Financial Data and Key Metrics Changes - Total revenue for Q2 2019 was $2.4 million, down $1.4 million or 37% from $3.8 million in Q2 2018 [9] - Net loss for the quarter was $3.4 million compared to a net income of $600,000 in Q2 2018 [16] - Gross profit was negative $789,000 due to a $1.9 million inventory impairment charge, while adjusted gross profit was $1.1 million, representing a margin rate of approximately 47% [12] Business Line Data and Key Metrics Changes - Quell revenue was $800,000, down $1.3 million from Q2 of last year, indicating a significant decline [9] - DPNCheck revenue was $1.2 million, roughly flat with the prior year, with strong sales in U.S. Medicare Advantage, up 33% year-on-year [11] - Legacy diagnostic revenue decreased to $300,000 from $400,000 in the prior year [12] Market Data and Key Metrics Changes - Sales in Japan were even with Q2 of last year, while the Mexico business did not contribute revenue due to economic issues [11] - DPNCheck has no direct competition and is growing in established markets, including U.S. Medicare Advantage and Japan [26] Company Strategy and Development Direction - The company is reassessing its approach to commercializing the Quell technology, focusing on cost-effective digital marketing and exploring potential clinical applications [20][22] - A business restructuring was initiated to lower operating costs, including a reduction in workforce by over 50% [6] - The company is exploring options to monetize the DPNCheck business and has retained investment bankers to solicit interest [5][27] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment that the overall business has not progressed as hoped but remains optimistic about the company's value [18] - The company is working through an FTC matter related to Quell advertising, with expectations of a material monetary element in a resolution [25] - The company is exploring various strategic options, including potential mergers, to enhance shareholder value [28] Other Important Information - The total business restructuring charge booked in Q2 was $2.3 million, including severance costs of $225,000 [8][13] - The cash balance at the end of the quarter was $4.96 million, with a simple equity-only and debt-free capital structure [16] Q&A Session Summary - No questions were recorded during the Q&A session, and the call concluded without further inquiries [30][34]

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides unaudited interim financial information, including statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited interim financial statements, including balance sheets, operations, equity, and cash flows, detailing significant losses and negative cash flow [Balance Sheets](index=4&type=section&id=Balance%20Sheets) Summarizes the company's financial position, highlighting changes in assets, liabilities, and equity between reporting periods **Balance Sheet Highlights (June 30, 2019 vs. December 31, 2018)** | Metric | June 30, 2019 | December 31, 2018 | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | | Cash and cash equivalents | $4,958,058 | $6,780,429 | -26.9% | | Total assets | $10,814,277 | $13,991,880 | -22.7% | | Total liabilities | $5,956,627 | $7,894,069 | -24.5% | | Total stockholders' equity | $4,857,650 | $6,097,811 | -20.3% | | Accumulated deficit | $(192,328,275) | $(191,016,591) | +0.7% | [Statements of Operations](index=5&type=section&id=Statements%20of%20Operations) Details the company's revenues, expenses, and net income or loss over specific periods, reflecting operational performance **Statements of Operations Summary (Quarter Ended June 30)** | Metric | 2019 | 2018 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Revenues | $2,354,683 | $3,751,568 | -37.2% | | Gross profit (loss) | $(789,104) | $1,801,264 | -143.8% | | Net income (loss) | $(3,362,191) | $573,928 | -686.0% | | Basic EPS | $(0.37) | $0.08 | -562.5% | **Statements of Operations Summary (Six Months Ended June 30)** | Metric | 2019 | 2018 | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | | Revenues | $5,477,618 | $8,694,558 | -37.0% | | Gross profit (loss) | $9,600 | $3,788,994 | -99.7% | | Net income (loss) | $(1,311,684) | $1,740,180 | -175.4% | | Basic EPS | $(0.16) | $0.25 | -164.0% | [Statement of Changes in Stockholders' Equity](index=6&type=section&id=Statement%20of%20Changes%20in%20Stockholders'%20Equity) Outlines changes in equity components, including net income/loss, stock-based compensation, and preferred stock conversions - Total stockholders' equity decreased by **$1,240,161** from December 31, 2018, to June 30, 2019, primarily due to a net loss of **$1,311,684**[17](index=17&type=chunk) - During the six months ended June 30, 2019, **2,998.20 shares of Series D Preferred Stock** and **3,260.70 shares of Series E Preferred Stock** were converted into a total of **2,379,810 shares of Common Stock**[49](index=49&type=chunk) - Stock-based compensation expense for the six months ended June 30, 2019, was **$64,026**[17](index=17&type=chunk) [Statements of Cash Flows](index=7&type=section&id=Statements%20of%20Cash%20Flows) Reports cash inflows and outflows from operating, investing, and financing activities, showing liquidity changes **Cash Flow Summary (Six Months Ended June 30)** | Activity | 2019 | 2018 | | :------------------------------------------------ | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(1,822,281) | $3,196,050 | | Net cash used in investing activities | $(7,587) | $(130,816) | | Net cash provided by financing activities | $7,497 | — | | Net (decrease) increase in cash and cash equivalents | $(1,822,371) | $3,065,234 | | Cash and cash equivalents, end of period | $4,958,058 | $7,108,915 | [Notes to Unaudited Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) Provides detailed explanations and additional information supporting the unaudited interim financial statements [1. Business and Basis of Presentation](index=8&type=section&id=1.%20Business%20and%20Basis%20of%20Presentation) Describes the company's business, products, and the basis for preparing the financial statements, including going concern risks - NeuroMetrix, Inc. is a commercial stage healthcare company focused on chronic pain (Quell) and diabetic neuropathy (DPNCheck®)[21](index=21&type=chunk) - In June 2019, the company announced a business restructuring, including a reduction in force, operational consolidation, and a **$2.3 million charge for Quell inventory write-down**[22](index=22&type=chunk) - The company has suffered recurring losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern beyond 2019, necessitating additional funding[23](index=23&type=chunk) [2. Comprehensive Income (Loss)](index=10&type=section&id=2.%20Comprehensive%20Income%20(Loss)) Reports comprehensive income or loss, which includes net income and other comprehensive income items - The company had no components of other comprehensive income (loss) other than net income (loss) for the quarters and six months ended June 30, 2019 and 2018[34](index=34&type=chunk) [3. Net Income (Loss) Per Common Share](index=11&type=section&id=3.%20Net%20Income%20(Loss)%20Per%20Common%20Share) Presents basic and diluted earnings per common share, reflecting profitability on a per-share basis **Net Income (Loss) Per Common Share** | Period | Basic EPS | Diluted EPS | | :-------------------------- | :-------- | :---------- | | Quarter Ended June 30, 2019 | $(0.37) | $(0.37) | | Quarter Ended June 30, 2018 | $0.08 | $0.04 | | Six Months Ended June 30, 2019 | $(0.16) | $(0.16) | | Six Months Ended June 30, 2018 | $0.25 | $0.13 | - Potentially dilutive common stock equivalents (options, warrants, convertible preferred stock) were excluded from diluted EPS calculation for the periods presented because their effect was anti-dilutive[35](index=35&type=chunk) [4. Inventories](index=11&type=section&id=4.%20Inventories) Details inventory composition and valuation, including write-downs and reserves for excess stock **Inventories (June 30, 2019 vs. December 31, 2018)** | Category | June 30, 2019 | December 31, 2018 | | :------------------ | :-------------- | :---------------- | | Purchased components | $1,226,434 | $1,767,674 | | Finished goods | $836,997 | $1,094,190 | | **Total** | **$2,063,431** | **$2,861,864** | **Inventory Reserves (June 30, 2019)** | Category | Amount | | :------------------ | :----------- | | Excess stock | $2,181,819 | | - Purchased components | $2,030,000 | | - Finished goods | $151,819 | [5. Accrued Expenses](index=12&type=section&id=5.%20Accrued%20Expenses) Lists various accrued liabilities, such as lease obligations, supplier commitments, and professional service fees **Accrued Expenses (June 30, 2019 vs. December 31, 2018)** | Category | June 30, 2019 | December 31, 2018 | | :-------------------------- | :-------------- | :---------------- | | Lease obligation, current | $582,940 | $577,460 | | Supplier excess commitments | $590,000 | $160,000 | | Professional services | $566,000 | $391,000 | | Technology fees | $450,000 | $450,000 | | Advertising and promotion | $380,000 | $171,000 | | Compensation expense | $162,990 | $223,756 | | Warranty reserve | $103,000 | $129,837 | | Relocation costs | $100,000 | — | | Other | $146,262 | $133,580 | | **Total** | **$3,081,192** | **$2,

NeuroMetrix, Inc. (NASDAQ:NURO) Q1 2019 Earnings Conference Call April 25, 2019 8:00 AM ET Company Participants Thomas Higgins - SVP, CFO & Treasurer Shai Gozani - Founder, Chairman, CEO, President & Secretary Conference Call Participants Jarrod Cohen - J.M. Cohen & Company Operator Good morning, and welcome to the NeuroMetrix First Quarter 2019 Earnings Call. My name is Demetria and I'll be your moderator on the call. On this call, the Company may make forward-looking statements which are not historical fa ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1000 Winter Street, Waltham, Massachusetts 02451 (Address of principal executive offices) (Zip Code) (781) 890-9989 (Registrant's telephone number, including area code) OR ¨ TRANSITIO ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) NeuroMetrix is a commercial-stage healthcare company specializing in neurostimulation and digital medicine, with key products Quell and DPNCheck, and a 2018 collaboration with GSK - The company has two principal product lines: **wearable neurostimulation therapeutic devices** and **point-of-care neuropathy diagnostic tests**[14](index=14&type=chunk) - In early 2018, NeuroMetrix entered into a collaboration with GlaxoSmithKline (GSK), selling the rights to Quell in markets outside the United States. This collaboration includes **milestone payments** and **co-funding** for the Quell development program[21](index=21&type=chunk) Marketed Product Summary | Product | Time on Market | Technology | Primary Clinical Indications | No. Patients Tested/Treated (units) | | :--- | :--- | :--- | :--- | :--- | | **Quell** | Q2 2015 – present | Transcutaneous Electrical Nerve Stimulation | Relief for chronic, intractable pain | > 180,000 | | **SENSUS** | Q1 2013 – present | Transcutaneous Electrical Nerve Stimulation | Relief for chronic, intractable pain | > 11,000 | | **DPNCheck** | Q4 2011 – present | Nerve Conduction | Diagnosis and evaluation of peripheral neuropathies, such as DPN | > 1,100,000 | | **ADVANCE** | Q2 2008 – present | Nerve Conduction | Diagnosis and evaluation of CTS, low back pain, peripheral neuropathies | > 1,900,000 (ADVANCE and NC-stat) | [Primary Marketed Products](index=7&type=section&id=Item%201.%20Business%20-%20Primary%20Marketed%20Products) Key products include Quell for chronic pain and DPNCheck for neuropathy diagnosis, with legacy ADVANCE system support - Quell is a wearable device for chronic pain relief, available over-the-counter (OTC). Cumulatively through 2018, over **180,000 Quell devices** have been shipped to customers[27](index=27&type=chunk) - DPNCheck is a quantitative nerve conduction test for systemic neuropathies like DPN, used at the point-of-care. Cumulatively through 2018, nearly **5,000 DPNCheck devices** have been shipped[28](index=28&type=chunk)[29](index=29&type=chunk) - The ADVANCE System is a legacy platform for traditional nerve conduction studies, with an installed base of approximately **250 active customers**. The company does not actively market the device[30](index=30&type=chunk)[32](index=32&type=chunk) [Sales, Marketing, and Distribution](index=8&type=section&id=Item%201.%20Business%20-%20Sales%2C%20Marketing%2C%20and%20Distribution) Quell is distributed via e-commerce and retail in the U.S., while DPNCheck targets Medicare Advantage and international partners - Quell is distributed in the U.S. via **e-commerce** (company website, Amazon) and **select retailers**, promoted through television and digital advertising[37](index=37&type=chunk) - U.S. sales for DPNCheck focus on **Medicare Advantage organizations**, where early detection of neuropathy can impact patient care costs and provider premiums[38](index=38&type=chunk) - DPNCheck has international distribution partners: **Fukuda Denshi in Japan**, **Omron Beijing Ltd. in China**, and **Scienta Farma in Mexico**[38](index=38&type=chunk) [Manufacturing and Supply](index=9&type=section&id=Item%201.%20Business%20-%20Manufacturing%20and%20Supply) Final assembly is in-house, relying on external suppliers for components and sub-assemblies, with FDA registration and ISO certification - Final assembly and servicing of Quell and DPNCheck devices are performed **in-house in Massachusetts**, while sub-assemblies and components are sourced from outside suppliers[41](index=41&type=chunk) - Key suppliers include **Sunburst EMS** and **MC Assembly** for device sub-assemblies, and **Katecho, Inc.** for DPNCheck biosensors and Quell electrodes[42](index=42&type=chunk)[43](index=43&type=chunk) [Intellectual Property](index=11&type=section&id=Item%201.%20Business%20-%20Intellectual%20Property) The company protects its technology with 42 issued U.S. patents and 32 pending applications as of December 2018 - As of December 31, 2018, the company held **42 issued U.S. patents**, **5 issued foreign patents**, and had **32 pending patent applications**[61](index=61&type=chunk) - Wearable therapeutic products (Quell) are covered by **10 issued U.S. utility patents**, **3 design patents**, and **28 pending applications**. Foreign patents for these products were assigned to GSK[61](index=61&type=chunk) - Utility patents for legacy neurodiagnostic products began to expire in **2017**, though the company has additional patents with terms extending beyond 2018[62](index=62&type=chunk) [FDA and Other Governmental Regulation](index=13&type=section&id=Item%201.%20Business%20-%20FDA%20and%20Other%20Governmental%20Regulation) Products are Class II medical devices regulated by FDA 510(k) clearance and QSR, with ongoing FTC review of Quell marketing - All of the company's products to date have been classified as **Class II, moderate-risk medical devices** and have been subject to the **510(k) review and clearance process**[74](index=74&type=chunk) - The Quell device received **510(k) clearance** for over-the-counter (OTC) use in July 2014 for the symptomatic relief and management of chronic pain[84](index=84&type=chunk) - In 2017, the company received a **Civil Investigative Demand (CID) from the FTC** regarding marketing representations for Quell. The FTC's review for compliance is ongoing[85](index=85&type=chunk)[214](index=214&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include operating losses, going concern doubt, reliance on GSK, single-source manufacturers, and regulatory scrutiny - The company has a history of significant operating losses, with an accumulated deficit of **$191.0 million** as of December 31, 2018[93](index=93&type=chunk) - The independent auditor's report includes a **going concern explanatory paragraph**, citing recurring losses and negative cash flows, which raises substantial doubt about the company's ability to continue operations for the next year[94](index=94&type=chunk)[96](index=96&type=chunk) - The company's future is highly dependent on the success of its **collaboration with GSK**. An inability to meet milestones or delays in GSK's commercialization plans could materially and adversely affect operations[102](index=102&type=chunk) - The company relies on **single-source manufacturers** for key product components, and any disruption in this supply chain could prevent product delivery and harm the business[111](index=111&type=chunk) - The company is subject to an **ongoing FTC investigation** regarding its marketing claims for Quell, which could result in penalties or restrictions on marketing[115](index=115&type=chunk)[116](index=116&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) None [Properties](index=31&type=section&id=Item%202.%20Properties) The company operates from leased facilities in Waltham and Woburn, Massachusetts, for headquarters, engineering, manufacturing, and fulfillment - The company leases approximately **12,000 sq. ft. in Waltham, MA** for headquarters/engineering and **10,000 sq. ft. in Woburn, MA** for manufacturing/fulfillment[158](index=158&type=chunk) [Legal Proceedings](index=31&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable Part II Details the company's common stock market, selected financial data, management's discussion and analysis, and internal controls [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq under 'NURO', with details on stockholder numbers and equity compensation plans - The company's common stock is traded on the **Nasdaq Capital Market** under the symbol **"NURO"**[162](index=162&type=chunk) Equity Compensation Plan Information as of December 31, 2018 | Plan Category | Securities to be issued upon exercise | Weighted average exercise price ($) | Securities remaining for future issuance | | :--- | :--- | :--- | :--- | | **Approved by security holders** | 494,101 | $4.08 | 517,820 | | **Not approved by security holders** | — | — | 12,500 | | **Totals** | 494,101 | $4.08 | 530,320 | [Selected Financial Data](index=32&type=section&id=Item%206.%20Selected%20Financial%20Data) Refers to detailed financial statements and supplementary data within the Annual Report [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Discusses 2018 revenue decline, improved gross margin, significant GSK collaboration income, and ongoing going concern issues Comparison of Revenues (2018 vs. 2017) | Metric | 2018 ($) | 2017 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $16.1M | $17.1M | ($1.0M) | (5.9)% | | **Quell Revenues** | $10.5M | $12.3M | ($1.8M) | (14.9)% | | **DPNCheck Revenues** | $4.2M | $3.1M | $1.1M | 34.3% | Gross Profit and Margin (2018 vs. 2017) | Metric | 2018 ($) | 2017 ($) | Change ($) | % Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Cost of Revenues** | $8.7M | $10.2M | ($1.5M) | (14.9)% | | **Gross Profit** | $7.4M | $6.9M | $0.5M | 7.7% | | **Gross Margin** | 45.9% | 40.1% | +580 bps | 14.5% | - The company recorded **$12.3 million in collaboration income** from GSK in 2018 upon achievement of product development milestones[183](index=183&type=chunk) - Cash and cash equivalents increased by **$2.7 million** to **$6.8 million** at year-end 2018, primarily due to **$14.2 million in net cash provided by the GSK collaboration**[187](index=187&type=chunk)[191](index=191&type=chunk) - The company's **recurring losses and negative cash flows** from operating activities raise substantial doubt about its ability to continue as a going concern, and it may need to raise additional funds in **2020**[193](index=193&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies involve significant judgment in revenue recognition, accounts receivable, and inventory valuation - Revenue recognition requires judgment in estimating product returns, based on historical data and current information. Certain products have a **30 or 60-day right of return**[198](index=198&type=chunk)[199](index=199&type=chunk) - Inventory valuation is based on the lower of cost or net realizable value, with write-downs for excess or obsolete inventory. Consumable electrodes and biosensors have an **18 to 24-month shelf life**[203](index=203&type=chunk) - Effective January 1, 2018, the company adopted the new revenue recognition standard ASU 2014-09, which resulted in discontinuing the sell-through deferral model and led to a **credit to accumulated deficit of $0.3 million**[205](index=205&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk is minimal, primarily related to cash and equivalents, with no derivative or foreign exchange exposure [Financial Statements and Supplementary Data](index=39&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Refers to detailed financial statements and supplementary data within the Annual Report [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=39&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Not Applicable [Controls and Procedures](index=40&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that **disclosure controls and procedures were effective** as of December 31, 2018[210](index=210&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2018[211](index=211&type=chunk) [Other Information](index=40&type=section&id=Item%209B.%20Other%20Information) Covers ongoing FTC investigation, warrant repurchase plans, and the extension of the Shareholder Rights Agreement - The company intends to repurchase up to **$25,000 of its warrants** traded under the symbol NUROW. Through Dec 31, 2018, it had spent **$2,391** to repurchase **38,506 warrants**[215](index=215&type=chunk) - On January 21, 2019, the company extended its **Shareholder Rights Agreement** by an additional year[216](index=216&type=chunk) Part III Covers corporate governance, executive compensation, security ownership, related party transactions, and accounting fees [Directors, Executive Officers and Corporate Governance](index=41&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Details executive officers, directors, board structure, committee compositions, and the company's Code of Business Conduct and Ethics - The Board of Directors is classified into **three staggered three-year terms**[227](index=227&type=chunk) - The Board has determined that directors **Goodman, Surgenor, Katz, and Van Avermaete are independent**[227](index=227&type=chunk) - The Audit Committee consists of **Mr. Surgenor (Chairman), Dr. Goodman, and Ms. Katz**, all of whom are independent. Mr. Surgenor qualifies as an **'audit committee financial expert'**[229](index=229&type=chunk) [Executive Compensation](index=44&type=section&id=Item%2011.%20Executive%20Compensation) Outlines 2018 executive compensation, including salaries and equity awards, noting no performance bonuses were paid Summary of Executive Compensation (2018 vs. 2017) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Shai N. Gozani, M.D. Ph.D.** (CEO) | 2018 | 415,000 | — | 63,211 | 478,211 | | | 2017 | 415,000 | 194,531 | — | 609,531 | | **Thomas T. Higgins** (CFO) | 2018 | 325,000 | — | 31,606 | 356,606 | | | 2017 | 325,000 | 121,875 | — | 446,875 | | **Frank McGillin** (CCO) | 2018 | 341,250 | — | 31,606 | 372,856 | | | 2017 | 325,000 | 97,500 | — | 422,500 | - The Compensation Committee determined that although the gating metric for 2018 bonuses was met, inadequate progress on other metrics led to **no management bonus pool being created for 2018**[245](index=245&type=chunk) - In January 2018, named executive officers received stock option grants: **Dr. Gozani (75,000)**, **Mr. Higgins (37,500)**, and **Mr. McGillin (37,500)**. No equity grants were made to executive officers in 2017[246](index=246&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=49&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details beneficial ownership of common stock by directors, executive officers, and significant stockholders like Sabby Management - As of January 23, 2019, all current directors and executive officers as a group beneficially owned **511,632 shares**, representing **6.5% of the class**[262](index=262&type=chunk) - Sabby Management, LLC is listed as a beneficial owner of 5% or more, with beneficial ownership of **852,437 shares (9.99% of the class)** issuable upon conversion of preferred stock, subject to a **9.99% ownership limitation**[262](index=262&type=chunk)[264](index=264&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=51&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Discloses related party transactions, primarily private equity offerings with Sabby Management, LLC in 2017 - In Q1 2017, the company completed a private offering with Sabby Management for **$7.0 million in gross proceeds**, issuing Series E convertible preferred stock and warrants, and resetting the conversion/exercise prices of Sabby's other holdings[267](index=267&type=chunk) - In Q3 2017, the company completed another private offering with Sabby Management for **$7.0 million in gross proceeds**, issuing Series F convertible preferred stock, and also issued additional Series F shares in exchange for retiring existing warrants[266](index=266&type=chunk) [Principal Accounting Fees and Services](index=52&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Details fees paid to the independent registered public accounting firm for audit and other services in 2018 and 2017 Accounting Fees (2018 vs. 2017) | Fee Type | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | **Audit Fees** | $141,614 | $107,600 | | **Audit-Related Fees** | $0 | $0 | | **Tax Fees** | $0 | $0 | | **All Other Fees** | $0 | $0 | Part IV Lists all exhibits and financial statement schedules filed as part of the Form 10-K [Exhibits and Financial Statement Schedules](index=53&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) Lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key corporate and contractual documents Financial Statements Presents the company's audited financial statements, including the independent auditor's report and detailed notes [Report of Independent Registered Public Accounting Firm](index=63&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Auditor's report confirms fair presentation of financial statements but highlights a 'Going Concern Uncertainty' due to recurring losses - The auditor's report contains a **"Going Concern Uncertainty" paragraph**[299](index=299&type=chunk) - The going concern issue is based on the company's **recurring losses from operations, negative cash flows, and significant accumulated deficit**[299](index=299&type=chunk) [Financial Statements Data](index=64&type=section&id=Financial%20Statements%20Data) Presents key financial data, showing 2018 net income driven by collaboration income, and changes in assets, equity, and cash flow Key Balance Sheet Data (As of Dec 31) | Metric | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | **Cash and cash equivalents** | $6,780,429 | $4,043,681 | | **Total current assets** | $11,631,017 | $9,103,374 | | **Total assets** | $12,113,248 | $9,599,224 | | **Total current liabilities** | $6,015,437 | $4,581,835 | | **Total liabilities** | $6,015,437 | $4,581,835 | | **Accumulated deficit** | ($191,016,591) | ($191,338,054) | | **Total stockholders' equity** | $6,097,811 | $5,017,389 | Key Statement of Operations Data (Year Ended Dec 31) | Metric | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | **Revenues** | $16,090,138 | $17,092,336 | | **Gross profit** | $7,383,056 | $6,856,798 | | **Loss from operations** | ($12,291,567) | ($13,082,618) | | **Collaboration income** | $12,255,704 | $0 | | **Net income (loss)** | $23,605 | ($12,859,253) | [Notes to Financial Statements](index=68&type=section&id=Notes%20to%20Financial%20Statements) Provides detailed explanations of accounting policies, going concern uncertainty, revenue recognition, and complex financing arrangements - The company adopted the new revenue recognition standard ASU 2014-09 on Jan 1, 2018, using the modified retrospective method. This resulted in a **$297,858 credit to accumulated deficit**[330](index=330&type=chunk)[332](index=332&type=chunk) - As of Dec 31, 2018, the company had federal and state net operating loss (NOL) carryforwards of approximately **$143.0 million** and **$48.4 million**, respectively. A **full valuation allowance** has been provided against these deferred tax assets[194](index=194&type=chunk)[376](index=376&type=chunk) - In 2017, two private offerings with an institutional investor (Sabby Management) were accounted for as extinguishments, resulting in a total **deemed dividend of $6.8 million** recognized against additional paid-in capital[398](index=398&type=chunk) Contractual Obligations as of Dec 31, 2018 | Obligation Type | Total ($) | Less than 1 year ($) | 1 – 3 years ($) | 3 – 5 years ($) | More than 5 years ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Operating lease obligations** | $2,619,927 | $629,222 | $1,294,357 | $413,132 | $283,216 | | **Purchase order obligations** | $4,988,383 | $4,988,383 | — | — | — | | **Total** | **$7,608,310** | **$5,617,605** | **$1,294,357** | **$413,132** | **$283,216** |

Financial Data and Key Metrics Changes - Q4 total revenue was $3.7 million, down from $4.9 million in Q4 2017, and full year revenue was $16.1 million, down from $17.1 million in the prior year [6] - Q4 net income was a negative $2.8 million, or negative $0.38 per share, compared to a negative $2.9 million, or negative $1.16 per share in the same quarter of the previous year. Full year net income was a positive $24,000, or just under a penny per share, compared to a negative $12.9 million, or negative $11.60 per share in 2017 [13] - Gross profit in Q4 was $1.7 million, down from $2.1 million in Q4 2017, while full year gross profit was $7.4 million, up by $0.5 million from $6.9 million in 2017 [9] Business Line Data and Key Metrics Changes - Quell revenue in Q4 was $2.8 million, down from $3.7 million in the prior year, and full year revenue was $10.5 million, down from $12.4 million in 2017 [6] - DPNCheck Q4 revenue was $600,000, down from $800,000 in Q4 of the prior year, but full year revenue was $4.2 million, up 34% from $3.1 million last year [8] - Legacy diagnostic products contributed $300,000 in Q4 and $1.4 million for the full year, which was flat quarter-on-quarter and down 14% annually [9] Market Data and Key Metrics Changes - E-commerce expanded from 40% of units shipped in 2017 to 60% in 2018, with a goal of reaching 80% of Quell shipments through e-commerce channels [9] - The company experienced a decrease in customer acquisition costs over the past couple of years, but this trend reversed in Q4, leading to increased costs [15][16] Company Strategy and Development Direction - The company aims to position itself for future profitable growth while delivering meaningful innovation and managing costs [4] - A new commercial strategy for Quell is anticipated to be launched in the second half of the year, focusing on market segmentation, pricing, and promotional strategies [17][18] - The company will continue to build the DPNCheck business, which generates over 60% operating margins and strong cash flow [21] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with Q4 results, citing lower than expected unit sales and increased customer acquisition costs [15] - Positive feedback on Quell 2.0 and improved average selling price (ASP) and gross margins were noted, indicating potential for long-term aftermarket sales [15] - The company does not expect to raise additional capital in 2019, relying on current resources and anticipated milestones from collaborations [20] Other Important Information - Collaboration income for the full year was $12.3 million, primarily from GSK milestone payments, with a total of $14.7 million received in 2018 [12] - The company’s cash balance at the end of the year was $6.8 million, with a simple equity-only debt-free structure [14] Q&A Session Summary Question: Positioning relative to opioid-free strategies and DPNCheck market alignment - The company advocates for the chronic pain community rather than positioning against opioids, with ongoing studies on opioid reduction [23] - Focus on Medicare Advantage plans for DPNCheck rather than the American Diabetes Association, with ongoing conversations to support scientific literature [24] Question: Direct marketing channels and effectiveness - Historically, 75% to 80% of spending has been on TV, which builds awareness and drives customers to digital properties, but the company is exploring more cost-effective digital advertising [30] Question: Recent publication of randomized control trial for Quell - A study showed substantial reductions in pain and disability for Quell users compared to conventional treatment, forming the basis for more targeted promotion of Quell for specific conditions [34][35]