UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number 001-33351

_________________________________________________

NEUROMETRIX, INC.

(Exact name of registrant as specified in its charter)



Delaware	04-3308180
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

4B Gill Street Woburn, Massachusetts	01801
(Address of principal executive offices)	(Zip Code)

(781) 890-9989

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.0001 par value per share	NURO	The Nasdaq Stock Market LLC
Preferred Stock Purchase Rights	~~NUROW~~
~~Warrants to Purchase Common Stock~~

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 every Interactive Data File required to be submitted 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 definition of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
			Emerging growth company ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~9,781,755~~3,784,657 shares of common stock, par value $0.0001 per share, were outstanding as of October ~~11, 2019.~~

~~In addition, there were 416,275 warrants to purchase shares of the issuer's common stock listed under NUROW on the Nasdaq stock exchange outstanding as of October 11, 2019.~~21, 2020.

NeuroMetrix, Inc.

Form 10-Q

Quarterly Period Ended September 30, ~~2019~~2020

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Balance Sheets as of September 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	1

	Statements of Operations (unaudited) for the Quarters and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	2

	Statement of Changes in Stockholders' Equity (unaudited) for the Quarters and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	3

	Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	5

	Notes to Unaudited Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23 22

Item 3.	Defaults Upon Senior Securities	23 22

Item 4.	Mine Safety Disclosures	23 22

Item 5.	Other Information	24 22

Item 6.	Exhibits	24 22

Signatures		25 23

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NeuroMetrix, Inc.

Balance Sheets


	September 30, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,186,636		$	6,780,429		$	4,929,175		$	3,126,206
Accounts receivable, net	523,989			1,082,957			633,146			298,967
Inventories	1,078,653			2,861,864			1,050,293			1,163,714
Collaboration receivable	1,174,092			—			—			189,008
Prepaid expenses and other current assets	672,487			860,915			677,526			652,919
Total current assets	6,635,857			11,586,165			7,290,140			5,430,814

Fixed assets, net	299,295			407,339			205,676			273,448
Right to use asset	1,541,975			1,968,062			815,558			1,159,774
Other long-term assets	29,650			30,314			28,664			29,650
Total assets	$	8,506,777		$	13,991,880		$	8,340,038		$	6,893,686

Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable	$	638,546		$	1,298,084		$	192,356		$	725,658
Accrued expenses	2,612,907			2,236,633
Accrued expenses and compensation							1,011,228			1,443,574
Accrued product returns	663,306			1,101,658			586,000			689,000
Deferred collaboration income	—			1,956,522
Lease obligation, current							596,779			588,546
Total current liabilities	3,914,759			6,592,897			2,386,363			3,446,778

Lease obligation, net of current portion	1,018,508			1,301,172			581,903			916,674
Total liabilities	4,933,267			7,894,069			2,968,266			4,363,452

Commitments and contingencies

Stockholders’ equity:
Preferred stock	—			—			—			—
Convertible preferred stock	11			18			1			1
Common stock, $0.0001 par value; 100,000,000 shares authorized at September 30, 2019 and December 31, 2018; 9,781,755 and 7,380,463 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	978			738
Common stock, $0.0001 par value; 25,000,000 shares authorized at September 30, 2020 and December 31, 2019; 3,784,657 and 1,400,674 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively							378			140
Additional paid-in capital	197,305,396			197,113,646			201,927,426			197,319,698
Accumulated deficit	(193,732,875		)	(191,016,591		)	(196,556,033		)	(194,789,605		)
Total stockholders’ equity	3,573,510			6,097,811			5,371,772			2,530,234
Total liabilities and stockholders’ equity	$	8,506,777		$	13,991,880		$	8,340,038		$	6,893,686

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

NeuroMetrix, Inc.

Statements of Operations

(Unaudited)


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019

Revenues	$	2,088,001		$	3,666,780		$	7,565,619		$	12,361,338		$	2,036,228		$	2,088,001		$	5,568,243		$	7,565,619

Cost of revenues	914,322			1,821,111			6,382,340			6,726,675			537,614			914,322			1,652,890			6,382,340

Gross profit	1,173,679			1,845,669			1,183,279			5,634,663			1,498,614			1,173,679			3,915,353			1,183,279

Operating expenses:
Research and development	475,137			1,178,468			2,365,139			4,074,895			652,671			475,137			1,846,569			2,365,139
Sales and marketing	647,719			2,334,340			4,046,956			7,039,933			340,927			647,719			1,144,389			4,046,956
General and administrative	1,462,887			1,015,489			4,646,932			3,990,266			762,903			1,462,887			2,693,146			4,646,932

Total operating expenses	2,585,743			4,528,297			11,059,027			15,105,094			1,756,501			2,585,743			5,684,104			11,059,027

Loss from operations	(1,412,064		)	(2,682,628		)	(9,875,748		)	(9,470,431		)	(257,887		)	(1,412,064		)	(1,768,751		)	(9,875,748		)

Other income:
Collaboration income	—			3,750,000			7,116,667			12,255,704			—			—			—			7,116,667
Other income	7,464			18,686			42,797			40,965			774			7,464			2,323			42,797

Total other income	7,464			3,768,686			7,159,464			12,296,669			774			7,464			2,323			7,159,464

Net income (loss)	$	(1,404,600	)	$	1,086,058		$	(2,716,284	)	$	2,826,238
Net loss													$	(257,113	)	$	(1,404,600	)	$	(1,766,428	)	$	(2,716,284	)

Net income (loss) per common share applicable to common stockholders,
Basic	$	(0.14	)	$	0.15		$	(0.31	)	$	0.40
Diluted	$	(0.14	)	$	0.08		$	(0.31	)	$	0.20
Net loss per common share applicable to common stockholders, basic and diluted													$	(0.07	)	$	(1.44	)	$	(0.64	)	$	(3.06	)

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

NeuroMetrix, Inc.

Statements of Changes in Stockholders' Equity

(Unaudited)


	Series B – F Convertible Preferred Stock					Common Stock			Additional Paid-In Capital				Accumulated Deficit				Total			Series B Convertible Preferred Stock							Common Stock			Additional Paid-In Capital		Accumulated Deficit			Total
	Number of Shares		Amount			Number of Shares	Amount					Number of Shares					Total			Amount				Number of Shares			Amount			Additional Paid-In Capital		Accumulated Deficit			Total
Balance at June 30, 2019	11,254.73		$	11		9,781,755	$	978	Additional Paid-In Capital		$	197,184,936	Accumulated Deficit			$	(192,328,275	)		$	4,857,650
Balance at December 31, 2019																				200.00			$	1			1,400,674	$	140	$	197,319,698	$	(194,789,605	)	$	2,530,234
Stock-based compensation expense																				—			—				—	—		144,047		—			144,047
Issuance of common stock under at the market offering																				—			—				256,078	25		453,432		—			453,457
Issuance of common stock to settle compensation obligations																				—			—				31,000	3		43,748		—			43,751
Net loss																							—									(657,371		)	(657,371		)
Balance at March 31, 2020																				200.00			$	1			1,687,752	$	168	$	197,960,925	$	(195,446,976	)	$	2,514,118
Stock-based compensation expense																				—			—				—	—		128,862		—			128,862
Issuance of common stock under at the market offering																				—			—				2,092,541	209		3,689,765		—			3,689,974
Issuance of common stock under employee stock purchase plan																				—			—				4,364	1		7,605		—			7,606
Net loss																				—			—				—	—		—		(851,944		)	(851,944		)
Balance at June 30, 2020																				200.00			$	1			3,784,657	$	378	$	201,787,157	$	(196,298,920	)	$	5,488,616
Stock-based compensation expense	—		—			—	—		120,460				—				120,460			—			—				—	—		140,269		—			140,269
Net loss	—		—			—	—		—				(1,404,600		)		(1,404,600		)	—			—				—	—		—		(257,113		)	(257,113		)
Balance at September 30, 2019	11,254.73		$	11		9,781,755	$	978	$	197,305,396			$	(193,732,875	)		$	3,573,510

	Series B – F Convertible Preferred Stock					Common Stock			Additional Paid-In Capital				Accumulated Deficit				Total
	Number of Shares		Amount			Number of Shares	Amount
Balance at December 31, 2018	17,513.63		$	18		7,380,463	$	738	Additional Paid-In Capital		$	197,113,646	Accumulated Deficit				Total				$	(191,016,591	)		$	6,097,811
Stock-based compensation expense	—		—			—	—		184,486				—				184,486
Issuance of common stock upon conversion of preferred stock	(6,258.90	)	(7		)	2,379,810	238		(231		)		—				—
Issuance of common stock under employee stock purchase plan	—		—			21,482	2		7,495				—				7,497
Net loss	—		—			—	—		—				(2,716,284		)		(2,716,284		)
Balance at September 30, 2019	11,254.73		$	11		9,781,755	$	978	$	197,305,396			$	(193,732,875	)		$	3,573,510
Balance at September 30, 2020																				200.00			$	1			3,784,657	$	378	$	201,927,426	$	(196,556,033	)	$	5,371,772

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

NeuroMetrix, Inc.

Statements of Changes in Stockholders' Equity

(Unaudited)


	Series B – F Convertible Preferred Stock					Common Stock			Additional Paid-In Capital				Accumulated Deficit				Total		Series B – F Convertible Preferred Stock							Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total
	Number of Shares		Amount			Number of Shares	Amount					Number of Shares					Total		Amount				Number of Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Total
Balance at June 30, 2018	17,813.63		$	18		7,356,731	$	736	Additional Paid-In Capital		$	197,020,870	Accumulated Deficit			$	(189,300,016	)	$	7,721,608
Stock-based compensation expense	—		—			—	—		42,805				—				42,805
Issuance of common stock under Employees stock purchase plan	—		—			8,307	1		9,253				—				9,254
Net income	—		—			—	—		—				1,086,058				1,086,058
Balance at September 30, 2018	17,813.63		$	18		7,365,038	$	737	$	197,072,928			$	(188,213,958	)		$	8,859,725

	Series B – F Convertible Preferred Stock					Common Stock			Additional Paid-In Capital				Accumulated Deficit				Total
	Number of Shares		Amount			Number of Shares	Amount
Balance at December 31, 2017	29,479.98		$	30		2,706,066	$	271	Additional Paid-In Capital		$	196,355,142	Accumulated Deficit				Total			$	(191,338,054	)		$	5,017,389
Balance at December 31, 2018																			17,513.63			$	18			738,029	$	74	$	197,114,310		$	(191,016,591	)	$	6,097,811
Stock-based compensation expense	—		—			—	—		414,722				—				414,722		—			—				—	—		44,093			—			44,093
Issuance of common stock upon conversion of preferred stock	(11,666.35	)	(12		)	4,435,874	444		(432		)		—				—		(2,445.90	)		(3		)		93,000	9		(6		)	—			—
Common stock issued to settle employee incentive compensation obligations	—		—			214,791	21		294,243				—				294,264
Net income																			—			—				—	—		—			2,050,507			2,050,507
Balance at March 31, 2019																			15,067.73			$	15			831,029	$	83	$	197,158,397		$	(188,966,084	)	$	8,192,411
Stock-based compensation expense																			—			—				—	—		19,933			—			19,933
Issuance of common stock upon conversion of preferred stock																			(3,813.00	)		(4		)		144,981	15		(11		)	—			—
Issuance of common stock under employee stock purchase plan	—		—			8,307	1		9,253				—				9,254		—			—				2,148	1		7,496			—			7,497
Net income	—		—			—	—		—				2,826,238				2,826,238
Balance at September 30, 2018	17,813.63		$	18		7,365,038	$	737	$	197,072,928			$	(188,213,958	)		$	8,859,725
Net loss																			—			—				—	—		—			(3,362,191		)	(3,362,191		)
Balance at June 30, 2019																			11,254.73			$	11			978,158	$	99	$	197,185,815		$	(192,328,275	)	$	4,857,650
Stock-based compensation expense																			—			—				—	—		120,460			—			120,460
Net loss																			—			—				—	—		—			(1,404,600		)	(1,404,600		)
Balance at September 30, 2019																			11,254.73			$	11			978,158	$	99	$	197,306,275		$	(193,732,875	)	$	3,573,510

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

NeuroMetrix, Inc.

Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
Cash flows from operating activities:
Net income (loss)	$	(2,716,284	)	$	2,826,238
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net loss							$	(1,766,428	)	$	(2,716,284	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	98,166			166,262			67,772			98,166
Stock-based compensation	184,486			414,722			413,178			184,486
Settlement of compensation obligation							43,751			—
Impairment charge against right of use asset							280,000			—
Inventory provision	2,595,884			—			—			2,595,884
Changes in operating assets and liabilities:
Accounts receivable	558,968			786,986			(334,179		)	558,968
Inventories	(357,673		)	(454,779		)	113,421			(357,673		)
Collaboration receivable	(1,174,092		)	—			189,008			(1,174,092		)
Prepaid expenses and other current and long-term assets	189,092			425,242			(23,621		)	189,092
Accounts payable	(659,538		)	417,930			(533,302		)	(659,538		)
Accrued expenses	115,752			(146,454		)
Accrued expenses and compensation							(694,668		)	115,752
Accrued product returns	(438,352		)	(852,596		)	(103,000		)	(438,352		)
Deferred collaboration income	(1,956,522		)	—			—			(1,956,522		)
Net cash (used in) provided by operating activities	(3,560,113		)	3,583,551
Net cash used in operating activities							(2,348,068		)	(3,560,113		)

Cash flows from investing activities:
Purchases of fixed assets	(41,177		)	(105,888		)	—			(41,177		)
Net cash used in investing activities	(41,177		)	(105,888		)	—			(41,177		)

Cash flows from financing activities:
Net proceeds from issuance of stock	7,497			9,254			4,151,037			7,497
Proceeds from debt issuance							773,200			—
Repayment of debt							(773,200		)	—
Net cash provided by financing activities	7,497			9,254			4,151,037			7,497

Net (decrease) increase in cash and cash equivalents	(3,593,793		)	3,486,917
Net increase (decrease) in cash and cash equivalents							1,802,969			(3,593,793		)
Cash and cash equivalents, beginning of period	6,780,429			4,043,681			3,126,206			6,780,429
Cash and cash equivalents, end of period	$	3,186,636		$	7,530,598		$	4,929,175		$	3,186,636
Supplemental disclosure of cash flow information:
Common stock issued to settle employee incentive compensation obligation	$	—		$	294,264
Common stock issued to settle employee compensation							$	43,751		$	—

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

NeuroMetrix, Inc.

Notes to Unaudited Financial Statements

September 30, ~~2019~~2020


1.	Business and Basis of Presentation

Our Business-An Overview

NeuroMetrix, Inc., or the Company, is a ~~commercial stage, innovation driven healthcare company combining~~leading developer and manufacturer of diagnostic and therapeutic neurostimulation ~~and digital medicine.~~based medical devices that are used throughout the world. The Company has ~~two primary~~three FDA cleared commercial products. ~~Quell is an over-the-counter wearable therapeutic device for chronic pain.~~ DPNCheck® is a point-of-care test that is used to evaluate peripheral neuropathies. ADVANCE^™ is a point-of-care device that provides nerve conduction studies as an aid in diagnosing and evaluating patients suspected of having focal or systemic neuropathies. Quell^® 2.0 is a wearable, mobile app enabled, neurostimulation device indicated for ~~diabetic neuropathy which~~symptomatic relief and management of chronic pain and is ~~the most common long-term complication of Type 2 diabetes.~~

In the second quarter of 2019 the Company implemented a business restructuring to reduce operating costs and preserve cash while continuing to support its DPNCheck® product line, manage its existing Quell® business, maintain its strategic collaboration with GlaxoSmithKline, and attempt to negotiate a settlement of the Federal Trade Commission (FTC) investigation which is centered on Quell advertising. The second quarter restructuring encompassed a reduction in force, a consolidation of its operations in a single location, and a write-down of excess Quell inventory.available OTC. The Company recorded a restructuring charge of $2,345,657 (See Note 7.). It is likely that the Company will incur future costs associated with settlement of the FTC matter; however, the amount of such costs cannot be reasonably estimated at this time (See Note 8.). The Company also announced the retention ofmaintains an ~~investment bank to explore strategic alternatives to enhance shareholder value, including the potential sale or merger of the Company.~~active, industry-leading R&D program.

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. The Company has ~~suffered~~reported recurring losses from operations and negative cash flows from operating activities. At September 30, ~~2019,~~2020, the Company had an accumulated deficit of ~~$193.7~~$196.6 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 ~~$3.2~~$4.9 million as of September 30, ~~2019.~~2020. The Company believes that these resources ~~future GSK collaboration milestone payments,~~ and the cash to be generated from future product sales will be sufficient to meet its projected operating requirements ~~through 2019.~~into the fourth quarter of 2021. Accordingly, the Company ~~will~~may need to raise additional funds to support its operating and capital needs in ~~2020.~~ the fourth quarter of 2021 and beyond.

The Company continues to face ~~significant~~ challenges and uncertainties. Among these uncertainties ~~and, as~~is the future effect on the Company's business of the COVID-19 pandemic which has depressed sales of the Company's products. 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, including decreases in customer orders related to the COVID-19 pandemic, and the uncertainty of future revenues from new products; (b) the effect of the COVID-19 pandemic on the Company's ability to obtain parts and materials from the Company's suppliers while continuing to staff critical production and fulfillment functions; (c) changes the Company may make to the business that affect ongoing operating expenses; ~~(c)~~(d) changes the Company may make in its business strategy; ~~(d)~~(e) regulatory developments affecting the Company’s existing products; ~~(e)~~(f) changes the Company may make in its research and development spending plans; ~~(f) delays in the anticipated timing of achievement of GSK milestones;~~and (g) ~~the final outcome of the FTC civil investigative demand enforcement action involving Quell; and (h)~~ other items affecting the Company’s forecasted level of expenditures and use of cash resources.

The Company may attempt 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 funding 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.

Unaudited Interim Financial Statements

The accompanying unaudited balance sheet as of September 30, ~~2019,~~2020, unaudited statements of operations, ~~for the quarters and nine months ended September 30, 2019 and 2018, unaudited statements of~~ changes in stockholders' equity for the quarters and nine months ended September 30, 2020 and 2019 and ~~2018 and the unaudited statements of~~ cash flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 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, ~~2018~~2019 has been derived from audited financial statements prepared at that date ~~and adjusted for the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842),~~ 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 nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, ~~2018~~2019 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on January ~~24, 2019~~28, 2020 (File No. 001-33351), or the Company’s ~~2018~~2019 Form 10-K.

Revenues

Revenues include product sales, net of estimated returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product transferred. Revenue is recognized when contractual performance obligations have been satisfied and control of the product has been transferred to the customer. In most cases, the Company has a single product delivery performance obligation. Accrued product returns are estimated based on historical data and evaluation of current information.

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 $70,000 ~~and $25,000~~ as of September 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019.

~~One~~For the quarters ended September 30, 2020 and 2019, three customers accounted for 47% of total revenues and one customer accounted for 19% ~~and 20%~~ of total revenues, inrespectively. For the ~~quarter and~~ nine months ended September 30, 2020 and 2019, ~~respectively. One~~two customers accounted for 34% and one customer accounted for ~~16%~~20% of total revenues, respectively. Three customers accounted for 54% and two customers accounted for ~~28% of total revenues in the quarter and nine months ended September 30, 2018, respectively. Three customers accounted for 53% and two customers accounted for 45%~~42% of accounts receivable as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Collaboration ~~income~~Income

Collaboration ~~income~~Income is recognized within Other ~~income~~Income when contractual performance obligations, outside the ordinary activities of the Company, have been satisfied and control has been transferred to a collaboration partner. Collaboration ~~income~~Income for each performance obligation is based on the fair value of such performance obligation relative to the total fair value of all performance obligations multiplied by the overall transaction price. A deferred collaboration income liability is recorded when payments are received prior to satisfaction of performance obligations. A collaboration receivable is recorded when amounts are owed to the Company under the collaboration agreements and related support services. The Company recognized Collaboration income net of costs, within Other income in the Statement of Operations of ~~$7,116,667~~zero and ~~$12,255,704,~~$7,116,667, for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Stock-based Compensation

Total compensation cost related to non-vested awards not yet recognized at September 30, ~~2019~~2020 was ~~$25,629.~~$136,569. The total compensation costs are expected to be recognized over a weighted-average period of ~~1.8~~0.3 years.

Use of Estimates

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.

~~Reclassifications~~

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

~~Recent Accounting Pronouncements~~

~~In February 2016, the FASB issued Accounting Standards Update No. 2016-02,~~ ~~Leases (Topic 842)~~ (“ASU 2016-02”). ASU 2016-02 required that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The Company adopted ASU 2016-02, using the modified retrospective method, upon its effective date of January 1, 2019. The impact of adoption was an increase to long-term assets and total liabilities of approximately $1.9 million as of January 1, 2019.

~~The following table summarizes the effects of adopting ASU 2016-02 on the Company's balance sheet as of September 30, 2019:~~

As reported Adjustments Amounts under prior GAAP
Assets
Prepaid expenses and other current assets $ 672,487
$ 23,902
$ 696,389
Total current assets $ 6,635,857
$ 23,902
$ 6,659,759
Right of use asset $ 1,541,975
$ (1,541,975 ) $ —
Other long-term assets $ 29,650
$ 38,872
$ 68,522
Total assets $ 8,506,777
$ (1,479,201 ) $ 7,027,576

Liabilities
Accrued expenses $ 2,612,907
$ (460,693 ) $ 2,152,214
Total current liabilities $ 3,914,759
$ (460,693 ) $ 3,454,066
Lease obligation - net of current portion $ 1,018,508
$ (1,018,508 ) $ —
Total liabilities $ 4,933,267
$ (1,479,201 ) $ 3,454,066

~~The following table summarizes the effects of adopting ASU 2016-02 on the Company's balance sheet as of December 31, 2018:~~

As reported Adjustments Amounts under prior GAAP
Assets
Prepaid expenses and other current assets $ 860,915
$ 44,852
$ 905,767
Total current assets $ 11,586,165
$ 44,852
$ 11,631,017
Right of use asset $ 1,968,062
$ (1,968,062 ) $ —
Other long-term assets $ 30,314
$ 44,578
$ 74,892
Total assets $ 13,991,880
$ (1,878,632 ) $ 12,113,248

Liabilities
Accrued expenses $ 2,236,633
$ (577,460 ) $ 1,659,173
Total current liabilities $ 6,592,897
$ (577,460 ) $ 6,015,437
Lease obligation - net of current portion $ 1,301,172
$ (1,301,172 ) $ —
Total liabilities $ 7,894,069
$ (1,878,632 ) $ 6,015,437

~~Adoption of ASU 2016-02 had no impact on the Company's statements of operations, statements of changes in stockholders' equity and statements of cash flows.~~


2.	Comprehensive Income (Loss)

For the quarters and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company had no components of other comprehensive income (loss) other than net income (loss) itself.


3.	Net ~~Income (Loss)~~Loss Per Common Share

Basic and dilutive net income (loss) per common share were as follows:


	Quarters Ended September 30,					Nine Months Ended September 30,					Quarters Ended September 30,						Nine Months Ended September 30,
	2019			2018		2019			2018		2020			2019			2020			2019
Net income (loss) applicable to common stockholders	$	(1,404,600	)	$	1,086,058	$	(2,716,284	)	$	2,826,238
Net loss applicable to common stockholders											$	(257,113	)	$	(1,404,600	)	$	(1,766,428	)	$	(2,716,284	)

Weighted average number of common shares outstanding, basic	9,781,755			7,365,038		8,863,159			7,016,789		3,784,657			978,175			2,755,903			886,609
Dilutive convertible preferred stock	—			6,584,674		—			6,847,164		—			—			—			—
Weighted average number of common shares outstanding, dilutive	9,781,755			13,949,712		8,863,159			13,863,953		3,784,657			978,175			2,755,903			886,609

Net income (loss) per common share applicable to common stockholders, basic	$	(0.14	)	$	0.15	$	(0.31	)	$	0.40
Net income (loss) per common share applicable to common stockholders, diluted	$	(0.14	)	$	0.08	$	(0.31	)	$	0.20
Net loss per common share applicable to common stockholders, basic and diluted											$	(0.07	)	$	(1.44	)	$	(0.64	)	$	(3.06	)

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


	Quarters Ended September 30,		Nine Months Ended September 30,		Quarters Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018	2020	2019	2020	2019
Options	404,395	474,148	458,207	426,166	162,373	40,396	163,303	45,777
Warrants	442,215	459,375	453,592	459,375	—	44,221	23,040	45,359
Convertible preferred stock	4,203,936	—	5,108,289	—	62	420,395	62	510,830
Total	5,050,546	933,523	6,020,088	885,541	162,435	505,012	186,405	601,966


4.	Inventories

Inventories consist of the following:

September 30, 2019 December 31, 2018
Purchased components $ 532,952
$ 1,767,674
Finished goods 545,701
1,094,190
$ 1,078,653
$ 2,861,864

The Company recorded inventory and supplier excess commitment charges of zero and $2,595,884 in the quarter and nine months ended September 30, 2019, respectively, to reflect its estimated net realizable value.



	September 30, 2020		December 31, 2019
Purchased components	$	690,643	$	720,209
Finished goods	359,650		443,505
	$	1,050,293	$	1,163,714


5.	Accrued Expenses and Compensation

Accrued expenses and compensation consist of the following:


	September 30, 2019		December 31, 2018		September 30, 2020		December 31, 2019
Lease obligation, current portion	$	585,692	$	577,460
Supplier excess commitments	455,000		160,000
Technology fees	450,000		450,000		$	450,000	$	450,000
Professional services					291,000		454,000
Compensation					109,896		62,322
Advertising and promotion	373,000		171,000		6,000		68,000
Professional services	363,000		391,000
Compensation expense	133,012		223,756
Warranty reserve	92,000		129,837
Warranty					62,200		75,300
Other	161,203		133,580		92,132		333,952
	$	2,612,907	$	2,236,633	$	1,011,228	$	1,443,574


6.	Leases

Operating Leases

~~In June 2018, the Company extended the~~The Company's lease on its Woburn, Massachusetts ~~manufacturing~~ facilities (the “Woburn Lease”) extends through September ~~2025. The Woburn Lease has~~2025 with a monthly base rent of ~~$13,918~~$13,846 and a 5-year extension option. ~~In September 2014, the Company entered into a 7-year operating~~The Company's lease ~~agreement with one 5-year extension option for~~on its ~~corporate office and product development activities in~~ Waltham, Massachusetts ~~(the “Waltham Lease”). The term of the Waltham Lease commenced on~~facilities, now inactive and offered for sublet, extends through February ~~20, 2015 and includes fixed payment obligations that escalate over the initial lease term. Average~~2022 with an average monthly base rent ~~under the Waltham lease is $41,074. As~~ of $41,074 and a 5-year extension option. At September 30, ~~2019~~2020, an impairment reserve of $400,000 reduced the right of use asset for Waltham idle facility ~~had been vacated~~costs. The impairment reserve was increased during the nine months ended September 30, 2020 by a charge of $280,000 recorded within the ~~Company~~Company's Statement of Operations as follows: $98,000 within research and ~~was being marketed to prospective sub-lessees.~~development, $56,000 within sales and marketing, and $126,000 within general and administrative.

Future minimum lease payments under non-cancellable operating leases as of September 30, ~~2019~~2020 are as follows:


2019	$	157,804
2020	641,193		160,797
2021	653,164		653,164
2022	247,347		247,347
2023	165,785		165,785
2024	165,785		165,785
2025	117,431		117,431
Total minimum lease payments	$	2,148,509	$	1,510,309

Weighted-average discount rate, 14.7%	$	544,309	$	331,627
Lease obligation, current portion	585,692		596,779
Lease obligation, net of current portion	1,018,508		581,903
	$	2,148,509	$	1,510,309

Total recorded rent expense was ~~$498,073~~$166,905 and ~~$462,917,~~$166,025, for the quarters ended September 30, 2020 and 2019, respectively. Total recorded rent expense was $500,713 and $498,073, for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company records rent expense on its facility leases on a straight-line basis over the lease term. Weighted average remaining operating lease term was ~~3.8~~3.1 years as of September 30, ~~2019.~~2020.


7.	Business Restructuring

~~The~~In the second quarter of 2019, ~~business restructuring involved~~the Company was restructured to reduce operating costs and improve efficiency. Operations were consolidated in a ~~charge against operations of $2,345,657. The restructuring included a reduction in force affecting eleven employees~~single location, headcount was reduced, and severance costs of $224,773. It included a consolidation of the Company's corporate offices and engineering labs into its Woburn manufacturing facility and attendant relocation costs of $225,000. It also included inventory-related costs totaling $1,895,884 to writeexcess inventory was written down ~~excess parts~~ to net realizable ~~value~~value. Total 2019 restructuring charges were $2.5 million. During 2020 revised estimates of ~~$1,485,884 plus a provision for excess parts purchase commitments of $410,000. As of~~idle facility costs at the Company's Waltham location resulted in impairment charges in the quarter and nine months ended September 30, ~~2019, the restructuring was completed. There remains a provision~~2020 of ~~$125,000 for idle Waltham facilities held for sublet. This provision is recorded~~$76,000 and $280,000, respectively. The impairment reserve against the ~~Company’s Right~~right to use ~~asset.~~asset was $400,000 at September 30, 2020.

The ~~severance and relocation~~ obligations relating to the business restructuring outstanding as of September 30, ~~2019~~2020 are presented below.

�� September 30, 2019
Severance obligations:
Provision $ 224,773
Amounts paid out (224,773 )
Total —
Relocation costs:
Provision 225,000
Amounts paid out (100,000 )
Total 125,000

Balance - September 30, 2019 $ 125,000

Within the Company's Statements of Operations for the nine months ended September 30, 2019, $1,895,884 of inventory-related write-downs were recorded within cost of revenues, and severance and relocations costs were recorded as follows: $201,514 within research and development, $129,812 within sales and marketing, and $118,447 within general and administrative. There were no business restructuring expenses recorded for the quarter ended September 30, 2019.

~~8. Contingencies~~

As previously disclosed, in 2017 we received a Civil Investigative Demand (“CID”) from the FTC. The CID requested information in connection with an FTC review for compliance of our representations about Quell with Sections 5 and 12 of the FTC Act. During 2017, 2018 and 2019, we responded to requests for information by FTC. We met with FTC on several occasions in 2019 to discuss our responses. We continue to seek resolution of this matter. This may include a consent order that, among other provisions, would prohibit us from making certain claims in our advertising about Quell, as well as impose a monetary judgment that would be payable to the FTC. The ultimate outcome of this matter cannot be reasonably estimated at this time; however, the Company believes that a material financial loss is probable.



	September 30, 2020
Severance obligations:
Provision	$	224,773
Amounts paid out	(224,773		)
Total	—
Relocation costs:
Provision	100,000
Amounts paid out	(100,000		)
Total	—
Impairment charge for idle facility	680,000
Amounts paid out	(280,000		)
Total	400,000

Balance - September 30, 2020	$	400,000


9.8.	Fair Value Measurements

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. All Company assets and liabilities measured at fair value utilize Level 1 inputs.


			Fair Value Measurements at September 30, 2019 Using								Fair Value Measurements at September 30, 2020 Using
	September 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	741,467	$	741,467	$	—	$	—	$	2,159,475	$	2,159,475	$	—	$	—
Total	$	741,467	$	741,467	$	—	$	—	$	2,159,475	$	2,159,475	$	—	$	—


			Fair Value Measurements at December 31, 2018 Using								Fair Value Measurements at December 31, 2019 Using
	December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	4,284,928	$	4,284,928	$	—	$	—	$	698,807	$	698,807	$	—	$	—
Total	$	4,284,928	$	4,284,928	$	—	$	—	$	698,807	$	698,807	$	—	$	—


9.	Credit Facility and Debt

The Company's Loan and Security Agreement (the “Credit Facility”) with a bank expired April 30, 2020 and was not renewed. The Credit Facility had previously supported letters of credit in the amount of $226,731 issued in favor of the Company's landlords. These letters of credit remain outstanding and are secured by the Company's cash balances.

In April 2020 the Company received a loan of $773,200 under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act and fully repaid the loan in May 2020.


10.	~~Credit Facility~~

The Company is party to a Loan and Security Agreement, as amended (the “Credit Facility”), with a bank. As of September 30, 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 September 2019 and expires in November 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 September 30, 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 landlords. Consequently, the amount available for borrowing under the Credit Facility as of September 30, 2019 was approximately $2.3 million.


~~11.~~	Stockholders’ Equity

Preferred stock and convertible preferred stock consist of the following:

September 30, 2019 December 31, 2018
Preferred stock, $0.001 par value; 5,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued and outstanding at September 30, 2019 and December 31, 2018 $ —
$ —
Series B convertible preferred stock, $0.001 par value; 147,000 shares designated at September 30, 2019 and December 31, 2018; 200 shares issued and outstanding at September 30, 2019 and December 31, 2018 $ 1
$ 1
Series D convertible preferred stock, $0.001 par value; 21,300 shares designated at September 30, 2019 and December 31, 2018; 11,054.73 and 14,052.93 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively $ 10
$ 14
Series E convertible preferred stock, $0.001 par value; 7,000 shares designated at September 30, 2019 and December 31, 2018; zero and 3,260.70 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively $ —
$ 3



	September 30, 2020		December 31, 2019
Preferred stock, $0.001 par value; 5,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019	$	—	$	—
Series B convertible preferred stock, $0.001 par value; 147,000 shares designated at September 30, 2020 and December 31, 2019; 200 shares issued and outstanding at September 30, 2020 and December 31, 2019	$	1	$	1
Series D convertible preferred stock, $0.001 par value; 21,300 shares designated at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019	$	—	$	—
Series E convertible preferred stock, $0.001 par value; 7,000 shares designated at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019	$	—	$	—
Series F convertible preferred stock, $0.001 par value; 10,621 shares designated at September 30, 2020 and December 31, 2019; no shares issued and outstanding at September 30, 2020 and December 31, 2019	$	—	$	—

2020 equity activity

In February 2020, the Company entered into an At Market Issuance Sales Agreement (the "Agreement") with respect to an at-the-market offering program ("ATM program"), under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share (the "Common Stock"), having an aggregate offering price of up to $4,482,000 (the "Placement Shares"). The issuance and sale of the Placement Shares by the Company under the Agreement will be made pursuant to the Company's effective "shelf" registration statement on Form S-3. During the nine months ended September 30, 2020, 2,348,619 shares of common stock were issued pursuant to the Agreement for net proceeds of $4,143,431.

In March 2020, the Company issued 31,000 shares of fully vested common stock with a value of $43,751 pursuant to a Separation Agreement between the Company and an employee. The shares issued reflected the $1.41 closing price of the Company's common stock as reported on the Nasdaq Capital Market on March 11, 2020.

In June 2020, the Company issued 4,364 shares of fully vested common stock with a value of $7,606 pursuant to the Company's 2010 Employee Stock Purchase Plan.

2019 equity activity

During the nine months ended September 30, 2019, ~~2,998.20~~2,998.2 shares of the Company's Series D Preferred Stock were converted into a total of ~~1,140,000~~114,000 shares of Common Stock and 3,260.70 shares of the Company's Series E Preferred Stock were converted into a total of ~~1,239,810~~123,981 shares of Common Stock.

~~2018 equity activity~~

During the nine months ended September 30, 2018, the Company issued shares of fully vested common stock in partial settlement of outstanding management incentive compensation. The issuance involved 214,791 shares with an aggregate value of $294,264, reflecting the $1.37 closing price of the Company’s common stock as reported on the Nasdaq Capital Market on April 12, 2018.

During the nine months ended September 30, 2018, 3,739.3 shares of the Series E Preferred Stock were converted into a total of 1,421,787 shares of Common Stock and 7,927.05 shares of the Series F Preferred Stock were converted into a total of 3,014,087 shares of Common Stock.


11.	Reverse Stock Split

13On November 18, 2019, the Company effected a 1-for-10 reverse stock split of its Common Stock, or the Reverse Stock Split. The par value and other terms of the common stock were not affected by the Reverse Stock Split. Share, per share, and stock option amounts for all periods presented within the financial statements contained in the Quarterly Report on Form 10-Q, including the December 31, 2019 Balance Sheet amounts for Common Stock and additional paid-in capital, have been retroactively adjusted to reflect the Reverse Stock Split.

12. Commitments and Contingencies

The previously reported investigation by the Federal Trade Commission (the “Commission”) regarding Quell® advertising was settled in March 2020. The Company did not admit to any of the Commission's allegations, agreed to certain modifications of Quell advertising claims, and pledged to pay to the Commission future commercial milestone payments, if and when received, pursuant to a collaboration agreement with a third party.

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

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the accompanying notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Quarterly Report on Form 10-Q titled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Quarterly Report on Form 10-Q refer to NeuroMetrix, Inc.

Overview

NeuroMetrix ~~is a commercial stage, innovation driven healthcare company combining~~develops and commercializes health care products that utilize non-invasive neurostimulation and digital medicine. Our core expertise in biomedical engineering has been refined over ~~nearly~~ two decades of designing, building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We created the market for point-of-care nerve testing and were first to market with sophisticated wearable technology for ~~management~~symptomatic relief of chronic pain. ~~We have an experienced management team and Board of Directors.~~ Our business is fully integrated with in-house capabilities spanning ~~product~~ research and development, manufacturing, regulatory affairs and compliance, sales and marketing, product fulfillment and customer support. We derive revenues from the sale of medical devices and after-market consumable products and accessories. Our products are sold in the United States and select overseas ~~markets and~~markets. They are cleared by the U.S. Food and Drug Administration (FDA) and regulators in foreign jurisdictions where appropriate. We have two principal product lines:

•~~Wearable neurostimulation therapeutic devices~~

•Point-of-care neuropathy diagnostic tests

•Wearable neurostimulation devices

Diabetes is a worldwide epidemic with an estimated affected population of over 400 million people. Within the United States, there are over 30 million people with diabetes and another 80 million people with pre-diabetes. The annual direct cost of treating diabetes in the United States exceeds $100 billion. Although there are dangerous acute manifestations of diabetes, the primary burden of the disease is in its long-term complications, which include cardiovascular disease, nerve disease and resulting conditions such as foot ulcers which may require amputation, eye disease leading to blindness, and kidney failure. The most common long-term complication of diabetes, affecting over 50% of the diabetic population, is nerve disease or neuropathy. Diabetic peripheral neuropathy (DPN) is the primary trigger for diabetic foot ulcers which may progress to the point of requiring amputation. People with diabetes have a 15-25% lifetime risk of foot ulcers and approximately 15% of foot ulcers lead to amputation. Foot ulcers are the most expensive complication of diabetes with a typical cost of $5,000 to $50,000 per episode. In addition, between 16% and 26% of people with diabetes suffer from chronic pain in the feet and lower legs.

Early detection of DPN is important because there are no treatment options once the nerves have degenerated. Today’s diagnostic methods for DPN range from a simple monofilament test for lack of sensory perception in the feet to a nerve conduction study performed by a specialist. Our DPNCheck technology provides a rapid, low cost, quantitative test for peripheral nerve disease, including DPN. It addresses an important medical need and is particularly effective in screening large populations. DPNCheck has been validated in numerous clinical studies. We are investing R&D resources in the next generation technology to enhance the user experience, improve manufacturing, and restrict the potential use of non-compliant biosensors. Release of the new DPNCheck, forecast for the second half of 2021, may also provide the opportunity for customer upgrades and expansion of product margins.

Chronic pain is a significant public health problem. It is defined by the National Institutes of Health (NIH) as ~~any~~ pain lasting more than 12 weeks. This contrasts with acute pain, which is a normal bodily response to injury or trauma. Chronic pain conditions include low back pain, arthritis, fibromyalgia, neuropathic pain, cancer pain and many others. Chronic pain may be triggered by an injury or there may be an ongoing cause such as disease or illness. There may also be no clear cause. ~~In individuals suffering from chronic pain, pain~~Pain signals continue to be transmitted in the nervous system over extended periods of time often leading to other health problems.

These can include fatigue, sleep disturbance, decreased appetite, and mood changes, which cause difficulty in carrying out important activities and can contribute to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective pain management.

Chronic pain affects over 100 million adults in the United States and more than 1.5 billion people worldwide. The estimated incremental impact of chronic pain on health care costs in the United States is over $250 billion per year and lost productivity is estimated to exceed $300 billion per year. The most common approach to chronic pain management is pain medication. This includes over-the-counter (OTC) internal and external analgesics as well as prescription pain medications, both non-opioid and opioid. The approach to treatment is individualized, drug combinations may be employed, and the results are often ~~hit or miss.~~inadequate. Side effects, ~~and~~including the potential for addiction, are ~~real and the risks are~~ substantial. Increasingly, ~~federal, state and private-payer~~ restrictions are being imposed on access to prescription ~~opioids as a response to those risks.~~opioids. Reflecting the complexity of chronic pain and the difficulty in treating it, we believe that inadequate relief leads 25% to 50% of pain sufferers to seek alternatives to prescription pain medications. These alternatives include ~~nutritional supplements,~~nutraceuticals, acupuncture, chiropractic care, non-prescription analgesics, electrical stimulators, braces, sleeves, pads and other items. In total, these pain relief products and services account for approximately $20 billion in annual out-of-pocket spending in the United States.

Nerve stimulation is a ~~well-established~~long-established category of treatment for chronic pain. This treatment approach is available through implantable spinal cord stimulation requiring surgery with its attendant risks. Non-invasive approaches involving transcutaneous electrical nerve stimulation (TENS) have achieved limited efficacy in practice due to device limitations, ineffective dosing and low patient adherence. ~~Our~~

Quell is our wearable ~~technology~~TENS device for ~~chronic~~knee, foot and leg pain ~~addresses these limitations~~that is available over-the-counter and ~~has resulted in quality of life improvements for many chronic pain sufferers who have~~is sold primarily via our e-commerce platform, www.QuellRelief.com. It can be used during the ~~product, which we have determined through post-market analysis of user data submitted to us for research purposes~~day while active and at night while sleeping. Users can personalize and manage therapy discreetly via the mobile app for iPhone and Android smartphones. Quell ~~App,~~is also a pain management solution with pain, activity, and gait tracking. It is covered by 15 U.S. patents and is currently employed in two clinical studies funded by the National Institutes of Health (NIH) addressing fibromyalgia and chemotherapy induced peripheral neuropathy (CIPN). Over the past year we restructured the Quell commercial model to achieve a positive net operating contribution after direct costs. As we gain confidence with our core commercial model and demonstrate our capability to promote Quell in a cost-efficient manner, our focus will shift to expanding the Quell user ~~reviews.~~group. This may involve disease-specific application of this technology in areas related to our current clinical study program.

~~Diabetes~~Both DPNCheck and Quell are sophisticated neurotechnology products that are unique in their markets. Our goal for both products is ~~a worldwide epidemic with an estimated affected population~~the same: to optimize market positioning and financial performance for the benefit of ~~over 400 million people. Within the United States there are over 30 million people with diabetes and another 80 million people with pre-diabetes. The annual direct cost of~~our shareholders. We also continue to supply consumables for ADVANCE, our legacy nerve conduction testing system.

treating diabetes in the United States exceeds $100 billion. Although there are dangerous acute manifestations of diabetes, the primary burden of the disease is in its long-term complications which include cardiovascular disease, nerve disease and resulting conditions such as foot ulcers which may require amputation, eye disease leading to blindness, and kidney failure. The most common long-term complication of diabetes affecting over 50% of the diabetic population is nerve disease or diabetic neuropathy. Diabetic peripheral neuropathy (DPN) is the primary trigger for diabetic foot ulcers which may progress to the point of requiring amputation. People with diabetes have a 15-25% lifetime risk of foot ulcers and approximately 15% of foot ulcers lead to amputation. Foot ulcers are the most expensive complication of diabetes with a typical cost of $5,000 to $50,000 per episode. In addition, between 16% and 26% of people with diabetes suffer from chronic pain in their feet and lower legs.

In 2018, we entered into a collaboration with GlaxoSmithKline ("GSK"). The GSK collaboration established a framework for the joint development of the next generation of Quell, launched in the United States in September 2018, and to be launched by GSK internationally, and the assignment of areas of marketing responsibility. The initial term of the GSK collaboration runs through 2020. Through September 30, 2019, GSK has paid us $19.9 million in milestone payments and has contributed $1.3 million toward development costs. A total of $5.1 million in milestone payments, both development and commercial, remain outstanding under the collaboration agreements.

Results of Operations

Comparison of Quarters Ended September 30, ~~2019~~2020 and ~~2018~~2019

Revenues

Quarters Ended September 30,
2019 2018 Change % Change
(in thousands)
Revenues $ 2,088.0
$ 3,666.8
$ (1,578.8 ) (43.1 )%



	Quarters Ended September 30,
	2020		2019		Change			% Change
	(in thousands)
Revenues	$	2,036.2	$	2,088.0	$	(51.8	)	(2.5	)%

Revenues include sales ~~from~~of Quell, DPNCheck and ~~our legacy neurodiagnostic products.~~ADVANCE to physician offices, clinics, hospitals, other healthcare providers and insurers, as well as domestic and international distributors. Revenues comprise sales of medical devices as well as aftermarket electrodes and other supplies. Revenues were ~~$2.1 million and $3.7~~$2.0 million during the third quarters of ~~2019~~2020 and ~~2018, respectively. Quell revenues~~2019. Revenues during the quarter ending September 30, 2020 were adversely affected by the economic effects of ~~$0.8 million~~the COVID-19 pandemic. A recovery trend in customer orders and shipment volume was observed beginning late in the second quarter which continued during the third quarter of ~~2019 declined from $2.2 million, in the comparable 2018 period reflecting reduced advertising spending and an emphasis on the profitability of Quell sales.~~2020. This trend particularly benefited DPNCheck ~~revenues were $1.0 million and $1.1 million in the third quarters of 2019 and 2018, respectively. Legacy products contributed $0.3 million of revenue in the third quarters of 2019 and 2018.~~sales into U.S. Medicare Advantage accounts.

Cost of Revenues and Gross Profit


	Quarters Ended September 30,									Quarters Ended September 30,
	2019		2018		Change			% Change		2020		2019		Change			% Change
	(in thousands)									(in thousands)
Cost of revenues	$	914.3	$	1,821.1	$	(906.8	)	(49.8	)%	$	537.6	$	914.3	$	(376.7	)	(41.2	)%

Gross profit	$	1,173.7	$	1,845.7	$	(672.0	)	(36.4	)%	$	1,498.6	$	1,173.7	$	324.9		27.7	%

Gross margin was ~~56.2%~~73.6% in the third quarter of ~~2019~~2020 versus ~~50.3%~~56.2% in the same period in the prior year. The margin improvement ~~of 590 basis points or 12%~~in 2020 was due to improved profitability of Quell sales and increased weighting of ~~our high margin~~ DPNCheck ~~business~~ within total revenue.

Operating Expenses


	Quarters Ended September 30,									Quarters Ended September 30
	2019		2018		Change			% Change		2020		2019		Change			% Change
	(in thousands)									(in thousands)
Operating expenses:
Research and development	$	475.1	$	1,178.5	$	(703.4	)	(59.7	)%	$	652.7	$	475.1	$	177.6		37.4	%
Sales and marketing	647.7		2,334.3		(1,686.6		)	(72.3	)%	340.9		647.7		(306.8		)	(47.4	)%
General and administrative	1,462.9		1,015.5		447.4			44.1	%	762.9		1,462.9		(700.0		)	(47.9	)%
Total operating expenses	$	2,585.7	$	4,528.3	$	(1,942.6	)	(42.9	)%	$	1,756.5	$	2,585.7	$	(829.2	)	(32.1	)%

Research and Development

Research and development expense in the third quarter of ~~2019 decreased~~2020 increased by ~~59.7%~~37.4% from the same period in the prior year due to ~~GSK's co-funding $0.4 million in the third quarter~~increased spending of ~~2019 of Quell development costs. In addition, personnel~~$144,000 on consulting costs, and $74,000 on clinical costs and fees. Personnel related costs decreased by ~~$0.2 million due to business restructuring.~~$28,000 and facility and supply costs decreased by $10,000.

Sales and Marketing

Sales and marketing expense in the third quarter of ~~2019~~2020 decreased by ~~72.3%~~47.4% from the same period in the prior year due to a ~~$1.2 million~~$141,000 reduction in ~~Quell~~ advertising spending and a ~~$0.2 million~~$26,000 reduction in consulting spending. In addition, personnel related costs decreased by ~~$0.3 million due to business restructuring.~~$130,000 and facility and supply costs decreased by $10,000.

General and Administrative

General and administrative expense in the third quarter of ~~2019 increased~~2020 decreased by ~~44.1%~~47.9% from the same period in the prior year due to ~~an increase~~a reduction of ~~$0.3 million~~$85,000 in personnel related costs, a reduction of $393,000 in outside professional service costs, primarily legal, a decrease of $165,000 in consulting spending and ~~an increase~~a reduction of ~~$0.1 million in non-cash stock compensation expense.~~facility and supply costs of $57,000.

~~Collaboration income~~

Quarters Ended September 30,
2019 2018 Change % Change
(in thousands)

Collaboration income $ —
$ 3,750.0
$ (3,750.0 ) (100.0 )%

~~Collaboration income includes milestones funded by GSK under the Quell Collaboration.~~

Other income

Quarters Ended September 30,
2019 2018 Change % Change
(in thousands)

Other income $ 7.5
$ 18.7
$ (11.2 ) (59.9 )%



	Quarters Ended September 30,
	2020		2019		Change			% Change
	(in thousands)

Other income	$	0.8	$	7.5	$	(6.7	)	(89.3	)%

Other income primarily includes interest income.

Comparison of Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Revenues

Nine Months Ended September 30,
2019 2018 Change % Change
(in thousands)
Revenues $ 7,565.6
$ 12,361.3
$ (4,795.7 ) (38.8 )%



	Nine Months Ended September 30,
	2020		2019		Change			% Change
	(in thousands)
Revenues	$	5,568.2	$	7,565.6	$	(1,997.4	)	(26.4	)%

Revenues include sales ~~from~~of Quell, DPNCheck and ~~our legacy neurodiagnostic products.~~ADVANCE to physician offices, clinics, hospitals, other healthcare providers and insurers, as well as domestic and international distributors. Revenues comprise sales of medical devices as well as aftermarket electrodes and other supplies. Revenues were ~~$7.6~~$5.6 million and ~~$12.4~~$7.6 million during the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. ~~Quell revenues of $3.2 million in~~Revenues during the nine ~~months~~month period ended September 30, ~~2019 declined from $7.7 million~~2020 were adversely affected by the economic effects of the COVID-19 pandemic. A recovery trend in customer orders and shipment volume was observed beginning late in the ~~comparable period~~second quarter which continued during the third quarter of ~~2018 reflecting reduced advertising spending and an emphasis on the profitability of Quell sales.~~2020. This trend particularly benefited DPNCheck ~~revenues were $3.4 million and $3.6 million~~sales in the nine months ended September 30, 2019 and 2018, respectively. Legacy products contributed $1.0 million and $1.1 million of revenue in the nine months ended September 30, 2019 and 2018, respectively.U.S. Medicare Advantage accounts.

Cost of Revenues and Gross Profit


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2019		2018		Change			% Change		2020		2019		Change			% Change
	(in thousands)									(in thousands)
Cost of revenues	$	6,382.3	$	6,726.7	$	(344.4	)	(5.1	)%	$	1,652.9	$	6,382.3	$	(4,729.4	)	(74.1	)%

Gross profit	$	1,183.3	$	5,634.6	$	(4,451.3	)	(79.0	)%	$	3,915.4	$	1,183.3	$	2,732.1		230.9	%

~~Gross~~Our gross profit margin was ~~15.6%~~70.3% in the nine months ended September 30, ~~2019~~2020 versus ~~45.6%~~15.6% in the same period in the prior year. The ~~lower~~unusually low gross ~~profit~~ margin in 2019 ~~results from charges in the first six months~~reflected an inventory charge of ~~2019 totaling~~ $2.6 million ~~to write down~~as part of restructuring the Quell ~~inventory to net realizable value.~~business. Excluding ~~these charges~~this charge, the gross ~~profit~~ margin rate in 2019 was 50.0% ~~and 45.6% for the first nine months of 2019 and 2018, respectively, which reflects~~. The margin improvement in 2020 was due to improved profitability of Quell sales and ~~the increased~~higher weighting of DPNCheck business within ~~revenue of the higher margin DPNCheck business.~~total revenue.

Operating Expenses


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2019		2018		Change			% Change		2020		2019		Change			% Change
	(in thousands)									(in thousands)
Operating expenses:
Research and development	$	2,365.1	$	4,074.9	$	(1,709.8	)	(42.0	)%	$	1,846.6	$	2,365.1	(518.5		)	(21.9	)%
Sales and marketing	4,047.0		7,039.9		(2,992.9		)	(42.5	)%	1,144.4		4,047.0		(2,902.6		)	(71.7	)%
General and administrative	4,646.9		3,990.3		656.6			16.5	%	2,693.1		4,646.9		(1,953.8		)	(42.0	)%
Total operating expenses	$	11,059.0	$	15,105.1	$	(4,046.1	)	(26.8	)%	$	5,684.1	$	11,059.0	$	(5,374.9	)	(48.6	)%

Research and Development

Research and development expense in the nine months ended September 30, ~~2019~~2020 decreased by ~~42.0%~~21.9% from the same period in the prior year due to ~~GSK's co-funding~~reduced personnel related costs of ~~$1.3 million~~$676,000, a reduction in ~~the nine months ended September 30, 2019~~professional fees of ~~Quell development costs,~~$105,000 and a decrease of ~~$0.2 million in~~facility and supply costs of $105,000. The reductions were offset with increased consulting ~~expense,~~ and ~~a $0.2 million decrease in~~ clinical ~~study expense.~~spending of $378,000.

Sales and Marketing

Sales and marketing expense in the nine months ended September 30, ~~2019~~2020 decreased by ~~42.5%~~71.7% from the same period in the prior year reflecting a ~~$2.6 million~~ reduction in ~~Quell~~ advertising and promotion spending of $1.4 million. In addition, consulting costs decreased by $751,000, personnel related costs decreased by $621,000 and ~~$0.4 million reduction in personnel~~facility and supply costs ~~associated with the business restructuring.~~decreased by $130,000.

General and Administrative

General and administrative expense in the nine months ended September 30, ~~2019 increased~~2020 decreased by ~~16.5%~~42.0% from the same period in the prior year ~~primarily~~ due to a ~~$0.5~~reduction of $156,000 in personnel related costs, a reduction of $1.5 million ~~increase~~ in professional ~~services and consulting~~service costs, primarily legal, and ~~$0.2 million~~a decrease in ~~employee severance~~facility and ~~relocation~~supply costs ~~associated with the business restructuring,~~of $462,000. The reductions were partially offset ~~by a $0.1 million decrease in stock-based compensation expense.~~with increased insurance costs of $238,000.

Collaboration income

Nine Months Ended September 30,
2019 2018 Change % Change
(in thousands)

Collaboration income $ 7,116.7
$ 12,255.7
$ (5,139.0 ) (41.9 )%



	Nine Months Ended September 30,
	2020		2019		Change			% Change
	(in thousands)

Collaboration income	$	—	$	7,116.7	$	(7,116.7	)	(100.0	)%

Collaboration income ~~includes~~in 2019 included development milestones funded by ~~GSK~~GlaxoSmithKline (GSK) under a Quell collaboration agreement. Total development milestones received under the ~~Quell Collaboration.~~GSK collaboration since initiation in early 2018 were approximately $20.5 million.

Other income

Nine Months Ended September 30,
2019 2018 Change % Change
(in thousands)

Other income $ 42.8
$ 41.0
$ 1.8
4.5 %



	Nine Months Ended September 30,
	2020		2019		Change			% Change
	(in thousands)

Other income	$	2.3	$	42.8	$	(40.5	)	(94.6	)%

Other income primarily includes interest income.

Liquidity and Capital Resources

Our principal source of liquidity is cash and cash equivalents of ~~$3.2~~$4.9 million at September 30, ~~2019.~~2020. Funding for our operations largely depends on revenues from the sale of our commercial ~~products, and on achievement of milestones under the GSK collaboration.~~products. A low level of market interest in ~~Quell or DPNCheck,~~our products, a decline in our consumables sales, unanticipated increases in our operating costs, ~~or unanticipated setbacks toward~~and the ~~achievement~~adverse effects of the ~~GSK milestones would~~COVID-19 pandemic could have an adverse effect on our liquidity and cash.

September 30, 2019 December 31, 2018 Change % Change
(in thousands)

Cash and cash equivalents $ 3,186.6
$ 6,780.4
$ (3,593.8 ) (53.0 )%



	September 30, 2020		December 31, 2019		Change		% Change
	(in thousands)

Cash and cash equivalents	$	4,929.2	$	3,126.2	$	1,803	57.7	%

During the nine months ended September 30, ~~2019,~~2020, our cash and cash equivalents ~~decreased~~increased by ~~$3.6~~$1.8 million reflecting ~~$8.7~~net proceeds of $4.1 million from common stock sales under our ATM program partially offset by $2.3 million in cash used in operating ~~activities, partially offset by the net proceeds of $5.2 million provided by the GSK collaboration.~~activities.

We are party to a Loan and Security Agreement with a bank. As of September 30, 2019 this credit facility permitted us to borrow up to $2.5 million on a revolving basis. Amounts borrowed under the credit facility bear interest equal to the prime rate plus 0.5% and are collateralized by cash, accounts receivable, inventory, and equipment. The credit facility includes traditional lending and reporting covenants. We were in compliance with these covenants at September 30, 2019.

In managing working capital, we focus on two important financial measurements:


	Quarters Ended September 30,		Year Ended December 31,	Quarters Ended September 30,		Year Ended December 31,
	2019	2018	2018	2020	2019	2019

Days sales outstanding (days)	27	34	39	23	27	27
Inventory turnover rate (times per year)	2.3	2.9	3.5	1.9	2.3	3.5

Days sales outstanding (DSO) reflect customer payment terms which vary from payment on order to 60 days from invoice date. DSO improved to 23 days during the quarter ended September 30, 2020 versus 27 days in the prior year period. This was attributable to improved collection rates on receivables with payment terms.

The inventory turnover rate ~~of 2.3~~decelerated to 1.9 turns in the third quarter of ~~2019~~2020 versus 2.3 turns in the prior year period. This reflected lower ~~Quell sales.~~sales on approximately constant inventory levels in the comparable periods.

The following sets forth information relating to our sources and uses of our cash:


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Net cash used in operating activities (excluding collaboration income)	$	(8,720.2	)	$	(8,672.1	)	$	(2,348.1	)	$	(6,582.4	)
Net cash provided by collaboration income	5,160.1			12,255.7			—			4,760.1
Net cash (used in) provided by operating activities	$	(3,560.1	)	$	3,583.6
Net cash used in operating activities							(2,348.1		)	(3,560.1		)
Net cash used in investing activities							—			(41.2		)
Net cash provided by financing activities							4,151.0			7.5
Net cash (used) provided							$	1,802.9		$	(3,593.8	)

During the nine months ended September 30, ~~2019,~~2020, our operating activities consumed ~~$8.7~~$2.3 million of cash offset by ~~$5.2~~$4.1 million in net proceeds from sales of ~~collaboration income.~~common stock.

We have ~~suffered~~reported 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 ~~$3.2~~$4.9 million as of September 30, ~~2019.~~2020. We believe that these resources ~~future GSK collaboration milestone payments,~~ and the cash to be generated from future product sales will be sufficient to meet our projected operating requirements ~~through 2019.~~into the fourth quarter of 2021. Accordingly, we ~~will~~may need to raise additional funds to support our operating and capital needs in ~~2020.~~ the fourth quarter of 2021 and beyond.

We continue to face ~~significant~~ challenges and uncertainties. Among these uncertainties ~~and, as~~is the future effect on the Company's business of the COVID-19 pandemic which, from late in the first quarter of 2020 through the third quarter of 2020, depressed sales of the Company's products. As a result, our available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of our products, including decreases in customer orders related to the COVID-19 pandemic, and the uncertainty of future revenues from new products; (b) the effect of the COVID-19 pandemic on our ability to obtain parts and materials from our suppliers while continuing to staff critical production and fulfillment functions, (c) changes we may make to the business that affect ongoing operating expenses; ~~(c)~~(d) changes we may make in our business strategy; ~~(d)~~(e) regulatory developments affecting our existing products; ~~(e)~~(f) changes we may make in our research and development spending plans; ~~(f) delays in the timing of achieving GSK milestones;~~and (g) ~~the final outcome of the Federal Trade Commission civil investigative demand enforcement action involving Quell; and (h)~~ other items affecting our forecasted level of expenditures and use of cash resources. We may attempt 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. However, we may not be able to secure such funding in a timely manner or on favorable terms, if at all.

We ~~filed~~maintain a shelf registration statement on Form S-3 with the SEC covering shares of our common stock and other securities for sale, giving us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. Pursuant to the instructions to Form S-3, we have the ability to sell shares under the shelf registration statement, during any 12-month period, in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates. If we raise additional funds by issuing equity or debt securities, either through the sale of securities pursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds, we may be forced to delay, scale back or eliminate some of our 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 our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

Our common stock is quoted on the Nasdaq Capital Market under the symbol “NURO.” One of the requirements for continued listing on the Nasdaq Capital Market is maintenance of a minimum closing bid price of $1.00. The closing bid price of our common stock on the Nasdaq Global Market was $0.33 on October 11, 2019.

On June 3, 2019, we received a notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share required for continued inclusion in the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter states that pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company will be afforded 180 calendar days, or until December 2, 2019, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Company’s common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. If we do not regain compliance by December 2, 2019, Nasdaq will provide written notification to us that our common stock will be delisted. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Listing Qualifications Panel. Alternatively, we may be eligible for an additional 180 day grace period if we satisfy all of the requirements, other than the minimum bid price requirement, for listing on The Nasdaq Capital Market set forth in Nasdaq Listing Rule 5505. The notification letter has no effect at this time on the listing of our common stock on the Nasdaq Capital Market.

As a part of our efforts to regain compliance with Nasdaq Capital Market requirements, we intend to seek shareholder approval authorizing our Board of Directors to execute a reverse stock split, should they deem it advisable, in the range of 1:4 to 1:10 at our special meeting scheduled for November 12, 2019.

Off-Balance Sheet Arrangements, Contractual Obligation and Contingent Liabilities and Commitments

As of September 30, ~~2019,~~2020, we did not have any off-balance sheet financing arrangements.

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 required that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. We adopted ASU 2016-02, using the modified retrospective method, upon its effective date of January 1, 2019. The impact of adoption was an increase to long-term assets and total liabilities of approximately $1.9 million as of January 1, 2019.

Cautionary Note Regarding Forward-Looking Statements

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, the effect of the COVID-19 pandemic on our operating capabilities, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to manage our expenses 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; ~~the final outcome of the FTC civil investigative demand enforcement action, which is ongoing;~~ 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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.

Item 4. Controls and Procedures

(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 September 30, ~~2019,~~2020, 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.

(b) Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the quarter ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

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, ~~2018 other than~~2019 or our Quarterly Report on Form 10-Q for the ~~updated risk factors noted below.~~

We are subject to Federal Trade Commission regulatory oversight. Exercise of this regulatory oversight could lead to an outcome which would constrain our marketing of Quell, cause us to incur significant costs and penalties, and adversely affect our financial results.

Under the Federal Trade Commission Act (“FTC Act”), the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce. The FTC has very broad enforcement authority, and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result in substantial administrative or judicial penalties, including civil penalties, or injunctions affecting the manner in which we would be able to market Quell in the future.

We are focused on the commercialization within the United States of Quell, our over-the-counter, or OTC, wearable device for chronic pain. We cannot assure you that we will be successful in this field or that our current commercial product for peripheral neuropathy, DPNCheck, or the product candidates or product enhancements in our development pipeline, will be successful.

We are focused on the commercialization within the United States of Quell, our OTC wearable device for pain relief. Quell is based on our prescription product for pain relief, SENSUS. Quell has been on the market since June 2015 and we have shipped over 180,000 Quell devices through the end of 2018. We are also focused on the growth of DPNCheck which is a quantitative nerve conduction test for peripheral neuropathies such as DPN. Our future prospects are closely tied to our success with Quell and DPNCheck, which, in turn, depend upon market acceptance and growth in future revenues and margins. We cannot assure you that our commercialization strategy will be successful. If our strategy is not successful, it could materially affect our revenues and results of operations.

In 2019 we completed an in-depth review of our Quell strategy, which has provided important insights on our target markets, points of differentiation in customer messaging, and possible changes in product pricing and positioning. We are making changes to our Quell commercialization strategy as a result, and the effect of these changes is uncertain. Further, there may be changes to our commercialization strategy that would be desirable from an operational perspective that we are unable to make due to constraints on our resources or otherwise.

~~Our future success could be adversely affected by a number of factors, including:~~

~~inability to efficiently create market demand for Quell at profitable pricing levels through our digital marketing efforts, or any other marketing efforts we may adopt;~~

~~changes we may make to our pricing and marketing strategy with respect to Quell or our other products;~~

~~manufacturing issues with Quell or our other products;~~

~~inability to increase adoption of DPNCheck within the Medicare Advantage market and Outside the United States (OUS) markets;~~

~~regulatory inquiries or issues affecting our products;~~

~~unfavorable changes to current Medicare, Medicare Advantage and commercial payer payment policies;~~

~~changes to payor policies under the Patient Protection and Affordable Care Act;~~

~~the outcome of the ongoing FTC investigation regarding Quell advertising;~~

~~unfavorable experiences by patients and physicians using Quell and our other products; and,~~

~~physicians’ or patients' reluctance to alter their existing practices and adopt the use of our devices.~~

~~If we are unable to expand market demand for Quell and DPNCheck, our ability to increase our revenues will be limited and our business prospects will be adversely affected.~~

If we fail to continue to meet all applicable Nasdaq Capital Market requirements and the Nasdaq Stock Market determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and harm our business.

Our common stock is currently listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements. On June 3, 2019, we received a notice from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share required for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). The notification letter states that pursuant to Nasdaq Listing Rule 5810(c)(3)(A) the Company will be afforded 180 calendar days, or until December 2, 2019, to regain compliance with the minimum bid price requirement. In order to regain compliance, shares of the Company’s common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days. If we do not regain compliance by December 2, 2019, Nasdaq will provide written notification to us that our common stock will be delisted. At that time, we may appeal Nasdaq’s delisting determination to a Nasdaq Listing Qualifications Panel. Alternatively, we may be eligible for an additional 180 day grace period if we satisfy all of the requirements, other than the minimum bid price requirement, for listing on the Nasdaq Capital Market set forth in Nasdaq Listing Rule 5505.

While we intend to engage in efforts to regain compliance, and thus maintain our listing, there can be no assurance that we will be able to regain compliance during the applicable time periods set forth above. If we fail to continue to meet all applicable Nasdaq Capital Market requirements in the future and Nasdaq determines to delist our common stock, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all, for the continuation of our operations; and harm our business. Additionally, the market price of our common stock may decline further and stockholders may lose some or all of their investment. The closing bid price of our common stock on the Nasdaq Capital Market was $0.33 on October 11, 2019.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~The Company expended $2,391 to repurchase 38,506 warrants to purchase its common stock traded on Nasdaq under the symbol NUROW. The repurchase program has ended.~~

Item 6. Exhibits

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.

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.



		NEUROMETRIX, INC.

October ~~17, 2019~~22, 2020	/s/	SHAI N. GOZANI, M.D., PH. D.
		Shai N. Gozani, M.D., Ph. D.
		Chairman, President and Chief Executive Officer

October ~~17, 2019~~22, 2020	/s/	THOMAS T. HIGGINS
		Thomas T. Higgins
		Senior Vice President, Chief Financial Officer and Treasurer

EXHIBIT INDEX



Exhibit No.		Description

~~10.1~~		~~Twelfth Modification to Loan and Security Agreement with Comerica Bank, dated June 21, 2019. Filed herewith.~~

31.1		Certification of Principal Executive Officer Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. Filed herewith.

31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

32		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule ~~13a-14(a)~~13a-14(b) or Rule ~~15d-14(a)~~15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. Furnished herewith.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, (ii) Statements of Operations for the quarter and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, (iii) Statements of Changes in Stockholders' Equity for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, (iv) Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, and (v) Notes to Financial Statements.



	As reported		Adjustments			Amounts under prior GAAP
Assets
Prepaid expenses and other current assets	$	672,487	$	23,902		$	696,389
Total current assets	$	6,635,857	$	23,902		$	6,659,759
Right of use asset	$	1,541,975	$	(1,541,975	)	$	—
Other long-term assets	$	29,650	$	38,872		$	68,522
Total assets	$	8,506,777	$	(1,479,201	)	$	7,027,576

Liabilities
Accrued expenses	$	2,612,907	$	(460,693	)	$	2,152,214
Total current liabilities	$	3,914,759	$	(460,693	)	$	3,454,066
Lease obligation - net of current portion	$	1,018,508	$	(1,018,508	)	$	—
Total liabilities	$	4,933,267	$	(1,479,201	)	$	3,454,066



��	September 30, 2019
Severance obligations:
Provision	$	224,773
Amounts paid out	(224,773		)
Total	—
Relocation costs:
Provision	225,000
Amounts paid out	(100,000		)
Total	125,000

Balance - September 30, 2019	$	125,000