x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2011
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to ____
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Delaware
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04-3308180
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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62 Fourth Avenue, Waltham, Massachusetts
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02451
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(Address of principal executive offices, including zip code)
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(Zip Code)
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PART I – FINANCIAL INFORMATION
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|||
Item 1.
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Financial Statements:
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||
Balance Sheets (unaudited) as of September 30, 2011 and December 31, 2010
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2
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||
Statements of Operations (unaudited) for the quarters and nine months ended September 30, 2011 and 2010
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3
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||
Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and 2010
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4
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Notes to Unaudited Financial Statements
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5
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||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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12
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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19
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Item 4.
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Controls and Procedures
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19
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PART II – OTHER INFORMATION
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|||
Item 1.
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Legal Proceedings
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20
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Item 1A.
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Risk Factors
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20
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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20
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Item 3.
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Defaults Upon Senior Securities
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20
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Item 4.
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[Removed and Reserved.]
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20
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Item 5.
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Other Information
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20
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Item 6.
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Exhibits
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20
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Signatures
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21
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September 30,
2011
|
December 31,
2010
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 11,714,782 | $ | 16,986,809 | ||||
Accounts receivable, net
|
993,043 | 1,592,564 | ||||||
Inventories
|
2,002,789 | 2,412,805 | ||||||
Prepaid expenses and other current assets
|
587,989 | 603,821 | ||||||
Current portion of deferred costs
|
43,639 | 81,194 | ||||||
Total current assets
|
15,342,242 | 21,677,193 | ||||||
Restricted cash
|
229,500 | 408,000 | ||||||
Fixed assets, net
|
565,764 | 731,975 | ||||||
Intangible assets, net
|
— | 210,000 | ||||||
Deferred costs and other long-term assets
|
11,748 | 39,261 | ||||||
Total assets
|
$ | 16,149,254 | $ | 23,066,429 | ||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 460,913 | $ | 259,155 | ||||
Accrued compensation
|
864,645 | 683,049 | ||||||
Accrued expenses
|
1,349,058 | 1,227,790 | ||||||
Current portion of deferred revenue
|
245,080 | 468,324 | ||||||
Current portion of capital lease obligation
|
20,006 | 19,093 | ||||||
Total current liabilities
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2,939,702 | 2,657,411 | ||||||
Deferred revenue, net of current portion
|
65,692 | 171,797 | ||||||
Capital lease obligation, net of current portion
|
23,128 | 38,249 | ||||||
Total liabilities
|
3,028,522 | 2,867,457 | ||||||
Commitments and contingencies (Note 7)
|
||||||||
Stockholders’ equity:
|
||||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none outstanding
|
— | — | ||||||
Common stock, $0.0001 par value; 50,000,000 shares authorized; 3,888,082 and 3,866,256 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
|
389 | 387 | ||||||
Additional paid-in capital
|
139,289,445 | 138,802,870 | ||||||
Accumulated deficit
|
(126,169,102 | ) | (118,604,285 | ) | ||||
Total stockholders’ equity
|
13,120,732 | 20,198,972 | ||||||
Total liabilities and stockholders’ equity
|
$ | 16,149,254 | $ | 23,066,429 |
Quarter Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
|
||||||||||||||||
Revenues
|
$ | 2,560,226 | $ | 3,414,335 | $ | 8,036,912 | $ | 10,833,204 | ||||||||
Cost of revenues
|
1,156,119 | 1,347,816 | 3,521,767 | 4,049,178 | ||||||||||||
Gross margin
|
1,404,107 | 2,066,519 | 4,515,145 | 6,784,026 | ||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development
|
829,556 | 1,475,640 | 3,049,887 | 4,808,171 | ||||||||||||
Sales and marketing
|
1,810,653 | 2,535,810 | 5,164,782 | 8,919,631 | ||||||||||||
General and administrative
|
1,199,676 | 1,589,723 | 3,883,247 | 5,905,376 | ||||||||||||
Total operating expenses
|
3,839,885 | 5,601,173 | 12,097,916 | 19,633,178 | ||||||||||||
Loss from operations
|
(2,435,778 | ) | (3,534,654 | ) | (7,582,771 | ) | (12,849,152 | ) | ||||||||
Interest income
|
4,936 | 13,983 | 17,954 | 45,381 | ||||||||||||
Net loss before taxes
|
(2,430,842 | ) | (3,520,671 | ) | (7,564,817 | ) | (12,803,771 | ) | ||||||||
Income tax benefit
|
— | 120,490 | — | 120,490 | ||||||||||||
Net loss
|
$ | (2,430,842 | ) | $ | (3,400,181 | ) | $ | (7,564,817 | ) | $ | (12,683,281 | ) | ||||
Per common share data, basic and diluted:
|
||||||||||||||||
Net loss
|
$ | (0.63 | ) | $ | (0.89 | ) | $ | (1.96 | ) | $ | (3.30 | ) | ||||
Weighted average number of common shares outstanding, basic and diluted
|
3,859,682 | 3,839,684 | 3,854,106 | 3,838,045 |
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (7,564,817 | ) | $ | (12,683,281 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
299,754 | 396,645 | ||||||
Intangible asset impairment
|
192,500 | — | ||||||
Stock-based compensation
|
471,043 | 895,171 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
599,521 | 999,962 | ||||||
Inventories
|
410,016 | 58,857 | ||||||
Prepaid expenses and other current assets
|
15,832 | (341,078 | ) | |||||
Accounts payable
|
201,758 | (439,421 | ) | |||||
Accrued expenses and compensation
|
302,864 | (196,630 | ) | |||||
Deferred revenue, deferred costs, and other
|
(264,281 | ) | (198,848 | ) | ||||
Net cash used in operating activities
|
(5,335,810 | ) | (11,508,623 | ) | ||||
Cash flows from investing activities:
|
||||||||
Maturities of investments
|
— | 7,495,000 | ||||||
Purchases of fixed assets
|
(116,043 | ) | (135,787 | ) | ||||
Release of restricted cash
|
178,500 | — | ||||||
Net cash provided by investing activities
|
62,457 | 7,359,213 | ||||||
Cash flows from financing activities:
|
||||||||
Proceeds from issuance of common stock
|
15,534 | 157,970 | ||||||
Payments on capital lease
|
(14,208 | ) | (21,897 | ) | ||||
Net cash provided by financing activities
|
1,326 | 136,073 | ||||||
Net decrease in cash and cash equivalents
|
(5,272,027 | ) | (4,013,337 | ) | ||||
Cash and cash equivalents, beginning of period
|
16,986,809 | 22,937,410 | ||||||
Cash and cash equivalents, end of period
|
$ | 11,714,782 | $ | 18,924,073 |
1.
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Business and Basis of Presentation
|
2.
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Comprehensive Loss
|
3.
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Net Loss Per Common Share
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Quarters Ended September 30,
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Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Options
|
536,917 | 578,453 | 559,955 | 571,431 | ||||||||||||
Warrants
|
1,430,480 | 1,430,480 | 1,430,480 | 1,430,480 | ||||||||||||
Unvested restricted stock
|
30,169 | 10,037 | 28,443 | 6,691 | ||||||||||||
Total
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1,997,566 | 2,018,970 | 2,018,878 | 2,008,602 |
4.
|
Inventories
|
September 30,
2011
|
December 31,
2010
|
|||||||
Purchased components
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$ | 339,603 | $ | 457,852 | ||||
Finished goods
|
1,663,186 | 1,954,953 | ||||||
$ | 2,002,789 | $ | 2,412,805 |
5.
|
Intangible Assets
|
6.
|
Accrued Expenses
|
September 30,
2011
|
December 31,
2010
|
|||||||
Intellectual property fees
|
$ | 416,667 | $ | 250,000 | ||||
Professional services
|
313,301 | 284,290 | ||||||
Customer net credit balances
|
65,540 | 212,302 | ||||||
Sales taxes
|
52,814 | 76,805 | ||||||
Supplier obligations
|
379,798 | 195,000 | ||||||
Other
|
120,938 | 209,393 | ||||||
$ | 1,349,058 | $ | 1,227,790 |
7.
|
Commitments and Contingencies
|
2011 (remaining three months)
|
$ | 183,750 | ||
2012
|
757,500 | |||
2013
|
191,250 | |||
Total minimum lease payments
|
$ | 1,132,500 |
8.
|
Fair Value Measurements
|
Fair Value Measurements at September 30, 2011 Using
|
||||||||||||||||
September 30,
2011
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Assets:
|
||||||||||||||||
Cash equivalents
|
$ | 2,190,391 | $ | 2,190,391 | $ | — | $ | — | ||||||||
Total
|
$ | 2,190,391 | $ | 2,190,391 | $ | — | $ | — |
Fair Value Measurements at December 31, 2010 Using
|
||||||||||||||||
December 31,
2010
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||||||
Assets:
|
||||||||||||||||
Cash equivalents
|
$ | 13,010,213 | $ | 13,010,213 | $ | — | $ | — | ||||||||
Total
|
$ | 13,010,213 | $ | 13,010,213 | $ | — | $ | — |
9.
|
Legal Matters
|
10.
|
Credit Facility
|
11.
|
Business Restructuring
|
Quarter Ended
|
Nine Months Ended
|
|||||||
September 30, 2011
|
September 30, 2011
|
|||||||
Balance – beginning
|
$ | 83,334 | $ | 208,333 | ||||
Accrual for severance
|
— | 184,656 | ||||||
Severance payments made
|
(62,501 | ) | (372,156 | ) | ||||
Balance at September 30, 2011
|
$ | 20,833 | $ | 20,833 |
12.
|
Reverse Stock Split
|
Year Ending December 31, 2011
|
Year Ended December 31, 2010
|
|||||||||||||||||||
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
Fourth
Quarter
|
Third
Quarter
|
||||||||||||||||
Installed base (active testing accounts)
|
3,195 | 3,419 | 3,658 | 3,875 | 4,044 | |||||||||||||||
Patient studies
|
24,836 | 27,765 | 29,852 | 28,041 | 32,064 |
Quarters Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Revenues
|
$ | 2,560.2 | $ | 3,414.3 | $ | (854.1 | ) | (25.0 | )% |
Quarters Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Cost of revenues
|
$ | 1,156.1 | $ | 1,347.8 | $ | (191.7 | ) | (14.2 | )% | |||||||
Gross margin
|
$ | 1,404.1 | $ | 2,066.5 | $ | (662.4 | ) | (32.1 | ) |
Quarters Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development
|
$ | 829.5 | $ | 1,475.7 | $ | (646.2 | ) | (43.8 | )% | |||||||
Sales and marketing
|
1,810.7 | 2,535.8 | (725.1 | ) | (28.6 | ) | ||||||||||
General and administrative
|
1,199.7 | 1,589.7 | (390.0 | ) | (24.5 | ) | ||||||||||
Total operating expenses
|
$ | 3,839.9 | $ | 5,601.2 | $ | (1,761.3 | ) | (31.4 | ) |
Nine Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Revenues
|
$ | 8,036.9 | $ | 10,833.2 | $ | (2,796.3 | ) | (25.8 | )% |
Nine Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Cost of revenues
|
$ | 3,521.8 | $ | 4,049.2 | $ | (527.4 | ) | (13.0 | )% | |||||||
Gross margin
|
$ | 4,515.1 | $ | 6,784.0 | $ | (2,268.9 | ) | (33.4 | ) |
Nine Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
Change
|
% Change
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Operating expenses:
|
||||||||||||||||
Research and development
|
$ | 3,049.9 | $ | 4,808.2 | $ | (1,758.3 | ) | (36.6 | )% | |||||||
Sales and marketing
|
5,164.8 | 8,919.6 | (3,754.8 | ) | (42.1 | ) | ||||||||||
General and administrative
|
3,883.2 | 5,905.4 | (2,022.2 | ) | (34.2 | ) | ||||||||||
Total operating expenses
|
$ | 12,097.9 | $ | 19,633.2 | $ | (7,535.3 | ) | (38.4 | ) |
September 30,
2011
|
December 31,
2010
|
Change
|
% Change
|
|||||||||||||
($ in thousands)
|
||||||||||||||||
Cash and cash equivalents
|
$ | 11,714.8 | $ | 16,986.8 | $ | (5,272.0 | ) | (31.0 | )% |
Quarter Ended
September 30,
|
Year Ended
December 31,
|
|||||||||||
2011
|
2010
|
2010
|
||||||||||
Days sales outstanding (days)
|
36 | 67 | 67 | |||||||||
Inventory turnover rate (times per year)
|
2.5 | 1.2 | 2.0 |
Nine Months Ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
(in thousands)
|
||||||||
Net cash used in operating activities
|
$ | (5,335.8 | ) | $ | (11,508.6 | ) | ||
Net cash provided by investing activities
|
62.5 | 7,359.2 | ||||||
Net cash provided by financing activities
|
1.3 | 136.1 |
NEUROMETRIX, INC.
|
|||
Date: October 27, 2011
|
/s/
|
SHAI N. GOZANI, M.D., PH. D.
|
|
Shai N. Gozani, M.D., Ph. D.
|
|||
Chairman, President and Chief Executive Officer
|
|||
Date: October 27, 2011
|
/s/
|
THOMAS T. HIGGINS
|
|
Thomas T. Higgins
|
|||
Senior Vice President, Chief Financial Officer and Treasurer
|
Exhibit No.
|
Description
|
|
3.1
|
Certificate of Amendment to Restated Certificate of Incorporation of NeuroMetrix, Inc., dated September 1, 2011.(1)
|
|
31.1
|
Certification of Principal Executive Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
31.2
|
Certification of Principal Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
32
|
Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. Furnished herewith.
|
|
101
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Balance Sheets (unaudited) as of September 30, 2011 and December 31, 2010, (ii) Statements of Operations (unaudited) for the quarters and nine months ended September 30, 2011 and 2010, (iii) Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Unaudited Financial Statements*.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of NeuroMetrix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: October 27, 2011
|
/s/ SHAI N. GOZANI, M.D., PH.D.
|
Shai N. Gozani, M.D., Ph.D.
|
|
Chairman, President and Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of NeuroMetrix, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: October 27, 2011
|
/s/ THOMAS T. HIGGINS
|
Thomas T. Higgins
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
/s/ SHAI N. GOZANI, M.D., PH.D.
|
|
Shai N. Gozani, M.D., Ph.D.
|
|
Chairman, President and Chief Executive Officer
|
|
/s/ THOMAS T. HIGGINS
|
|
Thomas T. Higgins
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 3,888,082 | 3,866,256 |
Common stock, shares outstanding | 3,888,082 | 3,866,256 |
Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenues | $ 2,560,226 | $ 3,414,335 | $ 8,036,912 | $ 10,833,204 |
Cost of revenues | 1,156,119 | 1,347,816 | 3,521,767 | 4,049,178 |
Gross margin | 1,404,107 | 2,066,519 | 4,515,145 | 6,784,026 |
Operating expenses: | ||||
Research and development | 829,556 | 1,475,640 | 3,049,887 | 4,808,171 |
Sales and marketing | 1,810,653 | 2,535,810 | 5,164,782 | 8,919,631 |
General and administrative | 1,199,676 | 1,589,723 | 3,883,247 | 5,905,376 |
Total operating expenses | 3,839,885 | 5,601,173 | 12,097,916 | 19,633,178 |
Loss from operations | (2,435,778) | (3,534,654) | (7,582,771) | (12,849,152) |
Interest income | 4,936 | 13,983 | 17,954 | 45,381 |
Net loss before taxes | (2,430,842) | (3,520,671) | (7,564,817) | (12,803,771) |
Income tax benefit | 120,490 | 120,490 | ||
Net loss | $ (2,430,842) | $ (3,400,181) | $ (7,564,817) | $ (12,683,281) |
Per common share data, basic and diluted: | ||||
Net loss | $ (0.63) | $ (0.89) | $ (1.96) | $ (3.30) |
Weighted average number of common shares outstanding, basic and diluted | 3,859,682 | 3,839,684 | 3,854,106 | 3,838,045 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Oct. 20, 2011 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | NURO | |
Entity Registrant Name | NEUROMETRIX, INC. | |
Entity Central Index Key | 0001289850 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 3,888,082 |
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Commitments and Contingencies | 9 Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||
Commitments and Contingencies |
Operating Lease
The
Company leases office and engineering laboratory space in Waltham,
Massachusetts. The lease term extends through March 31, 2013.
Base rent for the period October 2011 through March 2013 will range
from $735,000 to $765,000 annually.
Future
minimum lease payments under noncancelable operating leases as of
September 30, 2011 are as follows:
On
April 2, 2011, $178,500 of restricted cash was released under terms
of the lease for the Company’s Massachusetts headquarters
building.
|
Reverse Stock Split | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Reverse Stock Split |
The
Company’s common stock is quoted on the The NASDAQ Stock
Market LLC, or NASDAQ, Capital Market under the symbol
“NURO.” One of the requirements for continued listing
on the NASDAQ Capital Market is maintenance of a minimum closing
bid price of $1.00. Because the Company’s common stock had
been trading below $1.00, on September 1, 2011, the Company filed a
Certificate of Amendment to its Restated Certificate of
Incorporation, as amended, with the Secretary of State of the State
of Delaware, to effect a 1-for-6 reverse stock split of its common
stock, or the Reverse Stock Split. This action had previously been
approved by the Company’s stockholders at the Company’s
annual meeting held on May 16, 2011. As a result of the Reverse
Stock Split, every six shares of the Company’s pre-reverse
split common stock were combined and reclassified into one share of
its common stock. No fractional shares were issued in connection
with the Reverse Stock Split. Stockholders who otherwise would have
been entitled to receive a fractional share in connection with the
Reverse Stock Split received a cash payment in lieu thereof. The
par value and other terms of the common stock were not affected by
the Reverse Stock Split.
The
Company’s shares outstanding immediately prior to the Reverse
Stock Split totaled 23,331,646. These were adjusted to 3,888,607
shares outstanding as a result of the Reverse Stock Split. The
Company’s common stock began trading at its post-Reverse
Stock Split price at the beginning of trading on September 2, 2011.
Share,
per share, and stock option amounts for all periods presented
within this quarterly report on Form 10-Q and the December 31, 2010
Balance Sheet amounts for common stock and additional paid-in
capital have been retroactively adjusted to reflect the Reverse
Stock Split.
On
September 19, 2011, the Company received a letter from NASDAQ
indicating that it had regained compliance with the minimum bid
price requirement under NASDAQ Listing Rule 5550(a)(2) for
continued listing on The NASDAQ Capital Market. The Company’s
common stock continues to be listed on NASDAQ.
|
Net Loss Per Common Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss Per Common Share |
Basic
net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the
period. Unvested restricted shares, although legally issued and
outstanding, are not considered outstanding for purposes of
calculating basic net income per share. Diluted net loss per common
share is computed by dividing net loss by the weighted average
number of common shares outstanding during the period plus the
dilutive effect of outstanding instruments such as options,
warrants, and restricted stock. Because the Company has reported a
net loss for all periods presented, diluted loss per common share
is the same as basic loss per common share, as the effect of
utilizing the fully diluted share count would have reduced the net
loss per common share. Therefore, in calculating net loss per share
amounts, shares underlying the following
potentially dilutive common stock equivalents were excluded from
the calculation of diluted net income per common share because
their effect was anti-dilutive for each of the periods presented.
See Note 12 regarding the reverse split of the Company’s
common stock which occurred on September 1,
2011.
|
Legal Matters | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Legal Matters |
As
previously disclosed in the Company's filings with the Securities
and Exchange Commission, or SEC, on March 17, 2008, a putative
securities class action complaint was filed in the United States
District Court for the District of Massachusetts against the
Company and certain of its current and former officers. On
March 27, 2008, a related putative securities class action
complaint was filed in the same court, against the same defendants.
These two actions were subsequently consolidated, and the court
appointed a lead plaintiff. On November 10, 2008, a
consolidated amended class action complaint was filed, which
alleged, among other things, that between October 27, 2005 and
February 12, 2008, the defendants violated the federal
securities laws by allegedly making false and misleading statements
and failing to disclose material information to the investing
public. The plaintiffs sought unspecified damages. On
January 30, 2009, the Company filed a motion to dismiss the
consolidated amended complaint on the grounds, among others, that
it failed to state a claim on which relief can be granted. On
December 8, 2009, the Court entered an order granting
defendants' motion to dismiss and dismissing the consolidated
amended complaint in its entirety with prejudice. The plaintiffs
filed a notice of appeal with the United States Court of Appeals
for the First Circuit on January 6, 2010. Oral arguments on
the plaintiffs' appeal were conducted on September 15, 2010.
On March 18, 2011, the Court of Appeals for the First Circuit
affirmed the District Court’s dismissal of the amended
complaint. On April 1, 2011, the plaintiffs filed a petition for
rehearing en banc with the First Circuit, seeking a rehearing of
their appeal by the full members of the First Circuit court. The
defendants’ response to that petition was filed on April 25,
2011. On May 26, 2011, the Court denied the plaintiffs’
request for a rehearing. The plaintiffs had until August 24, 2011
to file an appeal with the United States Supreme Court, but no
appeal was filed. As a result, all legal action related to this
lawsuit has concluded.
|
Credit Facility | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Credit Facility |
In
order to supplement the Company’s access to capital, on March
5, 2010, it entered into a Loan and Security Agreement, or the
Credit Facility, with a bank, which permits the Company to borrow
up to $7.5 million on a revolving basis. The Credit Facility was
extended for one year on March 1, 2011 and will expire on March 2,
2012. Amounts borrowed under the Credit Facility will bear interest
equal to the prime rate plus 0.5%. Any borrowings under the Credit
Facility will be secured by the Company’s cash, accounts
receivable, inventory, and equipment. The Credit
Facility includes traditional lending and reporting covenants
including that certain financial covenants applicable to liquidity
are to be maintained by the Company. As of September 30, 2011, the
Company was in compliance with these covenants and had not borrowed
any funds under the Credit Facility.
|
Fair Value Measurements | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
The
following tables present information about the Company’s
assets and liabilities that are measured at fair value on a
recurring basis for the periods presented and indicates the fair
value hierarchy of the valuation techniques it utilized to
determine such fair value. In general, the fair values of the
Company’s assets and liabilities are determined by
Level 1 inputs that utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities, as required by
GAAP. Fair values determined by Level 2 inputs utilize data
points that are observable such as quoted prices, interest rates,
and yield curves. Fair values determined by Level 3 inputs are
unobservable data points for the asset or liability, and include
situations where there is little, if any, market activity for the
asset or liability. The carrying amounts of
financial assets and liabilities, including cash and cash
equivalents, restricted cash, accounts receivable, accounts
payable, and other liabilities, approximated their fair value at
September 30, 2011 and December 31, 2010. The Company currently has
no financial instruments subject to fair value measurement on a
recurring or nonrecurring basis.
|
Business and Basis of Presentation | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Business and Basis of Presentation |
Our Business – An Overview
NeuroMetrix,
Inc., or the Company, a Delaware corporation, was founded in June
1996. It is a science-based health care company transforming
patient care through neurotechnology. The Company develops and
markets innovative products for the detection, diagnosis, and
monitoring of peripheral nerve disorders such as those associated
with diabetes and carpal tunnel syndrome.
The
Company’s primary focus is diabetes, specifically the
detection and monitoring of diabetic peripheral neuropathy, or DPN,
which is a common complication of the disease. The Company views
diabetes as representing the largest and fastest growing
opportunity for its proprietary technology. Neuropathy is a common
and serious complication of the disease that may lead to foot
ulcers and limb amputation. The Company has over a decade of
experience in neuropathy detection starting with approval in 1999
by the United States Food and Drug Administration, or FDA,
of the NC-stat System, a point-of-care device for the
performance of general purpose nerve conduction studies.
In
support of its efforts, the Company has hired a dedicated
endocrinology and podiatry sales force and,
in September 2011, the Company commercially launched
NC-stat DPNCheck, which is a rapid, low cost, modified version of
its NC-stat device designed to assess systemic neuropathies, such
as DPN, at the point-of-care. The Company is focusing its initial
sales efforts for NC-stat DPNCheck on endocrinologists and
podiatrists because of their high concentration of diabetes
patients and focus on DPN. The Company’s sales process for
NC-stat DPNCheck starts with a 30-day, no-charge physician
evaluation. All third quarter NC-stat DPNCheck shipments were under
terms of physician evaluation agreements. The
Company expects to record its first revenue from sales of NC-stat
DPNCheck in the fourth quarter of 2011.
The
Company’s ADVANCE™ NCS/EMG System, or the ADVANCE
System, has also been cleared by the FDA and is a comprehensive
platform for the performance of traditional nerve conduction
studies and invasive electromyography procedures. The Company
focuses its sales efforts for the ADVANCE System on physician
offices and clinics. The ADVANCE System is comprised of:
(1) various types of electrodes and needles, (2) the
ADVANCE device and related modules, and (3) a communication
hub that enables the physician’s office to network their
device to the Company’s servers for data archiving, report
generation and other network services. The Company does not intend
to support the original NC-stat System beyond 2011 and therefore it
is transitioning its NC-stat customers to the ADVANCE
System.
The
Company’s neurodiagnostic equipment is used in approximately
3,200 physicians’ offices, clinics, and hospitals. Over 1.5
million patient studies have been performed with the
Company’s neurodiagnostic devices since 1999.
The
Company believes that its current cash and cash equivalents of
$11.7 million and the cash to be generated from expected product
sales will be sufficient to meet its projected operating
requirements for at least the next twelve months. The Company
continues to face significant challenges and uncertainties and, as
a result, the Company’s available capital resources may be
consumed more rapidly than currently expected due to (a) decreases
in sales of its products and future revenues; (b) changes the
Company makes to its business that affect ongoing operating
expenses; (c) changes in the Company’s business
strategy; (d) regulatory developments affecting the Company and its
products; (e) changes the Company makes to research and
development spending plans; and (f) other items
affecting the Company’s forecasted level of expenditures and
use of cash resources. Accordingly, the Company will likely need to
raise additional funds to support its operating and capital needs.
The Company may attempt to obtain additional funding through public
or private financing, collaborative arrangements with strategic
partners, or through additional credit lines or other debt
financing sources to increase the funds available to fund its
operations. However, the Company may not be able to secure such
financing in a timely manner and on favorable terms, if at all.
Without additional funds, the Company may be forced to delay, scale
back or eliminate some of its sales and marketing efforts, research
and development activities, or other operations and potentially
delay product development in an effort to provide sufficient funds
to continue its operations.
Unaudited Interim Financial Statements
The
accompanying unaudited balance sheet as of September 30, 2011,
unaudited statements of operations for the quarters and nine months
ended September 30, 2011 and 2010 and the unaudited statements of
cash flows for the nine months ended September 30, 2011 and 2010
have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, the
financial statements include all normal and recurring adjustments
considered necessary for a fair statement of the Company’s
financial position and operating results. Certain prior period
amounts have been adjusted to reflect the Company's 1-for-6 reverse
stock split (see Note 12, Reverse Stock Split, for further
details). Operating results for the quarter and nine months ended
September 30, 2011 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2011 or
any other period. These financial statements and notes should be
read in conjunction with the financial statements for the year
ended December 31, 2010 included in the Company’s Annual
Report on Form 10-K, as filed with the Securities and Exchange
Commission, or the SEC, on March 7, 2011. The accompanying balance
sheet as of December 31, 2010 has been derived from audited
financial statements prepared at that date, but does not include
all disclosures required by accounting principles generally
accepted in the United States of America, or GAAP.
Revenues
The
Company recognizes revenue when the following criteria have been
met: persuasive evidence of an arrangement exists, delivery has
occurred and risk of loss has passed, the seller’s price to
the buyer is fixed or determinable, and collection is reasonably
assured.
Revenues
associated with the sale of the ADVANCE devices to customers and
distributors are recognized upon shipment provided that the fee is
fixed or determinable, persuasive evidence of an arrangement
exists, collection of receivables is reasonably assured, product
returns are reasonably estimable, and no continuing obligations
exist. The revenues from the sale of an ADVANCE communication hub
together with access to NeuroMetrix information systems are
considered one unit of accounting and deferred and recognized on a
straight-line basis over the estimated period of time the Company
provides the service associated with the information systems of
three years. The resulting deferred revenue and deferred costs are
presented as separate line items on the accompanying balance sheet.
Revenues related to extended service agreements for the devices are
recognized ratably over the term of the extended service
agreement.
Revenues
associated with the sale of the NC-stat DPNCheck devices will be
recognized upon shipment provided that the fee is fixed or
determinable, persuasive evidence of an arrangement exists,
collection of receivables is reasonably assured, product returns
are reasonably estimable, and no continuing obligations
exist.
Revenues
also include sales of consumables, including single use nerve
specific electrodes, EMG needles, and other accessories. These
revenues are recognized upon shipment provided that the fee is
fixed or determinable, persuasive evidence of an arrangement
exists, collection of receivables is reasonably assured, and
product returns are reasonably estimable.
When multiple elements are contained in a single arrangement, the
Company allocates revenue between the elements based on
their relative selling prices. The
Company determines selling price using vendor specific objective
evidence, or VSOE, if it is available, third-party evidence, or
TPE, if VSOE is not available, and best estimate of selling price,
or BESP, if neither VSOE nor TPE are available. The Company
generally expects that it will not be able to establish TPE due to
the nature of the markets in which it competes, and, as such, it
will typically determine selling price using VSOE or if not
available, BESP. The objective of BESP is to determine the selling
price of a deliverable on a standalone basis. The
Company’s determination of BESP involves a weighting of
several factors based on the specific facts and circumstances of an
arrangement. Specifically, the Company considers the cost to
produce the deliverable, the anticipated margin on that
deliverable, the selling price and profit margin for similar parts,
the Company’s ongoing pricing strategy, the value of any
enhancements that have been built into the deliverable, and the
characteristics of the varying markets in which the deliverable is
sold.
The
Company extends to customers traditional payment terms which
generally require payment within 30 days from invoice date.
In
addition, from the fourth quarter of 2009 through July 2010, the
Company offered extended payment terms of up to one year for new
customers placing large dollar value orders for a combination of
medical equipment and consumables. Typically these sales involved
installment payments in 12 equal monthly amounts. Revenues were
recognized upon shipment provided the selling price was
fixed or determinable, persuasive evidence of an arrangement
existed, delivery had occurred and risk of loss had passed,
collection of the resulting receivables was reasonably assured, and
product returns were reasonably estimable. In developing parameters
for revenue recognition, the Company relied on its historical
experience for similar arrangements. As of September 30, 2011,
accounts receivable, net included $25,000, net of accounts under
extended payment terms.
Certain
product sales are made with a 30-day right of return. Because the
Company can reasonably estimate future returns, the Company
recognizes revenues associated with product sales that contain a
right of return upon shipment and at the same time reduces revenue
and accounts receivable by the amount of estimated
returns.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make significant estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during reporting periods. Actual results could differ from
those estimates.
Recent Accounting Pronouncements
In
September 2009, the Emerging Issues Task Force, or EITF, issued new
rules pertaining to the accounting for revenue arrangements with
multiple deliverables. The new rules provide an alternative method
for establishing fair value of a deliverable when vendor specific
objective evidence cannot be determined. The guidance provides for
the determination of the best estimate of selling price to separate
deliverables and allows the allocation of arrangement consideration
using this relative selling price model. The guidance supersedes
the prior multiple element revenue arrangement accounting rules
that are currently used by the Company. The new guidance was
adopted prospectively by the Company beginning January 1, 2011.
Adoption has not had a material effect on the Company’s
financial statements.
In
September 2009, the EITF issued new rules to exclude
(a) non-software components of tangible products and
(b) software components of tangible products that are sold,
licensed, or leased with tangible products when the software
components and non-software components of the tangible product
function together to deliver the tangible product’s essential
functionally. The new guidance was adopted prospectively by the
Company beginning January 1, 2011. Adoption has not had a material
effect on the Company’s financial statements.
In
January 2010, the Financial Accounting Standards Board issued
Accounting Standards Update No. 2010-06, “Fair Value
Measurements and Disclosures (Topic 820)—Improving
Disclosures about Fair Value Measurements”, or ASU
2010-06. ASU 2010-06 requires new disclosures regarding significant
transfers in and out of Levels 1 and 2, as well as information
about activity in Level 3 fair value measurements, including
presenting information about purchases, sales, issuances, and
settlements on a gross versus a net basis in the Level 3 activity
roll forward. In addition, ASU 2010-06 also clarifies existing
disclosures regarding input and valuation techniques, as well as
the level of disaggregation for each class of assets and
liabilities. ASU No. 2010-06 is effective for interim and
annual periods beginning after December 15, 2009, except for
the disclosures pertaining to purchases, sales, issuances, and
settlements in the rollforward of Level 3 activity, which were
effective for interim and annual periods beginning after
December 15, 2010. The new guidance was adopted prospectively
by the Company beginning January 1, 2011. Adoption has not had a
material effect on the Company’s financial
statements.
In
May 2011, the Financial Accounting Standards Board, or FASB, issued
Accounting Standards Update, or ASU, No. 2011-04, “Fair Value
Measurement (Topic 820)—Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs”, or ASU 2011-04. The amendments in ASU 2011-04
result in common fair value measurement and disclosure requirements
in GAAP and International Financial Reporting Standards, or IFRS.
Consequently, the amendments change the wording used to describe
many of the requirements in GAAP for measuring fair value and for
disclosing information about fair value measurements. The new
guidance is to be adopted prospectively, effective for interim and
annual periods beginning after December 15, 2011. The Company does
not believe adoption of ASU 2011-04 will have a material effect on
its financial statements.
In
June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income
(Topic 220) —Presentation of Comprehensive
Income.” ASU No. 2011-05 requires that all
nonowner changes in stockholders’ equity be presented either
in a single continuous statement of comprehensive income or in two
separate but consecutive statements, eliminating the option to
present other comprehensive income in the statement of changes in
equity. Under either choice, items that are reclassified from other
comprehensive income to net income are required to be presented on
the face of the financial statements where the components of net
income and the components of other comprehensive income are
presented. The new guidance is to be adopted retrospectively,
effective for interim and annual periods beginning after December
15, 2011. The Company does not believe adoption of ASU 2011-05 will
have a material effect on its financial statements.
|
Inventories | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
Inventories
consist of the following:
|
Intangible Assets | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Intangible Assets |
In January 2009, the
Company acquired certain technological and intellectual property
assets from Cyberkinetics Neurotechnology Systems, Inc., or
Cyberkinetics, and Andara Life Science, Inc., a wholly-owned
subsidiary of Cyberkinetics, for $350,000 in cash. The Company had
been amortizing these intangible assets using the straight-line
method over their economic lives, which was estimated to be
five years. Research and development expenses included
amortization of this technological and intellectual property of
$17,500 and $52,500 for the quarter and nine months ended September
30, 2010, respectively, and $17,500 for the nine months ended
September 30, 2011. Following its decision to terminate development
work related to this technology, the Company recorded within
research and development expense in the second quarter of 2011 an
impairment charge of $192,500 for the remaining unamortized balance
of these assets.
|
Accrued Expenses | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses |
Accrued
expenses consist of the following:
|
Comprehensive Loss | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | |||
Comprehensive Loss |
For
the quarters and nine months ended September 30, 2011 and 2010, the
Company had no components of other comprehensive income or loss
other than net loss.
|
Business Restructuring | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Restructuring |
In
December 2010 and January 2011, the Company restructured its
neurodiagnostic activities resulting in the elimination of twenty-
five employee positions. Restructuring charges totaled $2.2 million
related to severance costs and inventory. Approximately $2.0
million, consisting of $208,000 in severance and $1.8 million in
inventory charges, was recorded as of December 31, 2010 and the
balance of approximately $185,000 in severance was recorded in the
first quarter of 2011.
The
following table provides a rollforward of the liability balance for
these restructuring actions, substantially all of which were
recorded as sales and marketing expense in the Company’s
Statement of Operations. The balance as of September 30, 2011 will
be paid out by October 31, 2011.
|
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