NeuroMetrix, Inc.
NeuroMetrix, Inc. (Form: 10-Q, Received: 07/26/2013 13:18:06)

 

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 June 30, 2013

 

OR

 

¨ 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)  
   
62 Fourth Avenue, Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)

 

(781) 890-9989

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  x     No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes x     No ¨

 

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

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
    (Do not check if a smaller  
    reporting company)  

 

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:

2,636,142 shares of common stock, par value $0.0001 per share, were outstanding as of July 18, 2013.

 

 
 

 

NeuroMetrix, Inc.

Form 10-Q

Quarterly Period Ended June 30, 2013

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION  
       
Item 1.   Financial Statements:  
       
    Balance Sheets (unaudited) as of June 30, 2013 and December 31, 201 2 2
       
    Statements of Operations (unaudited) for the quarters and six months ended June 30, 2013 and 20 12 3
       
    Statements of Cash Flows (unaudited) for the six months ended June 30, 2013 and 201 2 4
       
    Notes to Unaudited Financial Statements 5
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
       
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 20
       
Item 4.   Controls and Procedures 20
       
PART II – OTHER INFORMATION  
       
Item 1.   Legal Proceedings 20
       
Item 1A.   Risk Factors 20
       
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 21
       
Item 3.   Defaults Upon Senior Securities 21
       
Item 4.   Mine Safety Disclosures 21
       
Item 5.   Other Information 21
       
Item 6.   Exhibits 21
       
Signatures 22

 

1
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

NeuroMetrix, Inc.

Balance Sheets

(Unaudited)

 

    June 30,
2013
    December 31,
2012
 
             
Assets                
Current assets:                
Cash and cash equivalents   $ 9,586,435     $ 8,699,478  
Accounts receivable, net     562,063       566,451  
Inventories     753,944       834,526  
Prepaid expenses and other current assets     305,615       462,503  
Current portion of deferred costs     6,935       10,108  
Total current assets     11,214,992       10,573,066  
Fixed assets, net     230,566       293,897  
Deferred costs and other long-term assets     3,098       10,484  
Total assets   $ 11,448,656     $ 10,877,447  
                 
Liabilities and Stockholders’ Equity                
Current liabilities:                
                 
Accounts payable   $ 208,498     $ 257,361  
Accrued compensation     716,780       647,288  
Accrued expenses     1,061,168       948,843  
Current portion of deferred revenue     117,930       134,185  
Current portion of capital lease obligation     7,283       17,929  
Total current liabilities     2,111,659       2,005,606  
Deferred revenue, net of current portion     41,225       71,419  
Common stock warrants     2,855,209        
Total liabilities     5,008,093       2,077,025  
                 
Commitments and contingencies (Note 7)                
                 
Stockholders’ equity:                
Preferred stock, $0.001 par value; 5,000,000 shares authorized at June 30, 2013 and December 31, 2012:                
Convertible preferred stock; 4,438 and 0 shares designated at June 30, 2013 and December 31, 2012, respectively, and 4,436.764 and 0 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     4        
Common stock, $0.0001 par value; 50,000,000 shares authorized; 2,505,071 and 2,140,871 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively     251       214  
Additional paid-in capital     148,632,496       147,393,151  
Accumulated deficit     (142,192,188 )     (138,592,943 )
Total stockholders’ equity     6,440,563       8,800,422  
Total liabilities and stockholders’ equity   $ 11,448,656     $ 10,877,447  

 

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

 

2
 

 

NeuroMetrix, Inc.

Statements of Operations

(Unaudited)

 

    Quarters Ended
June 30,
    Six Months Ended
June 30,
 
    2013     2012     2013     2012  
                         
Revenues   $ 1,160,472     $ 2,205,831     $ 2,561,926     $ 4,287,373  
                                 
Cost of revenues     501,161       983,350       1,070,945       2,118,294  
                                 
Gross profit     659,311       1,222,481       1,490,981       2,169,079  
                                 
Operating expenses:                                
Research and development     913,847       1,020,726       1,987,266       1,998,792  
Sales and marketing     880,218       1,595,642       1,660,059       3,129,743  
General and administrative     992,160       1,382,268       2,225,754       2,573,332  
                                 
Total operating expenses     2,786,225       3,998,636       5,873,079       7,701,867  
                                 
Loss from operations     (2,126,914 )     (2,776,155 )     (4,382,098 )     (5,532,788 )
                                 
Interest income     1,394       4,027       3,163       8,325  
Warrants offering costs     (376,306 )           (376,306 )      
Change in fair value of warrant liability     1,155,996             1,155,996        
                                 
Net loss   $ (1,345,830 )   $ (2,772,128 )   $ (3,599,245 )   $ (5,524,463 )
                                 
Net loss per common share applicable to common stockholders, basic and diluted (See Note 3, Net Loss per Common Share)   $ (0.92 )   $ (1.32 )   $ (1.97 )   $ (3.17 )
                                 
Weighted average number of common shares outstanding, basic and diluted     2,299,463       2,094,487       2,215,658       1,740,325  

 

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

 

3
 

 

NeuroMetrix, Inc.

Statements of Cash Flows

(Unaudited)

 

   

Six Months Ended

June 30,

 
    2013     2012  
Cash flows from operating activities:                
Net loss   $ (3,599,245 )   $ (5,524,463 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     79,299       136,566  
Stock-based compensation     96,107       157,586  
Inventory charges     77,642       258,848  
Warrants offering costs     376,306      
Change in fair value of warrant liability     (1,155,996 )      
Changes in operating assets and liabilities:                
Accounts receivable     4,388       391,044  
Inventories     2,940       427,702  
Prepaid expenses and other current assets     156,888       30,474  
Accounts payable     (48,863 )     (164,273 )
Accrued expenses and compensation     383,263       (373,513 )
Deferred revenue, deferred costs, and other     (35,890 )     32,432  
Net cash used in operating activities     (3,663,161 )     (4,627,597 )
                 
Cash flows from investing activities:                
Purchases of fixed assets     (15,968 )     (28,892 )
Release of restricted cash           229,500  
Net cash (used in) provided by investing activities     (15,968 )     200,608  
                 
Cash flows from financing activities:                
Net proceeds from issuance of stock and equity     4,576,732       7,471,370  
Payments on capital lease     (10,646 )     (10,003 )
Net cash provided by financing activities     4,566,086       7,461,367  
                 
Net increase in cash and cash equivalents     886,957       3,034,378  
Cash and cash equivalents, beginning of period     8,699,478       10,290,446  
Cash and cash equivalents, end of period   $ 9,586,435     $ 13,324,824  
                 
Supplemental disclosure of cash flow information:                
Common stock issued to settle incentive compensation obligation   $ 285,296     $  
Warrants issued under Securities Purchase Agreement recorded as a non-current liability   $ 4,011,205     $  
Common stock issued in exchange for warrants   $     $ 127,885  

 

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

 

4
 

 

NeuroMetrix, Inc.

Notes to Unaudited Financial Statements

June 30, 2013

 

1. Business and Basis of Presentation

 

Our Business-An Overview

 

NeuroMetrix, Inc., or the Company, a Delaware corporation, was founded in June 1996. The Company is a medical device company focused on the neurological complications of diabetes. The Company believes that its substantial experience in developing medical devices to stimulate and measure peripheral nerve function uniquely position it to address unmet medical needs related to diabetic neuropathy. Neuropathy is a common and serious, often painful, complication of diabetes that may lead to foot ulcers and limb amputation. The Company has over a decade of experience in neuropathy detection, starting with approval in 1998 by the United States Food and Drug Administration, or FDA, of the NC-stat System, a point-of-care device for the performance of general purpose nerve conduction studies.

 

In the first quarter of 2013, the Company completed product development and launched the SENSUS™ Pain Management System, or SENSUS, which is designed for relief of chronic, intractable pain. The Company believes this product will be a ttractive to pain medicine physicians, neurologists, endocrinologists, podiatrists, primary care physicians, and other physicians that are challenged with trying to manage pain in their patients with painful diabetic neuropathy, or PDN and other forms of neuropathic pain. The Company also markets the NC-stat ®  DPNCheck ®  device, which is a fast, accurate, and quantitative nerve conduction test that is used to evaluate systemic neuropathies such as diabetic peripheral neuropathy, or DPN. NC-stat DPNCheck is designed to be used by endocrinologists, podiatrists, primary care physicians and other clinicians at the point-of-care to objectively detect, stage, and monitor DPN. Sales efforts for NC-stat DPNCheck are currently targeted at opportunities in the managed care market. The Company’s historical neurodiagnostic business is based on the ADVANCE™ NCS/EMG System, or the ADVANCE System, which is a comprehensive platform for the performance of traditional nerve conduction studies and invasive electromyography procedures and which is primarily used in physician offices and clinics. While the ADVANCE System contributes the majority of the Company’s revenues, the Company is not actively managing the ADVANCE business for growth.

 

On June 4, 2013, the Company entered into a Securities Purchase Agreement, as amended (the “Purchase Agreement”), providing for the issuance of (i) 248,147 shares of common stock at a price of $2.095 per share, (ii) 1,066.254 shares of Series A-1 convertible preferred stock (the “Series A-1 Preferred Stock”) at a price of $1,000 per share, (iii) 3,370.510 shares of Series A-2 convertible preferred stock (the “Series A-2 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Preferred Stock”) at a price of $1,000 per share, and (iv) five year warrants to purchase up to 2,365,934 shares of common stock with an exercise price of $2.00 per share (the “2013 Offering”). Each share of Preferred Stock is convertible into 477.327 shares of common stock, subject to adjustment, at any time at the option of the holder. The 2013 Offering resulted in approximately $5.0 million in gross proceeds, before deducting placement agent fees and other expenses. Net proceeds from the 2013 Offering were approximately $4.6 million. See Note 10, Stockholders’ Equity, for further details.

 

The Company held cash and cash equivalents of $9.6 million as of June 30, 2013. The Company believes that these resources and the cash to be generated from expected product sales will be sufficient to meet its projected operating requirements into the third quarter of 2014. The Company continues to face significant challenges and uncertainties and, as a result, the Company’s available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of the Company’s products and the uncertainty of future revenues from new products; (b) changes the Company may make to the business that affect ongoing operating expenses; (c) changes the Company may make in its business strategy; (d) regulatory developments affecting the Company’s existing products and delays in the FDA approval process for products under development; (e) changes the Company may make in its research and development spending plans; and (f) other items affecting the Company’s forecasted level of expenditures and use of cash resources. Accordingly, the Company will need to raise additional funds to support its operating and capital needs in the third quarter of 2014 and beyond. The Company may attempt to obtain additional funding through public or private financing, collaborative arrangements with strategic partners, or through additional credit lines or other debt financing sources to increase the funds available to fund operations. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies, or grant licenses on terms that are not favorable to the Company. Without additional funds, the Company may be forced to delay, scale back or eliminate some of its sales and marketing efforts, research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue its operations. If any of these events occurs, the Company’s ability to achieve its development and commercialization goals would be adversely affected.

 

5
 

 

Certain prior period amounts have been adjusted to reflect the Company's 1-for-6 reverse stock split of its common stock completed on February 15, 2013. See Note 11, Reverse Stock Split, for further details .

 

Unaudited Interim Financial Statements

 

The accompanying unaudited balance sheet as of June 30, 2013, unaudited statements of operations for the quarters and six months ended June 30, 2013 and 2012 and the unaudited statements of cash flows for the six months ended June 30, 2013 and 2012 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 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair statement of the Company’s financial position and operating results. Operating results for the quarter and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on February 25, 2013 (File No. 001-33351), or the Company’s 2012 Form 10-K. The accompanying balance sheet as of December 31, 2012 has been derived from audited financial statements prepared at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

Revenues

 

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, delivery has occurred and risk of loss has passed, the seller’s price to the buyer is fixed or determinable, and collection is reasonably assured.

 

Revenues associated with the sale of the ADVANCE devices to customers and distributors are recognized upon shipment, provided that the selling price is fixed or determinable, persuasive evidence of an arrangement exists, collection of receivables is reasonably assured, product returns are reasonably estimable, and no continuing obligations exist. The revenues from the sale of an ADVANCE communication hub together with access to NeuroMetrix information systems are considered one unit of accounting and deferred and recognized on a straight-line basis over the estimated period of time that the Company provides the service associated with the information systems of three years. The resulting deferred revenue and deferred costs are presented as separate line items on the accompanying balance sheet. Revenues related to extended service agreements for the devices are recognized ratably over the term of the extended service agreement.

 

Revenues associated with the sale of the SENSUS and NC-stat DPNCheck devices are recognized upon shipment, provided that the selling price is fixed or determinable, persuasive evidence of an arrangement exists, collection of receivables is reasonably assured, product returns are reasonably estimable, and no continuing obligations exist.

 

Revenues also include sales of consumables, including single use nerve specific electrodes and other accessories. These revenues are recognized upon shipment provided that the selling price is fixed or determinable, persuasive evidence of an arrangement exists, collection of receivables is reasonably assured, and product returns are reasonably estimable .

 

When multiple elements are contained in a single arrangement, the Company allocates revenue between the elements based on their relative selling prices . The Company determines selling price using vendor specific objective evidence, or VSOE, if it is available, third-party evidence, or TPE, if VSOE is not available, and best estimate of selling price, or BESP, if neither VSOE nor TPE are available. The Company generally expects that it will not be able to establish TPE due to the nature of the markets in which it competes, and, as such, it will typically determine selling price using VSOE or if not available, BESP. The objective of BESP is to determine the selling price of a deliverable on a standalone basis . The Company’s determination of BESP involves a weighting of several factors based on the specific facts and circumstances of an arrangement. Specifically, the Company considers the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, its ongoing pricing strategy, the value of any enhancements that have been built into the deliverable, and the characteristics of the varying markets in which the deliverable is sold.

 

6
 

 

Revenue recognition involves judgments, including assessments of expected returns and expected customer relationship periods. The Company analyzes various factors, including a review of specific transactions, its historical returns, average customer relationship periods, customer usage, customer balances, and market and economic conditions. Changes in judgments or estimates on these factors could materially impact the timing and amount of revenues and costs recognized. Should market or economic conditions deteriorate, the Company’s actual return or bad debt experience could exceed its estimate.

 

Certain product sales are made with a 30-day right of return. Since the Company can reasonably estimate future returns, it recognizes revenues associated with product sales that contain a right of return upon shipment and at the same time it records a sales return reserve, which reduces revenue and accounts receivable by the amount of estimated returns.

 

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.

 

Recent Accounting Pronouncements

 

There have been no recent accounting pronouncements or changes in accounting pronouncements since the recent accounting pronouncements described in the Company's 2012 Form 10-K that are of significance to the Company.

 

2. Comprehensive Loss

 

For the quarters and six months ended June 30, 2013 and 2012, the Company had no components of other comprehensive income or loss other than net loss itself.

 

3. Net Loss Per Common Share

 

Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic net income per share. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period plus the dilutive effect of the weighted average number of outstanding instruments such as options, warrants, restricted stock, and preferred stock. Because the Company has reported a net loss for all periods presented, diluted loss per common share is the same as basic loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. Therefore, in calculating net loss per share amounts, shares underlying the following potentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net income per common share because their effect was anti-dilutive for each of the periods presented:

 

    Quarters Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
Options     50,757       54,657       50,962       55,385  
Warrants     1,457,936       781,954       1,121,813       700,694  
Unvested restricted stock     20,318       38,817       27,271       24,623  
Convertible preferred stock     605,082             304,212        
Total     2,134,093       875,428       1,504,258       780,702  

 

The Beneficial Conversion Feature, or BCF, recorded in the 2013 Offering has been recognized as a deemed dividend attributable to the Preferred Stock and is reflected as an adjustment in the calculation of earnings per share. See Note 10, Stockholders’ Equity, for further details.

 

7
 

 

Net loss per common share was determined as follows:

 

    Quarters Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
Net loss   $ (1,345,830 )   $ (2,772,128 )   $ (3,599,245 )   $ (5,524,463 )
Deemed dividend attributable to preferred stockholders in connection with embedded conversion features     (766,872 )           (766,872 )      
Net loss applicable to common stockholders   $ (2,112,702 )   $ (2,772,128 )   $ (4,366,117 )   $ (5,524,463 )
                                 
Net loss per common share applicable to common stockholders, basic and diluted   $ (0.92 )   $ (1.32 )   $ (1.97 )   $ (3.17 )
                                 
Weighted average number of common shares outstanding, basic and diluted     2,299,463       2,094,487       2,215,658       1,740,325  

 

4. Common Stock

 

On June 4, 2013, the Company entered into a Securities Purchase Agreement, pursuant to which it issued 248,147 shares of common stock at a price of $2.095 per share. See Note 10, Stockholders’ Equity, for further details.

 

In March 2013, the Company awarded certain executives an aggregate of 119,370 shares of fully vested common stock with a value of $285,300 in settlement of 2012 incentive compensation obligations. The shares issued reflected the $2.39 closing price of the Company’s common stock as reported on the NASDAQ Capital Market on March 4, 2013.

 

On February 13, 2012, the Company completed a public offering of 1,421,735 Units at a price of $6.00 per Unit (the “2012 Offering”). Each Unit consisted of one share of the Company’s common stock and one warrant to purchase one half of a share of the Company’s common stock. The Company issued 1,421,735 shares of common stock and warrants to purchase 781,955 shares of common stock and received proceeds, net of discounts, commissions and expenses, of approximately $7.4 million. See Note 10, Stockholders’ Equity , for further details.

 

In March 2012, the Company issued 23,127 shares of its common stock in satisfaction of the Company’s obligation to redeem certain warrants issued by the Company pursuant to Securities Purchase Agreements dated as of September 8, 2009. No cash was paid to redeem the warrants.

 

5. Inventories

 

Inventories consist of the following:

 

    June 30,
2013
    December 31,
2012
 
             
Purchased components   $ 252,544     $ 187,567  
Finished goods     501,400       646,959  
    $ 753,944     $ 834,526  

 

8
 

 

6. Accrued Compensation and Expenses

 

Accrued compensation includes $429,178 of severance incurred in the second quarter of 2013. No severance payments were made during the period. There were no restructuring charges or payments in the six months ended June 30, 2012. There were no severance charges accrued as of December 31, 2012.

 

Accrued expenses consist of the following:

 

    June 30,
2013
    December 31,
2012
 
             
Technology fees   $ 450,000     $ 450,000  
Professional services     194,576       248,759  
Clinical study obligations     104,000       24,490  
Sales taxes     33,334       62,385  
Supplier obligations           105,132  
Other     279,258       58,077  
    $ 1,061,168     $ 948,843  

 

7. Commitments and Contingencies

 

Operating Lease

 

The Company leases office and engineering laboratory space in Waltham, Massachusetts. In June 2013, the lease term was extended through March 31, 2015. Base rent for the period July 2013 through March 2015 is $52,917 per month.

 

8. Fair Value Measurements

 

The Fair Value Measurements and Disclosures topic of the Financial Accounting Standards Board, Accounting Standards Codification (the “Codification”) defines fair value, establishes a framework for measuring fair value in applying generally accepted accounting principles, and expands disclosures about fair value measurements. This Codification topic identifies two kinds of inputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based on market data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputs have been characterized, this Codification topic requires companies to prioritize the inputs used to measure fair value into one of three broad levels. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values identified by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values identified by Level 3 inputs are unobservable data points and are used to measure fair value to the extent that observable inputs are not available. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use at pricing the asset or liability.

 

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.

 

          Fair Value Measurements at June 30, 2013 Using  
    June 30,
2013
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
Assets:                                
Cash equivalents   $ 4,193,007     $ 4,193,007     $     $  
Total   $ 4,193,007     $ 4,193,007     $     $  
                                 
Liabilities:                                
Common stock warrants   $ 2,855,209     $     $     $ 2,855,209  
Total   $ 2,855,209     $     $     $ 2,855,209  

 

9
 

 

          Fair Value Measurements at December 31, 2012 Using  
    December 31,
2012
    Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
Assets:                                
Cash equivalents   $ 519,242     $ 519,242     $     $  
Total   $ 519,242     $ 519,242     $     $  

 

Due to the lack of market quotes relating to our common stock warrants, the fair value of the common stock warrants was determined at June 30, 2013 using the Black-Scholes model, which is based on Level 3 inputs. As of June 30, 2013, inputs used in the Black-Scholes model include our stock price as of that date of $2.00, exercise price of $2.00, expected volatility of 74.1%, risk free interest rate of 1.41%, expected term of approximately four years and 11 months, and no dividends . The assumptions used may change as the underlying sources of these assumptions and market conditions change. Based on this calculation, the Company recorded a gain of $1.1 million during the quarter ended June 30, 2013, resulting in a common stock warrants liability of $2.9 million at June 30, 2013. The Company did not have any financial liabilities carried at fair value as of December 31, 2012.

 

The following table provides a summary of changes in the fair value of the Company's Level 3 financial liabilities for the six month period ended June 30, 2013:

 

Balance at December 31, 2012   $  
Initial fair value of  warrants     4,011,205  
Change in fair value of warrant liability     (1,155,996 )
Balance at June 30, 2013   $ 2,855,209  

 

9. Credit Facility

 

The Company is party to a Loan and Security Agreement, or the Credit Facility, with a bank. As of June 30, 2013, the Credit Facility permitted the Company to borrow up to $2.5 million on a revolving basis. Prior to its amendment on January 28, 2013, the amount of the Credit Facility was set at $7.5 million. The amended Credit Facility expires on January 31, 2014. 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 June 30, 2013 and December 31, 2012, the Company was in compliance with these covenants and had not borrowed any funds under the Credit Facility. Of the Credit Facility limit, $225,000 is restricted to support a letter of credit issued in favor of the Company’s landlord in the lease of its facilities in Waltham, Massachusetts. Consequently, the amount available for borrowing under the Credit Facility as of June 30, 2013 was $2,275,000.

 

10. Stockholders’ Equity

 

On June 4, 2013, the Company entered into a Purchase Agreement providing for the issuance of (i) 248,147 shares of common stock at a price of $2.095 per share, (ii) 1,066.254 shares of Series A-1 Preferred Stock at a price of $1,000 per share, (iii) 3,370.510 shares of Series A-2 Preferred Stock at a price of $1,000 per share, and (iv) five year warrants to purchase up to 2,365,934 shares of common stock with an exercise price of $2.00 per share. The 2013 Offering resulted in approximately $5.0 million in gross proceeds, before deducting placement agent fees and other expenses. Net proceeds from the 2013 Offering were approximately $4.6 million.

 

The shares of Preferred Stock have a stated value of $1,000 and are convertible at the option of the holder into the number of shares of common stock determined by dividing the stated value by the initial conversion price of $2.095, which is subject to adjustment as provided in each Certificate of Designation for the Preferred Stock. The Preferred Stock has no dividend rights, liquidation preference or other preferences over common stock and has no voting rights except as provided in each Certificate of Designation for the Preferred Stock and as required by law. The warrants to purchase 2,365,934 shares of common stock are exercisable immediately, have a five-year term, and a per share exercise price of $2.00.

 

10
 

 

The terms and conditions of the Preferred Stock were evaluated based on the guidance of the Derivatives and Hedging topic of the Codification to determine if the conversion feature was an embedded derivative requiring bifurcation. It was concluded that bifurcation was not required because the conversion feature is clearly and closely related to the Preferred Stock. The conversion price at which shares of Preferred Stock are convertible into shares of common stock was determined to be lower than the fair value of common stock at the date of the Purchase Agreement. This “in-the-money” conversion feature, or BCF, requires separate recognition and measurement of its intrinsic value (i.e., the amount of the increase in value that holders of Preferred Stock would realize upon conversion based on the value of the conversion shares on the date of the Purchase Agreement). The BCF measurement totaled $766,900, an amount limited by the transaction proceeds which had been allocated to the Preferred Stock. Because there is not a stated redemption date for the shares of Preferred Stock, the BCF was recognized as a deemed dividend attributable to the Preferred Stock and is reflected as an adjustment in the calculation of earnings per share.

 

The warrants issued in connection with the 2013 Offering are within the scope of the Derivatives and Hedging topic of the Codification. This Codification topic requires issuers to classify as liabilities (or assets under certain circumstances) financial instruments which require an issuer to settle in registered shares. As the warrants are required to be settled in registered shares when exercised, the Company has reflected the warrants as a liability in the balance sheet. The fair value of the warrants at the date of the 2013 Offering was estimated at $4.0 million using a Black-Scholes model with the following assumptions: stock price of $2.60, exercise price of $2.00, expected volatility of 73.6%, risk free interest rate of 1.05%, expected term of five years, and no dividends. The warrants were revalued at June 30, 2013 using the same Black-Scholes model, and a $1.1 million decrease in the fair value of the warrants at that date was recognized in the Company's statement of operations for the quarter ended June 30, 2013. The warrants liability was reflected in the balance sheet at June 30, 2013 in the amount of $2.9 million. The Company will continue to revalue unexercised warrants at each reporting period over the life of the warrants using the Black-Scholes model and the changes in the fair value of the warrants will be recognized in the Company's statement of operations.

 

On July 8, 2013, 266.564 shares of Series A-1 Preferred Stock were converted into 127,238 shares of the Company’s common stock and 10.475 shares of Series A-2 Preferred Stock were converted into 5,000 shares of the Company’s common stock.

 

On February 13, 2012, the Company completed the 2012 Offering, which included 1,421,735 Units at a price of $6.00 per Unit. Each Unit consisted of one share of the Company’s common stock and one warrant to purchase one half of a share of the Company’s common stock. The Company issued 1,421,735 shares of common stock and warrants to purchase 710,868 shares of common stock and received proceeds, net of discounts, commissions and expenses, of approximately $7.4 million. Each warrant entitles the holder to purchase at any time during the period commencing 180 days after the date of the 2012 Offering until the date five years following the closing date of the 2012 Offering, one half of a share of the Company’s common stock. Two warrants would need to be exercised to acquire one share of the Company’s common stock at an exercise price of $6.90 (115% of the aggregate price of the 2012 Offering for a Unit). In addition, the placement agent for the 2012 Offering was issued warrants to purchase 71,087 shares of common stock (equal to 5.0% of the number of shares of common stock included in the Units sold in the 2012 Offering) at an exercise price of $7.50 per share (125% of the aggregate price for a Unit). The placement agent’s warrants became exercisable one year after the date of issuance and will expire on the fifth anniversary of the effectiveness of the registration statement related to the 2012 Offering.

 

The fair value of the warrants issued in the 2012 Offering was estimated at $2.4 million using a Black-Scholes model with the following assumptions: expected volatility of 73.5%, risk free interest rate of 0.85%, expected term of five years, and no dividends. The volatility assumption is based on weekly historical volatility during the time period that corresponds to the expected option term, a review of comparable medical device companies, and expected future stock price volatility. The relative fair value of the warrants was recorded as equity.

 

11. Reverse Stock Split

 

On February 15, 2013, the Company filed a Certificate of Amendment to its Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware, to effect a 1-for-6 reverse stock split of its common stock. This action had previously been approved by the Company’s stockholders at a special meeting of stockholders held on December 7, 2012 and was intended to address the Company’s deficiency in compliance with the minimum bid listing requirements of the NASDAQ Stock Market. As a result of the reverse stock split, every six shares of the Company’s pre-reverse split common stock were combined and reclassified into one share of its common stock. No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise would have been entitled to receive a fractional share in connection with the reverse stock split received a cash payment in lieu thereof. The par value and other terms of the common stock were not affected by the reverse stock split.

 

11
 

 

 

The Company’s shares outstanding immediately prior to the reverse stock split totaled 12,845,228. These were adjusted to 2,140,871 shares outstanding as a result of the reverse stock split. The Company’s common stock began trading at its post-reverse stock split price at the beginning of trading on February 19, 2013. Share, per share, and stock option amounts for all periods presented within this quarterly report on Form 10-Q and the amounts for common stock and additional paid-in capital have been retroactively adjusted to reflect the reverse stock split.

 

On March 5, 2013, the Company received a letter from The NASDAQ Stock Market indicating that it had regained compliance with the minimum bid price requirement under NASDAQ Listing Rule 5550(a)(2) for continued listing on The NASDAQ Capital Market. The Company’s common stock continues to be listed on The NASDAQ Capital Market.

 

12
 

 

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

 

We are a medical device company focused on the neurological complications of diabetes. People with diabetes do not effectively regulate their blood glucose, or sugar, levels leading to chronically high levels of glucose in the blood, called hyperglycemia, and occasionally bouts of low glucose in the blood, called hypoglycemia. The primary reason that glucose levels are not effectively regulated in people with diabetes is that those with the disease do not produce insulin (Type I diabetes) or are resistant to the normal physiological action of insulin (Type II diabetes). Many Type II diabetics eventually require insulin because production of the hormone by their pancreas decreases with time. Type I diabetes usually affects children and teenagers whereas Type II diabetes has typically been a disease of adults over the age of 50. However, over the past decade, Type II diabetes is occurring in younger adults, which can probably be attributed to higher levels of obesity in this age group.

 

We believe that there are large and important unmet needs in the treatment of diabetic neuropathies. As a medical device company with both unique and substantial experience in devices to measure and alter peripheral nerve function, we believe we are in the unique position to address these unmet needs through the development of novel proprietary medical devices. Therefore, we are focused on developing and marketing medical devices for the diagnosis and treatment of diabetic neuropathies. We believe that we are the only medical device company with a strategic focus on the diabetic neuropathy market and our goal is to be the dominant player in this field.

 

Since we shifted our strategic focus to the diabetic neuropathy market in 2011, we have launched two products with the potential to change medical practice. SENSUS, our therapeutic device for relief of chronic, intractable pain, was launched in January 2013. SENSUS is a convenient and wearable non-invasive device that offers physicians and their patients a non-narcotic pain relief option as a complement to medications. The device is lightweight and can be worn during the day while remaining active, or at night while sleeping. The Company believes it is the only transcutaneous electrical nerve stimulator designed specifically for people with diabetes that suffer from chronic pain. We believe this product will be attractive to pain medicine physicians, neurologists, endocrinologists, podiatrists, primary care physicians, and other physicians that are challenged with trying to manage pain in their patients with painful diabetic neuropathy, or PDN and other forms of neuropathic pain. The prevalence of PDN indicates a patient group of 3 - 5 million in the United States alone . In the U.S., SENSUS is a prescription product and our initial challenge will be to obtain broad, national exposure and acceptance among physicians as well as a broad distribution channel to fulfill prescriptions. We are working to create demand in several distinct channels: independent regional and national durable medical equipment, or DME, suppliers that employ sales representatives who detail physicians, large direct sale customers such as orthotic and prosthetic clinics and chronic pain treatment centers, and national diabetes mail order DME’s. As of June 30, 2013, we had about 15 regional DME suppliers. We believe there may be future opportunities to expand the SENSUS revenue and gross margin potential by developing a direct sales channel.

 

NC-stat DPNCheck, our diagnostic test for diabetic peripheral neuropathy, or DPN, has been on the market since launch in late 2011. Revenues were nearly $1.5 million in 2012 and were $444,000 and $785,000 for the six months ended June 30, 2013 and 2012, respectively. Our sales efforts in the U.S. market are focused on Medicare Advantage providers. Medicare Advantage providers assume financial responsibility and the associated risks for the health care costs of their patients. For Medicare Advantage providers, we believe that NC-stat DPNCheck presents an attractive clinical case with early detection of neuropathy allowing for earlier clinical intervention to help mitigate the effects of neuropathy on both patient quality of life and cost of care. Also, the diagnosis and documentation of neuropathy provided by NC-stat DPNCheck helps clarify the patient health profile which, in turn, may have a direct, positive effect on the Medicare Advantage premium received by the provider. Recent changes to the Medicare Advantage patient assessment and premium structure effective for 2014 have narrowed the financial benefits from early diagnosis of DPN. This has reduced the market opportunity and delayed adoption of NC-stat DPNCheck. Accordingly, we have scaled-back our United States sales efforts and now provide corporate-based sales outreach in addition to support to our existing customers. Attractive international market opportunities are developing in Japan, South Korea and Europe. These are led by our local distributors with support from our corporate office.

  

We continue to manage our historical neurodiagnostics business which is centered on the ADVANCE System. This business generated $6.1 million in revenue during 2012 and $2.1 million and $3.5 million for the six months ended June 30, 2013 and 2012, respectively. There are few direct cash operating expenses of the business. The neurodiagnostic business has been in decline for several years due to reimbursement challenges. We envision this line of our business will continue to decline as we operate it for cash flow.

 

13
 

 

On June 4, 2013, we entered into a Securities Purchase Agreement, as amended, or the Purchase Agreement, providing for the issuance of (i) 248,147 shares of common stock at a price of $2.095 per share, (ii) 1,066.254 shares of Series A-1 convertible preferred stock, or the “Series A-1 Preferred Stock”, at a price of $1,000 per share, (iii) 3,370.510 shares of Series A-2 convertible preferred stock, or the Series A-2 Preferred Stock, at a price of $1,000 per share, and (iv) five year warrants to purchase up to 2,365,934 shares of common stock with an exercise price of $2.00 per share, which we collectively refer to as the 2013 Offering. The 2013 Offering resulted in approximately $5.0 million in gross proceeds, before deducting placement agent fees and other expenses. Net proceeds from the 2013 Offering were approximately $4.6 million.

 

Results of Operations

 

Comparison of Quarters Ended June 30, 2013 and 2012

 

Revenues

 

The following table summarizes our revenues:

 

    Quarters Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Revenues   $ 1,160.5     $ 2,205.8     $ (1,045.3 )     (47.4 )%

 

Revenues include sales from SENSUS, our therapeutic device for relief of chronic, intractable pain launched in January 2013; NC-stat DPNCheck, our diagnostic test for DPN; and our legacy ADVANCE neurodiagnostics business. During the second quarter of 2013, we shipped 208 SENSUS devices and recorded revenue of $32,000. This is the early launch period for the product as we work to develop national distribution in several sales channels, including DME suppliers addressing pain physicians, primary care physicians and endocrinologists, large clinic organizations and direct mail diabetes suppliers. We also recorded NC-stat DPNCheck revenue of $129,000, down from $648,000 in the second quarter of 2012. The second quarter of 2012 activity included large, initial NC-stat DPNCheck stocking orders from two new customers which accounted for the variance. ADVANCE revenues totaled $1.0 million in comparison with $1.5 million in the second quarter of 2012. The decline in ADVANCE revenue continues the historical trend for this product line which is managed for cash flow.

  

Cost of Revenues and Gross Profit

 

The following table summarizes our cost of revenues and gross profit:

 

    Quarters Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Cost of revenues   $ 501.1     $ 983.4     $ (482.3 )     (49.0 )%
Gross profit   $ 659.3     $ 1,222.5     $ (563.2 )     (46.1 )

 

Reflecting our decrease in revenues, our cost of revenues decreased to $501,100 in the second quarter of 2013, compared to $983,400 in the second quarter of 2012. However, our gross margin increased to 56.8% in the second quarter of 2013 from 55.4% in the second quarter of 2012. Our 2013 gross margin improvement was primarily attributable to improved pricing on NC-stat DPNCheck consumable biosensors.

 

14
 

 

Operating Expenses

 

The following table presents a breakdown of our operating expenses:

 

    Quarters Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Operating expenses:                                
Research and development   $ 913.8     $ 1,020.7     $ (106.9 )     (10.5 )%
Sales and marketing     880.2       1,595.6       (715.4 )     (44.8 )
General and administrative     992.2       1,382.3       (390.1 )     (28.2 )
Total operating expenses   $ 2,786.2     $ 3,998.6     $ (1,212.4 )     (30.3 )

 

Research and Development

 

Research and development expenses for the quarters ended June 30, 2013 and 2012 were $913,800 and $1.0 million, respectively. The comparative results largely reflect a $72,600 decrease in personnel costs, resulting from lower headcount and incentive compensation expense.

 

Sales and Marketing

 

Sales and marketing expenses decreased to $880,200 for the quarter ended June 30, 2013 from $1.6 million for the quarter ended June 30, 2012. During 2012, we reduced our dependence on field clinical educators to support our neurodiagnostic business and we shifted our NC-stat DPNCheck emphasis toward managed care, allowing us to eliminate our endocrinology/podiatry direct sales representatives. In addition, during the second quarter of 2013 we further reduced staff support for NC-stat DPNCheck resulting in severance cost of $294,600. As a result, total sales and marketing personnel costs, including compensation and benefits, were $372,400 lower than in 2012, travel costs decreased $127,900, consulting services decreased $94,300, recruiting costs decreased $28,200, and trade show costs decreased $21,700.

 

General and Administrative

 

General and administrative expenses decreased to $992,200 for the quarter ended June 30, 2013 compared to $1.4 million for the same quarter in 2012. This decrease included decreases of $133,200 for consultants and temporary labor, $89,700 for personnel costs, $58,500 for professional fees, $34,200 for insurance and outside administration, and $26,200 for stock-based compensation.

 

Interest Income

 

Interest income was approximately $1,400 and $4,000 for the quarters ended June 30, 2013 and 2012, respectively. Interest income was earned from investments in cash equivalents.

 

Warrants offering costs

 

Warrants offering costs of $376,300 consists of offering costs allocated to warrants in the 2013 Offering.

 

Change in fair value of warrant liability

 

The change in fair value of warrant liability of $1.1 million relates to the revaluation of warrants from the fair value of $4.0 million estimated as of the closing date of the 2013 Offering to $2.9 million at June 30, 2013.

 

Comparison of Six Months Ended June 30, 2013 and 2012

 

Revenues

 

The following table summarizes our revenues:

 

    Six Months Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Revenues   $ 2,561.9     $ 4,287.4     $ (1,725.5 )     (40.2 )%

 

15
 

 

Revenues include sales from SENSUS, our therapeutic device for relief of chronic, intractable pain launched in January 2013; NC-stat DPNCheck, our diagnostic test for DPN; and our legacy ADVANCE neurodiagnostics business. During the six months ended June 30, 2013, we shipped 353 SENSUS devices and recorded revenue of $65,000. This is the early launch period for the product as we work to develop national distribution in several sales channels, including DME suppliers addressing pain physicians, primary care physicians and endocrinologists, large clinic organizations and direct mail diabetes suppliers. We also recorded NC-stat DPNCheck revenue of $444,000, down from $785,000 for the six months ended June 30, 2012. The second quarter of 2012 activity included large, initial NC-stat DPNCheck stocking orders from two new customers which accounted for the variance. ADVANCE revenues totaled $2.1 million in comparison with $3.5 million for the six months ended June 30, 2012. The decline in ADVANCE revenue continues the historical trend for this product line which is managed for cash flow.

 

Cost of Revenues and Gross Profit

 

The following table summarizes our cost of revenues and gross profit:

 

    Six Months Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Cost of revenues   $ 1,070.9     $ 2,118.3     $ (1,047.4 )     (49.4 )%
Gross profit   $ 1,491.0     $ 2,169.1     $ (678.1 )     (31.3 )

 

Reflecting our decrease in revenues, our cost of revenues decreased to $1.1 million for the first six months of 2013, compared to $2.1 million for the first six months of 2012. However, our gross margin increased to 58.2% in the first half of 2013 from 50.6% in the first half of 2012. Our 2013 gross margin improvement was primarily attributable to improved pricing on NC-stat DPNCheck consumable biosensors. For the first half of 2012, gross margin was depressed by 5.7% due to a net non cash charge of $221,900 resulting from our decision to consolidate our neurodiagnostics installed customer base on a single technology platform, the ADVANCE System.

 

Operating Expenses

 

The following table presents a breakdown of our operating expenses:

 

    Six Months Ended June 30,        
    2013     2012     Change     % Change  
    (in thousands)        
Operating expenses:                                
Research and development   $ 1,987.3     $ 1,998.8     $ (11.5 )     (0.1 )%
Sales and marketing     1,660.1       3,129.7       (1,469.6 )     (47.0 )
General and administrative     2,225.8       2,573.3       (347.5 )     (13.5 )
Total operating expenses   $ 5,873.2     $ 7,701.8     $ (1,828.6 )     (23.7 )

 

Research and Development

 

Research and development expenses for the six months ended June 30, 2013 and 2012 were both about $2.0 million. The comparative results included a decrease of $148,800 in personnel costs, resulting from lower headcount and incentive compensation expense, partially offset by a $121,600 increase in clinical costs. We presently are involved in eight studies that use NC-stat DPNCheck in the evaluation of neuropathy in persons with diabetes under various study conditions. These studies will expand the clinical foundation for use of NC-stat DPNCheck which, in turn, should support future adoption by customers. We are also developing plans for clinical studies employing SENSUS.

 

16
 

 

Sales and Marketing

 

Sales and marketing expenses decreased to $1.7 million for the six months ended June 30, 2013 from $3.1 million for the six months ended June 30, 2012. During 2012, we reduced our dependence on field clinical educators to support our neurodiagnostic business and we shifted our NC-stat DPNCheck emphasis toward managed care, allowing us to eliminate our endocrinology/podiatry direct sales representatives. In addition, during the second quarter of 2013 we further reduced staff support for NC-stat DPNCheck resulting in severance of $294,600. As a result, when compared to 2012, total sales and marketing personnel costs, including compensation and benefits, decreased $935,500, travel costs decreased $264,500, consulting costs decreased $55,200, recruiting costs decreased $43,100, dues and subscriptions decreased $34,400, advertising and promotion costs decreased $27,300, depreciation and amortization decreased $26,100, and trade show costs decreased $23,900.

 

General and Administrative

 

General and administrative expenses decreased to $2.2 million for the six months ended June 30, 2013 compared to $2.6 million for the same period in 2012. This decrease included decreases of $132,700 for consultants and temporary labor, $75,600 for professional fees, $64,800 for personnel costs, $51,400 for insurance and outside administration, $50,500 for taxes and fees, $37,700 for stock-based compensation, $34,300 for travel costs, and $28,800 for the cost of credit. These decreases were partially offset by an increase in bad debt expense of $178,500.

 

Interest Income

 

Interest income was approximately $3,200 and $8,300 for the six months ended June 30, 2013 and 2012, respectively. Interest income was earned from investments in cash equivalents.

 

Warrants offering costs

 

Warrants offering costs of $376,300 consists of offering costs allocated to warrants in the 2013 Offering.

 

Change in fair value of warrant liability

 

The change in fair value of warrant liability of $1.1 million relates to the revaluation of warrants from the fair value of $4.0 million estimated as of the closing date of the 2013 Offering to $2.9 million at June 30, 2013.

 

Liquidity and Capital Resources

 

Our principal source of liquidity is our cash and cash equivalents. As of June 30, 2013, cash and cash equivalents totaled $9.6 million. On June 4, 2013, we entered into a Purchase Agreement providing for the issuance of (i) 248,147 shares of common stock at a price of $2.095 per share, (ii) 1,066.254 shares of Series A-1 Preferred Stock at a price of $1,000 per share, (iii) 3,370.510 shares of Series A-2 Preferred Stock at a price of $1,000 per share, and (iv) five year warrants to purchase up to 2,365,934 shares of common stock with an exercise price of $2.00 per share. The 2013 Offering resulted in approximately $5.0 million in gross proceeds, before deducting placement agent fees and other expenses. Net proceeds from the 2013 Offering were approximately $4.6 million. See Note 10, Stockholders’ Equity, of our Notes to Unaudited Financial Statements contained elsewhere in this Quarterly Report on Form 10-Q for further information regarding this transaction. Our ability to generate revenue to generate funds to operate our business will largely depend on the success of our diabetes business initiative and our ability to manage our legacy neurodiagnostics business to optimize cash flow. A low level of market interest in NC-stat DPNCheck or SENSUS, an accelerated decline in our neurodiagnostics consumables sales, or unanticipated increases in our operating costs would have an adverse effect on our liquidity and cash generated from operations.

 

The following table sets forth information relating to our cash and cash equivalents:

 

    June 30,
2013
    December 31,
2012
    Change     % Change  
    ($ in thousands)        
                         
Cash and cash equivalents   $ 9,586.4     $ 8,699.5     $ 886.9       10.2 %

 

17
 

 

In order to supplement our access to capital, we are party to an amended Loan and Security Agreement, with a bank which provides us with a credit facility in the amount of $2.5 million. The amended credit facility expires on January 31, 2014. 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 our 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 us. As of June 30, 2013, we were in compliance with these covenants and had not borrowed any funds under the credit facility. Of the credit facility limit, $225,000 is restricted to support a letter of credit issued in favor of our landlord in connection with the lease of our facilities in Waltham, Massachusetts. Consequently, the amount available for borrowing under the credit facility as of June 30, 2013 was $2,275,000.

 

During the first six months of 2013, our cash and cash equivalents increased by $886,900 due mainly to net proceeds of $4.6 million from the 2013 Offering, partially offset by net cash used in operating activities of $3.7 million.

 

In managing our working capital, two of the financial measurements we monitor are days sales outstanding, or DSO, and inventory turnover rate, which are presented in the table below for the quarters ended June 30, 2013 and 2012, and the year ended December 31, 2012:

 

    Quarters Ended
June 30,
    Year Ended
December 31,
 
    2013     2012     2012  
                   
Days sales outstanding (days)     42       28       33  
Inventory turnover rate (times per year)     2.6       3.4       3.2  

 

Payment terms extended to our customers generally require payment within 30 days from invoice date. DSO’s have increased since December 31, 2012 due to the decline in revenues and slower collections. The inventory turnover rate has declined since December 31, 2012 also reflecting lower sales activity.

 

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

 

    Six Months Ended
June 30,
 
    2013     2012  
    (in thousands)  
             
Net cash used in operating activities   $ (3,663.2 )   $ (4,627.6 )
Net cash (used in) provided by investing activities     (16.0 )     200.6  
Net cash provided by financing activities     4,566.1       7,461.4  

 

Our operating activities used $3.7 million in the six months ended June 30, 2013. The primary driver for the use of cash in our operating activities during the first six months of 2013 was our net loss of $3.6 million , which included a non-cash credit of $1.1 million for the change in fair value of the warrant liability and non-cash charges of $376,300 for offering costs allocated to warrants in the 2013 Offering, $96,100 for stock-based compensation, $79,300 for depreciation and amortization, and $77,600 for inventory charges.

 

Financing activities for the six months ended June 30, 2013 included $4.5 million from the net proceeds from the 2013 Offering. Financing activities for the six months ended June 30, 2012 included $7.5 million from the net proceeds from the 2012 Offering.

 

We held cash and cash equivalents of $9.6 million as of June 30, 2013. We believe that these resources and the cash to be generated from expected product sales will be sufficient to meet our projected operating requirements into the third quarter of 2014. We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of our products and the uncertainty of future revenues from new products; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our business strategy; (d) regulatory developments affecting our existing products and delays in the FDA approval process for products under development; (e) changes we may make in our research and development spending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources. Accordingly, we will need to raise additional funds to support our operating and capital needs in the third quarter of 2014 and beyond. We may attempt to obtain additional funding through 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, we may not be able to secure such financing in a timely manner or on favorable terms, if at all. We 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. However, pursuant to the instructions to Form S-3, we only 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. As a result of the 2013 Offering, we will be limited in the use of this shelf registration statement until June 2014. We have filed an initial registration statement for an equity offering on Form S-1, which has not yet been declared effective. 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.

 

18
 

 

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

 

As of June 30, 2013, we did not have any off-balance sheet financing arrangements.

 

See Note 7, Commitments and Contingencies, of our Notes to Unaudited Financial Statements for information regarding commitments and contingencies.

 

Recent Accounting Pronouncements

 

Refer to Note 1, Business and Basis of Presentation, of our Notes to Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

 

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 ; our 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 in the diagnosis and treatment of diabetic neuropathy and our expectations surrounding our NC-stat DPNCheck and SENSUS devices; our plans to develop and commercialize our products; the success and timing of our studies and/or clinical trials; 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 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 governmental third-party payers; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q or any document incorporated by reference herein or therein. 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” below and 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.

 

19
 

 

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 June 30, 2013, 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 June 30, 2013 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, 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, 2012.

 

20
 

 

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

 

We reacquired 4,134 shares of our common stock, at an average price of $2.22 per share, during the quarter ended June 30, 2013, in connection with the vesting of certain restricted shares issued pursuant to our Fifth Amended and Restated 2004 Stock Option and Incentive Plan. We reacquired these shares as part of the settlement of tax withholding obligations by participants under our Fifth Amended and Restated 2004 Stock Option and Incentive Plan. The following table sets forth the reacquisitions that we made during the quarter ended June 30, 2013:

 

Period   Total
Number
of Shares
Purchased
    Average
Price Paid
per Share
    Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
  Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
 
April 1, 2013 – April 30, 2013     4,134     $ 2.22     N/A   N/A  
May 1, 2013 – May 31, 2013               N/A   N/A  
June 1, 2013 – June 30, 2013               N/A   N/A  
Total     4,134     $ 2.22     N/A   N/A  

 

Item 3.    Defaults Upon Senior Securities

 

None.

 

Item 4.    Mine Safety Disclosures

 

Not applicable.

 

Item 5.    Other Information

 

On June 20, 2013, we entered into a third amendment, or the Amendment, to our lease agreement with Fourth Avenue LLC, dated October 18, 2000. The Amendment extends the term of our existing lease of its principal facility at 62 Fourth Avenue, Waltham, Massachusetts for an additional year until March 2015. The description of the Amendment contained herein does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, a copy of which is set forth as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

 

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.

 

21
 

 

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.  
     
     
Date: July 26, 2013 /s/ SHAI N. GOZANI, M.D., PH. D.  
    Shai N. Gozani, M.D., Ph. D.  
    Chairman, President and Chief Executive Officer  
     
Date: July 26, 2013 /s/ THOMAS T. HIGGINS  
    Thomas T. Higgins  
    Senior Vice President, Chief Financial Officer and Treasurer  

 

22
 

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
3.1   Certificate of Preferences, Rights and Limitations of Series A-1 Convertible Preferred Stock (1).
3.2   Certificate of Preferences, Rights and Limitations of Series A-2 Convertible Preferred Stock (1).
4.1   Form of Common Stock Purchase Warrant (1).
4.2   Amendment No. 2 to Shareholder Rights Agreement (1).
10.1   Form of Securities Purchase Agreement dated as of June 4, 2013, by and among NeuroMetrix, Inc. and the purchasers named therein, as amended. (1).
10.2   Form of Registration Rights Agreement dated as of June 4, 2013, by and among NeuroMetrix, Inc. and the purchasers named therein, as amended (1).
10.3   Letter agreement dated as of June 4, 2013, by and between NeuroMetrix, Inc. and Dawson James Securities, Inc. (1).
10.4   Amendment Number Three to Lease, dated June 20, 2013, between Fourth Avenue LLC and NeuroMetrix, Inc. Filed herewith.
10.5+   Separation Agreement and Release of Claims by and between Krishnamurthy Balachandran and NeuroMetrix, Inc. Filed herewith.
31.1   Certification of Principal Executive 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.
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) or Rule 15d-14(a) 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 and six months ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at June 30, 2013 and December 31, 2012, (ii) Statements of Operations for the quarters and six months ended June 30, 2013 and 2012, (iii) Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (iv) Notes to Financial Statements.**
+   Indicates management contract or any compensatory plan, contract or arrangement.
(1)   Incorporated herein by reference to NeuroMetrix, Inc.’s Current Report on Form 8-K filed on June 6, 2013, as amended (File No. 001-33351).
     
**   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 

 

EXHIBIT 10.4

 

AMENDMENT NUMBER THREE

TO LEASE BETWEEN

FOURTH AVENUE LLC

AND

NEUROMETRIX, INC.

 

THIS AMENDMENT made this June 20, 2013 (this “Amendment”) between Fourth Avenue LLC, a Massachusetts limited liability company having offices at One Gateway Center, Newton, Massachusetts (“Landlord”) and NeuroMetrix, Inc., a Massachusetts corporation, with offices located in Waltham, Massachusetts (“Tenant”).

 

WITNESSETH THAT,

 

WHEREAS, by Lease dated October 18, 2000, (as may be amended from time to time, the “Lease”), Landlord demised and leased to Tenant approximately 30,000 rentable square feet in Landlord’s single-story office building commonly referred to as 62 Fourth Avenue in Waltham, Massachusetts (the “Building”).

 

WHEREAS, by an Amendment Number One to Lease dated February 1, 2008 (“Amendment Number One”), the Term was extended through March 31, 2013.

 

WHEREAS, by an Amendment Number Two to Lease dated June 6, 2012 (“Amendment Number Two”), the Term was extended through March 31, 2014.

 

WHEREAS, the Landlord and Tenant desire to amend the Lease as follows.

 

NOW THEREFORE, in consideration of the mutual covenants contained herein, the Landlord and Tenant agree that the Lease shall be and hereby is amended in the following respects:

 

  1. All capitalized terms not otherwise modified or defined herein shall have the same meanings as are ascribed to them in the Lease. All references in the Lease to the “Lease” or “this Lease” or “the Lease” or “herein” or “hereunder” or similar terms or to any section thereof shall mean the Lease as amended by this Amendment and all prior amendments (or such section thereof as may be applicable).
     
  2. The definition of the defined term “Term Expiration Date:” in Article 1.0, “REFERENCE DATA” shall be amended to read as follows:
     
    “March 31, 2015”
     
  3. With respect to the period of time beginning April 1, 2014, the Annual Base Rent shall be in accordance with the following table:
     

 

 

 

Period

Annual Base Rent: Monthly Installment:
  April 1, 2014 through March 31, 2015 $635,004.00 $ 52,917.00

 

  4. Within 30 days of execution of this Amendment, Tenant shall provide an amendment to the existing letter of credit or a replacement letter of credit providing for a final expiration date no sooner than as proved for in the lease.
     
  5. Tenant and Landlord each represent and warrant to each other that, with respect to this Amendment, neither party has directly or indirectly dealt with any broker other than McPherson Corporation to which Landlord agrees to pay a fee of $36,000.00. Tenant and Landlord each agree to save harmless and indemnify the other against any claims for a commission or other fee by any other broker, person or firm with whom the indemnifying party has dealt in connection with this Amendment.

 

 
 

 

Page 2

 

  6. Except as herein amended, all terms, conditions, covenants, agreements and provisions of the Lease shall remain in full force and effect and are hereby ratified and confirmed.
     
  7. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Landlord and Tenant each warrant to the other that the person or persons executing this Amendment on its behalf has or have authority to do so and that such execution has fully obligated and bound such party to all terms and provisions of this Amendment.

 

IN WITNESS WHEREOF the parties have hereunder set their hands and seals on the day and year first written above.

 

FOURTH AVENUE LLC NEUROMETRIX, INC.
   
BY: COMMONWEALTH DEVELOPMENT LLC, MANAGER By /s/ Thomas T. Higgins
  Name: Thomas T. Higgins
By /s/ James A. Magliozzi Title: CFO, duly authorized
James A. Magliozzi, Manager  

 

 

 

Exhibit 10.5

June 27, 2013

Krishnamurthy Balachandran

811 Piper Avenue

Sunnyvale, CA 94087

 

Dear Bala:

 

This Separation Agreement and Release of Claims ("Agreement") is made by and between Krishnamurthy Balachandran ("you"), an individual, and NeuroMetrix, Inc. a Delaware corporation ("NeuroMetrix").

 

WHEREAS, NeuroMetrix desires to provide you with some separation benefits to assist you in the transition resulting from the termination of employment with NeuroMetrix; and

 

WHEREAS, you agree, in exchange for such separation benefits, to waive and release any and all claims that you may have against NeuroMetrix;

 

NOW THEREFORE, in consideration of the mutual promises and releases contained herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1. Salary and Benefits Continuation. Upon the execution of this Agreement, the parties agree as follows:

 

· You, Krishnamurthy Balachandran shall terminate from employment with NeuroMetrix effective June 28, 2013 (hereinafter the "termination date").

 

· You will receive $11,458.33 per pay period, in severance, for 9 months. Your starting payment will be July 15, 2013 and your final payment will be on March 31, 2014. Total payments will equal $206, 249.94

 

· Unused, accrued PTO up to termination date will be paid, less appropriate taxes.

 

· Up to and including March 31, 2014 you shall continue to be enrolled in NeuroMetrix's medical benefit plan.

 

· Following the termination date, you shall be entitled to any and all other rights or benefits afforded to other terminated employees of NeuroMetrix, including, without limitation, the right to elect to continue, at her cost, coverage under the NeuroMetrix health plan, in accordance with the health care continuation coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").

 

 
 

 

2. Release. In consideration of the agreement of Neurometrix, Inc. to make a severance payment to me, and for other good and valuable consideration, I, for myself and for my agents, heirs, executors, legatees, administrators, successors and assigns, hereby irrevocably and unconditionally release and discharge Neurometrix, Inc., its subsidiaries, parent and affiliated entities and the current and former shareholders, directors, officers, agents and employees of them and each of them, and their respective successors, assigns, representatives, agents, heirs, executors, and administrators (“Releasees”) of and from any and all claims of any kind (including claims for attorney’s fees and costs), charges, actions and causes of action, whether in law or in equity, with respect to, or arising out of, my employment by one or more of the Releasees or the cessation of that employment. This includes but is not limited to any and all claims in contract or tort and claims arising under federal, state or other local laws prohibiting discrimination, including age discrimination under the Age Discrimination in Employment Act (“ADEA”).

 

This General Release is intended to be as broad as permitted by law, but I understand that it is not a release of such rights as I may have to file for unemployment or workers’ compensation benefits, nor does this General Release prevent me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or any other governmental agency as authorized by law (although I acknowledge that I may not recover any monetary benefits in any such proceeding).

 

In addition, I agree not to disparage or defame NeuroMetrix in any respect or to make any derogatory comment, whether written or oral, regarding NeuroMetrix that relates to the organization’s company’s business or related activities or relationship between the Employee and Employer. I also agree to continue to comply with the Confidentiality/NonCompete Agreement and Insider Trading Policy.

 

I understand that in order to accept the offer by NeuroMetrix, I must sign and return this General Release to Jennifer Hayes at NeuroMetrix, Inc 62 Forth Avenue, Waltham, MA 02451 by July 22, 2013.

 

I acknowledge that I have been advised to seek my own counsel in connection with this General Release; that I am not waiving any rights or claims under the ADEA which may arise after the date I sign this Agreement; that I have twenty-one (21) days in which to consider NeuroMetrix’s offer and this General Release; that I may accept that offer any time within the 21-day period by signing and returning this General Release to Jennifer Hayes at NeuroMetrix, Inc 62 Fourth Avenue, Waltham, MA 02451; that I have the right to revoke my acceptance of this General Release by doing so in writing to Jennifer Hayes within seven (7) days after the date that I sign this General Release; that any changes made to NeuroMetrix’s offer during the course of negotiating its terms will not have the effect of restarting the twenty-one (21) day consideration period; and that NeuroMetrix’s offer and this General Release will not be a binding contract between NeuroMetrix, Inc and me until the end of the seven (7) day revocation period so long as I have not revoked my acceptance.

 

 

/s/ K. Balachandran
     K. Balachandran
     July 10, 2013

     Date

 

-2-

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Shai N. Gozani, M.D., Ph.D., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of NeuroMetrix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: July 26, 2013 /s/ SHAI N. GOZANI, M.D., PH.D.
  Shai N. Gozani, M.D., Ph.D.
  Chairman, President and Chief Executive Officer

 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Thomas T. Higgins, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of NeuroMetrix, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  Date: July 26, 2013 /s/ THOMAS T. HIGGINS
  Thomas T. Higgins
  Senior Vice President, Chief Financial Officer and Treasurer

 

 

 

 

EXHIBIT 32

 

CERTIFICATION

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of NeuroMetrix, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

 

The Quarterly Report for the quarter ended June 30, 2013 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  /s/ SHAI N. GOZANI, M.D., PH.D.
  Shai N. Gozani, M.D., Ph.D.
  Chairman, President and Chief Executive Officer
   
  /s/ THOMAS T. HIGGINS
  Thomas T. Higgins
  Senior Vice President, Chief Financial Officer and Treasurer

 

July 26, 2013

 

This certification is being furnished and not filed, and shall not be incorporated into any document for any purpose, under the Securities Exchange Act of 1934 or the Securities Act of 1933.