UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172021
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
Commission file number: 001-36445
NanoVibronix, Inc.Inc
(Exact name of registrant as specified in its charter)
Delaware | 01-0801232 | |
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification Number) |
525 Executive Blvd., Elmsford, New York | 10523 | |
(Address of principal executive office) | (Zip Code) |
Registrant’s telephone number, including area code:(914)233-3004
(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 posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant has beenwas required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“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, par value $0. 001 per share,Common Stock as of November 14, 201715, 2021 was 3,774,756 shares.
NanoVibronix, Inc.
Quarter Ended September 30, 2021
TABLE OF CONTENTS
PART I –- FINANCIAL INFORMATION
NANOVIBRONIX, INC. AND ITS SUBSIDIARYITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 82 | $ | 106 | ||||
Trade receivables | 29 | 6 | ||||||
Prepaid expenses and other accounts receivable | 80 | 42 | ||||||
Inventories | 91 | 67 | ||||||
Totalcurrent assets | 282 | 221 | ||||||
NON-CURRENT ASSETS: | ||||||||
Long-term prepaid expense | 222 | 5 | ||||||
Severance pay fund | 298 | 257 | ||||||
Property and equipment, net | 7 | 11 | ||||||
Total non- current assets | 527 | 273 | ||||||
Total assets | $ | 809 | $ | 494 |
NanoVibronix, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Amounts in thousands except share and per share data)
September 30, 2021 | December 31, 2020 | |||||||
ASSETS: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,599 | $ | 7,142 | ||||
Restricted cash | - | 391 | ||||||
Trade receivables | 28 | 25 | ||||||
Other accounts receivable and prepaid expenses | 597 | 267 | ||||||
Inventory | 201 | 145 | ||||||
Total current assets | 9,425 | 7,970 | ||||||
Non-current assets: | ||||||||
Fixed assets, net | 6 | 4 | ||||||
Other assets | 16 | 25 | ||||||
Severance pay fund | 199 | 199 | ||||||
Operating lease right-of-use assets, net | 20 | 31 | ||||||
Total non-current assets | 241 | 259 | ||||||
Total assets | $ | 9,666 | $ | 8,229 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
Current liabilities: | ||||||||
Trade payables | $ | 62 | $ | 144 | ||||
Other accounts payable and accrued expenses | 194 | 488 | ||||||
Shares issued in excess of authorized | - | 2,257 | ||||||
Operating lease liabilities - current | 10 | 13 | ||||||
Total current liabilities | 266 | 2,902 | ||||||
Non-current liabilities: | ||||||||
Accrued severance pay | $ | 243 | 245 | |||||
Deferred licensing income | 165 | 199 | ||||||
Deferred revenue | 271 | - | ||||||
Derivative liabilities | - | 2,471 | ||||||
Operating lease liabilities, non-current | 10 | 18 | ||||||
Total liabilities | 955 | 5,835 | ||||||
Commitments and contingencies (Note 9) | - | - | ||||||
Stockholders’ equity: | ||||||||
Series C Preferred stock of $ | par value - Authorized: shares at September 30, 2021 and December 31, 2020; Issued and outstanding: at September 30, 2021 and December 31, 20201 | 1 | ||||||
Series D Preferred stock of $ | par value - Authorized: shares at September 30, 2021 and December 31, 2020; Issued and outstanding: at September 30, 2021 and December 31, 2020- | - | ||||||
Series E Preferred stock of $ | par value - Authorized: shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: at September 30, 2021 and at December 31, 20201 | 1 | ||||||
Preferred stock, value | ||||||||
Common stock of $ | par value - Authorized: shares at September 30, 2021 and at December 31, 2020; Issued and outstanding: and shares at September 30, 2021 and December 31, 2020, respectively27 | 22 | ||||||
Additional paid in capital | 63,086 | 44,959 | ||||||
Accumulated other comprehensive income | 59 | 66 | ||||||
Accumulated deficit | (54,463 | ) | (42,655 | ) | ||||
Total stockholders’ equity | 8,711 | 2,394 | ||||||
Total liabilities and stockholders’ equity | $ | 9,666 | $ | 8,229 |
The accompanying notes are an integral part of the interimthese condensed consolidated financial statements.statements
NANOVIBRONIX, INC. AND ITS SUBSIDIARYNanoVibronix, Inc.
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
CURRENT LIABILITIES: | ||||||||
Trade payables | $ | 357 | $ | 82 | ||||
Other accounts payable | 576 | 483 | ||||||
Total current liabilities | 933 | 565 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Convertible promissory notes | 1,394 | — | ||||||
Warrants to purchase Common stock | 2,372 | 2,079 | ||||||
Accrued severance pay | 399 | 349 | ||||||
Total long-term liabilities | 4,165 | 2,428 | ||||||
COMMITMENTS AND CONTINGENT LIABILITIES | ||||||||
STOCKHOLDERS’ DEFICIENCY: | ||||||||
Stock capital - | ||||||||
Common stock of $ 0.001 par value - Authorized: 24,000,000 shares at September 30, 2017 and December 31, 2016; Issued and outstanding: 2,632,710 shares at September 30, 2017 and December 31, 2016, respectively | 2 | 2 | ||||||
Series C Preferred stock of $ 0.001 par value - | ||||||||
Authorized: 5,500,000 shares at September 30, 2017 and December 31, 2016; Issued and outstanding: 1,951,261 shares at September 30, 2017 and December 31, 2016, respectively | 2 | 2 | ||||||
Additional paid-in capital | 22,448 | 20,073 | ||||||
Accumulated deficit | (26,741 | ) | (22,576 | ) | ||||
Total stockholders’ deficiency | (4,289 | ) | (2,499 | ) | ||||
Total liabilities and stockholders’ deficiency | $ | 809 | $ | 494 |
Condensed Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except share and per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 499 | $ | 150 | $ | 920 | $ | 533 | ||||||||
Cost of revenues | 271 | 51 | 407 | 345 | ||||||||||||
Gross profit | 228 | 99 | 513 | 188 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 50 | 68 | 178 | 131 | ||||||||||||
Selling and marketing | 245 | 289 | 852 | 723 | ||||||||||||
General and administrative | 801 | 546 | 2,656 | 2,513 | ||||||||||||
Total operating expenses | 1,096 | 903 | 3,686 | 3,367 | ||||||||||||
Loss from operations | (868 | ) | (804 | ) | (3,173 | ) | (3,179 | ) | ||||||||
Interest expense | - | (123 | ) | - | (123 | ) | ||||||||||
Financial income (expense), net | (23 | ) | (15 | ) | (29 | ) | (25 | ) | ||||||||
Change in fair value of derivative liabilities | (5,714 | ) | - | (6,956 | ) | - | ||||||||||
Gain on purchase of warrants | - | - | 64 | - | ||||||||||||
Warrant modification expense | - | - | (1,627 | ) | - | |||||||||||
Loss before taxes on income | (6,605 | ) | (942 | ) | (11,721 | ) | (3,327 | ) | ||||||||
Income tax benefit / (expense) | (70 | ) | 20 | (87 | ) | 7 | ||||||||||
Net loss | $ | (6,675 | ) | $ | (922 | ) | $ | (11,808 | ) | $ | (3,320 | ) | ||||
Basic and diluted net loss available for holders of common stock, Series C Preferred Stock and Series D Preferred Stock | $ | (0.26 | ) | $ | (0.10 | ) | $ | (0.47 | ) | $ | (0.43 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 26,096,957 | 9,344,254 | 25,014,919 | 7,649,242 | ||||||||||||
Comprehensive loss: | ||||||||||||||||
Net loss available to common stockholders | (6,675 | ) | (922 | ) | (11,808 | ) | (3,320 | |||||||||
Change in foreign currency translation adjustments | 1 | - | (7 | ) | - | |||||||||||
Comprehensive loss available to common stockholders | (6,674 | ) | (922 | ) | (11,815 | ) | (3,320 | ) |
The accompanying notes are an integral part of the interimthese condensed consolidated financial statements.statements
NanoVibronix, Inc.
NANOVIBRONIX, INC. AND ITS SUBSIDIARYCondensed Consolidated Statements of Stockholders’ Equity (Unaudited)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
U.S. dollars(Amounts in thousands (exceptexcept share and per share data)
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid - in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | 2,993,142 | $ | 2 | 304 | $ | - | 1,715,000 | 2 | 4,313,764 | $ | 5 | $ | 39,935 | - | $ | (40,728 | ) | $ | (784 | ) | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 183 | - | 183 | |||||||||||||||||||||||||||||||||
Warrants issued with notes payable | ||||||||||||||||||||||||||||||||||||||||||||
Warrants issued with notes payable , shares | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | 375,000 | 567 | 567 | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash, net | 6,326,217 | 7 | 4,216 | 4,223 | ||||||||||||||||||||||||||||||||||||||||
Exercise of warrants | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants, shares | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | ||||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock, shares | ||||||||||||||||||||||||||||||||||||||||||||
Reclass from liability to equity | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||||||||||||||||||||||
Exchange of Series C Preferred Stock into Common Stock | (487,890 | ) | 487,890 | - | ||||||||||||||||||||||||||||||||||||||||
Exchange of Series D Preferred Stock into Common Stock | (151 | ) | 150,782 | - | ||||||||||||||||||||||||||||||||||||||||
Exchange of Series E Preferred Stock into Common Stock | - | - | - | - | (840,000 | - | 840,000 | - | - | - | - | |||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | (922 | ) | (922 | ) | ||||||||||||||||||||||||||||||
Balance, September 30, 2020 | 2,505,252 | $ | 2 | 153 | $ | - | 875,000 | $ | 2 | 12,493,653 | $ | 12 | $ | 44,901 | - | $ | (41,650 | ) | $ | 3,267 |
Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid - in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | 2,993,142 | $ | 2 | 304 | $ | - | 1,825,000 | $ | 2 | 4,203,764 | $ | 5 | $ | 39,669 | - | $ | (38,330 | ) | $ | 1,348 | ||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | 326 | - | 326 | |||||||||||||||||||||||||||||||||
Warrants issued with notes payable | 375,000 | 567 | 567 | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | 6,326,217 | 7 | 4,216 | 4,223 | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for cash, net | - | 123 | 123 | |||||||||||||||||||||||||||||||||||||||||
Exchange of Series C Preferred Stock into Common Stock | (487,890 | ) | 487,890 | - | ||||||||||||||||||||||||||||||||||||||||
Exchange of Series D Preferred Stock into Common Stock | (151 | ) | 150,782 | - | ||||||||||||||||||||||||||||||||||||||||
Exchange of Series E Preferred Stock into Common Stock | - | - | - | - | (950,000 | ) | - | 950,000 | - | - | - | - | ||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | - | (3,320 | ) | (3,320 | ) | ||||||||||||||||||||||||||||||
Balance, September 30, 2020 | 2,505,252 | $ | 2 | 153 | $ | - | 875,000 | $ | 2 | 12,493,653 | $ | 12 | $ | 44,901 | - | $ | (41,650 | ) | $ | 3,267 |
3 |
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | 169 | $ | 180 | $ | 65 | $ | 61 | ||||||||
Cost of revenues | 56 | 77 | 22 | 27 | ||||||||||||
Gross profit | 113 | 103 | 43 | 34 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 474 | 447 | 160 | 161 | ||||||||||||
Selling and marketing | 309 | 390 | 109 | 120 | ||||||||||||
General and administrative | 1,404 | 741 | 387 | 298 | ||||||||||||
Total operating expenses | 2,187 | 1,578 | 656 | 579 | ||||||||||||
Operating loss | (2,074 | ) | (1,475 | ) | (613 | ) | (545 | ) | ||||||||
Financial expense, net | 1,217 | 208 | 975 | 52 | ||||||||||||
Loss before taxes on income | (3,291 | ) | (1,683 | ) | (1,588 | ) | (597 | ) | ||||||||
Taxes on income | 33 | 28 | 11 | 9 | ||||||||||||
Loss | $ | (3,324 | ) | $ | (1,711 | ) | $ | (1,599 | ) | $ | (606 | ) | ||||
Deemed dividend related to extension of February 2015 warrants to Common stock in January 2017 | 841 | — | — | — | ||||||||||||
Total comprehensive loss attributable to holders of Common stock and Preferred C stock | $ | (4,165 | ) | $ | (1,711 | ) | $ | (1,599 | ) | $ | (606 | ) | ||||
Common stock and Preferred C stock basic and diluted loss per share | $ | (0.91 | ) | $ | (0.37 | ) | $ | (0.35 | ) | $ | (0.13 | ) | ||||
Weighted average number of shares of Common stock and Preferred C stock used in computing basic and diluted loss per share | 4,583,971 | 4,576,616 | 4,583,971 | 4,582,290 |
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 |
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 | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
Reclassification 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 |
The accompanying notes are an integral part of the interimthese condensed consolidated financial statements.statements
NANOVIBRONIX, INC. AND ITS SUBSIDIARYNanoVibronix, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands except share and per share data)
Preferred C stocks | Common stocks | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
Number | Amount | Number | Amount | capital | deficit | deficiency | ||||||||||||||||||||||
Balance as of January 1, 2016 | 1,951,261 | $ | 2 | 2,611,328 | $ | 2 | $ | 19,521 | $ | (19,734 | ) | $ | (209 | ) | ||||||||||||||
Issuance of Common stock upon exercise of options | — | — | 12,382 | *) | 33 | — | 33 | |||||||||||||||||||||
Issuance of Common stock to consultant | — | — | 9,000 | *) | — | — | — | |||||||||||||||||||||
Stock-based compensation related to options granted to employees | — | — | — | — | 459 | — | 459 | |||||||||||||||||||||
ASU 2016-09 adoption, Note 2t | — | — | — | — | 11 | (11 | ) | — | ||||||||||||||||||||
Stock-based compensation related to restricted stock granted to consultant | — | — | — | — | 49 | — | 49 | |||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (2,831 | ) | (2,831 | ) | |||||||||||||||||||
Balance as of December 31, 2016 | 1,951,261 | $ | 2 | 2,632,710 | $ | 2 | $ | 20,073 | $ | (22,576 | ) | $ | (2,499 | ) | ||||||||||||||
Stock-based compensation related to options granted to employees | — | — | — | — | 683 | — | 683 | |||||||||||||||||||||
Issuance of warrants to Common stock | — | — | — | — | 851 | — | 851 | |||||||||||||||||||||
Deemed dividend related to extension of February 2015 warrants to Common stock in January 2017 | — | — | — | — | 841 | (841 | ) | — | ||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (3,324 | ) | (3,324 | ) | |||||||||||||||||||
Balance as of September 30, 2017 (unaudited) | 1,951,261 | $ | 2 | 2,632,710 | $ | 2 | $ | 22,448 | $ | (26,741 | ) | $ | (4,289 | ) |
2021 | 2020 | |||||||
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (11,808 | ) | $ | (3,320 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1 | 2 | ||||||
Noncash interest expense | - | 123 | ||||||
Stock-based compensation | 114 | 326 | ||||||
Warrants received as licensing fee | - | (23 | ) | |||||
Warrant modification expense | 1,627 | - | ||||||
Change in fair value of equity investment | 9 | (4 | ) | |||||
Common stock payable to consultant | - | 566 | ||||||
Change in fair value of derivative liabilities | 7,148 | - | ||||||
Gain on purchase of warrants | (64 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Trade receivable | (4 | ) | 8 | |||||
Other accounts receivable and prepaid expenses | (330 | ) | 107 | |||||
Inventory | (56 | ) | 12 | |||||
Trade payables | (82 | ) | (46 | ) | ||||
Other accounts payable and accrued expenses | (294 | ) | (19 | ) | ||||
Deferred revenue | 237 | 215 | ||||||
Accrued severance pay, net | (2 | ) | (20 | ) | ||||
Net cash used in operating activities | (3,504 | ) | (2,073 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property plant and equipment | (3 | ) | - | |||||
Net cash used in investing activities | (3 | ) | - | |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of notes payable | - | 42 | ||||||
Proceeds from note issued to related party | - | 200 | ||||||
Payments of note payable to related party | - | (200 | ) | |||||
Proceeds from issuance of Preferred Series E stock | - | 4,223 | ||||||
Proceeds from exercise of warrants | 4,968 | - | ||||||
Buy back of warrants from investors | (388 | ) | - | |||||
Net cash provided by financing activities | 4,580 | 4,265 | ||||||
Effects of currency translation on cash and cash equivalents | (7 | ) | - | |||||
Net increase in cash, cash equivalents and restricted cash | 1,066 | 2,193 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 7,533 | 1,338 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 8,599 | $ | 3,531 | ||||
Supplemental non-cash financing and investing activities: | ||||||||
Discount on notes payable | - | 123 | ||||||
Issuance of common stock payable | $ | - | $ | 566 | ||||
Conversion of Series C, D, and E Preferred stock into common stock | $ | - | $ | 1 | ||||
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 | $ | - |
*) Represents an amount lower than $ 1.
The accompanying notes are an integral part of the interimthese condensed consolidated financial statements
NANOVIBRONIX, INC.NanoVibronix, Inc.
Notes to 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 – LIQUIDITY AND ITS SUBSIDIARYPLAN OF OPERATIONS
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Loss | $ | (3,324 | ) | $ | (1,711 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 6 | 6 | ||||||
Stock-based compensation | 683 | 284 | ||||||
Benefit component of Promissory Notes | 865 | — | ||||||
Revaluation of warrants to purchase Common stock | 293 | 191 | ||||||
Increase in trade receivables | (23 | ) | (6 | ) | ||||
Increase (decrease) in prepaid expenses and other accounts receivable | (255 | ) | 15 | |||||
Decrease (increase) in inventories | (24 | ) | 8 | |||||
Increase in trade payables | 275 | 11 | ||||||
Increase in other accounts payable | 93 | 95 | ||||||
Increase in accrued severance pay, net | 9 | — | ||||||
Net cash used in operating activities | (1,402 | ) | (1,107 | ) | ||||
Cash flows from investment activities: | ||||||||
Purchase of property and equipment | (2 | ) | (8 | ) | ||||
Net cash used in investment activities | (2 | ) | (8 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of Convertible Promissory Notes and warrants | 1,380 | — | ||||||
Proceeds from exercise of options | — | 33 | ||||||
Net cash provided by financing activities | 1,380 | 33 | ||||||
Decrease in cash and cash equivalents | (24 | ) | (1,082 | ) | ||||
Cash and cash equivalents at the beginning of the period | 106 | 1,614 | ||||||
Cash and cash equivalents at the end of the period | $ | 82 | $ | 532 |
Supplemental information and disclosure of non-cash financing transactions: | ||||||||
Carve out of warrants’ fair value from Convertible Promissory Notes | $ | 852 | $ | — |
The accompanying notes are an integral partCompany’s ability to continue to operate is dependent mainly on its ability to successfully market and sell its products and the receipt of the interim consolidated financial statements.
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
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The significant accounting policies appliedCompany currently incurs and historically has incurred losses from operations and expects to do so in the annual consolidated financial statements offoreseeable future. The Company has historically had recurring losses and negative cash used from operations which raised substantial doubt about the Company’s ability to continue as a going concern. During the nine months ended September 30, 2021, the Company asused $3,504 of December 31, 2016 are applied consistentlycash in these financial statements.
The accompanying unaudited consolidated financial statementsoperations. Although we expect to continue to incur losses and negative cash flows from operating activities, we had cash balances of $8,599 as of September 30, 20172021. Because the Company has sufficient resources to fund our operation for the next twelve months from the date of this filing, the substantial doubt has been alleviated. The Company may need to continue to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability. If we are unable to increase in the number of authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in its ability to raise additional capital.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The Company’s condensed consolidated financial statements have been prepared in accordance with the U.S.accounting principles generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for completethe interim financial statements. information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.
The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to NanoVibronix, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Unaudited interim financial information
In the opinion of management, the accompanying unaudited interim consolidated financial statements includereflect all adjustments, of awhich include only normal recurring natureadjustments, necessary to state fairly the financial position and results of operations of the Company. These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, as found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021.
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The balance sheet for December 31, 2020 was derived from the Company’s audited financial statements for the year ended December 31, 2020. 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.
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 believe 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 gains (losses) as of the nine months ended September30, 2021 and 2020 were ($7) and $8, respectively.
Revenue recognition
It is the Company’s policy that revenues from product sales is 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 fair presentationcustomer 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 consolidatedrevenue recognition and there has been no material effect on the Company’s financial positionstatements.
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 to 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.
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Sequencing
The Company adopted a sequencing policy under ASC 815-40-35 whereby if reclassification of contracts from equity to liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares. This was due to the Company committing more shares than authorized. While temporary suspensions are in place to keep the potential exercises beneath the number authorized, certain instruments are classified as liabilities, after allocating available authorized shares on the basis of the most recent grant date of potentially dilutive instruments. Pursuant to ASC 815, issuances of securities granted as compensation in a share-based payment arrangement are not subject to the sequencing policy.
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. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of Topic 326 did not have a material on the Company’s financial statements and financial statement disclosures.
NOTE 4 – STOCKHOLDERS’ EQUITY
Common stock and over-issuance
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.
As of December 3, 2020, we had 2,657,144 shares of Common Stock, resulting in an additional overissue of shares of Common Stock. As of December 31, 2020, the aggregate number of shares of common stock that was overissued by the Company was . The shares issued in excess of the authorized amount are classified as liabilities. The common stock equivalents are subject to the Company’s sequencing policy and are classified as derivative liabilities (see Note 5). On March 3, 2021, the Company filed a proxy statement in connection with a special meeting of stockholders to was to be held on March 31, 2021, but postponed until May 6, 2021 to (i) ratify the increase in the number of authorized shares of common stock from to and the issuance of such shares of common stock, and (ii) further increase the number of our authorized shares of common stock. On May 6, 2021, the Company’s stockholders voted to approve the ratification of the increase in the number of authorized shares of common stock from to and the issuance of such shares of common stock to be effective as of September 30, 2017,December 4, 2020, but the stockholders did not approve a further increase in the number of its authorized shares of common stock. authorized shares of our common stock and shares of common stock outstanding resulting in shares of common stock being available for issuance. On December 4, 2020, certain holders of the Company’s Series C Preferred Stock converted shares of Series C Preferred Stock into shares of common stock, resulting in an overissue of shares of common stock. Beginning on December 17, 2020, through January 22, 2021, certain holders of warrants we had issued in December 2020 (the “December 2020 Warrants”) exercised a portion of the December 2020 Warrants for
On August 17, 2021, the Company’s consolidated results of operation for the nine and three months ended September 30, 2017 andstockholders voted to approve an amendment to the Company’s consolidated cash flowsAmended and Restated Certificate of Incorporation to increase the number of shares of the Company’s Common Stock authorized for issuance from shares to shares. As a result of the vote to increase the number of shares authorized for issuance, the warrants that were previously accounted for as derivative liabilities were marked to market through the date of approval and then reclassified to additional paid in capital (equity), as the Company had sufficient authorized shares to settle the exercise of the warrants.
Stock-based compensation and options
During the nine-month period ended September 30, 2021 and 2020, and options were granted, respectively. The options were granted to a employees and consultants in 2021 and were recorded at a fair value and vested over . During the three and nine-month period ended September 30, 2021, stock-based compensation expense of $ and $ was recorded for options that vested, respectively. During the three and nine-month period ended September 30, 2020, there was stock-based compensation expense of $ and $ , respectively. During the nine months ended September 30, 2017.2021, options expired.
SCHEDULE OF FAIR VALUE ASSUMPTIONS FOR OPTIONS GRANTED
Price at valuation | $ | |||
Exercise price | $ | |||
Risk free interest | % | |||
Expected term (in years) | ||||
Volatility | % |
SCHEDULE OF STOCK BASED EXPENSES RECOGNIZED FOR SERVICES FROM EMPLOYEES AND ITS SUBSIDIARYNON-EMPLOYEES
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Research and development | 5 | 3 | 15 | 5 | ||||||||||||
Selling and marketing | 10 | 11 | 41 | 33 | ||||||||||||
General and administrative | 84 | 169 | 250 | 288 | ||||||||||||
Total | $ | 99 | $ | 183 | $ | 306 | $ | 326 | ||||||||
Stock-based compensation | $ | 99 | $ | 183 | $ | 306 | $ | 326 |
As of September 30, 2021, 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 weighted average period of approximately years.
ASC 820 also establishes
Series E Preferred Stock conversion to common stock
Each share of Series E Preferred Stock is convertible at any time and from time to time at the option of a fair value hierarchyholder of Series E Preferred Stock into one share of the Company’s common stock, provided that requires an entityeach holder would be prohibited from converting Series E Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. This limitation may be waived with respect to maximize the usea holder upon such holder’s provision of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significantnot less than 61 days’ prior written notice to the fair value measurement. ASC 820 establishes three levelsCompany.
On August 17, 2021, a shareholder converted inputs that may be usedSeries E Preferred Stock into shares of common stock at a conversion rate of 1 to measure fair value.1. No purchase was made in order to convert these shares. As of September 30, 2021, there were no shares of Series E Preferred Stock outstanding. shares of
During February 2013, the Company signedWarrant exercises and modification
On December 2, 2020, we entered into a convertible Promissory Notes agreement (the “Agreement”)Securities Purchase Agreement with certain institutional and accredited investors pursuant to which the Company issued secured convertible Promissory Notes (the “Notes”)and sold to certainsuch investors on February 5, 2013. On eachin a private placement an aggregate of March 28, 2013, June 3, 2013, August 5, 2013, October 7, 2013, December 9, 2013, February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August 7, 2014, September 7, 2014, October 13, 2014, November 19, 2014 and December 11, 2014, the Agreement and the Notes were amended and restated to increase the principal amount by $100. In addition, with each amendment, the Company issued to the holders(i) shares of the NoteCompany’s common stock at an offering price of $per share and (ii) pre-funded warrants to purchase up to 37,594 shares of common stock in considerationat 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 additional $100aggregate of warrants at $0.001 per amendment. Theshare.
On January 21, 2021, Company entered into letter agreements (the “Letter Agreements”) with certain existing accredited investors to exercise price at which thecertain outstanding warrants may be exercised is $2.66 per share, subject(the “Existing Warrants”) to adjustment for stock splits, fundamental transactions or similar events including “down round” protection. The warrants expire within a periodpurchase up to an aggregate of five years, based on the issuance date.
In April 2015, the holders of the Notes elected to convert the outstanding principal and interest thereunder into1,205,968 shares of the Company’s series C preferred stock. On that date, an aggregate principal balance of $1,500 and $106 in accrued interest were converted into 603,769 shares of series C preferred stock. The shares of series C preferred stock were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Section 3(a)(9) of the Securities Act of 1933, as amended.
The Company measures the warrants at fair value by applying the Black-Scholes option pricing model in each reporting period until they are exercised or expired, with changes in fair value being recognized in the Company’s consolidated statement of comprehensive loss as financial income or expense.
In estimating the warrants’ fair value, the Company used the following assumptions:
September 30, | ||||||||
2017 | 2016 | |||||||
Dividend yield(1) | 0% | 0% | ||||||
Expected volatility(2) | 39.6% - 52.2% | 64.1% - 64.4% | ||||||
Risk-free interest(3) | 1.13%-1.50% | 0.73%-0.85% | ||||||
Expected term (years)(4) | 0.3-2.1 | 1.1-3.0 |
Fair value measurement using significant unobservable inputs (Level 3):
Fair value of warrants to Common stock | ||||
Balance at January 1, 2017 | $ | 2,079 | ||
Change in fair value of warrants | 293 | |||
Balance at September 30, 2017 | $ | 2,372 |
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
Effective as of January 27, 2017, the Company entered into amendments to its two-year warrants (the “Warrant Amendment”) to purchase an aggregate of 420,000 shares of common stock at an exercise price of $3.00 per share of $1.165 (the “Exercise”). Certain of the Existing Warrants (the “Registered Existing Warrants”) 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 of 420,0001,205,967 shares of common stock (the “New Warrants”) at an exercise price of $6.00 per share, issued in January and February 2015, to extend the expiration date of the warrants for two additional years. Pursuant to the Warrant Amendment, warrants to purchase 266,667 shares of common stock at $3.00$1.04 per share and with an exercise period of seven years from the initial closing date. The gross proceeds to the Company from the Exercise were approximately $1.4 million.
In August and September 2021, investors exercised 1,477,035warrants to purchase 266,667 shares of common stock at $6.00between $0.88 and $2.50 per share were to expire on January 29, 2019, and the warrants to purchase 140,000 sharesfor proceeds of common stock at $3.00 per share and warrants to purchase 140,000 shares of common stock at $6.00 per shareapproximately $3.6 million.
The New Warrants were to expire on February 10, 2019, and the warrants to purchase 13,333 shares of common stock at $3.00 per share and warrants to purchase 13,333 shares of common stock at $6.00 per share were to expire on February 23, 2019. The exercise price and all other terms of the original warrants remain the same. Since substantially all of the warrants to purchase 840,000 shares of common stock subject to the Warrant Amendment are held by the Company’s stockholders, the Warrant Amendment was accounted for as “deemed dividend,”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, a deemed dividendwarrant modification expense in the amount of $841$1,627 was recorded to the Statement of Changes in Stockholders’ Deficiency as an increase in additional paid-in capital with a corresponding increase in additional paid in capital.
In estimating the accumulated deficit.
In March 2017,warrants’ fair value, the Company completed a bridge financing, pursuant to which the Company received from four investors $350 of loans and issued to the investors convertible promissory notes (the “2017 Notes”) in an aggregate principal amount of $350 and seven-year warrants (the “Warrants”) to purchase an aggregate of 140,000 shares of common stock at an exercise price of $5.90 per share (the “Exercise Price”) (see Note 6). The Company measured the Warrants at fair value on their issuance date by applying the Black-Scholes options pricing model, according toused the following assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS FOR WARRANTS
% | ||||
% | ||||
Volatility | 82.7% - 211 | % | ||
Contractual term (in years) | 0.67 – 6.56 |
NANOVIBRONIX, INC. AND ITS SUBSIDIARYNOTE 5 – DERIVATIVE LIABILITIES
In May and June 2017,During 2020, the Company completed additional bridge financings, pursuantestablished a sequencing policy to which the Company received from five investors $680 of loans and issuedcommon stock equivalents are exercisable to the investors 2017 Notes in an aggregate principal amount of $680 and Warrants to purchase an aggregate of 272,000 shares of common stock more than the Company’s authorized limit. It was determined that all options and warrants by the end of the year were no longer permitted to be classified as equity and were valued at fair market value using Black Scholes and recorded as derivative liabilities.
On April 6, 2021, the Exercise Price (see Note 6)Company agreed to buy back 663,332 warrants from investors for a total of $368. The warrants had exercise prices between $0.88 and $0.94 per share. The value of the derivative liabilities associated with these warrants was $451. The Company measuredrecorded a $64 gain in connection with the Warrantsbuy back of the warrants.
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s purchase warrants that were categorized within Level 3 of the fair value hierarchy during the quarter ended September 30, 2021 is as follows:
SUMMARY OF QUANTITATIVE INFORMATION TO VALUATION METHODOLOGY AND UNOBSERVABLE INPUTS
Stock price | $ | - | ||
Conversion price | $ | - | ||
Contractual term (in years) | 0.67 – 6.56 | |||
Volatility (annual) | 82.7% - 211 | % | ||
Risk-free rate | 0.09% - 1.21 | % |
The foregoing assumptions were reviewed quarterly and were subject to change based primarily on management’s assessment of the probability of the events described occurring.
Financial Liabilities 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 between Level 3 during the three and nine months ended September 30, 2021.
The following table presents changes in Level 3 liabilities measured at fair value on their issuance date by applyingfor the Black-Scholes options pricing model, according to the following assumptions:
In August and September 2017, the Company completed additional bridge financings, pursuant to which the Company received from two investors $350 of loans and issued to the investors 2017 Notes in an aggregate principal amount of $350 and Warrants to purchase an aggregate of 140,000 shares of common stock at the Exercise Price (see Note 6). The Company measured the Warrants at fair value on their issuance date by applying the Black-Scholes options pricing model, according to the following assumptions:
In addition, the Company’s financial instruments also include cash and cash equivalents, trade receivables, prepaid expenses and other accounts receivable, trade payables and other accounts payable. The fair value of these financial instruments was not materially different from their carrying values as ofnine months ended September 30, 2017 due to the short-term maturities of such instruments.2021.
SCHEDULE OF CHANGES IN LEVEL 3 LIABILITIES MEASURED AT FAIR VALUE
Derivative Liabilities | ||||
Balance – December 31, 2020 | $ | 2,471 | ||
New issuances | 1,819 | |||
Change in fair value of derivative liability | 6,916 | |||
Reclassification liability to equity | (10,755 | ) | ||
Buy back of warrants | (451 | ) | ||
Balance – September 30, 2021 | $ | - |
NANOVIBRONIX, INC. AND ITS SUBSIDIARYNOTE 6 – LEASES
The Company has operating lease agreements with terms up to 3 years, including car leases.
Since March 1, 2017,
The Company’s weighted-average remaining lease term relating to its operating leases is 2.92 years, with a weighted-average discount rate of 10%.
The Company incurred $4 and $10 of lease expense for its operating leases for the Company have completed a series of bridge financings pursuant to whichthree months and nine months ended September 30, 2021, respectively.
The following table presents information about the Company have received from accredited investors aggregate proceeds of $1,380 in exchange for 2017 Notes in the aggregate principal amount of $1,380, and seven-year Warrants to purchase an aggregate of 552,000 shares of common stock at an exercise price of $5.90 per share.
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
The principal amount and all accrued but unpaid interest ontiming of liabilities arising from the 2017 Notes will become due and payable on the date (the “Maturity Date”Company’s operating leases as of September 30, 2021:
SCHEDULE OF LIABILITIES ARISING FROM OPERATING LEASES
2021 | $ | 3 | ||
2022 | 10 | |||
2023 | 10 | |||
Total undiscounted operating lease payments | 23 | |||
Less: Imputed interest | 3 | |||
Present value of operating lease liabilities | $ | 20 |
Basic net loss per common share (“Basic EPS”) that is the earlier of the (i) 5-year anniversary of the date of issuance, or (ii) the date the Company completes an equity financing pursuant to which the Company issues and sells shares of capital stock resulting in aggregate proceeds of at least $2,000 (a “Qualified Financing”). The 2017 Notes bear interest at a rate of 6% per annum, payable on the Maturity Date. To the extent not previously converted, on the Maturity Date, each investor will receive, at the option of the investor, either (a) cash equal to the original principal amount of the 2017 Notes and interest then accrued and unpaid thereon, or (b) shares of common stock or Series C Convertible Preferred Stock of the Company, at a price per share equal to the lesser of: (x) 80% of the amount equal to the quotient obtainedcomputed by dividing (i) the estimated value of the Company as of the Maturity Date, as determined in good faithnet loss available to common stockholders by the Company’s board of directors, by (ii) the aggregateweighted average number of outstanding shares of the Company’s common stock, as of the Maturity Date on a fully diluted basis, and (y) $5.90 per share, as such amount may be adjusted for any stock split, stock dividend, reclassification or similar events affecting the capital stock of the Company. Upon consummation of a Qualified Financing, the investors may elect to have the outstanding principal and accrued but unpaid interest thereon converted into shares of the same class and series of equity securities sold in such Qualified Financing, provided that the investor may elect to receive shares of Series C Convertible Preferred Stock instead of shares of common stock tooutstanding during the extent that common stock are issued in such Qualified Financing, at a price per share equal to the lesser of: (a) 80% of the price per share at which such securities are sold in such Qualified Financing and (b) $5.90 per share, as such amount may be adjusted for any stock split, stock dividend, reclassification or similar events affecting the Company’s capital stock. If there is a change of control and the 2017 Notes have not been previously converted otherwise, the investors may, at their option, (a) receive an amount in cash equal to the sum of the original principal amount of the 2017 Notes and interest then accrued and unpaid thereon, or (b) convert the 2017 Notes and all accrued and unpaid interest thereon into shares of common stock or Series C Convertible Preferred Stock of the Company immediately prior to the closing of such change of control transaction at a price per share equal to the lesser of: (x) 80% of the amount equal to the quotient obtained by dividing (i) the estimated value of the Company implied by the exchange ratio set forth in the agreement governing such change of control transaction, as determined in good faith by the Company’s board of directors, by (ii) the aggregate number of outstanding shares of the Company’s common stock, immediately prior to such change of control on a fully diluted basis, and (y) $5.90 per share, as such amount may be adjusted for any stock split, stock dividend, reclassification or similar events affecting the Company’s capital stock.
As a result of issuing the warrants and as a result of the discount on the conversion price of the 2017 Notes, the Company recorded in the nine months and three months ended September 30, 2017 a benefit component in the amount of $851 and $214, respectively, to be amortized over the life of the 2017 Notes.
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
Stock based compensation
During the nine and three-month period ended September 30, 2017, the Company recorded share based compensation in a total amount of $683 (including the effect of the modification described below) and $147, respectively. During the nine and three-month period ended September 30, 2016 the Company recorded share based compensation in a total amount of $284 and $163, respectively.
In connection with the resignation of a director from the Company's board of directors, on March 30, 2017, the Company amended the option agreement, dated March 25, 2015, the Company entered into an agreement with the resigned director for the grant of an option to purchase 30,000 shares of common stock at an exercise price of $2.57 per share, all of which have vested, and the option agreement, dated July 18, 2016, for the grant of an option to purchase 40,000 shares of common stock at an exercise price of $5.35 per share, all of which were vesting on July 18, 2017, to (i) accelerate the vesting of the option granted to the director in 2016 so that it will be fully vested as of March 30, 2017, and (ii) permit the director to exercise the options granted in 2015 and 2016 at any time prior to the expiration of the option period as set forth in the applicable option agreement. This modification resulted in additional share based compensation expense of $98 and $0 in the nine and three months ended September 30, 2017.
As of September 30, 2017, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $845, which is expected to be recognized over a weighted average period of approximately 2.8 years.
The Company leases office facilities and motor vehicles under operating leases, which expired on various dates, the latest of which expired on July 31, 2017. The Company is renting on a month to month basis and is in discussion with an extension of its lease.
There are no future minimum lease commitments under non-cancelable operating lease agreements as of September 30, 2017.
The Company leases motor vehicles under cancelable lease agreements. The Company has an option to be released from this lease agreement, which may result in penalties in a maximum amount of approximately $5.
Rent and related expenses were $20 and $22 for the nine months and $7 and $7 for the three months ended September 30, 2017 and 2016, respectively.
Motor vehicle leases and related expenses were $14 and $12 for the nine months and $5 and $7 for the three months ended September 30, 2017 and 2016, respectively.
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Under the Company’s subsidiary research and development agreements with the IIA and pursuant to applicable laws, the Company is required to pay royalties at the rate of 3-3.5% of sales of products developed with funds provided by the IIA, up to an amount equal to 100% of the IIA research and development grants received, linked to the dollar including accrued interest at the LIBOR rate. The Company is obligated to repay the Israeli Government for the grants received only to the extent that there are sales of the funded products.
As of September 30, 2017, there are no sales from the funded project and the Company has a contingent obligation to pay royalties in the principal amount of approximately $492. In addition, the IIA may impose certain conditions on any arrangement under which it permits the Company to transfer technology or development out of Israel.
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
period. All outstanding sharestock options and warrants for the ninethree and the threenine months ended September 30, 20172021 and 20162020 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, 2021 | September 30, 2020 | |||||||
Series D Preferred Stock | 153 | 153,000 | ||||||
Series E Preferred Stock | - | 875,000 | ||||||
Stock Options - employee and non-employee | 1,914,699 | 1,693,332 | ||||||
Warrants | 2,309,347 | 5,424,739 | ||||||
Total | 4,224,199 | 8,146,071 | ||||||
Total | 4,224,199 | 8,146,071 |
The diluted loss per share equals basic loss per share in the three and nine months ended September 30, 2021 and 2020 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.
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NOTE 8 – GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
Summary information about geographic areas:
The Company manages its business on the basis of one reportable segment and derives revenues from selling its products directly to patients as well as through distributor agreements. The following is a summary of revenues within geographic areas:
Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
United States | $ | 63 | $ | 62 | $ | 23 | $ | 26 | ||||||||
Europe | 58 | 44 | 29 | 6 | ||||||||||||
Israel | 4 | 11 | 3 | 4 | ||||||||||||
India | 10 | 24 | 2 | 15 | ||||||||||||
Rest of the world | 34 | 39 | 8 | 10 | ||||||||||||
$ | 169 | $ | 180 | $ | 65 | $ | 61 |
DuringSUMMARY OF REVENUE WITHIN GEOGRAPHIC AREAS
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
United States | $ | 490 | $ | 130 | $ | 874 | $ | 391 | ||||||||
Europe | 4 | 17 | 15 | 137 | ||||||||||||
Israel | 2 | 1 | 4 | 3 | ||||||||||||
New Zealand | 3 | 2 | 15 | 2 | ||||||||||||
Canada | - | - | 12 | - | ||||||||||||
Total | $ | 499 | $ | 150 | $ | 920 | $ | 533 | ||||||||
Total | $ | 499 | $ | 150 | $ | 920 | $ | 533 |
NOTE 9 – 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 is estimated at the date of grant using a Black-Scholes-Merton pricing model with the following underlying assumptions:
SCHEDULE OF WARRANTS ASSUMPTIONS
Price at valuation | $ | 0.12 | ||
Exercise price | $ | 0.19 | ||
Risk free interest | 1.52 | % | ||
Expected term (in years) | 9 | |||
Volatility | 118.0 | % |
The Company considers this to be level 3 inputs and is valued at each reporting period. The fair value of these warrants decreased by $10 during the nine and three month periodmonths ended September 30, 2017, revenues from distributors accounted2021, leaving a balance of $14.
NOTE 10 – 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 condition, and on the market price of our common shares.
Pending litigation
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for 42%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”) between Protrade and 52%the Company. Protrade alleges, in part, that the Company has breached the Agreement by discontinuing the manufacture of total revenues. During the nineDV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. As of the date of this report, the parties have respectively submitted the initial Request for Arbitration and three month period ended September 30, 2016, revenues from distributors accountedResponse to Request for 34%Arbitration with Counterclaims and 36%agreed on a procedural timeline pursuant to which final resolution of total revenues.
The Company’s long-lived assets are all located in Israel.
the arbitration is expected by February 2022 (if not dismissed or settled earlier). The Company evaluates events or transactions that occur afterbelieves it is too early to determine the balance sheet date but priormost likely outcome. The Company disputes the claims asserted by Protrade and intends to respond to the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its interim consolidated financial statements as of September 30, 2017 (unaudited)Request and fordefend against the three months period then ended (unaudited), the Company evaluated subsequent events through November 14, 2017 the date that the consolidated financial statements were issued.claims vigorously.
NOTE 11 – SUBSEQUENT EVENTS
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
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ItemITEM 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 September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 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, 2020 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read to “us”, “we”, “our” and similar terms refer to the following discussionCompany. This Management’s Discussion and analysisAnalysis of financial conditionFinancial 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 operationsthe factors discussed in conjunction with our consolidated financial statements and the related notes thereto included“Risk Factors” elsewhere in this Quarterly Report, on Form 10-Q.in our other reports filed with the SEC, and other factors that we may not know.
Unless the context requires otherwise, references in this Form 10-Q to the “Company,” “NanoVibronix,” “we,” “our” and “us” refer to NanoVibronix, Inc., a Delaware corporation, and its subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
● | Our history of losses and expectation of continued losses. | |
● | The geographic, social and economic impact of COVID-19 on the Company’s business operations. | |
● | Our ability to | |
● | The risk that we may not obtain the requisite votes at our annual meeting to increase the number of authorized shares of common stock. | |
● | Regulatory actions that could adversely affect the price of or demand for our approved products. |
● | Market acceptance of existing and new products. |
● | Favorable or unfavorable decisions about our products from government regulators, insurance companies or other third-party payers. |
● | Risks of product liability claims and the availability of insurance. | |
● | Our ability to successfully develop and commercialize our products. | |
● | Our ability to generate internal growth. | |
● | Risks related to computer system failures and cyber-attacks. | |
● | Our ability to obtain regulatory approval in foreign jurisdictions. | |
● | Uncertainty regarding the success of our clinical trials for our products in development. | |
● | Risks related to our operations in Israel, including political, economic and military instability. | |
● | The price of our securities is volatile with limited trading volume. | |
● | Our ability to comply with the continued listing requirements of the NASDAQ capital market. | |
● | Our ability to maintain effective internal control over financial reporting and to remedy identified material weaknesses. | |
● | We are a “smaller reporting company” and have reduced disclosure obligations that may make our stock less attractive to investors. | |
● | Our intellectual property |
● | Our ability to recruit and retain qualified regulatory and research and development personnel. |
● | Unforeseen changes in healthcare reimbursement for any of our approved products. |
● | The adoption of health policy changes and health care reform. | |
● | Lack of financial resources to adequately support our operations. |
● | Difficulties in maintaining commercial scale manufacturing capacity and capability. |
● | Our ability to generate internal growth. |
● | Changes in our relationship with key collaborators. |
● | Changes in the market valuation or earnings of our competitors or companies viewed as similar to us. |
● | Our failure to comply with regulatory guidelines. |
● | Uncertainty in industry demand and patient wellness behavior. |
● | General economic conditions and market conditions in the medical device industry. |
● | Risks related to our operations in Israel. | |
● | Future sales of large blocks of our common stock, which may adversely impact our stock price. |
● | Depth of the trading market in our common stock. |
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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/A10-K for the fiscal year ended December 31, 2016,2020, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this prospectus.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.
Recent Events and Developments
COVID-19
In December 2019, a strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in China and other affected countries. The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties located in countries affected by the pandemic. Our third-party manufacturer, which is based in China, temporarily shut down for sixty days due to the pandemic and became fully operational in April 2020 which led to a significant delay in the production of goods needed to fulfill our sales orders, which were scheduled to be fulfilled in our first quarter of 2020. We were able to fulfill these orders in the second quarter of 2020. Additionally, the notified regulatory body we rely on to obtain European CE approval is located in Italy and was shut down for approximately six weeks from March to April 2020, which delayed our submission for CE mark approval for the year 2020. The CE Mark was subsequently approved in April 2020. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The financial downturn compelled us to furlough or reduce working hours for much of our operating staff for several months during the second quarter of 2020, and has forced our remaining staff as well as third-party contractors to work remotely. In addition, many staff members continue to operate remotely from their homes from time to time as government regulations fluctuate, which is continuing to result in delays in obtaining certain financial records and may cause production delays in the foreseeable future. We also rely on third-party professionals to provide services such as the preparation of our financial statements and to conduct audits, and many of these parties have been affected by government-imposed precautionary measures, thereby delaying our receipt of these services. Such government-imposed precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will be put in place again due to a resurgence in COVID-19 cases. Therefore, the COVID-19 pandemic has and may again disrupt production and cause delays in the supply and delivery of our products, may continue to affect our operation, may further divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate and may have a material adverse effect on our operations. Assessment of the complete extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it hard to adequately staff our operations.
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Nasdaq Stockholders’ Equity Minimum
On April 21, 2021, the Company received notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company no longer satisfied the minimum $2.5 million stockholders’ equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the “Equity Requirement”). The Company reported stockholders’ equity of approximately $2.4 million in its Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2020 and did not otherwise satisfy the alternative criteria pertaining to market value of listed securities or net income. In accordance with the Nasdaq Listing Rules, the Company was granted a period of 45 calendar days, or through June 7, 2021, to submit its plan to evidence compliance with the Equity Requirement for the Staff’s review. On May 24, 2021, the Company filed its Quarterly Report on Form 10-Q for the first quarter of 2021 and reported stockholders’ equity of approximately $4.3 million. On June 1, 2021, the Company was notified by Nasdaq that the Company regained compliance with Nasdaq’s listing qualifications and that this matter was now closed.
Nasdaq Bid Price Minimum
On June 17, 2021, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between May 5, 2021, through June 16, 2021, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until December 14, 2021, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement.
On August 9, 2021, the Company received a letter from Nasdaq notifying the Company that for the last 10 consecutive business days, from July 26, 2021 to August 6, 2021, the closing bid price of the Company’s common stock has been at $1.00 per share or greater, and, therefore, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2) and this matter is now closed.
On October 29, 2021, the Company’s board of directors approved an amendment, effective immediately, to Article I, Section 1.4 of the Company’s amended and restated bylaws, lowering the number of holders of the shares entitled to vote at a meeting of stockholders constituting a quorum, in person or by proxy, from a majority to one-third.
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Critical Accounting Policies
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 23 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K/A10-K for the fiscal year ended December 31, 2016.2020. There have not been any material changes to such critical accounting policies since December 31, 2016.2020.
The currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”). Accordingly, our functional currency is the dollar.
Recent Events
Underwritten Public Offering
On November 6, 2017, we closed an underwritten public offering (the “Offering”) of 1,224,488 shares of our common stock (and common stock equivalents), together with warrants (which includes warrants pursuant to the over-allotment option granted to the underwriter) to purchase up to 972,609 shares of common stock at an offering price of $4.90 per share of common stock and accompanying warrant to purchase 0.75 of one share of common stock. Total gross proceeds from the offering totaled approximately $6,000,000, and net proceeds totaled approximately $5,100,000 after deducting underwriting and estimated offering expenses. Each warrant has an exercise price of $6.95 per full share of common stock with a life of five years. We intend to use the net proceeds from this offering: (i) to cover expenses related to listing our shares on The NASDAQ Capital Market; (ii) to expand our sales leadership and field level sales resources; (iii) for research and development; (iv) to implement our Surface Acoustic Wave platform to other applications; (v) to pursue complimentary acquisitions; and (vi) for general working capital. The securities were issued pursuant to our registration statement on Form S-1 originally filed with the Securities and Exchange Commission on June 21, 2017, and declared effective on November 1, 2017.
Conversion of Convertible Promissory Notes
In September 2017, all of the holders of the convertible promissory notes issued in connection with a series of bridge financings between March 1, 2017 and September 15, 2017 (collectively, the “2017 Notes”) agreed to convert the full principal and accrued interest on the 2017 Notes into equity securities of the Company in the event the Company consummated a Qualified Financing any time before December 31, 2017. The Offering constituted a Qualified Financing, and based on the outstanding principal amount and all accrued but unpaid interest on the 2017 Notes at 80% of the offering price of $4.90 per share of common stock and accompanying warrant, we issued an aggregate of 361,462 shares of common stock (and common stock equivalents) and warrants to purchase an aggregate of 271,096 shares of common stock to the holders of the 2017 Notes, all of which are subject to lock-up agreements for 180 days from November 1, 2017.
Results of Operations
NineThree Months Ended September 30, 20172021 Compared to NineThree Months Ended September 30, 20162020
Revenues. For the ninethree months ended September 30, 20172021 and 2016,2020, our revenues were approximately $169,000$499,000 and $180,000,$150,000, respectively, a decreasean increase of approximately 6.1%233%, or $11,000,$349,000, between the periods. The decreaseincrease was mainly attributabledue to decreasedincreased sales due to consumersour new contract with UPPI, in the nine months ended September 30, 2017.addition to a new distributor that sells our products to 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. Our revenues may fluctuate from quarter-to-quarter andTherefore, any growth or decrease in revenues by quarter may not be linear or consistent.
For the ninethree months ended September 30, 2017, the percentage of revenues attributable to our products was: PainShield 81%2021 and UroShield - 19%. For the nine months ended September 30, 2016,2020, the percentage of revenues attributable to our products was: PainShield - 89%99% and UroShield - 11%1%. For the ninethree months ended September 30, 20172021 and 2016, the percentage of revenues attributable to our disposable products was 53% and 45%, respectively. For the nine months ended September 30, 2017 and 2016,2020, the portion of our revenues that was derived from distributors was 42%95% and 34%85%, respectively.
Gross Profit. For the ninethree months ended September 30, 20172021 and 2016,2020, gross profit was approximately $113,000$228,000 and $103,000,$99,000, respectively, an increase of approximately 9.7%130%, or $10,000, between the periods. The increase was$129,000, mainly due to a markdownincreased sales of obsolete inventory during suchour products somewhat offset by increased costs of manufacturing and shipping compared to the same period in 2016.last year.
Gross profit as a percentage of revenues was approximately 67%46% and 57%66% for the ninethree months ended September 30, 20172021 and 2016,2020, respectively. The increasedecrease in gross profit as a percentage is mainly due to the markdown of obsolete inventory asreasons described above.
Research and Development Expenses. For the ninethree months ended September 30, 20172021 and 2016,2020, research and development expenses were approximately $474,000$50,000 and $447,000,$68,000, respectively an increase of approximately 6%, or $27,000, between the periods. The increasedecrease was primarilymainly due to reduced payroll costs during the increase in expenses related to our clinical trials.three months ended September 30, 2021.
Research and development expenses as a percentage of total revenues were approximately 280%10% and 248%45% for the ninethree months ended September 30, 20172021 and 2016, respectively. The increase was due primarily2020, respectively as we reassigned staff to the increase in expenses described above.production
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 ninethree months ended September 30, 20172021 and 2016,2020, selling and marketing expenses were approximately $309,000$245,000 and $390,000,$289,000, respectively, a decrease of approximately 21%15%, or $81,000,$44,000, between the periods. The decrease was mainlyprimarily due to decreased salaries and consulting fees during the third quarter of 2021 and reallocation of a decrease inmember of our sales staff and, to a lesser degree, decreased selling and marketing activities, particularly trade show expenses and marketing campaigns as we had to reduce our sales budget due to limited cash resources.administration.
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Selling and marketing expenses as a percentage of total revenues were approximately 182%49% and 216%193% for the ninethree months ended September 30, 20172021 and 2016,2020, respectively. The decrease was due primarily to the decrease in expenses described above.
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 ninethree months ended September 30, 20172021 and 2016,2020, general and administrative expenses were approximately $1,404,000$801,000 and $741,000,$546,000, respectively, an increase of approximately 89%47%, or $663,000,$255,000, between the periods. The increase was mainlyprimarily due to a $223,000the increase in professional fees related to our stock based compensationshareholder meeting, increasing the number of outstanding shares, and the increased compensation costsaddition of two new employees and the new management team hired in the fourth quarterreallocation of 2016.salary.
General and administrative expenses as a percentage of total revenues were approximately 830%161% and 412%364% for the ninethree months ended September 30, 20172021 and 2016,2020, respectively. The increase was due primarily to the increase in expenses described above.
Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-basedstock-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, netexpenses, net.. For the ninethree months ended September 30, 20172021 and 2016,2020, financial expenses, net were approximately $1,217,000 and $208,000,$23,000 compared to financial expenses, net of $15,000, respectively, an increase of approximately 485%, or $1,009,000,$8,000 between the periods. The increase resulted primarily an additional expense of approximately $865,000 relatedperiods due to the issuanceresolution of the Warrants amortized overoutstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities as equity during the life of the 2017 Notes issued in the first two quarters of 2017 and a $293,000 increase due to a higher valuation adjustment of our warrants that were issued with our 2013 and 2015 convertible promissory notes.
Tax expenses. For the ninethree months ended September 30, 20172021.
Change in fair value of derivative liabilities. For thethree months ended September 30, 2021 and 2016,2020, there was a change in fair value of derivative liabilities of approximately $5,714,000 and $0, respectively. The change in 2021 was due to the resolution of outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.
Tax benefit (expense). For the three months ended September 30, 2021 and 2020, there was a tax expenses were $33,000expense of $70,000 and $28,000,a tax benefit of $20,000, respectively. The tax expense or benefit is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The increase in our taxTax expenses wasincreased due to increased spending bythe expansion of our Israel subsidiary.operations.
Loss.Net loss.Our net loss increased by approximately $1,613,000,$5,753,000 or 94%624%, to approximately $3,324,000$6,675,000 for the ninethree months ended September 30, 20172021 from approximately $1,711,000$922,000 in the same period of 2016.2020. The increase in net loss resulted primarily from the factors described above.
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Three
Nine Months Ended September 30, 20172021 Compared to ThreeNine Months Ended September 30, 20162020
Revenues. For the threenine months ended September 30, 20172021 and 2016,2020, our revenues were approximately $65,000$920,000 and $61,000,$533,000, respectively, an increase of approximately 7%73%, or $4,000,$387,000, between the periods. The increase was attributabledue to increased sales due to our distributorsnew contract with UPPI, in the three months ended September 30, 2017.addition to a new distributor that sells our products to veterans administration facilities.. Our revenues may fluctuate as we add new consumers or when existing distributors or when existing consumers or distributors make large purchases of our products during one period and no purchases during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may not be linear or consistent.
For the threenine months ended September 30, 2017,2021 and 2020, the percentage of revenues attributable to our products was: PainShield - 92%100% and UroShield - 8%0%. For the threenine months ended September 30, 2016, the percentage of revenues attributable to our products was: PainShield - 82%2021 and UroShield -18%. For the three months ended September 30, 2017 and 2016, the percentage of revenues attributable to our disposable products was 45% and 38%, respectively. For the three months ended September 30, 2017 and 2016,2020, the portion of our revenues that was derived from distributors was 52%95% and 36%68%, respectively.
Gross Profit. For the threenine months ended September 30, 2017,2021 and 2020, gross profit increased bywas approximately 26%$513,000 and $188,000, respectively, an increase of approximately 173%, or $9,000, to approximately $43,000 from approximately $34,000 during the same period in 2016. The increase was$325,000, mainly due to higherincreased sales of our products, enhanced by decreased costs of manufacturing in 2021, as well aswe incurred several one-time costs in the transition of our manufacturing of products to a markdown of obsolete inventory.third-party manufacturer in 2020.
Gross profit as a percentage of revenues was approximately 65%56% and 56%35% for the threenine months ended September 30, 20172021 and 2016,2020, respectively. The increase in gross profit as a percentage is mainly due to the increased percentage of higher margin salesreasons described above.
Research and Development Expenses. For the threenine months ended September 30, 20172021 and 2016,2020, research and development expenses were approximately $160,000$178,000 and $161,000, respectively.$131,000, respectively between the periods. The increase was mainly due to increased payroll costs in 2021 compared to the same period in 2020, as we furloughed staff in the first six months of 2020 due to the impacts of the COVID-19 pandemic. This was partially offset by reduced payroll costs and reallocation of research and development costs to assembly in the third quarter.
Research and development expenses as a percentage of total revenues were approximately 246%19% and 264%25% for the threenine months ended September 30, 20172021 and 2016,2020, respectively. The decrease was 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 threenine months ended September 30, 20172021 and 2016,2020, selling and marketing expenses were approximately $109,000$852,000 and $120,000,$723,000, respectively, a decreasean increase of approximately 9%18%, or $11,000,$129,000, between the periods. The decreaseincrease was mainly due to a decreaseincreased salaries in our sales staff and2021 compared to a lesser degree decreased selling and marketing activities, particularly marketing expensesthe same period in 2020, as we had to reduce our sales budgetfurloughed staff in the first six months of 2020 due to limited cash resources.the impacts of the COVID-19 pandemic. This was partially offset by reduced payroll costs and reallocation of salary costs to administration in the third quarter.
Selling and marketing expenses as a percentage of total revenues were approximately 168%93% and 196%136% for the threenine months ended September 30, 20172021 and 2016,2020, respectively. The decrease was due primarily to the decrease in expenses described above.
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.
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General and Administrative Expenses. For the threenine months ended September 30, 20172021 and 2016,2020, general and administrative expenses were approximately $387,000$2,656,000 and $298,000,$2,513,000, respectively, an increase of approximately 30%6%, or $89,000,$143,000, between the periods. The increase was mainlyprimarily due to the increased compensation costsaddition of new employees as well as the new management team hired inallocation of salary during the fourth quarterperiod.
General and administrative expenses as a percentage of 2016 including their stock based compensation.total revenues were approximately 289% and 471% for the nine months ended September 30, 2021 and 2020, respectively.
Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-basedstock-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,expenses, net. For the nine months ended September 30, 2021 and 2020, financial expenses, net. For were approximately $29,000 compared to a $25,000, respectively, an increase of approximately $4,000 between the periods due to the resolution of the outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities as equity during the three months ended September 30, 20172021.
Change in fair value of derivative liabilities. For the nine months ended September 30, 2021 and 2016, financial expenses, net were approximately $975,000 and $52,000, respectively, an increase2020, there was a change in fair value of derivative liabilities resulting in losses of approximately $923,000, between$6,956,000 and $0, respectively. The loss in 2021 was due to the periods.resolution of outstanding shares matter. The increaseoutstanding shares matter resulted from additional expenses incurred from the issuancein a reclassification of the Warrants amortized over the life of the 2017 Notes issued in the first two quarters of 2017 as well as by an increase derived by a higher valuation adjustment of our warrants that were issued with our 2013 and 2015 convertible promissory notes.
Tax expenses. Forderivative liabilities to equity during the three months ended September 30, 20172021.
Gain on purchase of warrants. For the nine months ended September 30, 2021 and 2016,2020, there was a gain of approximately $64,000 and $0, respectively. The gain 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, 2021 and 2020, warrant modification expense was approximately $1,627,000 and $0, respectively. The warrant modification expense in 2021 was due to the resolution of outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.
Tax expenses. For the nine months ended September 30, 2021, tax expenses were $11,000$87,000, and $9,000, respectively.for the nine months ended September 20, 2020, tax benefits were $7,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The increase in our taxTax expenses wasincreased due to increased spending bythe expansion of our Israel subsidiary.operations.
Loss.Net loss.Our net loss increased by approximately $993,000,$8,488,000, or 163%256%, to approximately $1,599,000$11,808,000 for the threenine months ended September 30, 20172021 from approximately $606,000$3,320,000 in the same period of 2016.2020. The increase in net loss resulted primarily from the factors described above.
Liquidity and Capital Resources
We have incurred losses in the amount of approximately $11,808,000 and had negative cash flow from operating activities of $3,504,000 during the nine months ended September 30, 2021. Although we expect to continue to incur losses and negative cash flows from operating activities. Weactivities, we had a cash balance of $8,599,000 as of September 30, 2021. Therefore, we have incurredsufficient resources to fund our operation for the next twelve months from the date of this filing. The Company may need to continue to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability. If we do not increase the number of authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in the amount of $3,324,000 (not $3,3242,000)its ability to raise additional capital.
During the nine monthsnine-month period ended September 30, 2017, and through November 14, 2017,2021, we met our short-term liquidity requirements from our existing cash reserves and fromreceived approximately $4,968,000 of net proceeds from the salesexercise of convertible promissory notes in an aggregate amount of $1,380,000, as well as the net proceeds of $5,100,000 from our underwritten public offering which closed on November 6, 2017.warrants. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products, our development of future products and competing technological and market developments.developments as well as our ability to overcome obstacles that may be presented due to developments caused by the coronavirus outbreak. We expect to continue to incur losses and negative cash flows from operations. We intend to use thesethe 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. It is our current belief that such proceeds will provide sufficient funding to meet our liquidity needs for the next twelve months. While we believe we have sufficient capital to execute our business plan over the next twelve months, there are no assurances that we will not need to raise additional capital at a later time, or that we would be able to raise additional capital, if required, on terms favorable to us.
We do not have any material commitments to capital expenditures as of September 30, 2017,2021, and we are not aware of any material trends in capital resources that would impact our business.
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Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Cash flows
General.
As of September 30, 2017,2021, we had cash and cash equivalents of approximately $82,000,$8,599,000, compared to approximately $106,000$3,531,000 as of December 31, 2016. The decrease is attributable primarily to our net cash used in operating activities.September 30, 2020. We have historically met our cash needs through a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for product development, research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.
Cash used in our operating activities was approximately $1,402,000$3,504,000 for the nine months ended September 30, 20172021 and $1,107,000$2,073,000 for the same period in 2016. The increase in our cash usage2020.
Cash provided by financing activities was mainly associated with the increase in our net operating lossapproximately $4,580,000 for the nine months ended September 30, 20172021 compared to the three months ended September 30, 2016, for the reasons described above.
Cash used in investing activities was $2,000 and $8,000 for the nine month periods ended September 30, 2017 and 2016, respectively, and was related to purchases of fixed assets.
Cash provided by financing activities was approximately $1,380,000$4,265,000 for the nine months ended September 30, 2017 derived from proceeds received from the issuance of 2017 Notes and $33,000 for the nine months ended September 30, 2017, which was derived from proceeds from the exercise of certain options.2020.
Off BalanceOff-Balance Sheet Arrangements
As of September 30, 2017,2021, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Factors That May Affect Future Operations
We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment.equipment as well issues that may continue to occur due to the development of the coronavirus outbreak. While there were significant delays in the production of goods due to COVID-19 issues, presently, we are no longer experiencing such delays in the production of our products. That said, there are no assurances that we will not experience significant delays if another wave of the pandemic occurs. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel or NIS,(NIS), both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products.
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 September 30, 2021, 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 uponon their evaluation, as of the end of the period covered by this evaluation,Form 10-Q, our chief executive officerChief Executive Officer and chief financial officerChief Financial Officer have concluded that our disclosure controls and procedures are(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective atbecause of the reasonable assurance levelmaterial weaknesses in our internal control over financial reporting as of September 30, 2017.described in Item 9A in our Annual Report on Form 10-K for the fiscal ended December 31, 2020, filed with the SEC on April 15, 2021.
In addition to the previously existing material weaknesses described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we identified another material weakness in our internal control over financial reporting in that we did not properly account for the number of shares of our common stock issued in connection with the conversion of shares of our preferred stock and the exercise of warrants, which resulted in the Company issuing more shares of common stock than are authorized under our governance documents (the “Overissuance Material Weakness”).
During 2020, management developed a remediation plan, whereby we implemented changes to our internal controls for these material weaknesses relating to (i) our controls over information technology and information systems relevant to the preparation of our financial statements, (ii) our controls over management review procedures for processing, recording and reviewing transactions related to certain contracts, accounting memos and certain monthly closing procedures, and (iii) our lack of a formalized written set of policies and procedures including testing documentation for our system of internal control over financial reporting (the “Existing Material Weaknesses”). Our remediation activities with respect to the Existing Material Weaknesses included: (a) expanded consultations with third party specialists on complex accounting matters, financial reporting and regulatory filings, (b) enhanced documentation to support a more precise review process, and (c) enhanced monitoring of the review process. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Although the Company has taken numerous steps with respect to the Existing Material Weaknesses, our remediation plan is not complete due to the lack of a written testing plan to conclude if our controls and procedures and management were operating effectively; and our remediation plan has not operated for a sufficient period of time for the Company to complete testing to conclude that our newly implemented controls and procedures were operating effectively as of September 30, 2021. In addition, in the third quarter of 2021, we were successful in the remediation of the Overissuance Material Weakness and have added compliance measures to monitor our issuance of securities prospectively.
Changes in Internal Control over Financial Reporting
There haveOther than described above in this Item 4, there has been no changeschange in the Company’sour internal control over financial reporting thatreportinthat occurred during the three months ended September 30, 20172021 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be involved in certain claims and litigation that arises througharising out of the normalordinary 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 is in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the 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. As of the date of this filing,report, the parties have respectively submitted the initial Request for Arbitration and Response to Request for Arbitration with Counterclaims, and agreed on a procedural timeline pursuant to which final resolution of the arbitration is expected by February 2022 (if not dismissed or settled earlier). The Company disputes the claims asserted by Protrade and intends to respond to the Request and defend against the claims vigorously.
On December 17, 2019, a lawsuit was filed by a former officer and director, Jona Zumeris, in the Haifa Israel District Financial Court, seeking damages of approximately $900,000 for breach of the Separation Agreement executed on July 4, 2018. The Israeli court issued a court order demanding that we are notrestrict approximately $700,000 of the Company’s money until the matter is adjudicated. The Company appealed the court order and in February 2020, the Company agreed to restrict approximately 1,187,000 NIS (“New Israeli Shekel”) and agreed to try to settle the matter in mediation. On November 30, 2020, the Company funded the escrow account with $391,000. In January 2021, the parties reached a party to any material litigation nor are we aware of any such threatened or pending litigation.settlement in which the Company paid the plaintiff approximately $366,000 as settlement in full.
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There are no other material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholderstockholder 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.
There are numerousThe following description of risk factors includes any material changes to, and varied risks, knownsupersedes the description of, the risk factors addressed below associated with our business, financial condition and unknown, that may prevent us from achieving our goals. You should carefully consider the risks described below and the other information includedresults of operations previously disclosed in this Quarterly Report on Form 10-Q and in“Item 1A. Risk Factors” of our Annual Report on Form 10-K/A10-K for the fiscal year ended December 31, 2016, including2020, as filed with the consolidated financial statementsSEC on April 15, 2021 and related notes. If any of the following risks, or any other risks not described below, actually occur, it is likely that our business, financial condition, and/or operating results could be materially adversely affected. In such case, the trading price and market value“Item 1A. Risk Factors” of our common stock could decline and you may lose part or all of your investment in our common stock. The risks and uncertainties described below include forward-looking statements and our actual results may differ from those discussed in these forward-looking statements.
During the three months ended September 30, 2017, there were no material changes to the risk factors previously discussed in Part I, Item 1A “Risk Factors” in our AnnualQuarterly Report on Form 10-K/A for the year ended December 31, 2016, and Form 10-Q for the quarter ended June 30, 2017, except forMarch 31, 2021, as filed with the following:SEC on May 24, 2021. 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 factors contains forward-looking statements. These risk factors 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.
AlthoughIf we fail to comply with the continued listing requirements of the NASDAQ Capital Market, our shares of common stock are nowmay 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, we currentlyMarket. We must satisfy NASDAQ’s continued listing requirements, including, among other things, a minimum closing bid price of $1.00 per share and a minimum stockholders’ equity of $2.5 million or risk delisting, which would have a limited trading volume, which results in higher price volatility for, and reduced liquiditymaterial adverse effect on our business. A delisting of our common stock.
Although our shares of common stock are now listed onfrom the NASDAQ Capital Market under the symbol “NAOV,” trading volume in our common stock has been limited and an active trading market for our shares of common stock may never develop or be maintained. The absence of an active trading market increases price volatility and reducescould materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. As longIn 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 April 21, 2021, we received a notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market (the “Equity Requirement”). The Company reported stockholders’ equity of approximately $2.4 million in its Annual Report on Form 10-K as this condition continues,of and for the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered.
If we cannot continue tofiscal year ended December 31, 2020 and did not otherwise satisfy the continuingalternative criteria pertaining to market value of listed securities or net income. In accordance with the Nasdaq Listing Rules, the Company was granted a period of 45 calendar days, or through June 7, 2021, to submit its plan to evidence compliance with the Equity Requirement for the Staff’s review On May 24, 2021, the Company filed its Quarterly Report on Form 10-Q for the first quarter of 2021 and reported stockholders’ equity of approximately $4.3 million. On June 1, 2021, the Company was notified by Nasdaq that the Company regained compliance with Nasdaq’s listing criteria of the NASDAQ Capital Market, the exchange may subsequently delist our common stock.qualifications and that this matter was now closed.
NASDAQ requiresOn June 17, 2021, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between May 5, 2021, through June 16, 2021, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until December 14, 2021 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement.
On August 9, 2021, the Company received a letter from Nasdaq notifying the Company that for the last 10 consecutive business days, from July 26, 2021 to August 6, 2021, the closing bid price of the Company’s common stock has been at $1.00 per share or greater, and, therefore, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2) and this matter is now closed.
There is no assurance we can maintain compliance with such minimum listing requirements. If our common stock were delisted from 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. 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.
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If we fail to maintain effective internal control over financial reporting, our business, financial condition or results of operations may be adversely affected.
As a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure 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.
Rules adopted by the Securities and Exchange Commission pursuant to Section 404 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 certainthe detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial public float, bidreporting. 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 that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting (including those weaknesses identified in our periodic reports), 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 liquidity standardsProcedures,” of our Annual Report on an ongoing basisForm 10-K for the fiscal year ended December 31, 2020, we have identified material weaknesses in orderour internal control over financial reporting due to continuea lack of a full and complete testing of our disclosure controls and procedures and separately related to the listingrecent overissuance of shares of our common stock. Generally, we must maintain a minimum amountWe have concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective as of stockholders equityDecember 31, 2020. Our management has implemented remediation measures with respect to the controls and a minimum number of holderswritten policies and procedures as described in Part II, Item 9A, “Controls and Procedures” of our securities. IfAnnual Report on Form 10-K for the fiscal year ended December 31, 2020 and management expects that such measures will be sufficient to fully remediate such material weaknesses in our internal control over financial reporting. However, we failhave not implemented remediation measures with respect to meet anythe overissuance of the continuing listing requirements,shares of our common stock may be subjectbut expect to delisting. If our common stock is delistedhave a plan of remediation in place during the third quarter of 2021. While on August 17, 2021, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of shares of the Company’s Common Stock authorized for issuance from 24,109,635 shares to 40,000,000 shares, we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this weremust address the policies and procedures that allowed such overissuance to occur our stockholders could face significantand implement a remediation plan. We cannot guarantee that these steps will be sufficient to remediate the deficiencies or that we will not have a material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financingweakness in the future. There canIf our remedial measures are insufficient to address the material weakness or if additional material weaknesses arise in the future, our interim or annual financial statements may contain material misstatements or omissions and we could be no assurance that an active trading market forrequired to restate our common stock will develop or be sustained.financial results.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.All sales of unregistered securities during the three months ended September 30, 2021 were previously disclosed in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities
Not applicable.
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Item 4. Mine Safety Disclosures
Not Applicable.
NoneNot Applicable.
See Index to Exhibits.EXHIBIT INDEX
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.
Exhibit No. | Description | |
3.1 | ||
* | 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: November 15, 2021 | By: | /s/ Brian Murphy |
Name: | Brian Murphy, Ph.D. | |
Title: | Chief Executive Officer | |
Date: November 15, 2021 | By: | /s/ Stephen Brown |
Name: | Stephen Brown | |
Title: | Chief Financial Officer |
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