
Net (Decrease) Increase in Cash and Cash Equivalents	$	(14,603	)	$	9,193		$	(20,443)	$	50,477

Net Cash Used in Operating Activities

Net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 was ~~$13.4~~$27.6 million, consisting primarily of a net loss of ~~$13.0~~$28.9 million and ~~a decrease~~an increase in net operating ~~liabilities~~assets of ~~$3.1~~$7.1 million, partially offset by non-cash charges of ~~$2.7~~$8.3 million. The ~~decrease~~increase in net operating ~~liabilities~~assets was primarily due to ~~a decrease~~increases in ~~accrued expenses~~accounts receivable and inventory and decreases in accounts payable as a result of ~~first quarter 2018 payments of 2017 incentive compensation and commissions accrued as of December 31, 2017.~~timing. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by ~~customers and the change in the fair value of the liability related to our outstanding convertible preferred stock warrants.~~customers.

Net cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 was ~~$9.5~~$23.5 million, consisting primarily of a net loss of ~~$7.4~~$23.6 million and ~~a decrease~~an increase in net operating ~~liabilities~~assets of ~~$2.5~~$7.5 million, partially offset by non-cash charges of ~~$0.4~~$7.6 million. The ~~decrease~~increase in net operating ~~liabilities~~assets was primarily due to ~~a decrease~~increases in accounts receivable and inventory and decreases in accounts payable ~~due to timing of payments~~ and ~~a decrease in~~ accrued expenses as a result of ~~first quarter 2017 payments~~timing and the 2021 payment of ~~2016 incentive~~the 2020 bonus compensation ~~and commissions~~ accrued as of December 31, ~~2016.~~2020. Non-cash charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation, and the cost of rental units purchased by ~~customers and the change in the fair value~~customers.

Table of ~~the liability related to our outstanding convertible preferred stock warrants.~~Contents

Net Cash Provided by and Used in Investing Activities

Net cash ~~used in~~provided by investing activities for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 was ~~$0.5~~$7.2 million ~~compared~~which was attributable to ~~net cash used in investing activities for~~ the ~~six months ended June 30, 2017~~repayment of ~~$0.2 million, in each case attributable to~~our promissory note, partially offset by purchases of property and equipment and capitalized software costs.

Net used in investing activities for the nine months ended September 30, 2021 was $9.0 million which was due to the issuance of our promissory note and purchases of property and equipment and capitalized software costs.

Net Cash ~~(Used in)~~Used in and Provided by Financing Activities

Net cash used in financing ~~activates~~activities for the ~~six~~nine months ended ~~June~~September 30, ~~2018~~2022 was ~~$0.7~~$0.04 million ~~consisting primarily~~and consisted of ~~$0.7 million of payments of initial public offering costs, slightly~~the amendment fee paid in relation to the 2022 Solar Amendment, which was offset by cash proceeds ~~from the exercises of~~related to stock ~~options.~~ option exercises.

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, ~~2017~~2021 was ~~$18.8~~$82.9 million ~~consisting~~and primarily consisted of ~~$14.8 million of net~~additional proceeds from our ~~issuance of Series G convertible preferred~~Offering and cash proceeds related to stock option exercises.

Indebtedness

Refer to “Note 13. Debt” in our unaudited financial statements and ~~$5.0 million of borrowings under~~related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q for information regarding our current ~~$35.0 million credit facility, partially offset by payment of $1.0 million of deferred debt issuance costs incurred in connection with our March 2017 amendment to our~~Solar credit facility.

~~Indebtedness~~Common Stock Offering

~~Current $35.0 Million Credit Facility~~

In March 2017, we entered into a new loan and security agreement with Oxford Finance LLC, or Oxford, for a credit facility that replaced our previous $25.0 million credit facility with Oxford and which allows usRefer to borrow up to $35.0 million in three tranches of term loans: a Term A Loan in the amount of $25.0 million, which was drawn down immediately upon closing in March 2017, a Term B Loan in the amount of $5.0 million, which was drawn down in December 2017, and a Term C Loan in the amount of $5.0 million, which became available to us upon the achievement of $45.0 million of trailing twelve month revenues during the second quarter of 2018. Upon achieving the required revenue milestone, we had 60 days to notify our lender if we elected to borrow the Term C Loan. As a result of completing our IPO on July 2, 2018 and receiving net proceeds of $100.0 million, we elected not to borrow the additional $5.0 million. Each term loan accrues interest from the date of borrowing through the date of repayment at a floating per annum rate of interest, which resets monthly and is equal to the greater of (a) 8.15% or (b) the 30 day U.S. LIBOR on the last business day of the month plus 7.38%. At the date of each borrowing, we were required to issue to Oxford warrants to purchase our Series F or later series of convertible preferred stock with a seven year term and in an amount equal to 3.95% of the first $5.0 million of each tranche borrowed. The credit facility matures and all amounts borrowed thereunder are due on March 1, 2022. As of June 30, 2018, we had borrowed and had outstanding an aggregate of $30.0 million of principal under our credit facility.

The Term A Loan features an interest-only period through March 2019, during which time we are required to make monthly interest payments, after which time we are required to make monthly payments of principal and interest based on a 36-month amortization schedule. However, upon the achievement of $45.0 million of revenues during fiscal 2018, the interest-only period can be extended for an additional 12 months through March 2020 and the amortization period then becomes 24 months. In connection with the drawdown of the Term A Loan, we issued to the lender a warrant to purchase 588,498 shares of our Series F convertible preferred stock, which has an exercise price of $0.3356 per share and which expires in March 2024. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of our IPO on July 2, 2018.

The Term B Loan features an interest-only period through March 2019, during which time we are required to make monthly interest payments, after which time we are required to make monthly payments of principal and interest based on a 36-month amortization schedule. However, upon the achievement of $45.0 million of revenues during fiscal 2018, the interest-only period can be extended for an additional 12 months through March 2020 and the amortization period then becomes 24 months. In connection with the drawdown of the Term B Loan, we issued to the lender a warrant to purchase 588,498 shares of our Series F convertible preferred stock, which has an exercise price of $0.3356 per share and which expires in December 2024. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of our IPO on July 2, 2018.

In addition to principal and interest payments due under the credit facility, we are required to make final payment fees to the lender due upon the earlier of prepayment or maturity of each tranche, which are equal to 8% and 7% of the principal amounts of the Term A and Term B Loans, respectively, except that if the interest-only periods on the Term A and Term B Loans are extended then the final payment fees increase to 8.5% and 7.5% of the principal amounts of the Term A and Term B Loans, respectively. We accrue the estimated final payment fees using the effective interest rate, with a charge to non-cash interest expense, over the term of borrowing for each tranche. As of both June 30, 2018 and December 31, 2017, the effective interest rates for the Term A and Term B Loans were 10.7% and 11.6%, respectively. If we prepay our term loans prior to their respective scheduled maturities, we will also be required to make prepayment fees to the lender equal to 3% if prepaid on or before the first anniversary of funding, 2% if prepaid after the first and on or before the second anniversary of funding or 1% if prepaid after the second anniversary of funding of the principal amounts borrowed.

Our obligations under the credit facility are secured by a first priority security interest in substantially all of our assets, other than our intellectual property. We have agreed not to pledge or otherwise encumber any of our intellectual property. The loan and security agreement related to our credit facility includes a financial maintenance covenant that requires us to achieve at least 75% of our trailing 12-month forecasted revenues, as measured each month in accordance with a forecast that we provided to Oxford upon signing the agreement and future forecasts that we are required to deliver to the lenders each year for the life of the credit facility, as well as customary affirmative and negative covenants. We were in compliance with all of the covenants under our credit facility as of June 30, 2018.

The loan and security agreement related to our credit facility contains events of default, including, without limitation, events of default upon: (i) failure to make payment pursuant to the terms of the agreement; (ii) violation of covenants; (iii) material adverse changes to our business; (iv) attachment or levy on our assets or judicial restraint on our business; (v) insolvency; (vi) significant judgments, orders or decrees for payments by us not covered by insurance; (vii) incorrectness of representations and warranties; (viii) incurrence of subordinated debt; (ix) revocation of governmental approvals necessary for us to conduct our business; and (x) failure by us to maintain a valid and perfected lien on the collateral securing the borrowing.

Based on a 36-month amortization of the outstanding principal amounts of the Term A and Term B Loans beginning on April 1, 2019 as discussed above, the following table sets forth by year our required future principal payments (in thousands):

Year:

Principal
Payments

2018

$
-

2019

7,500

2020

10,000

2021

10,000

2022

2,500

Total principal payments

$
30,000

We currently anticipate that we will extend the interest-only periods on the Term A and Term B Loans upon achieving $45.0 million of revenues during fiscal 2018, which is currently expected to occur in the fourth quarter of 2018.

For the three months ended June 30, 2018, we recognized interest expense of $0.9 million, of which $0.7 million was cash and $0.2 million was non-cash interest expense related to the amortization of deferred financing costs and accrual of final payment fees. For the three months ended June 30, 2017, we recognized interest expense of $0.7 million, of which $0.5 million was cash and $0.2 million was non-cash interest expense related to the amortization of deferred financing costs and accrual of final payment fees.

For the six months ended June 30, 2018, we recognized interest expense of $1.8 million, of which $1.4 million was cash and $0.4 million was non-cash interest expense related to the amortization of deferred financing costs and accrual of final payment fees. For the six months ended June 30, 2017, we recognized interest expense of $1.3 million, of which $1.0 million was cash and $0.3 million was non-cash interest expense related to the amortization of deferred financing costs and accrual of final payment fees.

~~Previous $25.0 Million Credit Facility~~

Prior to March 2017, we had a $25.0 million credit facility in place with Oxford, which we entered into in February 2014 and which allowed us to borrow up to $25.0 million in three tranches of term loans: a Term A Loan in the amount of $15.0 million, a Term B Loan in the amount of $5.0 million, and a Term C Loan in the amount of $5.0 million, which was never drawn down. Each term loan accrued interest at per annum rates ranging from 8.5% to 8.9%. This facility featured an interest-only period on all tranches through March 2017, and we were also required to issue convertible preferred stock warrants to the lender at the time of borrowing of each tranche. These convertible preferred stock warrants converted into common stock warrants immediately prior to the closing of our IPO on July 2, 2018.

We accrued final payment fees using the effective interest rate, with a charge to non-cash interest expense, over the term of borrowing and until our entry into our current credit facility in March 2017, at which time we paid the lender $1.0 million in satisfaction of all final payment fee liabilities due under the prior credit facility.

We evaluated whether our current credit facility entered into in March 2017 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt—Modifications and Extinguishments. Upon determining that the change in cash flows between the previous and current credit facilities was not greater than 10%, we accounted for the transaction as a debt modification. As of March 2017, the unamortized balance of deferred financing costs incurred in connection with the $25.0 million credit facility, and certain additional deferred financing costs incurred in connection with entry into our current credit facility, are being amortized to interest expense through March 2022 utilizing the effective interest method.

~~Off-Balance Sheet Arrangements~~

We do not maintain any off-balance sheet arrangements, partnerships or other relationships with unconsolidated entities, often referred to as structured finance or special-purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

~~Commitments and Contractual Obligations~~

~~As of June 30, 2018, there were no significant changes to our commitments and future minimum contractual obligations as set forth~~“Note 14. Common Stock” in our ~~IPO prospectus filed with~~unaudited financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q for information regarding the ~~SEC on June 29, 2018.~~Offering.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, or Securities Act, for complying with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth ~~companies.~~companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous six years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Recent Accounting Pronouncements

We refer you to “Note 3. Summary of Significant Accounting Policies” and “Note 4. Recent Accounting Pronouncements” in “Notes to Interim Financial Statements” located in “Part I – FINANCIAL INFORMATION, Item 1. Financial ~~Statements”~~Statements.”

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We refer you to the information described in ~~this Quarterly~~the “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” section of the Company’s Annual Report on Form ~~10-Q for information regarding recently issued accounting pronouncements.~~

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk.~~

~~Our cash is held~~10-K filed with the SEC on deposit in demand accounts at a large financial institution in amounts in excess of the Federal Deposit Insurance Corporation, or FDIC, insurance coverage limit of $250,000 per depositor, per FDIC-insured bank, per ownership category. WeMarch 8, 2022. There have ~~reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or~~been no ~~credit risk to us.~~

Financial instruments that potentially subject us to concentrations of credit risk principally consist of cash equivalents and accounts receivable. We limit our credit risk associated with cash equivalents by placing investments in highly-rated money market funds. We limit our credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary, but we do not require collateral to secure amounts owed to us by our customers.

As discussed above in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources - Indebtedness” section of this Quarterly Report on Form 10-Q, our credit facility bears interest at a floating per annum rate of interest, which resets monthly and is equal to the greater of (a) 8.15% or (b) the 30 day U.S. LIBOR on the last business day of the month plus 7.38%. As a result, we are exposed to risks frommaterial changes ~~in interest rates. We believe that a one point increase in interest rates would have resulted in an approximate $0.2 million increase~~ to our ~~interest expense for the year ended December 31, 2017.~~market risk described therein.

~~Inflationary~~We continue to monitor inflationary factors, such as increases in our cost of revenues and operating expenses that may adversely affect our operating results. Although we dohave begun to experience price increases in certain parts of our business, inflation for the nine months ended September 30, 2022 has not ~~believe inflation has~~ had a ~~material~~significant impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain and increase our gross margin or decrease our operating expenses as a percentage of our revenues if our selling prices of our products do not increase as much or more than our costs increase.

~~We do not currently have any exposure to foreign currency fluctuations and do not engage in any hedging activities as part of our normal course of business.~~

~~Item 4.~~

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our ~~Chief~~Principal Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our ~~Chief~~Principal Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~June~~September 30, ~~2018.~~

As a result of becoming a public company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ended December 31, 2019. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The SEC defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be detected or prevented on a timely basis.

~~Inherent Limitations on Effectiveness of Controls and Procedures~~

Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with

policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures2022.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~June~~September 30, ~~2018,~~2022, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings.~~

Item 1. Legal Proceedings.

We are subject from time to time to various claims and legal actions arising during the ordinary course of our business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on our results of operations, financial condition, or cash ~~flows.~~flows.

~~Item 1A.~~

~~Risk Factors.~~

Item 1A. Risk Factors.

You should carefully consider the information described in the “Risk Factors” section of ~~our IPO prospectus~~the Company’s Annual Report on Form 10-K filed with the SEC on ~~June 29, 2018.~~March 8, 2022. There have been no material changes to the risk factors described ~~therein.~~therein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~Recent Issuances of Unregistered Securities~~

On April 25, 2018, pursuant to our 2003 Stock Incentive Plan, or 2003 Plan, we granted options to purchase 64,079 shares of our common stock at an exercise price of $5.22 per share to 29 employees and 54,794 shares of our common stock at an exercise price of $5.22 per share to 6 members of our board of directors. On June 8, 2018, pursuant to our 2003 Plan, we granted options to purchase 99,819 shares of our common stock at an exercise price of $10.14 per share to a newly hired executive and 6,011 shares of our common stock at an exercise price of $10.14 per share to six employees. These grants of stock options were exempt from registration under the Securities Act in reliance on Rule 701 as offers and sales of securities under written compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.

~~Use of Proceeds~~

Our IPO was effected through a Registration Statement on Form S-1 (File No. 333-225307) that was declared effective by the SEC on June 27, 2018. On June 27, 2018, 6.325 million shares of our common stock were sold at a public offering price of $17.00 per share, for aggregate gross proceeds of $107.5 million. As of the date of filing this report, the offering has terminated, and all of the securities registered pursuant to the offering were sold prior to termination. Piper Jaffray & Co. and William Blair & Company, L.L.C. acted as joint book-running managers, Canaccord Genuity LLC acted as lead manager and BTIG, LLC and JMP Securities LLC acted as co-managers for the IPO.

On July 2, 2018, we received proceeds from the IPO of $100.0 million, which was net of underwriting discounts and commissions of $7.5 million. In connection with our IPO, we incurred offering expenses of $3.3 million, of which $0.8 million was paid prior to the closing of the transaction. The balance of the funds totaling $97.5 million shall be used in a manner consistent with the use of proceeds from the IPO as described in our IPO prospectus under the caption “Use of Proceeds,” which has not materially changed since the filing of our IPO prospectus with the SEC on June 29, 2018.

The foregoing expenses are a reasonable estimate of the expenses incurred by us in the offering and do not represent the exact amount of expenses incurred. All of the foregoing expenses were direct or indirect payments to persons other than (i) our directors, officers or any of their associates, (ii) persons owning 10% or more of our common stock or (iii) our affiliates.

Item 3. Defaults Upon Senior Securities.

Not applicable.

~~Defaults Upon Senior Securities.~~

~~Not applicable.~~

Item 4. Mine Safety Disclosures.

Not applicable.

~~Mine Safety Disclosures.~~

~~Not applicable.~~

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

~~Other Information.~~

~~None.~~

~~Item 6.~~

E~~xhibits.~~

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.


Exhibit Number		Description
31.1*
~~3.1+~~		~~Ninth Amended and Restated Certificate of Incorporation of Neuronetics, Inc., as filed with the SEC as Exhibit 3.1~~Certification of the ~~Company’s Current Report on Form 8-K (File No. 001-38546) on July 6, 2018.~~
~~3.2+~~		~~Second Amended and Restated Bylaws of Neuronetics, Inc., as filed with the SEC as Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 001-38546) on July 6, 2018.~~
31.1*		~~Certification of Chief~~Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of ~~Chief~~the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, were formatted in Inline XBRL ~~Instance Document~~(Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Equity, and (iv) Consolidated Statements of Cash Flows. The instance document does not appear in the Interactive Data File because its XBRL tags are imbedded within the Inline XBRL document.
~~101.SCH~~104		Cover Page Interactive Data File (Formatted as Inline XBRL ~~Taxonomy Extension Schema Document~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~and included in Exhibit 101).

+	~~Previously filed.~~

*	Filed herewith.

Table of Contents

This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C Section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing of the registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		NEURONETICS, INC. ~~(Registrant)~~
				(Registrant)
Date: ~~August 14, 2018~~November 8, 2022	~~By:~~	By:	/s/ ~~Christopher Thatcher~~Keith J. Sullivan
	~~Name:~~	Name:	~~Christopher Thatcher~~Keith J. Sullivan
	~~Title:~~	Title:	President and Chief Executive Officer
			(Principal Executive Officer)
Date: November 8, 2022		By:	/s/ Stephen Furlong
~~Date: August 14, 2018~~	~~By:~~	Name:	~~/s/ Peter Donato~~Stephen Furlong
	~~Name:~~	Title:	~~Peter Donato~~SVP, Chief Financial Officer and Treasurer
	~~Title:~~		~~VP, Finance and Chief Financial Officer~~
			(Principal Financial and Accounting Officer)

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at December 31, 2017		304,958	$	187,136		231	$	2	$	4,292	$	(196,946	)	$	(192,652	)
Exercises of stock options		-		-		26		1		37		-			38
Share-based compensation expense		-		-		-		-		336		-			336
Net loss		-		-		-		-		-		(12,993	)		(12,993	)
Balance at June 30, 2018		304,958	$	187,136		257	$	3	$	4,665	$	(209,939	)	$	(205,271	)

	December 31, 2017
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices In Active Markets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market funds (cash equivalents)	$	11,149	$	11,149	$	11,149	$	-	$	-
Liabilities
Convertible preferred stock warrant liability	$	478	$	478	$	-	$	-	$	478

	June 30, 2018		December 31, 2017
	Series E	Series F	Series E	Series F
Estimated fair value of convertible preferred stock	$0.92	$0.92	$0.33	$0.38
Exercise price	$0.6746	$0.3356	$0.6746	$0.3356
Remaining term (in years)	4.5	2.6 - 6.5	5.0	3.1 - 7.0
Risk-free interest rate	2.7%	2.6% - 2.8%	2.2%	2.0% - 2.3%
Expected volatility	43%	43%	43%	43% - 44%
Dividend yield	0%	0%	0%	0%

Balance at December 31, 2017	$	478
Change in fair value		1,415
Balance at June 30, 2018	$	1,893

Year:	Principal Payments
2018	$	-
2019		7,500
2020		10,000
2021		10,000
2022		2,500
Total principal payments	$	30,000

	Shares Authorized and Designated (in thousands)		Shares Issued and Outstanding (in thousands)		Carrying Value (in thousands)		Liquidation Value per Share		Liquidation Value (in thousands)
Series A-1		4,800		4,800	$	900	$	0.0617	$	296
Series A-2		25,385		25,385		16,428	$	0.2052		5,209
Series B		17,000		17,000		16,859	$	0.3168		5,386
Series C		20,958		20,958		34,841	$	0.5253		11,009
Series D		49,426		49,426		29,970	$	0.2874		14,205
Series E		44,873		44,471		29,800	$	0.5144		22,876
Series F		105,567		102,334		43,513	$	0.3356		34,343
Series G		40,584		40,584		14,825	$	0.3696		15,000
Balance at June 30, 2018 and December 31, 2017		308,593		304,958	$	187,136			$	108,324

	Warrants Outstanding (in thousands)		Exercise Price		Expiration Date
Series E		402	$	0.6746	Dec-2022
Series F		878	$	0.3356	Feb-2021
Series F		589	$	0.3356	Aug-2023
Series F		589	$	0.3356	Mar-2024
Series F		588	$	0.3356	Dec-2024
		3,046

	June 30,
	2018		2017
Stock options		2,855		2,076
Non-vested restricted stock awards		10		17
Convertible preferred stock warrants		105		85
Shares of convertible preferred stock “as-converted”		10,994		10,994

	Number of Shares under Option (in thousands)			Weighted- average Exercise Price per Option		Weighted- average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		2,444		$	2.39
Granted		502		$	5.94
Exercised		(26	)	$	1.43
Forfeited		(65	)	$	3.20
Outstanding at June 30, 2018		2,855		$	3.00		7.6	$	67,395
Exercisable at June 30, 2018		1,426		$	2.22		6.3	$	34,779
Vested and expected to vest at June 30, 2018		2,855		$	3.00		7.6	$	67,395

Estimated fair value of common stock	$	5.94
Exercise price	$	5.94
Expected term (in years)		6.0
Risk-free interest rate		2.7	%
Expected volatility		65.8	%
Dividend yield		0	%

	Non-vested Restricted Stock Awards (in thousands)			Weighted- average Grant-date Fair Value
Non-vested at December 31, 2017		16		$	2.32
Vested		(6	)	$	2.32
Non-vested at June 30, 2018		10		$	2.32

	Three Months ended June 30,						Increase / (Decrease)
	2018			2017			Dollars			Percentage
	(in thousands, except percentages)
Revenues	$	13,252		$	10,308		$	2,944			29	%
Cost of revenues		3,245			2,501			744			30	%
Gross Profit		10,007			7,807			2,200			28	%
Gross Margin		76	%		76	%
Operating expenses:
Sales and marketing		9,835			6,400			3,435			54	%
General and administrative		3,078			1,837			1,241			68	%
Research and development		2,330			2,147			183			9	%
Total operating expenses		15,243			10,384			4,859			47	%
Loss from Operations		(5,236	)		(2,577	)		(2,659	)		-103	%
Other (income) expense:
Interest expense		900			711			189			27	%
Other expense (income), net		1,360			(420	)		1,780			424	%
Net Loss	$	(7,496	)	$	(2,868	)	$	(4,628	)		-161	%