The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. In recent years, theThe Company has suffered recurring losses from operations and negative cash flows from operating activities. At March 31, 2018,2019, the Company had an accumulated deficit of $189.9$189.0 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one-year period from the date of issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company held cash and cash equivalents of $6.1$7.2 million as of March 31, 2018.2019. The Company believes that these resources, together withfuture GSK collaboration milestone payments, and the cash to be generated from expectedfuture product sales and the potential achievement of development milestones under the Collaboration with GSK, will be sufficient to meet its projected operating requirements intothrough 2019. Accordingly, the Company may need to raise additional funds to support its operating and capital needs in 2020. The Company continues to face significant challenges and uncertainties and, as a result, the Company’s available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of the Company’s products and the uncertainty of future revenues;revenues from new products; (b) delays in achieving Quell development milestones and related payments from GSK; (c) changes the Company may make to the business that affect ongoing operating expenses; (d)(c) changes the Company may make in its business strategy; (e)(d) regulatory developments or inquiries affecting the Company’s existing products and products under development; (f)products; (e) changes the Company may make in its research and development spending plans; (f) delays in the anticipated timing of achievement of GSK milestones; (g) the final outcome of the Federal Trade Commission civil investigative demand enforcement action involving Quell; and (g)(h) other items affecting the Company’s forecasted level of expenditures and use of cash resources. Accordingly, theThe Company may need to raise additional funds to support its operating and capital needs in 2019 and beyond. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the one year period from the date of issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company intendsattempt to obtain additional funding through achievement of milestones under the GSK collaboration, public or private financing, collaborative arrangements with strategic partners, or through additional credit lines or other debt financing sources to increase the funds available to fund operations. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies, or grant licenses on terms that are not favorable to the Company. Without additional funds, the Company may be forced to delay, scale back or eliminate some of its sales and marketing efforts, research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue its operations. If any of these events occurs, the Company’s ability to achieve its development and commercialization goals would be adversely affected.

The accompanying unaudited balance sheet as of March 31, 2018,2019, unaudited statements of operations for the quarters ended March 31, 2019 and 2018, unaudited statements of changes in stockholders' equity for the three months ended March 31, 2019 and 20172018 and the unaudited statements of cash flows for the three months ended March 31, 20182019 and 20172018 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet as of December 31, 20172018 has been derived from audited financial statements prepared at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. Operating results for the quarterthree months ended March 31, 20182019 are not necessarily indicative of the results that may be expected for the year ending December 31, 20182019 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 20172018 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on February 8, 2018January 24, 2019 (File No. 001-33351), or the Company’s 20172018 Form 10-K.

 

Accounts receivable are recorded net of the allowance for doubtful accounts which represents the Company’s best estimate of credit losses. Allowance for doubtful accounts was $25,000 as of March 31, 20182019 and December 31, 2017.2018.

 

Two customers accounted for 32% and one customer accounted for 17%32% of total revenue forrevenues in the quarters ended March 31, 2019 and 2018, respectively. Two customers accounted for 44% and 2017, respectively. Customers that individually account for greater than 10%45% of accounts receivables totaled 46% and 66% of accounts receivablesreceivable as of March 31, 20182019 and December 31, 2017,2018, respectively.

Total compensation cost related to nonvestednon-vested awards not yet recognized at March 31, 20182019 was $314,025.$208,741. The total compensation costs are expected to be recognized over a weighted-average period of 2.41.8 years.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make significant estimates and assumptions that 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 revenue and expenses during reporting periods. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation.

 

The following table summarizes the effects of adopting ASU 2016-02 on the Company's balance sheet as of December 31, 2018, and for interim periods therein. The Company is in the process2018:

For the quarters ended March 31, 20182019 and 2017,2018, the Company had no components of other comprehensive income or loss other than net income (loss) itself.

Shares underlying the following potentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net income (loss) per common share because their effect was anti-dilutive for each of the periods presented: 

Inventories consist of the following: 

Accrued expenses and compensation consist of the following:

 

In August 2014,June 2018, the Company entered into a 5-year operatingextended the lease agreement with one 5-year extension option foron its Woburn, Massachusetts manufacturing and order fulfillment facilities in Woburn, Massachusetts (the “Woburn Lease”). through September 2025. The Woburn Lease commenced December 15, 2014 and has a monthly base rent of $7,815.$13,918 and a 5-year extension option. In September 2014, the Company entered into a 7-year operating lease agreement with one 5-year extension option for its corporate office and product development activities in Waltham, Massachusetts (the “Waltham Lease”). The term of the Waltham Lease commenced on February 20, 2015 and includes fixed payment obligations that escalate over the initial lease term. Average monthly base rent under the 7-yearWaltham lease is approximately $37,788. These payment obligations were accrued$41,074.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis for the periods presented and indicates the fair value hierarchy of the valuation techniques it utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

 

The Company is party to a Loan and Security Agreement, as amended (the “Credit Facility”), with a bank. As of March 31, 2018,2019, the Credit Facility permitted the Company to borrow up to $2.5 million on a revolving basis. The Credit Facility was amended most recently in January 2018,March 2019 and expires in JanuaryJune 2019. Amounts borrowed under the Credit Facility will bear interest equal to the prime rate plus 0.5%. Any borrowings under the Credit Facility will be collateralized by the Company’s cash, accounts receivable, inventory, and equipment. The Credit Facility includes traditional lending and reporting covenants. These include certain financial covenants applicable to liquidity that are to be maintained by the Company. As of March 31, 2018,2019, the Company was in compliance with these covenants and had not borrowed any funds under the Credit Facility. However, $226,731 of the amount under the Credit Facility is restricted to support letters of credit issued in favor of the Company's facilities landlords. Consequently, the amount available for borrowing under the Credit Facility as of March 31, 20182019 was approximately $2.3 million.

Our cost of revenues increased $0.3 million, or 9.6% to approximately $3.0 milliongross profit margin was 25.6% in the first quarter of 2018 from $2.7 million2019 versus 40.2% in the comparablesame period in 2017.the prior year. The lower gross profit rate increasedmargin in 2019 is due in part to 40.2% ina charge of $0.7 million to write down Quell Classic inventory to net realizable

Research and development expenses forexpense in the quarters ended March 31, 2018 and 2017 were approximately $1.3 million and $0.9 million, respectively. The increasefirst quarter of approximately $0.4 million relates primarily2019 decreased by 33.2% from the same period in the prior year due to a $0.3 million increase inco-funding of certain Quell development spending, partially offset by a $0.1 million decrease in clinical study spending.projects under the GSK Collaboration.

 

Sales and marketing expenses were approximately $2.5 millionexpense in the first quarter of 2019 declined by 19.1% from the same period in the prior year due to the reduction of advertisement promotion during the quarter and $2.6 million for the quarters ended March 31, 2018 and March 31, 2017, respectively. Thecorresponding drop in advertising spending reflected a $0.1 million decrease in promotional spending.by $0.8 million. This was partially offset by increased marketing consulting fees of $0.3 million.

 

General and administrative expenses were approximately $1.8 million and $1.4 million forexpense declined by 10.2% from the quarters ended March 31, 2018 and March 31, 2017, respectively. The increasesame period in the prior year primarily due to a decrease of approximately $0.4 million primarily reflected an additional $0.2 million in professional services expense and an additional $0.2 million in stock-based compensation.

In January 2018, we entered into agreements (the “Collaboration”) with GlaxoSmithKline (“GSK”) in which he Company sold to GSK rights to the Company’s Quell technology for markets outside of the United States, including certain patents and related assets, and agreed to complete development milestones for the next-generation Quell technology. The Company retained exclusive ownership of Quell technology in the U.S. market. GSK agreed to payments totaling up to $26.5 million of which $5.0 million was paid at closing and the balance due upon achievement of defined development and commercialization milestones. In addition, the parties agreed to jointly fund future Quell technology development during an initial period starting in 2019. Upon closing, the Company recorded Collaboration income includes the benefit of $4.8 million, net of costs, for the quarter ended March 31, 2018.milestones achieved and funded by GSK under our Quell Collaboration.

Other income primarily includes interest income and warrant liability fair value changes. The change in fair value of warrant liability was zero and $77,601 for the quarters ended March 31, 2018 and 2017, respectively.

Days sales outstanding reflect customer payment terms which vary from payment-on-order for Quell e-commerce salespayment on order to 60 days from invoice date. Inventory turnover rate in Q1 2019 of 3.5 times includes the effect of a $0.7 million inventory provision recorded in the quarter. Excluding this provision, our turnover rate declined to 2.2 during the quarter ended March 31, 2019. This reflected lower Quell sales and increased inventory on hand.

OurDuring the three months ended March 31, 2019, our operating activities excluding collaboration income consumed $2.7$3.5 million of cash for the three months ended March 31, 2018, which reflected our operating net loss of $3.6 million. This operating loss included non-cash stock compensation expense of approximately $0.3 million. In addition, operating activities included decreases in accounts receivable of $0.8 million and in prepaid expenses and other current and long-term assets of $0.3 million, partially offset by decreases in accrued product returns$4.0 million of $0.6 million and in accounts payable of $0.4 million.collaboration income.

 

We have suffered recurring losses from operations and negative cash flows from operating activities. These factors raise substantial doubt about our ability to continue as a going concern for the one-year period from the date of issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We held cash and cash equivalents of $6.1$7.2 million as of March 31, 2018.2019. We believe that these resources, together withfuture GSK collaboration milestone payments, and the cash to be generated from expectedfuture product sales and the potential achievement of development milestones under the Collaboration will be sufficient to meet our projected operating requirements intothrough 2019. Accordingly, we may need to raise additional funds to support our operating and capital needs in 2020. We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of our products; (b) delays in achieving Quell development milestones and related payments from GSK; (c) changes we may make to the business that affect ongoing operating expenses; (d)(c) changes we may make in our business strategy; (e) (d)

As of March 31, 2018,2019, we did not have any off-balance sheet financing arrangements.

 

The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report, include 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, or the Exchange Act, including, without limitation, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future revenues and projected expenses; our expectations regarding achievement of milestones under the GSK Collaboration;expenses, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to manage our expenses effectively;effectively and raise the funds needed to continue our business; our belief that there are unmet needs for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding Quell and DPNCheck; our expected timing and our plans to develop and commercialize our products; our ability to meet our proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of our existing products and any future products we may develop; regulatory and legislative developments in the United States and foreign countries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for our products; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; our plan to make Quell more broadly available through retail distribution; the final outcome of the FTC civil investigative demand enforcement action; our estimate of our customer returns of our products; the rate and degree of market acceptance of any future products; our reliance on key scientific management or personnel; the payment and reimbursement methods used by private or government third party payers; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

 

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in cash equivalents and short-term investments with a maturity of twelve months or less and maintain an average maturity of twelve months or less. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio or our interest income.

(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2018,2019, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

While we are not currently a party to any material legal proceedings other than the FTC matter noted below, we could become subject to legal proceedings in the ordinary course of business. We do not expect any such potential items to have a significant impact on our financial position.

There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017.2018 other than the updated risk factors noted below.

None.

Not applicable.

In 2017 the Company received a Civil Investigative Demand (“CID”) from the United States Federal Trade Commission (“FTC”). The CID requestsrequested information in connection with an FTC review for compliance of the Company’s representations about Quell with Sections 5 and 12 of the FTC Act. The Company is inAct, and we have provided responses to those requests. In March 2019, we met with the process of producing documents and information in response to the CID. To the knowledgestaff of the Company,FTC to discuss our responses to their inquiries; the staff has indicated that enforcement action is under consideration and additional information was requested. We are responding to these additional information requests and are engaged in ongoing discussions with FTC. To our knowledge, no complaint has been filed against the Company;us; however, no assurance can be given as to the timing or outcome of the investigation.

The Company intends to repurchase, from time to time, warrants to purchase its common stock that are traded on Nasdaq under the symbol NUROW. The Company may expend up to $25,000 in making these purchases on Nasdaq from time to time. Through March 31, 2018,2019, the Company spent $2,237$2,391 to repurchase 36,00638,506 warrants to purchase its common stock.

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this quarterly report, which Exhibit Index is incorporated herein by this reference.

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.