UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20222023
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 | 10523 | |
(Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code: (914) 233-3004
(Former name, former address and
former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock, par value $0.001 per share | NAOV | NASDAQ Capital Market |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant washas 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | 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 as of November 14, 2022August 11, 2023 was shares.
NanoVibronix, Inc.
Quarter Ended SeptemberJune 30, 20222023
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NanoVibronix, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands except share and per share data)
September 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 1,972 | $ | 7,737 | $ | 253 | $ | 2,713 | ||||||||
Trade receivables, net | 226 | 200 | 71 | 9 | ||||||||||||
Other accounts receivable and prepaid expenses | 1,238 | 230 | ||||||||||||||
Prepaid expenses and other accounts receivable | 176 | 712 | ||||||||||||||
Inventory, net | 1,553 | 175 | 3,114 | 2,175 | ||||||||||||
Total current assets | 4,989 | 8,342 | 3,614 | 5,609 | ||||||||||||
Non-current assets: | ||||||||||||||||
Noncurrent assets: | ||||||||||||||||
Fixed assets, net | 8 | 5 | 7 | 7 | ||||||||||||
Other assets | 7 | 19 | 3 | 3 | ||||||||||||
Severance pay fund | 178 | 207 | 170 | 179 | ||||||||||||
Operating lease right-of-use assets, net | 28 | 49 | 37 | 81 | ||||||||||||
Total non-current assets | 221 | 280 | 217 | 270 | ||||||||||||
Total assets | $ | 5,210 | $ | 8,622 | $ | 3,831 | $ | 5,879 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Trade payables | $ | 41 | $ | 87 | $ | 33 | $ | 66 | ||||||||
Other accounts payable and accrued expenses | 1,646 | 1,723 | 2,300 | 2,148 | ||||||||||||
Deferred revenues | - | 44 | ||||||||||||||
Operating lease liabilities - current | 28 | 49 | ||||||||||||||
Deferred revenue | - | 21 | ||||||||||||||
Operating lease liabilities | 37 | 81 | ||||||||||||||
Total current liabilities | 1,715 | 1,903 | 2,370 | 2,316 | ||||||||||||
Non-current liabilities: | ||||||||||||||||
Accrued severance pay | $ | 222 | 253 | 212 | 223 | |||||||||||
Deferred licensing income | 119 | 153 | 84 | 107 | ||||||||||||
Total liabilities | 2,056 | 2,309 | 2,666 | 2,646 | ||||||||||||
Commitments and contingencies (Note 10) | - | |||||||||||||||
Commitments and contingencies | - | - | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Series C Preferred stock of $ | par value - Authorized: shares at September 30, 2022 and December 31, 2021; Issued and outstanding: at both at September 30, 2022 and December 31, 2021- | - | ||||||||||||||
Series C Preferred stock of $ | par value - Authorized: shares at both June 30, 2023 and December 31, 2022; Issued and outstanding: shares at both June 30, 2023 and December 31, 2022- | - | ||||||||||||||
Series D Preferred stock of $ | par value - Authorized: shares at September 30, 2022 and December 31, 2021; Issued and outstanding: at both September 30, 2022 and December 31, 2021- | - | ||||||||||||||
Series D Preferred stock of $ | par value - Authorized: shares at both June 30, 2023 and December 31, 2022; Issued and outstanding: shares at both June 30, 2023 and December 31, 2022- | - | ||||||||||||||
Series E Preferred stock of $ | par value - Authorized: shares at September 30, 2022 and December 31, 2021, respectively; Issued and outstanding: at both September 30, 2022 and December 31, 2021- | - | ||||||||||||||
Series E Preferred stock of $ | par value - Authorized: shares at both June 30, 2023 and December 31, 2022; Issued and outstanding: shares at both June 30, 2023 and December 31, 2022- | - | ||||||||||||||
Series F Preferred stock of $ | par value - Authorized: shares at September 30, 2022 and December 31, 2021, respectively; Issued and outstanding: at both September 30, 2022 and December 31, 2021- | - | ||||||||||||||
Preferred stock, value | - | - | ||||||||||||||
Series F Preferred stock of $ | par value - Authorized: and shares at both June 30, 2023 and December 31, 2022; Issued and outstanding: shares at both June 30, 2023 and December 31, 2022- | - | ||||||||||||||
Common stock of $ | par value - Authorized: shares at September 30, 2022 and December 31, 2021; Issued and outstanding: shares at both September 30, 2022 and December 31, 202128 | 28 | ||||||||||||||
Common stock of $ | par value - Authorized: shares at both June 30, 2023 and December 31, 2022, respectively; Issued and outstanding: and shares at June 30, 2023 and December 31, 2022, respectively2 | 2 | ||||||||||||||
Additional paid in capital | 63,449 | 63,162 | 65,774 | 65,634 | ||||||||||||
Accumulated other comprehensive income | 3 | 60 | (55 | ) | (18 | ) | ||||||||||
Accumulated deficit | (60,326 | ) | (56,937 | ) | (64,556 | ) | (62,385 | ) | ||||||||
Total stockholders’ equity | 3,154 | 6,313 | 1,165 | 3,233 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 5,210 | $ | 8,622 | $ | 3,831 | $ | 5,879 |
The accompanying notes are an integral part of these condensed consolidated financial statements
1 |
NanoVibronix, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Amounts in thousands except share and per share data)
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Revenues | $ | 97 | $ | 499 | $ | 854 | $ | 920 | $ | 294 | $ | 485 | $ | 648 | $ | 757 | ||||||||||||||||
Cost of revenues | 17 | 271 | 387 | 407 | 78 | 204 | 197 | 370 | ||||||||||||||||||||||||
Gross profit | 80 | 228 | 467 | 513 | 216 | 281 | 451 | 387 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Research and development | 49 | 50 | 176 | 178 | 35 | 61 | 90 | 127 | ||||||||||||||||||||||||
Selling and marketing | 217 | 245 | 760 | 852 | 227 | 333 | 441 | 543 | ||||||||||||||||||||||||
General and administrative | 738 | 801 | 2,835 | 2,656 | 963 | 1,155 | 1,984 | 2,097 | ||||||||||||||||||||||||
Total operating expenses | 1,004 | 1,096 | 3,771 | 3,686 | 1,225 | 1,549 | 2,515 | 2,767 | ||||||||||||||||||||||||
Loss from operations | (924 | ) | (868 | ) | (3,304 | ) | (3,173 | ) | (1,009 | ) | (1,268 | ) | (2,064 | ) | (2,380 | ) | ||||||||||||||||
Financial expenses, net | (16 | ) | (23 | ) | (47 | ) | (29 | ) | ||||||||||||||||||||||||
Change in fair value of derivative liabilities | - | (5,714 | ) | - | (6,956 | ) | ||||||||||||||||||||||||||
Gain on purchase of warrants | - | - | - | 64 | ||||||||||||||||||||||||||||
Warrant modification expense | - | - | - | (1,627 | ) | |||||||||||||||||||||||||||
Interest expense | (33 | ) | - | (67 | ) | - | ||||||||||||||||||||||||||
Financial expense, net | (19 | ) | (18 | ) | (25 | ) | (31 | ) | ||||||||||||||||||||||||
Loss before taxes on income | (940 | ) | (6,605 | ) | (3,351 | ) | (11,721 | ) | (1,061 | ) | (1,286 | ) | (2,156 | ) | (2,411 | ) | ||||||||||||||||
Income tax expense | (15 | ) | (70 | ) | (38 | ) | (87 | ) | (13 | ) | (16 | ) | (15 | ) | (23 | ) | ||||||||||||||||
Net loss | $ | (955 | ) | $ | (6,675 | ) | $ | (3,389 | ) | $ | (11,808 | ) | $ | (1,074 | ) | $ | (1,302 | ) | $ | (2,171 | ) | $ | (2,434 | ) | ||||||||
Basic and diluted net loss available for holders of common stock | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.12 | ) | $ | (0.47 | ) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
Basic and diluted | 27,997,793 | 26,096,957 | 27,997,793 | 25,014,919 | ||||||||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||||||||||
Net loss available to common stockholders | (955 | ) | (6,675 | ) | (3,389 | ) | (11,808 | ) | (1,074 | ) | (1,302 | ) | (2,171 | ) | (2,434 | ) | ||||||||||||||||
Change in foreign currency translation adjustments | (6 | ) | 1 | (57 | ) | (7 | ) | (30 | ) | (46 | ) | (37 | ) | (51 | ) | |||||||||||||||||
Comprehensive loss available to common stockholders | (999 | ) | (6,674 | ) | (3,446 | ) | (11,815 | ) | (1,104 | ) | (1,348 | ) | (2,208 | ) | (2,485 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
2 |
NanoVibronix, Inc.
Condensed Consolidated StatementsStatement of Stockholders’ Equity (Unaudited)
(Amounts in thousands except share and per share data)
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 666,667 | $ | 1 | 153 | $ | - | 875,000 | $ | 1 | - | 24,109,634 | $ | 24 | $ | 51,867 | $ | 59 | $ | (47,788 | ) | $ | 4,164 | ||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 35 | - | - | 35 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash, net | - | - | - | - | - | - | - | 3 | - | - | - | 3 | ||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | - | - | - | - | 2,193,491 | - | 3,558 | - | - | 3,558 | ||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | - | - | - | - | (875,000 | ) | - | 875,000 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Reclass from liability to equity | - | - | - | - | - | - | - | - | 7,626 | - | - | 7,626 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | (6,675 | ) | (6,675 | ) | |||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 666,667 | $ | 1 | 153 | $ | - | - | $ | 1 | - | 27,178,126 | $ | 27 | $ | 63,086 | $ | 59 | $ | (54,463 | ) | $ | 8,711 |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,399,890 | $ | 1 | $ | 63,248 | $ | 54 | $ | (58,069 | ) | $ | 5,261 | ||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 83 | - | - | 83 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | - | - | - | - | - | - | - | - | 137 | - | - | 137 | ||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | - | - | - | - | - | - | - | (45 | ) | - | (45 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (1,302 | ) | (1,302 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,399,890 | $ | 1 | $ | 63,468 | $ | 9 | $ | (59,371 | ) | $ | 4,134 |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 666,667 | $ | 1 | 153 | $ | - | 875,000 | $ | 1 | - | 21,246,523 | $ | 22 | $ | 44,959 | $ | 66 | $ | (42,655 | ) | $ | 2,394 | ||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 114 | - | - | 114 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash, net | - | - | - | - | - | - | - | 3 | - | - | - | 3 | ||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | - | - | - | - | 5,056,603 | 2 | 7,050 | - | - | 7,052 | ||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | - | - | - | - | (875,000 | ) | - | 875,000 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Reclass from liability to equity | - | - | - | - | - | - | - | - | 10,963 | - | - | 10,963 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | - | - | (7 | ) | - | (7 | ) | ||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | (11,808 | ) | (11,808 | ) | |||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 666,667 | $ | 1 | 153 | $ | - | - | $ | 1 | - | 27,178,126 | $ | 27 | $ | 63,086 | $ | 59 | $ | (54,463 | ) | $ | 8,711 |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,399,890 | $ | 1 | $ | 63,162 | $ | 60 | $ | (56,937 | ) | $ | 6,313 | ||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 169 | - | - | 169 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | - | - | - | - | - | - | - | - | 137 | - | - | 137 | ||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | - | - | - | - | - | - | - | (51 | ) | - | (51 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (2,434 | ) | (2,434 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,399,890 | $ | 1 | $ | 63,468 | $ | 9 | $ | (59,371 | ) | $ | 4,134 |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock |
Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 27,997,793 | $ | 28 | $ | 63,468 | $ | 9 | $ | (59,371 | ) | $ | 4,134 | ||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 116 | - | - | 116 | ||||||||||||||||||||||||||||||||||||||||||
Reversal of warrants | - | - | - | - | - | - | - | - | - | - | (135 | ) | - | - | (135 | ) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | - | - | - | (6 | ) | - | (6 | ) | |||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | (955 | ) | (955 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 27,997,793 | $ | 28 | $ | 63,449 | $ | 3 | $ | (60,326 | ) | $ | 3,154 |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2023 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,662,330 | $ | 2 | $ | 65,708 | $ | (25 | ) | $ | (63,482 | ) | $ | 2,203 | |||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 66 | - | - | 66 | ||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | - | - | - | - | - | - | - | (30 | ) | - | (30 | ) | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (1,074 | ) | (1,074 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,662,330 | $ | 2 | $ | 65,774 | $ | (55 | ) | $ | (64,556 | ) | $ | 1,165 |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock |
Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 27,997,793 | $ | 28 | $ | 63,162 | $ | 60 | $ | (56,937 | ) | $ | 6,313 | ||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 287 | - | - | 287 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | - | - | - | - | - | - | - | - | - | - | 135 | - | - | 135 | ||||||||||||||||||||||||||||||||||||||||||
Reversal of warrants | - | - | - | - | - | - | - | - | - | - | (135 | ) | - | - | (135 | ) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | - | - | - | (57 | ) | - | (57 | ) | |||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | (3,389 | ) | (3,389 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 27,997,793 | $ | 28 | $ | 63,449 | $ | 3 | $ | (60,326 | ) | $ | 3,154 |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Series F Preferred Stock | Common Stock | Additional Paid - in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,641,146 | $ | 2 | $ | 65,634 | $ | (18 | ) | $ | (62,385 | ) | $ | 3,233 | |||||||||||||||||||||||||||||||
Beginning balance, value | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,641,146 | $ | 2 | $ | 65,634 | $ | (18 | ) | $ | (62,385 | ) | $ | 3,233 | |||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | 133 | - | - | 133 | ||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustment | - | - | - | - | - | - | - | - | - | - | - | (37 | ) | - | (37 | ) | ||||||||||||||||||||||||||||||||||||||||
Exercise of options | - | - | - | - | - | - | - | - | 5,458 | - | 7 | - | - | 7 | ||||||||||||||||||||||||||||||||||||||||||
Rounding up of fractional shares due to stock split | - | - | - | - | - | - | - | - | 15,726 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | - | - | (2,171 | ) | (2,171 | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2023 | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,662,330 | $ | 2 | $ | 65,774 | $ | (55 | ) | $ | (64,556 | ) | $ | 1,165 | |||||||||||||||||||||||||||||||
Ending balance, value | - | $ | - | - | $ | - | - | $ | - | - | $ | - | 1,662,330 | $ | 2 | $ | 65,774 | $ | (55 | ) | $ | (64,556 | ) | $ | 1,165 |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
3 |
NanoVibronix, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands except share and per share data)
2022 | 2021 | 2023 | 2022 | |||||||||||||
Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (3,389 | ) | $ | (11,808 | ) | $ | (2,171 | ) | $ | (2,434 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 1 | 1 | 1 | - | ||||||||||||
Stock-based compensation | 287 | 114 | 133 | 306 | ||||||||||||
Warrant modification expense | - | 1,627 | ||||||||||||||
Noncash interest expense | 67 | - | ||||||||||||||
Change in fair value of equity investment | 12 | 9 | - | 10 | ||||||||||||
Change in fair value of derivative liabilities | - | 7,148 | ||||||||||||||
Gain on purchase of warrants | - | (64 | ) | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade receivable | (26 | ) | (4 | ) | (62 | ) | (62 | ) | ||||||||
Other accounts receivable and prepaid expenses | (1,008 | ) | (330 | ) | ||||||||||||
Prepaid expenses and other accounts receivable | 536 | (945 | ) | |||||||||||||
Inventory | (1,378 | ) | (56 | ) | (939 | ) | (753 | ) | ||||||||
Trade payables | (46 | ) | (82 | ) | (33 | ) | 86 | |||||||||
Other accounts payable and accrued expenses | (77 | ) | (294 | ) | 85 | 80 | ||||||||||
Deferred revenue | (78 | ) | 237 | (44 | ) | (23 | ) | |||||||||
Accrued severance pay, net | (2 | ) | (2 | ) | (2 | ) | (5 | ) | ||||||||
Net cash used in operating activities | (5,704 | ) | (3,504 | ) | (2,429 | ) | (3,740 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property plant and equipment | (4 | ) | (3 | ) | ||||||||||||
Purchases of equipment | (1 | ) | (2 | ) | ||||||||||||
Net cash used in investing activities | (4 | ) | (3 | ) | (1 | ) | (2 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from exercise of warrants | - | 4,968 | ||||||||||||||
Buy back of warrants from investors | - | (388 | ) | |||||||||||||
Proceeds from exercise of options | 7 | - | ||||||||||||||
Net cash provided by financing activities | - | 4,580 | 7 | - | ||||||||||||
Effects of currency translation on cash | (57 | ) | (7 | ) | ||||||||||||
Effects of currency translation on cash and cash equivalents | (37 | ) | (51 | ) | ||||||||||||
Net (decrease) increase in cash | (5,765 | ) | 1,066 | |||||||||||||
Net (decrease) in cash | (2,460 | ) | (3,793 | ) | ||||||||||||
Cash at beginning of period | 7,737 | 7,533 | 2,713 | 7,737 | ||||||||||||
Cash at end of period | $ | 1,972 | $ | 8,599 | $ | 253 | $ | 3,944 | ||||||||
Supplemental non-cash financing and investing activities: | ||||||||||||||||
Shares issued from exercise of warrants previously classified as derivative liability | $ | - | $ | 2,087 | ||||||||||||
Reclassification liability to equity due to increase in authorized shares | $ | - | $ | 10,963 |
The accompanying notes are an integral part of these condensed consolidated financial statements
4 |
NanoVibronix, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in thousands except share and per share data)
NOTE 1 – DESCRIPTION OF BUSINESS
NanoVibronix, Inc. (the “Company”), a 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.
NOTE 2 – GOING CONCERN, LIQUIDITY AND PLAN OF OPERATIONSOTHER UNCERTAINTIES
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. During the three quarters of 2022,and six months ended June 30, 2023, the Company’sCompany has incurred losses as well as negative cash used in operations was $5,704 leaving aoutflows from operating activities and expects to incur losses and negative cash balance of $1,972 as of September 30, 2022.outflows from operating activities through at least fiscal year 2023. Because the Company does not have sufficient resources to fund our operationits operations for the next twelve months from the date of this filing management hasand there could be a significant arbitration payment due (see Note 9), substantial doubt ofexists as to the Company’s ability to continue as a going concern.
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 our products do not reach commercial profitability. If the Company is unable to obtain additional financing, the development of its product candidates and the Company’s commercial strategy may be impacted and there could be a material adverse effect on the Company’s business and financial condition. These financial statements do not include any adjustments that may result from the outcome of this uncertainty.
On May 23, 2023, we received a letter from the Listing Qualifications Department of Nasdaq indicating that we no longer comply with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) (the “Rule”) for continued listing on Nasdaq because our stockholders’ equity of approximately $2.2 million as reported in our Quarterly Report on Form 10-Q for the period ended March 31, 2023, is below the required minimum of $2.5 million, and as of May 22, 2023, we did not meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
In accordance with Nasdaq Listing Rules, we had 45 calendar days, or until July 7, 2023, to submit a plan to regain compliance. On July 7, 2023 we submitted our plan to regain compliance with the Nasdaq minimum stockholders’ equity standard. If our plan is accepted, Nasdaq may grant us an extension of up to 180 calendar days from the date of the notification letter to evidence compliance. On July 19, 2023, the Staff granted the Company’s request for continued listing pursuant to an extension through November 20, 2023, to evidence compliance with the Rule.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited condensed 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 condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. 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 condensed 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, 2021,2022, as found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2022, as amended on May 2, 2022.17, 2023.
The balance sheet for December 31, 20212022 was derived from the Company’s audited financial statements for the year ended December 31, 2021.2022. The results of operations for the periods presented are not necessarily indicative of results that could be expected for the entire fiscal year due to seasonality and other factors. Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC for interim reporting.
5 |
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company believebelieves that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Foreign currency translation
Non-U.S. dollar denominated transactions and balances have been re-measured to U.S. dollars. All gains and losses from re-measurement of monetary balance sheet items denominated in non-U.S. dollar currencies are reflected in the statements of operations as other comprehensive income, as appropriate. The cumulative translation loss gains for the nineperiods ended months ended SeptemberJune 30, 20222023 and 20212022 were $5737 and $751, respectively.
Revenue recognition
It is the Company’s policy that revenuesRevenues from product sales isare recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s financial statements.
Revenue from product sales is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from coupons, discounts chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. The Company constrains revenue by giving consideration toconsidering factors that could otherwise lead to a probable reversal of revenue. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers.
Revenues from sales to distributors are recognized at the time the products are delivered to the distributors (“sell-in”). The Company does not grant rights of return, credits, rebates, price protection, or other privileges on its products to distributors.
Recently adopted accounting standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This ASU is effective for interim and annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 as of January 1, 2023, and there was no material impact on its condensed consolidated financial statements upon adoption.
6 |
NOTE 4 – STOCKHOLDERS’ EQUITY
Common stock
The common stock confers upon the holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends, if declared, and to participate in the distribution of the surplus assets and funds of the Company in the event of liquidation, dissolution or winding up of the Company.
Series F PreferredReverse Stock Split
On September 13, 2022,February 8, 2023, the boardCompany effected a reverse stock split of directorsits common stock at a ratio of 1 post-split share for every 20 pre-split shares. The Company’s common stock begin trading on a split-adjusted basis when the market opened on February 9, 2023 (the “Reverse Stock Split”).
At the effective time of the Company (the “Board”), declaredReverse Stock Split, every 20 shares of the Company’s issued and outstanding common stock were converted automatically into one issued and outstanding share of common stock without any change in the par value per share. Stockholders holding shares through a dividend of one one-thousandthbrokerage account had their shares automatically adjusted to reflect the 1-for-20 Reverse Stock Split. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in a stockholder owning a fractional share. Any fractional share of a sharestockholder resulting from the Reverse Stock Split was rounded up to the nearest whole number of Series F Preferred Stock, par value $ per share (“Series F Preferred Stock”), for each outstanding shareshares. Proportional adjustments were made to the number of shares of the Company’s common stock par value $issuable upon exercise or conversion of the Company’s equity awards, warrants and other convertible securities, as well as the applicable exercise or conversion price thereof. On February 16, 2023, the Company rounded up fractional shares to its nearest whole number of shares.
All references in this Report to number of shares, price per share to stockholdersand weighted average number of record at 5:00 p.m. Eastern Time on October 14, 2022. The certificateshares of designation with respectcommon stock outstanding prior to the Series F PreferredReverse Stock was filed withSplit have been adjusted to reflect the Delaware Secretary of State and became effectiveReverse Stock Split on September 14, 2022. For more information, please see “Note 11 - Subsequent Events.”a retroactive basis, unless otherwise noted.
Stock-based compensation and optionsOptions
During the nine-monththree and six-month period ended June 30, 2023, and employee options were exercised respectively. During the three and six-month period ended June 30, 2022, employee options were exercised. During the three and 2021,six-month period ended June 30, 2023, employee options were granted. During the three and six-month period ended June 30, 2022, and employee options were granted, respectively.
The options were granted to employees and board members and were recorded at a fair value and vestvested over three years. During the three and nine-monthsix-month period ended SeptemberJune 30, 2022,2023, stock-based compensation expense of $ and $ was recorded for options that vested, respectively. During the three and nine-monthsix-month period ended SeptemberJune 30, 2021, there was2022, stock-based compensation expense of $ and $, was recorded for options that vested, respectively. During the nine months ended September 30, 2022 and 2021, and options expired, respectively.
2022 | 2021 | |||||||
Price at valuation | $ | $ | ||||||
Exercise price | $ | $ | ||||||
Risk free interest | % | % | ||||||
Expected term (in years) | ||||||||
Volatility | % | % |
Shares Under Options | Weighted Average Exercise Price per Share | Weighted Average Remaining Life (Years) | ||||||||||
Outstanding – December 31, 2021 | 127,000 | $ | 31.86 | |||||||||
Granted | 6,000 | 15.56 | ||||||||||
Exercised | - | - | - | |||||||||
Outstanding – March 31, 2022 | 133,000 | $ | 26.00 | |||||||||
Granted | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding – June 30, 2022 | 133,000 | $ | 26.00 | |||||||||
Outstanding – December 31, 2022 | 147,619 | $ | 24.42 | |||||||||
Granted | - | - | - | |||||||||
Exercised | (5,459 | ) | 0.07 | |||||||||
Outstanding – March 31, 2023 | 142,160 | $ | 25.31 | |||||||||
Granted | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding – June 30, 2023 | 142,160 | $ | 25.31 |
7 |
SCHEDULE OF STOCK BASED EXPENSES RECOGNIZED FOR SERVICES FROM EMPLOYEES AND NON-EMPLOYEES
2022 | 2021 | 2022 | 2021 | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Research and development | 2 | 5 | 5 | 15 | 1 | 1 | 3 | 3 | ||||||||||||||||||||||||
Selling and marketing | 6 | 10 | 18 | 41 | 6 | 6 | 12 | 12 | ||||||||||||||||||||||||
General and administrative | 108 | 84 | 264 | 250 | 59 | 213 | 118 | 291 | ||||||||||||||||||||||||
Total | $ | 116 | $ | 99 | $ | 287 | $ | 306 | $ | 66 | $ | 220 | $ | 133 | $ | 306 |
As of SeptemberJune 30, 2022,2023, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $ , which is expected to be recognized over a weigh tedweighted average period of approximately years.
Warrant exercises and modificationWarrants
On December 2, 2020, we entered into a Securities Purchase Agreement with certain institutionalFor the six months ended June 30, 2023 and accredited investors pursuant to which the Company issued2022, there were and sold to such investors in a private placement an aggregate of (i) shares of the Company’s common stock at an offering price of $ per share and (ii) pre-funded warrants to purchase up to shares of common stock at a purchase price of $ per pre-funded warrant, for gross proceeds of approximately $6.0 million, and net proceeds of approximately $5.4 million. In January 2021, two investors exercised an aggregate of warrants at $0.001 per share.
On January 21, 2021, Company entered into letter agreements (the “Letter Agreements”) with certain existing accredited investors to exercise certain outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 1,205,968 shares ofgranted, respectively. For the Company’s common stock at an exercise price per share of $1.165 (the “Exercise”). Certain of the Existing Warrants (the “Registered Existing Warrants”)six months ended June 30, 2023 and the shares of common stock underlying the Registered Existing Warrants have been registered pursuant to a registration statement on Form S-3 (File No. 333-251264) and a registration statement on Form S-1 (File No. 333-218871). In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of2022,
The New Warrants were accounted for in warrant modification expense, which was measured at the amount equal to the incremental value reflecting the change in the fair value of the warrants before and after the Warrant Amendment. Accordingly, warrant modification expense in the amount of $1,627 was recorded with a corresponding increase in additional paid in capital in the second quarter of 2021.
On June 14, 2022, the Company issued warrants to two sales consultants to purchase 250,000 shares of common stock which will expire on June 14, 2029 and have an exercise price of $1.00 per share. Accordingly, expense related to these warrants in the amount of $135,000 was recorded with a corresponding increase in additional paid in capital.
On September 30, 2022, the Company and the two sales consultants mutually agreed to cancel the latter’s annual stock warrants to purchase 250,000 shares of common stock. Accordingly, expense related to these warrants were reversed in the amount of $135,000 with a corresponding decrease in additional paid in capital.exercised and/ or cancelled.
In estimating the warrants’ fair value, the Company used the following assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS FOR WARRANTS ACTIVITY
Warrants | |||||
- | |||||
Canceled | |||||
Outstanding – June 30, 2022 | 127,967 | ||||
Outstanding – December 31, 2022 | 78,252 | ||||
Granted | - | ||||
Exercised | - | ||||
Canceled | - | ||||
Outstanding – June 30, 2023 | 78,252 |
Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. All outstanding stock options and warrants for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 have been excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.
SUMMARY OF COMMON SHARE EQUIVALENTS BEEN EXCLUDED FROM DILUTIVE LOSS PER SHARE AS ANTI-DILUTIVE
September 30, 2022 | September 30, 2021 | June 30, 2023 | June 30, 2022 | |||||||||||||
Series D Preferred Stock | - | 153,000 | ||||||||||||||
Stock Options - employee and non-employee | 2,977,499 | 1,914,699 | ||||||||||||||
Stock Options – employee and non-employee | 142,160 | 133,000 | ||||||||||||||
Warrants | 2,309,347 | 2,309,347 | 78,252 | 127,967 | ||||||||||||
Total | 5,286,846 | 4,224,199 | 220,412 | 260,967 |
The diluted loss per share equals basic loss per share in the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 because the Company had a net loss and the impact of the assumed exercise of stock options and the vesting of restricted stock would have been anti-dilutive.
8 |
NOTE 6 – 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:
SUMMARY OF REVENUE WITHIN GEOGRAPHIC AREAS
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
United States | $ | 90 | $ | 490 | $ | 828 | $ | 874 | $ | 282 | $ | 476 | $ | 592 | $ | 723 | ||||||||||||||||
Europe | 6 | 4 | 13 | 15 | - | 1 | 19 | 12 | ||||||||||||||||||||||||
Australia/New Zealand | - | 5 | 13 | 5 | ||||||||||||||||||||||||||||
Asia | - | 2 | 9 | 4 | - | 3 | 1 | 9 | ||||||||||||||||||||||||
New Zealand | 1 | 3 | 4 | 15 | ||||||||||||||||||||||||||||
Canada | - | - | - | 12 | ||||||||||||||||||||||||||||
Other | 12 | - | 23 | 8 | ||||||||||||||||||||||||||||
Total | $ | 97 | $ | 499 | $ | 854 | $ | 920 | $ | 294 | $ | 485 | $ | 648 | $ | 757 |
The Company’sFor both the three and six months ended June 30, 2023, our two largest customer is Ultra Pain Products, Inc. (UPPI) who accounted for with revenue equal to $customers comprised approximately 483,00086 or 57% of total revenues in each of the respective periods. Customer one comprised 36% and nil for86% while customer two comprised 50% and 0%, respectively. During the nine monthsthree and threesix months ended SeptemberJune 30, 2022, our largest customer comprised approximately 78% and 64% of total revenues, respectively.
NOTE 7 – LEASES
The Company has operating lease agreements with terms up to 2-3 years, including car and office space leases.
The Company’s weighted-average remaining lease term relating to its operating leases is 0.56 years, with a weighted-average discount rate of 10%.
The Company incurred $36 and $14 of lease expense for its operating leases for the six months ended June 30, 2023 and 2022, respectively.
The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases as of June 30, 2023:
SCHEDULE OF LIABILITIES ARISING FROM OPERATING LEASES
2023 | $ | 35 | ||
2024 | 3 | |||
Total undiscounted operating lease payments | 38 | |||
Less: Imputed interest | 1 | |||
Present value of operating lease liabilities | $ | 37 |
NOTE 8 – OTHER ASSETS
On April 9, 2020, pursuant to a licensing agreement entered into in March 2020, the Company received 10-year warrants to purchase 127,000 shares of Sanuwave Health, Inc. at a price of $0.19 per share. The fair value for warrants received iswas estimated at the date of grant and at each reporting period using a Black-Scholes-Merton pricing model with the following underlying assumptions:
SCHEDULE OF WARRANTS ASSUMPTIONS
June 30, 2023 | June 30, 2022 | |||||||||||
Price at valuation | $ | 0.06 | $ | $ | ||||||||
Exercise price | $ | 0.19 | $ | 0.19 | $ | 0.19 | ||||||
Risk free interest | 3.97 | % | 3.97 | % | 1.44 | % | ||||||
Expected term (in years) | 8 | 7 | 8 | |||||||||
Volatility | 137.7 | % | 155.6 | % | 137.7 | % |
The Company considers this to be levelLevel 3 inputs and is valued at each reporting period. For the three and ninesix months ended SeptemberJune 30, 2023, changes in the fair value of these warrants amounted to $(2) and $0, respectively, leaving a balance of $3 as of June 30, 2023. For the three and six months ended June 30, 2022, changes in the fair value of these warrants amounted to $28 and $1210, respectively, leaving a balance of $79 as of SeptemberJune 30, 2022. For the three and nine months ended September 30, 2021, changes in the fair value of these warrants amounted to $7 and $9, respectively.
9 |
Financial Instruments Measured at Fair Value on a Recurring Basis
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
● | Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets; |
● | Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and |
● | Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
There were no transfers frombetween Level 3 during the quartersthree and six months ended SeptemberJune 30, 20222023 and 2021.2022.
The following table presents changes in Level 3 asset and liability measured at fair value for the quarters ended SeptemberJune 30, 20222023 and 2021:2022:
SCHEDULE OF CHANGES IN LEVEL 3 AND LIABILITY MEASURED AT FAIR VALUE
Asset | ||||||||
Balance – December 31, 2020 | $ | 25 | ||||||
Fair value adjustments – Sanuwave warrants | (2 | ) | ||||||
Balance – March 31, 2021 | $ | 23 | ||||||
Fair value adjustments – Sanuwave warrants | - | |||||||
Balance – June 30, 2021 | $ | 23 | ||||||
Fair value adjustments – Sanuwave warrants | (7 | ) | ||||||
Balance – September 30, 2021 | 16 | |||||||
Asset | ||||||||
Balance – December 31, 2021 | 19 | $ | 19 | |||||
Fair value adjustments – Sanuwave warrants | (2 | ) | (2 | ) | ||||
Balance – March 31, 2022 | $ | 17 | $ | 17 | ||||
Fair value adjustments – Sanuwave warrants | (8 | ) | (8 | ) | ||||
Balance – June 30, 2022 | $ | 9 | $ | 9 | ||||
Balance – December 31, 2022 | 3 | |||||||
Fair value adjustments – Sanuwave warrants | (2 | ) | 2 | |||||
Balance – September 30, 2022 | 7 | |||||||
Balance – March 31, 2023 | $ | 5 | ||||||
Fair value adjustments – Sanuwave warrants | (2 | ) | ||||||
Balance – June 30, 2022 | $ | 3 |
The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:
SCHEDULE OF ASSETS AND LIABILITIESLIABILITY MEASURED AT FAIR VALUE
Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | |||||||||||||||||||||||||
Fair Value Measurements as of September 30, 2022 | Fair Value Measurements as of June 30, 2023 | |||||||||||||||||||||||||||||||
Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | |||||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||||||
Other assets | $ | - | $ | - | $ | 7 | $ | 7 | $ | - | $ | - | $ | 3 | $ | 3 |
Level I | Level II | Level III | Total | |||||||||||||
Fair Value Measurements as of December 31, 2022 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
Asset: | ||||||||||||||||
Other assets | $ | - | $ | - | $ | 3 | $ | 3 |
10 |
Fair Value Measurements as of December 31, 2021 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
Asset: | ||||||||||||||||
Other assets | $ | - | $ | - | $ | 19 | $ | 19 |
NOTE 89 – COMMITMENTS AND CONTINGENCIES
Other Risks
On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial conditions, and on the market price of our common shares.
In addition, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. A continuation or worsening of the levels of market disruption and volatility could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
Lastly, inflation, as well as some of the measures taken by or that may be taken by the governments in countries where we operate in an attempt to curb inflation may have negative effects on the economies of those countries generally. If the United States or other countries where we operate experience substantial inflation in the future, our business may be adversely affected. This could have a material adverse effect on our business, financial condition, results of operations, or cash flows. Specifically, our existing distributor agreements limit the amount that we can increase the price that we sell our products to the distributors. Accordingly, an inflationary environment, including factors such as increasing freight and materials prices, could make it less profitable for us to do business.
Pending litigation
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”“Exclusive Distribution Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Exclusive Distribution Agreement by discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, neverthelessdetermined that (i) the Company had the right to terminate the Exclusive Distribution Agreement; (ii) the Company did not breach the duty of good faith and fair dealing with regard to the Exclusive Distribution Agreement; and (iii) the Company did not breach any confidentiality obligations to Protrade. Nevertheless the arbitrator determined that the Company did not comply with the obligation to supply Protrade with a year’s supply of patches, and awarded Protrade about $1.51,500,250, which consists of $1,432,000 million,for “lost profits” and $68,250 as reimbursement of arbitration costs, on the grounds that the Company allegedly failed to fulfill an order for reusable hydrogelsupply Protrade with certain patches placed after the Agreement was terminated.utilized by users of DV0057 Painshield MD device. The arbitrator based herthe decision on the basis of testimony of Protrade’s president who asserted that a patientuser would use in excess of 33 reusable patches per each device. The Company believes that the number of patches per device alleged by Protrade is grossly inflated, and that these claims were not properly raised before the arbitrator. Accordingly, on April 13, 2022, the Company submitted an application for the correction of the award which the Company believes is a grossly inflated number.arbitrator denied on June 22, 2022.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award. On April 13, 2022, the Company submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Company only sold 2-3 reusable patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Company filed a motioncross-motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority, that the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Company averred in its motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that has no factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Awardaward and denying the cross-motion.
On November 9, 2022, the Company filed a motion to re-argue and re-pleadrenew its cross-motion to vacate the arbitration decision based on additionalnewer information that was not available during the initial hearing. On the same day, the Company also filed a notice of appeal with the Appellate Division, Second Department. On March 21, 2023, the Court denied the motion to re-argue and renew.
On July 10, 2023, we filed its appeal with the Appellate Division, Second Department. The Company expectsintends to continue to vigorously pursue its opposition to the award in all appropriate fora.
As of June 30, 2023 and December 31, 2022, the Company accrued the amount of the award to Protrade amounting to approximately $1.9 million, with the $0.4 million of interest accrued as part of “Interest expense” and “Other accounts payable and accrued expenses” on both periods.
NOTE 910 – RELATED PARTY TRANSACTION
The firm of FisherBroyles LLP is handling ourthe Company’s Protrade litigation and appeals. For the ninethree and six months ended SeptemberJune 30, 2022, we2023, the Company have been billed and paid legal fees from Fisher BroylesFisherBroyles amounting to $232,703$23 and $89, respectively, and it has been recorded as part of “General and administrative expenses” in the condensed consolidated statements of operations. As has been previously disclosed, one of ourthe Company’s board members, Aurora Cassirer, is a partner at Fisher Broyles.FisherBroyles. Ms. Cassirer does not provide any legal services or legal advice to the Company.
NOTE 10 – SUBSEQUENT EVENTS
Series F Preferred Stock
On September 13, 2022, the Board declared a dividend of one one-thousandth of a share of Series F Preferred Stock, par value $ per share (“Series F Preferred Stock”), for each outstanding share of the Company’s common stock, par value $ per share, to stockholders of record at 5:00 p.m. Eastern Time on October 14, 2022.
Each share of Series F Preferred Stock entitles the holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of Series F Preferred Stock has a ratable number of votes). Thus, each one-thousandth of a share of Series F Preferred Stock entitles the holder thereof to 1,000 votes. The outstanding shares of Series F Preferred Stock will vote together with the outstanding shares of common stock of the Company as a single class exclusively with respect to (1) any proposal to adopt an amendment to Certificate of Incorporation to reclassify the outstanding shares of common stock at a ratio specified in or determined in accordance with the terms of such amendment (the “Reverse Stock Split”) and (2) any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split (the “Adjournment Proposal”). The Series F Preferred Stock is not entitled to vote on any other matter, except to the extent required under the Delaware General Corporation Law.
Unless otherwise provided on any applicable proxy or ballot with respect to the voting on the Reverse Stock Split or the Adjournment Proposal, the vote of each share of Series F Preferred Stock (or fraction thereof) entitled to vote on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal will be cast in the same manner as the vote, if any, of the share of common stock (or fraction thereof) in respect of which such share of Series F Preferred Stock (or fraction thereof) was issued as a dividend is cast on the Reverse Stock Split, the Adjournment Proposal or such other matter, as applicable, and the proxy or ballot with respect to shares of common stock held by any holder on whose behalf such proxy or ballot is submitted will be deemed to include all shares of Series F Preferred Stock (or fraction thereof) held by such holder. Holders of Series F Preferred Stock will not receive a separate ballot or proxy to cast votes with respect to the Series F Preferred Stock on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before any meeting of stockholders held to vote on the Reverse Stock Split. All shares of Series F Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series F Preferred Stock (the “Initial Redemption”). Any outstanding shares of Series F Preferred Stock that have not been redeemed pursuant to an Initial Redemption will be redeemed in whole, but not in part, (i) if such redemption is ordered by the Board in its sole discretion, automatically and effective on such time and date specified by the Board in its sole discretion or (ii) automatically upon the approval by the Company’s stockholders of the Reverse Stock Split at any meeting of the stockholders held for the purpose of voting on such proposal.
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Each share of Series F Preferred Stock redeemed in any redemption described above will be redeemed in consideration for the right to receive an amount equal to $ in cash for each one hundred whole shares of Series F Preferred Stock that are “beneficially owned” by the “beneficial owner” (as such terms are defined in the Certificate of Designation) thereof as of the applicable redemption time and redeemed pursuant to such redemption, payable upon receipt by the Company of a written request submitted by the applicable holder to the corporate secretary of the Company (each a “Redemption Payment Request”) following the applicable redemption time. Such Redemption Payment Request shall (i) be in a form reasonably acceptable to the Company (ii) set forth in reasonable detail the number of shares of Series F Preferred Stock beneficially owned by the holder at the applicable redemption time and include evidence reasonably satisfactory to the Company regarding the same, and (iii) set forth a calculation specifying the amount in cash owed to such Holder by the Company with respect to the shares of Series F Preferred Stock that were redeemed at the applicable redemption time. However, the redemption consideration in respect of the shares of Series F Preferred Stock (or fractions thereof) redeemed in any redemption described above: (i) will entitle the former beneficial owners of less than one hundred whole shares of Series F Preferred Stock redeemed in any redemption to no cash payment in respect thereof and (y) will, in the case of a former beneficial owner of a number of shares of Series F Preferred Stock (or fractions thereof) redeemed pursuant to any redemption that is not equal to a whole number that is a multiple of one hundred, entitle such beneficial owner to the same cash payment, if any, in respect of such redemption as would have been payable in such redemption to such beneficial owner if the number of shares (or fractions thereof) beneficially owned by such beneficial owner and redeemed pursuant to such redemption were rounded down to the nearest whole number that is a multiple of one hundred (such, that for example, the former beneficial owner of 150 shares of Series F Preferred Stock redeemed pursuant to any redemption will be entitled to receive the same cash payment in respect of such redemption as would have been payable to the former beneficial owner of 100 shares of Series F Preferred Stock redeemed pursuant to such redemption).
No shares of Series F Preferred Stock may be transferred by the holder thereof except in connection with a transfer by such holder of any shares of common stock held by such holder, in which case a number of one one-thousandths (1/1,000ths) of a share of Series F Preferred Stock equal to the number of shares of common stock to be transferred by such holder will be automatically transferred to the transferee of such shares of common stock. The holders of Series F Preferred Stock, as such, are not entitled to receive dividends of any kind.
The Certificate of Designation was filed with the Delaware Secretary of State and became effective on September 14, 2022.
As described in the proxy statement filed on October 31, 2022, holders of our common stock and Series F Preferred Stock as of the close of business on October 17, 2022, are entitled to vote on the amendment to the Company’s Certificate of Incorporation to effect, at the discretion of the Company’s Board but prior to the six-month anniversary of the date on which the reverse stock split is approved by the Company’s stockholders at the Annual Meeting, a reverse stock split of all of the outstanding shares of the Company’s common stock at a ratio in the range of 1-for-2 to 1-for-50, with such ratio to be determined by the Board in its discretion and included in a public announcement, and the proposal to adjourn the Annual Meeting to a later date or date at the Annual Meeting to be held on December 15, 2022.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and financial condition of NanoVibronix, Inc. (the “Company”) as of SeptemberJune 30, 20222023 and for the three and ninesix months ended SeptemberJune 30, 20222023 and 20212022 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 20212022 and for the year then ended December 31, 2022, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022, as amended on May 2, 2022.17, 2023. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other reports filed with the SEC, and other factors that we may not know.
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 history of losses and expectation of continued
| |
● | Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of | |
● | Increasing inflation could adversely affect our business, financial condition, results of operations or cash | |
● | The geographic, social and economic impact of COVID-19 on the Company’s business | |
● | Our ability to raise funding for, and the timing of, clinical studies and eventual U.S. Food and Drug Administration approval of our product | |
● | Regulatory actions that could adversely affect the price of or demand for our approved | |
● | Market acceptance of existing and new | |
● | Favorable or unfavorable decisions about our products from government regulators, insurance companies or other third-party | |
● | Risks of product liability claims and the availability of | |
● | Our ability to successfully develop and commercialize our | |
● | Our ability to generate internal | |
● | Risks related to computer system failures and | |
● | Our ability to obtain regulatory approval in foreign | |
● | Uncertainty regarding the success of our clinical trials for our products in | |
● | Risks related to our operations in Israel, including political, economic and military | |
● | The price of our securities is volatile with limited trading | |
● | Our ability to regain | |
● | Our ability to maintain effective internal control over financial reporting and to remedy identified material | |
● | We are a “smaller reporting company” and have reduced disclosure obligations that may make our stock less attractive to | |
● | Our intellectual property portfolio and our ability to protect our intellectual property | |
● | Our ability to recruit and retain qualified regulatory and research and development | |
● | Unforeseen changes in healthcare reimbursement for any of our approved | |
● | The adoption of health policy changes and health care | |
● | Lack of financial resources to adequately support our | |
● | Difficulties in maintaining commercial scale manufacturing capacity and | |
● | Our ability to generate internal | |
● | Changes in our relationship with key | |
● | Changes in the market valuation or earnings of our competitors or companies viewed as similar to | |
● | Our failure to comply with regulatory | |
● | Uncertainty in industry demand and patient wellness | |
● | General economic conditions and market conditions in the medical device | |
● | Future sales of large blocks of our common stock, which may adversely impact our stock | |
● | 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, 2021, as amended,2022, 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 Quarterly Report on Form 10-Q. 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.
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. The global wound care device market totaled approximately $20.8 billion in 2022 and it is expected to grow to $27.2 billion by 2027 at a CAGR of 5.4% during 2022-2027 (as reported by Markets and Markets in June 2022).
Protrade Proceeding
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company isthat we were in breach of anthe Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”) between Protrade and the Company.Agreement. Protrade alleges, in part, that the Company haswe breached the Exclusive Distribution Agreement by discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, neverthelessdetermined that (i) we had the right to terminate the Exclusive Distribution Agreement; (ii) we did not breach the duty of good faith and fair dealing with regard to the Exclusive Distribution Agreement; and (iii) we did not breach any confidentiality obligations to Protrade. Nevertheless, the arbitrator determined that we did not comply with the obligation to supply Protrade with a year’s supply of patches, and awarded Protrade about $1.5 million,$1,500,250, which consists of $1,432,000 for “lost profits” and $68,250 as reimbursement of arbitration costs, on the grounds that the Companywe allegedly failed to fulfill an order for reusable hydrogelsupply Protrade with certain patches placed after the Agreement was terminated.utilized by users of DV0057 Painshield MD device. The arbitrator based herthe decision on the basis of testimony of Protrade’s president who asserted that a patientuser would use in excess of 33 reusable patches per each device. We believe that the number of patches per device alleged by Protrade is grossly inflated, and that these claims were not properly raised before the arbitrator. Accordingly, on April 13, 2022, we submitted an application for the correction of the award which the Company believes is a grossly inflated number.arbitrator denied on June 22, 2022.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award.award. On April 13, 2022, the Companywe submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Companywe only sold 2-3 reusable patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Companywe filed a motioncross-motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority, that the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Companywe averred in itsour motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that has no factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Award award and denying the cross-motion.
On November 9, 2022, the Companywe filed a motion to re-argue and re-pleadrenew its cross-motion to vacate the arbitration decision based on additionalnewer information that was not available during the initial hearing. On the same day, the Companywe also filed a notice of appeal with the Appellate Division, Second Department. The Company expectsOn March 21, 2023, the Court denied the motion to re-argue and renew.
On July 10, 2023, we filed our appeal with the Appellate Division, Second Department. We intend to continue to vigorously pursue itsour opposition to the award in all appropriate fora.
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Nasdaq Deficiency and Hearings Panel DecisionMinimum Stockholders’ Equity Requirement
On March 2, 2022,May 23, 2023, we received a letter from the Listing Qualifications Department of the Nasdaq StockCapital Market (“Nasdaq”) indicating that based uponwe no longer comply with the closing bid priceminimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) (the “Rule”) for continued listing on Nasdaq because our stockholders’ equity of approximately $2.2 million as reported in our common stockQuarterly Report on Form 10-Q for the 30 consecutive business day period between January 14, 2022, throughended March 1, 2022,31, 2023, is below the required minimum of $2.5 million, and as of May 22, 2023, we did not meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
In accordance with Nasdaq Listing Rules, we had 45 calendar days, or until July 7, 2023, to submit a plan to regain compliance. On July 7, 2023 we submitted our plan to regain compliance with the Nasdaq minimum bid pricestockholders’ equity standard. If our plan is accepted, Nasdaq may grant us an extension of $1.00 per share requiredup to 180 calendar days from the date of the notification letter to evidence compliance. On July 19, 2023, the Staff granted our request for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicatedan extension through November 20, 2023, to evidence compliance with the Rule.
However, there can be no assurance that we will be provided with a compliance period of 180 calendar days, or until August 29, 2022, in whichable to regain compliance. If we do not regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time duringby the 180-day period,end of the closing bid price of our common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide us with written confirmation that it had achieved compliance with the minimum bid price requirement. The Company did not evidence compliance with the price requirement by August 29, 2022.
On August 30, 2022, the Company received notice from Nasdaq indicating that the Company’s securities would be subject to delisting due to the Company’s continued non-compliance with the minimum bid price requirement unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing before the Panel, which stayed any further actionextension granted by Nasdaq, at least pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grantor we fail to the Company following the hearing. On October 17, 2022, the Panel granted the Company’s requestsatisfy another Nasdaq requirement for continued listing, on The Nasdaq Capital Market until December 15, 2022, subject to the Company providing a written update to the Panel on December 15, 2022.
On September 13, 2022, subject to stockholder approval, the Board approved an amendment to our Certificate of Incorporation to, at the discretion of the Board, effect the reverse stock split of our common stock at a ratio of 1-for-2 to 1-for-50, with the exact ratio within such range to be determined by the Board at its discretion. The primary goal of the reverse stock split is to increase the per share market price of our common stock to meet the minimum per share bid price requirements for continued listing on Nasdaq. As indicated by our proxy statement filed on October 31, 2022, stockholders of our common stock and Series F Preferred will be able to vote on the reverse stock split at our annual meeting to be held on December 15, 2022. However, there is no assurance that our stockholders will approve the stock split orstaff could provide notice that our common stock will close at prices for the required number of days forbecome subject to delisting. In such event, Nasdaq rules permit us to regainappeal the decision to reject its proposed compliance with the minimum bid price requirement. We expectplan or any delisting determination to provide a written update to the Panel on December 15, 2022, immediately following the annual meeting.
Regulatory Update
On May 26, 2022, we were notified by the U.S. Food and Drug Administration (the “FDA”) that we should discontinue any new marketing of our PainShield Plus products until we receive formal approval that the devices meet the predicate product category specifications. The Company is working with a qualified third-party laboratory to gain such approval. As a result, the Company has also delayed submitting its application for approval of our PainShield Relief product until this matter is resolved. There isNasdaq Hearings Panel. Accordingly, there can be no guarantee that the qualified third-party laboratorywe will be able re-engineer the product so that it meets the predicate product category specifications, or that we will ever be successful in obtaining FDA clearance or approval for the PainShield Plus and Painshield Relief products.
We also filed an application with the Centers for Medicare and Medicaid Services for reimbursement earlier this year. The application was rejected due to a lack of data supporting its life expectancy. In order to rectify this deficiency, we entered into an agreement with a qualified third-party laboratory to conduct testing to provide independent data supportingmaintain our assertion
Nasdaq listing.
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 3 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended.2022. There have not been any material changes to such critical accounting policies since December 31, 2021.2022.
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
Three Months Ended SeptemberJune 30, 20222023 Compared to Three Months Ended SeptemberJune 30, 20212022
Revenues. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, our revenues were approximately $97,000$294,000 and $499,000,$485,000, respectively, a decrease of approximately 81%39%, or $402,000,$191,000 between the periods. The decrease in revenues was mainly due to lowerdecreased orders from Ultra Pain Products, LLC (“UPPI”), one of our two largest customers, partially offset, to a lesser extent, by the increase in volume of sales to UPPI, as discussions are being held to possibly amend our current distribution agreement.veteran administration facilities (“VA”). 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. Therefore, any growth or decrease in revenues by quarter may not be linear or consistent.
For the three months ended SeptemberJune 30, 2022 and 2021,2023, the percentage of revenues attributable to our products was: PainShield - 92%100% and UroShield - 8%0%. For the three months ended SeptemberJune 30, 2022, the percentage of revenues attributable to our products was: PainShield - 98% and 2021,UroShield - 2%. For the three months ended June 30, 2023 and 2022, the portion of our revenues that was derived from distributors was 83%96% and 95%97%, respectively.
Gross Profit. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, gross profit was approximately $80,000$216,000 and $228,000,$281,000, respectively, a decrease of approximately 65%,23% or $148,000,$65,000, mainly due to decreased sales to UPPI, which are sold a lower gross margin as compared to our sales to VA customers, as well as accounting for patches that were expired and written off, and replacement of our productsold components that occurred in the thirdsecond quarter of 2022.
Gross profit as a percentage of revenues was approximately 82%73% and 46%58% for the three months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. The increase in gross profit as a percentage is mainly due to sales to our distributors who sell to veteran administration facilities that have considerably higher margins than our sales to UPPI.
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Research and Development Expenses. For the three months ended SeptemberJune 30, 20222023 and 2021,2022, research and development expenses were approximately $49,000$35,000 and $50,000,$61,000, respectively between the periods. The decrease was mainly due to reduced payroll costs during the three months ended September 30, 2022.a decrease in expenses incurred to subcontractors and consultants for our research and development activities.
Research and development expenses as a percentage of total revenues were relatively steady totaling approximately 51%12% and 10%13% for the three months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively. This minimal decrease was mainly due to the increase in revenues.
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 SeptemberJune 30, 20222023 and 2021,2022, selling and marketing expenses were approximately $217,000$227,000 and $245,000,$333,000, respectively, a decrease of approximately 11%32%, or $28,000,$106,000, between the periods. The decrease was primarilymainly due to reallocationa decrease in payments to subcontractors and consultants, as we terminated a large distributor in the third quarter of a portion of our sales executive’s salary to administration.2022.
Selling and marketing expenses as a percentage of total revenues were approximately 224%77% and 49%69% for the three months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively, due to the decreased revenues recorded for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.respectively.
Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, conventions, 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 SeptemberJune 30, 20222023 and 2021,2022, general and administrative expenses were approximately $738,000$963,000 and $801,000,$1,155,000, respectively, a decrease of approximately 8%17%, or $63,000,$192,000, between the periods. The decrease was primarily due to larger amount of consultingincreased legal fees mainly related to our over-issuancepending litigations and appeal that started in the mid-year of common stock in 2021 partially offset by increase in legal fees in 2022 related to the Company’s appeal of the arbitration case.2022.
General and administrative expenses as a percentage of total revenues were approximately 761%328% and 161%238% for the three months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively, due to the decreased revenues recorded for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.respectively.
Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, stock-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.Interest expense. For the three months ended SeptemberJune 30, 2023 and 2022, interest expense were $33,000 and 2021, financial expenses, net were approximately $16,000 and $23,000, respectively, a decrease of approximately $7,000 between the periods between the periods mainly due$0, respectively. This pertains to the change in fair valueinterest on the Company’s judgment liability for the 2nd quarter of the investment in Sanuwave.2023.
Change in fair value of derivative liabilities. For the three months ended September 30, 2022 and 2021, there was a change in fair value of derivative liabilities of approximately nil and $5,714,000, respectively. The amount of change in 2021 was due to the resolution of our over-issuance of common stock in 2021. Our over-issuance of common stock in 2021 resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.
Income tax expense. For the three months ended SeptemberJune 30, 2023 and 2022, tax expenses were $13,000 and 2021, there was a tax expense of $15,000 of and $70,000,$16,000, respectively. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.
Net loss. Our net loss decreased by approximately $5,720,000$228,000, or 86%18%, to approximately $955,000$1,074,000 for the three months ended SeptemberJune 30, 20222023 from approximately $6,675,000$1,302,000 in the same period of 2021.2022. The decrease in net loss resulted primarily from the factors described above.
NineSix Months Ended SeptemberJune 30, 20222023 Compared to NineSix Months Ended SeptemberJune 30, 20212022
Revenues. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, our revenues were approximately $854,000$648,000 and $920,000,$757,000 respectively, a decrease of approximately 7%14%, or $66,000,$109,000 between the periods. The decrease was due to lower volume ofdecreased orders from UPPI partially offset by higher sales to UPPI in the third quarter of 2022, as discussions are being held to possibly amend our current distribution agreement.veterans’ administration facilities. 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. Therefore, any growth or decrease in revenues by quarter may not be linear or consistent.
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For the ninesix months ended SeptemberJune 30, 20222023, the percentage of revenues attributable to our products was: PainShield - 95% and 2021,UroShield – 5%. For the six months ended June 30, 2022, the percentage of revenues attributable to our products was: PainShield - 98% and UroShield -– 2%. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, the portion of our revenues that was derived from distributors was 94%91% and 95%, respectively.
Gross Profit. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, gross profit was approximately $467,000$451,000 and $513,000,$387,000, respectively, a decreasean increase of approximately 9%,17% or $46,000,$64,000, mainly due to decreased sales to UPPI, which are sold a lower gross margin as compared to our sales to VA customers, as well as accounting for patches that were expired and written off, and the replacement of our productsold components that occurred in the thirdsecond quarter of 2022.
Gross profit as a percentage of revenues was approximately 55%70% and 56%51% for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The decreaseincrease in gross profit as a percentage is mainly due toresulted primarily from the reasons described above.
Research and Development Expenses. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, research and development expenses were approximately $176,000$90,000 and $178,000,$127,000, respectively, a decrease of approximately 1%29%, or $2,000,$37,000, between the periods.
Research The decrease was due to a decrease in expenses incurred to subcontractors and consultants for our research and development expensesactivities, especially as a percentage of total revenues were approximately 21% and 19% forwe engaged third parties to assist in regulatory matters during the ninethree months ended SeptemberJune 30, 2022 and 2021, respectively.2023.
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.
SellingResearch and Marketing Expenses. For the nine months ended September 30, 2022 and 2021, selling and marketing expenses were approximately $760,000 and $852,000, respectively, a decrease of approximately 11%, or $92,000, between the periods. The decrease was due to a reduction of payroll costs due to re-allocation of a portion of a sales executive’s payroll to administrative costs in 2022.
Selling and marketingdevelopment expenses as a percentage of total revenues were relatively steady totaling approximately 89%14% and 93%17% for the ninesix months ended SeptemberJune 30, 2023 and 2022, respectively.
Selling and 2021, respectively.Marketing Expenses. For the six months ended June 30, 2023 and 2022, selling and marketing expenses were approximately $441,000 and $543,000, respectively, a decrease of approximately 19%, or $102,000, between the periods. The decrease was due to lesser payments made to sales consultants and building website sales portals in 2022.
Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, conventions, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing activities.
Selling and marketing expenses as a percentage of total revenues were relatively steady totaling approximately 68% and 72% for the six months ended June 30, 2023 and 2022, respectively.
General and Administrative Expenses. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, general and administrative expenses were approximately $2,835,000$1,984,000 and $2,656,000,$2,097,000, respectively, an increasea decrease of approximately 7%5%, or $179,000,$113,000, between the periods. The increasedecrease was mainly due to the increased legal costs from the appeal of the arbitration litigation increased consulting costs pertaining to regulatory reviews and the re-allocation of payroll costs of a sales executive’s payroll to administrative costs in the second and third quartermid-year of 2022.
General and administrative expenses as a percentage of total revenues were approximately 332% and 289% for the nine months ended September 30, 2022 and 2021, respectively.
Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, stock-based compensation expenses, accounting, legal and facilities expenses associated with general and administrative activities and costs associated with being a publicly traded company.
General and administrative expenses as a percentage of total revenues were approximately 306% and 277% for the six months ended June 30, 2023 and 2022, respectively.
Financial expenses,expense, net.For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, financial expenses, net was approximately $47,000$25,000 compared to $29,000,$31,000, respectively, an increasea decrease of approximately $18,000$6,000 between the periods mainly due to the change in fair value of the investment in Sanuwave.
Change in fair value of derivative liabilitiesInterest expense. For the ninesix months ended SeptemberJune 30, 2023 and 2022, interest expense was $67,000 and 2021, there was a change in fair value of derivative liabilities resulting in losses of approximately nil and $6,956,000,$0, respectively. The loss in 2021 was derived fromThis pertains to the interest on the Company’s total potentially dilutive shares exceedjudgment liability for the Company’s authorized share limit.first six months of 2023.
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Gain on purchase of warrants. For the nine months ended September 30, 2022 and 2021, there was a gain of approximately nil and $64,000, respectively. The gain in 2021 was related to the settlement of derivative liabilities which was the result of the repurchase of warrants from certain investors.
Warrant modification expense. For the nine months ended September 30, 2022 and 2021, warrant modification expense was approximately nil and $1,627,000, respectively. The warrant modification expense in 2021 was related to warrants held by a certain investor that were repriced. The investor was also granted new warrants to replace the repriced warrants after they were exercised.
Income tax expenses. For the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, tax expenses were $38,000$15,000 and $87,000,$23,000, respectively. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax raterate.
Net loss. Our net loss decreased by approximately $8,419,000,$263,000, or 71%11%, to approximately $3,389,000$2,171,000 for the ninesix months ended SeptemberJune 30, 20222023 from approximately $11,808,000$2,434,000 in the same period of 2021.2022. The decrease in net loss resulted primarily from the factors described above.
Liquidity and Capital Resources
We have incurred losses in the amount of approximately $3,351,000$2,171,000 during the six months ended June 30, 2023, which primarily consisted of lower amount of revenues and increased interest expense from judgement liability. We also had negative cash flow from operating activities of $5,704,000 during$2,429,000 for the ninesix months ended SeptemberJune 30, 2022. Although2023. We had a cash balance of just over $253,000 as of June 30, 2023 and we expect to continue to incur losses and negative cash flows from operating activities, through 2022, we had a cash balance of just over $1,972,000 as of September 30, 2022. The Company’s management believes that the Company doesand therefore, do not have sufficient resources to fund our operationsoperation for the next twelve months from the date of this report, thus, management hasfiling causing us to have substantial doubt of the Company’sour ability to continue as a going concern. The Companyconcern We will need to continue to raise additional capital to finance itsour losses and negative cash flows from operations beyond the next years and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability. As a result, we will be limited in our ability to raise additional capital. If we are unable to obtain stockholder ratification of certain prior issuances of our common stock and approval of an increase in the number of authorized shares of our common stock,raise additional capital, we will be unableneed to issue common stock or convertible instruments. As a result, the Company will be limited in its ability to raise additional capital.adjust our business plan and reduce workforce.
During the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, we met our short-term liquidity requirements from our existing cash reserves. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and our development of future products and competing technological and market developments. We expect to continue to incur losses and negative flows from operations. We intend to use the proceeds generated from equity financings, or strategic alliances with third parties, either alone or in combination with equity financing to meet our short-term liquidity requirements as well as to advance our long-term plans. We do not believe we have sufficient capital to execute our business plan over the next twelve months and thereThere are no assurances that we will not need to raise additional capital later, or that we would beare able to raise additional capital, ifas required, on terms favorable to us.
We do not have any material commitments to capital expenditures as of SeptemberJune 30, 2022, and2023, other than the $1.9 million owed to Protrade under the court decision, which we are not aware of any material trends in capital resources that would impact our business.continue to appeal.
As of SeptemberJune 30, 2022,2023, 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.
Cash flows
As of SeptemberJune 30, 2022,2023, we had cash and cash equivalents of approximately $1,972,000,$253,000, compared to approximately $7,737,000$2,713,000 as of December 31, 2021.2022. 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 $5,704,000$2,429,000 for the ninesix months ended SeptemberJune 30, 2022 and $3,504,0002023, compared to $3,740,000 for the same period in 2021.six months ended June 30, 2022.
Cash used in our investing activities was approximately $1,000 for the six months ended June 30, 2023, compared to $2,000 for the six months ended June 30, 2022.
Cash provided by financing activities was nilapproximately $7,000 for the ninesix months ended SeptemberJune 30, 20222023, compared to $4,580,000$0 for the ninesix months ended SeptemberJune 30, 2021.2022.
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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 as well as general market conditions as a result of inflation or the possibility of a worldwide recession. Our operating results could also be impacted by a weakening of the Euro or related currency fluctuations. Also, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products. Lastly, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. A continuation or worsening of the levels of market disruption and volatility could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of SeptemberJune 30, 2022,2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on their evaluation, as of the end of the period covered by this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective because of the material weaknesses in our internal control over financial reporting as described in Item 9A in our Annual Report on Form 10-K for the fiscal ended December 31, 2021,2022, filed with the SEC on April 15, 2022, as amended on May 2, 2022.17, 2023.
Remediation Efforts to Address the Material WeaknessesWeakness
With the oversight of senior management and our audit committee, we are takinghave taken the steps below and we plan to take additional measures to remediate the underlying causes of the material weaknesses weakness in our internal control over financial reporting as described in Item 9A in our Annual Report on Form 10-K for the fiscal ended December 31, 2021,2022, filed with the SEC on April 15, 2022, as amended on May 2, 2022:17, 2023:
We took steps to remediate the stock issuance material weakness through creating a template documentation that needs to be filled out before any new equity issuances to ensure that there are no further over-issuances. |
● | With assistance from a current finance and accounting third-party service provider, | |
● | We have expanded consultations with third party specialists on complex accounting matters, financial reporting and regulatory filings. | |
● | We have enhanced documentation of internal control activities | |
● | We have enhanced monitoring of the internal control activities process | |
● | We have added an additional level of review to ensure accurate inventory costing and recording |
In addition, under the direction of the audit committee of the Board of Directors, management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of internal control over financial reporting of the Company.
Changes in Internal Control over Financial Reporting
Other than described above in this Item 4, there has been no change in our internal control over financial reporting that occurred during the last fiscal quarter to which this report relates that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company iswe were in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”) between Protrade and the Company.Agreement. Protrade alleges, in part, that the Company haswe breached the Exclusive Distribution Agreement by discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, neverthelessdetermined that (i) the Company had the right to terminate the Exclusive Distribution Agreement; (ii) we did not breach the duty of good faith and fair dealing with regard to the Exclusive Distribution Agreement; and (iii) we did not breach any confidentiality obligations to Protrade. Nevertheless, the arbitrator determined that we did not comply with the obligation to supply Protrade with a year’s supply of patches, and awarded Protrade about $1.5 million,$1,500,250, which consists of $1,432,000 for “lost profits” and $68,250 as reimbursement of arbitration costs, on the grounds that the Companywe allegedly failed to fulfill an order for reusable hydrogelsupply Protrade with certain patches placed after the Agreement was terminated.utilized by users of DV0057 Painshield MD device. The arbitrator based herthe decision on the basis of testimony of Protrade’s president who asserted that a patientuser would use in excess of 33 reusable patches per each device. We believe that the number of patches per device alleged by Protrade is grossly inflated, and that these claims were not properly raised before the arbitrator. Accordingly, on April 13, 2022, we submitted an application for the correction of the award which the Company believes is a grossly inflated number.arbitrator denied on June 22, 2022.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award.award. On April 13, 2022, the Companywe submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Companywe only sold 2-3 reusable patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Companywe filed a motioncross-motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority, that the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Companywe averred in itsour motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that has no factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Awardaward and denying the cross-motion.
On November 9, 2022, the Companywe filed a motion to re-argue and re-pleadrenew our cross-motion to vacate the arbitration decision based on additionalnewer information that was not available during the initial hearing. On the same day, the Companywe also filed a notice of appeal with the Appellate Division, Second Department. The Company expectsOn March 21, 2023, the Court denied the motion to re-argue and renew.
On July 10, 2023, we filed our appeal with the Appellate Division, Second Department. We intend to continue to vigorously pursue itsour opposition to the award in all appropriate fora.
There are no other material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder 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
The following description of risk factors includes any material changes to, and supersedes the description of, the risk factors addressed below associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021,2022, as filed with the SEC on April 15, 2022, as amended on May 2, 2022.17, 2023. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.
The following discussion of risk factorsfactor contains forward-looking statements. TheseThis risk factorsfactor may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
If we failThe Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the Company is unable to maintain effective internal control over financial reporting, our business, financial condition or results of operations may be adversely affected.continue as a going concern. Management has substantial doubt about the Company’s ability to continue as a going concern.
AsThe Company’s unaudited condensed consolidated financial statements have been prepared on a public reporting company, we are requiredgoing concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the six months ended June 30, 2023, the Company’s cash used in operations was $2,429 leaving a cash balance of $253 as of June 30, 2023. Because the Company does not have sufficient resources to establishfund our operations for the next twelve months from the date of this filing, management has substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and maintain effective internal control over financial reporting. Failureclassification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to establish such internal control, or any failure of such internal control once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds.continue as a going concern.
Rules adopted by the Securities and Exchange Commission pursuant to Section 404 of Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions thatCompany will need to raise additional capital to finance its losses and negative cash flows from operations and may continue to be addresseddependent on additional capital raising as long as our products do not reach commercial profitability. There are no assurances that the Company would be able to raise additional capital on terms favorable to it. If the Company is unsuccessful in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknessescommercializing its products and conditions thatraising capital, it will need to be addressed in our internal control over financial reporting (including those weaknesses identified in our periodic reports),reduce activities, curtail, or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our securities.
As disclosed in Part II, Item 9A, “Controls and Procedures,” in our Annual Report on Form 10-K for the fiscal ended December 31, 2021, filed with the SEC on April 15, 2022, as amended on May 2, 2022, we have identified material weaknesses in our internal control over financial reporting due to a lack of a full and complete testing of our disclosure controls and procedures. We concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective as of December 31, 2021. Our management is in the process of implementing remediation measures with respect to the controls and written policies and procedures as described in Item 4, “Controls and Procedures,” and management expects that such measures, once fully implemented, will be sufficient to remediate such material weaknesses in our internal control over financial reporting that existed as of December 31, 2021.cease operations.
If we fail to comply with the continued listing requirements of the NASDAQ Capital Market,Nasdaq, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock is currently listed for trading on the NASDAQ Capital Market.Nasdaq. We must satisfy NASDAQ’sNasdaq’s continued listing requirements, including, among other things, a minimum stockholders’ equity of $2.5 million and a minimum closing bid price of $1.00 per share or risk delisting, which would have a material adverse effect on our business. A delisting of our common stock from the NASDAQ Capital MarketNasdaq could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.
On March 2, 2022, the CompanyMay 23, 2023, we received noticea letter from the Listing Qualifications StaffDepartment of Nasdaq indicating that based uponwe no longer comply with the closing bid priceminimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on Nasdaq because our stockholders’ equity of the Company’s common stockapproximately $2.2 million as reported in our Quarterly Report on Form 10-Q for the 30 consecutive business day period between January 14, 2022, throughended March 1, 2022,31, 2023, is below the required minimum of $2.5 million, and as of May 22, 2023, we did not meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.
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In accordance with Nasdaq Listing Rules, on July 7, 2023 we submitted our plan to regain compliance with the Nasdaq minimum bid pricestockholders’ equity standard. On July 19, 2023, the staff of $1.00 per share requiredthe Listing Qualifications Department of Nasdaq granted our request for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 555(a)(2). The letter also indicated thatan extension through November 20, 2023, to evidence compliance with the Company will be provided with aminimum stockholders’ equity requirement, conditioned upon achievement of certain milestones included in the plan of compliance period of 180 calendar days, or until August 29, 2022, in whichpreviously submitted to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).Nasdaq.
On August 30, 2022,However, there can be no assurance that we will be able to regain compliance. If we do not regain compliance by the Company received notice from Nasdaq indicating thatend of the Company’s securities would be subject to delisting due to the Company’s continued non-compliance with the minimum bid price requirement unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing before the Panel, which stayed any further actionextension granted by Nasdaq, at least pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grantor we fail to the Company following the hearing. On October 17, 2022, the Panel granted the Company’s requestsatisfy another Nasdaq requirement for continued listing, on The Nasdaq Capital Market until December 15, 2022, subject to the Company providing a written update to the Panel on December 15, 2022.
On September 13, 2022 subject to stockholder approval, the Board approved an amendment to our Certificate of Incorporation to, at the discretion of the Board, effect a reverse stock split of our common stock at a ratio of 1-for-2 to 1-for-50, with the exact ratio within such range to be determined by the Board at its discretion, and have submitted this for stockholder vote at the annual meeting to be held on December 15, 2022. The primary goal of the reverse stock split is to increase the per share market price of our common stock to meet the minimum per share bid price requirements for continued listing on Nasdaq. However, even if the market price of our common stock does rise reflecting the applicable reverse stock split ratio immediately following the reverse stock split, we cannot assure you that the market price of our common stock immediately after a reverse stock split will be maintained for any period of time. Moreover, because some investors may view a reverse stock split negatively, we cannot assure you that a reverse stock split will not adversely impact the market price of our common stock. Accordingly, there is no assurancestaff could provide notice that our common stock will maintain the closing bid price for the required period of timebecome subject to regain compliance with the minimum bid price requirement following the reverse stock split.
delisting. There is no assurance that we can regain compliance with such minimum listing requirements. If our common stock were delisted from NASDAQ,Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital.
The Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the Company is unable to continue as a going concern. Management has substantial doubt about the Company’s ability to continue as a going concern.
The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. During the three quarters of 2022, the Company’s cash used in operations was $5,704 leaving a cash balance of $1,972 as of September 30, 2022. Because the Company does not have sufficient resources to fund our operations for the next twelve months from the date of this filing, management has substantial doubt of the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 our products do not reach commercial profitability. There are no assurances that the Company would be able to raise additional capital on terms favorable to it. If the Company is unsuccessful in commercializing its products and raising capital, it will need to reduce activities, curtail, or cease operations.
Failure to obtain stockholder authorization to amend our Certificate of Incorporation to authorize the reverse stock split may adversely affect our business.
On September 13, 2022 subject to stockholder approval, the Board approved an amendment to our Certificate of Incorporation to, at the discretion of the Board, effect a reverse stock split of our common stock at a ratio of 1-for-2 to 1-for-50, with the exact ratio within such range to be determined by the Board at its discretion, and have submitted this for stockholder vote at the annual meeting to be held on December 15, 2022.
If the reverse stock split is not approved by our stockholders at our annual meeting on December 15, 2022, our Board will not have the authority to effect the reverse stock split to, among other things, facilitate the continued listing of our common stock on Nasdaq by increasing the per share trading price of our common stock to help ensure a share price high enough to satisfy the $1.00 per share minimum bid price requirement. Any inability of our Board to effect the reverse stock split could expose us to delisting from Nasdaq.
In addition, our financing alternatives will be limited by the lack of any available unissued and unreserved authorized shares of common stock, and stockholder value may be harmed by this limitation. As of October 31, 2022, we had 27,997,793 shares of common stock outstanding and 5,673,633 shares of common stock reserved for issuance or issuable upon exercise of outstanding warrants and equity awards. Accordingly, we had 6,324,574 shares of common stock available for issuance as of October 31, 2022, which is a small percentage and could limit our ability to raise funds in the future to the extent necessary. Moreover, our future success depends upon our ability to attract, retain and motivate highly-skilled employees. If the reverse stock split is not approved by our stockholders, the lack of any available unissued and unreserved authorized shares of common stock to provide future equity incentive opportunities could adversely impact our ability to achieve these goals.
Our PainShield Plus products have not been cleared or approved by the FDA, and we have suspended marketing the device until it has been formally approved by the FDA.
On May 26, 2022, we were notified by the FDA that we should discontinue any new marketing of our PainShield Plus products until we receive formal approval that the devices meet the predicate product category specifications. The Company is working with a qualified third-party laboratory to gain such approval. As a result, the Company has also delayed submitting its application for approval of our PainShield Relief product until this matter is resolved. There is no guarantee that the qualified third-party laboratory will be able re-engineer the product so that it meets the predicate product category specifications, or that we will ever be successful in obtaining FDA clearance or approval for the PainShield Plus and PainShield Relief products.
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
Not Applicable.
21 |
Item 6. Exhibits
EXHIBIT INDEX
*
| Filed herewith.
|
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: | By: | /s/ Brian Murphy |
Name: | Brian Murphy, Ph.D. | |
Title: | Chief Executive Officer | |
Date: | By: | /s/ Stephen Brown |
Name: | Stephen Brown | |
Title: | Chief Financial Officer |