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NeuroMetrix, Inc. - Quarter Report: 2021 June (Form 10-Q)




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
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)
Delaware04-3308180
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
  
4B Gill Street Woburn, Massachusetts
01801
(Address of principal executive offices)(Zip Code)
(781) 890-9989
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.0001 par value per shareNUROThe Nasdaq Stock Market LLC
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x     No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x     No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting companyEmerging growth company
☐☐☐
x
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐     No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,628,907 shares of common stock, par value $0.0001 per share, were outstanding as of July 22, 2021.





NeuroMetrix, Inc.
Form 10-Q
Quarterly Period Ended June 30, 2021
 
TABLE OF CONTENTS
 
 
   
Item 1. 
   
 Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020
   
 Statements of Operations (unaudited) for the Quarters and Six Months Ended June 30, 2021 and 2020
   
Statements of Changes in Stockholders' Equity (unaudited) for the Quarters and Six Months Ended June 30, 2021 and 2020
 Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2021 and 20204
   
 
   
Item 2.10
   
Item 3.16
   
Item 4.16
   
 
   
Item 1.17
   
Item 1A.17
   
Item 2.17
   
Item 3.17
   
Item 4.17
   
Item 5.17
   
Item 6.18
   
19

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PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
NeuroMetrix, Inc.
Balance Sheets
 
 June 30, 2021December 31, 2020
(Unaudited)
Assets  
Current assets:  
Cash and cash equivalents
$8,364,197 $5,226,213 
Accounts receivable, net
457,033 334,297 
Inventories
1,029,154 1,051,282 
Prepaid expenses and other current assets
180,838 478,074 
Total current assets
10,031,222 7,089,866 
Fixed assets, net187,256 183,494 
Right to use asset522,131 692,692 
Other long-term assets28,284 28,523 
Total assets
$10,768,893 $7,994,575 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable
$289,760 $142,316 
Accrued expenses and compensation
790,427 998,442 
Accrued product returns
45,000 545,000 
Lease obligation, current
457,682 599,632 
Total current liabilities
1,582,869 2,285,390 
Lease obligation, net of current portion
350,895 461,410 
Total liabilities
1,933,764 2,746,800 
Commitments and contingencies
Stockholders’ equity:  
Preferred stock
— — 
Convertible preferred stock
1 1 
Common stock, $0.0001 par value; 25,000,000 shares authorized at June 30, 2021 and December 31, 2020; 5,046,198 and 3,793,739 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
505 379 
Additional paid-in capital
206,307,790 202,129,195 
Accumulated deficit
(197,473,167)(196,881,800)
Total stockholders’ equity
8,835,129 5,247,775 
Total liabilities and stockholders’ equity
$10,768,893 $7,994,575 

The accompanying notes are an integral part of these interim financial statements.
1



NeuroMetrix, Inc.
Statements of Operations
(Unaudited)
 
 Quarters Ended June 30,Six Months Ended June 30,
 2021202020212020
Revenues$2,213,499 $1,359,979 $4,368,971 $3,532,015 
Cost of revenues558,221 495,086 1,134,510 1,115,276 
Gross profit
1,655,278 864,893 3,234,461 2,416,739 
Operating expenses:    
Research and development
641,525 660,278 874,802 1,193,898 
Sales and marketing
269,493 379,113 663,318 803,462 
General and administrative
1,276,223 678,497 2,288,499 1,930,243 
Total operating expenses
2,187,241 1,717,888 3,826,619 3,927,603 
Loss from operations
(531,963)(852,995)(592,158)(1,510,864)
Other income379 1,051 791 1,549 
Net loss$(531,584)$(851,944)$(591,367)$(1,509,315)
Net loss per common share applicable to common stockholders, basic and diluted$(0.13)$(0.28)$(0.15)$(0.68)
 
The accompanying notes are an integral part of these interim financial statements.
 
2



NeuroMetrix, Inc.
Statements of Changes in Stockholders' Equity
(Unaudited)

Series B Convertible Preferred StockCommon
Stock		Additional
Paid-In
Capital		Accumulated
Deficit		Total
Number of
Shares		AmountNumber of
Shares		Amount
Balance at December 31, 2019200 $1 1,400,674 $140 $197,319,698 $(194,789,605)$2,530,234 
Stock-based compensation expense— — — — 144,047 — 144,047 
Issuance of common stock under at the market offering — — 256,078 25 453,432 — 453,457 
Issuance of common stock to settle compensation obligations— — 31,000 3 43,748 — 43,751 
Net loss — (657,371)(657,371)
Balance at March 31, 2020 200 1 1,687,752 168 197,960,925 (195,446,976)2,514,118 
Stock-based compensation expense— — — — 128,862 — 128,862 
Issuance of common stock under at the market offering— — 2,092,541 209 3,689,765 — 3,689,974 
Issuance of common stock under employee stock purchase plan— — 4,364 1 7,605 — 7,606 
Net loss— — — — — (851,944)(851,944)
Balance at June 30, 2020200 $1 3,784,657 $378 $201,787,157 $(196,298,920)$5,488,616 
Series B Convertible Preferred StockCommon
Stock		Additional
Paid-In
Capital		Accumulated
Deficit		Total
Number of
Shares		AmountNumber of
Shares		Amount
Balance at December 31, 2020200 $1 3,793,739 $379 $202,129,195 $(196,881,800)$5,247,775 
Stock-based compensation expense— — — — 68,863 — 68,863 
Issuance of common stock under employee stock purchase plan— — 2,408 1 4,196 — 4,197 
Net loss — — — — — (59,783)(59,783)
Balance at March 31, 2021200 1 3,796,147 380 202,202,254 (196,941,583)5,261,052 
Stock-based compensation expense— — — — 319,863 — 319,863 
Issuance of common stock under at the market offering— — 1,207,681 121 3,766,727 — 3,766,848 
Issuance of common stock under employee stock purchase plan— — 7,055 1 18,949 — 18,950 
Vesting of restricted stock under option plan— — 13,911 3 (3)— — 
Net loss— — — — — (531,584)(531,584)
Balance at June 30, 2021200 $1 5,024,794 $505 $206,307,790 $(197,473,167)$8,835,129 

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,
 20212020
Cash flows from operating activities:  
Net loss$(591,367)$(1,509,315)
Adjustments to reconcile net loss to net cash used in operating activities:
  
Depreciation
79,511 45,589 
Stock-based compensation
388,726 272,909 
Settlement of compensation obligation
— 43,751 
Impairment charge against right of use asset
126,748 204,000 
Changes in operating assets and liabilities:  
Accounts receivable(122,736)(108,694)
Inventories22,128 (28,284)
Collaboration receivable— 7,678 
Prepaid expenses and other current and long-term assets28,823 465,630 
Accounts payable147,444 (534,823)
Accrued expenses and compensation(148,015)(599,201)
Accrued product returns(500,000)(91,000)
Net cash used in operating activities(568,738)(1,831,760)
Cash flows from investing activities:  
Purchases of fixed assets
(83,273)(10,500)
Net cash used in investing activities
(83,273)(10,500)
Cash flows from financing activities:  
Net proceeds from issuance of stock 3,789,995 4,151,037 
Proceeds from debt issuance— 773,200 
Repayment of debt — (773,200)
Net cash provided by financing activities3,789,995 4,151,037 
Net increase in cash and cash equivalents3,137,984 2,308,777 
Cash and cash equivalents, beginning of period5,226,213 3,126,206 
Cash and cash equivalents, end of period$8,364,197 $5,434,983 
Supplemental disclosure of cash flow information:  
Common stock issued to settle employee compensation
$— $43,751 
 
The accompanying notes are an integral part of these interim financial statements.
 
4

NeuroMetrix, Inc.
Notes to Unaudited Financial Statements
June 30, 2021



1.Business and Basis of Presentation

Our Business-An Overview
 
NeuroMetrix, Inc. (the Company) is an innovation-driven company focused on the development and global commercialization of non-invasive medical devices for the diagnosis and treatment of pain and neurological disorders. Revenues are derived from the sale of medical devices and after-market consumable products and accessories. The Company’s products are cleared by the U.S. Food and Drug Administration (FDA) and regulators in foreign jurisdictions where appropriate. The Company has three commercial products. DPNCheck® is a diagnostic device that provides rapid, point-of-care detection of peripheral neuropathies. ADVANCE® is a diagnostic device that provides automated, in-office nerve conduction studies for the evaluation of focal neuropathies. Quell® is a wearable neurostimulation device indicated for symptomatic relief of lower extremity chronic pain that is available over-the-counter.

Unaudited Interim Financial Statements
 
The accompanying unaudited balance sheet as of June 30, 2021, unaudited statements of operations, changes in stockholders' equity for the quarters and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The accompanying balance sheet as of December 31, 2020 has been derived from audited financial statements prepared at that date but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on January 29, 2021 (File No. 001-33351).
 
Revenues

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

Accounts receivable are recorded at the amount the Company expects to collect, net of the allowance for doubtful accounts receivable. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses based on customer past payment history, product usage activity, and recent communications with the customer. Individual customer balances which are over 90 days past due are reviewed individually for collectability and written-off when recovery is not probable. Allowance for doubtful accounts was $25,000 as of June 30, 2021 and December 31, 2020.
 
One customer accounted for 26% and 31% of total revenues in the quarter and six months ended June 30, 2021, respectively. Three customers accounted for 42% and one customer accounted for 20% of total revenues in the quarter and six months ended June 30, 2020, respectively. Two customers accounted for 25% and two customers accounted for 50% of accounts receivable as of June 30, 2021 and December 31, 2020, respectively.

Stock-based Compensation
 
Total compensation cost related to non-vested awards not yet recognized at June 30, 2021 was $302,249. The total compensation costs are expected to be recognized over a weighted-average period of 1.1 years.

5




Liquidity

Our principal source of liquidity is cash and cash equivalents of $8.4 million at June 30, 2021. In addition to our cash resources, funding for our operations largely depends on revenues from the sale of our commercial products. A low level of market interest in our products, a decline in our consumables sales, unanticipated increases in our operating costs, and the effects of the COVID-19 pandemic could have an adverse effect on our liquidity and cash.

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.


2.     Comprehensive Loss
 
For the quarters and six months ended June 30, 2021 and 2020, the Company had no components of other comprehensive loss other than net loss itself.
 

3.     Net Loss Per Common Share
 
Basic and dilutive net loss per common share were as follows:
Quarters Ended June 30,Six Months Ended June 30,
2021202020212020
Net loss applicable to common stockholders$(531,584)$(851,944)$(591,367)$(1,509,315)
Weighted average number of common shares outstanding, basic and dilutive4,155,948 3,014,523 3,977,028 2,235,874 
Net loss per common share applicable to common stockholders, basic and diluted$(0.13)$(0.28)$(0.15)$(0.68)

Shares underlying the following potentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net loss per common share because their effect was anti-dilutive for each of the periods presented: 
Quarters Ended June 30,Six Months Ended June 30,
 2021202020212020
Options439,410 163,481 404,156 163,774 
Warrants— 27,287 — 34,686 
Convertible preferred stock62 62 62 62 
Total439,472 190,830 404,218 198,522 


6








4.     Inventories
 
Inventories consist of the following: 

 June 30, 2021December 31, 2020
Purchased components$755,578 $716,848 
Finished goods273,576 334,434 
 $1,029,154 $1,051,282 



5.     Accrued Expenses and Compensation
  
Accrued expenses and compensation consist of the following:
 June 30, 2021December 31, 2020
Professional services$173,000 $343,000 
Compensation354,422 49,837 
Advertising and promotion1,000 31,000 
Warranty 37,600 49,600 
Technology fees— 450,000 
Leasehold 60,000 — 
Sales tax 127,775 24,493 
Other36,630 50,512 
 $790,427 $998,442 


7




6.     Operating Leases
 
The Company's lease on its Woburn, Massachusetts corporate office and manufacturing facilities (the “Woburn Lease”) extends through September 2025 with a monthly base rent of $13,846 and a 5-year extension option. The Company's lease on its former corporate office in Waltham, Massachusetts (the "Waltham Lease") extends through February 2022 with an average monthly base rent of $41,074 and a 5-year extension option. A letter of credit in the amount of $226,731, secured by the Company's cash balances, was issued by a bank in favor on the Waltham Lease landlord. While the Company continues to actively seek a sublet for the Waltham Lease under difficult market conditions, the Company has written off the value of its right-to-use asset in the Waltham facility. The impairment charges recorded within the Company's Statement of Operations for the quarters ended June 30, 2021 and 2020 were zero and $117,000, respectively and $126,748 and $204,000 for the six months ended June 30, 2021 and 2020, respectively.

Future minimum lease payments under non-cancellable operating leases as of June 30, 2021 are as follows:
2021$327,580 
2022247,347 
2023165,785 
2024165,785 
2025117,431 
Total minimum lease payments$1,023,928 
Weighted-average discount rate, 14.7%
$215,351 
Lease obligation, current portion457,682 
Lease obligation, net of current portion350,895 
$1,023,928 

Total recorded rent expense was $57,453 and $166,905, for the quarters ended June 30, 2021 and 2020, respectively. Total recorded rent expense was $224,357 and $333,809, for the six months ended June 30. 2021 and 2020, respectively. The Company records rent expense on its facility leases on a straight-line basis over the lease term. Weighted average remaining operating lease term was 2.9 years as of June 30, 2021.


7.     Fair Value Measurements
 
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis for the periods presented and indicates the fair value hierarchy of the valuation techniques it utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. All Company assets and liabilities measured at fair value utilize Level 1 inputs.
 
  Fair Value Measurements at June 30, 2021 Using
 June 30, 2021Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:    
Cash equivalents$5,463,532 $5,463,532 $— $— 
Total$5,463,532 $5,463,532 $— $— 
 
  
8




  Fair Value Measurements at December 31, 2020 Using
 December 31, 2020Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Assets:    
Cash equivalents$2,374,216 $2,374,216 $— $— 
Total$2,374,216 $2,374,216 $— $— 

As of June 30, 2021, the Company's cash equivalents consisted of money market accounts.  

8.     Stockholders’ Equity
 
Preferred stock and convertible preferred stock consist of the following: 
 June 30, 2021December 31, 2020
Preferred stock, $0.001 par value; 5,000,000 shares authorized at June 30, 2021 and December 31, 2020; no shares issued and outstanding at June 30, 2021 and December 31, 2020
$— $— 
Series B convertible preferred stock, $0.001 par value; 147,000 shares designated at June 30, 2021 and December 31, 2020; 200 shares issued and outstanding at June 30, 2021 and December 31, 2020
$1 $1 
 
2021 equity activity

In January 2021, the Company issued 2,408 shares of fully vested common stock, par value $0.0001 per share ("common stock"), with a value of $4,197 pursuant to the Company's 2010 Employee Stock Purchase Plan.

In May 2021, the Company issued 42,808 shares of restricted common stock with a value of $125,000 under its 2004 Stock Option Plan. As of June 30, 2021, 13,911 were vested, 7,493 were forfeited in lieu of paying withholding taxes on the vesting of the restricted stock and 21,404 remain restricted.

In June 2021, the Company issued 7,055 shares of fully vested common stock with a value of $18,950 pursuant to the Company's 2010 Employee Stock Purchase Plan.

During the six months ended June 30, 2021, the Company issued 1,207,681 shares of its common stock, under an at-the-market offering program ("ATM Agreement") for net proceeds of $3,766,848. The ATM Agreement was entered into in 2020 and permits the sale and issuance of the Company's common stock subject to regulatory limitations imposed by the Securities and Exchange Commission and pursuant to a "shelf" registration statement on Form S-3.

2020 equity activity

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

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

During the six months ended June 30, 2020, 2,348,619 shares of common stock were issued pursuant to the ATM Agreement for net proceeds of $4,143,431.

9




9.     Termination Agreement

On June 30, 2021, the Company entered into a Termination Agreement with GSK Consumer Healthcare S.A. ("GSK") pursuant to which the parties terminated the 2018 Development and Services Agreement which provided GSK with license and intellectual property rights for the commercialization of the Quell technology for markets outside the United States. Under terms of the Termination Agreement, GSK transferred back to NeuroMetrix all of GSK's rights in the Quell technology related to markets outside the United States, including technology improvements and intellectual property. NeuroMetrix agreed to make royalty payments to GSK ranging between 5% and 8% for a ten-year period based on net sales of Quell devices that are available to consumers for purchase without a prescription from a licensed medical professional outside the United States.

10.     Subsequent Event

From July 1, 2021 to July 20, 2021, the Company issued 582,709 shares of common stock under its ATM program. Net proceeds from this activity was $2,239,607.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the accompanying notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Quarterly Report on Form 10-Q titled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Quarterly Report on Form 10-Q refer to NeuroMetrix, Inc.


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

•Point-of-care neuropathy diagnostic tests
•Wearable neurostimulation devices

Peripheral neuropathies, also called polyneuropathies, are diseases of the peripheral nerves. They affect about 10% of adults in the United States, with the prevalence rising to 25-50% among individuals 65 years and older. Peripheral neuropathies are associated with loss of sensation, pain, increased risk of falling, weakness, and other complications. People with peripheral neuropathies generally have a diminished quality of life, poor overall health and higher mortality. The most common specific cause of peripheral neuropathies, accounting for about one-third of cases, is diabetes. Diabetes is a worldwide epidemic with an estimated affected population of over 400 million people. Within the United States there are over 30 million people with diabetes and another 80 million people with pre-diabetes. The annual direct cost of treating diabetes in the United States exceeds $100 billion. Although there are dangerous acute manifestations of diabetes, the primary burden of the disease is in its long-term complications, which include cardiovascular disease, nerve disease and resulting conditions such as foot ulcers which may require amputation, eye disease leading to blindness, and kidney failure. The most common long-term complication of diabetes, affecting over 50% of the diabetic population, is peripheral neuropathy. Diabetic peripheral neuropathy (DPN) is the primary trigger for diabetic foot ulcers, which may progress to the point of requiring amputation. People with diabetes have a 15-25% lifetime risk of foot ulcers and approximately 15% of foot ulcers lead to amputation. Foot ulcers are the most expensive complication of diabetes with a typical cost of $5,000 to $50,000 per episode. In addition, between 16% and 26% of people with diabetes suffer from chronic pain in the feet and lower legs.

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Early detection of peripheral neuropathies, such as DPN, is important because there are no treatment options once the nerves have degenerated. Today’s diagnostic methods for peripheral neuropathies range from a simple monofilament test for lack of sensory perception in the feet to a nerve conduction study performed by a specialist. Our DPNCheck nerve conduction technology provides a rapid, low cost, quantitative test for peripheral neuropathies, including DPN. It addresses an important medical need and is particularly effective in screening large populations. DPNCheck has been validated in numerous clinical studies.

Chronic pain is a significant public health problem. It is defined by the National Institutes of Health (NIH) as pain lasting more than 12 weeks. This contrasts with acute pain which is a normal bodily response to injury or trauma. Chronic pain conditions include low back pain, arthritis, fibromyalgia, neuropathic pain, cancer pain and many others. Chronic pain may be triggered by an injury or there may be an ongoing cause such as disease or illness. There may also be no clear cause. Chronic pain can also lead to other health problems. These can include fatigue, sleep disturbance and mood changes which cause difficulty in carrying out important activities and may contribute to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective pain management.

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

Nerve stimulation is a long-established category of treatment for chronic pain. This treatment approach is available through implantable devices which have both surgical and ongoing risks, such as migration of the implanted nerve stimulation leads. Non-invasive approaches involving transcutaneous electrical nerve stimulation (TENS) have achieved limited efficacy in practice due to power limitations, ineffective dosing and low patient adherence. We believe that our Quell wearable technology for chronic pain is designed to address many of the limitations of traditional TENS.





 
Results of Operations
 
Comparison of Quarters Ended June 30, 2021 and 2020
 
Revenues
 
 Quarters Ended June 30, 
 20212020Change% Change
 (in thousands) 
Revenues$2,213.5 $1,360.0 $853.5 62.8 %
 
Revenues include sales of our wearable technologies for chronic pain and our nerve conduction technologies to physician offices, clinics, hospitals, other healthcare providers and insurers, as well as domestic and international distributors. Revenues comprise sales of medical devices as well as aftermarket electrodes and other supplies. Revenues were approximately $2.2 million during the second quarter of 2021 compared with $1.4 million during the second quarter of 2020 which was adversely affected by the economic effects of the COVID-19 pandemic.

 
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Cost of Revenues and Gross Profit
 
 Quarters Ended June 30, 
 20212020Change% Change
 (in thousands) 
Cost of revenues$558.2 $495.1 $63.1 12.7 %
Gross profit$1,655.3 $864.9 $790.4 91.4 %
 
Gross margin was 74.8% in the second quarter of 2021 versus 63.6% in the same period in the prior year. The margin improvement in 2021 was due to increased weighting of our nerve conduction testing technologies within total revenue.

Operating Expenses
 
 Quarters Ended June 30,  
 20212020Change% Change
 (in thousands) 
Operating expenses:    
Research and development$641.5 $660.3 $(18.8)(2.8)%
Sales and marketing269.5 379.1 (109.6)(28.9)%
General and administrative1,276.2 678.5 597.7 88.1 %
Total operating expenses$2,187.2 $1,717.9 $469.3 27.3 %
 
Research and Development
 
Research and development expense in the second quarter of 2021 decreased by 2.8% from the same period in the prior year due to a decrease of $35,000 in personnel costs and a decrease of $64,000 in consulting and professional services offset by an increase of $86,000 in clinical and development costs.
 
Sales and Marketing
 
Sales and marketing expense in the second quarter of 2021 decreased by 28.9% from the same period in the prior year due to a reduction of $61,000 in advertising spending and $40,000 in consulting costs.

General and Administrative
 
General and administrative expense in the second quarter of 2021 increased by 88.1% from the same period in the prior year due to an increase of $56,000 in consulting costs, an increase of $105,000 in outside professional service costs, $110,000 in sales tax and fee related costs and a $335,000 increase in non-cash personnel costs relating to executive officers who took significant compensation reductions in the prior year.

Other income
 
 Quarters Ended June 30, 
 20212020Change% Change
 (in thousands) 
    
Other income$0.4 $1.1 $(0.7)(63.6)%

Other income primarily includes interest income.

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Comparison of Six Months Ended June 30, 2021 and 2020
 
Revenues
 
 Six Months Ended June 30, 
 20212020Change% Change
 (in thousands) 
Revenues$4,369.0 $3,532.0 $837.0 23.7 %
 
Revenues include sales of our wearable technologies for chronic pain and our nerve conduction technologies to physician offices, clinics, hospitals, other healthcare providers and insurers, as well as domestic and international distributors. Revenues comprise sales of medical devices as well as aftermarket electrodes and other supplies. Revenues in the six months ended June 30, 2021 were approximately $837,000 higher than the six months ended June 30, 2020, which was adversely affected by the economic effects of the COVID-19 pandemic.

 
Cost of Revenues and Gross Profit
 
 Six Months Ended June 30, 
 20212020Change% Change
 (in thousands) 
Cost of revenues$1,134.5 $1,115.3 $19.2 1.7 %
Gross profit$3,234.5 $2,416.7 $817.7 33.8 %
 
Gross margin was 74.0% in the six months ended June 30, 2021 versus 68.4% in the same period in the prior year. The margin improvement in 2021 was due to increased weighting of our nerve conduction testing technologies within total revenue.

Operating Expenses
 
 Six Months Ended June 30,  
 20212020Change% Change
 (in thousands) 
Operating expenses:    
Research and development$874.8 $1,193.9 $(319.1)(26.7)%
Sales and marketing663.3 803.5 (140.2)(17.4)%
General and administrative2,288.5 1,930.2 358.3 18.6 %
Total operating expenses$3,826.6 $3,927.6 $(101.0)(2.6)%
 
Research and Development
 
Research and development expense in the six months ended June 30, 2021 decreased by 26.7% from the same period in the prior year due to the reversal of a $450,000 technology fee accrual in the first quarter of 2021 offset by an increase of $50,000 in consulting and professional costs and $84,000 in clinical and development costs.
 
Sales and Marketing
 
Sales and marketing expense in the six months ended June 30, 2021 decreased by 17.4% from the same period in the prior year due to a $236,000 reduction in personnel spending offset by an increase in advertising spending of $116,000.

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General and Administrative
 
General and administrative expense in the six months ended June 30, 2021 increased by 18.6% from the same period in the prior year due to a reduction of $62,000 in consulting costs and a reduction of $50,000 in outside professional service costs. This was offset by a $372,000 increase in non-cash personnel costs relating to executive officers who took significant compensation reductions in the prior year and by $95,000 in sales tax and fee related costs.

Other income
 
 Six Months Ended June 30, 
 20212020Change% Change
 (in thousands) 
    
Other income$0.8 $1.5 $(0.8)(51.6)%

Other income primarily includes interest income.






Liquidity and Capital Resources
 
Our principal source of liquidity is cash and cash equivalents of $8.4 million at June 30, 2021. In addition to our cash resources, funding for our operations largely depends on revenues from the sale of our commercial products. A low level of market interest in our products, a decline in our consumables sales, unanticipated increases in our operating costs, and the effects of the COVID-19 pandemic could have an adverse effect on our liquidity and cash.
 June 30, 2021December 31, 2020Change% Change
 (in thousands) 
Cash and cash equivalents$8,364.2 $5,226.2 $3,138.0 60.0 %
 
During the six months ended June 30, 2021, our cash and cash equivalents increased by $3,138.0 thousand reflecting $568.7 thousand in cash used in operating activities and $83.3 thousand in cash used in investing activities, offset by $3,785.0 thousand in cash provided by financing activities.


In managing working capital, we focus on two important financial measurements:
 Quarters Ended June 30,Year Ended
December 31,
 202120202020
Days sales outstanding (days)192615
Inventory turnover rate (times per year)2.21.71.9

Days sales outstanding (DSO) reflect customer payment terms which vary from payment on order to 60 days from invoice date. DSO decreased to 19 days during the quarter ended June 30, 2021 compared to 26 days in the prior year period. This was primarily attributable to the timing of sales within the respective quarters.

The inventory turnover rate increased to 2.2 turns in the second quarter of 2021 compared to 1.7 turns in the prior year period. The increase was due to higher sales in the second quarter of 2021 on approximately constant inventory levels.
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The following sets forth information relating to our sources and uses of our cash:
 Six Months Ended June 30,
 20212020
 (in thousands)
Net cash used in operating activities$(568.7)$(1,831.8)
Net cash used in investing activities(83.3)(10.5)
Net cash provided by financing activities 3,790.0 4,151.0 
Net cash provided$3,138.0 $2,308.7 
 
We have an effective shelf registration statement on Form S-3 on file with the SEC covering the sales of shares of our common stock and other securities. This shelf registration statement gives us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. Pursuant to the instructions to Form S-3, we have the ability to sell shares under the shelf registration statement, during any 12-month period, in an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates. If we raise additional funds by issuing equity or debt securities, either through the sale of securities pursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.



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Cautionary Note Regarding Forward-Looking Statements
 
The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future revenues and projected expenses, the effect of the COVID-19 pandemic on our operating capabilities, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to manage our expenses effectively and raise the funds needed to continue our business; our belief that there are unmet needs for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding our commercialized neurostimulation and neuropathy diagnostic products; our expected timing and our plans to develop and commercialize our products; our ability to meet our proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of our existing products and any future products we may develop; regulatory and legislative developments in the United States and foreign countries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for our products; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; our estimate of our customer returns of our products; the rate and degree of market acceptance of any future products; our reliance on key scientific management or personnel; the payment and reimbursement methods used by private or government third party payers; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in cash equivalents and short-term investments with a maturity of twelve months or less and maintain an average maturity of twelve months or less. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio or our interest income.
 
Item 4. Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2021, 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
 
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, 2020.


Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.    Defaults Upon Senior Securities
 
None. 

Item 4.    Mine Safety Disclosures
 
Not applicable. 

Item 5.    Other Information
 
Amendment to the Shareholders Rights Agreement

On July 20, 2021, NeuroMetrix, Inc. entered into Amendment No. 14 (“Amendment No. 14”) to the Shareholder Rights Agreement with American Stock Transfer & Trust Company, LLC dated as of March 7, 2007, as amended (the “Rights Plan”), to amend certain of the provisions of the Rights Plan. Any capitalized term used herein that is not defined shall have the meaning ascribed to it in Amendment No. 14 or the Rights Plan, as the case may be.

As in past years, the primary purpose of Amendment No. 14 is to extend the term of the Rights Plan by an incremental one-year period, i.e., from an expiry of March 7, 2022 to March 7, 2023. In addition, Amendment No. 14 also makes certain amendments to update provisions of the Rights Plan that have been unchanged since their original adoption, including: (1) expanding the definition of “Beneficial Ownership” to account for current types of derivative contracts and synthetic equity, and (2) including a trust feature in Section 24 of the Rights Plan.

The foregoing description of Amendment No. 14 is subject to, and is qualified in its entirety by reference to, and the fully text of Amendment No. 14, a copy of which is set forth as Exhibit 4.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

 
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Item 6.    Exhibits

Exhibit No. Description
Amendment No. 14 to Shareholder Rights Agreement by and between NeuroMetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent, dated July 20, 2021. Filed herewith.
Termination Agreement by and between NeuroMetrix, Inc. and GSK Consumer Healthcare S.A. dated June 30, 2021. Filed herewith.
 Certification of Principal Executive Officer Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. Filed herewith.
   
 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.
   
 Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. Furnished herewith.
101The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at June 30, 2021 and December 31, 2020, (ii) Statements of Operations for the quarters ended June 30, 2021 and 2020, (iii) Statements of Changes in Stockholders' Equity for the quarters ended June 30, 2021 and 2020, (iv) Statements of Cash Flows for the quarters ended June 30, 2021 and 2020, and (v) Notes to Financial Statements.
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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.
  
July 22, 2021/s/SHAI N. GOZANI, M.D., PH. D.
  Shai N. Gozani, M.D., Ph. D.
  Chairman, President and Chief Executive Officer
  
July 22, 2021/s/THOMAS T. HIGGINS
  Thomas T. Higgins
  Senior Vice President, Chief Financial Officer and Treasurer
 
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