Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the accompanying notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Quarterly Report on Form 10-Q titled “Cautionary Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Quarterly Report on Form 10-Q refer to NeuroMetrix, Inc.
Overview
NeuroMetrix is a commercial stage, innovation driven healthcare company combining bioelectrical and digital medicine to address chronic health conditions including chronic pain, sleep disorders, and diabetes. Our business is fully integrated with in-house capabilities spanning product development, manufacturing, regulatory affairs and compliance, sales and marketing, and customer support. We derive revenues from the sale of medical devices and after-market consumable products and accessories. Our products are sold in the United States and selected overseas markets, and are cleared by the U.S. Food and Drug Administration, or FDA, and regulators in foreign jurisdictions where appropriate. We have two principal product lines:
• Wearable neuro-stimulation therapeutic devices
• Point-of-care neuropathy diagnostic tests
Our core expertise in biomedical engineering has been refined over nearly two decades of designing, building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We created the market for point-of-care nerve testing and were first to market with sophisticated, wearable technology for management of chronic pain. We have 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 than 12 weeks, in contrast to acute pain, which is a normal bodily response to injury 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 such as disease or illness. There may also be no clear cause. Pain signals continue to be transmitted in the nervous system over extended periods of time often leading to other health problems. These can include fatigue, sleep disturbance, decreased appetite, and mood changes which cause difficulty in carrying out important activities and contributing to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective pain management.
Chronic pain is widespread. It affects over 100 million adults in the United States and more than 1.5 billion people worldwide. The global market for pain management drugs and devices alone was valued at $35 billion in 2012. The estimated incremental impact of chronic pain on health care costs in the United States is over $250 billion per year and lost productivity is estimated to exceed $300 billion per year. Estimated out-of-pocket spending in the United States on chronic pain is $20 billion 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 (such as 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 the over-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 $4 billion 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 studies demonstrating efficacy. In simplified outline, the mechanism of action involves intensive nerve stimulation to activate the body’s central pain inhibition system resulting in widespread analgesia, or pain relief. The nerve stimulation activates brainstem
pain centers leading to the release of endogenous opioids that act primarily through the delta opioid receptor to reduce pain signal transmission through the central nervous system. This therapeutic approach is available through deep brain stimulation and through implantable spinal 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, ineffective dosing and low patient compliance.
Quell is our OTC wearable device for pain relief. Quell revenues for fiscal years 2017 and 2016 were approximately
$12.4 million
and
$7.4 million
, respectively. Quell revenues for the
six
months ended
June 30, 2018
were approximately
$5.5 million
. In Q1 2018 we and GlaxoSmithKline (NYSE: GSK) entered a $26.5 million strategic collaboration to develop and market Quell technology with defined milestones. The parties also committed to co-fund development of Quell technology starting in 2019. Quell utilizes our patented 100% drug-free neuro-stimulation technology to provide relief from chronic pain, such as nerve pain due to diabetes, fibromyalgia, arthritic pain, and lower back and leg pain. This advanced wearable device is lightweight and can be worn during the day while active, and at night while sleeping. It has been cleared by the U.S. Food and Drug Administration (the “FDA”) for treatment of chronic intractable pain without a doctor’s prescription. Users of the device have the option of using their smartphones to control pain therapy and to track sleep, activity, gait and therapy parameters. Quell is distributed in North America via e-commerce, including the Company’s website (
www.quellrelief.com
) and Amazon, via direct response television including QVC, via retail merchandisers including Best Buy, CVS, and others and via health care professionals such as pain management physician practices and podiatry practices. Distribution is supported by television promotion to expand product awareness.
DPNCheck is our diagnostic test for peripheral neuropathies. DPNCheck revenues for fiscal years 2017 and 2016 were approximately
$3.1 million
, and
$2.5 million
, respectively. DPNCheck revenues for the
six
months ended
June 30, 2018
were approximately
$2.4 million
. Our U.S. sales efforts focus on Medicare Advantage providers who assume financial responsibility and the associated risks for the health care costs of their patients. We believe that DPNCheck presents an attractive clinical case with early detection of neuropathy allowing for earlier clinical intervention to help mitigate the effects of neuropathy on both patient quality of life and cost of care. Also, the diagnosis and documentation of neuropathy provided by DPNCheck helps clarify the patient health profile which, in turn, may have a direct, positive effect on the Medicare Advantage premium received by the provider. DPNCheck is marketed in Japan by our distribution partner Fukuda Denshi; in China by OMRON Medical (Beijing) Ltd.; and in Mexico by Scienta Farma.
Our products consist of a medical device used in conjunction with a consumable electrode or biosensor. Other accessories and consumables are also available to customers. Our commercial objective is to build an installed base of active customer accounts that regularly order aftermarket products to meet their needs. We successfully implemented this model when we started our business with the NC-stat system and applied it to subsequent product generations including ADVANCE. Our more recently developed products, Quell and DPNCheck, conform to this model.
Results of Operations
Comparison of Quarters Ended
June 30, 2018
and
2017
Revenues
The following table summarizes our revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Revenues
|
$
|
3,751.6
|
|
|
$
|
4,310.1
|
|
|
$
|
(558.5
|
)
|
|
(13.0
|
)%
|
Revenues include sales from Quell, DPNCheck and our legacy neurodiagnostic products. During the
second
quarter of
2018
total revenues decreased by approximately
$0.6 million
, or
13.0%
, from the
second
quarter of
2017
. Quell revenues of approximately
$2.1 million
, a decline of approximately
$1.0 million
or
31.9%
from the comparable
2017
period, reflected our decision to defer certain advertising spending, which was reduced by 37.1% from the comparable
2017
quarter. We intend to utilize this deferred spending to support the product launch of the next generation of Quell in the second half of 2018. DPNCheck revenues of approximately
$1.3 million
increased by approximately
$0.5 million
, or
57.9%
from the same period in
2017
. Our legacy products contributed approximately
$0.4 million
in revenue for the
second
quarter of
2018
, as compared to approximately
$0.5 million
in the
second
quarter of 2017.
Upon adoption of the new revenue recognition standard ASU 2014-9, we discontinued revenue deferral under the sell-through model and commenced recording revenue upon delivery to distributors, net of estimated returns. Generally, the new standard results in earlier recognition of revenues. Had the accounting principles of ASU 2014-9 been applied in the
second
quarter of
2017
revenues would have been
$0.5 million
greater than the
$4.3 million
previously reported.
Cost of Revenues and Gross Profit
The following table summarizes our cost of revenues and gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Cost of revenues
|
$
|
1,950.3
|
|
|
$
|
2,639.4
|
|
|
$
|
(689.1
|
)
|
|
(26.1
|
)%
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
1,801.3
|
|
|
$
|
1,670.7
|
|
|
$
|
130.6
|
|
|
7.8
|
%
|
Our cost of revenues decreased approximately
$0.7 million
, or
26.1%
to approximately
$2.0 million
in the
second
quarter of
2018
from approximately
$2.6 million
in the comparable period in
2017
. The gross profit rate increased to
48.0%
in the
second
quarter of
2018
from
38.8%
in the prior year. This reflected strengthening Quell margins due to favorable product mix as well as heavier weighting of higher margin DPNCheck revenue.
Operating Expenses
The following table summarizes our operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
1,616.9
|
|
|
$
|
877.6
|
|
|
$
|
739.3
|
|
|
84.2
|
%
|
Sales and marketing
|
2,200.9
|
|
|
2,919.3
|
|
|
(718.4
|
)
|
|
(24.6
|
)%
|
General and administrative
|
1,170.6
|
|
|
1,245.3
|
|
|
(74.7
|
)
|
|
(6.0
|
)%
|
Total operating expenses
|
$
|
4,988.4
|
|
|
$
|
5,042.2
|
|
|
$
|
(53.8
|
)
|
|
(1.1
|
)%
|
Research and Development
Research and development expenses for the quarters ended
June 30, 2018
and
2017
were approximately
$1.6 million
and
$0.9 million
, respectively. The increase of approximately
$0.7 million
encompasses a $0.5 million increase in development spending on the next generation of Quell as well as costs to support the GSK Collaboration.
Sales and Marketing
Sales and marketing expenses were approximately
$2.2 million
and
$2.9 million
for the quarters ended
June 30, 2018
and
2017
, respectively. The spending reflected a decrease of approximately $0.7 million, or 37.1%, in promotional spending.
General and Administrative
General and administrative expenses were flat at approximately
$1.2 million
for the quarters ended
June 30, 2018
and
2017
. The small decrease of less than
$0.1 million
reflected a decrease in professional services expenses.
Collaboration income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Collaboration income
|
$
|
3,750.0
|
|
|
$
|
—
|
|
|
$
|
3,750.0
|
|
|
100.0
|
%
|
In January 2018, we entered into a collaboration (the "Collaboration") with GlaxoSmithKline ("GSK") in which we sold to GSK rights to our Quell technology for markets outside of the United States, including certain patents and related assets, and agreed to complete development milestones for the next-generation Quell technology. We retained exclusive ownership of Quell technology in the U.S. market. GSK agreed to payments totaling up to $26.5 million, of which $5.0 million was paid at closing and the balance due upon achievement of defined development and commercialization milestones. In addition, the parties agreed to jointly fund future Quell technology development during an initial period starting in 2019. Upon attainment of a development milestone, the Company recorded Collaboration income of
$3.7 million
, net of costs, for the quarter ended
June 30, 2018
.
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
$
|
11.0
|
|
|
$
|
133.8
|
|
|
$
|
(122.8
|
)
|
|
(91.8
|
)%
|
Other income includes interest income and warrant liability fair value changes.
Net income (loss) per common share applicable to common stockholders, basic and diluted
The net income (loss) per common share applicable to common stockholders, basic and diluted, was
$0.08
and
$0.04
, respectively, for the quarter ended
June 30, 2018
and
$(2.49)
, both basic and diluted for the quarter ended
June 30, 2017
. Weighted average shares outstanding used in computing per share amounts are included in Note 3 to the Financial Statements.
Comparison of Six Months Ended
June 30, 2018
and
2017
Revenues
The following table summarizes our revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Revenues
|
$
|
8,694.6
|
|
|
$
|
8,616.2
|
|
|
$
|
78.4
|
|
|
0.9
|
%
|
Revenues include sales from Quell, DPNCheck and our legacy neurodiagnostic products. During the first
six
months of
2018
total revenues increased by approximately
$0.1 million
, or
0.9%
, from the first
six
months of
2017
. Quell revenues of approximately
$5.5 million
, a decline of approximately
$0.6 million
or
9.5%
from the comparable
2017
period, reflected our decision to defer certain advertising spending, which was reduced by 23.0% from the comparable
2017
quarter. We intend to utilize this deferred spending to support the product launch of the next generation of Quell in the second half of 2018. DPNCheck revenues of approximately
$2.4 million
increased approximately
$0.8 million
, or
50.5%
, over the same period in
2017
. Our legacy products contributed approximately $0.8 million in revenue for the first
six
months of
2018
, as compared to approximately
$0.9 million
in the same period in
2017
.
Upon adoption of the new revenue recognition standard ASU 2014-9, we discontinued revenue deferral under the sell-through model and commenced recording revenue upon delivery to distributors, net of estimated returns. Generally, the new standard results in earlier recognition of revenues. Had the accounting principles of ASU 2014-9 been applied in the first
six
months of
2017
revenues would have been
$0.5 million
greater than the
$8.6 million
previously reported.
Cost of Revenues and Gross Profit
The following table summarizes our cost of revenues and gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Cost of revenues
|
$
|
4,905.6
|
|
|
$
|
5,337.0
|
|
|
$
|
(431.4
|
)
|
|
(8.1
|
)%
|
|
|
|
|
|
|
|
|
Gross profit
|
$
|
3,789.0
|
|
|
$
|
3,279.2
|
|
|
$
|
509.8
|
|
|
15.5
|
%
|
Our cost of revenues of approximately
$4.9 million
decreased
$0.4 million
, or
8.1%
, from
$5.3 million
in the comparable period in
2017
. The gross profit rate increased to
43.6%
in the first
six
months of
2018
from
38.1%
in the first
six
months of
2017
. Gross profit rates improved for both Quell and DPNCheck.
.
Operating Expenses
The following table summarizes our operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
$
|
2,896.4
|
|
|
$
|
1,780.9
|
|
|
$
|
1,115.5
|
|
|
62.6
|
%
|
Sales and marketing
|
4,705.6
|
|
|
5,517.0
|
|
|
(811.4
|
)
|
|
(14.7
|
)%
|
General and administrative
|
2,974.8
|
|
|
2,667.1
|
|
|
307.7
|
|
|
11.5
|
%
|
Total operating expenses
|
$
|
10,576.8
|
|
|
$
|
9,965.0
|
|
|
$
|
611.8
|
|
|
6.1
|
%
|
Research and Development
Research and development expenses for the
six
months ended
June 30, 2018
and
2017
were approximately
$2.9 million
and
$1.8 million
, respectively. The increase of approximately
$1.1 million
encompasses an $0.8 million increase in Quell development spending and a $0.2 million increase in personnel costs.
Sales and Marketing
Sales and marketing expenses were approximately
$4.7 million
and
$5.5 million
for the
six
months ended
June 30, 2018
and
2017
, respectively, reflecting a decrease of approximately $0.8 million, or 23.0%, in promotional spending.
General and Administrative
General and administrative expenses were approximately
$3.0 million
and
$2.7 million
for the
six
months ended
June 30, 2018
and
2017
, respectively. The increase of approximately
$0.3 million
reflects additional spending of $0.2 million in professional services expense and $0.2 million in stock-based compensation.
Collaboration income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Collaboration income
|
$
|
8,505.7
|
|
|
$
|
—
|
|
|
$
|
8,505.7
|
|
|
100.0
|
%
|
In January 2018, we entered the Collaboration with GSK in which we sold to GSK rights to our Quell technology for markets outside of the United States, including certain patents and related assets, and agreed to complete development milestones for the next-generation Quell technology. We retained exclusive ownership of Quell technology in the U.S. market. GSK agreed to payments totaling up to $26.5 million of which $5.0 million was paid at closing and the balance due upon achievement of defined development and commercialization milestones. In addition, the parties agreed to jointly fund future Quell technology development during an initial period starting in 2019. Upon sale of rights to our Quell technology for markets outside of the United States and attainment of a development milestone, the Company recorded Collaboration income of
$8.5 million
, net of costs, for the
six
months ended
June 30, 2018
.
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
2017
|
|
Change
|
|
% Change
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
$
|
22.3
|
|
|
$
|
215.6
|
|
|
$
|
(193.3
|
)
|
|
(89.7
|
)%
|
Other income includes interest income and warrant liability fair value changes. The change in fair value of warrant liability was
zero
and
$0.2 million
for the
six
months ended
June 30, 2018
and 2017, respectively.
Net income (loss) per common share applicable to common stockholders, basic and diluted
The net income (loss) per common share applicable to common stockholders, basic and diluted, was
$0.25
and
$0.13
, respectively, for the
six
months ended
June 30, 2018
and
$(9.12)
, both basic and diluted for the
six
months ended
June 30, 2017
. Weighted average shares outstanding used in computing per share amounts are included in Note 3 to the Financial Statements. In the
six
months ended
June 30, 2017
, per share amounts reflected a deemed dividend attributable to preferred stockholders of
$4.0 million
, or
$(3.51)
per share, related to our Q1 2017 equity offering; plus our net loss of
$6.5 million
, or
$(5.61)
per share.
Liquidity and Capital Resources
Our principal source of liquidity is our cash resources which, as of
June 30, 2018
, totaled
$7.1 million
. Funding for our operations largely depends on the success of our commercial products for chronic pain and neuropathy, and on milestone achievement under the GSK Collaboration. A low level of market interest in Quell or DPNCheck, a decline in our consumables sales, unanticipated increases in our operating costs, or unanticipated setbacks toward the achievement of the GSK milestones would have an adverse effect on our liquidity and cash. The following table sets forth information relating to our cash resources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Change
|
|
% Change
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7,108.9
|
|
|
$
|
4,043.7
|
|
|
$
|
3,065.2
|
|
|
75.8
|
%
|
The Company is party to a Loan and Security Agreement with a bank. As of
June 30, 2018
this credit facility permitted the Company to borrow up to
$2.5 million
on a revolving basis. Amounts borrowed under the credit facility will bear interest equal to the prime rate plus 0.5% and will be collateralized by our cash, accounts receivable, inventory, and equipment. The credit facility also includes traditional lending and reporting covenants. As of
June 30, 2018
, we were in compliance with these covenants.
During the
six months ended
June 30, 2018
, cash and cash equivalents increased by
$3.1 million
reflecting proceeds the GSK Collaboration funding offset by net cash usage from business operations.
In managing working capital, we focus on two important financial measurements as presented below:
|
|
|
|
|
|
|
|
Quarters Ended June 30,
|
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2017
|
|
|
|
|
|
|
Days sales outstanding (days)
|
32
|
|
32
|
|
37
|
Inventory turnover rate (times per year)
|
3.6
|
|
7.8
|
|
6.5
|
Days sales outstanding reflect customer payment terms which vary from payment on order to 60 days from invoice date. The lower inventory turnover rate in the quarter ended June 30, 2018 reflects the combined effects of reduced Quell shipments and inventory build in anticipation of the new Quell product launch.
The following sets forth information relating to sources and uses of our cash:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
(in thousands)
|
Net cash used in operating activities (excluding collaboration income)
|
$
|
(5,309.6
|
)
|
|
$
|
(6,611.7
|
)
|
Net cash provided by collaboration income
|
8,505.7
|
|
|
—
|
|
Net cash provided by (used in) operating activities
|
$
|
3,196.1
|
|
|
$
|
(6,611.7
|
)
|
Net cash used in investing activities
|
$
|
(130.8
|
)
|
|
$
|
(37.9
|
)
|
Net cash provided by financing activities
|
$
|
—
|
|
|
$
|
6,312.4
|
|
Our operating activities, excluding collaboration income, consumed
$5.3 million
of cash for the
six
months ended
June 30, 2018
, which reflected our operating net loss of
$6.8 million
. The operating loss includes non-cash stock compensation expense of approximately
$0.4 million
. In addition, operating activities included decreases in accounts receivable of
$1.3 million
and in prepaid expenses and other current and long-term assets of
$0.6 million
, partially offset by decreases in accrued product returns of
$0.6 million
.
We held cash and cash equivalents of
$7.1 million
as of
June 30, 2018
. We believe that these resources, together with the cash to be generated from expected product sales and the potential achievement of development milestones under the Collaboration will be sufficient to meet our projected operating requirements into
2019
. We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to (a) decreases in sales of our products; (b) delays in achieving Quell development milestones and related payments from GSK; (c) changes we may make to the business that affect ongoing operating expenses; (d) changes we may make in our business strategy; (e) regulatory developments or inquiries affecting our existing products and products under development; (f) changes we may make in our research and development spending plans; and (g) other items affecting our forecasted level of expenditures and use of cash resources. Accordingly, we may need to raise additional funds to support our operating and capital needs in
2019
and beyond. These factors raise substantial doubt about our ability to continue as a going concern for the one year period from the date of issuance of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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. However, we may not be able to secure such financing in a timely manner or on favorable terms, if at all. We filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the "SEC") covering shares of our common stock and other securities for sale, giving us the opportunity to raise funding when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. However, pursuant to applicable SEC rules, our ability to sell shares under the shelf registration statement, during any 12-month period, is limited to an amount less than or equal to one-third of the aggregate market value of our common stock held by non-affiliates. If we raise additional funds by issuing equity or debt securities, either through the sale of securities pursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. 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 and potentially 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.
Off-Balance Sheet Arrangements, Contractual Obligation and Contingent Liabilities and Commitments
As of
June 30, 2018
, we did not have any off-balance sheet financing arrangements.
See Note 6, Commitments and Contingencies, of our Notes to Unaudited Financial Statements for information regarding commitments and contingencies.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-2,
Leases (Topic 842)
(“ASU 2016-2”). ASU 2016-2 requires that lessees recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and lease liability. The provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim periods therein. The Company is in the process of evaluating the new standard and assessing the impact, ASU 2016-2 will have on the Company’s financial statements and which adoption method will be used.
Cautionary Note Regarding Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, without limitation, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future revenues and projected expenses; our expectations regarding achievement of milestones under the GSK Collaboration; our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our ability to manage our expenses effectively; our belief that there are unmet needs for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding Quell and DPNCheck; our expected timing and our plans to develop and commercialize our products; our ability to meet our proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of our existing products and any future products we may develop; regulatory and legislative developments in the United States and foreign countries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for our products; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; our estimate of our customer returns of our products; the rate and degree of market acceptance of any future products; our reliance on key scientific management or personnel; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.