Neurometrix (NURO) Risk Factors

In the ordinary course of our business, we collect and store sensitive data in our data centers, on our networks, including intellectual property, our proprietary business information, and that of our customers, suppliers and business partners, and personally identifiable information of our employees. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Similar risks exist with respect to our business partners and third-party providers, including suppliers, software and cloud-based service providers, that we rely upon for aspects of our information technology support services and certain administrative functions. Any such incident or breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, prospects, reputation, results of operations, or financial condition. Such risks include, but are not limited to: - We have incurred significant operating losses since inception and cannot assure you that we will achieve profitability. - Our future capital needs are uncertain. Our operations could be curtailed if we are unable to obtain the required additional funding when needed. The terms of any financings may not be advantageous to us. - We hold an investment portfolio of securities that could experience losses. - We are focused on growing sales of Quell, our wearable device for chronic pain, and DPNCheck, our test for peripheral neuropathy. We cannot assure you that we will be successful with these products or future product candidates or product enhancements in our development pipeline. - Our current and future revenue is dependent upon commercial acceptance of our products in the marketplace. If our products are not accepted by prescribers and customers, our operations will be materially and adversely affected. - If health care providers are unable to obtain sufficient reimbursement or other financial incentives from third-party health care payers related to the use of our products, other than Quell, their adoption and our future product sales will be materially adversely affected. - The clinical study process is lengthy and expensive with uncertain outcomes. Results of earlier studies may not be predictive of future clinical study results, or the safety profile for such products or products under development. - We rely on third parties to conduct clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product candidates. - We depend on several single source manufacturers to produce components of our products. Any material adverse changes in our relationships with these manufacturers, or material supply chain delays, could prevent us from delivering products to our customers in a timely manner and may adversely impact our future revenues or costs. - The success of our business depends upon our ability to advance our pipeline products to commercialization. - Our ability to achieve profitability depends in part on maintaining or increasing our gross margins on product sales which we may not be able to achieve. - If we are unable to recruit, hire and retain skilled and experienced personnel, our ability to manage and expand our business will be harmed, which would impair our future revenues and profitability. - Failure to develop or enter into relationships to sell products other than our existing products or enhance our existing products could have an adverse effect on our business prospects. - If we are unable to develop new products or enhance existing products, we may be unable to attract or retain customers. - We currently compete, and may in the future need to compete, against other medical device and consumer companies with greater resources, more established distribution channels and other competitive advantages, and the success of these competitors may harm our ability to generate revenues. - Cybersecurity incidents, security breaches and other disruptions could compromise our information, hinder our ability to perform essential activities and expose us to financial claims and liabilities, which could cause our business and reputation to suffer. - If future clinical studies or other articles are published, or physician associations or other organizations announce positions that are unfavorable to our products, our sales efforts and revenues may be negatively affected. - If we expand in foreign markets, we will be affected by new business risks that may adversely impact our financial condition or results of operations. - We are subject to extensive regulation by the FDA and other federal and state regulators which could restrict the sales and marketing of Quell, DPNCheck and ADVANCE, as well as other products for which we may seek FDA clearance or approval, and could cause us to incur significant costs. - If we or our manufacturers fail to comply with the FDA's quality system regulation, the manufacturing and distribution of our products could be interrupted, and our product sales and operating results could suffer. - We are subject to Federal Trade Commission regulatory oversight. Exercise of this regulatory oversight could lead to an outcome which would constrain our marketing of Quell, cause us to incur significant costs and penalties, and adversely affect our financial results. - Our products may be subject to recalls, even after receiving FDA clearance or approval, which would harm our reputation, business and financial results. - We are subject to federal and state laws prohibiting "kickbacks" and false or fraudulent claims, which, if violated, could subject us to substantial penalties. Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business. - If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities, damage our reputation and harm our business. - The use of our products could result in product liability claims that could be expensive, damage our reputation and harm our business. - Our products are complex in design, and defects may not be discovered prior to shipment to customers, which could result in warranty obligations or product liability or other claims, reducing our revenues and increasing our costs and liabilities. - The patent rights we rely upon to protect the intellectual property underlying our products may not be adequate, which could enable third parties to use our technology and would harm our ability to compete in the market. - Other rights and measures we have taken to protect our intellectual property may not be adequate, which would harm our ability to compete in the market. - Claims that our products infringe on the proprietary rights of others could adversely affect our ability to sell our products and increase our costs. - Future sales of securities may cause our stock price to decline as a result of the dilution which will occur to existing stockholders. - The trading price of our common stock has been volatile and is likely to be volatile in the future. - We have, in the past, failed to satisfy certain continued listing requirements on The Nasdaq Stock Market LLC (Nasdaq) and could fail to satisfy those requirements again in the future which could affect the market price of our common stock and liquidity and reduce our ability to raise capital.

Our business exposes us to an inherent risk of potential product liability claims related to the manufacturing, marketing and sale of medical devices. The medical device industry historically has been litigious, and we face financial exposure to product liability claims if the use of our products were to cause or contribute to injury or death. Our products may be susceptible to claims of injury because their use involves the electric stimulation of a patient's nerves. Although we maintain product liability insurance for our products and other commercial insurance, the coverage limits of these policies may not be adequate to cover future claims. We may be unable to maintain sufficient product liability or other commercial insurance on acceptable terms or at reasonable costs, and this insurance may not provide us with adequate coverage against potential liabilities. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial condition and results of operations. A product liability claim, regardless of its merit or eventual outcome, could result in substantial costs to us, a substantial diversion of management attention and adverse publicity. A product liability claim could also harm our reputation and result in a decline in revenues and an increase in expenses.

Widespread adoption of our diagnostic products by the medical community is unlikely to occur without a financial incentive from third-party payers for the use of these products. If health care providers are unable to obtain adequate reimbursement for procedures performed using these products, and if managed care organizations do not receive improved capitated payments due to more accurate patient risk assessment using our products, we may be unable to sell our products at levels that are sufficient to allow us to achieve and maintain profitability, and our business would suffer significantly. Additionally, even if these products and procedures are adequately reimbursed by third-party payers today, adverse changes in payers future policies toward payment would harm our ability to market and sell our products. Third-party payers include governmental programs such as Medicare and Medicaid, private health insurers, workers' compensation programs and other organizations. Future regulatory action by CMS or other governmental agencies or negative clinical results may diminish reimbursement payments to physicians for performing procedures using our products. Medicaid reimbursement differs from state to state, and some state Medicaid programs may not cover the procedures performed with our products or pay physicians an adequate amount for performing those procedures, if at all. Additionally, some private payers do not follow the Medicare guidelines and may reimburse for only a portion of these procedures or not at all. We are unable to predict what changes will be made in the reimbursement methods used by private or governmental third-party payers.

There are a number of federal and state laws protecting the confidentiality of individually identifiable patient health information, including patient records, and restricting the use and disclosure of that protected information. In particular, the U.S. Department of Health and Human Services promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996. These privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. Any failure or perceived failure by us or any third-party distributors, pharmacies, service providers, contractors or consultants to comply with privacy, confidentiality, data security or similar obligations, or any data security incidents or other security breaches that result in the accidental, unlawful or unauthorized access to, use of, release of, or transfer of sensitive information, may result in negative publicity, harm to our reputation, governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause third parties to lose trust in us or could result in claims by third parties, including class action lawsuits, any of which could have a material adverse effect on our reputation, business, financial condition or results of operations.

We currently do, and in the future may need to, compete directly and indirectly with a number of other companies that may have competitive advantages over us. Our diagnostic devices for nerve testing compete with companies that sell traditional nerve conduction study and electromyography equipment including Cadwell Laboratories, Inc. and Natus Medical Incorporated. These companies enjoy significant competitive advantages, including: - greater resources for product development, sales and marketing;- more established distribution networks;- greater name recognition;- more established relationships with health care professionals, customers and third-party payers; and - additional lines of products and the ability to offer rebates or bundle products to offer discounts or incentives. As we develop the market for wearable technology for chronic pain, we will be faced with competition from other companies that decide and are able to enter the market as well as competition from other forms of treatment for chronic pain. Some or all of our future competitors in the diagnostic nerve testing market and the chronic pain market may enjoy competitive advantages such as those described above. If we are unable to compete effectively against existing and future competitors, our sales will decline and our business will be harmed.

We will continue to incur operating losses until such time as sales of Quell, DPNCheck and other products or product candidates reach a mature level and we are able to generate sufficient revenue from their sale to meet our operating expenses. There can be no assurance that customers will adopt our technology and products, or that prospective customers will agree to pay for our products. In the event that we are not able to significantly increase the number of customers that purchase our products, or if we are unable to charge the necessary prices, our financial condition and results of operations will be materially and adversely affected.

Our future business and financial success will depend, in part, on our ability to effectively market our products, including Quell and DPNCheck, and to enhance these products in response to customer demand and feedback. Developing new products and upgrades to existing and future products imposes burdens on our research and development department and our management. This process is costly, and we cannot assure you that we will be able to successfully develop new products or enhance our current products. We also may not be able to enter into relationships with other companies to sell additional products. In addition, as we develop the market for our products, future competitors may develop desirable product features earlier than we do which could make our competitors' products less expensive or more effective than our products and could render our products obsolete or unmarketable. If our product development efforts are unsuccessful, we will have incurred significant costs without recognizing the expected benefits and our business prospects may suffer.

Foreign markets represented approximately 20% and 14% of our revenues in 2023 and 2022, respectively. We are evaluating future expansion, particularly in Asia. Any such expansion will subject us to the possibility of new business risks, including: - failure to fulfill foreign regulatory requirements, if applicable, to market our products;- availability of, and changes in, reimbursement within prevailing foreign health care payment systems;- adapting to the differing business practices and laws in foreign countries;- difficulties in managing foreign relationships and operations, including any relationships that we establish with foreign distributors or sales or marketing agents;- limited protection for intellectual property rights in some countries;- difficulty in collecting accounts receivable and longer collection periods;- costs of enforcing contractual obligations in foreign jurisdictions;- recessions in economies outside of the United States;- political instability and unexpected changes in diplomatic and trade relationships;- currency exchange rate fluctuations; and - potentially adverse tax consequences. If we are successful in introducing our products into foreign markets, we will be affected by these additional business risks, which may adversely impact our financial condition or results of operations. In addition, expansion into foreign markets imposes additional burdens on our executive and administrative personnel, research and sales departments, and general managerial resources. Any efforts to introduce our products into foreign markets may not be successful, in which case we may have expended significant resources without realizing the expected benefit.