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NOTE 2:-
|
LIQUIDITY, FINANCIAL CONDITION AND MANAGEMENT PLANS
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|
The Company’s ability to
continue to operate is dependent mainly on its ability to successfully market and sell its products and the receipt
of additional financing until profitability is achieved. The Company has incurred losses as well as negative cash
outflows from operating activities every period and plans to occur losses and negative cash outflows from operating
activities through fiscal 2018. The Company’s management believes that the Company has sufficient capital to
execute its business plan over the next twelve months from the date of the filing of this 10-Q. If the Company is unable
to successfully commercialize its products over the next twelve months it may need to raise
additional capital at a later time. There are no assurances that the Company would be able to
raise additional capital, if required, on terms favorable to it.
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NOTE 3:-
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SIGNIFICANT ACCOUNTING POLICIES
|
The significant accounting policies
applied in the annual consolidated financial statements of the Company as of December 31, 2017 are applied consistently in these
financial statements.
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
|
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NOTE 4:-
|
RECENTLY ADPOTED AND ISSUED ACCOUNTING
STANDARD
Recently adopted accounting
standards:
|
|
|
|
In May 2014, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update
(ASU) 2014-09,
Revenue from Contracts with Customers (ASC 606)
, to supersede nearly all existing revenue recognition
guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09
defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be
required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations
in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation. The Company has early adopted the new revenue standard as of January 1, 2018, using
a modified retrospective adoption transition to each prior reporting period presented. The adoption did not have an effect on the
Consolidated Financial Statements on the adoption date and no adjustment to prior year consolidated financial statements was required.
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Revenue Recognition
Generally the Company considers all revenues
as arising from contracts with customers. Revenue is recognized based on the five step process outlined in ASC606:
Step 1 – Identify the Contract with
the Customer
– A contract exists when (a) the parties to the contract have approved the contract and are committed to
perform their respective obligations, (b) the entity can identify each party’s rights regarding the goods or services to
be transferred, (c) the entity can identify the payment terms for the goods or services to be transferred, (d) the contract has
commercial substance and € it is probably that the entity will collect substantially all of the consideration to which it
will be entitled in exchange for the goods or services that will be transferred to the customer.
Step 2 – Identify Performance Obligations
in the Contract
– Upon execution of a contract, the Company identifies as performance obligations each promise to transfer
to the customer either (a) goods or services that are distinct or (b) a series of distinct goods or services that are substantially
the same and have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services,
the Company must apply judgement to determine whether the goods or services are capable of being distinct within the context of
the contract. If these criteria are not met, the goods or services are accounted for as a combined performance obligation.
Step 3 – Determine the Transaction
Price
– When (or as) a performance obligation is satisified, the Company shall recognize as revenue the amount of the
transaction price that is allocated to the performance obligation. The contract terms are used to determine the transaction price.
Generally, all contracts include fixed consideration. If a contract did include variable consideration, the Company would determine
the amount of variable consideration that should be included in the transaction price based on expected value method. Variable
consideration would be included in the transaction price, if in the Company’s judgement, it is probable that a significant
future reversal of cumulative revenue under the contract would not occur.
Step 4 – Allocate the Transaction
Price
– After the transaction price has been determined, the next step is to allocate the transaction price to each performance
obligation in the contract. If the contract only has one performance obligation, the entire transaction price will be applied to
that obligation. If the contract has multiple performance obligations, the transaction price is allocated to the performance obligations
based on the relative standalone selling price (SSP) at contract inception.
Step 5 – Satisfaction of the Performance Obligations (and Recognize Revenue)
–
When an asset is transferred and the customer obtains control of the asset (or the services are rendered), the Company recognizes
revenue. At contract inception, the Company determines if each performance obligation is satisfied at a point in time or over time.
For device sales, revenue is recognized at a point in time when the goods are transferred to the customer and they obtain control
of the asset. For maintenance contracts, revenue is recognized over time as the performance obligations in the contracts are completed.
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Product sales
The Company sells its products through
distributors and directly to patients. Under ASC 606, revenue from product sales is recognized at the point in time when the
delivery is made and when title and risk of loss transfers to these customers. Prior to recognizing revenue, the Company
makes estimates of the transaction price, including variable consideration for customer rights of return using an expected value
method. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration
is subsequently resolved. Product sales are recorded net of estimated product returns and other deductions.
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In
May 2017 the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification
Accounting
. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 is effective for financial statements
issued for annual reporting periods beginning after December 15, 2017 and interim periods within those years. Earlier
application was permitted. The adoption of the new requirements of ASU No. 2017-09 did not have a material impact on the
Company’s consolidated financial position or results of operations
Recently
issued accounting standards
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|
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|
In February 2016, the FASB issued ASU 201602, Leases (Topic 842). ASU 201602 requires that a lessee recognize the assets and liabilities
that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments
(the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For leases
with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not
to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases
at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply
the amendments in ASU 201602 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. We are
currently evaluating the impact of our pending adoption of ASU 201602 on our consolidated financial statements.
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NOTE 5:-
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STOCKHOLDERS’ EQUITY (in thousands)
|
During the three-month period ended
March 31, 2018 and 2017, the Company recorded share based compensation in a total amount of $109 and $351, respectively.
As of March 31, 2018, the total
unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $680, which is expected
to be recognized over a weighted average period of approximately 2.4 years.
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NOTE 6:-
|
COMMITMENTS AND CONTINGENT LIABILITIES (in thousands)
|
The
Company currently leases its office facilities on a month to month lease.
Rent and
related expenses were $7 and $6 for the three months ended March 31, 2018 and 2017, respectively.
NANOVIBRONIX,
INC. AND ITS SUBSIDIARY
All
outstanding share options and warrants for the three months ended March 31, 2018 and 2017 have been excluded from the calculation
of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.
The
following table summarizes the Company’s securities, in common share equivalents, which have been excluded from the calculation
of dilutive loss per share as their effect would be anti-dilutive:
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|
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March
31,
2018
|
|
|
March 31,
2017
|
|
|
Series
D Preferred Shares
|
|
|
303,782
|
|
|
|
—
|
|
|
Stock
Options
|
|
|
501,580
|
|
|
|
612,795
|
|
|
Warrants
|
|
|
272,533
|
|
|
|
853,884
|
|
|
Total
|
|
|
1,077,895
|
|
|
|
1,466,679
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NANOVIBRONIX,
INC. AND ITS SUBSIDIARY
|
NOTE 8:-
|
GEOGRAPHIC INFORMATION
AND MAJOR CUSTOMER DATA
|
Summary
information about geographic areas:
The
Company manages its business on the basis of one reportable segment, and derives revenues from selling its products directly to
patients as well as through distributor agreements. The following is a summary of revenues within geographic areas:
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Three
months ended
March 31,
(in thousands)
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|
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2018
|
|
|
2017
|
|
|
|
|
|
|
|
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United
States
|
|
$
|
67
|
|
|
$
|
21
|
|
|
Europe
|
|
|
3
|
|
|
|
16
|
|
|
Israel
|
|
|
4
|
|
|
|
—
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|
|
India
|
|
|
3
|
|
|
|
3
|
|
|
Rest
of the world
|
|
|
—
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77
|
|
|
$
|
52
|
|
During
the three month period ended March 31, 2018 and 2017, revenues from distributors accounted for 8% and 35% of total revenues, respectively
The
Company’s long-lived assets are all located in Israel.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion and analysis of financial condition and results of operations in conjunction with our consolidated
financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Unless
the context requires otherwise, references in this Form 10-Q to the “Company,” “NanoVibronix,” “we,”
“our” and “us” refer to NanoVibronix, Inc., a Delaware corporation, and its subsidiaries.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future
events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation.
Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking
statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate
indications of when such performance or results will be achieved. Forward-looking statements are based on information we have
when those statements are made or management’s good faith belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited
to:
|
|
●
|
The timing of clinical
studies and eventual U.S. Food and Drug Administration approval of WoundShield™ and our other product candidates.
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●
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Regulatory actions that could adversely affect
the price of or demand for our approved products.
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●
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Market acceptance of existing and new products.
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●
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Favorable or unfavorable
decisions about our products from government regulators, insurance companies or other third-party payers.
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●
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Our intellectual property portfolio.
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●
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Our ability to recruit and retain qualified
regulatory and research and development personnel.
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●
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Unforeseen changes in healthcare reimbursement
for any of our approved products.
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●
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Lack of financial resources to adequately support
our operations.
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●
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Difficulties in maintaining commercial scale
manufacturing capacity and capability.
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●
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Our ability to generate internal growth.
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●
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Changes in our relationship with key collaborators.
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●
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Changes in the market valuation or earnings
of our competitors or companies viewed as similar to us.
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●
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Our failure to comply with regulatory guidelines.
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●
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Uncertainty in industry demand and patient wellness
behavior.
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●
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General economic conditions and market conditions
in the medical device industry.
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●
|
Future sales of large blocks of our common stock,
which may adversely impact our stock price.
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●
|
Depth of the trading market in our common stock.
|
The
foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein
or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking
statements. For a discussion of these and other risks that relate to our business and financial performance, you should carefully
review the risks and uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly
Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and those described from
time to time in our future reports filed with the Securities and Exchange Commission. Moreover, new risks regularly emerge and
it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business
or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking
statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of
this prospectus. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future events or otherwise.
Overview
We
are a medical device company focusing on noninvasive biological response-activating devices that target wound healing and pain
therapy and can be administered at home, without the assistance of medical professionals. Our WoundShield, PainShield and UroShield
products are backed by novel technology which relates to ultrasound delivery through surface acoustic waves.
Critical
Accounting Policies
A
critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation
and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i)
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note
2 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2017. There have not been any material changes to such critical accounting policies since December 31, 2017.
The
currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”).
Accordingly, our functional currency is the dollar.
Results
of Operations
Three
Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Revenues
. For the three months ended March 31, 2018 and 2017, our revenues were approximately $77,000 and $52,000, respectively, an
increase of approximately 48.1%, or $25,000, between the periods. The increase was mainly attributable to increased sales from
our direct-to-consumer web sales attributed to our new marketing campaigns in the three months ended March 31, 2018. Our revenues
may fluctuate as we add new customers or when existing customers make large purchases of our products during one period and no
purchases during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by
quarter may not be linear or consistent.
For
the three months ended March 31, 2018, the percentage of revenues attributable to our products was: PainShield - 96% and UroShield
- 4%. For the three months ended March 31, 2017, the percentage of revenues attributable to our products was: PainShield - 94%
and UroShield - 6%. For the three months ended March 31, 2018 and 2017, the percentage of revenues attributable to our disposable
products was 21% and 47%, respectively. For the three months ended March 31, 2018 and 2017, the portion of our revenues that was
derived from distributors was 8% and 35%, respectively.
Gross
Profit
. For the three months ended March 31, 2018, gross profit increased by approximately 20%, or $19,000, to approximately
$55,000 from approximately $36,000 during the same period in 2017. The increase was due mainly to the increase in sales as well
as to a shift in higher sales of products not sold through distributors that typically carry higher gross margins as well as a
higher percentage of disposable products that also carry higher margins partially offset by a decrease in our disposable products.
Gross
profit as a percentage of revenues was approximately 71% and 69% for the three months ended March 31, 2018 and 2017, respectively.
The increase in gross profit as a percentage is mainly due to the increased percentage of higher margin sales described above.
Research
and Development Expenses
. For the three months ended March 31, 2018 and 2017, research and development expenses were approximately
$136,000 and $150,000, respectively, a decrease of approximately 9.3%, or $14,000, between the periods. The decrease was primarily
due to a temporary decrease in expenses related to our clinical trials in the first quarter of 2018.
Research
and development expenses as a percentage of total revenues were approximately 177% and 288% for the three months ended March 31,
2018 and 2017, respectively. The decrease was due to the decrease in expenses described above as well as the increase in sales.
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, patent applications and registrations, clinical trials
and facilities expenses associated with and allocated to research and development activities.
Selling
and Marketing Expenses
. For the three months ended March 31, 2018 and 2017, selling and marketing expenses were approximately
$229,000 and $94,000, respectively, an increase of approximately 259%, or $135,000, between the periods. The increase was mainly
due to an increase in our sales staff, sales consultants and increased selling and marketing activities.
Selling
and marketing expenses as a percentage of total revenues were approximately 297% and 181% for the three months ended March 31,
2018 and 2017, respectively. The increase was due primarily to the increase in expenses described above partially offset by the
increase in sales.
Selling
and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses,
travel expenses, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and
marketing activities.
General
and Administrative Expenses
. For the three months ended March 31, 2018 and 2017, general and administrative expenses were
approximately $480,000 and $593,000, respectively, a decrease of approximately 19%, or $113,000, between the periods. The
decrease was due to a $242,000 reduction in our stock based compensation incurred in the first quarter of 2017, offset by
increased compensation costs and public company expenses incurred in the first quarter of 2018.
General
and administrative expenses as a percentage of total revenues were approximately 623% and 1140% for the three months ended March
31, 2018 and 2017, respectively. The decrease was due primarily to the decrease in expenses described above and by the increase
in sales.
Our
general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-based
compensation expenses, accounting, legal and facilities expenses associated with general and administrative activities and costs
associated with being a publicly traded company.
Financial
Income and Expenses, net
. For the three months ended March 31, 2018 and 2017, financial income and expenses, net were approximately
$13,000 and an expense of $64,000, respectively, an increase of approximately $77,000, between the periods. The income in 2018
was generated from interest income and favorable currency fluctuations. In addition the company no longer needed to record valuation
adjustments of our warrants that were issued with our 2013 and 2015 convertible promissory notes, as such notes were converted
into equity in the fourth quarter of 2017. In addition we also recorded an additional expense related to the issuance of the Warrants
amortized over the life of the Notes issued in the first quarter of 2017.
Tax
expenses.
For the three months ended March 31, 2018 and 2017, tax expenses were $12,000 and $11,000, respectively. The tax
expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The increase in
our tax expenses was due to increased spending by our Israel subsidiary.
Net
Loss.
Our net loss decreased by approximately $88,000, or 10%, to approximately $789,000 for the three months ended March
31, 2018 from approximately $877,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors
described above.
Liquidity
and Capital Resources
We
incurred losses in the amount of $789,000 during the three month period ended March 31, 2018, and accumulated negative cash flow
from operating activities of $867,000 for the three month period ended March 31, 2018.
During
the three months ended March 31, 2018, and through May 15, 2018, we met our short-term liquidity requirements from our existing
cash reserves which includes the proceeds from the sales of convertible promissory notes between March and September 2017 in an
aggregate amount of $1,380,000, as well as the net proceeds of $5,056,000 from our underwritten public offering of common stock
and warrants which closed on November 6, 2017. Our future capital requirements and the adequacy of our available funds will depend
on many factors, including our ability to successfully commercialize our products, our development of future products and competing
technological and market developments. We intend to use these proceeds to meet our short-term liquidity requirements 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 March 31, 2018, and we are not aware of any material trends
in capital resources that would impact our business.
Three
Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
General
. As of March 31, 2018, we had cash and cash equivalents of approximately $3,491,000, compared to approximately $4,360,000
as of December 31, 2017. The decrease is attributable to our net cash used in operating activities. We have historically met our
cash needs through a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for
product development, research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures
and general working capital.
Cash
used in our operating activities was approximately $867,000 for the three months ended March 31, 2018 and $405,000 for the same
period in 2017. The increase in our cash usage was mainly associated with the increase in our net operating loss, excluding non-cash
items such as stock-based compensation, for the three months ended March 31, 2018 compared to the three months ended March 31,
2017, for the reasons described above.
Cash
used in investing activities was $2,000 and $0 for the three month periods ended March 31, 2018 and 2017, respectively, and was
related to purchases of fixed assets.
Cash
provided by financing activities was approximately $0 for the three months ended March 31, 2018 compared to $350,000 for the three
months ended March 31, 2017 derived from proceeds received from the issuance of 2017 Notes.
Factors
That May Affect Future Operations
We
believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors,
including the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our
clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating
results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the
U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement
policies pertaining to our products.