NeuroMetrix Inc.

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
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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
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if
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registrant
is
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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
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filer
o
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filer
o
(Do
not
check
if
a
smallerreporting
company)
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reporting
company
xIndicate
by
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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