NeuroMetrix, Inc. Reports Total Revenues of $15.3 Million for the Third Quarter of 2006, 68% Growth over Third Quarter of 2005; GAAP Net Income of $2.4 Million, Non-GAAP Adjusted Net Income of $3.0 Million WALTHAM, Mass.

Reports Total Revenues of $15.3 Million for the Third Quarter of 2006, 68%

Growth over Third Quarter of 2005; GAAP Net Income of $2.4 Million,

Non-GAAP Adjusted Net Income of $3.0 Million

Mass. (BUSINESS WIRE) October 26, 2006 NeuroMetrix, Inc. (Nasdaq: NURO), a

medical device company focused on the design, development and sale of

proprietary products used to help physicians diagnose neuropathies, or diseases

of the nerves, announced today the financial results for the three and nine

month periods ended September 30, 2006.

revenues for the three months ended September 30, 2006, the Company s third

quarter, were $15.3 million, compared with $9.1 million for the third quarter

of 2005, representing an increase of 68%.

During the three month periods ended September 30, 2006 and 2005, 86%

and 88% of revenues, respectively, were derived from biosensor sales and 14%

and 12% of revenues, respectively, were derived from diagnostic device sales.

revenues for the nine months ended September 30, 2006, were $41.1 million,

compared with $24.0 million for the nine months ended September 30, 2005,

representing an increase of 71%. During

the nine month periods ended September 30, 2006 and 2005, 86% and 88% of

revenues, respectively, were derived from biosensor sales and 14% and 12% of

revenues, respectively, were derived from diagnostic device sales.

margin percentage for the third quarter of 2006 was 75.5% of revenues compared

with 74.6% of revenues for the third quarter of 2005. In the third quarter of 2006, the gross

margin percentage for biosensors was 74.0% of revenues compared with 74.5% of

revenues in the third quarter of 2005. The

gross margin percentage for diagnostic devices was 84.6% of revenues for the

third quarter of 2006, compared with 75.2% of revenues for the third quarter of

margin percentage for the nine months ended September 30, 2006 was 75.7% of

revenues compared with 74.0% of revenues for the nine months ended September

30, 2005. The gross margin percentage

for biosensors was 74.6% for the nine months ended September 30, 2006 compared

with 74.1% for the same period in 2005.

The gross margin percentage for diagnostic devices was 82.4% for the

nine months ended September 30, 2006, compared with 73.8% for the same period

income calculated in accordance with U.S. generally accepted accounting

principles ( GAAP ) for the third quarter of 2006 was $2,413,600, compared with

$769,300 for the third quarter of 2005, including stock-based compensation

expense of $635,200 and $111,600 for the third quarter of 2006 and 2005,

respectively. The large increase in

stock-based compensation expense was due to the adoption of Statement of Financial

Accounting Standards No. 123R ( SFAS 123R ) in 2006. Excluding stock-based compensation expense,

non-GAAP adjusted net income for the third quarter of 2006 was $3,048,900,

compared with $880,900 for the third quarter of 2005.

income calculated in accordance with GAAP for the nine months ended September

30, 2006 was $4,091,700, compared with $132,800 for the same period in 2005,

including stock-based compensation expense of $1,999,200 and $259,500 for the

nine months ended September 30, 2006 and 2005, respectively. Excluding stock-based compensation expense,

non-GAAP adjusted net income for the nine months ended September 30, 2006 was

$6,090,900, compared with $392,300 for the same period in 2005.

diluted net income per share was $0.19 and $0.18, respectively, for the three

months ended September 30, 2006, compared with $0.06 for the three months ended

September 30, 2005. The basic and

diluted net income per share for the three months ended September 30, 2006 and

2005 included stock-based compensation expense of $635,200 and $111,600,

respectively. Excluding stock-based

compensation expense, non-GAAP adjusted diluted net income per share was $0.23

for the three months ended September 30, 2006, compared with $0.07 for the same

diluted net income per share was $0.33 and $0.31, respectively, for the nine

months ended September 30, 2006, compared with $.01 for the nine months ended

September 30, 2005. The basic and

diluted net income per share for the nine months ended September 30, 2006 and

2005 included stock-based compensation expense of $1,999,200 and $259,500,

respectively. Excluding stock-based

compensation expense, non-GAAP adjusted diluted net income per share was $0.46

for the nine months ended September 30, 2006, compared with $0.03 for the same

The following table contains a reconciliation of

non-GAAP net income, adjusted to exclude stock-based compensation expense, to

GAAP net income and non-GAAP diluted net income per share, adjusted to exclude

stock-based compensation expense, to GAAP diluted net income per share, during

the three and nine month periods ended September 30, 2006 and 2005.

cash equivalents and short-term investments totaled $38.1 million as of

September 30, 2006, compared with $32.3 million as of December 31, 2005.

Gozani, M.D., Ph.D., NeuroMetrix's President & CEO commented, "During

the third quarter of 2006, we posted top line growth of 68% on a year over year

basis due to continued strong demand from our existing customers and due to

expansion of our customer base using the NC-stat neuropathy diagnostic

solution. We continued to see strong

penetration into the primary care and internal medicine market, which now

represents 76% of total biosensor usage.

We experienced an increase of 92% in biosensor usage on a year-over-year

basis by primary care and internal medicine physicians in the third quarter of

2006. We expanded our overall active

customer count to a total of 4,518 physician practices and clinics as of the

end of the third quarter of 2006, compared with 2,969 at the end of the third

quarter of 2005. A total of 302,200

biosensors were used by our customers during the third quarter of 2006, an

increase of 61% over the 187,900 biosensors used by our customers in the third

continued: We were also able to further

demonstrate leverage of our sales and marketing and other areas of the company

in the third quarter of 2006 by expanding our operating margins and improving

our bottom line results. Our net income

improved to nearly 16% of revenue during the third quarter. We generated positive cash flows from

operations of $3.3 million during the quarter.

We are very pleased with these results."

further commented, During the third quarter of 2006 we received an additional

510(k) clearance from the FDA with even broader intended use language and had

an important peer-reviewed article published in Diabetes Care demonstrating the

equivalence of the NC-stat to nerve conduction testing by an academic neurology

laboratory in patients with diabetes.