NeuroMetrix Inc.
Annual Report 2015

Plain-text annual report

NEUROMETRIX, INC. FORM 10-K (Annual Report) Filed 02/12/16 for the Period Ending 12/31/15 Address Telephone CIK 62 FOURTH AVENUE WALTHAM, MA 02451 (781) 890-9989 0001289850 Symbol NURO SIC Code 3841 - Surgical and Medical Instruments and Apparatus Industry Medical Equipment & Supplies Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.  UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 Incorporation or Organization) (I.R.S. Employer Identification No.) 1000 Winter Street, Waltham, Massachusetts 02451(Address of Principal Executive Offices) (Zip Code)(781) 890-9989(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registeredCommon Stock, $0.0001 par value per share The NASDAQ Stock Market LLCPreferred Stock Purchase Rights The NASDAQ Stock Market LLCWarrants to Purchase Common Stock The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No x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 ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has beensubject to such filing requirements for the past 90 days.Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act(check one): Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smallerreporting company) Smaller reporting company xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No xAs of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of thevoting stock held by non-affiliates of the registrant was approximately $10,242,247 based on the closing sale price of the common stock asreported on the NASDAQ Capital Market on June 30, 2015.As of February 1, 2016, there were 4,049,807 shares of Common Stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEThe following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain informationrequired by Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the Annual Meeting ofStockholders to be held on May 3, 2016, or the 2016 Annual Meeting of Stockholders.  TABLE OF CONTENTSNEUROMETRIX, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENTS PART I Item 1.Business 1 Item 1A.Risk Factors 16 Item 1B.Unresolved Staff Comments 31 Item 2.Properties 31 Item 3.Legal Proceedings 31 Item 4.Mine Safety Disclosures 31 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities 32 Item 6.Selected Financial Data 33 Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations 34 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 44 Item 8.Financial Statements and Supplementary Data 44 Item 9.Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure 44 Item 9A.Controls and Procedures 44 Item 9B.Other Information 45 PART III Item 10.Directors, Executive Officers and Corporate Governance 46 Item 11.Executive Compensation 49 Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters 49 Item 13.Certain Relationships and Related Transactions and Director Independence 51 Item 14.Principal Accounting Fees and Services 52 PART IV Item 15.Exhibits and Financial Statement Schedule 53 Signatures 58 “NEUROMETRIX”, “NC-STAT”, “ADVANCE”, “SENSUS”, “Quell”, “DPNCheck” and “NC-stat DPNCHECK” are the subjectof either a trademark registration or application for registration in the United States. Other brands, names and trademarks contained inthis Annual Report on Form 10-K are the property of their respective owners.All share amounts in this Annual Report on Form 10-K have been adjusted to reflect a 1-for-4 reverse stock split that was effectedon December 1, 2015.i  TABLE OF CONTENTSPART IThe statements contained in this Annual Report on Form 10-K, including under the section titled “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and other sections of this Annual Report, include forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended, or the Exchange Act, including, without limitation, statements regarding our or our management’sexpectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses,future revenues and projected expenses, our future liquidity and our expectations regarding our needs for and ability to raise additionalcapital; our ability to manage our expenses effectively and raise the funds needed to continue our business; our belief that there areunmet needs for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectationssurrounding Quell and DPNCheck; our expected timing and our plans to develop and commercialize our products; our ability to meetour proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of ourexisting products and any future products we may develop; regulatory and legislative developments in the United States and foreigncountries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for ourproducts; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for ourproducts and our ability to serve those markets; our plan to make Quell more broadly available through retail distribution; our beliefthat there are significant opportunities to market Quell outside the United States; 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 paymentand reimbursement methods used by private or government third party payers; and other factors discussed elsewhere in this AnnualReport on Form 10-K 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 absenceof these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Annual Reporton Form 10-K 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-lookingstatements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actualresults or performance to be materially different from those expressed or implied by these forward-looking statements. These risks anduncertainties include, but are not limited to, those factors described in the section titled “Risk Factors.” Should one or more of theserisks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected inthese forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise, except as may be required under applicable securities laws. Unless the contextotherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Annual Report on Form 10-K refer toNeuroMetrix, Inc.ITEM 1. BUSINESSOur Business — An OverviewNeuroMetrix is an innovative health-care company that develops wearable medical technology and point-of-care tests that helppatients and physicians better manage chronic pain, nerve diseases, and sleep disorders. Our business is fully integrated with in-housecapabilities spanning product development, manufacturing, regulatory affairs and compliance, sales and marketing, and customersupport. We derive revenues from the sale of medical devices and after-market consumable products and accessories. Our products aresold in the United States and selected overseas markets, and are cleared by the U.S. Food and Drug Administration, or FDA, andregulators in foreign jurisdictions where appropriate. We have two principal product lines:•Wearable neuro-stimulation therapeutic devices•Point-of-care neuropathy diagnostic tests1  TABLE OF CONTENTSOur core expertise in biomedical engineering has been refined over nearly two decades of designing, building and marketingmedical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We created the market forpoint-of-care nerve testing and were first to market with sophisticated, wearable technology for management of chronic pain. We alsohave an experienced management team and Board of Directors. Chronic pain is a significant public health problem. It is defined by theNational Institutes of Health as any pain lasting more than 12 weeks in contrast to acute pain which is a normal bodily response toinjury or trauma. Chronic pain conditions include painful diabetic neuropathy, or PDN, arthritis, fibromyalgia, sciatica,musculoskeletal pain, cancer pain and many others. Chronic pain may be triggered by an injury or there may be an ongoing cause suchas disease or illness. There may also be no clear cause. Pain signals continue to be transmitted in the nervous system over extendedperiods of time often leading to other health problems. These can include fatigue, sleep disturbance, decreased appetite, and moodchanges which cause difficulty in carrying out important activities and contributing to disability and despair. In general, chronic paincannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective painmanagement.Chronic pain is widespread. It affects over 100 million adults in the United States and more than 1.5 billion people worldwide. Theglobal market for pain management drugs and devices alone was valued at $35 billion in 2012. The estimated incremental impact ofchronic pain on health care costs in the United States is over $250 billion per year and lost productivity is estimated to exceed $300billion per year.The most common approach to chronic pain is pain medication. This includes over-the-counter drugs (such as Advil and Motrin),and prescription drugs including anti-convulsants (such as Lyrica and Neurontin) and anti-depressants (such as Cymbalta and Elavil).Topical creams may also be used (such as Zostrix and Bengay). With severe pain, narcotic pain medications may be prescribed (suchas codeine, fentanyl, morphine, and oxycodone). The approach to treatment is individualized, drug combinations may be employed,and the results are often hit or miss. Side effects and the potential for addiction are real and the risks are substantial.Reflecting the difficulty in treating chronic pain, we believe that inadequate relief leads 25% to 50% of pain sufferers to turn to theover-the-counter market for supplements or alternatives to prescription pain medications. These include non-prescription medications,topical creams, lotions, electrical stimulators, dietary products, braces, sleeves, pads and other items. In total they account for over $4billion in annual spending in the United States on pain relief products.High frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studiesdemonstrating efficacy. In simplified outline, the mechanism of action involves intensive nerve stimulation to activate the body’scentral pain inhibition system resulting in widespread analgesia, or pain relief. The nerve stimulation activates brainstem pain centersleading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain signal transmissionthrough the central nervous system. This therapeutic approach is available through deep brain stimulation and through implantablespinal cord stimulation, both of which require surgery and have attendant risks. Non-invasive approaches to neuro-stimulation(transcutaneous electrical nerve stimulation, or TENS) have achieved limited efficacy in practice due to device limitations, ineffectivedosing and low patient compliance.Our StrategyThere are large and important unmet medical needs in chronic pain treatment. Prescription pain medications and over-the-countertherapies are often inadequate and can lead to other health issues. We believe that controlled, personalized, neuro-stimulation tosuppress pain provides an important complement to pain medications. As a medical device company with unique experience indesigning devices to manage and alter peripheral nerve function, we believe we are well positioned to make neuro-stimulation widelyavailable to chronic pain sufferers. We have direct experience with neuro-stimulation through our prescription SENSUS wearable painmanagement device which has been on the market for the past three years and Quell, our over-the-counter, or OTC, wearable devicefor pain relief which was launched in the second quarter of 2015 and builds upon the core SENSUS neuro-stimulation technology.Our primary objective is revenue growth. We expect this to be led by the successful market adoption of Quell. We also expect animportant contribution to revenue from DPNCheck, our rapid, accurate diagnostic test for diabetic peripheral neuropathy.2  TABLE OF CONTENTSOur key business strategies include:Driving Commercial Adoption of Key Proprietary Products.•Quell , our OTC wearable device for pain relief, was unveiled at the January 2015 Consumer Electronics Show (CES) andmade commercially available in the United States during the second quarter of 2015. Following commercial launch throughthe end of 2015, approximately 13,800 Quell devices plus electrodes and accessories were shipped to consumers. Quell utilizesOptiTherapy, our proprietary non-invasive neuro-stimulation technology to provide relief from chronic intractable pain, suchas nerve pain due to diabetes, fibromyalgia, arthritic pain, and lower back and leg pain. This advanced wearable device islightweight and can be worn during the day while active, and at night while sleeping. It has been cleared by the FDA fortreatment of chronic intractable pain without a doctor’s prescription. Users of the device have the option of using theirsmartphones to automatically track and personalize their pain therapy. Quell was launched through two distribution channels: aprofessional channel using a direct sales force to target podiatrists, pain physicians, primary care physicians, and chiropractorswho resell the product, and a direct-to-consumer channel using online marketing and lead generation. After establishing theprofessional and direct to consumer channels, we expanded distribution to include Amazon e-commerce sales and QVC directresponse TV, or DRTV, sales. We are developing other distribution channels for broader access to the retail markets. Webelieve there are significant opportunities to market Quell outside of the United States, particularly in Western Europe, Japanand China; however, we do not intend to approach those markets until we have established a solid presence in the UnitedStates.•DPNCheck, our diagnostic test for peripheral neuropathies, was made commercially available in the fourth quarter of 2011.DPNCheck revenues for the years December 31, 2015 and 2014 were approximately $2.3 million and $1.8 million,respectively. Our US sales efforts focus on Medicare Advantage providers who assume financial responsibility and theassociated risks for the health care costs of their patients. We believe that DPNCheck presents an attractive clinical case withearly detection of neuropathy allowing for earlier clinical intervention to help mitigate the effects of neuropathy on bothpatient quality of life and cost of care. Also, the diagnosis and documentation of neuropathy provided by DPNCheck helpsclarify the patient health profile which, in turn, may have a direct, positive effect on the Medicare Advantage premiumreceived by the provider. We believe that attractive opportunities exist outside the United States including Japan where wereceived regulatory approval and launched DPNCheck with our distribution partner Omron Healthcare in the third quarter of2014; in China where we recently received regulatory approval and are working with Omron Healthcare toward commerciallaunch in the second half of 2016; and in Mexico where our distributor Scienta Farma received regulatory approval andinitiated sales in the fourth quarter of 2015.Maintaining a High Level of Research and Development Productivity Our research and development, or R&D, team successfullydelivered Quell, an FDA cleared, technologically sophisticated, smart phone integrated product with electrodes and other accessories.We believe that there are no comparable products on the market. Our R&D team is now charged with maintaining and expanding thisQuell competitive technological advantage, and enhancing our intellectual property position, through continuing innovation. Weexpect innovation to take the form of device and software enhancements to improve the user experience, expanded smart phoneapplications, and new electrode features to optimize therapy. Technological innovation will continue to be one of our top priorities.Our Business ModelOur products consist of a medical device used in conjunction with a consumable electrode or biosensor. Other accessories andconsumables are also available to customers. Our goal for these devices is to build an installed base of active customer accounts anddistributors that regularly order aftermarket products to meet their needs. We successfully implemented this model when we startedour business with the NC-stat system and applied it to subsequent product generations including the ADVANCE system. Our recentlydeveloped products, Quell, SENSUS and DPNCheck, conform to this model.3  TABLE OF CONTENTSMarketed ProductsQuellQuell is a wearable device for relief of chronic intractable pain, such as nerve pain due to diabetes and lower back problems. Itincorporates our OptiTherapy technology, a collection of proprietary approaches designed to optimize the clinical efficacy of nervestimulation. These include high power electrical stimulation hardware with precise control, algorithms that automatically determinetherapeutic stimulation intensity and compensate for nerve desensitization, and automated detection of user sleep and appropriateadjustment of stimulation level. Quell is comprised of (1) an electronic device carried in a neoprene band that is worn on the upper calfand (2) an electrode that attaches to the device and is the interface between the device and the skin. The device is lightweight and canbe worn during the day while active, and at night while sleeping. It has been cleared by the FDA for treatment of chronic intractablepain and will be available OTC. Users of the device have the option of using their smartphones to automatically track and personalizetheir pain therapy. The device was unveiled at the Consumer Electronics Show in January 2015 and was made commercially availablein June 2015. In an independent post-market clinical study of Quell initiated by NeuroMetrix, 81% of subjects reported animprovement in management of their chronic pain and health, and 67% reported a reduction in their use of pain medications. Toencourage persons with chronic pain to try Quell, we offer a 60-day trial period during which the product can be returned for a fullrefund. We estimate, over time, we will see product returns in the range of 20%, as indicated by the results of the post-market clinicalstudy. Quell is currently available at selected physician resellers including podiatrists, pain physicians, primary care physicians, andchiropractors, and also via e-commerce on our designated website at (quellrelief.com) and on Amazon.com, and via DRTV on QVC.We are developing other retail distribution channels to broaden access to consumers. Following commercial launch through the fourthquarter of 2015 approximately 13,800 devices and accessories were shipped to consumers with a total invoiced value of $3.1 millionprior to the impact of product returns.SENSUSThe SENSUS pain therapy device, the technological predecessor to Quell, is a prescription neuro-stimulation device based onTENS for relief of chronic, intractable pain. SENSUS, which was commercially launched in the first quarter of 2013, is a convenientand wearable device that offers physicians and their patients a non-narcotic pain relief option as a complement to medications.SENSUS is comprised of: (1) an electronic device with a strap that is worn on the upper calf and (2) an electrode which attaches to thedevice. We provide prescribing physicians with PC-based software that links to the device via a USB connection, thereby allowingthem to download a record of the patient’s use of the device. The SENSUS device and electrodes were cleared by the FDA forcommercial distribution. When medically indicated and supported by proper documentation, TENS devices are generally reimbursedby Medicare and many commercial insurance companies under the DME benefit. We believe SENSUS will have a limited impact onfuture revenues. SENSUS customers have purchased approximately 10,000 devices through December 31, 2015.DPNCheckDPNCheck is a fast, accurate, and quantitative nerve conduction test that is used to evaluate systemic neuropathies such as diabeticperipheral neuropathy, or DPN. It is designed to be used by primary care physicians, endocrinologists, podiatrists and other cliniciansat the point-of-care to objectively detect, stage, and monitor DPN. The device measures nerve conduction velocity and responseamplitude of the sural nerve, a nerve in the lower leg and ankle. These parameters are widely recognized as sensitive and specificbiomarkers of DPN. DPNCheck is comprised of: (1) an electronic hand-held device and (2) a single patient use biosensor. In addition,we provide users with PC-based software that links to the device via a USB connection. This PC software allows physicians togenerate reports and manage their sural nerve conduction data.DPNCheck is a modified version of our previously marketed NC-stat nerve testing device that has the same clinical indicationswith respect to DPN. The modified device which costs less than the original device, has the same functionality with respect to suralnerve testing. More than 1.8 million patient studies have been performed using our NC-stat technology and there have beenapproximately 6.8 million nerve tests. It has4  TABLE OF CONTENTSbeen the subject of many published studies, including several studies specifically addressing the accuracy and clinical utility of thedevice in assessment of DPN. DPNCheck shipments commenced in late 2011 and approximately 2,900 device have been placed withcustomers through December 31, 2015ADVANCE SystemOur legacy neurodiagnostics business is based on the ADVANCE NCS/EMG System, or the ADVANCE System, which is acomprehensive platform for the performance of traditional nerve conduction studies. The ADVANCE System is comprised of: (1) theADVANCE device and related modules, (2) various types of electrodes and needles, and (3) a communication hub that enables thephysician’s office to network their device to their personal computers and our servers for data archiving, report generation, and othernetwork services. The ADVANCE System is most commonly used with proprietary nerve specific electrode arrays. These electrodearrays combine multiple individual electrodes and embedded microelectronic components into a single patient-use disposable unit. Wecurrently market seven different nerve specific electrode arrays.Historically, the ADVANCE System has been marketed to a broad range of physician specialties including neurologists,orthopedic surgeons, primary care physicians, and endocrinologists, and utilized for a variety of different clinical indications includingassessment of carpal tunnel syndrome, or CTS, low back and leg pain, and DPN. It is most commonly used in the assessment of CTS.Numerous papers have been published on the use of this technology in this clinical application. More than 1.8 million patient studieshave been performed using our NC stat technology and there have been approximately 6.3 million nerve tests, including 700,000 suralnerve tests. As of December 31, 2015, we had an installed base of approximately 500 active customers using are ADVANCE SystemThe following chart summarizes our previously marketed products and currently marketed products. Product Time on Market Technology Primary Clinical Indications No. Patients Tested/TreatedQuell Q2 2015 – present TranscutaneousElectrical NerveStimulation Relief for chronic, intractablepain > 13,000SENSUS Q1 2013 – present TranscutaneousElectrical NerveStimulation Relief for chronic, intractablepain, such as PDN > 9,000DPNCheck Q4 2011 – present Nerve Conduction Diagnosis and evaluation ofperipheral neuropathies, suchas DPN > 473,000ADVANCE Q2 2008 – present Nerve ConductionInvasive Needle EMG Diagnosis and evaluation ofCTS, low back pain,peripheral neuropathies(including DPN) > 1,800,000(ADVANCE andNC-stat)NC-stat* Q2 1999 – Q3 2010 Nerve Conduction Diagnosis and evaluation ofCTS, low back pain,peripheral neuropathies(including DPN) *Support was discontinued in the first quarter of 2012.CustomersOur customers include consumers, patients, physicians, clinics, hospitals, managed care organizations, retail health businesses,independent distributors in the United States and abroad, and durable medical equipment (DME) suppliers. With the commerciallaunch of Quell in the second quarter of 2015, our customer base has been expanded to include consumers and patients who purchasethe device directly from us. Through December 31, 2015, approximately 13,800 devices were shipped. SENSUS was launched in early2013 and is sold to DME suppliers who, in turn, distribute the product along with consumables directly to patients.5  TABLE OF CONTENTSSENSUS customers purchased approximately 2,900 devices during 2015. DPNCheck shipments commenced in late 2011 andapproximately 2,900 devices had been placed with customers through December 31, 2015. These customers include managed careorganizations, retail health businesses, endocrinologists, podiatrists and primary care physicians. As of December 31, 2015, we had aninstalled base of approximately 500 active customers using our ADVANCE System. These customers include primary care, internalmedicine, orthopedic and hand surgeons, pain medicine physicians, neurologists, physical medicine and rehabilitation, or PM&R,physicians, and neurosurgeons. At December 31, 2015, one customer accounted for 46% of accounts receivable and one customeraccounted for 12% of revenue.Geographic InformationSubstantially all of our assets, revenues, and expenses for 2015, 2014, and 2013 were located at or derived from operations in theUnited States. In addition, we have had sales through distributors in Europe, Asia, the Middle East and various regions. During 2015,2014, and 2013, international revenues accounted for approximately 19%, 19%, and 16%, respectively, of our total revenues.Sales, Marketing, and DistributionQuell was made commercially available in the United States during the second quarter of 2015. Initial distribution involved twochannels: a professional channel using a direct sales force to target podiatrists, pain physicians, primary care physicians, andchiropractors who stock and resell the product, and a direct-to-consumer channel using our e-commerce website supported by socialmedia plus traditional marketing. After establishing the professional and direct to consumer channels we expanded distribution toinclude ecommerce on Amazon.com and DRTV sales on QVC. We plan to make Quell more broadly available through retaildistribution in 2016. Marketing for Quell is led by our Senior Vice President and General Manager, Consumer with support frommarketing staff and supplemented by outside consultants. We believe there are opportunities for Quell outside the United States,particularly in Western Europe, Japan and China; however, we do not plan to address those markets until we have established a solidpresence in the United States.SENSUS is sold through a combination of national and regional DME suppliers whose sales representatives call onendocrinologists, podiatrists, and primary care physicians that are challenged with trying to manage chronic pain in their patients,including patients with painful diabetic neuropathy. The efforts of DME suppliers are coordinated from our corporate office.Our U.S. sales efforts for DPNCheck are focused on managed care, and specifically Medicare Advantage providers and patientscreening services, which we believe represents the most attractive market opportunity. We believe that attractive opportunities aredeveloping in Japan where we received regulatory approval and launched DPNCheck with Omron Healthcare in 2014; in China wherewe recently received regulatory approval and are working with Omron Healthcare toward commercial launch in the second half of2016; and in Mexico where our distributor Scienta Farma received regulatory approval and initiated sales in the fourth quarter of 2015.Our installed base of ADVANCE accounts is supported by our customer service department. We are not actively pursuing newADVANCE customers. Interest expressed in new ADVANCE systems by potential customers is handled by our customer servicedepartment and our marketing department. Internationally, ADVANCE sales and account support is handled by our network ofindependent distributors.Our marketing support for SENSUS, NC-stat, DPNCheck and ADVANCE is provided by our Senior Vice President ofCommercial Operations and staff in our corporate office.We invest in technical, clinical, and business practices training for our commercial operations team, marketing staff and salesrepresentatives. We also require attendance at periodic sales and product training programs. Promotion and sales of medical devicesare highly regulated not only by the FDA, but also by the U.S. Centers for Medicare and Medicaid Services, or CMS, and the Office ofInspector General, or OIG, and, outside the United States, by other international bodies, and are subject to federal and state fraud andabuse enforcement activities. See FDA and other Governmental Regulation below.6  TABLE OF CONTENTSManufacturing and SupplyWe perform final assembly and servicing of our Quell, SENSUS and DPNCheck devices at our manufacturing facility inMassachusetts. The ADVANCE device, which is no longer in production, but for which we continue to sell accessories was previouslymanufactured by an outside manufacturer and is now serviced by us. Outside suppliers provide us the subassemblies and componentsthat we use in manufacturing Quell, SENSUS and DPNCheck, as well as our consumable biosensor/electrodes. We do not currentlymaintain alternative suppliers of subassemblies and key components, or for consumable biosensor/electrodes. In outsourcing, we targetcompanies that meet FDA, International Organization for Standardization, or ISO, and other quality standards supported by internalpolicies and procedures. Supplier performance is maintained and managed through a corrective action program ensuring all productrequirements are met or exceeded. Following the receipt of products or product components from our third-party manufacturers, weconduct the necessary inspection, final assembly, packaging, and labeling at our corporate headquarters facility. We believe thesemanufacturing relationships minimize our capital investment, provide us with manufacturing expertise, and help control costs.Sunburst EMS, Inc. has been manufacturing devices and providing sub-assemblies to us since November 2005. Sunburst currentlymanufactures subassemblies for Quell, DPNCheck and SENSUS at a facility in Massachusetts.Polymer Flexible Circuits, Inc., or Parlex, has been manufacturing electrodes for us since 1999. In 2006 we entered into amanufacturing agreement with Parlex for the manufacture and supply of our requirements of nerve specific electrodes for resale in theUnited States. Under the agreement, Parlex agreed not to manufacture electrodes to be used to measure nerve conduction for any othercompany during the term of the agreement and, in some cases, for a period of one year thereafter. This agreement will continueindefinitely until terminated by either party upon not less than 18 months prior written notice to the other party. Parlex manufacturesour electrodes at a facility in Massachusetts and also has the ability to perform certain manufacturing steps for our electrodes at asecond site located in the United Kingdom.Katecho, Inc., a full service original equipment manufacturer, or OEM, specializing in medical and cosmetic devices,manufactures biosensors for use with our DPNCheck devices and electrodes for use with our SENSUS and Quell devices undernormal commercial terms contained in our purchase orders. Katecho manufactures electrodes at its facility in Iowa.We and our third-party manufacturers are registered with the FDA and subject to compliance with FDA quality system regulations.We are also ISO registered and undergo frequent quality system audits by European agencies. Our ADVANCE System andDPNCheck are cleared for marketing within the United States, Canada, and the European Union. In addition, our neuro-stimulationsystems, Quell and SENSUS, are cleared for marketing in the United States. Our facility is subject to periodic inspections byregulatory authorities, and may undergo compliance inspections conducted by the FDA and corresponding state agencies. As aregistered device manufacturer, we will undergo regularly scheduled FDA quality system inspections. However, additional FDAinspections may occur if deemed necessary by the FDA.Research and DevelopmentWe believe that we have research and development (R&D) capability that is unique to the industry with nearly two decades ofexperience in developing diagnostic and therapeutic devices involving the stimulation and measurement of nerve signals for clinicalpurposes. This group has extensive experience in neurophysiology, biomedical instrumentation, signal processing, biomedical sensors,and information systems. Our R&D team works closely with our marketing group and customers to design products that are focusedon improving clinical outcomes. The team consists of ten people including two who hold M.D. degrees and three who hold Ph.D.degrees. It includes the extensive involvement of our founder and Chief Executive Officer who holds both M.D. and Ph.D. degrees andwho also coordinates the clinical programs that we support.R&D efforts currently encompass the following areas:•Quell Innovation . Quell utilizes our proprietary wearable intensive nerve stimulation (WINS) technology to provide relieffrom chronic pain which can encompass lower back problems, fibromyalgia, arthritis, painful diabetic neuropathy and others.Quell is unique among OTC7  TABLE OF CONTENTSneuro-stimulation products in its clinical indications, technology, personalization and digital health features. Our R&D effortsto date have provided us first-to-market competitive advantage. We anticipate that success will attract competition and that wemust continually innovate to maintain a leadership position. Accordingly, our R&D team is developing the next generationQuell to improve the user experience, optimize therapy, expand health tracking, and modify the electrodes to help ensureappropriate usage. Also, we are exploring new clinical indications such as restless leg syndrome. We intend to strengthen ourintellectual property position with the development of additional know-how and a growing body of patent applications.•Support for DPNCheck. DPNCheck is our quantitative nerve conduction test for peripheral neuropathies including DPN. Itsusage is growing in the Medicare Advantage market in the United States and in Japan where it was launched in 2014.DPNCheck recently received regulatory approval in China and we are working with Omron Healthcare toward commerciallaunch in the second half of 2016. The characteristics of these markets often require device modification for local acceptancewhich, in turn, involves our R&D team. We are collaborating with Omron Healthcare in Asia for DPNCheck and anticipatecontinuing engineering support requirements.•Support clinical studies for our wearable technology. We recently completed an independent post-market clinical study forQuell. Results were positive with 81% of subjects reporting an improvement in their chronic pain and overall health, and 67%reporting a reduction in their use of pain medications while using Quell. This study has been helpful to our marketing effortsand points to the need to continue to build the clinical foundation for Quell. During 2016 we intend to fund new clinicalstudies addressing the efficacy of our wearable technology.Research and development expenses were approximately $3.9 million, $4.1 million, and $3.4 million for 2015, 2014, and 2013,respectively.Clinical ProgramOur clinical program operates under the direction of our Chief Executive Officer. This may from time-to-time be comprised ofinternal, collaborative, and external clinical studies. Internal clinical studies are designed and implemented directly by us for thepurposes of product design and early clinical validation. Collaborative studies are conducted together with leading researchers aroundthe world to provide clinical validation and to explore the clinical utility of our products. External studies are entirely independent ofus, although in many cases the researchers request unrestricted grants for financial and/or material support, such as for devices andconsumables. External studies may examine the clinical performance and utility of our products or our products may be used asoutcomes measures. We actively seek to publish our clinical study results in leading peer-reviewed journals while also encouragingour clinical collaborators and clinical study grant recipients to do the same.During the third quarter of 2015 we completed an external pilot study with a leading researcher at the Massachusetts GeneralHospital employing our wearable technology for restless leg syndrome, or RLS. The results indicated a meaningful reduction in RLSsymptoms and as a result, we will consider a study in a larger RLS population. Also during the third quarter of 2015 we completed anexternal study managed by Ipsos-Vantis of our wearable technology for chronic pain among subjects with several diseasesaccompanied by chronic pain. The results indicated a statistically significant improvement in chronic pain and a reduction in use ofpain medications. The encouraging results have led us to planning further studies during 2016 with the goal of expanding the clinicalfoundation for our wearable technology for chronic pain.CompetitionWe believe there is no direct competition to our neuro-stimulation devices, Quell and SENSUS, for the treatment of chronic pain.The most common approach to chronic pain is pain medication. This includes over-the-counter drugs (such as Advil and Motrin), andprescription drugs including anti-convulsants (such as Lyrica and Neurontin) and anti-depressants (such as Cymbalta and Elavil).Topical creams may also be used (such as Zostrix and Bengay). With severe pain, narcotic pain medications may be prescribed (suchas codeine, fentanyl, morphine, and oxycodone). The approach to treatment is individualized, drug combinations may be employed,and the results are often hit or miss. Side effects and the potential for addiction are real and the risks are substantial.8  TABLE OF CONTENTSReflecting the difficulty in treating chronic pain, inadequate relief leads many pain sufferers to turn to the over-the-counter marketfor supplements or alternatives to prescription pain medications. These include non-prescription medications, topical creams, lotions,electrical stimulators, dietary products, braces, sleeves, pads and other items. In total they account for over $4 billion in annualspending in the United States on pain relief products.High frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studiesdemonstrating efficacy. In simplified outline, the mechanism of action involves intensive nerve stimulation to activate the body’scentral pain inhibition system resulting in widespread analgesia, or pain relief. The nerve stimulation activates brainstem pain centersleading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain signal transmissionthrough the central nervous system. This therapeutic approach is available through deep brain stimulation and through implantablespinal cord stimulation; however, both require surgery and have attendant risks. Non-invasive approaches to neuro-stimulation(transcutaneous electrical nerve stimulation, or TENS) have achieved limited efficacy in practice due to device limitations, ineffectivedosing and low patient compliance. We believe that Quell and SENSUS clinical and market claims covering chronic pain and sleep,technical characteristics of high power and automation, and the digital health integration characteristics (Quell), place our products ina unique neuro-stimulation category. There are numerous manufacturers of transcutaneous electrical nerve stimulation devicesincluding widely marketed over-the-counter TENS such as Sanofi’s IcyHotSmartRelief, Omron PM3030 and Homedics RapidRelief.We believe that DPNCheck is currently the only objective and standardized test for DPN widely available at the point-of-care. TheAmerican Diabetes Association, or ADA, and other organizations recommend at least annual evaluation of all people with diabetes forDPN. Due to cost and availability, this screen is typically performed with a simple (5.07/10g) monofilament. This subjective methodidentifies late stage neuropathy where intervention is generally limited to foot care. Experts in the field have indicated that there is anunmet need for a practical, objective, and sensitive test for diabetic neuropathy that can be widely deployed in the regular care of allpeople with diabetes. Monofilaments (5.07/10g) are a commodity sold by a number of medical supply companies.There are several companies that sell neurodiagnostic devices that compete with our ADVANCE System. These companiesinclude Cadwell Laboratories, Inc. and Natus Medical Incorporated. Natus Medical Incorporated has substantially greater financialresources than we do. Natus Medical Incorporated and Cadwell Laboratories, Inc. have established reputations as having effectiveworldwide distribution channels for medical instruments to neurologists and PM&R physicians.Intellectual PropertyWe rely on a combination of patents, trademarks, copyrights, trade secrets, and other intellectual property laws, nondisclosureagreements and other measures to protect our proprietary technology, intellectual property rights, and know-how. We hold issuedutility patents covering a number of important aspects of our Quell, SENSUS, and DPNCheck and ADVANCE products. We believethat in order to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies. We alsorequire our employees, consultants and advisors, whom we expect to work on our products, to agree to disclose and assign to us allinventions conceived, developed using our property, or which relate to our business. Despite any measures taken to protect ourintellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regardas proprietary.PatentsAs of December 31, 2015, we had 43 issued U.S. patents, two issued foreign patent, and 34 pending patent applications, including15 U.S. applications, and 18 foreign national applications. Our wearable therapeutic products have one issued utility patent and twoissued design patents. In addition, there are 26 pending utility and design patent applications. A utility patent was recently issued thatcovers the core technology deployed in our DPNCheck diagnostic device. We have filed two additional utility patent applications forour DPNCheck diagnostic device.9  TABLE OF CONTENTSWith regard to our legacy neurodiagnostic products, our issued design patents began to expire in 2015, and our issued utilitypatents begin to expire in 2017. In particular, seven of our issued U.S. utility patents covering various aspects of the legacyneurodiagnostic products will expire on the same date in 2017. Although the patent protection for material aspects of these productscovered by the claims of the patents will be lost at that time, we have additional patents and patent applications directed to other novelinventions that will have patent terms extending beyond 2017.The medical device industry is characterized by the existence of a large number of patents and frequent litigation based onallegations of patent infringement. Patent litigation can involve complex factual and legal questions, and its outcome is uncertain. Anyclaim relating to infringement of patents that is successfully asserted against us may require us to pay substantial damages. Even if wewere to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and keypersonnel from our business operations. Our success will also depend in part on our not infringing patents issued to others, includingour competitors and potential competitors. If our products are found to infringe the patents of others, our development, manufacture,and sale of these potential products could be severely restricted or prohibited. In addition, our competitors may independently developsimilar technologies. Because of the importance of our patent portfolio to our business, we may lose market share to our competitors ifwe fail to protect our intellectual property rights.A patent infringement suit brought against us may force us or any strategic partners or licensees to stop or delay developing,manufacturing, or selling potential products that are claimed to infringe a third-party’s intellectual property, unless that party grants usrights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary rights of others inorder to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents orproprietary rights of third parties on acceptable terms, or at all. Even if we were able to obtain rights to the third-party’s intellectualproperty, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, wemay be unable to commercialize some of our potential products or may have to cease some of our business operations as a result ofpatent infringement claims, which could severely harm our business.TrademarksWe hold domestic registrations for the trademarks NEUROMETRIX, Quell, DPNCheck, SENSUS, and NC-stat. We use atrademark for ADVANCE, OptiTherapy, and Wearable Pain Relief Technology. We hold certain foreign registrations for the marksNEUROMETRIX, NC-stat, and SENSUS.Third-Party ReimbursementProcedures performed with our neurodiagnostic medical devices including ADVANCE and DPNCheck may be paid for by third-party payers, including government health programs, such as Medicare, and private insurance and managed care organizations. The2015 Physicians Fee Schedule published by CMS includes CPT 95905 for nerve conduction studies performed with pre-configuredelectrode arrays such as are used with the DPNCheck device and the ADVANCE System.We believe that physicians are generally receiving reimbursement under CPT 95905 from Medicare for nerve conduction studiesperformed for carpal tunnel syndrome using pre-configured electrode arrays that meet the medical necessity requirements in their localMedicare region but that commercial insurers are generally not providing reimbursement. Reimbursement by third-party payers is animportant element of success for medical device companies. We do not foresee a significant near-term improvement in reimbursementfor procedures performed with ADVANCE and DPNCheck.In the United States, some insured individuals are receiving their medical care through managed care programs which monitor andoften require pre-approval of the services that a member will receive. Some managed care programs are paying their providers on a percapita basis a predetermined annual payment per member which puts the providers at financial risk for the services provided to theirmembers. This is generally the case under Medicare Advantage where contracting insurers receive a monthly capitated fee from CMSto provide all necessary medical care to participating members. These capitated fees are adjusted under CMS’s risk-adjustment modelwhich uses health status indicators, or risk scores, to ensure the adequacy of payment. Members with higher risk codes generallyrequire more healthcare resources than those with lower risk codes.10  TABLE OF CONTENTSIn turn, the insurer fully absorbs the risk of patient health care costs. Insurers may share a portion of the risk with providerorganizations such as independent practice associations (IPAs) with whom they contract to provide medical services to their members.Proper assessment of each member’s health status and accurate coding helps to assure that insurers receive capitation fees consistentwith the cost of treating these members. Nerve conduction testing can provide valuable, early identification of neuropathy leading toclinical interventions that can reduce health care costs. Also, these tests provide valuable input regarding each member’s health riskstatus which can result in more appropriate capitated payments from CMS. We believe that the clinical and economic proposition forDPNCheck is attractive to Medicare Advantage insurers and risk bearing provider organizations. We are focusing our sales effort forDPNCheck on the Medicare Advantage managed care market segment.We believe that the SENSUS pain management therapeutic system is considered a durable medical equipment (DME) benefit andis reimbursed for chronic pain by Medicare and many commercial insurers under HCPCS code EO730 for the device and underHCPCS code A4595 for the consumable electrodes. These pre-existing codes apply to DME benefits employing transcutaneouselectrical nerve stimulation equipment. We expect that Quell will generally not be reimbursed by third party payers.We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increasedpressures on the healthcare industry to reduce the costs of products and services.Our success in selling DPNCheck, SENSUS and ADVANCE will depend upon, among other things, our customers receiving, andour potential customers' expectation that they will receive sufficient reimbursement or patient capitated premium adjustments fromthird-party payers for procedures or therapies using these products. See “Risk Factors,” “If health care providers are unable to obtainsufficient reimbursement or other financial incentives from third-party health care payers related to the use of our products other thanQuell, the adoption of our products and our future product sales will be materially adversely affected.”FDA and Other Governmental RegulationFDA RegulationOur products are medical devices subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, orFDCA, and the regulations promulgated thereunder, as well as by other regulatory bodies in the United States and abroad. The FDAclassifies medical devices into one of three classes on the basis of the amount of risk associated with the medical device and thecontrols deemed necessary to reasonably ensure their safety and effectiveness:•Class I, requiring general controls, including labeling, device listing, reporting and, for some products, adherence to goodmanufacturing practices through the FDA’s quality system regulations and pre-market notification;•Class II, requiring general controls and special controls, which may include performance standards and post-marketsurveillance; and•Class III, requiring general controls and pre-market approval, or PMA, which may include post-approval conditions and post-market surveillance.Before being introduced into the market, our products must obtain market clearance or approval through the 510(k) pre-marketnotification process, the de novo review process or the PMA process, unless they qualify for an exemption from these processes. See“Risk Factors,” “We are subject to extensive regulation by the FDA which could restrict the sales and marketing of the Quell,SENSUS and DPNCheck devices and the ADVANCE System, as well as other products for which we may seek FDA clearance orapproval, and could cause us to incur significant costs.”510(k) Pre-Market Notification ProcessTo obtain 510(k) clearance, we must submit a pre-market notification demonstrating that the proposed device is substantiallyequivalent to a legally marketed Class I or II medical device or to a Class III device marketed prior to May 28, 1976 for which theFDA has not required the submission of a PMA application. In some cases, we may be required to perform clinical trials to support aclaim of substantial equivalence.11  TABLE OF CONTENTSIf clinical trials are required, we must submit an application for an investigational device exemption, or IDE, which must be cleared bythe FDA prior to the start of a clinical investigation, unless the device and clinical investigation are considered non-significant risk bythe FDA or are exempt from the IDE requirements. It generally takes three months from the date of the pre-market notificationsubmission to obtain a final 510(k) decision, but it can be significantly longer.After a medical device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or thatwould constitute a major change in its intended use, requires the submission of a new 510(k) clearance or could require de novoclassification or PMA. The FDA allows each company to make this determination, but the FDA can review the decision. If the FDAdisagrees with a company’s decision not to seek FDA authorization, the FDA may require the company to seek 510(k) clearance orPMA. The FDA also can require the company to cease marketing and/or recall the medical device in question until its regulatory statusis resolved.De Novo Review ProcessIf a previously unclassified new medical device does not qualify for the 510(k) pre-market notification process because there is nopredicate device to which it is substantially equivalent, and if the device may be adequately regulated through general controls orspecial controls, the device may be eligible for de novo classification through what is called the de novo review process. In order to usethe de novo review process, a company must receive a letter from the FDA stating that, because the device has been found notsubstantially equivalent to a legally marketed Class I or II medical device or to a Class III device marketed prior to May 28, 1976 forwhich the FDA has not required the submission of a PMA application, it has been placed into Class III. After receiving this letter, thecompany, within 30 days, must submit to the FDA a request for a risk based down classification of the device from Class III to Class Ior II based on the device’s moderate or low risk profile which meets the definition of a Class I or Class II medical device. The FDAthen has 60 days in which to decide whether to down classify the device. If the FDA agrees that a lower classification is warranted, itwill issue a new regulation describing the device type and, for a Class II device, publish a Special Controls guidance document. TheSpecial Controls guidance document specifies the scope of the device type and the recommendations for submission of subsequentdevices for the same intended use. If a product is classified as Class II through the de novo review process, then that device may serveas a predicate device for subsequent 510(k) pre-market notifications.PMA ProcessIf a medical device does not qualify for the 510(k) pre-market notification process and is not eligible for clearance through the denovo review process, a company must submit a PMA application. The PMA requires more extensive pre-filing testing than is requiredin the 510(k) and is more costly, lengthy and uncertain. The FDA will decide within 45 days of receiving a PMA whether it issufficiently complete to permit a substantive review and if the PMA is complete, the FDA will notify the applicant that the PMA hasbeen filed. The PMA process can take one to three years or longer, from the time the PMA application is filed with the FDA. ThePMA process requires the company to prove that the medical device is safe and effective for its intended purpose. A PMA typicallyincludes extensive pre-clinical and clinical trial data, and information about the device, its design, manufacture, labeling andcomponents. Before approving a PMA, the FDA generally also performs an on-site inspection of manufacturing facilities for theproduct to ensure compliance with the FDA’s quality system regulation, or QSR.If FDA approves the PMA, the approved indications may be more limited than those originally sought. In addition, FDA’sapproval order may include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of thedevice, including, among other things, restrictions on labeling, promotion, sale and distribution and post-market study requirements.Failure to comply with the post-approval conditions can result in adverse enforcement or administrative actions, including thewithdrawal of the approval. Approval of a new PMA application or a PMA supplement may be required in the event of modificationsto the device, including to its labeling, intended use or indication, or its manufacturing process that affect safety and effectiveness.12  TABLE OF CONTENTSPost-Approval ObligationsAfter a device is placed on the market, numerous regulatory requirements continue to apply. These include:•the FDA’s QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing,control, documentation and other good manufacturing practice and quality assurance procedures during all aspects of themanufacturing process;•labeling regulations and FDA prohibitions against the promotion of products for uncleared or unapproved uses (known as off-label uses), as well as requirements to provide adequate information on both risks and benefits;•medical device reporting regulations, which require that manufacturers report to FDA any device that may have caused orcontributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or seriousinjury if the malfunction were to recur;•correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and devicerecalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA causedby the device which may present a risk to health;•post-market surveillance regulations, which apply to Class II or III devices if the FDA has issued a post-market surveillanceorder and the failure of the device would be reasonably likely to have serious adverse health consequences, the device isexpected to have significant use in the pediatric population, the device is intended to be implanted in the human body for morethan one year, or the device is intended to be used to support or sustain life and to be used outside a user facility;•regular and for cause inspections by FDA to review a manufacturer’s facilities and their compliance with applicable FDArequirements; and•the FDA’s recall authority, whereby it can ask, or order, device manufacturers to recall from the market a product that is inviolation of applicable laws and regulations.Regulatory Approvals and ClearancesThe ADVANCE System received 510(k) clearance as a Class II medical device in April 2008 for its intended use by physicians toperform nerve conduction studies and needle electromyography procedures.The NC-stat System is also a Class II medical device and has been the subject of several 510(k) clearances, the most recent in July2006 (K060584). The NC-stat System is cleared for use to stimulate and measure neuromuscular signals that are useful in diagnosingand evaluating systemic and entrapment neuropathies. We believe our NC-stat DPNCheck, or DPNCheck, device is a technicalmodification to the 510(k) cleared NC-stat device and has the same intended use, and therefore does not raise safety or effectivenessquestions. Under the FDA’s published guidance on 510(k) requirements for modified devices, we do not believe that a 510(k)submission is required for DPNCheck.As transcutaneous electrical nerve stimulators, the SENSUS and Quell pain therapy devices are Class II medical devices whichreceived 510(k) clearance from the FDA in August 2012 and July 2014, respectively. In November 2012, the FDA provided 510(k)clearance for the disposable electrode used in conjunction with the SENSUS device, and in July 2013, the FDA provided 510(k)clearance for the use of SENSUS during sleep. The intended use of the SENSUS pain management therapeutic system is thesymptomatic relief and management of chronic pain. In July 2014, our Quell device received 510(k) clearance for over-the-counter useand in November 2014, our Quell disposable electrode received 510(k) clearance for over-the-counter use. The intended use of theQuell pain management therapeutic system is the symptomatic relief and management of chronic pain. The Quell device may also beused during nighttime sleep.Manufacturing FacilitiesOur facility, and the facility utilized by Sunburst, our contract device and sub-assembly manufacturer, have each been inspected byFDA in the past, and observations were noted. There were no findings that involved a significant violation of regulatory requirements.The responses to these observations have been13  TABLE OF CONTENTSaccepted by the FDA and we believe that we and our contract manufacturer are in substantial compliance with the QSR. We expectthat our facility will be inspected again as required by the FDA. If the FDA finds significant violations, we could be subject to fines,recalls, requirements to halt manufacturing, or other administrative or judicial sanctions.U.S. Anti-Kickback and False Claims LawsIn the United States, the federal Anti-Kickback Statute, as well as numerous state anti-kickback laws, prohibit the offer, payment,solicitation or receipt of kickbacks, bribes or other remuneration, whether direct or indirect, overt or covert, in cash or in kind,intended, among other things, to induce the purchase or recommendation of healthcare products and services. While the federal lawapplies only to products and services for which payment may be made by a federal healthcare program, the state laws may applyregardless of whether any public healthcare funds are involved. Violations of these laws can lead to severe civil and criminal penalties,including exclusion from participation in federal healthcare programs. These laws are potentially applicable to manufacturers ofmedical devices, such as us, and to hospitals, physicians and other potential purchasers of our products.Also, the federal False Claims Act, as well as many state false claims statutes, provides civil and criminal penalties for presenting,or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items orservices that were not provided as claimed. Under the federal False Claims Act, in addition to actions initiated by federal lawenforcement authorities, the statute authorizes “qui tam” actions to be brought on behalf of the federal government by a private partyin certain circumstances and, if successful, that private party can share in any monetary recovery. Any challenge by federal or stateenforcement officials or others under these laws, could have a material adverse effect on our business, financial condition, and resultsof operations.Legacy Neurodiagnostics BusinessWe were founded in 1996 as a science-based health care company. Our focus had been the development of innovative products forthe detection, diagnosis, and monitoring of peripheral nerve and spinal cord disorders, such as those associated with carpal tunnelsyndrome, lumbosacral disc disease and spinal stenosis, and diabetes. Our NC-stat System for the performance of nerve conductionstudies at the point-of-care was commercially launched in 1999. The second generation NC-stat was released in 2002. In 2008, webrought to market the more sophisticated ADVANCE System for nerve conduction testing and performance of invasive needleelectromyography. These systems were general purpose with broad application in evaluating and diagnosing nerve disorders.Numerous studies demonstrating the clinical accuracy and utility of these devices have been conducted and published in high qualitypeer-reviewed journals. Furthermore, these devices have been used in FDA sanctioned clinical trials for pharmacological agents andlarge scale epidemiological studies sponsored by the NIH, Center for Disease Control, or CDC, and other governmental agencies. Theproducts have been cleared by the FDA, field tested for over a decade and highly regarded for their ease of use, accuracy andreproducibility of results.Following launch of NC-stat in 1999, we experienced rapid revenue growth, which led to our initial public offering in 2004. Thehealth market, particularly the physician office segment, embraced the opportunity to perform nerve conduction tests which previouslyhad always required referral to specialists. Point-of-care nerve testing was seen to provide a combination of improved patient care andpatient convenience. The success of point-of-care nerve testing, a market which we created, was met with resistance in some sectors ofthe medical community, particularly by neurologists and physical medicine and rehabilitation physicians, both of which hadtraditionally provided nerve testing services. As a consequence of successful lobbying by these specialists, physicians using ourtechnology experienced increased denials of coverage by third party payers resulting in their discontinuing usage and our difficulty inaccruing new customer accounts. In late 2009 CMS included in the Physician Fee Schedule a new Category I CPT Code, CPT 95905,for nerve conduction studies performed using preconfigured electrode such as those employed with our products. During 2010 mostMedicare fiscal intermediaries assumed coverage for CPT 95905 for at least some clinical indications; however, the health careenvironment has been such that we have been unable to secure broad coverage among private payers, which is essential to the successof our ADVANCE System product. This experience was reflected in our revenues for the legacy Neurodiagnostics business, whichpeaked in 2006 at14  TABLE OF CONTENTS$55.3 million. We reported revenue for our legacy Neurodiagnostics business of $2.3 million, $2.8 million, and $3.8 million in 2015,2014, and 2013, respectively. We currently manage this business to optimize cash flow.EmployeesAs of December 31, 2015, we had a total of 48 full time employees. Of these employees, ten were in research and development, 20in sales and marketing, eight in production/distribution, and ten in general and administrative services. One employee holds both M.D.and Ph.D. degrees, one employee holds an M.D. degree and two additional employees hold Ph.D. degrees. Our employees are notrepresented by a labor union and are not subject to a collective bargaining agreement. We have never experienced a work stoppage.We believe that we have good relations with our employees.Available InformationAccess to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments tothese reports filed with or furnished to the Securities and Exchange Commission, or SEC, may be obtained through the InvestorRelations section of our website at www.neurometrix.com/investor as soon as reasonably practical after we electronically file orfurnish these reports. We do not charge for access to and viewing of these reports. Information on our Investor Relations page and onour website is not part of this Annual Report on Form 10-K or any of our other securities filings unless specifically incorporated hereinby reference. In addition, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. Also, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. Allstatements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of thedocument in which the statement is included, and we do not assume or undertake any obligation to update any of those statements ordocuments unless we are required to do so by law.Corporate InformationNeuroMetrix was founded in June 1996 by our President and Chief Executive Officer, Shai N. Gozani, M.D., Ph.D. We originallywere incorporated in Massachusetts in 1996, and we reincorporated in Delaware in 2001. Our principal offices are located at 1000Winter Street, Waltham, Massachusetts 02451.15  TABLE OF CONTENTSITEM 1A. Risk FactorsYou should carefully consider the following risks and all other information contained in this Annual Report on Form 10-K and ourother public filings before making any investment decisions with respect to our securities. If any of the following risks occurs, ourbusiness, prospects, reputation, results of operations, or financial condition could be harmed. In that case, the trading price of oursecurities could decline, and our stockholders could lose all or part of their investment. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in theforward-looking statements as a result of specific factors, including the risks described below and elsewhere in this Annual Report onForm 10-K.We have incurred significant operating losses since inception and cannot assure you that we will achieve profitability.We have incurred significant cumulative net losses since our inception. Our net losses for the years ended December 31, 2015,2014, and 2013, were approximately $9.2 million, $7.8 million, and $8.0 million, respectively. At December 31, 2015, we had anaccumulated deficit of $163.6 million. The extent of our future operating income or losses is highly uncertain, and we cannot assureyou that we will be able to achieve or maintain profitability.Our future capital needs are uncertain and our independent auditor has expressed substantial doubt about our ability tocontinue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capitaland our operations could be curtailed if we are unable to obtain the required additional funding when needed. We may not beable to do so when necessary, and/or the terms of any financings may not be advantageous to us.We held cash and cash equivalents of $12.5 million as of December 31, 2015. We believe that these resources, and the cash to begenerated from future product sales will be sufficient to meet our projected operating requirements through the second quarter of 2016.However, the amount of our future product sales is difficult to predict, especially in light of the limited nature of the recentcommercialization of Quell, and actual sales may not be in line with our forecasts.Our financial statements have been prepared assuming that we will continue as a going concern which contemplates the realizationof assets and satisfaction of liabilities in the normal course of business. We expect to incur further losses as we aim to successfullycommercialize Quell and DPNCheck and the operations of our business and will be dependent on funding our operations throughadditional public or private financing, collaborative arrangements with strategic partners, or through additional credit lines or otherdebt financing sources to increase the funds available to fund operations. These circumstances raise substantial doubt about our abilityto continue as a going concern. As a result of this uncertainty and the substantial doubt about our ability to continue as a going concernas of December 31, 2015, the report of our independent registered public accounting firm in this Annual Report on Form 10-K for theyear ended December 31, 2015 includes a going concern explanatory paragraph. Management’s plans include increasing revenuethrough the commercialization of Quell and DPNCheck. However, no assurance can be given at this time as to whether we will be ableto achieve these objectives. Our financial statements do not include any adjustment relating to the recoverability and classification ofrecorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as agoing concern.We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumedmore rapidly than currently expected due to (a) decreases in sales of our products and the uncertainty of future revenues from newproducts; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our businessstrategy; (d) regulatory developments affecting our existing products and delays in the FDA approval process for products underdevelopment; (e) changes in our research and development spending plans; and (f) other items affecting our forecasted level ofexpenditures and use of cash resources. Accordingly, we will need to raise additional funds to support our future operating and capitalneeds for the third quarter of 2016 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 thefunds available to fund operations. However, we may not be able to secure such financing in a timely manner or on favorable16  TABLE OF CONTENTSterms, if at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experiencedilution, 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 valuablerights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additionalfunds, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and developmentactivities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue ouroperations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adverselyaffected.We are focused on commercialization of Quell, our over-the-counter, or OTC, wearable device for chronic pain. We cannotassure you that we will be successful in this field or that our current commercial product for peripheral neuropathy,DPNCheck, or the product candidates or product enhancements in our development pipeline, will be successful.We are focused on the commercialization of Quell, our OTC wearable device for pain relief. Quell is based on our prescriptionproduct for pain relief, SENSUS. Quell has been on the market since June 2015 and we have shipped approximately 13,800 Quelldevices since then. Additionally, DPNCheck, which was launched in 2011, is a quantitative nerve conduction test for systemicneuropathies, such as DPN. We also have other product candidates and product enhancements in our development pipeline. Our futureprospects are closely tied to our success with Quell and DPNCheck, which, in turn, depend upon market acceptance and growth infuture revenues. We cannot assure you that our commercialization strategy will be successful. If our strategy is not successful, it couldmaterially affect our revenues and results of operations.Our future success could be adversely affected by a number of factors, including:•inability to create market demand for Quell through a direct sales force, through online marketing efforts, direct responsetelevision and other retail channels;•manufacturing issues with Quell or our other products;•inability to increase adoption of DPNCheck within the Medicare Advantage market;•unfavorable market response to DPNCheck in Japan and other Asia markets;•unfavorable changes to current Medicare, Medicare Advantage and commercial payer payment policies;•changes to payor policies under the Patient Protection and Affordable Care Act;•unfavorable experiences by patients and physicians using Quell and our other products; and,•physicians’ reluctance to alter their existing practices and adopt the use of our devices.If we are unable to expand exposure and penetrate the market for Quell and/or DPNCheck, our ability to increase our revenues willbe limited and our business prospects will be adversely affected.Our current and future revenue is dependent upon commercial acceptance of Quell by the market. The failure of suchacceptance will materially and adversely affect our operations.We anticipate that as revenue from our legacy neurodiagnostics business, the ADVANCE System, continues to decrease, we willrely more heavily on revenue from sales of Quell, our OTC wearable device. As a result, we will continue to incur operating lossesuntil such time as sales of Quell and other products or product candidates reach a mature level and we are able to generate sufficientrevenue from their sale to meet our operating expenses. There can be no assurance that customers will adopt our technology andproducts, or that prospective customers will agree to pay for our products. In the event that we are not able to significantly increase thenumber of customers that purchase our products, or if we are unable to charge the necessary prices, our financial condition and resultsof operations will be materially and adversely affected.17  TABLE OF CONTENTSIf health care providers are unable to obtain sufficient reimbursement or other financial incentives from third-party healthcare payers related to the use of our products other than Quell, their adoption and our future product sales will be materiallyadversely affected.Widespread adoption of our SENSUS and DPNCheck products by the medical community is unlikely to occur without a financialincentive from third-party payers for the use of these products. If health care providers are unable to obtain adequate reimbursementfor procedures performed using these products, if managed care organizations do not receive improved capitated payments due tomore accurate patient risk assessment using our products, and if DME suppliers are not adequately reimbursed for supplying ourtherapeutic products, we may be unable to sell our products at levels that are sufficient to allow us to achieve and maintainprofitability, and our business would suffer significantly. Additionally, even if these products and procedures are adequatelyreimbursed by third-party payers today, adverse changes in payers future policies toward payment would harm our ability to marketand sell our products. Third-party payers include those governmental programs such as Medicare and Medicaid, private healthinsurers, workers’ compensation programs and other organizations.Future regulatory action by CMS or other governmental agencies or negative clinical results may diminish reimbursementpayments to physicians for performing procedures using our products. Medicaid reimbursement differs from state to state, and somestate Medicaid programs may not cover the procedures performed with our products or pay physicians an adequate amount forperforming those procedures, if at all. Additionally, some private payers do not follow the Medicare guidelines and may reimburse foronly a portion of these procedures or not at all. We are unable to predict what changes will be made in the reimbursement methodsused by private or governmental third-party payers. Importantly, we cannot predict the effects that implementation of the PatientProtection and Affordable Care Act will have on CMS, commercial insurers, health care providers, and ultimately on our business.Healthcare reform legislation could adversely affect our future revenues.Our future revenues from SENSUS will be impacted by the CMS Durable Medical Equipment, Prosthetics, Orthotics and Supplies(DMEPOS) Competitive Bidding Program. Under this program, Medicare will no longer reimburse suppliers for certain products andservices, including transcutaneous electrical nerve stimulation (TENS), based on the Medicare fee schedule amount. Instead CMS willprovide reimbursement for those products and services based on a competitive bidding process. Our SENSUS pain managementsystem is presently classified within TENS. The DMEPOS Competitive Bidding Program will likely require us to sell SENSUSdevices and related consumables subject to Medicare reimbursement at significantly lower prices which would have a material adverseeffect on SENSUS profitability. In those regions of the country where DMEPOS Competitive Bidding was implemented in January2014, low Medicare pricing is restricting our ability to sell SENSUS. As the DMEPOS program is expanded to other regions, a similareffect will likely be seen.We are subject to extensive regulation by the FDA which could restrict the sales and marketing of the Quell, SENSUS andDPNCheck devices and the ADVANCE System as well as other products for which we may seek FDA clearance or approval,and could cause us to incur significant costs.We sell medical devices that are subject to extensive regulation in the United States by the FDA with regard to manufacturing,labeling, sale, promotion, distribution, shipping and ongoing monitoring and follow-up. Before a new medical device, or a new use ofor claim for an existing product, can be marketed in the United States, it must first be cleared or approved by the FDA. Medicaldevices may be marketed only for the indications for which they are approved or cleared. The regulatory review process can beexpensive and lengthy. The FDA’s process for granting 510(k) clearance typically takes approximately three to six months, but it canbe significantly longer. The process for obtaining a pre-market approval, or PMA, is much more costly and onerous. By law, the timeperiod designated for the FDA’s review of a PMA is 180 days; however, this time is often extended and it is not uncommon for thePMA review process to take three years or longer from the time the application is filed with the FDA.The FDA may remove our devices from the market or enjoin them from commercial distribution if safety or effectivenessproblems develop. Further, we may not be able to obtain additional 510(k) clearances or18  TABLE OF CONTENTSpre-market approvals for new products or for modifications to, or additional indications for, our existing products in a timely fashion,or at all. Delays in obtaining future clearances or approvals would adversely affect our ability to introduce new or enhanced productsin a timely manner, which in turn would harm our revenue and future profitability. We have made modifications to our devices in thepast and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals.If the FDA disagrees, and requires new clearances or approvals for the modifications, we may be required to recall and to stopmarketing the modified devices. If any of these events occurs or if the FDA takes other enforcement actions, we may not be able toprovide our customers with the products they require on a timely basis, our reputation could be harmed, and we could lose customersand suffer reduced revenues and increased costs.We also are subject to numerous post-marketing regulatory requirements, including the FDA’s quality system regulations, whichrelate to the design, manufacture, packaging, labeling, storage, installation and servicing of our products, labeling regulations, medicaldevice reporting regulations and correction and removal reporting regulations. Our failure or the failure by any manufacturer of ourproducts to comply with applicable regulatory requirements could result in enforcement action by the FDA. FDA enforcement actionsrelating to post-marketing regulatory requirements or other issues, including any issues arising from the not substantially equivalentletter described above, may include any of the following:•warning letters, untitled letters, fines, injunctions, product seizures, consent decrees and civil penalties;•requiring repair, replacement, refunds, customer notifications or recall of our products;•imposing operating restrictions, suspension or shutdown of production;•refusing our requests for 510(k) clearance or PMA approval of new products, new intended uses, or modifications to existingproducts;•requesting voluntary rescission of 510(k) clearances or withdrawing PMA approvals that have already been granted; and•criminal prosecution.If any of these events were to occur, they could harm our reputation, our ability to generate revenues and our profitability.Also, from time to time, legislation is introduced into Congress that could significantly change the statutory provisions governingthe approval, manufacturing and marketing of medical devices. FDA regulations and guidance are often revised or reinterpreted by theagency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes willbe enacted, or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. The FDAhas publicly stated that it is reevaluating its longstanding 510(k) review program. It is not clear when the program will be modified andwhat effect the modified review process will have on our ability to bring our product candidates to market.We depend on several single source manufacturers to produce components of our products. Any material adverse changes inour relationships with these manufacturers could prevent us from delivering products to our customers in a timely mannerand may adversely impact our future revenues or costs.We rely on third-party manufacturers to manufacture components of our Quell, DPNCheck and SENSUS systems, and to fullymanufacture electrodes for the ADVANCE system. In the event that our manufacturers cease to manufacture sufficient quantities ofour products or components in a timely manner and on terms acceptable to us, we would be forced to locate alternate manufacturers.Additionally, if our manufacturers experience a failure in their production process, are unable to obtain sufficient quantities of thecomponents necessary to manufacture our products or otherwise fail to meet our quality requirements, we may be forced to delay themanufacture and sale of our products or locate an alternative manufacturer. We may be unable to locate suitable alternativemanufacturers for our products or components for which the manufacturing process is relatively specialized, on terms acceptable to us,or at all. We have a manufacturing and supply agreement19  TABLE OF CONTENTSwith Parlex Polymer Flexible Circuits, Inc. for the manufacture of the ADVANCE electrodes for nerve conduction testing. Katecho,Inc. manufactures biosensors for use with our DPNCheck devices and manufactures electrodes for Quell and SENSUS, and SunburstEMS, Inc. manufactures electronic boards and other components of our Quell, DPNCheck and SENSUS products which we assembleat our Massachusetts facility to produce completed devices. Moreover, due to the recent commercialization of Quell and the limitedamount of our sales to date, other than Katecho, Inc., we do not have long-standing relationships with our manufacturers and may notbe able to convince suppliers to continue to make components available to us unless there is demand for such components from theirother customers. As a result, there is a risk that certain components could be discontinued and no longer available to us.We have experienced transient inventory shortages on new products, including Quell, during the initial production ramp-up phase.If any materially adverse changes in our relationships with these manufacturers occur, our ability to supply our customers will beseverely limited until we are able to engage an alternate manufacturer or, if applicable, resolve any quality issues with our existingmanufacturer. This situation could prevent us from delivering products to our customers in a timely manner, lead to decreased sales orincreased costs, or harm our reputation with our customers.If our manufacturers are unable to supply us with an adequate supply of product components as we expand our markets, wecould lose customers, our potential future growth could be limited and our business could be harmed.In order for us to successfully expand our business within the United States and internationally, our contract manufacturers mustbe able to provide us with substantial quantities of components of our products in compliance with regulatory requirements, inaccordance with agreed upon specifications, at acceptable cost and on a timely basis. Our potential future growth could strain theability of our manufacturers to deliver products and obtain materials and components in sufficient quantities. Manufacturers oftenexperience difficulties in scaling up production, including problems with production yields and quality control and assurance. If we areunable to obtain sufficient quantities of high quality products to meet customer demand on a timely basis, we could lose customers,our growth may be limited and our business could be harmed.If we or our manufacturers fail to comply with the FDA’s quality system regulation, the manufacturing and distribution of ourproducts could be interrupted, and our product sales and operating results could suffer.We and our contract manufacturers are required to comply with the FDA’s quality system regulation, or QSR, which is a complexregulation that governs the procedures and documentation of the design, testing, production, control, quality assurance, labeling,packaging, sterilization, storage and shipping of our devices. The FDA enforces the QSR through periodic inspections. We cannotassure you that our facilities or the facilities of the manufacturers of our products would pass any future inspection. If our facilities orany of the facilities of the manufacturers of our products fail an inspection, the manufacturing or distribution of our products could beinterrupted and our operations disrupted. Failure to take adequate and timely corrective action in response to an adverse inspectioncould result in a suspension or shutdown of our packaging and labeling operations and the operations of the manufacturers of ourproducts or a recall of our products, or other administrative or judicial sanctions. If any of these events occurs, we may not be able toprovide our customers with the quantity of products they require on a timely basis, our reputation could be harmed, and we could losecustomers and suffer reduced revenues and increased costs.Our products may be subject to recalls, even after receiving FDA clearance or approval, which would harm our reputation,business and financial results.We are subject to the medical device reporting regulations, which require us to report to the FDA if our products may have causedor contributed to a death or serious injury, or have malfunctioned in a way that would likely cause or contribute to a death or seriousinjury if the malfunction were to occur. We are also subject to the correction and removal reporting regulations, which require us toreport to the FDA any field corrections and device recalls or removals that we undertake to reduce a risk to health posed by the deviceor to remedy a violation of the Federal Food, Drug and Cosmetic Act, or FDCA, caused by the device which may present a risk tohealth. In addition, the FDA and similar governmental agencies in other countries have20  TABLE OF CONTENTSthe authority to require the recall of our products if there is a reasonable probability that the products would cause serious adversehealth consequences or death. A government-mandated or voluntary recall by us could occur as a result of manufacturing defects,labeling deficiencies, packaging defects or other failures to comply with applicable regulations. Any recall would divert managementattention and financial resources and harm our reputation with customers and could have a material adverse effect on our financialcondition and results of operations.The success of our business depends upon our ability to advance our pipeline products to commercialization.We commenced commercialization of Quell in June 2015. We have additional product candidates and enhancements of ourexisting products in our R&D pipeline. We expect that advancing our pipeline products will require significant time and resources. Wemay not be successful in our commercialization efforts for any of the product candidates or product enhancements currently in ourpipeline and we may not be successful in developing, acquiring, or in-licensing additional product candidates, to the extent we decideto do so. If we are not successful advancing new products through our development pipeline, the regulatory process and commerciallaunch, our business, financial condition, and results of operations will be adversely affected.Our ability to achieve profitability depends in part on maintaining or increasing our gross margins on product sales which wemay not be able to achieve.A number of factors may adversely impact our gross margins on product sales and services, including:•lower than expected manufacturing yields of high cost components leading to increased manufacturing costs;•low production volume which will result in high levels of overhead cost per unit of production;•the timing of revenue recognition and revenue deferrals;•increased material or labor costs;•increased service or warranty costs or the failure to reduce service or warranty costs;•increased price competition;•variation in the margins across products in a particular period; and•how well we execute on our strategic and operating plans.If we are unable to maintain or increase our gross margins on product sales, our results of operations could be adversely impacted,we may not achieve profitability and our stock price could decline.The patent rights we rely upon to protect the intellectual property underlying our products may not be adequate, which couldenable third parties to use our technology and would harm our ability to compete in the market.Our success will depend in part on our ability to develop or acquire commercially valuable patent rights and to protect these rightsadequately. The risks and uncertainties that we face with respect to our patents and other related rights include the following:•the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may takelonger than we expect to result in issued patents;•the claims of any patents that are issued may not provide meaningful protection;•we may not be able to develop additional proprietary technologies that are patentable;•other parties may challenge patents, patent claims or patent applications licensed or issued to us; and•other companies may design around technologies we have patented, licensed or developed.Our issued and filed patents for our wearable therapeutic products are recent. With regard to our legacy neurodiagnostic products,our issued design patents begin to expire in 2015, and our issued utility patents21  TABLE OF CONTENTSbegin to expire in 2017. Although the patent protection for material aspects of these products covered by the claims of the patents willbe lost at that time, we have additional patents and patent applications directed to other novel inventions that will have patent termsextending beyond 2017. We may not be able to protect our patent rights effectively in some foreign countries. For a variety of reasons,we may decide not to file for patent protection in the United States or in particular foreign countries. Our patent rights underlying ourproducts may not be adequate, and our competitors or customers may design around our proprietary technologies or independentlydevelop similar or alternative technologies or products that are equal or superior to our technology and products without infringing onany of our patent rights. In addition, the patents licensed or issued to us may not provide a competitive advantage. If any of theseevents were to occur, our ability to compete in the market would be harmed.Other rights and measures we have taken to protect our intellectual property may not be adequate, which would harm ourability to compete in the market.In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, confidentiality, nondisclosure andassignment of invention agreements and other contractual provisions and technical measures to protect our intellectual property rights.We rely on trade secrets to protect the technology and algorithms we use in our customer data processing and warehousing informationsystem. While we currently require employees, consultants and other third parties to enter into confidentiality, non-disclosure orassignment of invention agreements or a combination thereof where appropriate, any of the following could still occur:•the agreements may be breached or not enforced in a particular jurisdiction;•we may have inadequate remedies for any breach;•trade secrets and other proprietary information could be disclosed to our competitors; or•others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access toour trade secrets or disclose such technologies.If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect ourrights and our competitive position.We may need to initiate lawsuits to protect or enforce our patents and other intellectual property rights, which could beexpensive and, if we lose, could cause us to lose some of our intellectual property rights, which would harm our ability tocompete in the market.We rely on patents to protect a portion of our intellectual property and our competitive position. Patent law relating to the scope ofclaims in the technology fields in which we operate is still evolving and, consequently, patent positions in the medical device industryare generally uncertain. In order to protect or enforce our patent rights, we may initiate patent litigation against third parties, such asinfringement suits or interference proceedings. Litigation may be necessary to:•assert claims of infringement;•enforce our patents;•protect our trade secrets or know-how; or•determine the enforceability, scope and validity of the proprietary rights of others.Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other businessconcerns. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of notissuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate andthe damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events could harmour business, our ability to compete in the market or our reputation.22  TABLE OF CONTENTSClaims that our products infringe on the proprietary rights of others could adversely affect our ability to sell our products andincrease our costs.Substantial litigation over intellectual property rights exists in the medical device industry. We expect that our products could beincreasingly subject to third-party infringement claims as the number of competitors grows and the functionality of products andtechnology in different industry segments overlap. Third parties may currently have, or may eventually be issued, patents on which ourproducts or technologies may infringe. Any of these third parties might make a claim of infringement against us. Any litigationregardless of its impact would likely result in the expenditure of significant financial resources and the diversion of management’stime and resources. In addition, litigation in which we are accused of infringement may cause negative publicity, adversely impactprospective customers, cause product shipment delays or require us to develop non-infringing technology, make substantial paymentsto third parties, or enter into royalty or license agreements, which may not be available on acceptable terms, or at all. If a successfulclaim of infringement were made against us and we could not develop non-infringing technology or license the infringed or similartechnology on a timely and cost-effective basis, our revenues may decrease substantially and we could be exposed to significantliability.We are subject to federal and state laws prohibiting “kickbacks” and false or fraudulent claims, which, if violated, couldsubject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws couldcause adverse publicity and be costly to respond to, and thus could harm our business.A federal law commonly known as the federal anti-kickback law, and several similar state laws, prohibit the payment of anyremuneration that is intended to induce physicians or others either to refer patients or to acquire or arrange for or recommend theacquisition of health care products or services. These laws constrain a medical device company’s sales, marketing and otherpromotional activities by limiting the kinds of business relationships and financial arrangements, including sales programs we mayhave with hospitals, physicians or other potential purchasers of medical devices. Other federal and state laws generally prohibitindividuals or entities from knowingly presenting, or causing to be presented, claims for payment to Medicare, Medicaid or otherthird-party payers that are false or fraudulent, or for items or services that were not provided as claimed. From time to time, we mayprovide coding and billing information as product support to purchasers of our products. Anti-kickback and false claims laws prescribecivil and criminal penalties for noncompliance, which can be quite substantial including exclusion from participation in federal healthcare programs. A number of states have enacted laws that require pharmaceutical and medical device companies to monitor and reportpayments, gifts and other remuneration made to physicians and other health care professionals and health care organizations. Somestate statutes, such as the one in Massachusetts, impose an outright ban on gifts to physicians. These laws are often referred to as “giftban” or “aggregate spend” laws and carry substantial fines if they are violated. Similar legislation, known as the Physician PaymentsSunshine Act, was enacted by Congress during 2014. In the event that we are found to have violated these laws or determine to settle aclaim that we have done so, our business may be materially adversely affected as a result of any payments required to be made,restrictions on our future operations or actions required to be taken, damage to our business reputation or adverse publicity inconnection with such a finding or settlement or other adverse effects relating thereto. Additionally, even an unsuccessful challenge orinvestigation into our practices could cause adverse publicity, and be costly to respond to, and thus could harm our business and resultsof operations.If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil orcriminal penalties, which could increase our liabilities, damage our reputation and harm our business.There are a number of federal and state laws protecting the confidentiality of individually identifiable patient health information,including patient records, and restricting the use and disclosure of that protected information. In particular, the U.S. Department ofHealth and Human Services promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996,or HIPAA. These privacy rules protect medical records and other personal health information by limiting their use and disclosure,giving individuals the right to access, amend and seek accounting of their own health information and limiting most23  TABLE OF CONTENTSuse and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. Althoughwe do not believe that we are subject to the HIPAA rules, the exact scope of these rules has not been clearly established. If we arefound to be in violation of the privacy rules under HIPAA, we could be subject to civil or criminal penalties, which could increase ourliabilities and harm our reputation or our business.The use of our products could result in product liability claims that could be expensive, damage our reputation and harm ourbusiness.Our business exposes us to an inherent risk of potential product liability claims related to the manufacturing, marketing and sale ofmedical devices. The medical device industry historically has been litigious, and we face financial exposure to product liability claimsif the use of our products were to cause or contribute to injury or death. Our products may be susceptible to claims of injury becausetheir use involves the electric stimulation of a patient’s nerves. Although we maintain product liability insurance for our products andother commercial insurance, the coverage limits of these policies may not be adequate to cover future claims. As sales and use of ourproducts increase, we may be unable to maintain sufficient product liability or other commercial insurance on acceptable terms or atreasonable costs, and this insurance may not provide us with adequate coverage against potential liabilities. A successful claimbrought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial conditionand results of operations. A product liability claim, regardless of its merit or eventual outcome, could result in substantial costs to us, asubstantial diversion of management attention and adverse publicity. A product liability claim could also harm our reputation andresult in a decline in revenues and an increase in expenses.Our products are complex in design, and defects may not be discovered prior to shipment to customers, which could result inwarranty obligations or product liability or other claims, reducing our revenues and increasing our costs and liabilities.We depend upon third parties for the manufacture of our products or components. Our products, particularly our electrodes,require a significant degree of technical expertise to produce. If these manufacturers fail to produce our products to specification, or ifthe manufacturers use defective materials or workmanship in the manufacturing process, the reliability and performance of ourproducts will be compromised.If our products contain defects that cannot be repaired quickly, easily and inexpensively, we may experience:•loss of customer orders and delay in order fulfillment;•damage to our brand reputation;•increased cost of our warranty program due to product repair or replacement;•inability to attract new customers;•diversion of resources from our manufacturing and research and development departments into our service department; and•legal action.The occurrence of any one or more of the foregoing could harm our reputation and materially reduce our revenues and increase ourcosts and liabilities.If we lose any of our officers or key employees, our management and technical expertise could be weakened significantly.Our success largely depends on the skills, experience, and efforts of our executive officers, including Shai N. Gozani, M.D., Ph.D.,our founder, Chairman, President and Chief Executive Officer, Thomas T. Higgins, our Senior Vice President and Chief FinancialOfficer; and Francis X. McGillin, our Senior Vice President and General Manager Consumer. We do not maintain key person lifeinsurance policies covering any of our employees. The loss of any of our executive officers could weaken our management andtechnical expertise significantly and harm our business.24  TABLE OF CONTENTSIf we are unable to recruit, hire and retain skilled and experienced personnel, our ability to manage and expand our businesswill be harmed, which would impair our future revenues and profitability.We are a small company with 48 employees as of December 31, 2015, and our ability to retain our skilled labor force and oursuccess in attracting and hiring new skilled employees will be a critical factor in determining our future performance. We may not beable to meet our future hiring needs or retain existing personnel, particularly given the challenges faced by our business. We will facechallenges and risks in hiring, training, managing and retaining engineering and sales and marketing employees. Failure to attract andretain personnel, particularly technical and sales and marketing personnel would materially harm our ability to compete effectively andgrow our business.Failure to develop or enter into relationships to sell products other than our existing products or enhance our existing productscould have an adverse effect on our business prospects.Our future business and financial success will depend, in part, on our ability to effectively market our products, such as Quell andDPNCheck, and enhance these products in response to customer demand. Developing new products and upgrades to existing andfuture products imposes burdens on our research and development department and our management. This process is costly, and wecannot assure you that we will be able to successfully develop new products or enhance our current products. We also may not be ableto enter into relationships with other companies to sell additional products. In addition, as we develop the market for our products,future competitors may develop desirable product features earlier than we do which could make our competitors’ products lessexpensive or more effective than our products and could render our products obsolete or unmarketable. If our product developmentefforts are unsuccessful, we will have incurred significant costs without recognizing the expected benefits and our business prospectsmay suffer.If we are unable to develop new products or enhance existing products, we may be unable to attract or retain customers.Our success depends on the successful development, regulatory clearance or approval (if required), introduction andcommercialization of new generations of products, treatment systems, and enhancements to and/or simplification of existing products.Quell and DPNCheck must keep pace with, among other things, the products of our competitors. We are making significantinvestments in long-term growth initiatives. Such initiatives require significant capital commitments, involvement of seniormanagement and other investments on our part, which we may be unable to recover. Our timeline for the development of new productsor enhancements may not be achieved and price and profitability targets may not prove feasible. Commercialization of new productsmay prove challenging, and we may be required to invest more time and money than expected to successfully introduce them. Onceintroduced, new products may adversely impact orders and sales of our existing products, or make them less desirable or evenobsolete. Compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successfulimplementation of new products or enhancements.Our ability to successfully develop and introduce new products and product enhancements, and the revenues and costs associatedwith these efforts, may be affected by our ability to:•properly identify customer needs;•prove feasibility of new products in a timely manner;•educate physicians about the use of new products and procedures;•comply with internal quality assurance systems and processes timely and efficiently;•limit the timing and cost of obtaining required regulatory approvals or clearances;•accurately predict and control costs associated with inventory overruns caused by phase-in of new products and phase-out ofold products;25  TABLE OF CONTENTS•price new products competitively;•manufacture and deliver our products in sufficient volumes on time, and accurately predict and control costs associated withmanufacture of the products; and•meet our product development plan and launch timelines.Even if customers accept new products or product enhancements, the revenues from these products may not be sufficient to offsetthe significant costs associated with making them available to customers.Failure to successfully develop, obtain regulatory approval or clearance for, manufacture or introduce new products or to completethese processes in a timely and efficient manner could result in delays that could affect our ability to attract and retain customers, orcould cause customers to delay or cancel orders, causing our backlog, revenues and operating results to suffer.We currently compete, and may in the future need to compete, against other medical device and consumer companies withgreater resources, more established distribution channels and other competitive advantages, and the success of thesecompetitors may harm our ability to generate revenues.We currently do, and in the future may need to, compete directly and indirectly with a number of other companies that may havecompetitive advantages over us. Our diagnostic devices for nerve testing compete with companies that sell traditional nerveconduction study and electromyography equipment including Cadwell Laboratories, Inc. and Natus Medical Incorporated. Thesecompanies enjoy significant competitive advantages, including:•greater resources for product development, sales and marketing;•more established distribution networks;•greater name recognition;•more established relationships with health care professionals, customers and third-party payers; and•additional lines of products and the ability to offer rebates or bundle products to offer discounts or incentives.As we develop the market for wearable technology for chronic pain, we will likely be faced with competition from othercompanies that decide and are able to enter the market. Some or all of our future competitors in the diagnostic nerve testing marketand the consumer market for pain relief may enjoy competitive advantages such as those described above. If we are unable to competeeffectively against existing and future competitors, our sales will decline and our business will be harmed.Security breaches and other disruptions could compromise our information and expose us to liability, which could cause ourbusiness and reputation to suffer.In the ordinary course of our business, we collect and store sensitive data in our data centers, on our networks, includingintellectual property, our proprietary business information, and that of our customers, suppliers and business partners, and personallyidentifiable information of our employees. The secure processing, maintenance and transmission of this information is critical to ouroperations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers orbreached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and theinformation stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of informationcould result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in ourproducts and services, which could have a material adverse effect on our business, financial condition, results of operations or cashflows.If future clinical studies or other articles are published, or physician associations or other organizations announce positionsthat are unfavorable to our products, our sales efforts and revenues may be negatively affected.Future clinical studies or other articles regarding our existing products or any competing products may be published that eithersupport a claim, or are perceived to support a claim, that a competitor’s product is more26  TABLE OF CONTENTSaccurate or effective than our products or that our products are not as accurate or effective as we claim or previous clinical studieshave concluded. Additionally, physician associations or other organizations that may be viewed as authoritative or have an economicinterest in nerve conduction studies and in related electrodiagnostic procedures or other procedures that may be performed using ourproducts or in neurostimulation therapies using our devices could endorse products or methods that compete with our products orotherwise announce positions that are unfavorable to our products. Any of these events may negatively affect our sales efforts andresult in decreased revenues.As we expand into foreign markets, we will be affected by new business risks that may adversely impact our financialcondition or results of operations.Foreign markets represented approximately 19% and 19% of our revenues in 2015 and 2014, respectively. We are working toexpand market penetration, particularly in Asia. Any such expansion will subject us to the possibility of new business risks, including:•failure to fulfill foreign regulatory requirements, if applicable, to market our products;•availability of, and changes in, reimbursement within prevailing foreign health care payment systems;•adapting to the differing business practices and laws in foreign countries;•difficulties in managing foreign relationships and operations, including any relationships that we establish with foreigndistributors or sales or marketing agents;•limited protection for intellectual property rights in some countries;•difficulty in collecting accounts receivable and longer collection periods;•costs of enforcing contractual obligations in foreign jurisdictions;•recessions in economies outside of the United States;•political instability and unexpected changes in diplomatic and trade relationships;•currency exchange rate fluctuations; and•potentially adverse tax consequences.If we are successful in introducing our products into foreign markets, we will be affected by these additional business risks, whichmay adversely impact our financial condition or results of operations. In addition, expansion into foreign markets imposes additionalburdens on our executive and administrative personnel, research and sales departments, and general managerial resources. Our effortsto introduce our products into foreign markets may not be successful, in which case we may have expended significant resourceswithout realizing the expected benefit.Our loan and security agreement with a bank, which we refer to as our credit facility, contains financial and operatingrestrictions that may limit our access to credit. If we fail to comply with covenants in the credit facility, we may be required torepay any indebtedness thereunder, which may have an adverse effect on our liquidity.Although we have not borrowed any funds under the credit facility, provisions in the credit facility impose restrictions on ourability to, among other things:•incur additional indebtedness;•create liens;•replace certain of our executive officers;•enter into transactions with affiliates;•transfer assets;27  TABLE OF CONTENTS•pay dividends or make distributions on, or repurchase, our capital stock; and•merge or consolidate.In addition, we are required to meet certain financial covenants customary with this type of credit facility, including maintaining aminimum specified tangible net worth. The credit facility also contains other customary covenants, which we may not be able tocomply with in the future. Our failure to comply with these covenants may result in the declaration of an event of default and couldcause us to be unable to borrow under the credit facility. In addition to preventing additional borrowings under the credit facility, anevent of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under the creditfacility at the time of the default, which would require us to pay all amounts outstanding. If an event of default occurs, we may not beable to cure it within any applicable cure period, if at all. If the maturity of our indebtedness is accelerated, we may not have sufficientfunds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the acceleratedindebtedness on terms acceptable to us, or at all. We have not borrowed any funds under this agreement; however, as of December 31,2015, $226,731 of the amounts available under the agreement are restricted to support letters of credit issued in favor of our landlords.If we sell additional shares, our stock price may decline as a result of the dilution which will occur to existing stockholders.Until we are profitable, we will need significant additional funds to develop our business and sustain our operations. We soldshares of our common stock, convertible preferred stock and warrants in December and May 2015, June 2014 and June 2013 and anyadditional sales of shares of our common stock or other securities exercisable into our common stock are likely to have a dilutiveeffect on some or all of our then existing stockholders. Resales of newly issued shares in the open market could also have the effect oflowering our stock price, thereby increasing the number of shares we may need to issue in the future to raise the same dollar amountand consequently further diluting our outstanding shares.The perceived risk associated with the possible sale of a large number of shares could cause some of our stockholders to sell theirstock, thus causing the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due toactual or anticipated issuances or sales of stock could cause some institutions or individuals to engage in short sales of our commonstock, which may itself cause the price of our stock to decline.If our stock price declines, we may be unable to raise additional capital. A sustained inability to raise capital could force us to goout of business. Significant declines in the price of our common stock could also impair our ability to attract and retain qualifiedemployees, reduce the liquidity of our common stock and result in the delisting of our common stock from The NASDAQ StockMarket LLC, or NASDAQ.The trading price of our common stock has been volatile and is likely to be volatile in the future.The trading price of our common stock has been highly volatile. For the five year period ended December 31, 2015, our stockprice has fluctuated from a low of $1.88 to a high of $99.33, as adjusted for stock splits. The market price for our common stock willbe affected by a number of factors, including:•the denial or delay of regulatory clearances or approvals for our products under development or receipt of regulatory approvalof competing products;•our ability to accomplish clinical, regulatory and other product development and commercialization milestones and to do so inaccordance with our timing estimates;•changes in policies affecting third-party coverage and reimbursement in the United States and other countries;•changes in government regulations and standards affecting the medical device industry and our products;•ability of our products to achieve market success;•the performance of third-party contract manufacturers and component suppliers;28  TABLE OF CONTENTS•actual or anticipated variations in our results of operations or those of our competitors;•announcements of new products, technological innovations or product advancements by us or our competitors;•developments with respect to patents and other intellectual property rights;•sales of common stock or other securities by us or our stockholders in the future;•additions or departures of key scientific or management personnel;•disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtainpatent protection for our technologies;•trading volume of our common stock;•changes in earnings estimates or recommendations by securities analysts, failure to obtain or maintain analyst coverage of ourcommon stock or our failure to achieve analyst earnings estimates;•public statements by analysts or clinicians regarding their perceptions of our clinical results or the effectiveness of ourproducts;•decreases in market valuations of medical device companies; and•general market conditions and other factors unrelated to our operating performance or the operating performance of ourcompetitors.The stock prices of many companies in the medical device industry have experienced wide fluctuations that have often beenunrelated to the operating performance of these companies. Periods of volatility in the market price of a company’s securities canresult in securities class action litigation against a company. If class action litigation is initiated against us, we may incur substantialcosts and our management’s attention may be diverted from our operations, which could significantly harm our business. .Our recently implemented reverse stock split could adversely affect the market liquidity of our common stock.On October 30, 2015, our stockholders approved an amendment to our restated certificate of incorporation, as amended, andauthorized our Board of Directors, if in their judgment they deemed it necessary, to effect a reverse stock split of our common stock ata ratio in the range of 1:2 to 1:4. We implemented this reverse stock split on December 1, 2015 with a ratio of 1:4. We cannot predictwhether the reverse stock split will increase the market price for our common stock on a sustained basis. The history of similar stocksplit combinations for companies in like circumstances is varied, and we cannot predict whether:•the market price per share of our common stock after the reverse stock split will rise in proportion to the reduction in thenumber of shares of our common stock outstanding before the reverse stock split;•the reverse stock split will result in a per share price that will attract brokers and investors who do not trade in lower pricedstocks;•the reverse stock split will result in a per share price that will increase our ability to attract and retain employees and otherservice providers; or•the market price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by NASDAQ, orthat we will otherwise meet the requirements of NASDAQ for continued inclusion for trading on The NASDAQ CapitalMarket.There can be no assurance that we will be able to comply with the continued listing standards of The NASDAQ CapitalMarket.We cannot assure you that we will be able to comply with the standards that we are required to meet in order to maintain a listingof our common stock on The NASDAQ Capital Market. In 2015, we received two notices from the Listing Qualifications Departmentof the NASDAQ Stock Market, and we regained29  TABLE OF CONTENTScompliance with respect to both of these notices before the end of fiscal year 2015. If we fail to continue to meet all applicableNASDAQ Capital Market requirements in the future and NASDAQ determines to delist our common stock, the delisting couldsubstantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affectour ability to obtain financing on acceptable terms, if at all, for the continuation of our operations; and harm our business.Additionally, the market price of our common stock may decline further and stockholders may lose some or all of their investment.If we fail to maintain compliance with any NASDAQ listing requirements, we could be delisted and our stock would be considereda penny stock under regulations of the Securities and Exchange Commission, or SEC, and would therefore be subject to rules thatimpose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our common stock, which could severelylimit the market liquidity of our common stock and your ability to sell our securities in the secondary marketThe low trading volume of our common stock may adversely affect the price of our shares.Although our common stock is listed on The NASDAQ Capital Market, our common stock has experienced low trading volume.The 50 day average trading volume through December 31, 2015 as reported by NASDAQ was approximately 120,000 shares. Limitedtrading volume may subject our common stock to greater price volatility and may make it difficult for investors to sell shares at a pricethat is attractive to them.Anti-takeover provisions in our organizational documents and Delaware law, and the shareholder rights plan that wepreviously adopted in 2007, may discourage or prevent a change of control, even if an acquisition would be beneficial to ourstockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove ourcurrent management.Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our company orchanges in our Board of Directors that our stockholders might consider favorable. Some of these provisions:•authorize the issuance of preferred stock which can be created and issued by the Board of Directors without prior stockholderapproval, with rights senior to those of our common stock;•provide for a classified Board of Directors, with each director serving a staggered three-year term;•prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by writtenconsent;•provide for the removal of a director only with cause and by the affirmative vote of the holders of 75% or more of the sharesthen entitled to vote at an election of our directors; and•require advance written notice of stockholder proposals and director nominations.We have also adopted a shareholder rights plan that could make it more difficult for a third party to acquire, or could discourage athird party from acquiring, us or a large block of our common stock. A third party that acquires 15% or more of our common stockcould suffer substantial dilution of its ownership interest under the terms of the shareholder rights plan through the issuance ofcommon stock to all stockholders other than the acquiring person.In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certainbusiness combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in ourcertificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtaincontrol of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including a merger, tenderoffer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our Board ofDirectors could cause the market price of our common stock to decline.30  TABLE OF CONTENTSWe do not intend to pay cash dividends.We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and anyfuture earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in theforeseeable future. In addition, the terms of our credit facility precludes us from paying any dividends. As a result, capitalappreciation, if any, of our common stock will be our stockholders’ sole source of potential gain for the foreseeable future.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESOur headquarters and engineering activities are located in an approximately 12,000 square foot leased facility in Waltham,Massachusetts and our manufacturing and fulfillment activities are located in a 6,000 square foot leased facility in Woburn,Massachusetts. We believe these facilities will be adequate for our needs during the foreseeable future.ITEM 3. LEGAL PROCEEDINGSWhile we are not currently a party to any material legal proceedings, we could become subject to legal proceedings in the ordinarycourse of business. We do not expect any such potential items to have a significant impact on our financial position.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.31  TABLE OF CONTENTSPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIESMarket InformationOur common stock is traded on the NASDAQ Capital Market under the symbol “NURO”. The price range per share reflected inthe table below is the high and low sales prices of our common stock as reported by NASDAQ (rounded to the nearest penny) for theperiods presented and has been adjusted to reflect a 1-for-4 reverse stock split of our common stock completed on December 1, 2015. Years ended December 31, 2015 2014 High Low High LowFirst quarter $8.20 $6.40 $12.56 $8.68 Second quarter 6.80 3.37 10.44 6.68 Third quarter 4.96 2.84 12.60 6.28 Fourth quarter 3.72 1.88 8.04 6.08 StockholdersOn February 1, 2016, there were approximately 77 stockholders of record of our common stock. This number does not includestockholders for whom shares were held in a “nominee” or “street” name. On February 1, 2016, the last reported sale price per share ofour common stock on the NASDAQ Capital Market was $1.74.DividendsWe have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, tofinance the expansion and growth of our business and do not expect to pay any cash dividends in the foreseeable future. Payment offuture cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including ourfinancial condition, operating results, current and anticipated cash needs, and plans for expansion. Additionally, the credit facilityrestricts our ability to pay dividends.Issuers Purchases of Equity SecuritiesIn December 2015, we completed a private equity offering with a single institutional investor providing for the issuance of (i)13,800 shares of Series C convertible preferred stock at a price of $1,000 per share, and (ii) warrants to purchase up to 10,823,528shares of our common stock, at an exercise price of $2.30 per share. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations — Liquidity and Capital Resources” below for details of this offering. In conjunction with thisoffering, we reacquired 63,000 shares of our Series B convertible preferred stock from the single institutional investor, at an averageprice of $100 per share, during the quarter ended December 31, 2015. The following table sets forth the purchases that we made duringthe quarter ended December 31, 2015: Period Total Numberof Series BPreferredStockPurchased AveragePrice PaidPer Share Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs MaximumNumber of Sharesthat May Yet BePurchased Underthe Plans orProgramsOctober 1, 2015 to October 31, 2015 — — N/A N/A November 1, 2015 to November 30, 2015 — — N/A N/A December 1, 2015 to December 31, 2015 63,000 $100 N/A N/A 32  TABLE OF CONTENTSITEM 6. SELECTED FINANCIAL DATAThe following selected financial data are derived from our audited financial statements, which have been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm. The selected financial data below should be read inconjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 7A,“Quantitative and Qualitative Disclosures About Market Risk” and our financial statements and related notes for the years ended 2015,2014, and 2013 appearing elsewhere in this Annual Report on Form 10-K: Years Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except share and per share data)Statement of Operations Data: Revenues $7,300 $5,513 $5,279 $7,575 $10,397 Cost of revenues 3,951 2,569 2,194 3,589 4,722 Gross profit 3,349 2,944 3,085 3,986 5,675 Operating expenses: Research and development 3,895 4,076 3,438 3,546 3,877 Sales and marketing 7,233 2,913 2,780 5,727 6,689 General and administrative 5,497 4,725 4,225 4,735 5,112 Total operating expenses 16,625 11,714 10,443 14,008 15,678 Loss from operations (13,276) (8,770) (7,358) (10,022) (10,003) Interest and other income 5 5 5 14 22 Warrants offering costs — (51) (376) — — Changes in fair value of warrant liability 4,084 1,050 (290) — — Net loss $(9,187) $(7,766) $(8,019) $(10,008) $(9,981) Net loss per common share applicable tocommon stockholders, basic and diluted $(7.75) $(6.15) $(12.28) $(20.86) $(62.14) Note: Net loss per common share applicable to common stockholders has been adjusted to reflect our 1-for-4 reverse stock spliteffected December 2015. As of December 31, 2015 2014 2013 2012 2011 (in thousands)Balance Sheet Data: Cash and cash equivalents $12,463 $9,222 $9,196 $8,699 $10,290 Working capital 11,956 8,392 8,919 8,567 10,482 Total assets 16,034 11,402 10,797 10,877 14,221 Total liabilities 3,471 8,015 3,602 2,077 3,132 Total stockholders’ equity 12,563 3,387 7,195 8,800 11,089 33  TABLE OF CONTENTSITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSYou should read the following discussion of our financial condition and results of operations in conjunction with our selectedfinancial data, our financial statements, and the accompanying notes to those financial statements included elsewhere in this AnnualReport on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. For a description offactors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please referto the section titled “Risk Factors”, contained in Item 1A of this Annual Report on Form 10-K.OverviewNeuroMetrix is an innovative health-care company that develops wearable medical technology and point-of-care tests that helppatients and physicians better manage chronic pain, nerve diseases, and sleep disorders. Our business is fully integrated with in-housecapabilities spanning product development, manufacturing, regulatory affairs and compliance, sales and marketing, and customersupport. We derive revenues from the sale of medical devices and after-market consumable products and accessories. Our products aresold in the United States and selected overseas markets, and are cleared by the U.S. Food and Drug Administration, or FDA, andregulators in foreign jurisdictions where appropriate. We have two principal product lines:•Wearable neuro-stimulation therapeutic devices•Point-of-care neuropathy diagnostic testsOur core expertise in biomedical engineering has been refined over nearly two decades of designing, building and marketingmedical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We created the market forpoint-of-care nerve testing and were first to market with sophisticated, wearable technology for management of chronic pain. We alsohave an experienced management team and Board of Directors.Chronic pain is a significant public health problem. It is defined by the National Institutes of Health as any pain lasting more than12 weeks in contrast to acute pain which is a normal bodily response to injury or trauma. Chronic pain conditions include painfuldiabetic neuropathy, or PDN, arthritis, fibromyalgia, sciatica, musculoskeletal pain, cancer pain and many others. Chronic pain may betriggered by an injury or there may be an ongoing cause such as disease or illness. There may also be no clear cause. Pain signalscontinue to be transmitted in the nervous system over extended periods of time often leading to other health problems. These caninclude fatigue, sleep disturbance, decreased appetite, and mood changes which cause difficulty in carrying out important activitiesand contributing to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducingpain and improving function. The goal is effective pain management.Chronic pain is widespread. It affects over 100 million adults in the United States and more than 1.5 billion people worldwide. Theglobal market for pain management drugs and devices alone was valued at $35 billion in 2012. The estimated incremental impact ofchronic pain on health care costs in the United States is over $250 billion per year and lost productivity is estimated to exceed $300billion per year.The most common approach to chronic pain is pain medication. This includes over-the-counter drugs (such as Advil and Motrin),and prescription drugs including anti-convulsants (such as Lyrica and Neurontin) and anti-depressants (such as Cymbalta and Elavil).Topical creams may also be used (such as Zostrix and Bengay). With severe pain, narcotic pain medications may be prescribed (suchas codeine, fentanyl, morphine, and oxycodone). The approach to treatment is individualized, drug combinations may be employed,and the results are often hit or miss. Side effects and the potential for addiction are real and the risks are substantial.Reflecting the difficulty in treating chronic pain, we believe that inadequate relief leads 25% to 50% of pain sufferers to turn to theover-the-counter market for supplements or alternatives to prescription pain medications. These include non-prescription medications,topical creams, lotions, electrical stimulators, dietary products, braces, sleeves, pads and other items. In total they account for over $4billion in annual spending in the United States on pain relief products.34  TABLE OF CONTENTSHigh frequency nerve stimulation is an established treatment for chronic pain supported by numerous clinical studiesdemonstrating efficacy. In simplified outline, the mechanism of action involves intensive nerve stimulation to activate the body’scentral pain inhibition system resulting in widespread analgesia, or pain relief. The nerve stimulation activates brainstem pain centersleading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain signal transmissionthrough the central nervous system. This therapeutic approach is available through deep brain stimulation and through implantablespinal cord stimulation, both of which require surgery and have attendant risks. Non-invasive approaches to neuro-stimulation(transcutaneous electrical nerve stimulation, or TENS) have achieved limited efficacy in practice due to device limitations, ineffectivedosing and low patient compliance.Quell, our OTC wearable device for pain relief, was unveiled at the January 2015 Consumer Electronics Show (CES) and madecommercially available in the United States during the second quarter of 2015. Following commercial launch through the end of 2015,approximately 13,800 Quell devices plus electrodes and accessories were shipped to consumers with a total invoiced value of $3.1million prior to the impact of product returns. Quell utilizes OptiTherapy TM , our proprietary non-invasive neuro-stimulationtechnology to provide relief from chronic intractable pain, such as nerve pain due to diabetes, fibromyalgia, arthritic pain, and lowerback and leg pain. This advanced wearable device is lightweight and can be worn during the day while active, and at night whilesleeping. It has been cleared by the FDA for treatment of chronic intractable pain without a doctor’s prescription. Users of the devicehave the option of using their smartphones to automatically track and personalize their pain therapy. Quell was launched through twodistribution channels: a professional channel using a direct sales force to target podiatrists, pain physicians, primary care physicians,and chiropractors who resell the product, and a direct-to-consumer channel using online marketing and lead generation. Afterestablishing the professional and direct to consumer channels, we expanded distribution to include Amazon e-commerce sales andQVC direct response TV, or DRTV, sales. We are developing other distribution channels for broader access to the retail markets. Webelieve there are significant opportunities to market Quell outside of the United States, particularly in Western Europe, Japan andChina; however, we do not intend to approach those markets until we have established a solid presence in the United States.DPNCheck, our diagnostic test for peripheral neuropathies, was made commercially available in the fourth quarter of 2011.DPNCheck revenues for 2015, 2014, and 2013 were approximately $2.3 million, $1.8 million, and $1.3 million, respectively. Our U.S.sales efforts focus on Medicare Advantage providers who assume financial responsibility and the associated risks for the health carecosts of their patients. We believe that DPNCheck presents an attractive clinical case with early detection of neuropathy allowing forearlier clinical intervention to help mitigate the effects of neuropathy on both patient quality of life and cost of care. Also, thediagnosis and documentation of neuropathy provided by DPNCheck helps clarify the patient health profile which, in turn, may have adirect, positive effect on the Medicare Advantage premium received by the provider. We believe that attractive opportunities existoutside the United States, including Japan where we received regulatory approval and launched DPNCheck with our distributionpartner Omron Healthcare in the third quarter of 2014; in China where we recently received regulatory approval and are working withOmron Healthcare toward commercial launch in the second half of 2016; and in Mexico where our distributor Scienta Farma receivedregulatory approval and initiated sales in the fourth quarter of 2015.Our products consist of a medical device used in conjunction with a consumable electrode or biosensor. Other accessories andconsumables are also available to customers. Our goal for these devices is to build an installed base of active customer accounts anddistributors that regularly order aftermarket products to meet their needs. We successfully implemented this model when we startedour business with the NC-stat system and applied it to subsequent product generations including ADVANCE. Our recent products,Quell, SENSUS and DPNCheck, conform to this model. Other products in our development pipeline are based on the device plusconsumables business model.35  TABLE OF CONTENTSResults of OperationsComparison of Years Ended December 31, 2015 and December 31, 2014RevenuesThe following table summarizes our revenues: Years Ended December 31, 2015 2014 Change % Change (in thousands)Revenues $7,299.8 $5,512.8 $1,787.0 32.4% Revenues include sales from Quell and SENSUS, our wearable therapeutic devices for relief of chronic intractable pain;DPNCheck, our diagnostic test for diabetic peripheral neuropathy, or DPN; and our legacy ADVANCE neurodiagnostics business.Quell was made commercially available during the second quarter of 2015.During 2015 revenues increased by $1.8 million, or 32.4%, from the prior year. Quell revenues of $2.1 million in 2015 were thelargest contributor to revenue growth. During 2015, 13,800 Quell devices and 14,900 electrode packs with a total invoiced value of$3.1 million were shipped to Quell customers. Approximately $0.5 million of invoiced Quell shipments was made to new distributionchannels where we have insufficient product return history to recognize revenue, and an additional $0.5 million in invoiced Quellshipments constituted either actual or estimate product returns by customers under our right-of-return policy and are excluded fromrevenue.SENSUS, our prescription wearable device, posted shipments of about 2,900 devices and 19,800 electrode packs with totalrevenue of $0.6 million. This is in comparison with approximately 5,800 SENSUS devices and 17,600 electrode packs and totalrevenue of $0.9 million in 2014. The decline in SENSUS revenue reflects stress in the durable medical equipment distribution channelfrom the Medicare competitive bidding initiative, as well as sales encroachment from Quell. There were approximately 700DPNCheck devices plus 159,000 electrodes shipped during 2015 with revenue of $2.3 million compared to approximately 680 DPNdevices and 109,500 electrodes with $1.8 million in revenue in 2014. Revenues also include sales from our ADVANCEneurodiagnostic products totaling $2.3 million in the year ended December 31, 2015, compared to $2.8 million in 2014.Cost of Revenues and Gross MarginThe following table summarizes our cost of revenues and gross margin: Years Ended December 31, 2015 2014 Change % Change (in thousands)Cost of revenues $3,950.7 $2,568.6 $1,382.1 53.8% Gross profit $3,349.1 $2,944.2 $404.9 13.8 Our cost of revenues increased to $4.0 million in 2015, compared to $2.6 million in 2014, primarily due to the increase in ordersand shipment volumes during the comparable periods. Gross margin decreased to 45.9% in 2015 compared to 53.4% in 2014. Thecontraction in gross margin reflects two factors: growing Quell sales which are weighted toward lower margin devices rather thanhigher margin electrodes, and operating costs of our new manufacturing facility. As we build our installed base of Quell users weexpect recurring electrode sales at higher margins. Also, continued growth in Quell sales will improve manufacturing cost absorptioncontributing to margin gains.36  TABLE OF CONTENTSOperating ExpensesThe following table summarizes our operating expenses: Years Ended December 31, 2015 2014 Change % Change (in thousands)Operating expenses: Research and development $3,894.8 $4,076.0 $(181.2) (4.4)% Sales and marketing 7,233.0 2,913.1 4,319.9 148.3 General and administrative 5,497.5 4,725.1 772.4 16.3 Total operating expenses $16,625.3 $11,714.2 $4,911.1 41.9 Research and DevelopmentResearch and development expenses for 2015 and 2014 were $3.9 million and $4.1 million, respectively. The decrease of $0.2million primarily reflects decreased spending of $0.5 million in personnel costs, partially offset by increased spending of $0.3 millionin consulting fees to develop Quell for launch in June 2015 and in transitioning the engineering focus to Quell enhancements andeventually the next product generation.Sales and MarketingSales and marketing expenses increased to $7.2 million in 2015 from $2.9 million in 2014. The increase of $4.3 million includedincremental expenses for direct-to-consumer and physician online advertising and paid search of $1.6 million and incremental publicrelations expenses of $0.3 million to support the Quell launch. An increase in personnel costs of $1.7 million and travel and expense of$0.3 million as compared to the same period last year is attributed to the addition of 14 new employees hired specifically to supportthe commercialization of Quell, which included a new marketing team, a field sales force, and expansion of the customer carefunction.General and AdministrativeGeneral and administrative expenses increased by $0.8 million to $5.5 million in 2015 compared to $4.7 million in the prior year.This increase reflected $0.3 million in incremental temporary staffing and consulting services and recruiting fees of $0.1 millionrelated to staff turnover in accounting and information technology as well as costs related to relocating the company’s corporateoffices and production to new facilities in the first quarter of 2015.Interest IncomeInterest income was approximately $5,200 and $4,600 during 2015 and 2014, respectively. Interest income was earned frominvestments in cash equivalents.Change in fair value of warrant liabilityThe change in fair value of warrant liability of $4.1 million for 2015 reflects the combined effects of a lower base of outstandingwarrants for valuation purposes plus a lower stock price and a declining term of the remaining warrants. In connection with the May2015 financing (See “Liquidity and Capital Resources”) we redeemed $0.9 million in outstanding warrants. The remaining warrantswere then valued at fair value at the end of the year using the Black Scholes valuation method. The change in the fair value of thewarrant liability in the year ended December 31, 2014 was $1.1 million.Net loss per common share applicable to common stockholders, basic and dilutedThe net loss per common share applicable to common stockholders, basic and diluted, was $7.75 and $6.15 for 2015 and 2014,respectively.Net loss per common share applicable to common stockholders in 2015 of $7.75 included a deemed dividend attributable topreferred stockholders in connection with beneficial conversion features of $4.1 million, or $1.52 per share, related to our May 2015equity offering; a deemed dividend attributable to preferred stockholders in connection with preferred stock modifications of $8.3million, or $3.06 per share, related to our December 2015 equity offering; a return of capital to common shareholders attributable tothe37  TABLE OF CONTENTSrepurchase of preferred shares and related embedded beneficial conversion of $0.6 million, or $0.22 per share, related to our December2015 equity offering; and our 2015 net loss reported in our Statement of Operations of $9.2 million, or $3.38 per share. The above pershare amounts are calculated using 2,719,085 weighted average number of shares outstanding as of December 31, 2015.Net loss per common share applicable to common stockholders in 2014 of $6.15 included a deemed dividend attributable topreferred stockholders in connection with beneficial conversion features of $3.0 million, or $1.70 per share, related to our 2014 equityoffering; and our 2014 net loss reported in our Statement of Operations of $7.8 million, or $4.45 per share. The above per shareamounts are calculated using 1,743,494 weighted average number of shares outstanding at December 31, 2014.Comparison of Years Ended December 31, 2014 and December 31, 2013RevenuesThe following table summarizes our revenues: Years Ended December 31, 2014 2013 Change % Change (in thousands)Revenues $5,512.8 $5,278.8 $234.0 4.4% Revenues include sales from SENSUS, our wearable therapeutic device for relief of chronic, intractable pain launched in January2013; DPNCheck, our diagnostic test for diabetic peripheral neuropathy, or DPN, launched in Q4 2011; and our legacy ADVANCEneurodiagnostics business. Overall revenues increased by 4.4% from 2013. Revenue from our newer products, SENSUS andDPNCheck, grew by over 80% in 2014. The ADVANCE business, managed for cash flow and not growth, contracted by 25%.ADVANCE has few direct operating costs.Revenue from SENSUS devices and consumable electrodes totaled $0.9 million in 2014 versus $0.2 million in 2013. Reflectingexpanded distribution through national durable medical equipment suppliers in 2014, we shipped approximately 5,800 SENSUSdevices and posted a 350% increase when compared to 1,300 devices shipped in 2013. SENSUS electrode shipments totaledapproximately 17,600 in 2014 versus approximately 3,500 in 2013.Revenue from DPNCheck increased over 40% to $1.8 million in 2014 from $1.3 million in 2013. Our Asia distribution partner,Omron Healthcare, received regulatory approval and launched DPNCheck in Japan during the third quarter of 2014, contributingpositively to 2014 revenue. The United States Medicare Advantage business expanded with approximately a 50% growth in testsshipped in 2014 in comparison with 2013. Overall, there were approximately 680 DPNCheck devices and 110,000 tests shipped in2014 in comparison with 540 devices and 85,000 tests in 2013.ADVANCE recorded about $2.8 million in 2014 revenue in comparison to $3.8 million in 2013.Cost of Revenues and Gross MarginThe following table summarizes our cost of revenues and gross margin: Years Ended December 31, 2014 2013 Change % Change (in thousands)Cost of revenues $2,568.6 $2,194.3 $374.3 17.1% Gross profit $2,944.2 $3,084.5 $(140.3) (4.5) We recorded an increase in cost of revenues to $2.6 million in 2014 from $2.2 million in 2013 and a decline in our gross margin to53.4% of revenues in 2014 from 58.4% of revenues in 2013. The decline in gross margin is primarily attributable to the SENSUSproduct line which comprised a greater percentage of total revenues in 2014 versus 2013, and has lower margins than our otherproducts. The lower SENSUS margins reflect the high cost structure in the durable medical equipment sales channel which accountsfor the majority of our SENSUS sales. The effect of low SENSUS margins was compounded by strong growth in that38  TABLE OF CONTENTSproduct. SENSUS represented 16% of total revenue in 2014 in comparison with 4% of revenue in 2013. Inventory write-down chargesprimarily related to excess ADVANCE inventory were insignificant in 2014 and were about $0.2 million in 2013.Operating ExpensesThe following table summarizes our operating expenses: Years Ended December 31, 2014 2013 Change % Change (in thousands)Operating expenses: Research and development $4,076.0 $3,438.2 $637.8 18.6% Sales and marketing 2,913.1 2,779.7 133.4 4.8 General and administrative 4,725.1 4,225.5 499.6 11.8 Total operating expenses $11,714.2 $10,443.4 $1,270.8 12.2 Research and DevelopmentResearch and development expenses were approximately $4.1 million and $3.4 million in 2014 and 2013, respectively, an increaseof $0.6 million or 19%. The increased spending was in support of our initiative to launch Quell in the first half of 2015. R&Dinvestments totaling approximately $0.8 million were made in outside engineering support for product design, smart phone applicationdevelopment and consulting services. During 2013, similar outside support costs were approximately $0.2 million. This spending wasoffset by reductions of approximately $0.1 million in 2014 clinical study costs.Sales and MarketingSales and marketing expenses were approximately $2.9 million and $2.8 million in 2014 and 2013, respectively, an increase of$0.1 million or 5%. Marketing costs for outside services related to Quell accounted for approximately $0.4 million in incrementalspending in 2014. This encompassed product branding, pricing studies, consulting services as well as promotional materials for tradeshows scheduled for early 2015. Personnel costs declined about $0.1 million in 2014 versus 2013. Sales and Marketing personnelspending in 2014 included fourth quarter hiring of a new management team responsible for Quell. Trade show and travel costsdeclined approximately $0.1 million in 2014 versus 2013.General and AdministrativeGeneral and administrative expenses were approximately $4.7 million and $4.2 million in 2014 and 2013, respectively, an increaseof $0.5 million of 12%. Personnel costs increased by $0.2 million reflecting incentive compensation and stock based compensationadjustments during 2014. Outside services, including temporary staffing, increased by $0.3 million in response to staff turnover andthe support requirements for relocation of the corporate office and production activities planned for early 2015. Professional servicesfor legal and accounting support declined by approximately $0.1 million in 2014 from 2013.Interest IncomeInterest income was approximately $4,600 and $5,700 during 2014 and 2013, respectively. Interest income was earned frominvestments in cash equivalents.Warrant offering costs, and Change in fair value of warrant liabilityCosts related to the issuance of common stock warrants in connection with equity offerings was about $0.1 million and $0.4million in 2014 and 2013, respectively. Outstanding warrants from those offerings were valued at fair value at quarterly reportingperiods and on warrant transaction dates. The total fair value adjustments to outstanding warrants was a reduction in the net loss of$1.1 million in 2014 and an increase in the net loss of $0.3 million in 2013.Net loss per common share applicable to common stockholders, basic and dilutedThe net loss per common share applicable to common stockholders, basic and diluted, was $6.15 and $12.28 for 2014 and 2013,respectively.39  TABLE OF CONTENTSNet loss per common share applicable to common stockholders in 2014 of $6.15 included a deemed dividend attributable topreferred stockholders in connection with beneficial conversion features of $3.0 million, or $1.70 per share related to our 2014 equityoffering; and our 2014 net loss reported in our Statement of Operations of $7.8 million, or $4.45 per share. The above per shareamounts are calculated using 1,743,494 weighted average number of shares outstanding as of December 31, 2014.Net loss per common share applicable to common stockholders in 2013 of $12.28 included a deemed dividend attributable topreferred stockholders in connection with beneficial conversion features of $0.8 million, or $1.07 per share related to our 2013 equityoffering; and our 2013 net loss reported in our Statement of Operations of $8.0 million, or $11.21 per share. The above per shareamounts are calculated using 715,524 weighted average number of shares outstanding as of December 31, 2013.Liquidity and Capital ResourcesOur principal source of liquidity is our cash and cash equivalents. As of December 31, 2015, cash and cash equivalents totaled$12.5 million. During 2015 we completed two equity offerings, or the 2015 Offerings, which are detailed below.Our ability to generate revenue to fund our operations will largely depend on the success of our wearable therapeutic products forchronic pain and our diagnostic products for neuropathy. A low level of market interest in Quell or DPNCheck, an accelerated declinein our neurodiagnostics consumables sales, or unanticipated increases in our operating costs would have an adverse effect on ourliquidity and cash generated from operations. The following table sets forth information relating to our cash and cash equivalents: December 31,2015 December 31,2014 Change % Change (in thousands)Cash and cash equivalents $12,462.9 $9,222.0 $3,240.9 35.1% During 2015 our cash and cash equivalents increased by $3.2 million reflecting the net proceeds provided by our 2015 equityofferings, offset by $13.1 million of net cash used in operations and $0.6 million used in investing activities. The 2015 EquityOfferings resulted in net proceeds of approximately $16.8 million, after redemptions of certain equity instruments and after deductingfinancial institution discounts and fees, and other offering expenses.In December 2015, we completed a private equity offering providing for the issuance of (i) 13,800 shares of Series C convertiblepreferred stock at a price of $1,000 per share, and (ii) warrants to purchase up to 10,823,528 shares of our common stock, at anexercise price of $2.30 per share. The closing of the offering occurred on December 31, 2015. The offering resulted in approximately$6.7 million in net proceeds after deducting placement agent fees and expenses and the redemption of 63,000 shares of Series Bconvertible preferred stock from the May 2015 public offering.In May 2015, we completed an underwritten public offering of (i) 147,000 shares of Series B convertible preferred stock at a priceof $100 per share, and (ii) five year warrants to purchase up to 3,638,250 shares of our common stock at an exercise price of $5.00 pershare. This offering resulted in approximately $14.7 million in gross proceeds, before deducting underwriting discounts andcommission and expenses. In conjunction with this offering, approximately $3.2 million of the proceeds were used to repurchase theoutstanding Series A-4 preferred shares from the 2014 offering. Net proceeds from this offering, after deducting underwriting discountand commissions and offering expenses and repurchase of outstanding Series A-4 preferred shares, were approximately $10.1 million.See Note 12, Stockholders’ Equity, of our Notes to Financial Statements contained elsewhere in this Annual Report on Form 10-K forfurther information regarding the 2015 Equity Offerings.In order to supplement our access to capital, we are party to an amended Loan and Security Agreement, most recently amendedJanuary 14, 2016, with a bank which provides us with a credit facility in the amount of $2.5 million on a revolving basis. The amendedcredit facility expires on January 15, 2017. Amounts borrowed under the credit facility will bear interest equal to the prime rate plus0.5%. Any borrowings under the credit facility will be collateralized by our cash, accounts receivable, inventory, and equipment. As of40  TABLE OF CONTENTSDecember 31, 2015 the Company was in default under a provision of the Agreement that requires the prior written consent by the bankfor any repurchase on the Company’s capital stock. This default was waived by the bank on January 14, 2016. The Credit Facility alsoincludes traditional lending and reporting covenants. These include certain financial covenants applicable to liquidity that are to bemaintained by us. As of December 31, 2015, we were in compliance with these covenants and had not borrowed any funds under thecredit facility. However, approximately $0.2 million of the amount under the Credit Facility is restricted to support letters of creditissued in favor of our landlords in connection with lease arrangements. Consequently, the amount available for borrowing under thecredit facility as of December 31, 2015 was approximately $2.3 million.In managing working capital, two important financial measurements are days sales outstanding (DSO) and inventory turnover aspresented below: Years Ended December 31, 2015 2014Days sales outstanding (days) 27 38 Inventory turnover rate (times per year) 5.9 4.0 Customer payment terms generally vary from payment-on-order for Quell e-commerce sales to 30 days from invoice date. Bothdays sales outstanding and inventory turnover improved during 2015.The following sets forth information relating to sources and uses of our cash: Years Ended December 31, 2015 2014 2013 (in thousands)Net cash used in operating activities $(13,099.9) $(7,678.5) $(6,554.9) Net cash (used in) provided by investing activities (594.6) (227.3) (86.1) Net cash provided by financing activities 16,935.3 7,932.0 7,137.3 Our operating activities used $13.1 million for the year ended December 31, 2015 primarily attributable to our net loss of $9.2million. This loss included non-cash credits of approximately $4.1 million for revaluing outstanding warrants at fair value. In addition,operating activities included increases in inventories of $0.4 million, increases in prepaid expenses and other assets of $0.4 million,partially offset by increases in accounts payable of $0.5 million.During the year ended December 31, 2015, our investing activities reflected $0.6 million spent for the acquisition of fixed assets,primarily related to information technology system upgrades.Following our 2015 equity offerings, we ended the year with 16.0 million warrants outstanding with a weighted average exerciseprice of $3.57 per common share. Of these, 10.8 million cash exercise warrants have an exercise price of $2.30 per common share,totalling $24.9 million.We held cash and cash equivalents of $12.5 million as of December 31, 2015. We believe that these resources and the cash to begenerated from expected product sales will be sufficient to meet our projected operating requirements through the second quarter of2016. We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumedmore rapidly than currently expected due to (a) decreases in sales of our products and the uncertainty of future revenues from newproducts; (b) changes we may make to the business that affect ongoing operating expenses; (c) changes we may make in our businessstrategy; (d) regulatory developments affecting our existing products; (e) changes we may make in our research and developmentspending plans; and (f) other items affecting our forecasted level of expenditures and use of cash resources. Accordingly, we will needto raise additional funds to support our operating and capital needs in the third quarter of 2016 and beyond. These factors raisesubstantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty. We will 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 thefunds available to fund operations. However, we may not be able to secure such financing in a timely manner or on favorable terms, ifat all. We filed a shelf registration41  TABLE OF CONTENTSstatement on Form S-3 with the SEC covering shares of our common stock and other securities for sale, giving us the opportunity toraise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any suchofferings. However, pursuant to the instructions to Form S-3, we only have the ability to sell shares under the shelf registrationstatement, during any 12-month period, in an amount less than or equal to one-third of the aggregate market value of our commonstock held by non-affiliates. If we raise additional funds by issuing equity or debt securities, either through the sale of securitiespursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debtsecurities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds throughcollaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products orproprietary 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 andpotentially 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.As of December 31, 2015, we have federal and state net operating loss, or NOL, carryforwards available to offset future taxableincome of $118.2 million and $34.9 million, respectively, and federal and state tax credits of $1.3 million and $1.1 million,respectively, which may be available to reduce future taxable income and the related taxes thereon. The federal NOL’s begin to expirein 2019 and the state NOL’s begin to expire in 2017. The federal and state research and development credits both begin to expire in2018. A full valuation allowance has been provided against our NOL carryforwards and research and development creditcarryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus,there would be no impact to the balance sheet or statement of operations if an adjustment were required.Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and CommitmentsAs of December 31, 2015, we did not have any off-balance sheet financing arrangements.The following table summarizes our principal contractual obligations as of December 31, 2015 and the effects such obligations areexpected to have on our liquidity and cash flows in future periods. Contractual Obligations Total Payments due in Less than 1 year 1 – 3 years 3 – 5 years More than 5 yearsOperating lease obligations $3,186,439 $517,566 $1,071,045 $1,028,887 $568,941 Purchase order obligations 1,526,459 1,526,459 — — — Total contractual obligations $4,712,898 $2,044,025 $1,071,045 $1,028,887 $568,941 Critical Accounting Policies and EstimatesOur financial statements are based on the selection and application of generally accepted accounting principles, which require us tomake estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanyingnotes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires theexercise of judgment. Actual results could differ significantly from those estimates, and any such differences may be material to ourfinancial statements. We believe that the policies set forth below may involve a higher degree of judgment and complexity in theirapplication than our other accounting policies and represent the critical accounting policies used in the preparation of our financialstatements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.Our significant accounting policies are presented within Note 2 to our Financial Statements.Revenue Recognition and Accounts ReceivableWe recognize revenue when the following criteria have been met: persuasive evidence of an arrangement exists, delivery hasoccurred 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 our medical devices and42  TABLE OF CONTENTSconsumables, including single use nerve specific electrodes and other accessories are generally recognized upon shipment, assumingall other revenue criteria have been met.Revenue recognition involves judgments, including assessments of expected returns and expected customer relationship periods.We analyze various factors, including a review of specific transactions, its historical product returns, average customer relationshipperiods, customer usage, customer balances, and market and economic conditions. Changes in judgments or estimates on these factorscould materially impact the timing and amount of revenues and costs recognized. Should market or economic conditions deteriorate,our actual return or bad debt experience could exceed its estimate. Certain product sales are made with a 30-day or 60-day right ofreturn. Where we can reasonably estimate future returns, we recognizes revenues upon shipment and record as a reduction of revenue aprovision for estimated returns. Where we cannot reasonably estimate future returns, we defer revenues until we gain sufficientexperience to estimate returns or until the right of return lapses.Trade accounts receivable are recorded at the invoiced amount and do not bear interest.Accounts receivable are recorded net of the allowance for doubtful accounts receivable. The allowance for doubtful accounts is ourbest estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtfulaccounts and determine the allowance based on an analysis of customer past payment history, product usage activity, and recentcommunications between us and the customer. Individual customer balances which are past due and over 90 days outstanding arereviewed individually for collectability. Account balances are written-off against the allowance when we feel it is probable thereceivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers.InventoriesInventories, consisting primarily of finished goods and purchased components, are stated at the lower of cost or market. Cost isdetermined using the first-in, first-out method. We write down inventory to its net realizable value for excess or obsolete inventory.Finished goods inventories owned by us, but stored in third party warehouses prior to order fulfillment, are disclosed separately asfinished goods on consignment. The realizable value of inventories is based upon the types and levels of inventories held, forecasteddemand, pricing, competition, and changes in technology. Our consumables have an eighteen to twenty-four month shelf life. Shouldcurrent market and economic conditions deteriorate, our actual recoveries could be less than our estimates.Recently Issued or Adopted Accounting PronouncementsIn November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes(ASU 2015-17). ASU 2015-17 requires that deferred income tax liabilities and assets be classified as noncurrent in our balance sheet.The standard is effective for public entities for annual and interim periods beginning after December 15, 2016, with early adoptionpermitted. ASU 2015-17 has been adopted on a prospective basis by us for the year ended December 31, 2015, thus resulting in thereclassification of $45,000 of current deferred tax liabilities to noncurrent on the accompanying balance sheet. The prior reportingperiod was not retrospectively adjusted. The adoption of this guidance had no impact on our results of operations or cash flows.In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’sAbility to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 requires management to assess an entity’s ability to continueas a going concern, and to provide related footnote disclosures in certain circumstances. The standard is effective for public entities forannual and interim periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating theprovisions of ASU 2014-15 and assessing the impact, if any, it may have on our financial position, results of operations or cash flows.In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued Accounting Standards Update(“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), a comprehensive new revenue recognition standardthat will supersede nearly all existing revenue recognition guidance. The objective of ASU 2014-09 is that a company will recognizerevenue when it transfers promised43  TABLE OF CONTENTSgoods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange forthose goods or services. ASU 2014-09 will be effective for the first quarter of 2017. An entity can elect to adopt ASU 2014-09 usingone of two methods, either full retrospective adoption to each prior reporting period, or recognizing the cumulative effect of adoptionat the date of initial application. We are in the process of evaluating the new standard and do not know the effect, if any, ASU 2014-09will have on the Consolidated Financial Statements or which adoption method will be used.ITEM 7A. Quantitative and Qualitative Disclosures about Market RiskWe do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financialinstruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of 90 daysor less to be cash equivalents. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity tomeet operating needs, and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in cashequivalents and short-term investments with a maturity of twelve months or less and maintain an average maturity of twelve months orless. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on thefair value of our investment portfolio or our interest income.ITEM 8. Financial Statements and Supplementary DataThe information required by this item may be found on pages F- 1 through F- 24 of this Annual Report on Form 10-K with theexception of the unaudited summarized quarterly financial data which is presented below. Net loss per common share is calculatedindependently for each of the periods presented. Therefore, the sum of the quarterly net loss per common share amounts will notnecessarily equal the total for the full fiscal year. Per common share amounts have been adjusted for all periods to reflect a 1-for-4reverse split of our common stock completed on December 1, 2015. Year Ended December 31, 2015 First Quarter Second Quarter Third Quarter Fourth Quarter TotalRevenues $1,282,960 $1,224,987 $2,054,432 $2,737,451 $7,299,830 Cost of revenues 637,261 595,032 1,119,186 1,599,267 3,950,746 Gross profit 645,699 629,955 935,246 1,138,184 3,349,084 Net loss (2,071,228) (1,203,206) (3,203,778) (2,709,136) (9,187,348) Net loss per common share, basicand diluted $(1.00) $(2.07) $(1.06) $(3.19) $(7.75) Year Ended December 31, 2014 First Quarter Second Quarter Third Quarter Fourth Quarter TotalRevenues $1,331,537 $1,343,770 $1,427,828 $1,409,629 $5,512,764 Cost of revenues 615,081 655,337 639,025 659,159 2,568,602 Gross profit 716,456 688,433 788,803 750,470 2,944,162 Net loss (1,224,599) (2,170,710) (1,461,713) (2,909,200) (7,766,222) Net loss per common share, basicand diluted $(0.83) $(3.42) $(0.74) $(1.44) $(6.15) ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureThere have been no changes in or disagreements with accountants on accounting and financial disclosure matters in the last fiscalyear.ITEM 9A. 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 andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K, haveconcluded that, based on such evaluation, our disclosure44  TABLE OF CONTENTScontrols and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules andforms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, orpersons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.(b) Management’s Report on Internal Control Over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to therisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Under the supervision and with the participation of our management, including our Chief ExecutiveOfficer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financialreporting as of December 31, 2015 based on the criteria in Internal Control — Integrated Framework (2013) issued by the Committeeof Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation under the framework in InternalControl — Integrated Framework (2013) issued by the COSO, our management concluded that our internal control over financialreporting was effective as of December 31, 2015.This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firmregarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registeredpublic accounting firm pursuant to rules of the SEC that permit us to provide only management's report in this Annual Report on Form10-K.(c) Changes in internal control over financial reporting.There have been no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.ITEM 9B. Other InformationOn February 8, 2016, the Compensation Committee of the Board of Directors approved modifications to the ManagementRetention and Incentive Plan (the “Plan”). A full description of the Plan is included under Part II, Item 5 of the Company’s QuarterlyReport on Form 10-Q for the quarter ended June 30, 2012, as filed on August 3, 2012, as modified and described in Part II, Item 5 ofthe Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, as filed on October 28, 2014, which areincorporated herein by reference. Under the Plan, a portion of the consideration payable upon a change of control transaction, asdefined in the Plan, would be paid to executive officers and certain other key employees. The modifications of the Plan includeclarifying changes as well as adding Frank McGillin, Senior Vice President, General Manager, Consumer, as a participant under thePlan. The description of the Plan, as modified, contained herein does not purport to be complete and is qualified in its entirety byreference to the full text of the Plan, as modified, a copy of which is set forth as Exhibit 10.15 to this Annual Report on Form 10-K andis incorporated herein by reference.45  TABLE OF CONTENTSPART IIIITEM 10. Directors, Executive Officers and Corporate GovernanceDIRECTORS AND EXECUTIVE OFFICERSThe following table and biographical descriptions set forth information regarding our executive officers and directors, based oninformation furnished to us by each executive officer and director, as of December 31, 2015: Name Age PositionShai N. Gozani, M.D., Ph.D. 51 Chairman of the Board, Chief Executive Officer,President and SecretaryThomas T. Higgins 64 Senior Vice President, Chief Financial Officer andTreasurerFrancis X. McGillin 55 Senior Vice President, General Manager ConsumerDavid E. Goodman, M.D. (1) (2) 59 DirectorAllen J. Hinkle, M.D. (2) (3) 65 DirectorNancy E. Katz (1) 56 DirectorTimothy R. Surgenor (1) (3) 56 DirectorDavid Van Avermaete 64 Director(1)Member of Audit Committee(2)Member of Compensation Committee(3)Member of Nominating and Corporate Governance CommitteeShai N. Gozani, M.D., Ph.D. founded our Company in 1996 and currently serves as Chairman of our Board of Directors and asour President, Chief Executive Officer and Secretary. Since founding our Company in 1996, Dr. Gozani has served in a number ofpositions at our company including Chairman since 1996, President from 1996 to 1998 and from 2002 to the present, Chief ExecutiveOfficer since 1997 and Secretary since July 2008. Dr. Gozani holds a B.A. in computer science, an M.S. in Biomedical Engineeringand a Ph.D. in Neurobiology, from the University of California, Berkeley. He also received an M.D. from Harvard Medical School andthe Harvard-M.I.T. Division of Health Sciences at M.I.T. Prior to forming our Company, Dr. Gozani completed a neurophysiologyresearch fellowship in the laboratory of Dr. Gerald Fischbach at Harvard Medical School. Dr. Gozani has published articles in theareas of basic and clinical neurophysiology, biomedical engineering and computational chemistry. The Board has concluded that Dr.Gozani should serve as a director because Dr. Gozani’s extensive knowledge of engineering and neurophysiology, combined with theunique understanding of our technology and business he has gained as our founder and as a key executive, provides invaluable insightto our Board and to the entire organization.Thomas T. Higgins has served as our Senior Vice President, Chief Financial Officer and Treasurer since September 2009. Prior tojoining NeuroMetrix, from January 2005 to March 2008, Mr. Higgins was Executive Vice President and Chief Financial Officer atCaliper Life Sciences, Inc., a provider of technology and services for life sciences research. Before Caliper, Mr. Higgins wasExecutive Vice President, Operations and Chief Financial Officer at V.I. Technologies, Inc. (Vitex), a biotechnology companyaddressing blood safety. Before Vitex, Mr. Higgins served at Cabot Corporation in various senior finance and operations roles. His lastposition at Cabot was President of Distrigas of Massachusetts Corporation, a subsidiary involved in the liquefied natural gas business,and prior to that he was responsible for Cabot’s Asia Pacific carbon black operations. Before joining Cabot, Mr. Higgins was withPricewaterhouseCoopers where he started his career. Mr. Higgins holds a BBA with honors from Boston University.Francis X. McGillin has served as Senior Vice President and General Manager Consumer Wearables since August 2014. Prior tojoining NeuroMetrix, from September 2001 to January 2014, Mr. McGillin was Vice President and General Manager at Philips, havingserved in a number of senior marketing and management positions in the company’s consumer and healthcare businesses. His last rolewith Philips, was leading the globalization of Philips Sonicare business. Before Philips, Mr. McGillin, was Executive Director,46  TABLE OF CONTENTSMarketing at Johnson & Johnson, working across a number of the company’s global consumer brands. Mr. McGillin holds a MBAfrom Fordham University and a BS degree from Northeastern University.David E. Goodman, M.D., M.S.E. has served as a member of our Board of Directors since June 2004. Since 2013, Dr. Goodmanhas served as CEO of FeetFirst, a technology-focused healthcare services company he co-founded that is committed to preventing thedevastating and expensive microvascular complications of diabetes. Since 2014, Dr. Goodman has served as a director of XtantMedical (OTC QX: BONE), a comprehensive supplier of orthopedic and spine surgery products. From 2012 – 2015, Dr. Goodman hasserved as CMO of FirstVitals, a healthcare services company focused on wellness and prevention. Since 2011, Dr. Goodman has alsoserved as an independent consultant. During 2010, Dr. Goodman has served as President and Chief Executive Officer of SEDline, Inc.,a research-focused company with the mission to expand the scope and applications for neuromonitoring. From 2008 to 2009, Dr.Goodman served as Executive Vice President of Business Development for Masimo Corporation, a manufacturer of non-invasivepatient monitors. From 2006 to 2008, Dr. Goodman served as an independent consultant providing product design, regulatory andanalytical consulting services to medical device and biopharmaceutical companies and also served in this capacity from 2003 to 2004and from 2001 to 2002. From 2005 to 2006, Dr. Goodman served as President and Chief Executive Officer of BaroSense, Inc., amedical device company focused on developing minimally invasive devices for the long-term treatment of obesity. From 2004 to2005, Dr. Goodman served as President and Chief Executive Officer of Interventional Therapeutic Solutions, Inc., an implantable drugdelivery systems company. From 2002 to 2003, Dr. Goodman served as Chairman, President and Chief Executive Officer of PherinPharmaceuticals, a pharmaceutical discovery and development company. From 1994 to 2001, Dr. Goodman held various positions,including Chief Executive Officer, Chief Medical Officer and director, for LifeMasters Supported SelfCare, Inc., a diseasemanagement services company that Dr. Goodman founded. Dr. Goodman also served as a director of Sound Surgical TechnologiesLLC, a private manufacturer of aesthetic surgical tools from 2011 until its acquisition by Solta Medical (Nasdaq:SLTM) in 2013. Dr.Goodman holds a B.A.S. in applied science and bioengineering and a M.S.E. in bioengineering from the University of Pennsylvania.He also received an M.D. from Harvard Medical School and the Harvard-M.I.T. Division of Health Sciences and Technology. Dr.Goodman holds 18 patents and is a practicing physician with licenses in California and Hawaii. The Board has concluded that Dr.Goodman should serve as a director because Dr. Goodman’s medical and engineering background and his many years of executiveexperience in the medical device industry provide important experience and expertise to the Board.Allen J. Hinkle, M.D. has served as a member of our Board of Directors since January 2006. From December 2010 through thepresent, Dr. Hinkle has served as the Chief Medical Officer of MVP Health Care, a not-for-profit health insurer. Dr. Hinkle was theChief Medical Officer and Senior Vice President for Tufts Health Plan in Massachusetts, a health insurance provider, where he wasresponsible for medical management programs and initiatives from 2004 to 2009. Prior to becoming the Chief Medical Officer ofTufts Health Plan, Dr. Hinkle was Senior Medical Director and Vice President of Health Care Quality, Policy and Innovations at BlueCross Blue Shield of Massachusetts, a health insurance provider, from 2001 through September 2004. From 1995 to 2001, Dr. Hinklewas the Chief Medical Officer and Senior Vice President of Quality — Healthcare Management for Anthem Blue Cross Blue Shieldof New Hampshire and Matthew Thornton Plan, health insurance provider organizations. Dr. Hinkle has over 40 years of experience inthe healthcare field. Dr. Hinkle received a B.S. from the University of Massachusetts at Amherst and an M.D. from Albert EinsteinCollege of Medicine in New York. He is board certified in pediatrics and anesthesiology and is an Associate Professor at DartmouthMedical School. He also owns several U.S. patents on medical devices. The Board has concluded that Dr. Hinkle should serve as adirector because Dr. Hinkle’s years of experience as a physician and in executive positions in the health insurance industry provide theBoard with valuable insights in the areas of product development and reimbursement.Nancy E. Katz has served as a member of our Board of Directors since December 2010. From May 2011 to August 2014, Ms.Katz served as Vice President, Consumer Marketing at Medtronic, Inc., a medical technology company. From July 2005 to July 2010,Ms. Katz was Senior Vice President, Bayer Diabetes Care — North America. Prior to this position, she was President and ChiefExecutive Officer of Calypte Biomedical Corporation, a manufacturer of HIV diagnostics, President of Zila Pharmaceutical, Inc., amanufacturer of oral care products, and held senior marketing positions with the Lifescan division of47  TABLE OF CONTENTSJohnson & Johnson (blood glucose diabetes products), Schering-Plough Healthcare Products, and with American Home Products. Shehas previously served on the Boards of Directors of Neoprobe Corporation (AMEX: NEOP), Calypte Biomedical Corporation, LXNCorporation and Pepgen Corporation. She received a B.S. in business from the University of South Florida. The Board has concludedthat Ms. Katz should serve as a director because her experience in diabetes care and marketing into the diabetes sector providesvaluable insight to the Board and management in our diabetes strategy.Timothy R. Surgenor has served as a member of our Board of Directors since April 2009. Since April 2009, Mr. Surgenor hasbeen a partner at Red Sky Partners, LLC, a provider of general management consulting services to the biotechnology and medicaldevice industries. Since July 2012 Mr. Surgenor has also served as a director of Precision Ventures, a developer of medical andconsumer devices. From 2003 to 2009, Mr. Surgenor served as President, Chief Executive Officer and director of CyberkineticsNeurotechnology Systems (OTC: CYKN.PK), a medical device company. From January 1999 to January 2003, Mr. Surgenor wasExecutive Vice President at Haemonetics Corporation, which is a medical device company. From 1994 to 1999, Mr. Surgenor wasPresident of Genzyme Tissue Repair, the cell therapy division of Genzyme Corporation. Previously, Mr. Surgenor was Executive VicePresident and Chief Financial Officer of BioSurface Technology, Inc. and also held various positions in operations at IntegratedGenetics. Mr. Surgenor received a B.A. in Biochemistry from Williams College and an M.B.A. from Harvard Business School. TheBoard has concluded that Mr. Surgenor should serve as a director because Mr. Surgenor’s long career in the medical device andbiotechnology business as both an entrepreneur and in senior executive positions in public companies provides the Board withimportant industry experience as well as valuable finance, accounting and executive management expertise.David Van Avermaete has served as a member of our Board of Directors since September 2013. Since January 2015, Mr. VanAvermaete has served as President of Inject Safe Technologies, a privately held company that has developed a bandage specificallydesigned to support injections. From April 2004 to February 2013, Mr. Van Avermaete served as Chief Executive Officer ofVeraLight, Inc., a medical device company he founded, that focuses on non-invasive screening for type 2 diabetes. From 2000 to 2004,Mr. Van Avermaete served as Senior Vice President Non-Invasive Technology of InLight Solutions, a Johnson & Johnson companyfocused on transformational technology in the diabetes field. From 1998 to 2000, Mr. Van Avermaete served as U.S. President of theLifeScan division of Johnson & Johnson and, from 1990 to 1998, in various senior level positions at LifeScan concentrating in salesand marketing. Previously, Mr. Van Avermaete served as Vice President Sales and Marketing at Biotope, Director of Marketing atRoche Diagnostics, and Director of Marketing and Sales at Syntex Medical Diagnostics. Mr. Van Avermaete received a Master ofBusiness Administration and a Master of Science Degree in Microbiology from the University of Arizona and a Bachelor of ScienceDegree in medical technology and chemistry from Ball State University. The Board has concluded that Mr. Van Avermaete shouldserve as a director because his executive level experience in the medical device and diabetes field, as well as in entrepreneurialventures, provides the Board with a valuable perspective in commercializing diabetes products.BOARD MATTERS AND CORPORATE GOVERNANCEBoard of DirectorsOur amended and restated certificate of incorporation, as amended, provides for a classified board of directors consisting of threestaggered classes of directors (Class I, Class II and Class III). The members of each class of our Board of Directors serve for staggeredthree-year terms, with the terms of our Class III, Class I and Class II directors expiring upon the election and qualification of directorsat the annual meetings of stockholders to be held in 2016, 2017, and 2018, respectively. Currently:•our Class I directors are Allen J. Hinkle, M.D. and Timothy R. Surgenor;•our Class II directors are Shai N. Gozani, M.D., Ph.D. and David Van Avermaete; and•our Class III directors are David E. Goodman, M.D. and Nancy E. Katz.Our Board of Directors has determined that Dr. Goodman, Dr. Hinkle, Mr. Surgenor, Ms. Katz, and Mr. Van Avermaete areindependent directors for purposes of the corporate governance rules contained in the NASDAQ Marketplace Rules, or the NASDAQrules.48  TABLE OF CONTENTSOur Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate GovernanceCommittee.The Audit Committee currently consists of Mr. Surgenor, Chairman, Dr. Goodman, and Ms. Katz. The Audit Committee operatespursuant to a charter that was approved by our Board of Directors, a copy of which is available on our website athttp://www.neurometrix.com under the heading “Investor Relations” and subheading “Corporate Governance”. The purposes of theAudit Committee are to, among other functions, assist the Board of Directors in overseeing the operation of a comprehensive systemof internal controls covering the integrity of our financial statements and reports, compliance with laws, regulations and corporatepolicies, and the qualifications, performance and independence of our registered public accounting firm. Mr. Surgenor, Dr. Goodman,and Ms. Katz are all “independent” as that term is defined in the rules of the SEC and the applicable NASDAQ rules relating to auditcommittee members. Our Board of Directors has determined that Mr. Surgenor qualifies as an “audit committee financial expert” assuch term is defined in the rules of the SEC. The Audit Committee held five meetings during 2015.Procedures by which Stockholders may Nominate DirectorsThere have been no changes to the procedures disclosed in our proxy statement for the 2015 annual meeting of stockholders bywhich stockholders may nominate directors.Code of Business Conduct and EthicsWe have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including ourprincipal executive officer, principal financial officer, principal accounting officer or controller and persons performing similarfunctions. A current copy of the Code of Business Conduct and Ethics is available on our website at http://www.neurometrix.comunder the heading “Investor Relations” and subheading “Corporate Governance,” and we intend to disclose on this website anyamendment to, or waiver of, any provision of the Code of Business Conduct and Ethics applicable to our directors or executiveofficers that would otherwise be required to be disclosed under the SEC rules, to the extent permitted, by the NASDAQ rules. Acurrent copy of the Code of Business Conduct and Ethics may also be obtained, without charge, upon written request directed to us at:NeuroMetrix, Inc., 1000 Winter Street, Waltham, Massachusetts 02451, Attention: Compliance Officer.Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires our directors and executive officers and holders of more than 10% of our commonstock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership of ourcommon stock. Such Reporting Persons are required by regulations of the SEC to furnish us with copies of all such filings. Ourrecords reflect that all reports which were required to be filed pursuant to Section 16(a) of the Exchange Act were filed on a timelybasis. We received a written statement from our directors, officers, and 10% stockholders or know from other means that any requiredForms 5 were filed or that no Forms 5 were required to be filed.ITEM 11. Executive CompensationThe information required by this Item will be contained in our definitive proxy statement for our 2016 Annual Meeting ofStockholders under the captions “Compensation of Executive Officers” and “Director Compensation” and is incorporated by referenceherein.ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersPRINCIPAL AND MANAGEMENT STOCKHOLDERSThe following table sets forth certain information concerning beneficial ownership as of February 1, 2016, except as noted below,of our common stock by:•each of our directors;•each of our named executive officers;49  TABLE OF CONTENTS•all of our directors and executive officers as a group; and•each stockholder known by us to beneficially own more than five percent of our common stock.The number of common shares “beneficially owned” by each stockholder is determined under rules issued by the SEC regardingthe beneficial ownership of securities. This information is not necessarily indicative of beneficial ownership for any other purpose.Under these rules, beneficial ownership of common stock includes (1) any shares as to which the person or entity has sole or sharedvoting power or investment power and (2) any shares as to which the person or entity has the right to acquire beneficial ownershipwithin 60 days after February 1, 2016, including any shares that could be purchased by the exercise of options or warrants on or within60 days after February 1, 2016. Each stockholder’s percentage ownership is based on 4,049,807 shares of our common stockoutstanding as of February 1, 2016 plus the number of shares of common stock that may be acquired by such stockholder uponexercise of options or warrants that are exercisable on or within 60 days after February 1, 2016.Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power withrespect to their shares of common stock, except to the extent authority is shared by spouses under community property laws. Name and Address (1) of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class of Total Common Stock Options (2) TotalDirectors and Executive Officers Shai N. Gozani, M.D., Ph.D. 56,999 72,132 129,131 3.1% Thomas T. Higgins 21,374 30,740 52,114 1.3% Francis X. McGillin 3,158 18,750 21,908 * Allen Hinkle, M.D. 209 793 1,002 * David E. Goodman, M.D. 209 793 1,002 * Timothy R. Surgenor 1,834 793 2,627 * Nancy E. Katz 209 793 1,002 * David Van Avermaete — 1,957 1,957 * All Current Directors and Executive Officers as a group(8 persons) 83,992 126,751 210,743 5.0% Name and Address (1) of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class of Total Common Stock Warrants (3) TotalBeneficial Owner of 5% or More Other thanDirectors and Executive Officers Sabby Management, LLC (3) — 449,204 449,204 9.99% *Represents less than 1% of the outstanding shares of common stock.(1)Unless otherwise indicated, the address of each stockholder is c/o NeuroMetrix, Inc., 1000 Winter Street, Waltham, Massachusetts02451.(2)Includes all options that are exercisable on or within 60 days from February 1, 2016 by the beneficial owner, except as otherwisenoted.(3)Reflects shares of common stock issuable upon the exercise of warrants beneficially owned by Sabby Healthcare Volatility MasterFund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd. The amount does not include 14,250,826 shares of common stockissuable upon exercise of warrants issued to Sabby Healthcare Volatility Master Fund, Ltd. and Sabby Volatility Warrant MasterFund, Ltd. in 2012, 2013, 2014 and 2015 and 5,411,765 shares of common stock issuable upon the conversion of 13,800 shares ofSeries C Convertible Preferred Stock issued to Sabby Healthcare Volatility Master Fund, Ltd. and Sabby Volatility Warrant MasterFund, Ltd., all of which are subject to a 9.99% beneficial ownership limitation and related warrant exercise restriction. SabbyManagement, LLC and Hal Mintz do not directly own50  TABLE OF CONTENTSshares of common stock, but are deemed to have beneficial ownership over these shares of common stock because SabbyManagement, LLC is the investment manager for both Sabby Healthcare Volatility Master Fund, Ltd. and Sabby Volatility WarrantMaster Fund, Ltd. and Hal Mintz is the manager of Sabby Management, LLC. The address for the reporting persons is 10Mountainview Road, Suite 205, Upper Saddle River, New Jersey 07458.EQUITY COMPENSATION PLAN INFORMATIONThe following table sets forth information as of December 31, 2015 regarding the number of securities to be issued upon exercise,and the weighted average exercise price of outstanding options, warrants, and rights under our equity compensation plans and thenumber of securities available for future issuance under our equity compensation plans.Equity Compensation Plan Information as of December 31, 2015 Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights Weighted averageexercise price ofoutstandingoptions, warrantsand rights Number ofsecuritiesremainingavailable for futureissuance underequitycompensation plans(excludingsecurities reflectedin column a) (a) (b) (c)Equity compensation plans approved by security holders (1) 164,813 $22.23 291,846(2) Equity compensation plans not approved by security holders(3) 50,000 7.52 50,000 Totals 214,813 $18.81 341,846 (1)Includes information related to our Amended and Restated 1996 Stock Option/Restricted Stock Plan, Amended and Restated 1998Equity Incentive Plan, Seventh Amended and Restated 2004 Stock Option and Incentive Plan, and 2010 Employee Stock PurchasePlan.(2)As of December 31, 2015, there were 272,054 shares available for future grant under the Seventh Amended and Restated 2004Stock Option and Incentive Plan and 19,792 shares available under the 2010 Employee Stock Purchase Plan. No new stock grantsor awards will be made under the Amended and Restated 1996 Stock Option/Restricted Stock Plan or the Amended and Restated1998 Equity Incentive Plan.(3)Includes information related to our Amended and Restated 2009 Non-Qualified Inducement Stock Plan, which is designed toprovide equity grants to new employees. Pursuant to this plan, we were authorized to issue Non-Qualified Stock Options,Restricted Stock Awards and Unrestricted Stock Awards.ITEM 13. Certain Relationships and Related Transactions, and Director IndependenceTRANSACTIONS WITH RELATED PERSONSPursuant to our audit committee charter currently in effect, the audit committee is responsible for reviewing and approving, priorto our entry into any such transaction, all transactions in which we are a participant and in which any parties related to us has or willhave a direct or indirect material interest. The information required by this Item will be contained in our definitive proxy statement forour 2016 Annual Meeting of Stockholders under the caption “Transactions with Related Persons” and is incorporated by referenceherein.DIRECTOR INDEPENDENCESee Item 10, “Directors, Executive Officers and Corporate Governance — Board Matters and Corporate Governance”.51  TABLE OF CONTENTSITEM 14. Principal Accounting Fees and ServicesACCOUNTING FEESAggregate fees for professional services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2015 and2014 are as follows:Audit FeesThe audit fees for PricewaterhouseCoopers LLP for professional services rendered for the 2015 audit of our annual financialstatements and the review of the financial statements included in our quarterly reports on Form 10-Q, issuance of comfort letter,issuance of consents, and review of documents filed with the SEC totaled $604,000, of which $430,000 was billed in 2015 and174,000 was billed in 2016.The audit fees for PricewaterhouseCoopers LLP for professional services rendered for the 2014 audit of our annual financialstatements, the review of the financial statements included in our quarterly reports on Form 10-Q, issuance of consents and review ofdocuments filed with the SEC totaled $475,000, of which $308,000 was billed in 2014 and $167,000 was billed in 2015.Audit-Related FeesThere were no audit-related fees for PricewaterhouseCoopers LLP in 2015 and 2014.All Other FeesFees for PricewaterhouseCoopers LLP for services other than audit-related services were $1,800 for 2015 and $19,300 for 2014,and included annual fees of $17,500 in 2014 in connection with our Corporate Integrity Agreement with the Office of InspectorGeneral of the United States Department of Health and Human Services regarding the previously-disclosed investigation into certainof our past sales and marketing practices relating to our NC-stat System and $1,800 in both years for a software subscription used toreview accounting literature.Tax FeesThere were no tax fees for PricewaterhouseCoopers LLP in 2015 and 2014.Pre-Approval Policies and ProceduresThe Audit Committee approved all audit and non-audit services provided to us by PricewaterhouseCoopers LLP during the 2015and 2014 fiscal years.52  TABLE OF CONTENTSPART IVITEM 15. Exhibits and Financial Statement Schedule(a) 1. Financial StatementsThe consolidated financial statements are listed in the accompanying index to financial statements on page F- 1 .2. Financial Statement ScheduleThe Schedule on page S- 1 is filed as part of this report. Other financial statement schedules required under this Item and Item 8are omitted because they are not applicable or the required information is shown in the consolidated financial statements or thefootnotes thereto.3. Exhibit IndexThe following is a list of exhibits filed as part of this Annual Report on Form 10-K: Exhibit Number Exhibit Description Filed withthis Report Incorporated byReference hereinfrom Form orSchedule Filing Date SEC File/RegistrationNumber3.1.1 Third Amended and Restated Certificate ofIncorporation of NeuroMetrix, Inc. dated July27, 2004 S-8 (Exhibit 4.1) 8/9/04 333-1180593.1.2 Certificate of Designations for Series A JuniorCumulative Preferred Stock, par value $0.001per share, dated March 7, 2007 8-A12(b) (Exhibit 3.1) 3/8/07 001-333513.1.3 Certificate of Amendment to Restated Certificateof Incorporation of NeuroMetrix, Inc. datedSeptember 1, 2011 8-K (Exhibit 3.1) 9/1/11 001-333513.1.4 Certificate of Amendment to Restated Certificateof Incorporation of NeuroMetrix, Inc. datedFebruary 15, 2013 8-K (Exhibit 3.1) 2/15/13 001-333513.1.5 Certificate of Amendment to Restated Certificateof Incorporation of NeuroMetrix, Inc. datedDecember 1, 2015 8-K (Exhibit 3.1) 12/1/15 001-333513.1.6 Certificate of Designation of Preferences, Rightsand Limitations of Series A-1 ConvertiblePreferred Stock, par value $0.001 per share,dated June 5, 2013 8-K (Exhibit 3.1) 6/6/13 001-333513.1.7 Certificate of Designation of Preferences, Rightsand Limitations of Series A-2 ConvertiblePreferred Stock, par value $0.001 per share,dated June 5, 2013 8-K (Exhibit 3.2) 6/6/13 001-333513.1.8 Certificate of Designation of Preferences, Rightsand Limitations of Series A-3 ConvertiblePreferred Stock, par value $0.001 per share,dated June 24, 2014 8-K (Exhibit 3.1) 6/25/14 001-333513.1.9 Certificate of Designation of Preferences, Rightsand Limitations of Series A-4 ConvertiblePreferred Stock, par value $0.001 per share,dated June 24, 2014 8-K (Exhibit 3.2) 6/25/14 001-33351 3.1.10 Certificate of Designation of Preferences, Rightsand Limitations of Series B ConvertiblePreferred Stock, par value $0.001 per share,dated May 26, 2015 8-K (Exhibit 3.1) 5/29/15 001-3335153  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed withthis Report Incorporated byReference hereinfrom Form orSchedule Filing Date SEC File/RegistrationNumber 3.1.11 Certificate of Designation of Preferences, Rightsand Limitations of Series C ConvertiblePreferred Stock, par value $0.001 per share,dated December 30, 2015 8-K (Exhibit 3.1) 12/30/15 001-33351 3.2.1 Second Amended and Restated Bylaws ofNeuroMetrix, Inc. S-8 (Exhibit 4.2) 8/9/04 333-118059 3.2.2 Amendment No. 1 to Second Amended andRestated Bylaws of NeuroMetrix, Inc. 8-K (Exhibit 3.1) 9/17/07 001-33351 4.1 Specimen Certificate for Shares of CommonStock S-1/A (Exhibit 4.1) 7/19/04 333-115440 4.2.1 Shareholder Rights Agreement, dated as ofMarch 7, 2007, between NeuroMetrix, Inc. andAmerican Stock Transfer & Trust Company, asRights Agent 8-A12(b) (Exhibit 4.1) 3/8/07 001-33351 4.2.2 Amendment to Shareholder Rights Agreement,dated September 8, 2009, between NeuroMetrix,Inc. and American Stock Transfer & TrustCompany, as Rights Agent 8-K (Exhibit 4.1) 9/14/09 001-33351 4.2.3 Amendment No. 2 to Shareholder RightsAgreement, dated June 5, 2013, betweenNeuroMetrix, Inc. and American Stock Transfer& Trust Company, as Rights Agent 8-K (Exhibit 4.2) 6/6/13 001-33351 4.2.4 Amendment No. 3 to Shareholder RightsAgreement, dated June 25, 2014, betweenNeuroMetrix, Inc. and American Stock Transfer& Trust Company, as Rights Agent 8-K (Exhibit 4.2) 6/25/14 001-33351 4.2.5 Amendment No. 4 to Shareholder RightsAgreement, dated May 28, 2015, betweenNeuroMetrix, Inc. and American Stock Transfer& Trust Company, as Rights Agent 10-Q (Exhibit 4.1) 7/23/15 001-33351 4.2.6 Amendment No. 5 to Shareholder RightsAgreement, dated December 29, 2015, betweenNeuroMetrix, Inc. and American Stock Transfer& Trust Company, as Rights Agent 8-K (Exhibit 4.3) 12/30/15 001-33351 4.3.1 Form of Unit Warrant to purchase CommonStock (February 2012) S-1/A (Exhibit 4.5) 1/31/12 333-178165 4.3.2 Form of Placement Agent Warrant (February2012) S-1/A (Exhibit 4.6) 1/31/12 333-178165 4.4 Form of Common Stock Purchase Warrant (June2013) 8-K/A (Exhibit 4.1) 6/7/13 001-33351 4.5 Form of Common Stock Purchase Warrant (June2014) 8-K (Exhibit 4.1) 6/25/14 001-33351 4.6.1 Form of Warrant (2015) issued as part of a Uniton May 29, 2015 S-1/A (Exhibit 4.3) 5/4/15 333-188133 4.6.2 Form of Underwriter’s Warrant (2015) issued onMay 29, 2015 S-1/A (Exhibit 4.5) 4/13/15 333-1881334.7 Form of Series A Common Stock PurchaseWarrant (December 2015) 8-K (Exhibit 4.1) 12/30/15 001-333514.8 Form of Series B Common Stock PurchaseWarrant (December 2015) 8-K (Exhibit 4.2) 12/30/15 001-3335154  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed withthis Report Incorporated byReference hereinfrom Form orSchedule Filing Date SEC File/RegistrationNumberLease Agreements 10.1.1 Lease Agreement, dated August 27, 2014,between Cummings Properties, LLC andNeuroMetrix, Inc. 10-Q (Exhibit 10.1) 10/28/14 011-3335110.1.2 Lease Agreement, dated September 10, 2014,between, Boston Properties, Inc. andNeuroMetrix, Inc. 10-Q (Exhibit 10.2) 10/28/14 011-33351Credit Facilities, Loan and Equity Agreements 10.2.1 Loan and Security Agreement betweenNeuroMetrix, Inc. and Comerica Bank, datedMarch 5, 2010 10-Q (Exhibit 10.1) 5/14/10 001-3335110.2.2 First Modification to Loan and SecurityAgreement between NeuroMetrix, Inc. andComerica Bank, dated March 1, 2011 8-K (Exhibit 10.1) 3/3/11 001-3335110.2.3 Fifth Modification to Loan and SecurityAgreement between NeuroMetrix, Inc. andComerica Bank, dated January 31, 2014 10-Q (Exhibit 10.1) 4/24/14 001-3335110.2.4 Sixth Modification to Loan and SecurityAgreement with Comerica Bank, dated January23, 2015 10-Q (Exhibit 10.1) 4/24/15 001-3335110.2.5 Seventh Modification to Loan and SecurityAgreement with Comerica Bank, dated January14, 2016 X 10.3.1 Securities Purchase Agreement by and betweenNeuroMetrix, Inc. and the purchasers namedtherein, as amended, dated June 24, 2014 8-K (Exhibit 10.1) 6/25/14 001-3335110.3.2 Registration Rights Agreement by and betweenNeuroMetrix, Inc. and the purchasers namedtherein, dated June 24, 2014 8-K (Exhibit 10.2) 6/25/14 001-3335110.4 Repurchase and Forfeiture Agreement by andbetween NeuroMetrix, Inc. and the partiesnamed therein 10-Q (Exhibit 10.1) 7/23/15 001-3335110.5.1 Securities Purchase Agreement by and betweenNeuroMetrix, Inc. and the purchasers namedtherein, dated December 29, 2015 8-K (Exhibit 10.1) 12/30/15 001-3335110.5.2 Registration Rights Agreement by and betweenNeuroMetrix, Inc. and the purchasers namedtherein, dated December 29, 2015 8-K (Exhibit 10.2) 12/30/15 001-33351Equity Compensation Plans 10.6+ Amended and Restated 1996 StockOption/Restricted Stock Plan S-1/A (Exhibit 10.2) 6/22/04 333-11544010.7.1+ Amended and Restated 1998 Equity IncentivePlan S-1/A (Exhibit 10.3) 6/22/04 333-11544010.7.2+ Second Amendment to Amended and Restated1998 Equity Incentive Plan S-1 (Exhibit 10.18) 6/22/04 333-11544055  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed withthis Report Incorporated byReference hereinfrom Form orSchedule Filing Date SEC File/RegistrationNumber10.8.1+ Seventh Amended and Restated 2004 StockOption and Incentive Plan 14A (Appendix A) 3/30/15 001-3335110.8.2+ Form of Restricted Stock Agreement 10-Q (Exhibit 10.4) 5/14/10 001-3335110.8.3+ Form of Incentive Stock Option Agreement 10-Q (Exhibit 10.1) 11/15/04 000-5085610.8.4+ Form of Non-Qualified Stock Option AgreementFor Company Employees 10-Q (Exhibit 10.2) 11/15/04 000-5085610.8.5+ Form of Non-Qualified Stock Option AgreementFor Non-Employee Directors 10-Q (Exhibit 10.3) 11/15/04 000-5085610.9+ 2009 Non-Qualified Inducement Stock Plan S-8 (Exhibit 99.1) 6/3/09 333-15971210.10+ Second Amended and Restated 2010 EmployeeStock Purchase Plan 14A (Appendix B) 4/7/14 001-33351Agreements with Executive Officers and Directors 10.11+ Form of Indemnification Agreement betweenNeuroMetrix, Inc. and each of its directors S-1/A (Exhibit 10.8) 6/22/04 333-11544010.12.1+ Employment Agreement, dated June 21, 2004,by and between NeuroMetrix, Inc. and Shai N.Gozani, M.D., Ph.D. S-1/A (Exhibit 10.9) 6/22/04 333-11544010.12.2+ First Amendment to Employment Agreementdated December 31, 2008, by and betweenNeuroMetrix, Inc. and Shai N. Gozani, M.D.,Ph.D. 10-K (Exhibit 10.11) 3/20/09 001-3335110.12.3+ Indemnification Agreement dated June 21, 2004,by and between Shai N. Gozani, M.D., Ph.D.,and NeuroMetrix, Inc. S-1/A (Exhibit 10.20) 6/22/04 333-11544010.12.4+ NeuroMetrix, Inc. Non-Statutory Stock OptionAgreement (pursuant to the Amended andRestated 1998 Equity Incentive Plan), dated asof June 21, 2004, by and between Shai N.Gozani M.D., Ph.D., and NeuroMetrix, Inc. S-1/A (Exhibit 10.17) 6/22/04 333-11544010.13.1+ Letter Agreement, dated August 31, 2009,between NeuroMetrix, Inc. and Thomas T.Higgins 8-K (Exhibit 10.1) 9/15/09 001-3335110.13.2+ Indemnification Agreement, dated September10, 2009, by and between NeuroMetrix, Inc. andThomas T. Higgins 8-K (Exhibit 10.2) 9/15/09 001-3335110.13.3+ Employment Agreement, dated October 27, 2014by and between NeuroMetrix, Inc. and ThomasT. Higgins 10-Q (Exhibit 10.4) 10/28/14 001-3335110.14.1+ Letter Agreement, dated August 14, 2014,between NeuroMetrix, Inc. and Francis X.McGillin 10-Q (Exhibit 10.5) 10/28/14 001-3335110.15+ Amended and Restated Management Retentionand Incentive Plan, as modified, dated February8, 2016 X 56  TABLE OF CONTENTS Exhibit Number Exhibit Description Filed withthis Report Incorporated byReference hereinfrom Form orSchedule Filing Date SEC File/RegistrationNumberAgreements with Respect to Collaborations, Licenses, Research and Development 10.16† Manufacturing and Supply Agreement, dated asof August 2, 2006, by and between ParlexPolymer Flexible Circuits, Inc. andNeuroMetrix, Inc. 8-K (Exhibit 99.1) 8/2/06 000-5085623.1 Consent of Pricewaterhouse Coopers LLP, anindependent registered public accounting firm. X 31.1 Certification of Principal Executive Officerunder Section 302 of the Sarbanes-Oxley Act of2002. X 31.2 Certification of Principal Accounting andFinancial Officer under Section 302 of theSarbanes-Oxley Act of 2002. X 32 Certification of the Principal Executive Officerand the Principal Accounting and FinancialOfficer under Section 906 of the Sarbanes-OxleyAct of 2002. X 101 The following materials from NeuroMetrix,Inc.’s Annual Report on Form 10-K for the yearended December 31, 2015, formatted in XBRL(Extensible Business Reporting Language): (i)Balance Sheets as of December 31, 2015 and2014, (ii) Statements of Operations for the yearsended December 31, 2015, 2014, and 2013, (iii)Statements of Changes in Stockholders’ Equityfor the years ended December 31, 2015, 2014,and 2013, (iv) Statements of Cash Flows for theyears ended December 31, 2015, 2014, and2013, and (v) Notes to Financial Statements. X +Indicates management contract or any compensatory plan, contract or arrangement.†Confidential treatment has been granted with respect to certain portions of this Exhibit, which portions have been omitted and filedseparately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to theSecurities Exchange Act of 1934, as amended.57  TABLE OF CONTENTSSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized.NEUROMETRIX, INC.By:/s/ SHAI N. GOZANI, M.D., PH.D. Shai N. Gozani, M.D., Ph.D. Chairman, President and Chief Executive OfficerDate: February 12, 2016Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following personson behalf of the registrant on February 12, 2016 in the capacities indicated below. Name Title/s/ SHAI N. GOZANI, M.D., PH.D. Shai N. Gozani, M.D., Ph.D. Chairman, President and Chief Executive Officer (Principal Executive Officer)/s/ THOMAS T. HIGGINS Thomas T. Higgins Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)/s/ DAVID E. GOODMAN, M.D. David E. Goodman, M.D. Director/s/ ALLEN J. HINKLE, M.D. Allen J. Hinkle, M.D. Director/s/ NANCY E. KATZ Nancy E. Katz Director/s/ TIMOTHY R. SURGENOR Timothy R. Surgenor Director/s/ DAVID VAN AVERMAETE David Van Avermaete Director58  TABLE OF CONTENTSINDEX TO FINANCIAL STATEMENTS NeuroMetrix, Inc. Years ended December 31, 2015, 2014, and 2013 PageReport of Independent Registered Public Accounting Firm F-2 Financial Statements Balance Sheets F-3 Statements of Operations F-4 Statements of Changes in Stockholders’ Equity F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 Schedule II — Valuation and Qualifying Accounts S-1 F-1  TABLE OF CONTENTSReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of NeuroMetrix, Inc.In our opinion, the accompanying balance sheets and the related statements of operations, of changes in stockholders’ equity, andof cash flows present fairly, in all material respects, the financial position of NeuroMetrix, Inc. at December 31, 2015 and December31, 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 inconformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financialstatement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forththerein when read in conjunction with the related financial statements. These financial statements and financial statement schedule arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Asdiscussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and negative cash flowsfrom operating activities that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plansin regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result fromthe outcome of this uncertainty./s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 12, 2016F-2  TABLE OF CONTENTSNeuroMetrix, Inc. Balance Sheets December 31, 2015 2014Assets Current assets: Cash and cash equivalents $12,462,872 $9,221,985 Accounts receivable, net of allowances of $90,111 and $39,966 atDecember 31, 2015 and 2014, respectively 742,714 580,240 Inventories 1,089,084 679,740 Prepaid expenses and other current assets 852,600 608,160 Total current assets 15,147,270 11,090,125 Fixed assets, net 683,534 311,520 Other long-term assets 203,686 585 Total assets $16,034,490 $11,402,230 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $1,060,135 $522,871 Accrued compensation 848,689 885,353 Accrued expenses 1,055,483 1,264,876 Current portion of deferred revenue 227,172 25,048 Total current liabilities 3,191,479 2,698,148 Deferred revenue, net of current portion — 9,635 Common stock warrants 280,303 5,307,332 Total liabilities 3,471,782 8,015,115 Commitments and contingencies (Note 8) Stockholders’ equity Preferred stock, $0.001 par value, 5,000,000 shares authorized at December31, 2015 and 2014; no shares issued and outstanding at December 31,2015 and 2014 — — Series A convertible preferred stock, 11,083 shares designated at December31, 2015 and December 31, 2014, and zero and 3,614.357 shares issuedand outstanding at December 31, 2015 and December 31, 2014,respectively — 4 Series B convertible preferred stock, 147,000 and zero shares designated atDecember 31, 2015 and December 31, 2014, respectively, and 7,146 andzero shares issued and outstanding at December 31, 2015 and December31, 2014, respectively 7 — Series C convertible preferred stock, 13,800 and zero shares designated atDecember 31, 2015 and December 31, 2014, respectively, and 13,800and zero shares issued and outstanding at December 31, 2015 andDecember 31, 2014, respectively 14 — Common stock, $0.0001 par value; 100,000,000 and 50,000,000 authorizedat December 31, 2015 and 2014, respectively; 4,047,332 and 2,038,151shares issued and outstanding at December 31, 2015 and 2014,respectively 405 204 Additional paid-in capital 176,127,932 157,765,209 Accumulated deficit (163,565,650) (154,378,302) Total stockholders’ equity 12,562,708 3,387,115 Total liabilities and stockholders’ equity $16,034,490 $11,402,230 The accompanying notes are an integral part of these financial statements.F-3  TABLE OF CONTENTSNeuroMetrix, Inc. Statements of Operations Years Ended December 31, 2015 2014 2013Revenues $7,299,830 $5,512,764 $5,278,806 Cost of revenues 3,950,746 2,568,602 2,194,259 Gross profit 3,349,084 2,944,162 3,084,547 Operating expenses: Research and development 3,894,786 4,075,976 3,438,218 Sales and marketing 7,232,971 2,913,112 2,779,695 General and administrative 5,497,513 4,725,123 4,225,474 Total operating expenses 16,625,270 11,714,211 10,443,387 Loss from operations (13,276,186) (8,770,049) (7,358,840) Interest income 5,232 4,606 5,666 Warrants offering costs — (50,874) (376,306) Change in fair value of warrant liability 4,083,606 1,050,095 (289,657) Net loss $(9,187,348) $(7,766,222) $(8,019,137) Net loss per common share applicable to commonstockholders, basic and diluted (See Note 2, Summary ofSignificant Accounting Policies) $(7.75) $(6.15) $(12.28) Weighted average number of common shares outstanding,basic and diluted 2,719,285 1,743,494 715,524 The accompanying notes are an integral part of these financial statements.F-4  TABLE OF CONTENTSNeuroMetrix, Inc. Statements of Changes in Stockholders’ Equity Series A1 – C Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Number of Shares Amount Number of Shares AmountBalance at December 31, 2012 — $— 535,182 $53 $147,393,312 $(138,592,943) $8,800,422 Stock-based compensation expense — — — — 245,843 — 245,843 Issuance of common stock and Series A1and A2 preferred stock under SecuritiesPurchase Agreement 4,436.76 4 62,037 6 876,776 — 876,786 Issuance of common stock upon conversionof preferred stock (4,436.76) (4) 529,447 53 (49) — — Issuance of common stock upon exercise ofwarrants — — 327,153 33 2,617,189 — 2,617,222 Reclassification of warrant liability toequity — — — — 2,362,259 — 2,362,259 Issuance of common stock under employeestock purchase plan — — 4,023 1 26,284 — 26,285 Common stock issued to settle incentivecompensation obligations — — 28,518 2 285,293 — 285,295 Net loss — — — — — (8,019,137) (8,019,137) Balance at December 31, 2013 — $— 1,486,360 $148 $153,806,907 $(146,612,080) $7,194,975 Stock-based compensation expense — — — — 289,873 — 289,873 Issuance of common stock and Series A3and A4 preferred stock under SecuritiesPurchase Agreement 6,644.22 7 166,150 16 3,539,924 — 3,539,947 Issuance of common stock upon conversionof preferred stock (3,029.86) (3) 371,306 38 (35) — — Issuance of common stock underemployees stock purchase plan — — 3,681 1 24,136 — 24,137 Common stock issued to settle incentivecompensation obligations 10,654 1 104,404 104,405 Net loss — — — — — (7,766,222) (7,766,222) Balance at December 31, 2014 3,614.36 $4 2,038,151 $204 $157,765,209 $(154,378,302) $3,387,115 Stock-based compensation expense — — — — 302,415 — 302,415 Issuance of Series B preferred stock andwarrants under underwritten publicoffering 147,000.00 147 — — 13,290,232 — 13,290,379 Redemption of Series A-4 preferred stock (3,206.36) (4) — — (2,262,930) — (2,262,934) Issuance of Series C preferred stock andwarrants and redemption of Series Bpreferred stock under purchaseagreement (49,200.00) (49) — — 6,713,549 — 6,713,500 Issuance of common stock upon conversionof preferred stock (77,262.00) (77) 1,952,137 195 (118) — — Issuance of common stock underemployees stock purchase plan — — 15,443 2 37,822 — 37,824 Common stock issued to settle incentivecompensation obligations — — 41,601 4 281,753 — 281,757 Net loss — — — — — (9,187,348) (9,187,348) Balance at December 31, 2015 20,946.00 $21 4,047,332 $405 $176,127,932 $(163,565,650) $12,562,708 The accompanying notes are an integral part of these financial statements.F-5  TABLE OF CONTENTSNeuroMetrix, Inc. Statements of Cash Flows Years Ended December 31, 2015 2014 2013Cash flows for operating activities: Net loss $(9,187,348) $(7,766,222) $(8,019,137) Adjustments to reconcile net loss to net cash used in operatingactivities: Depreciation and amortization 222,592 145,100 150,663 Stock-based compensation 302,415 289,873 245,843 Inventory charges — — 151,558 Warrants offering costs — 50,874 376,306 Change in fair value of warrant liability (4,083,606) (1,050,095) 289,657 Changes in operating assets and liabilities: Accounts receivable (162,474) (189,318) 175,529 Inventories (409,344) (116,704) 119,932 Prepaid expenses and other current and long-term assets (447,541) (195,454) 52,748 Accounts payable 478,760 199,975 65,535 Accrued expenses and compensation (5,796) 998,434 (54,635) Deferred revenue 192,489 (44,956) (108,907) Net cash used in operating activities (13,099,853) (7,678,493) (6,554,908) Cash flows for investing activities: Purchases of fixed assets (594,606) (227,308) (86,079) Net cash used in investing activities (594,606) (227,308) (86,079) Cash flows from financing activities: Net proceeds from issuance of stock and warrants, includingpublic offering and equity plans 20,141,703 7,932,033 7,155,191 Repurchase of preferred stock and warrants (3,206,357) — — Payments on capital lease — — (17,929) Net cash provided by financing activities 16,935,346 7,932,033 7,137,262 Net increase in cash and cash equivalents 3,240,887 26,232 496,275 Cash and cash equivalents, beginning of year 9,221,985 9,195,753 8,699,478 Cash and cash equivalents, end of year $12,462,872 $9,221,985 $9,195,753 Supplemental disclosure of cash flow information: Common stock issued to settle incentive compensation obligation $281,757 $104,405 $285,295 Equity offering costs included in accounts payable and accruedexpenses $100,000 $— $— Warrants issued under Securities Purchase Agreement initiallyrecorded as a non-current liability $— $4,418,824 $4,011,205 Warrants liability reclassified to additional paid-in capital uponexercise of warrants $— $— $2,362,259 The accompanying notes are an integral part of these financial statements.F-6  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements1. Description of Business and Basis of PresentationNeuroMetrix, Inc., or the Company, a Delaware corporation, was founded in June 1996. The Company develops wearable medicaltechnology and point-of-care tests that help patients and physicians better manage chronic pain, nerve diseases, and sleep disorders.The Company markets Quell ® and SENSUS® which are wearable therapeutic devices designed for relief of chronic, intractable pain.Quell was commercially launched in the United States during the second quarter of 2015. The Company also markets DPNCheck®,which is a quantitative nerve conduction test that is used by physicians and health care professionals to evaluate systemic neuropathiessuch as diabetic peripheral neuropathy, or DPN. The Company’s historical neurodiagnostic business is based on the ADVANCE TMSystem which is a comprehensive platform for the performance of traditional nerve conduction studies and invasive electromyographyprocedures and which is primarily used in physician offices and clinics.During 2015 the Company completed two equity offering which are detailed in Note 12 to the financial statements. Thesefinancings resulted in proceeds of approximately $19.0 million after redemptions of certain equity instruments, and before fees andexpenses. After deducting financial institution discounts and fees, and other expenses of the offerings, the Company realized netproceeds of approximately $16.8 millionThe accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a goingconcern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course ofbusiness. The Company has suffered recurring losses from operations and negative cash flows from operating activities. At December31, 2015, the Company had an accumulated deficit of $163.6 million. The Company held cash and cash equivalents of $12.5 million asof December 31, 2015. The Company believes that these resources and the cash to be generated from expected product sales will besufficient to meet its projected operating requirements through the second quarter of 2016. The Company continues to face significantchallenges and uncertainties and, as a result, the Company’s available capital resources may be consumed more rapidly than currentlyexpected 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 itsbusiness strategy; (d) regulatory developments affecting the Company’s existing products; (e) changes the Company may make in itsresearch and development spending plans; and (f) other items affecting the Company’s forecasted level of expenditures and use ofcash resources. Accordingly, the Company will need to raise additional funds to support its operating and capital needs in the thirdquarter of 2016 and beyond. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Thefinancial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company intends toobtain additional funding through public or private financing, collaborative arrangements with strategic partners, or through additionalcredit lines or other debt financing sources to increase the funds available to fund operations. However, the Company may not be ableto secure such financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity or debtsecurities to raise additional funds, its existing stockholders may experience dilution, and the new equity or debt securities may haverights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional fundsthrough collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potentialproducts or proprietary technologies, or grant licenses on terms that are not favorable to the Company. Without additional funds, theCompany 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 anyof these events occurs, the Company’s ability to achieve its development and commercialization goals would be adversely affected.Certain prior period amounts have been adjusted to reflect the Company's 1-for-4 reverse stock split effected December 2015 (seeNote 13, Reverse Stock Split, for further details).F-7  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements2. Summary of Significant Accounting PoliciesUse of Estimates and AssumptionsThe preparation of financial statements in conformity with United States generally accepted accounting principles requiresmanagement to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses duringreporting periods. Actual results could differ from those estimates.The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under thecircumstances and regularly assesses these estimates, but actual results could differ materially from these estimates. Effects of changesin estimates are recorded in the period in which they occur.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. Cashequivalents are recorded at cost which approximates fair value. The Company invests cash primarily in a money market account andother investments which management believes are subject to minimal credit and market risk.Concentrations of Credit RiskFinancial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cashequivalents in bank deposit accounts and trade receivables. The Company invests its funds in highly rated institutions and limits itsinvestment in any individual account so that they do not exceed FDIC limits. The Company has not experienced significant lossesrelated to cash and cash equivalents and does not believe it is exposed to any significant credit risks relating to its cash and cashequivalents.At December 31, 2015, one customer accounted for 46% of accounts receivable. For the year ended December 31, 2015 onecustomer accounted for 12% of revenue. For the year ended December 31, 2014 one customer accounted for more than 30% ofrevenue. For the year ended December 31, 2013, one customer accounted for more than 10% of revenue.The Company relies on in-house assembly and three third-party manufacturers to manufacture the major portion of its currentproducts and product components. The disruption or termination of the supply of these products or a significant increase in the cost ofthese products from these sources could have an adverse effect on the Company’s business, financial position, and results ofoperations.InventoriesInventories, consisting primarily of finished goods and purchased components, are stated at the lower of cost or market. Cost isdetermined using the first-in, first-out method. The Company writes down inventory to its net realizable value for excess or obsoleteinventory. Finished goods inventories owned by the Company, but stored in third party warehouses prior to order fulfillment, aredisclosed separately as finished goods on consignment.Fair ValueThe carrying amounts of the Company’s accounts receivable, accounts payable, and accrued expenses approximate their fair valueat December 31, 2015 and 2014 due to the short-term nature of these assets and liabilities. The Company’s cash equivalents and itswarrant liability are carried at fair value determined according to the fair value hierarchy described in Note 9.Revenue RecognitionThe 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 reasonablyassured.F-8  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements2. Summary of Significant Accounting Policies – (continued)Revenues associated with the Company’s medical devices and consumables, including single use nerve specific electrodes andother accessories are generally recognized upon shipment, assuming all other revenue criteria have been met.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 product returns, average customerrelationship periods, customer usage, customer balances, and market and economic conditions. Changes in judgments or estimates onthese factors could materially impact the timing and amount of revenues and costs recognized. Should market or economic conditionsdeteriorate, the Company’s actual return or bad debt experience could exceed its estimate. Certain product sales are made with a 30-day or 60-day right of return. Where the Company can reasonably estimate future returns, it recognizes revenues upon shipment andrecords as a reduction of revenue a provision for estimated returns. Where the Company cannot reasonably estimate future returns, itdefers revenues until it gains sufficient experience to estimate returns or until the right of return lapses.Accounts ReceivableAccounts receivable are recorded net of the allowance for doubtful accounts receivable. The allowance for doubtful accounts is theCompany’s best estimate of the amount of probable credit losses in our existing accounts receivable. The Company reviews theallowance for doubtful accounts and determines the allowance based on an analysis of customer past payment history, product usageactivity, and recent communications with the customer. Individual customer balances which are past due and over 90 days outstandingare reviewed individually for collectability. Account balances are written-off against the allowance when the Company feels it isprobable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to ourcustomers.Income TaxesThe Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognizedfor the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets andliabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company’s financial statementscontain certain deferred tax assets, which have arisen primarily as a result of operating losses, as well as other temporary differencesbetween financial and tax accounting. In accordance with the provisions of the Income Taxes topic of the Codification, the Companyis required to establish a valuation allowance if the likelihood of realization of the deferred tax assets is reduced based on anevaluation of objective verifiable evidence. Significant management judgment is required in determining the Company’s provision forincome taxes, the Company’s deferred tax assets and liabilities and any valuation allowance recorded against those net deferred taxassets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion orall of the net deferred income tax assets will not be realized.Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due toownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the InternalRevenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax creditcarryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined bySection 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporationby more than 50 percentage points over a three-year period. If the Company has experienced a change of control, utilization of itsNOL or tax credits carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expirationof a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes couldfurther impact the limitation in future years. Further, until a study is completed and any limitation known, no amounts are beingpresented as an uncertain tax position. A full valuation allowance has been provided against theF-9  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements2. Summary of Significant Accounting Policies – (continued)Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustmentwould be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement ofoperations if an adjustment were required.Management performed a two-step evaluation of all tax positions, ensuring that these tax return positions meet the “more likelythan not” recognition threshold and can be measured with sufficient precision to determine the benefit recognized in the financialstatements. These evaluations provide management with a comprehensive model for how a company should recognize, measure,present, and disclose in its financial statements certain tax positions that the Company has taken or expects to take on income taxreturns.Research and DevelopmentCosts incurred in research and development are expensed as incurred. Included in research and development costs are wages,benefits, product design consulting, and other operating costs such as facilities, supplies, and overhead directly related to theCompany’s research and development efforts.Product Warranty CostsThe Company accrues estimated product warranty costs at the time of sale which are included in cost of sales in the statements ofoperations. The amount of the accrued warranty liability is based on historical information such as past experience, product failurerates, number of units repaired, and estimated cost of material and labor. The liabilities for product warranty costs of $10,484 and$1,784 at December 31, 2015 and 2014, respectively, are included in accrued expenses in the accompanying balance sheets.Fixed Assets and Long-Lived AssetsFixed assets are recorded at cost and depreciated using the straight-line method over the estimated useful life of each asset.Expenditures for repairs and maintenance are charged to expense as incurred. On disposal, the related assets and accumulateddepreciation are eliminated from the accounts and any resulting gain or loss is included in the Company’s statement of operations.Leasehold improvements are amortized over the shorter of the estimated useful life of the improvement or the remaining term of thelease.The Company periodically evaluates the recoverability of its fixed assets and other long-lived assets whenever events or changesin circumstances indicate that an event of impairment may have occurred. This periodic review may result in an adjustment ofestimated depreciable lives or asset impairment. When indicators of impairment are present, the carrying values of the asset areevaluated in relation to the assets operating performance and future undiscounted cash flows of the underlying assets. If the futureundiscounted cash flows are less than their book value, an impairment may exist. The impairment is measured as the differencebetween the book value and the fair value of the underlying asset. Fair values are based on estimates of the market prices andassumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degreesof perceived risk.Accounting for Stock-Based CompensationStock-based compensation cost is generally recognized ratably over the requisite service period. The Company uses the Black-Scholes option pricing model for determining the fair value of its stock options and amortizes its stock-based compensation expenseusing the straight-line method. The Black-Scholes model requires certain assumptions that involve judgment. Such assumptions arethe expected share price volatility, expected life of options, expected annual dividend yield, and risk-free interest rate (See Note3 — Stock-Based Compensation and Stockholders’ Equity).Net Loss per Common ShareBasic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted averagenumber of common shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are notconsidered outstanding for purposes of calculating basic netF-10  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements2. Summary of Significant Accounting Policies – (continued)loss per common share. Diluted net loss per common share is computed by dividing net loss by the weighted average number ofcommon shares outstanding during the period plus the dilutive effect of the weighted average number of outstanding instruments suchas 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 wouldhave reduced the net loss per common share. Therefore, in calculating net loss per share amounts, shares underlying the followingpotentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net loss percommon share because their effect was anti-dilutive for each of the periods presented: Years Ended December 31, 2015 2014 2013Options 208,135 125,207 40,348 Warrants 3,222,071 609,084 513,933 Unvested restricted stock 80 1,122 5,597 Convertible preferred stock 2,264,086 228,143 — Total 5,694,372 963,556 559,878 The Beneficial Conversion Feature, or BCF, recorded in the 2015, 2014 and 2013 Offerings have been recognized as deemeddividends. In addition, the difference between the fair value of the consideration received and the recorded book value of equityinstruments redeemed in the December 2015 Offering has been recognized as a deemed dividend. These items have been reflected asan adjustment in the calculation of earnings per share. See Note 12, Stockholders’ Equity, for further details.Net loss per common share applicable to common stockholders, basic and diluted was determined as follows: Years Ended December 31, 2015 2014 2013Net loss $(9,187,348) $(7,766,222) $(8,019,137) Deemed dividend attributable to preferredstockholders in connection with beneficialconversion features (4,140,446) (2,955,668) (766,872) Deemed dividend attributable to preferredstockholders in connection with preferred stockmodifications (8,332,212) — — Return of capital to common shareholdersattributable to the repurchase of preferred sharesand related embedded beneficial conversionfeature 589,751 — — Net loss applicable to common stockholders $(21,070,255) $(10,721,890) $(8,786,009) Net loss per common share applicable to commonstockholders, basic and diluted $(7.75) $(6.15) $(12.28) Weighted average number of common sharesoutstanding, basic and diluted 2,719,285 1,743,494 715,524 Advertising and Promotional CostsAdvertising and promotional costs are expensed as incurred. Advertising and promotion expense was $2,499,000, $481,000, and$151,000, in 2015, 2014, and 2013, respectively.F-11  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements2. Summary of Significant Accounting Policies – (continued)Accumulated Other Comprehensive ItemsFor 2015, 2014, and 2013, the Company had no components of other comprehensive income or loss other than net loss.SegmentsThe Company operates in one segment for the sale of medical equipment and consumables. Substantially all of the Company’sassets, revenues, and expenses for 2015, 2014, and 2013 were located at or derived from operations in the United States. Revenuesfrom sales outside the United States accounted for approximately 19% of total revenues in 2015, 19% of total revenues in 2014, and16% of total revenues in 2013.Risks and UncertaintiesThe Company is subject to risks common to companies in the medical device industry, including, but not limited to, developmentby the Company or its competitors of new technological innovations, dependence on key personnel, customers’ reimbursement fromthird-party payers, protection of proprietary technology, and compliance with regulations of the FDA and other governmentalagencies.Recently Issued or Adopted Accounting PronouncementsIn November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes(ASU 2015-17). ASU 2015-17 requires that deferred income tax liabilities and assets be classified as noncurrent in the Company’sbalance sheet. The standard is effective for public entities for annual and interim periods beginning after December 15, 2016, withearly adoption permitted. ASU 2015-17 has been adopted on a prospective basis by the Company for the year ended December 31,2015, thus resulting in the reclassification of $45,000 of current deferred tax liabilities to noncurrent on the accompanyingconsolidated balance sheet. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impacton the Company’s results of operations or cash flows.In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’sAbility to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 requires management to assess an entity’s ability to continueas a going concern, and to provide related footnote disclosures in certain circumstances. The standard is effective for public entities forannual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company is evaluating theprovisions of ASU 2014-15 and assessing the impact, if any, it may have on financial position, results of operations or cash flows.In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued Accounting Standards Update(“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), a comprehensive new revenue recognition standardthat will supersede nearly all existing revenue recognition guidance. The objective of ASU 2014-09 is that a company will recognizerevenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for the first quarter of 2017. An entitycan elect to adopt ASU 2014-09 using one of two methods, either full retrospective adoption to each prior reporting period, orrecognizing the cumulative effect of adoption at the date of initial application. The Company is in the process of evaluating the newstandard and does not know the effect, if any, ASU 2014-09 will have on the Consolidated Financial Statements or which adoptionmethod will be used.3. Stock-Based CompensationDuring 2004, the Company adopted the 2004 Stock Option and Incentive Plan, as amended and restated most recently in 2015. Atthe Annual Meeting of Stockholders held on May 5, 2015, the stockholders of theF-12  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements3. Stock-Based Compensation – (continued)Company approved the Company’s Seventh Amended and Restated 2004 Stock Option and Incentive Plan (the “2004 Stock Plan”),which, among other things, increased the number of shares of the Company’s common stock authorized for issuance thereunder by212,500 shares. The 2004 Stock Plan, among other things, provides for granting of incentive and nonqualified stock option and stockbonus awards to officers, employees and outside consultants. Outstanding options under the 2004 Stock Plan generally vest over threeor four years and terminate 10 years after the grant date, or earlier if the option holder is no longer an executive officer, employee,consultant, advisor or director, as applicable, of the Company. As of December 31, 2015, 531,570 shares of common stock wereauthorized for issuance under the 2004 Stock Plan, of which 94,703 shares had been issued, 164,813 shares were subject tooutstanding options at a weighted average exercise price of $22.23 per share and 272,054 shares were available for future grant.During May 2009, the Company adopted the 2009 Non-Qualified Inducement Stock Plan (the “2009 Inducement Plan”). The 2009Inducement Plan is intended to encourage and enable employees, including prospective employees, of the Company upon whosejudgment, initiative, and efforts the Company largely depends for the successful conduct of its business to acquire a proprietaryinterest in the Company. The 2009 Inducement Plan, among other things, provides for the granting of awards, including non-qualifiedstock options, restricted stock, and unrestricted stock. As of December 31, 2015, 100,000 shares of common stock were authorized forissuance under the 2009 Inducement Plan, of which 50,000 shares had been issued and were outstanding.The exercise price of stock options awarded under the 2004 Stock Plan and the 2009 Inducement Plan may not be less than the fairmarket value of the common stock on the date of the option grant. For holders of more than 10% of the Company’s total combinedvoting power of all classes of stock, incentive stock options may not be granted at less than 110% of the fair market value of theCompany’s common stock at the date of grant and for a term not to exceed five years.In June 2004, the Company adopted the 2004 Employee Stock Purchase Plan (the “2004 ESPP”). All of the Company’s employeeswho had been employed by the Company for at least 60 days and whose customary employment is for more than 20 hours per weekand for more than five months in any calendar year were eligible to participate and any employee who owned 5% or more of thevoting power or value of the Company’s stock was not eligible to participate. The 2004 ESPP authorized the issuance of up to a totalof 2,604 shares of the Company’s common stock to participating employees.In May 2010, the Company adopted the 2010 Employee Stock Purchase Plan (the “2010 ESPP”). The 2010 ESPP initiallyauthorized the issuance of up to a total of 1,736 shares, of the Company’s common stock to participating employees plus an annualincrease on the first day of each of the Company's fiscal years beginning in 2011, equal to the lesser of (i) 1,736 shares, (ii) 1 percentof the shares of common stock outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number ofshares as is determined by the Board. At the Company’s Annual Meeting of Stockholders held on May 14, 2012, the stockholders ofthe Company approved the Company’s Amended and Restated 2010 Employee Stock Purchase Plan (the “Amended and Restated2010 ESPP”), which, among other things, increased the number of shares of the Company’s common stock authorized for issuancethereunder by 4,167 shares. All of the Company’s full-time employees and certain part-time employees are eligible to participate in theAmended and Restated 2010 ESPP. For part-time employees to be eligible, they must have customary employment of more than fivemonths in any calendar year and more than 20 hours per week. Employees who, after exercising their rights to purchase shares underthe Amended and Restated 2010 ESPP, would own shares representing 5% or more of the voting power of the Company’s commonstock, are ineligible to participate.Under the Amended and Restated 2010 ESPP, participating employees can authorize the Company to withhold up to 10% of theirearnings during consecutive six-month payment periods for the purchase of the shares. At the conclusion of each period, participatingemployees can purchase shares at 85% of the lower of their fair market value at the beginning or end of the period. The Amended andRestated 2010 ESPP isF-13  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements3. Stock-Based Compensation – (continued)regarded as a compensatory plan. For the years ended December 31, 2015 and 2014 the Company issued 15,443 and 3,681 shares of itscommon stock, respectively, under the Amended and Restated 2010 ESPP and the 2010 ESPP, respectively. As of December 31, 2015,there were 19,792 remaining shares to be issued under the Amended and Restated 2010 ESPP.The Company uses the Black-Scholes option pricing model for determining the fair value of shares of common stock issued or tobe issued under the 2010 ESPP and the Amended and Restated 2010 ESPP. The following assumptions are used in determining fairvalue: The risk-free interest rate assumption is based on the United States Treasury’s constant maturity rate for a six month term(corresponding to the expected option term) on the date the option was granted. The expected dividend yield is zero because theCompany does not currently pay dividends nor expects to do so during the expected option term. An expected term of six months isused based on the duration of each plan offering period. The volatility assumption is based on a consideration of stock price volatilityover the most recent period of time corresponding to the expected term and is also based on expected future stock price volatility.The weighted average grant-date fair value of stock options used in the calculation of stock-based compensation expense in theaccompanying statement of operations for the years ended December 31, 2015, 2014, and 2013 is calculated using the followingassumptions: Years Ended December 31, 2015 2014 2013Risk-free interest rate 1.3 – 1.7% 1.4 – 1.8% 1.4 – 1.7% Expected dividend yield — — — Expected option term 5 years 5 years 5 years Volatility 70.0% 70.0% 70.0% The risk-free interest rate assumption is based on the United States Treasury’s constant maturity rate for a five year term(corresponding to the expected option term) on the date the option was granted. The expected dividend yield is zero as the Companydoes not currently pay dividends nor expects to do so during the expected option term. The expected option term of five years isestimated based on an analysis of actual option exercises. The volatility assumption is based on daily historical volatility during thetime period that corresponds to the expected option term and expected future stock price volatility. The pre-vesting forfeiture rate isbased on the historical and projected average turnover rate of employees.A summary of option activity for the year ended December 31, 2015 is presented below: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic ValueOutstanding at December 31, 2014 190,481 $20.67 Granted 31,376 5.07 Exercised — — Forfeited (7,044) 8.05 Expired — — Outstanding at December 31, 2015 214,813 18.81 8.3 $0 Vested or expected to vest at December 31, 2015 204,310 19.45 7.9 0 Exercisable at December 31, 2015 118,822 28.67 8.3 0 F-14  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements3. Stock-Based Compensation – (continued)Expected to vest options are determined by applying the pre-vesting forfeiture rate to the total outstanding options. Aggregateintrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company’scommon stock as of December 31, 2015, as applicable, and the exercise price for the in-the-money options) that would have beenreceived by the option holders if all the in-the-money options had been exercised on December 31, 2015.The weighted average per share grant-date fair values of options granted during 2015, 2014, and 2013 was $2.95, $4.24, and $4.08,respectively.The aggregate intrinsic value of options issued or exercised during 2015, 2014, and 2013 was $0.Total unrecognized stock-based compensation costs related to non-vested stock options was $288,000, which related to 214,813shares with a per share weighted fair value of $11.18 as of December 31, 2015. This unrecognized cost is expected to be recognizedover a weighted average period of approximately 2.1 years.Stock options granted to non-employees are recorded at fair value and adjusted to market over the vesting period. The Companydetermines fair value using the Black-Scholes option pricing model, an expected term equal to the option term, a risk-free interest ratecorresponding to the expected term, a stock price volatility over the most recent period of time corresponding to the expected term andalso based on expected future stock price volatility, and a dividend yield of zero. There were no options granted to non-employeesduring the years ended December 31, 2015, 2014 or 2013.Beginning in 2010, certain employees have been granted restricted stock. There were no restricted stock grants in 2015 and 2014.During 2013, the Company granted 500 shares of restricted stock. The restricted stock vested based on continued employment. Thefair value of restricted stock is calculated based on the closing sale price of the Company’s common stock on the date of issuance.A summary of restricted stock activity for the year ended December 31, 2015 is presented below: Restricted Shares Weighted Average Grant Date Fair ValueRestricted shares at December 31, 2014 208 $7.60 Granted — — Vested (208) (7.60) Canceled — — Restricted shares at December 31, 2015 — $— During 2015, 2014, and 2013, in lieu of paying withholding taxes on the vesting of restricted stock, an aggregate of 0, 0, and 1,054shares, respectively, of common stock were withheld to satisfy the minimum tax withholding requirements related to such vesting.Shares withheld were calculated using the market price of the common stock.Cash received from option exercises and purchases under the 2004 ESPP and the 2010 ESPP for the years 2015, 2014, and 2013,was $38,000, $24,000, and $26,000, respectively. The Company issues new shares upon option exercises, purchases under theCompany’s ESPPs, and vesting of restricted stock.The Company recorded stock-based compensation expense of $302,000, $290,000, and $246,000 for 2015, 2014, and 2013,respectively.F-15  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements4. InventoriesInventories consist of the following: December 31, 2015 2014Purchased components $432,437 $209,426 Finished goods on consignment 39,784 — Finished goods 616,863 470,314 $1,089,084 $679,740 5. Fixed AssetsFixed assets consist of the following: Estimated Useful Life (Years) December 31, 2015 2014Construction in process $— $182,755 Computer and laboratory equipment 3 1,698,390 1,782,330 Furniture and equipment 3 319,046 109,617 Production equipment 7 864,287 745,596 Leasehold improvements * 117,994 7,268 2,999,717 2,827,566 Less – accumulated depreciation (2,316,183) (2,516,046) $683,534 $311,520 *Lesser of life of lease or estimated useful life.Depreciation expense was $222,592, $145,100, and $150,663 for 2015, 2014, and 2013, respectively.6. Accrued Compensation and ExpensesThe following table provides a rollforward of the liability balance for severance obligations which was recorded as research anddevelopment expense in the Company’s Statement of Operations for the year ended 2014. The balance as of December 31, 2014 wasincluded as a component of accrued compensation on the balance sheet. December 31, 2015 2014Balance – beginning $148,921 $110,608 Accrual for severance — 302,758 Severance payments made (148,921) (264,445) Balance – ending $— $148,921 Accrued expenses consist of the following for the years ended December 31, 2015 and 2014: December 31, 2015 2014Technology fees $450,000 $450,000 Professional services 336,229 257,024 Consulting fees 92,000 173,759 Clinical study obligations — 74,000 Sales taxes 56,284 34,206 Personnel related obligations 15,548 37,761 Federal excise tax 1,023 25,989 Other 104,399 212,137 $1,055,483 $1,264,876 F-16  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements7. Income TaxesCurrent income tax expense (benefit) attributable to continuing operations was zero for the years ended December 31, 2015, 2014,and 2013.The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years endedDecember 31, 2015, 2014, and 2013. Years Ended December 31, 2015 2014 2013Federal tax provision (benefit) rate (34.0)% (34.0)% (34.0)% State tax provision, net of federal provision (8.5) (7.0) (4.8) Permanent items (14.5) (3.6) 3.4 Federal research and development credits (1.3) (1.0) (1.7) Expiration of tax attribute — 10.9 — Valuation allowance 58.3 34.7 37.1 Effective income tax rate —% —% —% The Company’s deferred tax assets consist of the following: December 31, 2015 2014Deferred tax assets: Net operating loss carryforwards $40,397,318 $35,449,695 Research and development credit carryforwards 2,005,741 1,855,586 Accrued expenses 704,957 657,132 Stock-based compensation 538,321 590,006 Other 13,698 13,506 Total gross deferred tax assets 43,660,035 38,565,925 Valuation allowance (43,660,035) (38,565,925) Net deferred tax assets $— $— At December 31, 2015, the Company has federal and state net operating loss carryforwards (“NOL”) of $118.2 million and $34.9million, respectively, as well as federal and state tax credits of $1.3 million and $1.1 million, respectively, which may be available toreduce future taxable income and the related taxes thereon. This amount includes tax benefits of $3.9 million and $71,000 attributableto NOL and tax credit carryforwards, respectively, that result from the exercise of employee stock options. The tax benefit of theseitems will be recorded as a credit to additional paid-in capital upon realization of the deferred tax asset or reduction in income taxespayable. The federal NOL’s begin to expire in 2019 and the state NOL’s begin to expire in 2017. The federal and state research anddevelopment credits both begin to expire in 2018.In accordance with the provisions of the Income Taxes topic of the Codification, the Company has evaluated the positive andnegative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating losses.Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and statedeferred tax assets and, as a result, a valuation allowance of approximately and $43.8 million and $38.6 million has been established atDecember 31, 2015 and 2014, respectively. Utilization of the NOL and research and development credit carryforwards may be subjectto a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future,as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit theamount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, anownership change, as defined by Section 382, results from transactions increasing the ownership of certainF-17  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements7. Income Taxes – (continued)shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. If the Companyhas experienced a change of control, utilization of its NOL or tax credits carryforwards would be subject to an annual limitation underSection 382. Any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards beforeutilization. Subsequent ownership changes could further impact the limitation in future years. Further, until a study is completed andany limitation known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been providedagainst the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, thisadjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet orstatement of operations if an adjustment were required.8. Commitments and ContingenciesOperating LeasesIn August 2014, the Company entered into a 5-year operating lease agreement with one 5-year extension option for manufacturingand order fulfillment facilities in Woburn, Massachusetts (the “Woburn Lease”). The Woburn Lease commenced December 15, 2014and has a monthly base rent of $7,503. In September 2014, the Company entered into a 7-year operating lease agreement with one 5-year extension option for its corporate office and product development activities in Waltham, Massachusetts (the “Waltham Lease”).The term of the Waltham Lease commenced on February 20, 2015 and includes fixed payment obligations that escalate over the initiallease term. Average monthly base rent under the 7-year lease is approximately $37,792. These payment obligations will be accruedand recognized over the term of occupancy such that rent expense is recognized on a straight-line basis. Under the Waltham Lease, thelandlord was responsible for making certain improvements to the leased space at an agreed upon cost to the landlord. The landlord andthe Company mutually agreed to make improvements in excess of the agreed upon landlord cost, and the landlord billed that excesscost to the Company as additional rent. This additional rent of $275,961 was included in the net calculation of lease payments, so thatrent expense is recognized on a straight-line basis over the remaining term of occupancy.Future minimum lease payments under non-cancellable operating leases as of December 31, 2015 are as follows: 2016 517,566 2017 529,537 2018 541,508 2019 553,479 2020 475,408 2021 487,379 2022 81,562 Total minimum lease payments $3,186,439 Total recorded rent expense was $679,026, $638,679, and $635,004, for the 2015, 2014, and 2013, respectively. The Companyrecords rent expense on its facility lease on a straight-line basis over the lease term.Other CommitmentsAt December 31, 2015, other commitments, comprised of purchase orders, totaled approximately $1,526,459.F-18  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements9. Fair Value MeasurementsThe Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (the “Codification”) defines fair value, establishes a framework for measuring fair value in applying generallyaccepted accounting principles, and expands disclosures about fair value measurements. This Codification topic identifies two kinds ofinputs that are used to determine the fair value of assets and liabilities: observable and unobservable. Observable inputs are based onmarket data or independent sources while unobservable inputs are based on the Company’s own market assumptions. Once inputshave been characterized, this Codification topic requires companies to prioritize the inputs used to measure fair value into one of threebroad levels. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets orliabilities. Fair values identified by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similarassets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observablemarket data for substantially the full term of the related assets or liabilities. Fair values identified by Level 3 inputs are unobservabledata points and are used to measure fair value to the extent that observable inputs are not available. Unobservable inputs reflect theCompany’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 recurringbasis 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 orliabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates, andyield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situationswhere there is little, if any, market activity for the asset or liability. December 31, 2015 Fair Value Measurements at December 31, 2015 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)Assets: Cash equivalents $1,865,498 $1,865,498 $— $— Total $1,865,498 $1,865,498 $— $— Liabilities: Common stock warrants $280,303 $— $— $280,303 Total $280,303 $— $— $280,303 Due to the lack of market quotes relating to our common stock warrants, the fair value of the common stock warrants wasdetermined at December 31, 2015 using the Black-Scholes model, which is based on Level 3 inputs. As of December 31, 2015, inputsused in the Black-Scholes model are presented below. The assumptions used may change as the underlying sources of theseassumptions and market conditions change. Based on the Black-Scholes model, the Company recorded a common stock warrantsliability of $0.3 million at December 31, 2015. Black-Scholes Inputs to Warrant Liability Valuation at December 31, 2015 Stock Price Exercise Price Expected Volatility Risk-Free Interest Expected Term DividendsWarrants: 2014 Offering $1.98 $8.16 73.39% 1.42% 3yr 6mo none 2013 Offering $1.98 $8.00 70.42% 1.17% 2yr 5mo none F-19  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements9. Fair Value Measurements – (continued)The following table provides a summary of changes in the fair value of the Company’s Level 3 financial liabilities betweenDecember 31, 2013 and December 31, 2015. 2014 Offering 2013 Offering TotalBalance at December 31, 2013 $— $1,938,603 $1,938,603 Initial fair value of warrants at issuance in June 2014 4,418,824 — 4,418,824 Change in fair value of warrant liability (185,095) (865,000) (1,050,095) Balance at December 31, 2014 $4,233,729 $1,073,603 $5,307,332 Repurchase of warrants in conjunction with public offering (943,423) — (943,423) Change in fair value of warrant liability (3,062,314) (1,021,292) (4,083,606) Balance at December 31, 2015 $227,992 $52,311 $280,303 December 31,2014 Fair Value Measurements at December 31, 2014 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)Assets: Cash equivalents $4,107,478 $4,107,478 $— $— Total $4,107,478 $4,107,478 $— $— Liabilities: Common stock warrants $5,307,307 $— $— $5,307,307 Total $5,307,307 $— $— $5,307,307 Due to the lack of market quotes relating to our common stock warrants, the fair value of the common stock warrants wasdetermined at December 31, 2014 using the Black-Scholes model, which is based on Level 3 inputs. As of December 31, 2014, inputsused in the Black-Scholes model are presented below. The assumptions used may change as the underlying sources of theseassumptions and market conditions change. Based on the Black-Scholes model, the Company recorded a common stock warrantsliability of $5.3 million at December 31, 2014. Black-Scholes Inputs to Warrant Liability Valuation at December 31, 2014 Stock Price Exercise Price Expected Volatility Risk-Free Interest Expected Term DividendsWarrants: 2014 Offering $7.80 $8.16 71.11% 1.51% 4yr 6mo none 2013 Offering $7.80 $8.00 75.71% 1.24% 3yr 5mo none 10. Retirement PlanThe Company has established a 401(k) defined contribution savings plan for its employees who meet certain service period andage requirements. Contributions are permitted up to the maximum allowed under the Internal Revenue Code of each coveredemployee’s salary. The savings plan permits the Company to contribute at its discretion. In 2015, 2014 and 2013 the Company madeno contributions to the plan.11. Credit FacilityThe Company is party to a Loan and Security Agreement, or the Credit Facility, with a bank. As of December 31, 2015 the CreditFacility permitted the Company to borrow up to $2.5 million on a revolving basis. The Credit Facility was subsequently amended,most recently on January 14, 2016, and extended until January 15, 2017. Amounts borrowed under the Credit Facility will bear interestequal to the prime rate plus 0.5%. Any borrowings under the Credit Facility will be collateralized by the Company’s cash, accountsF-20  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements11. Credit Facility – (continued)receivable, inventory, and equipment. As of December 31, 2015 the Company was in default under a provision of the Credit Facilitythat requires the prior written consent by the bank for any repurchase on the Company’s capital stock. This default was waived by thebank on January 14, 2016. The Credit Facility also includes traditional lending and reporting covenants. These include certainfinancial covenants applicable to liquidity that are to be maintained by the Company. As of December 31, 2015, the Company was incompliance with these covenants and had not borrowed any funds under the Credit Facility. However, $226,731 of the amountavailable under the Credit Facility is restricted to support letters of credit issued in favor of the Company’s landlords for the WalthamLease. Consequently, the amount available for borrowing under the Credit Facility as of December 31, 2015 was $2.3 million.12. Stockholders’ EquityPrivate and Public Offerings of Common Stock and WarrantsIn December 2015, the Company completed a private equity offering and issued (i) 13,800 shares of Series C convertible preferredstock (the “Series C Preferred Stock”) at a price of $1,000 per share, and (ii) warrants (the “Warrants”) to purchase up to 10,823,528shares of common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $2.30 per share (the “December2015 Offering”). As a part of this offering, the Company redeemed 63,000 Series B preferred shares from the May 2015 Offering thatwere held by the investor. Accordingly, the December 2015 Offering resulted in proceeds of $7.5 million. After underwritingdiscounts, commission and expenses, net proceeds of the offering were $6.7 million.Each share of Series C Preferred Stock had a stated value of $1,000 and is convertible at the option of the holder into the numberof shares of common stock determined by dividing the stated value by the conversion price of $2.55, which is subject to adjustment asprovided in the Certificate of Designation for the Series C Preferred Stock. The Series C Preferred Stock has no dividend rights,liquidation preference or other preferences over common stock and has no voting rights except as provided in the Certificate ofDesignation for the Series C Preferred Stock and as required by law.The December 2015 Offering was accounted for as a modification of the investor’s Series B Preferred Stock. Under themodification model, the difference between the fair value of the newly issued Series C Preferred Stock and the Warrants and thecarrying value of the repurchased Series B Preferred Stock was recognized within retained earnings as a deemed dividend. The amountof the deemed dividend totaled $8,332,212. As of December 31, 2015, all of the newly issued Series C Preferred Stock wereoutstanding.In May 2015, the Company completed an underwritten public offering (the “May 2015 Offering”) of (i) 147,000 shares of Series BPreferred Stock (the “Series B Preferred Stock”) at a price of $100 per share, and (ii) five year warrants to purchase up to 3,638,250shares of common stock with an exercise price of $5.00 per share. The May 2015 Offering resulted in approximately $14.7 million ingross proceeds, before deducting underwriting discounts and commission and expenses. In conjunction with the 2015 Offering,approximately $3.2 million of the proceeds were used to repurchase the outstanding Series A-4 preferred shares from the 2014Offering (described below). Net proceeds from the May 2015 Offering, after deducting underwriting discount and commissions andoffering expenses and repurchase of outstanding Series A-4 preferred shares, were approximately $10.1 million.Each share of Series B Preferred Stock had a stated value of $100 and is convertible at the option of the holder into the number ofshares of common stock determined by dividing the stated value by the conversion price of $4.0404, which is subject to adjustment asprovided in the Certificate of Designation for the Series B Preferred Stock. The Series B Preferred Stock has no dividend rights,liquidation preference or other preferences over common stock and has no voting rights except as provided in the Certificate ofDesignation for the Series B Preferred Stock and as required by law.The Series B Preferred Stock is convertible into an aggregate of 3,638,250 shares of common stock. During the second quarter of2015, 24,684 shares of the Series B Preferred Stock were converted into a totalF-21  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements12. Stockholders’ Equity – (continued)of 610,929 shares of common stock. During the third quarter of 2015, 28,170 shares of the Series B Preferred Stock were convertedinto a total of 697,207 shares of common stock. During the fourth quarter of 2015, 24,000 shares of the Series B Preferred Stock wereconverted into a total of 594,000 shares of common stock and 63,000 shares of the Series B Preferred Stock were repurchased with theproceeds of the December 2015 Offering. As of December 31, 2015, 7,146 shares of the Series B Preferred Stock were outstanding.The terms and conditions of the Series B Preferred Stock were evaluated based on the guidance of the Derivatives and Hedgingtopic of the Codification to determine if the conversion feature was an embedded derivative requiring bifurcation. It was concludedthat bifurcation was not required because the conversion feature was clearly and closely related to the Series B Preferred Stock. Theconversion price at which shares of Series B Preferred Stock were convertible into shares of common stock was determined to belower than the fair value of common stock at the date of entering into the agreement with the underwriter. This “in-the-money”beneficial conversion feature, or BCF, required separate recognition and measurement of its intrinsic value (i.e., the amount of theincrease in value that holders of Series B Preferred Stock would realize upon conversion based on the value of the conversion shareson the date of the underwriting agreement). Because there was not a stated redemption date for the shares of Series B Preferred Stock,the BCF was recognized as a deemed dividend attributable to the Series B Preferred Stock and reflected as an adjustment in thecalculation of earnings per share. The amount of the BCF totaled $4,140,446 for the May 2015 Offering.The Company determined that equity classification was appropriate for the warrants in the December 2015 Offering and the May2015 Offering following guidance in the Derivatives and Hedging topic of the Codification. In making this equity classificationdetermination, the Company noted the warrants had no requirements to be settled in registered shares when exercised. The fair valueof the 5 year warrants issued in connection with the December 2015 Offering was estimated to be $6.0 million on the offering dateusing date using a Black-Scholes model with the following assumptions: stock price of $1.98, exercise price of $2.30, expectedvolatility of 70.9%, risk free interest rate of 1.75%, expected term of five years, and no dividends. The fair value of the 1 year warrantsissued in connection with the December 2015 Offering was estimated to be $2.2 million on the offering date using date using a Black-Scholes model with the following assumptions: stock price of $1.98, exercise price of $2.30, expected volatility of 65.7%, risk freeinterest rate of 0.65%, expected term of one year, and no dividends. The fair value of the warrants issued in connection with the May2015 Offering was estimated to be $3.2 million on the offering date using utilizing quoted prices (unadjusted) in active markets. Therelative fair values were recorded as equity.In June 2014, the Company entered into a securities purchase agreement (the “2014 Offering”) for the issuance of (i) 166,150shares of common stock at a price of $8.16 per share, (ii) 2,621.859 shares of Series A-3 Preferred Stock (the “Series A-3 PreferredStock”) at a price of $1,000 per share, (iii) 4,022.357 shares of Series A-4 Preferred Stock (the “Series A-4 Preferred Stock,” andtogether with the Series A-3 Preferred Stock, the “Preferred Stock”) at a price of $1,000 per share, and (iv) five year warrants topurchase up to 980,392 shares of common stock with an exercise price of $8.16 per share. The 2014 Offering resulted inapproximately $8.0 million in gross proceeds, before deducting expenses. Net proceeds from the 2014 Offering were approximately$7.9 million.In the 2014 Offering, each share of Preferred Stock had a stated value of $1,000 and was convertible at the option of the holderinto the number of shares of common stock determined by dividing the stated value by the conversion price of $8.16, which is subjectto adjustment as provided in each applicable Certificate of Designation for the Preferred Stock. The Preferred Stock had no dividendrights, liquidation preference or other preferences over common stock and had no voting rights except as provided in each applicableCertificate of Designation for the Preferred Stock and as required by law. The 2014 Offering BCF measurement was limited by thetransaction proceeds which had been allocated to the Preferred Stock. The BCF was recognized as a deemed dividend attributable tothe Preferred Stock and reflected as anF-22  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements12. Stockholders’ Equity – (continued)adjustment in the calculation of earnings per share in the quarter ended September 30, 2014. The amount of the BCF totaled$2,955,668 for the 2014 Offering.The Series A-3 Preferred Stock was convertible into an aggregate of 321,306 shares of common stock and the Series A-4 PreferredStock was convertible into an aggregate of 492,936 shares of common stock. During June 2014, 204 shares of the Series A-3 PreferredStock were converted into a total of 25,000 shares of common stock. During July 2014, the remaining 2,417.859 shares of the SeriesA-3 Preferred Stock were converted into 296,306 shares of common stock. During October 2014, 408 shares of the Series A-4Preferred Stock were converted into a total of 50,000 shares of common stock. During February 2015, 408 shares of the Series A-4Preferred Stock were converted into a total of 50,000 shares of common stock. During May 2015, the remaining 3,206.357 shares ofthe Series A-4 Preferred Stock were repurchased by the Company at a price of $1,000 per share. Total consideration of $3.2 millionfor the repurchase of the Series A-4 convertible preferred stock and warrants was allocated to the convertible preferred stock andwarrants based on their relative fair value. A BCF has been recognized as a return of capital from the preferred shareholders to thecommon shareholders attributable to the repurchase of 3,206.357 Series A-4 preferred stock and related beneficial embeddedconversion feature, and is reflected as an adjustment in the calculation of earnings per share.The Company continues to revalue unexercised warrants from the 2014 Offering at each reporting period over the life of thewarrants using the Black-Scholes model and the changes in the fair value of the warrants were recognized in the Company's statementof operations. The warrants issued in connection with the 2014 Offering were within the scope of the Derivatives and Hedging topic ofthe Codification. This Codification topic requires issuers to classify as liabilities (or assets under certain circumstances) financialinstruments which require an issuer to settle in registered shares. As the warrants are required to be settled in registered shares whenexercised, the Company reflected the warrants as a liability in the balance sheet.The fair value of the warrants issued in connection with the 2014 Offering was estimated to be $4.4 million on the offering dateusing a Black-Scholes model with the following assumptions: stock price of $8.00, exercise price of $8.16, expected volatility of67.48%, risk free interest rate of 1.64%, expected term of five years, and no dividends. At December 31, 2015 587,456 warrantsremain outstanding. They were revalued at December 31, 2015 in the amount of $0.2 million using the Black-Scholes model (see Note7) and the liability was reflected in the December 31, 2015 balance sheet. The Company also continues to revalue warrants from its2013 offering. At December 31, 2015, 264,332 warrants from its 2013 offering remain outstanding. They were revalued at December31, 2015 in the amount of $0.1 million using the Black-Scholes model (see Note 7) and the liability was reflected in the December 31,2015 balance sheet.In 2015, 2014 and 2013, the Company issued shares of fully vested common stock in partial settlement of management incentivecompensation. The 2015 issuance totaled 41,601 shares with a value of $281,757 reflecting the $6.72 closing price of the Company’scommon stock as reported on the NASDAQ Capital Market on March 13, 2015. The 2014 issuance totaled 10,654 shares with a valueof $104,400 reflecting the $9.80 closing price of the Company’s common stock as reported on the NASDAQ Capital Market onFebruary 25, 2014. The 2013 issuance totaled 29,842 shares with a value of $285,300 reflecting the $9.56 NASDAQ Capital Marketclosing price on June 4, 2013.As of December 31, 2015, the Company had 100,000,000 shares of common stock authorized and 4,047,332 shares issued andoutstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’sstockholders. Common stockholders are not entitled to receive dividends unless declared by the Board of Directors.F-23  TABLE OF CONTENTSNeuroMetrix, Inc. Notes to Financial Statements12. Stockholders’ Equity – (continued)At December 31, 2015, the Company has reserved authorized shares of common stock for future issuance as follows: Warrants 15,816,393 Outstanding stock options 214,813 Possible future issuance under inducement plan 50,000 Possible future issuance under stock option plans 272,054 Possible future issuance under employee stock purchase plan 19,792 Total 16,373,052 13. Reverse Stock SplitThe Company’s common stock is quoted on the NASDAQ Capital Market under the symbol “NURO.” One of the requirementsfor continued listing on the NASDAQ Capital Market is maintenance of a minimum closing bid price of $1.00 per share. Because theCompany’s common stock had been trading below a price of $1.00 per share, and was subject to delisting from The NASDAQ StockMarket LLC, or NASDAQ as a result, on December 1, 2015, the Company filed a Certificate of Amendment to its Restated Certificateof Incorporation, as amended, with the Secretary of State of the State of Delaware, to effect a 1-for-4 reverse stock split of its commonstock, or the Reverse Stock Split. This action had previously been approved by the Company’s stockholders at the Company’s specialmeeting held on October 30, 2015. As a result of the Reverse Stock Split, every four shares of the Company’s pre-reverse splitcommon stock were combined and reclassified into one share of its common stock. No fractional shares were issued in connectionwith the Reverse Stock Split. Stockholders who otherwise would have been entitled to receive a fractional share in connection with theReverse Stock Split received a cash payment in lieu thereof. The par value and other terms of the common stock were not affected bythe Reverse Stock Split.The Company’s shares outstanding immediately prior to the Reverse Stock Split totaled 13,785,239, which were adjusted to3,446,274 shares outstanding as a result of the Reverse Stock Split. The Company’s common stock began trading at its post-ReverseStock Split price at the beginning of trading on December 2, 2015. Share, per share, and stock option amounts for all periods presentedwithin the financial statements contained in the Annual Report on Form 10-K including the December 31, 2014 Balance Sheetamounts for common stock and additional paid-in capital have been retroactively adjusted to reflect the Reverse Stock Split.On December 16, 2015, the Company received a letter from NASDAQ indicating that it had regained compliance with theminimum bid price requirement under NASDAQ Listing Rule 5550(a)(2) for continued listing on The NASDAQ Capital Market. TheCompany’s common stock continues to be listed on NASDAQ.14. Management Retention and Incentive PlanThe Company has adopted the Management Retention and Incentive Plan (the “Plan”), under which a portion of the considerationpayable upon a change in control transaction, as defined in the Plan and its amendments, would be paid in cash to certain executiveofficers and key employees and recorded as compensation expense within the Statement of Operations during the period in which thechange of control transaction occurs. The Plan is structured to work in conjunction with, and not replace, the Company’s otherincentive programs and is designed to provide market-based incentives which will be reduced over time by any future equity grants toparticipants.F-24  TABLE OF CONTENTSNeuroMetrix, Inc. Schedule II — Valuation and Qualifying Accounts Description Balance at Beginning of Period Charged to costs and expenses Charged to other accounts Recoveries/ (Deductions) Balance at End of PeriodDecember 31, 2015 Allowance for Doubtful Accounts $38,000 — — (13,000) $25,000 Sales Returns Reserve 1,966 — 487,782 (424,637) 65,111 Deferred Tax Asset ValuationAllowance 38,565,925 5,342,672 — (248,562) (2) 43,660,035 December 31, 2014 Allowance for Doubtful Accounts $35,000 $26,042 — $(23,042) $38,000 Sales Returns Reserve 895 — 49,114 (48,043) 1,966 Deferred Tax Asset ValuationAllowance 36,108,231 3,280,605 — (822,911) (2) 38,565,925 December 31, 2013 Allowance for Doubtful Accounts $130,000 $111,296 $— $(206,296) (1) $35,000 Sales Returns Reserve 21,616 — 38,278 (58,999) (1) 895 Deferred Tax Asset ValuationAllowance 34,347,467 2,976,809 — (1,216,045) (2) 36,108,231 (1)Net write-offs.(2)Expiration of Federal and State Net Operating Loss Carryforwards and other reductions.S-1 Exhibit 10.2.5 SEVENTH MODIFICATION TO LOAN AND SECURITY AGREEMENT AND WAIVER This Seventh Modification to Loan and Security Agreement and Waiver (the “Modification”) is entered into as of January 14, 2016, by and between COMERICA BANK (“Bank”) and NEUROMETRIX, INC., a Delaware corporation (“Borrower”). RECITALS Borrower and Bank are parties to that certain Loan and Security Agreement dated as of March 5, 2010 (as amended from time to time, including, without limitation, by that certain First Modification to Loan and Security Agreement dated as of March 1, 2011, that certain Second Modification to Loan and Security Agreement, dated as of February 15, 2012, that certain Third Modification to Loan and Security Agreement, dated as of April 19, 2012, that certain Fourth Modification to Loan and Security Agreement, dated as of January 28, 2013, that certain Fifth Modification to Loan and Security Agreement dated as of January 31, 2014, and that certain Sixth Modification to Loan and Security Agreement dated as of January 23, 2015, collectively, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Modification. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: AGREEMENT I. Incorporation by Reference. The Recitals and the documents referred to therein are incorporated herein by this reference. Except as otherwise noted, the terms not defined herein shall have the meaning set forth in the Agreement. II. Modification to the Agreement. Subject to the satisfaction of the conditions precedent as set forth in Article V hereof, the Agreement is hereby modified as set forth below. A. The following defined terms in Exhibit A of the Agreement are hereby amended and restated in their entirety to read as follows: “Revolving Maturity Date” means January 15,2017. III, Waiver. Borrower acknowledges that as of the date of the Amendment, there is ail existing and uncured Event of Default arising from Borrower’s failure to comply with Section 7.6 ofthe Agreement which required that the Borrower would not pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock without the Bank’s prior written consent (“Existing Default”). Bank waives the Existing Default for Borrower’s failure to obtain Bank’s prior written consent prior to paying any dividends or making any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock. Bank does not waive any other failure by Borrower to perform any of its obligations under the Agreement or any other Loan Documents at any time. This waiver is not a continuing waiver with respect to any failure by Borrower to perform any obligations, is specific as to content and time and shall not constitute a waiver of any other current or future default or breach of any covenants contained in the Agreement or the terms and conditions of any other documents signed by Borrower in favor of Bank. The Bank may still exercise its rights or any other or future rights against Borrower because of any other breach not waived herein. IV. Legal Effect. The Agreement is hereby amended wherever necessary to reflect the changes described above. Borrower agrees that it has no defenses against the obligations to pay any amounts under the Agreement. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Agreement and the other Loan Documents. Except as expressly modified pursuant to this Modification, the terms of the Agreement  and the other Loan Documents remain unchanged, and in full force and effect. Nothing in this Modification shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties, all makers and endorsers of the Agreement and the other Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Modification. Bank’s agreement to modifications to the existing Agreement pursuant to this Modification in no way shall obligate Bank to make any future modifications to the Agreement. The terms of this paragraph apply not only to this Modification, but also to all subsequent loan modification requests. This Modification may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. This is an integrated Modification and supersedes all prior negotiations and agreements regarding the subject matter hereof. All modifications hereto must be in writing and signed by the parties. V. Conditions Precedent. Except as specifically set forth in this Modification, all of the terms and conditions of the Agreement and the other Loan Documents remain in full force and effect. The effectiveness of this Modification is conditioned upon receipt by Bank of: A. This Modification, duly executed by Borrower; B. A corporate resolution and incumbency certification of Borrower; C. A legal fee from Borrower in the amount of $350; and D. Such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. IN WITNESS WHEREOF, the undersigned have executed this Modification as of-the first date above written. NEUROMETRIX, INC. By: /s/ Thomas Higgins Name: Thomas Higgins Title: Chief Financial Officer COMERICA BANK By: /s/ Jason Pan Name: Jason Pan Title: Vice President  CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION AUTHORITY TO PROCURE LOANS I certify that I am the duly elected and qualified Secretary of Neurometrix, Inc., a Delaware corporation (the "Corporation"), and the keeper of the records of the Corporation; that the following is a true and correct copy of resolutions duly adopted by the Board of Directors of the Corporation in accordance with its bylaws and applicable statutes. Copy of Resolutions: Be it Resolved, that: 1. Any one (1) of the following (insert titles only) Chief Executive Officer or Chief Financial Officer of the Corporation (the “Authorized Signer(s)’’) are/is authorized, for, on behalf of, and in the name of the Corporation to: (a) Negotiate and procure loans, letters of credit and other credit or financial accommodations from Comerica Bank (the "Bank"), up to an amount not exceeding $_________________, In aggregate (if left blank, then unlimited); (b) Discount with the Bank, commercial or other business paper belonging to the Corporation made or drawn by or upon third parties, without limit as to amount; (c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver certificates and/or instruments representing stocks, bonds, evidences of Indebtedness or other securities owned by the Corporation, whether or not registered in the name of the Corporation; (d) Give security for any liabilities of the Corporation to the Bank by grant, security interest, assignment, lien, deed of trust or mortgage upon any real or personal property, tangible or intangible of the Corporation; (e) Issue and/or execute one or more warrants for the purchase of the Corporation's capital stock to Bank; (f) Execute and deliver in form and content as may be required by the Bank any and all notes, evidences of Indebtedness, applications for letters of credit, guaranties, subordination agreements, loan and security agreements, financing statements, assignments, liens, deeds of trust, mortgages, trust receipts and other agreements, instruments or documents, including but not limited to that certain Seventh Modification to Loan and Security Agreement and Waiver datedas of January 14. 2016. To carry out the purposes of these Resolutions, any or all of which may relate to all or to substantially all of the Corporation's property and assets; and (g) appoint, delegate and authorize such other person(s) (the “Delegated Person(s)”) as may be designated in writing from time to time by the above referenced Authorized Signer(s), or any one or more of them, to request loans, advances and/or letters of credit under any line of credit, loan or other credit or financial accommodation made available by Bank to or in favor of the Corporation, and to execute and/or deliver unto Bank, in form and content as may be required by the Bank, such agreements, instruments and documents as may be necessary or required to carry out such purposes. 2. Said Bank be and it is authorized and directed to pay the proceeds of any such loans or discounts as directed by the Authorized Signer(s) or Delegated Person(s) (if any), whether so payable to the order of any of said Authorized Signer(s) or Delegated Person(s) (if any) in their individual capacities or not, and whether such proceeds are deposited to the individual credit of any of said Authorized Signer(s) or Delegated Person(s) (if any) or not. 3. Any and all agreements, instruments and documents previously executed and acts and things previously done to carry out the purposes of these Resolutions are ratified, confirmed and approved as the act or acts of the Corporation. 4. These Resolutions shall continue in force, and the Bank may consider the holders of said offices and their signatures to be and continue to be as set forth in a certified copy of these Resolutions delivered to the Bank, until notice to the contrary in writing is duly served on the Bank (such notice to have no effect on any action previously taken by the Bank in reliance on these Resolutions). 5. Any person, corporation or other legal entity dealing with the Bank may rely upon a certificate signed by an officer of the Bank to effect that these Resolutions and any agreement, instrument or document executed pursuant to them are still in full force and effect and binding upon the Corporation. 6. The Bank may consider the holders ofthe offices of the Corporation and their signatures, respectively, to be and continue to be as set forth in the Certificate of the Secretary of the Corporation until notice to the contrary in writing is duly served on the Bank.  I further certify that the above Resolutions are in full force and effect as of the date of this Certificate; that these Resolutions and any borrowings or financial accommodations under these Resolutions have been properly noted in the corporate books and records, and have not been rescinded, annulled, revoked or modified; that neither the foregoing Resolutions nor any actions to be taken pursuant to them are or will be in contravention of any provision of the articles of incorporation or bylaws of the Corporation or of any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound; and that neither the articles of incorporation nor bylaws of the Corporation nor any agreement, indenture or other instrument to which the Corporation is a party or by which it is bound require the vote or consent of shareholders of the Corporation to authorize any act, matter or thing described in the foregoing Resolutions. I further certify that the following named persons have been duly elected to the offices set opposite their respective names, that they continue to hold these offices at the present time, and that the signatures which appear below are the genuine, original signatures of each respectively: (PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW) NAME(Type or Print) TITLE SIGNATURE Shai Gozani Chief Executive Officer /s/ Shai Gozani Thomas Higgins Chief Financial Officer /s/ Thomas Higgins In Witness Whereof, I have affixed my name as Secretary on January 14,2016. /s/ Shai Gozani Secretary The Above Statement are Correct SIGNATURE OF OFFICER OR DIRECTOR OR, IF NONE, A SHAREHOLDER OTHER THAN THE SECRETARY WHEN THE SECRETARY IS THE SOLE AUTHORIZED SIGNER SET FORTH ABOVE Failure to complete the above when the Secretary is the sole Authorized Signer set forth above, shall constitute a certification by the Secretary that the Secretary is the sole Shareholder, Director and Officer of the Corporation Exhibit 10.15 NEUROMETRIX, INC. Management Retention and Incentive Plan 1. Purpose of the Plan . The purpose of this Management Retention and Incentive Plan (the “ Plan ”) is to provide the executive officers andcertain other key employees of NeuroMetrix, Inc., a Delaware corporation (the “ Company ”), listed on Schedule A hereto (the “ Participants ,” and each, a “Participant ”) with consideration in the event of a Change of Control Transaction (as defined below) involving the Company and another entity (the “ SuccessorCompany ”) based on the allocations listed on Schedule A hereto (the “ Percentage Interest ”). These allocations relate to the Total Consideration (as definedbelow) to be received in the Change of Control Transaction by the Company and/or its stockholders. The Plan is designed to retain the Company’s executiveofficers and certain key employees while providing an incentive to continue to build corporate value. The Plan has been structured to work in conjunction with, andnot replace, the Company’s other incentive programs such as its equity plans, severance arrangements, compensation and bonus plan, and other benefits. Asdescribed further herein, the consideration to be paid to each Participant will be reduced over time as a result of any issuances of future equity grants toParticipants. This Plan, as amended, shall be effective as of March 1, 2016. 2. Definitions . For the purposes of this Plan, capitalized terms not defined in Section 1 above shall have the following meanings: (a) Additional Plan Consideration shall mean, for any Participant, the portions of the Contingent Consideration to be received by theParticipant pursuant to the Plan as calculated pursuant to Section 6 of the Plan. (b) Board shall mean the Board of Directors of the Company. (c) Change of Control Transaction shall mean the first to occur of the following events: (i) Ownership Change through Company Stock Sale or Third Party Tender Offer : any “person” or “group” as such terms areused in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “ Act ”), becomes a beneficial owner, as such term is used inRule 13d-3 promulgated under the Act, of securities of the Company representing more than 50% of the combined voting power of theoutstanding securities of the Company having the right to vote in the election of directors. This is not intended to include equity financingtransactions involving passive, non-strategic investors; or (ii) Merger Transaction: a merger or consolidation of the Company other than a merger or consolidation which would result inthe voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by beingconverted into voting securities of the surviving entity or the parent of such corporation) more than fifty percent (50%) of the total voting powerrepresented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstandingimmediately after such merger or consolidation; or (iii) Sale of Assets: the sale or disposition by the Company of all or substantially all of the Company’s assets in a transactionrequiring stockholder approval; provided that a Change of Control Transaction shall be interpreted in a manner, and limited to the extent necessary, so that it will not causeadverse tax consequences under Section 409A of the Code.  (d) Code shall mean the Internal Revenue Code of 1986, as amended, including any successor statute, regulation and guidance thereto. (e) Common Stock shall mean the common stock, $0.0001 par value per share, of the Company. (f) Common Stock Equivalents shall mean rights, options, or other instruments to subscribe for, purchase or otherwise acquire CommonStock pursuant to any equity plan of the Company. (g) Contingent Consideration shall mean the portion of the Total Consideration to be received after the date of the closing of the Change ofControl Transaction, the receipt of which will be contingent upon the passage of time or the occurrence or non-occurrence of some event(s) or circumstance(s),including, without limitation, amounts of Total Consideration subject to an escrow, a purchase price adjustment, an earn-out, or indemnity claims. (h) RESERVED (i) Equity Plan Issuances shall mean with respect to a Participant any shares of Common Stock issued by the Company pursuant to anyequity plan of the Company and any Common Stock Equivalents issued to a Participant, excluding Founder Shares. (j) Founder Shares shall mean any shares of Common Stock of the Company issued to a Participant prior to July 22, 2004. (k) Initial Consideration shall mean the amount of the Total Consideration that is not Contingent Consideration. (l) Initial Plan Consideration shall mean, for any Participant, the portion of the Initial Consideration to be received by the Participantpursuant to the Plan as calculated pursuant to Section 6 of the Plan. (m) Plan Consideration shall mean, for any Participant, the portion of the Total Consideration to be received by the Participant pursuant tothe Plan as calculated pursuant to Section 6 of the Plan which shall be comprised of the Initial Plan Consideration and any Additional Plan Consideration. 2  (n) Representative shall mean one or more members of the Board or persons designated by the Board prior to, or in connection with theChange of Control Transaction. (o) Total Consideration shall mean the total amount of cash and the fair market value of all other consideration paid or payable includingContingent Consideration by the Successor Company or any other person to the Company or its securityholders in connection with the Change of ControlTransaction, including amounts paid or payable in respect of convertible securities, warrants, stock appreciation rights, option or similar rights, whether or notvested and any additional amounts paid by the Successor Company in connection with this Plan, less (i) transaction fees incurred in the course of the Change ofControl Transaction (such as fees related to legal services, accounting services, financial advisory services, investment banking services or other professionalservices), plus (ii) any debt or other liabilities of the Company that are paid off, satisfied or otherwise assumed by the Successor Company, specifically including,but not limited to, any bank debt or line of credit and accounts payable (excluding any liabilities under this Plan), and less (iii) any taxes payable by the Company(but not those payable by the stockholders) as a result of the Change of Control Transaction. The fair market value of any securities (whether debt or equity) orother property shall be determined as follows: (i) the value of securities that are freely tradable in an established public market will be determined by the method or methods set forth inthe applicable contract or contracts concerning the Change of Control Transaction; and (ii) the value of securities that are not freely tradable or have no established public market, and the value of aggregate consideration thatconsists of other property, shall be the fair market value as determined in good faith by the Board. 3. Interpretation and Administration of the Plan . Prior to the Change of Control Transaction, the administrator of the Plan will be theCompensation Committee of the Board. After the Change of Control Transaction, the administrator of the Plan will be the Representative. The administrator willbe responsible for interpreting and administering all provisions hereof. All actions taken by the administrator in interpreting the terms of the Plan andadministration of the Plan will be final, binding and conclusive on all Participants. The administrator shall not be personally liable by reason of any contract orother instrument related to the Plan executed by an individual or on its or their behalf in its or their capacity as the administrator, or for any mistake of judgmentmade in good faith, and the Company shall indemnify and hold harmless each individual to whom any duty or power relating to the administration or interpretationof the Plan may be allocated or delegated, against any cost or expense (including legal fees) or liability arising out of any act or omission to act in connection withthe Plan unless arising out of such person’s own fraud or bad faith. 3  4. Eligibility to Earn Plan Consideration . Except as otherwise provided in Section 9 below, each Participant will have the right to receive PlanConsideration, subject to the Participant’s continued employment or service with the Company through the date of the closing of the Change of ControlTransaction unless terminated by the Company other than for cause within 180 days prior to the announcement of the Change of Control Transaction. If aParticipant’s service to the Company in all capacities (whether as an employee, consultant, advisor, director or any other service provider) terminates for anyreason prior to the date of the closing of the Change of Control Transaction (other than by the Company not for cause within 180 days of the announcement of theChange of Control Transaction), whether initiated by the Company or the Participant, and with or without cause, then such Participant shall no longer beconsidered a “Participant” thereafter for purposes of the Plan, and such Participant will not be entitled to receive any Plan Consideration hereunder. The Companyin its sole discretion will determine whether a Participant’s service relationship has terminated for this purpose. 5. Type of Plan Consideration . Pursuant to this Plan, the Participants who are employed by the Company on the date of the closing of a Change ofControl Transaction, or whose employment is terminated by the Company not for cause within 180 days of a Change of Control Transaction, shall receive theirPlan Consideration from the Successor Company in cash and at the times set forth in Section 8 of the Plan. 6. Calculation of Plan Consideration . Each Participant’s Plan Consideration shall be calculated as follows: The Initial Plan Consideration shall be calculated on the date of the closing of the Change of Control Transaction by multiplying the Participant’sPercentage Interest by the Initial Consideration and the resulting product shall then be reduced by (i) the amount of Initial Consideration paid or payable to theParticipant in the Change of Control Transaction as a result of ownership of Equity Plan Issuances (without regard to any tax withholding requirements of theCompany or the Successor Company); (ii) the value of any Common Stock Equivalents held by the Participant and assumed by the Successor Company in theChange of Control Transaction; (iii) the value of any shares of Common Stock issued to a Participant by the Company pursuant to any Equity Plan Issuances thatwere sold by the Participant after the initial date of this Plan (August 2, 2012) and prior to the Change of Control Transaction; and (iv) the value of any shares ofCommon Stock or Common Stock Equivalents issued to a Participant by the Company pursuant to any Equity Plan Issuances that are retained by the Participantafter the Change of Control Transaction. The value of the amounts set forth in (ii), (iii) and (iv) above shall be calculated by determining the deemed price pershare of the Common Stock in the Change of Control Transaction as determined by the Board in its sole discretion based on the method or methods set forth in theapplicable contract or contracts concerning the Change of Control Transaction and after subtracting any exercise price or purchase price paid or to be paid by theParticipant in connection with such issuances and, in the case of Common Stock Equivalents, shall be valued using a Black Scholes calculation of such CommonStock Equivalents immediately prior to the closing of the Change of Control Transaction using the same deemed price per share of Common Stock in suchcalculation. 4  For avoidance of doubt the Participant’s Plan Consideration shall not be reduced by any shares of Common Stock purchased on the open market or in afinancing pursuant to which the Participant paid the same purchase price for such shares as third party investors. The Additional Plan Consideration shall be calculated by multiplying the Contingent Consideration to be received by a fraction the numerator of which iseach Participant’s Initial Plan Consideration and the denominator of which is the Initial Consideration. 7. RESERVED 8. Payment of Plan Consideration. If the conditions for earning the Plan Consideration set forth herein are satisfied, each Participant will beentitled to earn and be paid his or her Plan Consideration as follows: (a) Each Participant will be paid by the Successor Company from the Initial Consideration the Participant’s Initial Plan Consideration in a lump sumby no later than the thirtieth (30 th ) day following the date of the closing of the Change of Control Transaction. (b) Each Participant will be paid by the Successor Company from the Contingent Consideration the Participant’s Additional Plan Consideration inlump sums, as, if and when the Contingent Consideration is paid or released to the Company or its stockholders. However, if a condition (as described in TreasuryRegulation Section 1.409A-1(d)), when applied to any Contingent Consideration, would not constitute a “substantial risk of forfeiture” (as defined in TreasuryRegulation Section 1.409A-1(d)), and Section 1.409A-3(i) (5) (B) such that the Additional Plan Consideration related to such condition would not be reasonablylikely to be payable in compliance with either Treasury Regulation Section 1-409A-1(b)(4) or Treasury Regulation Section 1.409A-3(i)(5)(iv)(A), or the Boarddetermines in its reasonable good faith that any Additional Plan Consideration is not otherwise payable under the regular payment schedule of this Plan incompliance with or under an exemption from Section 409A of the Code, then the Participant instead will be paid the fair market value (as of the date of the closingof the Change of Control Transaction), as determined by the Board in its reasonable good faith, of the Additional Plan Consideration related to such condition (thatis, the present value of the Additional Plan Consideration that may be earned upon satisfaction of the condition), in a lump-sum on the thirtieth (30 th ) dayfollowing the date of the closing of the Change of Control Transaction. (c) It is intended that each installment of the payments provided under the Plan is a separate “payment” for purposes of Section 1.409A-2(b)(2)(i) ofthe Treasury Regulations. For the avoidance of doubt, it is intended that the Plan Consideration satisfy, to the greatest extent possible, the exemption from theapplication of Section 409A of the Code and the Treasury Regulations and other guidance issued thereunder and any state law of similar effect (collectively “Section 409A ”) provided under Treasury Regulations Section 1.409A-1(b)(4) and, to the extent not so exempt, that the Plan Consideration comply, and the Plan beinterpreted to the greatest extent possible as consistent, with Treasury Regulations Section 1.409A-3(i)(5)(iv)(A) – that is, as “transaction-based compensation.”Accordingly, any Plan Consideration will only be paid pursuant to this transaction-based exemption from Section 409A in the case of a Change of ControlTransaction that is also a “change in ownership of a corporation” or “change in ownership of a substantial portion of a corporation’s assets” defined in TreasuryRegulation Sections 1.409A-3(i)(5)(v) and (vii). Additionally, no Plan Consideration that is being paid in reliance on the transaction-based exemption from Section409A will be earned or paid after the fifth (5th) anniversary of the date of the closing of the Change of Control Transaction and the Participants will not be entitledto any payments under the Plan with respect to any Contingent Consideration after such date, subject, however, to Treasury Regulation Section 1.409A-3(g)(regarding timing of payments for certain disputed payments). 5  9. Release . As a further condition to earning any Plan Consideration, a Participant must execute and allow to become effective a general release ofclaims in substantially the form of Exhibit A hereto prior to the thirtieth (30 th ) day following the date of the closing of the Change of Control Transaction, and ifthe form of release is provided to the Participant sooner than the date of the closing of the Change of Control Transaction, within thirty (30) days of the date theParticipant receives the form of release. If any Participant refuses to execute such release and allow it to become effective within such time period, then suchParticipant will not be eligible to earn Plan Consideration, and the Participant’s rights under this Plan to receive any consideration will be forfeited. 10. Withholding of Compensation . The Successor Company will withhold from any payments under the Plan any amount required to satisfy theincome and employment tax withholding obligations arising under applicable federal, state and local laws in respect of the Plan Consideration. Each Participantshould contact his or her personal legal or tax advisors with respect to the benefits provided by the Plan. Neither the Company nor any of its employees, directors,officers or agents are authorized to provide any tax advice to Participants with respect to the benefits provided under the Plan. 11. Adjustments for Excess Parachute Payments . In the event that (A) any consideration to be received by the Participant in connection with aChange of Control Transaction (whether pursuant to the terms of the Plan or any other plan, arrangement, or agreement with the Company, any person whoseactions result in a Change of Control Transaction, or any person affiliated with the Company or such person) (collectively “ Parachute Payments ”) would not bedeductible by the Successor Company, an affiliate or other person making such payment or providing such benefit (in whole or part) as a result of Section 280G ofthe Code; and (B) it is determined in good faith by the administrator that the net after-tax amount of the Parachute Payments retained by the Participant afterdeduction for any excise tax imposed by Section 4999 of the Code and any federal, state, and local income and employment taxes would not exceed the net after-tax amount of the Parachute Payments retained by the Participant after limiting the Parachute Payments to an amount that is 2.99 times the Participant’s “baseamount” (as such term is defined by Section 280G of the Code), then the Parachute Payments shall be reduced until no portion of the Parachute Payments is notdeductible. 6  For purposes of this provision, (i) no portion of the Parachute Payments the receipt or enjoyment of which the Participant shall have effectively waived inwriting prior to the date of payment of the Parachute Payments shall be taken into account; (ii) no portion of the Parachute Payments shall be taken into account which in the opinion of the Company’s or the SuccessorCompany’s independent auditors or tax counsel serving as such immediately prior to the Change of Control Transaction (or other tax counsel selected by theadministrator) does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code; (iii) the Parachute Payments shall be reduced only to the extent necessary so that the Parachute Payments (other than thosereferred to in the immediately preceding clause (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning ofSection 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the auditor or tax counsel referred to in such clause(ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Parachute Payments shall be determinedby the Company’s or the Successor Company’s independent auditors or tax counsel based on Sections 280G and 4999 of the Code and the regulations for applyingthose Code Sections, or on substantial authority within the meaning of Section 6662 of the Code. 12. Amendments . This Plan may be amended by the Compensation Committee or the Board, as applicable at any time to amend Schedule A of thisPlan to add additional Participants. In addition, the Plan may also be amended at any time by the Compensation Committee or the Board, as applicable, providedthat no amendment shall adversely affect the rights of a Participant hereunder without the written consent of such Participant. Notwithstanding anything herein tothe contrary, the Board reserves the right to equitably adjust the Percentage Interest of a Participant if, in the context of an actual Change of Control Transaction,the definitions or calculations herein do not fairly represent the parties’ understanding regarding the amount, allocation or payment of the sale proceeds toParticipants. 13. Not a Condition of Employment; No Guarantee of Employment . The Plan is not a term or condition of any individual’s employment and noParticipant shall have any legal right to payments hereunder except to the extent that all conditions required by a Participant have been satisfied in accordance withthe terms set forth herein. The Plan is intended to provide a financial incentive to Participants and is not intended to confer upon Participants any rights tocontinued employment, consultancy or other service provider relationship other than those set out in any separate agreement between the Company and suchindividuals governing such relationship. Each such Participant’s service may be terminated by the Company, the Successor Company or the Participant at any timefor any reason, subject to any agreements then in effect regarding such Participant’s service or the termination thereof. 7  14. No Equity Interest; Status as Creditor . Neither the Plan nor the Percentage Interest hereunder creates or conveys any equity or ownershipinterest in the Company or any rights commonly associated with any such interest, including, but not limited to, the right to vote on any matters put before theCompany’s stockholders. A Participant’s sole right under the Plan will be as a general unsecured creditor of the Company and the Successor Company. 15. No Assignment or Transfer by Participant . None of the rights, benefits, obligations or duties under the Plan may be assigned or transferred byany Participant except by will or under the laws of descent and distribution. Any purported assignment or transfer by any such Participant will be void. 16. Assumption by Successor Company . As a condition to the consummation of a Change of Control Transaction, in addition to any obligationsimposed by law upon the Successor Company, the Company shall require the Successor Company to expressly assume the Plan and agree to perform obligationshereunder. All payments under this Plan shall be made by the Successor Company. Neither the Company nor any former or current director, officer, employee orconsultant of the Company, nor any agent of any such person or of the Company, shall be personally liable in the event the Company is unable to make paymentsunder this Plan. 17. Severability . If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability will not affect any other provision ofthe Plan, and the Plan will be construed and enforced as if such provision had not been included. 18. Governing Law . This Plan and the rights and obligations of a Participant under the Plan will be governed by and interpreted, construed andenforced in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The parties hereby submit to the jurisdiction ofthe state and federal courts of the Commonwealth of Massachusetts for the resolution of any claims, disputes or other proceedings arising under this Plan. 19. Entire Agreement . The Plan sets forth all of the agreements and understandings between the Company and the Participants with respect to thesubject matter hereof, and supersedes and terminates all prior agreements and understandings between the Company and the Participants with respect to the subjectmatter hereof. 8  SCHEDULE A NAMEPERCENTAGE INTEREST Gozani5.0%Higgins2.0%McGillin1.25% 9  Exhibit A FORM OF GENERAL RELEASE I understand that I am a Participant in the Management Retention and Incentive Plan (the “ Plan ”) of NeuroMetrix, Inc. (the “ Company ”). Inconsideration of receiving certain benefits under the Plan, I have agreed to sign this Release. I understand that I am not entitled to benefits under the Plan unless Isign this Release on or before ___________. 1/ In consideration for the benefits I am receiving under the Plan, I hereby release (i) the Company; (ii) the [name of Successor Company will be insertedat time of the Change of Control Transaction] (the “ Successor Company ”); and (iii) each of the foregoing person’s respective current and former officers,directors, agents, attorneys, employees, shareholders, parents, subsidiaries, and affiliates (collectively, the “ Releasees ”) from any and all claims, liabilities,demands, causes of action, attorneys’ fees, damages, or obligations of every kind and nature, whether or not arising from contract, intentional or negligent tort,fraud, fraud in the inducement, breach of fiduciary duty or duty of loyalty, local, state or federal ordinance, rule, regulation or statute, or any other matter andwhether known or unknown, (collectively, “ Claims ”) arising at any time prior to and including the date I sign this Release (the “ Release Date ”). This generalrelease includes, but is not limited to, any Claims related to or arising out of: (i) my employment with the Company; (ii) my rights as a shareholder of theCompany, including my entitlement to receive any stock, option or any other equitable interest or right convertible into an equity interest in the Company; (iii) anycontract, whether express or implied, written or oral; (iv) any tort, including tort of wrongful termination; and (v) the United States Constitution, any StateConstitution, or any federal, state or other governmental statute, regulation or ordinance, including, without limitation, the National Labor Relations Act, Title VIIof the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Older Workers’ Benefit Protection Act of 1990, the Americans withDisabilities Act of 1990, the Civil Rights Act of 1871, the Civil Rights Act of 1991, the Equal Pay Act of 1963, the Worker Adjustment and RetrainingNotification Act of 1988, the Employee Retirement Income Security Act of 1974, and the Massachusetts Fair Employment Practices Act, the Massachusetts Wageand Hour Laws, [all other applicable state law statutes for employees employed in states other than Massachusetts], all as amended. I understand and expressly agree that this Release extends to all claims prior to the Release Date of every nature and kind whatsoever, known orunknown, suspected or unsuspected, past or present. I warrant that as of the Release Date, I have not commenced, initiated or made any Claim and that I will not at any time thereafter commence, initiate ormake any Claim whatsoever, whether direct or indirect, express or derivative, against the Company, the Successor Company or any of the Releasees, in respect ofany Released Matter. Notwithstanding the above, I understand that I am not releasing any of the following rights and may after the Release Date initiate an actionto enforce the following rights: (1) any Claim that cannot be waived under applicable state or federal law, (2) any rights that I have to be indemnified (includingany right to reimbursement of expenses), arising under applicable law, the Certificate of Incorporation or by-laws (or similar constituent documents of theCompany) or any indemnification agreement between me and the Company, or any directors’ and officers’ liability insurance policy of the Company, for anyliabilities arising from my actions within the course and scope of my employment with the Company or within the course and scope of my role as a member of theBoard of Directors of the Company, (3) claims for any amounts due to me under the Plan, (4) claims for vested retirement benefits under any tax-qualifiedretirement plan of the Company, or (5) claims for any compensation or bonuses that have been earned and accrued for periods ending on or prior to the ReleaseDate, but which have not yet been paid. I am not releasing and nothing in this Release will prevent me from filing, cooperating with, or participating in anyproceeding before the Equal Employment Opportunity Commission, or the Department of Labor, except that I hereby acknowledge and agree that I will notrecover any monetary benefits in connection with any such proceeding with regard to any Claim released in this Release. Nothing in this Release will prevent mefrom challenging the validity of my general release in a legal or administrative proceeding. 1/Insert date that is 30 days from date of Participant’s receipt. 10  By signing and returning this Agreement, I acknowledge that: (1)I have carefully read and fully understand the terms of the Plan and this Release; (2)I have entered into this Release voluntarily and I knowingly release all Claims that I may have against the Company, the Successor Companyand the Releasees; and (3)The Company advised me that I have the right to and that I should consult with an attorney of my choosing prior to signing this Release. I may review and consider this Release for a period of up to twenty-one (21) days from the date that I receive it. I agree and understand that my failure to executeand deliver this Release on or before twenty-one (21) days after the date I receive it will release the Company and the Successor Company from any obligationunder the Plan to provide any benefits to me. To the extent I execute this Release within less than twenty-one (21) days after the date I receive it, I acknowledgethat my decision was entirely voluntary and that I waive the balance of my time. I will be entitled to revoke this Release at any time within seven (7) days, provided I timely execute and deliver to the Company a written revocation of thisRelease. Such revocation must be delivered in writing, by certified mail, by hand or courier service (signature of receipt required) within the time permitted to theChief Executive Officer of the Company at his or her office. If I elect to exercise this right to revoke this Release, I understand that I will forfeit any and all rightsto receive any benefits that might otherwise be due to me under the Plan following my revocation. 11  I acknowledge that the Company may be required to withhold taxes on amounts to be paid to me under the Plan. I understand and accept that the final decision as to the amounts that I have earned under the Plan will be made by the Board of Directors of the Companyin accordance with the Plan. Date: By: Name: Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-118059, 333-135242,333-151195, 333-159712, 333-159713, 333-167180, 333-173769, 333-183071, 333-186827, 333-189383, 333-190177, 333-197407and 333-205827) and on Form S-3 (Nos. 333-150087, 333-162303, 333-165784, 333-186855, 333-189392, 333-197405, 333-199359and 333-208923) of NeuroMetrix, Inc. of our report dated February 12, 2016 relating to the financial statements and financialstatement schedule, which appears in this Form 10-K. We also consent to the reference to us under the heading “Selected FinancialData” in this Form 10-K./s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 12, 2016Exhibit 31.1CERTIFICATIONI, Shai N. Gozani, certify that:1.I have reviewed this Annual Report on Form 10-K 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 factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect 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 allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin 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 ExchangeAct 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performingthe equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;andb)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: February 12, 2016 /s/ SHAI N. GOZANI, M.D., PH.D. Shai N. Gozani, M.D., Ph.D. Chairman, President and Chief Executive OfficerExhibit 31.2CERTIFICATIONI, Thomas T. Higgins, certify that:1.I have reviewed this Annual Report on Form 10-K 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 factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect 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 allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentedin 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 ExchangeAct 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based onsuch evaluation; andd)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performingthe equivalent functions):a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;andb)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: February 12, 2016 /s/ THOMAS T. HIGGINS Thomas T. Higgins Senior Vice President, Chief Financial Officer and TreasurerExhibit 32CERTIFICATIONPursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, UnitedStates Code), each of the undersigned officers of NeuroMetrix, Inc., a Delaware corporation (the “Company”), does hereby certify, tosuch officer’s knowledge, that:The Annual Report for the year ended December 31, 2015 (the “Form 10-K”) of the Company fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairlypresents, in all material respects, the financial condition and results of operations of the Company. Date: February 12, 2016 /s/ SHAI N. GOZANI, M.D., PH.D. Shai N. Gozani, M.D., Ph.D. Chairman, President and Chief Executive OfficerDate: February 12, 2016 /s/ THOMAS T. HIGGINS Thomas T. Higgins Senior Vice President, Chief Financial Officer and Treasurer

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