UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ___________

 

Commission file number: 001-36445

 

NanoVibronix, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   01-0801232
(State or other jurisdiction of incorporation
or organization)
  (I.R.S. Employer Identification Number)
     
525 Executive Blvd.    
Elmsford, New York   10523
(Address of principal executive office)   (Zip Code)

 

Registrant’s telephone number, including area code: (914) 233-3004

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant has been required to submit and post such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer    (Do not check if a smaller reporting company) Smaller reporting company

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s common stock, par value $0. 001 per share, as of August 14, 2018 was 3,957,953 shares.

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION  (unaudited)  
     
Item 1. Financial Statements 3
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
     
Item 4. Controls and Procedures 18
     
PART II. OTHER INFORMATION    
     
Item 1. Legal Proceedings 19
     
Item 1A. Risk Factors 19
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
     
Item 3. Defaults Upon Senior Securities 19
     
Item 4. Mine Safety Disclosures 19
     
Item 5. Other Information 19
     
Item 6. Exhibits 19
     
Signatures   20
     
Exhibits   21

 

-2-

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS (Unaudited)
U.S. dollars in thousands

 

   June 30,
2018
   December 31
2017
 
   Unaudited     
ASSETS          
           
CURRENT ASSETS:          
Cash  $2,515   $4,360 
Trade receivables   70    24 
Inventories   78    76 
Prepaid expenses and other accounts receivable   159    56 
           
Total current assets   2,822    4,516 
           
NON-CURRENT ASSETS:          
Long-term prepaid expense   4    5 
Severance pay fund   339    338 
Property and equipment, net   8    6 
           
Total non- current assets   351    349 
           
Total assets  $3,173   $4,865 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES:          
Trade payables  $76   $168 
Other accounts payable   435    629 
           
Total current liabilities   511    797 
           
LONG-TERM LIABILITIES:          
           
Accrued severance pay   442    434 
           
Total long-term liabilities   442    434 
           
 COMMITMENTS AND CONTINGENT LIABILITIES          
           
STOCKHOLDERS’ EQUITY:          
Stock capital -          
Common stock of $ 0.001 par value -
Authorized: 20,000,000 shares at June 30, 2018 and December 31, 2017; Issued and outstanding: 3,957,953 at June 30, 2018 and 3,935,865 at December 31, 2017, respectively.
   4    4 
Series C Preferred stock of $ 0.001 par value -          
Authorized: 5,000,000 shares at June 30, 2018 and December 31, 2017; Issued and outstanding: 2,483,142 shares at June 30, 2018 and December 31, 2017, respectively   2    2 
Series D Preferred stock of $ 0.001 par value - Authorized: 506 shares at June 30, 2018 and December 31, 2017, respectively; Issued and outstanding: 304 shares at June 30, 2018 and December 31, 2017   *)    *) 
Additional paid-in capital   32,209    32,010 
Accumulated deficit   (29,995)   (28,382)
           
Total stockholders’ equity   2,220    3,634 
           
Total liabilities and stockholders’ equity  $3,173   $4,865 

 

*) Represents an amount lower than $ 1.

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

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NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
U.S. dollars in thousands (except share and per share data)

 

   Six months ended
June 30,
   Three months ended
June 30,
 
   2018   2017   2018   2017 
                 
Revenues  $209   $104   $132   $52 
                     
Cost of goods sold   77    34    55    18 
                     
Gross profit   132    70    77    34 
                     
Operating expenses:                    
                     
Research and development   286    314    151    164 
                     
Selling and marketing   526    200    297    106 
                     
General and administrative   934    1,017    454    424 
                     
Total operating expenses   1,746    1,531    902    694 
                     
Operating loss   (1,614)   (1,461)   (825)   (660)
                     
Financial income (expense), net   23    (242)   11    (178)
                     
Loss before taxes on income   (1,591)   (1,703)   (814)   (838)
                     
Taxes on income   22    22    10    11 
                     
Net Loss  $(1,613)  $(1,725)  $(824)  $(849)
                     
Deemed dividend related to extension of February 2015 warrants to Common stock in January 2018      841         
Total comprehensive loss attributable to holders of Common Stock  $(1,613)  $(2,566)  $(824)  $(849)
                     
Common stock and Preferred C stock basic and diluted loss per share  $(0.25)  $(0.56)  $(0.13)  $(0.18)
                     
Weighted average number of shares of Common stock and Preferred C stock used in computing basic and diluted loss per share   6,424,132    4,583,971    6,429,201    4,594,165 

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

-4-

 

 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY (Unaudited)
U.S. dollars in thousands (except share data)

 

   Preferred C stocks   Preferred D stocks   Common stocks   Additional
paid-in
   Accumulated  

Total

stockholders’

 
   Number   Amount   Number   Amount   Number   Amount   capital   deficit   equity 
                                     
Balance as of January 1, 2018   2,483,142   $2    304   $0    3,935,865   $4   $32,010   $(28,382)  $3,634 
                                              
Stock-based compensation granted to employees                           168        168 
Exercise of Warrants                       22,088         31         31 
Net loss                               (1,613)   (1,613)
                                              
Balance as of June 30, 2018   2,483,142   $2    304   $0    3,957,953   $4   $32,209   $(29,995)  $2,220 

 

 The accompanying notes are an integral part of the interim consolidated financial statements

 

-5-

 

 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands

 

   Six months ended
June 30,
 
   2018   2017 
Cash flows from operating activities:          
           
Net loss  $(1,613)  $(1,725)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   3    5 
Stock-based compensation   168    536 
Benefit component of Promissory Notes   -    320 
Revaluation of warrants to purchase Common stock   -   (131)
Decrease (increase) in trade receivables   (46)   3 
Increase in prepaid expenses and other accounts receivable   (104)   (110)
Decrease (increase) in inventories   (2)   (15)
Increase (decrease) in trade payables   (92)   141
Increase in other accounts payable   (194)   48 
Increase in accrued severance pay, net   8    9 
           
Net cash used in operating activities   (1,871)   (919)
           
Cash flows from investing activities:          
Purchase of property and equipment   (5)   (2)
           
Net cash used in investing activities   (5)   (2)
           
Cash flows from financing activities:          
Proceeds from issuance of Convertible Promissory Notes and warrants   -    1,030 
Proceeds from exercise of warrants   31    - 
           
Net cash provided by financing activities   31    1,030 
           
Increase (decrease) in cash and cash equivalents   (1,845)   109 
Cash and cash equivalents at the beginning of the period   4,360    106 
           
Cash and cash equivalents at the end of the period  $2,515   $215 
           
Supplemental information and disclosure of non-cash financing transactions:          
           
Carve out of warrants’ fair value from Convertible Promissory Notes  $-   $637 

 

The accompanying notes are an integral part of the interim consolidated financial statements.

 

-6-

 

 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

  NOTE 1:- ORGANIZATION AND BASIS OF PRESENTATION

 

   

Organization

 

NanoVibronix, Inc. (“the Company”), a U.S. (Delaware) corporation, commenced operations on October 20, 2003 and is a medical device company focusing on noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home, without the assistance of medical professionals.

     
   

The Company’s principal research and development activities are conducted in Israel through its wholly-owned subsidiary, NanoVibronix (Israel 2003) Ltd., a company registered in Israel, which commenced operations in October 2003.

 

Basis of Presentation and Principles of Consolidation

 

The Company’s unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principals and with instructions to Form 10-Q and Regulation S-X. The unaudited consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date. 

 

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to NanoVibronix, Inc. and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

 

Unaudited Interim Financial information

 

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position and results of operations of the Company. These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2017, as found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2018.

 

The balance sheet for December 31, 2017 was derived from the Company’s audited financial statements for the year ended December 31, 2017. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of results that could be expected for the entire fiscal year. 

 

 

NOTE 2:- LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENT PLANS

 

   

The Company’s ability to continue to operate is dependent mainly on its ability to successfully market and sell its products and the receipt of additional financing until profitability is achieved. The Company currently and historically incurs losses from operations and expects to do so in the future. As a result, the Company may not have sufficient resources to fund its operations for the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. During the next twelve months management expects that the Company will need to raise additional capital to finance its losses and negative cash flows from operations and may continue to be dependent on additional capital raising as long as its products do not reach commercial profitability. Management’s plans include the continued commercialization of the Company’s products and raising capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no assurances, however, that the Company will be successful in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital, it will need to reduce activities, curtail or cease operations. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue as a going concern.

 

  NOTE 3:- SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2017 are applied consistently in these financial statements.

 

-7-

 

 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

  NOTE 4:-

RECENTLY ADPOTED AND ISSUED ACCOUNTING STANDARD

 

Recently adopted accounting standards:

 

    In May 2014, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASC 606), to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company has early adopted the new revenue standard as of January 1, 2018, using a modified retrospective adoption transition to each prior reporting period presented. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year consolidated financial statements was required. 
     
   

Revenue Recognition

Generally the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five step process outlined in ASC606:

 

Step 1 – Identify the Contract with the Customer – A contract exists when (a) the parties to the contract have approved the contract and are committed to perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has commercial substance and (e) it is probably that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

 

Step 2 – Identify Performance Obligations in the Contract – Upon execution of a contract, the Company identifies as performance obligations each promise to transfer to the customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.

 

Step 3 – Determine the Transaction Price – When (or as) a performance obligation is satisfied, the Company shall recognize as revenue the amount of the transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price. Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine the amount of variable consideration that should be included in the transaction price based on expected value method. Variable consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract would not occur.

 

Step 4 – Allocate the Transaction Price – After the transaction price has been determined, the next step is to allocate the transaction price to each performance obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations based on the relative standalone selling price (SSP) at contract inception.

 

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NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

    Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue) – When an asset is transferred and the customer obtains control of the asset (or the services are rendered), the Company recognizes revenue. At contract inception, the Company determines if each performance obligation is satisfied at a point in time or over time. For device sales, revenue is recognized at a point in time when the goods are transferred to the customer and they obtain control of the asset. For maintenance contracts, revenue is recognized over time as the performance obligations in the contracts are completed.
     
   

Product sales

The Company sells its products through distributors and directly to patients. Under ASC 606, revenue from product sales is recognized at the point in time when the delivery is made and when title and risk of loss transfers to these customers.  Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration for customer rights of return using an expected value method. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Product sales are recorded net of estimated product returns and other deductions.

 

   

In May 2017 the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 is effective for financial statements issued for annual reporting periods beginning after December 15, 2017 and interim periods within those years. Earlier application was permitted. The adoption of the new requirements of ASU No. 2017-09 did not have a material impact on the Company’s consolidated financial position or results of operations

 

Recently issued accounting standards

 

    In February 2016, the FASB issued ASU 201602, Leases (Topic 842). ASU 201602 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 201602 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. We are currently evaluating the impact of our pending adoption of ASU 201602 on our consolidated financial statements.

 

  NOTE 5:- STOCKHOLDERS’ EQUITY (in thousands)

 

Share based compensation

 

During the six-month period ended June 30, 2018 and 2017, the Company recorded share-based compensation in a total amount of $168 and $536, respectively.

 

During the three-month period ended June 30, 2018 and 2017, the Company recorded share-based compensation in a total amount of $59 and $185, respectively.

 

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NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

As of June 30, 2018, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $560, which is expected to be recognized over a weighted average period of approximately 2.3 years.

 

Warrant activity

 

During the six and three month period ended June 30, 2018 the Company received $31 on the exercise of Warrants for 22,088 shares.

 

  NOTE 6:- COMMITMENTS AND CONTINGENT LIABILITIES (in thousands)

 

The Company currently leases its office facilities on a three year lease with the right to cancel the lease with 90 days advance notice.

 

Future minimum lease commitments under non-cancelable operating lease agreements as of June 30, 2018 are as follows:

 

Six months ending December 31,  Operating leases 
     
2018  $14 
      
Total  $14 

 

Rent and related expenses were $10 and $13 for the six months ended June 30, 2018 and 2017, and $3 and $7 for the three months ended June 30, 2018 and 2017 respectively.

 

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NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

NOTE 7:- LOSS PER SHARE

 

All outstanding share options and warrants for the six months ended June 30, 2018 and 2017 have been excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.

 

The following table summarizes the Company’s securities, in common share equivalents, which have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

 

   June 30,
2018
    June 30,
2017
 
Series D Preferred Shares   303,782     
Stock Options   503,345    590,149 
Warrants   258,372    803,606 
Total   1,065,499    1,393,755 

  

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NANOVIBRONIX, INC. AND ITS SUBSIDIARY

 

  NOTE 8:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA

 

Summary information about geographic areas:

 

The Company manages its business on the basis of one reportable segment, and derives revenues from selling its products directly to patients as well as through distributor agreements. The following is a summary of revenues within geographic areas:

 

   

Six months ended 

June 30,

   

Three months ended

June 30,

 
    2018     2017     2018     2017  
                         
United States   $ 100     $ 40     $ 33     $ 19  
Europe     45       29       42       13  
Israel     38       1       34       1  
India     3       8       -       5  
Canada 21     21       -       21       -  

Rest of the world

    2       26       2       14  
                                 
    $ 209     $ 104     $ 132     $ 52  

 

During the six and three month period ended June 30, 2018, revenues from distributors accounted for 49% and 73% of total revenues. During the six and three month period ended June 30, 2017, revenues from distributors accounted for 36% and 37% of total revenues.

 

The Company’s long-lived assets are all located in Israel.  

 

  NOTE 9:- SUBSEQUENT EVENTS AND RELEATED PARTY TRANSACTIONS

 

The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its interim consolidated financial statements as of June 30, 2018 (unaudited) and for the six months period then ended (unaudited), the Company evaluated subsequent events through August 14, 2018 the date that the consolidated financial statements were issued.

 

On July 4, 2018, Jona Zumeris, Vice President of Technology and member of the board of directors of NanoVibronix, Inc. and the Company’s subsidiary, submitted his resignation as a member of the board of directors and all positions from the Company and the Company’s subsidiary, effective as of July 4, 2018. Dr. Zumeris’s resignation was not in connection with any disagreement with the Company on any matter relating to the Company’s operations, policies or practices, or any other matter.

 

On July 4, 2018, the Company and Dr. Zumeris and his wife, Janina (Ina) Zumeris entered into a Separation and Release Agreement (the “Separation Agreement”), providing that Dr. Zumeris shall resign from all positions at the Company and the Company’s subsidiary, effective as of the execution of the Separation Agreement and that Dr. Zumeris and Janina Zumeris will cooperate with the Company and its officers on meeting certain technical and administrative milestones during the transition period ending 60 days following the date of the Separation Agreement (the “Termination Date”). If Dr. Zumeris and Janina Zumeris have met such milestones to the satisfaction of the Company and fulfilled other obligations under the Separation Agreement, (i) Dr. Zumeris and Janina Zumeris, will be entitled to receive as consulting payments an aggregate of NIS 65,000 per month for 12 months, commencing 30 days after the Termination Date; (ii) the Company’s management, beginning on November 4, 2018, will use its best efforts to allow the sale of the Company’s securities owned by Dr. Zumeris, provided that such sale would be in compliance with the applicable U.S. securities laws and regulations, and provided further, that, if the Company’s shares of common stock held by Dr. Zumeris had not been sold at a price lower than $4.45 during the fourteen month period from July 4, 2018, and the value of the unsold securities Dr. Zumeris owns plus the value of cash received by Dr. Zumeris from the sale of the Company’s securities during such fourteen month period (the “Aggregate Amount”), in aggregate, is less than $950,000, then the Company will make up the difference between $950,000 and the Aggregate Amount by extending the term of engagement of Dr. Zumeris and Janina Zumeris’s consulting services and paying the consulting payments of NIS 65,000 per month. In addition, if the Company (i) grants a license for the skin rejuvenation technology, then the Company will pay Dr. Zumeris 10% from the payments received by the Company until an aggregate amount of $100,000 has been paid to Dr. Zumeris, (ii) sells the skin rejuvenation technology and/or the rights to such as a standalone product, the Company will pay Dr. Zumeris $100,000 from the proceeds of such sale, or (iii) sells the skin rejuvenation devices, the Company will pay Dr. Zumeris $5 per unit an aggregate amount of $100,000 has been paid to Dr. Zumeris.

 

In exchange for the consideration described above, Dr. Zumeris and Janina Zumeris agreed that, among other things, subject to the payments described above, Dr. Zumeris and Janina Zumeris will not have in the future any demands or claims for payment of salary or compensation of any kind against the Company. The Separation Agreement contains releases of any and all claims against the Company and restrictive covenants regarding intellectual property, non-disparagement, non-disclosure, non-compete and non-solicitation customary in executive separation agreements.

 

-12-

 

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

 

Unless the context requires otherwise, references in this Form 10-Q to the “Company,” “NanoVibronix,” “we,” “our” and “us” refer to NanoVibronix, Inc., a Delaware corporation, and its subsidiaries.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

 

Our ability to continue as a going concern.

 

  The timing of clinical studies and eventual U.S. Food and Drug Administration approval of WoundShield™ and our other product candidates.

 

  Regulatory actions that could adversely affect the price of or demand for our approved products.

 

  Market acceptance of existing and new products.

 

  Favorable or unfavorable decisions about our products from government regulators, insurance companies or other third-party payers.

 

  Our intellectual property portfolio.

 

  Our ability to recruit and retain qualified regulatory and research and development personnel.

 

  Unforeseen changes in healthcare reimbursement for any of our approved products.

 

  Lack of financial resources to adequately support our operations.

 

  Difficulties in maintaining commercial scale manufacturing capacity and capability.

 

  Our ability to generate internal growth.

 

  Changes in our relationship with key collaborators.

 

  Changes in the market valuation or earnings of our competitors or companies viewed as similar to us.

 

  Our failure to comply with regulatory guidelines.

 

  Uncertainty in industry demand and patient wellness behavior.

 

  General economic conditions and market conditions in the medical device industry.

 

  Future sales of large blocks of our common stock, which may adversely impact our stock price.

 

  Depth of the trading market in our common stock.

 

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and financial performance, you should carefully review the risks and uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Moreover, new risks regularly emerge and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this prospectus. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

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Overview

  

We are a medical device company focusing on noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home, without the assistance of medical professionals. Our WoundShield, PainShield and UroShield products are backed by novel technology which relates to ultrasound delivery through surface acoustic waves.

 

Critical Accounting Policies

  

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2017. There have not been any material changes to such critical accounting policies since December 31, 2017.

 

The currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”). Accordingly, our functional currency is the dollar.

 

Results of Operations

  

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

 

Revenues. For the six months ended June 30, 2018 and 2017, our revenues were approximately $209,000 and $104,000, respectively, an increase of approximately 104%, or $105,000, between the periods. The increase was mainly attributable to increased sales to distributors in the six months ended June 30, 2018 as well as increased sales of our Uroshield product. Our revenues may fluctuate as we add new consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may not be linear or consistent.

 

For the six months ended June 30, 2018, the percentage of revenues attributable to our products was: PainShield - 76% and UroShield - 24%. For the six months ended June 30, 2017, the percentage of revenues attributable to our products was: PainShield - 93% and UroShield - 7%. For the six months ended June 30, 2018 and 2017, the percentage of revenues attributable to our disposable products was 27% and 42%, respectively. For the six months ended June 30, 2018 and 2017, the portion of our revenues that was derived from distributors was 49% and 36%, respectively.

 

Gross Profit. For the six months ended June 30, 2018 and 2017, gross profit was approximately $132,000 and $70,000, respectively, an increase of approximately 89%, or $62,000, mainly due to the increase of revenues and slightly offset by the increased sales to distributors that typically are sold at a lower margins than sales that are direct to consumer.

 

Gross profit as a percentage of revenues was approximately 63% and 67% for the six months ended June 30, 2018 and 2017, respectively. The decrease in gross profit as a percentage is mainly due to the aforementioned increase in sales to distributors.

 

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Research and Development Expenses. For the six months ended June 30, 2018 and 2017, research and development expenses were approximately $286,000 and $314,000, respectively, a decrease of approximately 9%, or $28,000, between the periods. The decrease was primarily due to a decrease in expenses related to our clinical trials.

 

Research and development expenses as a percentage of total revenues were approximately 137% and 302% for the six months ended June 30, 2018 and 2017, respectively. The decrease was due primarily to the increase in sales as well as the decrease in expenses described above.

 

Our research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated with and allocated to research and development activities.

 

Selling and Marketing Expenses. For the six months ended June 30, 2018 and 2017, selling and marketing expenses were approximately $526,000 and $200,000, respectively, an increase of approximately 163%, or $326,000, between the periods. The increase was mainly due to an increase in our sales staff, sales consultants, and marketing activities which were limited in 2017 because of cash restraints.

 

Selling and marketing expenses as a percentage of total revenues were approximately 252% and 192% for the six months ended June 30, 2018 and 2017, respectively. The increase was due primarily to the increase in expenses described above partially offset by the increase in revenues.

 

Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing activities.

 

General and Administrative Expenses. For the six months ended June 30, 2018 and 2017, general and administrative expenses were approximately $934,000 and $1,017,000, respectively, a decrease of approximately 8%, or $83,000, between the periods. The decrease was mainly due to a $368,000 decrease in our stock based compensation and offset by increased compensation costs and public company expenses.

 

General and administrative expenses as a percentage of total revenues were approximately 446% and 978% for the six months ended June 30, 2018 and 2017, respectively. The decrease was due primarily to the increase in revenues described above offset somewhat by the decrease in expenses described above.

 

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-based compensation expenses, accounting, legal and facilities expenses associated with general and administrative activities and costs associated with being a publicly traded company.

 

Financial Expenses, net. For the six months ended June 30, 2018 and 2017, financial income (expenses), net were approximately $23,000 compared to a loss of $(242,000), respectively, an increase of approximately $265,000, between the periods. The income in 2018 was derived primarily from gains on its foreign currency transactions. The expense in 2017 was derived primarily from an expense of approximately $320,000 related to the issuance of the Warrants amortized over the life of the Promissory Notes issued in the first two quarters of 2017, and redeemed in November 2017, offset by a $131,000 reduction due to a lower valuation adjustment of our warrants that were issued with our 2013 and 2015 convertible promissory notes and exercised in full in October 2017.

 

Tax expenses. For the six months ended June 30, 2018 and 2017, tax expenses remained the same at $22,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.

 

Loss. Our loss decreased by approximately $112,000, or 6.5%, to approximately $1,613,000 for the six months ended June 30, 2018 from approximately $1,725,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors described above.

 

Three months Ended June 30, 2018 Compared to Three months Ended June 30, 2017

 

Revenues For the three months ended June 30, 2018 and 2017, our revenues were approximately $132,000 and $52,000, respectively, an increase of approximately 153%, or $80,000, between the periods. The increase was mainly attributable to increased sales to distributors in the three months ended June 30, 2018 as well as increased sales of our UroShield product. Our revenues may fluctuate as we add new consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may not be linear or consistent.

 

For the three months ended June 30, 2018, the percentage of revenues attributable to our products was: PainShield - 64% and UroShield - 36%. For the three months ended June 30, 2017, the percentage of revenues attributable to our products was: PainShield - 92% and UroShield - 8%. For the three months ended June 30, 2018 and 2017, the percentage of revenues attributable to our disposable products was 31% and 46%, respectively. For the three months ended June 30, 2018 and 2017, the portion of our revenues that was derived from distributors was 73% and 37%, respectively.

 

Gross Profit. For the three months ended June 30, 2018 and 2017, gross profit was approximately $77,000 and $34,000, respectively, an increase of approximately 126%, or $43,000, mainly due to the increase of revenues and slightly offset by the increased sales to distributors that typically are sold at a lower margins than sales that are direct to consumer.

 

Gross profit as a percentage of revenues was approximately 58% and 65% for the three months ended June 30, 2018 and 2017, respectively. The decrease in gross profit as a percentage is mainly due to the aforementioned increase in sales to distributors.

 

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Research and Development Expenses. For the three months ended June 30, 2018 and 2017, research and development expenses were approximately $151,000 and $164,000, respectively, a decrease of approximately 8%, or $13,000, between the periods. The decrease was primarily due to a decrease in expenses related to our clinical trials.

 

Research and development expenses as a percentage of total revenues were approximately 114% and 315% for the three months ended June 30, 2018 and 2017, respectively. The decrease was due primarily to the increase in sales as well as the decrease in expenses described above.

 

Our research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated with and allocated to research and development activities.

 

Selling and Marketing Expenses. For the three months ended June 30, 2018 and 2017, selling and marketing expenses were approximately $297,000 and $106,000, respectively, an increase of approximately 180%, or $191,000, between the periods. The increase was mainly due to an increase in our sales staff, sales consultants, and marketing activities which were limited in 2017 because of cash restraints.

 

Selling and marketing expenses as a percentage of total revenues were approximately 225% and 204% for the three months ended June 30, 2018 and 2017, respectively. The increase was due primarily to the increase in expenses described above partially offset by the increase in revenues.

 

Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing activities.

 

General and Administrative Expenses. For the three months ended June 30, 2018 and 2017, general and administrative expenses were approximately $454,000 and $424,000, respectively, an increase of approximately 7%, or $30,000, between the periods. The increase was mainly due to increased compensation costs and public company expenses offset by decreased stock based compensation expenses.

 

General and administrative expenses as a percentage of total revenues were approximately 344% and 815% for the three months ended June 30, 2018 and 2017, respectively. The decrease was due primarily to the increase in revenues described above offset somewhat by the decrease in expenses described above.

 

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-based compensation expenses, accounting, legal and facilities expenses associated with general and administrative activities and costs associated with being a publicly traded company.

 

Financial Expenses, net. For the three months ended June 30, 2018 and 2017, financial income (expenses), net were approximately $11,000 compared to an expense of $178,000, respectively, an increase of approximately $189,000, between the periods. The income in 2018 was derived primarily from gains on its foreign currency transactions. The expense in 2017 resulted from expenses incurred from the issuance of the Warrants amortized over the life of the 2017 Notes issued in the first two quarters of 2017 offset by a reduction derived by a lower valuation adjustment of our warrants that were issued with our 2013 and 2015 convertible promissory notes.

 

Tax expenses. For the three months ended June 30, 2018 and 2017, tax expenses were $10,000 and $11,000, respectively. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The decrease in our tax expenses was due to .

 

Loss. Our loss decreased by approximately $25,000, or 3.4%, to approximately $824,000 for the three months ended June 30, 2018 from approximately $849,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors described above.

 

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Liquidity and Capital Resources

 

We incurred losses in the amount of $1,613,000 during the six month period ended June 30, 2018, and accumulated negative cash flow from operating activities of $1,871,000 for the six month period ended June 30, 2018. We expect to continue to incur losses and negative cash flows from operating activities and as a result, we may not have sufficient resources to fund our operation for the next twelve months. These conditions raise doubts about our ability to continue as a going concern. During the next twelve months management expects that the Company will need to raise additional capital to finance its losses and negative cash flows from operations for the next twelve months and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability.

 

During the six months ended June 30, 2018, and through August 14, 2018, we met our short-term liquidity requirements from our existing cash reserves which includes the proceeds from the sales of convertible promissory notes between March and September 2017 in an aggregate amount of $1,380,000, as well as the net proceeds of $5,056,000 from our underwritten public offering of common stock and warrants which closed on November 6, 2017. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products, our development of future products and competing technological and market developments. We intend to use these proceeds to meet our short-term liquidity requirements but may need to sell our securities to advance our long-term plans. It is our current belief that if we do not continue to see significant increases in revenues, or if we are unable to raise additional capital at a later time in the next twelve months, we may need to reduce our operating budget as well as sales and marketing expenses which may impair our ability to execute our business objectives. However, we may be unable to raise sufficient additional capital when we require it or upon terms favorable to us. In addition, the terms of any securities we issue in future financings may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. If we are unable to obtain adequate funds on reasonable terms, we may need to curtail operations significantly, including possibly postponing anticipated clinical trials or entering into financing agreements with unattractive terms.

 

We do not have any material commitments to capital expenditures as of June 30, 2018, and we are not aware of any material trends in capital resources that would impact our business.

 

Six months Ended June 30, 2018 Compared to Six months Ended June 30, 2017

 

General. As of June 30, 2018, we had cash and cash equivalents of approximately $2,515,000, compared to approximately $4,360,000 as of December 31, 2017. The decrease is attributable to our net cash used in operating activities. We have historically met our cash needs through a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for product development, research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.

 

Cash used in our operating activities was approximately $1,871,000 for the six months ended June 30, 2018 and $919,000 for the same period in 2017. The increase in our cash usage was mainly associated with the increase in our net operating loss, excluding non-cash items such as stock-based compensation, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, for the reasons described above.

 

Cash used in investing activities was $5,000 and $2,000 for the six month periods ended June 30, 2018 and 2017, respectively, and was related to purchases of fixed assets.

 

Cash provided by financing activities was approximately $31,000 for the six months ended June 30, 2018 derived from proceeds received from the exercise of warrants, compared to $1,030,000 for the six months ended June 30, 2017 derived from proceeds received from the issuance of 2017 Notes.

 

Off Balance Sheet Arrangements

  

As of June 30, 2018, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Factors That May Affect Future Operations

 

We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products.

 

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4.  Controls and Procedures

 

  (a) Evaluation of Disclosure Controls and Procedures. As of June 30, 2018, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

 

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of June 30, 2018.

 

  (b) Changes in Internal Controls. There have been no changes in the Company’s internal control over financial reporting that occurred during the six months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting that occurred during the six months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not a party to any material litigation nor are we aware of any such threatened or pending litigation.

 

There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock, or any associate of any of the foregoing is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors

 

During the fiscal quarter ended June 30, 2018, there were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 30, 2018.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not Applicable.

 

Item 5.  Other Information

 

None

 

Item 6.  Exhibits

 

See Index to Exhibits.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NANOVIBRONIX, INC.
     
Date: August 14, 2018 By: /s/ Brian Murphy
    Name: Brian Murphy, Ph.D.
    Title: Chief Executive Officer
     
 Date: August 14, 2018 By: /s/ Stephen Brown
    Name: Stephen Brown
    Title: Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit
No.
  Description
3.1   Amended and Restated Certificate of Incorporation (as presently in effect) (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015).
3.2   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)
3.3   Certificate of Amendment of Certificate of Incorporation (creating the series C preferred stock) (incorporated by reference to Exhibit 3.3 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)
3.4   Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 7, 2017)
10.1   First Amendment to the NanoVibronix, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 18, 2018)
10.2   Separation and Release Agreement, dated July 4, 2018, between NanoVibronix, Inc. and Jona Zumeris and Janinia Zumeris (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 10, 2018)
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*   The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Statements of Changes in Equity (Deficiency) (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements

 

* Filed herewith.

 

+ Management contract or compensatory plan or arrangement.

 

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