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.
During the six-month period ended
June 30, 2018 and 2017, the Company recorded share-based compensation in a total amount of $168 and $536, respectively.
During the three-month period ended
June 30, 2018 and 2017, the Company recorded share-based compensation in a total amount of $59 and $185, respectively.
As of June 30, 2018, the total
unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $560, which is expected
to be recognized over a weighted average period of approximately 2.3 years.
During the six and three month
period ended June 30, 2018 the Company received $31 on the exercise of Warrants for 22,088 shares.
The Company
currently leases its office facilities on a three year lease with the right to cancel the lease with 90 days advance notice.
Future
minimum lease commitments under non-cancelable operating lease agreements as of June 30, 2018 are as follows:
Rent
and related expenses were $10 and $13 for the six months ended June 30, 2018 and 2017, and $3 and $7 for the three months
ended June 30, 2018 and 2017 respectively.
All outstanding share options
and warrants for the six months ended June 30, 2018 and 2017 have been excluded from the calculation of the diluted net loss per
share because all such securities are anti-dilutive for all periods presented.
The following table summarizes
the Company’s securities, in common share equivalents, which have been excluded from the calculation of dilutive loss per
share as their effect would be anti-dilutive:
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:
During the six and three month
period ended June 30, 2018, revenues from distributors accounted for 49% and 73% of total revenues. During the six and three month
period ended June 30, 2017, revenues from distributors accounted for 36% and 37% of total revenues.
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NOTE 9:-
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SUBSEQUENT EVENTS AND RELEATED PARTY TRANSACTIONS
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The Company evaluates events
or transactions that occur after the balance sheet date but prior to the issuance of financial statements to provide additional
evidence relative to certain estimates or to identify matters that require additional disclosure. For its interim consolidated
financial statements as of June 30, 2018 (unaudited) and for the six months period then ended (unaudited), the Company evaluated
subsequent events through August 14, 2018 the date that the consolidated financial statements were issued.
On July 4, 2018, Jona Zumeris, Vice President
of Technology and member of the board of directors of NanoVibronix, Inc. and the Company’s subsidiary, submitted his resignation
as a member of the board of directors and all positions from the Company and the Company’s subsidiary, effective as of July
4, 2018. Dr. Zumeris’s resignation was not in connection with any disagreement with the Company on any matter relating to
the Company’s operations, policies or practices, or any other matter.
On July 4, 2018, the Company and Dr. Zumeris and his wife, Janina
(Ina) Zumeris entered into a Separation and Release Agreement (the “Separation Agreement”), providing that Dr. Zumeris
shall resign from all positions at the Company and the Company’s subsidiary, effective as of the execution of the Separation
Agreement and that Dr. Zumeris and Janina Zumeris will cooperate with the Company and its officers on meeting certain technical
and administrative milestones during the transition period ending 60 days following the date of the Separation Agreement (the “Termination
Date”). If Dr. Zumeris and Janina Zumeris have met such milestones to the satisfaction of the Company and fulfilled other
obligations under the Separation Agreement, (i) Dr. Zumeris and Janina Zumeris, will be entitled to receive as consulting payments
an aggregate of NIS 65,000 per month for 12 months, commencing 30 days after the Termination Date; (ii) the Company’s management,
beginning on November 4, 2018, will use its best efforts to allow the sale of the Company’s securities owned by Dr. Zumeris,
provided that such sale would be in compliance with the applicable U.S. securities laws and regulations, and provided further,
that, if the Company’s shares of common stock held by Dr. Zumeris had not been sold at a price lower than $4.45 during the
fourteen month period from July 4, 2018, and the value of the unsold securities Dr. Zumeris owns plus the value of cash received
by Dr. Zumeris from the sale of the Company’s securities during such fourteen month period (the “Aggregate Amount”),
in aggregate, is less than $950,000, then the Company will make up the difference between $950,000 and the Aggregate Amount by
extending the term of engagement of Dr. Zumeris and Janina Zumeris’s consulting services and paying the consulting payments
of NIS 65,000 per month. In addition, if the Company (i) grants a license for the skin rejuvenation technology, then the Company
will pay Dr. Zumeris 10% from the payments received by the Company until an aggregate amount of $100,000 has been paid to Dr. Zumeris,
(ii) sells the skin rejuvenation technology and/or the rights to such as a standalone product, the Company will pay Dr. Zumeris
$100,000 from the proceeds of such sale, or (iii) sells the skin rejuvenation devices, the Company will pay Dr. Zumeris $5 per
unit an aggregate amount of $100,000 has been paid to Dr. Zumeris.
In exchange for the consideration described above, Dr. Zumeris
and Janina Zumeris agreed that, among other things, subject to the payments described above, Dr. Zumeris and Janina Zumeris will
not have in the future any demands or claims for payment of salary or compensation of any kind against the Company. The Separation
Agreement contains releases of any and all claims against the Company and restrictive covenants regarding intellectual property,
non-disparagement, non-disclosure, non-compete and non-solicitation customary in executive separation agreements.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
You should read
the following discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial
statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Unless the context
requires otherwise, references in this Form 10-Q to the “Company,” “NanoVibronix,” “we,” “our”
and “us” refer to NanoVibronix, Inc., a Delaware corporation, and its subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report
on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial
performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking
statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such
performance or results will be achieved. Forward-looking statements are based on information we have when those statements are
made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties
that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking
statements. Important factors that could cause such differences include, but are not limited to:
Our ability to continue as a going concern.
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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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Regulatory actions that could adversely affect the price of or demand for our approved products.
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Market acceptance of existing and new products.
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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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Our intellectual property portfolio.
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Our ability to recruit and retain qualified regulatory and research and development personnel.
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Unforeseen changes in healthcare reimbursement for any of our approved products.
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Lack of financial resources to adequately support our operations.
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Difficulties in maintaining commercial scale manufacturing capacity and capability.
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Our ability to generate internal growth.
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Changes in our relationship with key collaborators.
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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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Our failure to comply with regulatory guidelines.
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Uncertainty in industry demand and patient wellness behavior.
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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.
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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 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/A for the fiscal year ended December 31, 2017. There have not been
any material changes to such critical accounting policies since December 31, 2017.
The currency of the
primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”).
Accordingly, our functional currency is the dollar.
Results of Operations
Six Months Ended
June 30, 2018 Compared to Six Months Ended June 30, 2017
Revenues
. For
the six months ended June 30, 2018 and 2017, our revenues were approximately $209,000 and $104,000, respectively, an increase of
approximately 104%, or $105,000, between the periods. The increase was mainly attributable to increased sales to distributors in
the six months ended June 30, 2018 as well as increased sales of our Uroshield product. Our revenues may fluctuate as we add new
consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases during
another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may not be
linear or consistent.
For the six months
ended June 30, 2018, the percentage of revenues attributable to our products was: PainShield - 76% and UroShield - 24%. For the
six months ended June 30, 2017, the percentage of revenues attributable to our products was: PainShield - 93% and UroShield - 7%.
For the six months ended June 30, 2018 and 2017, the percentage of revenues attributable to our disposable products was 27% and
42%, respectively. For the six months ended June 30, 2018 and 2017, the portion of our revenues that was derived from distributors
was 49% and 36%, respectively.
Gross Profit
.
For the six months ended June 30, 2018 and 2017, gross profit was approximately $132,000 and $70,000, respectively, an increase
of approximately 89%, or $62,000, mainly due to the increase of revenues and slightly offset by the increased sales to distributors
that typically are sold at a lower margins than sales that are direct to consumer.
Gross profit as a percentage
of revenues was approximately 63% and 67% for the six months ended June 30, 2018 and 2017, respectively. The decrease in gross
profit as a percentage is mainly due to the aforementioned increase in sales to distributors.
Research and Development
Expenses
. For the six months ended June 30, 2018 and 2017, research and development expenses were approximately $286,000 and
$314,000, respectively, a decrease of approximately 9%, or $28,000, between the periods. The decrease was primarily due to a decrease
in expenses related to our clinical trials.
Research and development
expenses as a percentage of total revenues were approximately 137% and 302% for the six months ended June 30, 2018 and 2017, respectively.
The decrease was due primarily to the increase in sales as well as the decrease in expenses described above.
Our research and development
expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation
expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated
with and allocated to research and development activities.
Selling and Marketing
Expenses
. For the six months ended June 30, 2018 and 2017, selling and marketing expenses were approximately $526,000 and $200,000,
respectively, an increase of approximately 163%, or $326,000, between the periods. The increase was mainly due to an increase in
our sales staff, sales consultants, and marketing activities which were limited in 2017 because of cash restraints.
Selling and marketing
expenses as a percentage of total revenues were approximately 252% and 192% for the six months ended June 30, 2018 and 2017, respectively.
The increase was due primarily to the increase in expenses described above partially offset by the increase in revenues.
Selling and marketing
expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel
expenses, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing
activities.
General and Administrative
Expenses
. For the six months ended June 30, 2018 and 2017, general and administrative expenses were approximately $934,000
and $1,017,000, respectively, a decrease of approximately 8%, or $83,000, between the periods. The decrease was mainly due to a
$368,000 decrease in our stock based compensation and offset by increased compensation costs and public company expenses.
General and administrative
expenses as a percentage of total revenues were approximately 446% and 978% for the six months ended June 30, 2018 and 2017, respectively.
The decrease was due primarily to the increase in revenues described above offset somewhat by the decrease in expenses described
above.
Our general and administrative
expenses consist mainly of payroll expenses for management and administrative employees, share-based compensation expenses, accounting,
legal and facilities expenses associated with general and administrative activities and costs associated with being a publicly
traded company.
Financial Expenses,
net
. For the six months ended June 30, 2018 and 2017, financial income (expenses), net were approximately $23,000 compared
to a loss of $(242,000), respectively, an increase of approximately $265,000, between the periods. The income in 2018 was derived
primarily from gains on its foreign currency transactions. The expense in 2017 was derived primarily from an expense of approximately
$320,000 related to the issuance of the Warrants amortized over the life of the Promissory Notes issued in the first two quarters
of 2017, and redeemed in November 2017, offset by a $131,000 reduction due to a lower valuation adjustment of our warrants that
were issued with our 2013 and 2015 convertible promissory notes and exercised in full in October 2017.
Tax expenses.
For the six months ended June 30, 2018 and 2017, tax expenses remained the same at $22,000. The tax expense is computed by multiplying
income before taxes at our Israeli subsidiary by the appropriate tax rate.
Loss.
Our loss
decreased by approximately $112,000, or 6.5%, to approximately $1,613,000 for the six months ended June 30, 2018 from approximately
$1,725,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors described above.
Three months
Ended June 30, 2018 Compared to Three months Ended June 30, 2017
Revenues
For
the three months ended June 30, 2018 and 2017, our revenues were approximately $132,000 and $52,000, respectively, an increase
of approximately 153%, or $80,000, between the periods. The increase was mainly attributable to increased sales to distributors
in the three months ended June 30, 2018 as well as increased sales of our UroShield product. Our revenues may fluctuate as we add
new consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases
during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may
not be linear or consistent.
For the three months
ended June 30, 2018, the percentage of revenues attributable to our products was: PainShield - 64% and UroShield - 36%. For the
three months ended June 30, 2017, the percentage of revenues attributable to our products was: PainShield - 92% and UroShield -
8%. For the three months ended June 30, 2018 and 2017, the percentage of revenues attributable to our disposable products was 31%
and 46%, respectively. For the three months ended June 30, 2018 and 2017, the portion of our revenues that was derived from distributors
was 73% and 37%, respectively.
Gross Profit
.
For the three months ended June 30, 2018 and 2017, gross profit was approximately $77,000 and $34,000, respectively, an increase
of approximately 126%, or $43,000, mainly due to the increase of revenues and slightly offset by the increased sales to distributors
that typically are sold at a lower margins than sales that are direct to consumer.
Gross profit as a percentage
of revenues was approximately 58% and 65% for the three months ended June 30, 2018 and 2017, respectively. The decrease in gross
profit as a percentage is mainly due to the aforementioned increase in sales to distributors.
Research and Development
Expenses
. For the three months ended June 30, 2018 and 2017, research and development expenses were approximately $151,000
and $164,000, respectively, a decrease of approximately 8%, or $13,000, between the periods. The decrease was primarily due to
a decrease in expenses related to our clinical trials.
Research and development
expenses as a percentage of total revenues were approximately 114% and 315% for the three months ended June 30, 2018 and 2017,
respectively. The decrease was due primarily to the increase in sales as well as the decrease in expenses described above.
Our research and development
expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation
expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated
with and allocated to research and development activities.
Selling and Marketing
Expenses
. For the three months ended June 30, 2018 and 2017, selling and marketing expenses were approximately $297,000 and
$106,000, respectively, an increase of approximately 180%, or $191,000, between the periods. The increase was mainly due to an
increase in our sales staff, sales consultants, and marketing activities which were limited in 2017 because of cash restraints.
Selling and marketing
expenses as a percentage of total revenues were approximately 225% and 204% for the three months ended June 30, 2018 and 2017,
respectively. The increase was due primarily to the increase in expenses described above partially offset by the increase in revenues.
Selling and marketing
expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel
expenses, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing
activities.
General and Administrative
Expenses
. For the three months ended June 30, 2018 and 2017, general and administrative expenses were approximately $454,000
and $424,000, respectively, an increase of approximately 7%, or $30,000, between the periods. The increase was mainly due to increased
compensation costs and public company expenses offset by decreased stock based compensation expenses.
General and administrative
expenses as a percentage of total revenues were approximately 344% and 815% for the three months ended June 30, 2018 and 2017,
respectively. The decrease was due primarily to the increase in revenues described above offset somewhat by the decrease in expenses
described above.
Our general and administrative
expenses consist mainly of payroll expenses for management and administrative employees, share-based compensation expenses, accounting,
legal and facilities expenses associated with general and administrative activities and costs associated with being a publicly
traded company.
Financial Expenses,
net
. For the three months ended June 30, 2018 and 2017, financial income (expenses), net were approximately $11,000 compared
to an expense of $178,000, respectively, an increase of approximately $189,000, between the periods. The income in 2018 was derived
primarily from gains on its foreign currency transactions. The expense in 2017 resulted from expenses incurred from the issuance
of the Warrants amortized over the life of the 2017 Notes issued in the first two quarters of 2017 offset by a reduction derived
by a lower valuation adjustment of our warrants that were issued with our 2013 and 2015 convertible promissory notes.
Tax expenses.
For the three months ended June 30, 2018 and 2017, tax expenses were $10,000 and $11,000, respectively. The tax expense is computed
by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The decrease in our tax expenses was
due to .
Loss.
Our loss
decreased by approximately $25,000, or 3.4%, to approximately $824,000 for the three months ended June 30, 2018 from approximately
$849,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors described above.
Liquidity and Capital Resources
We incurred losses in the amount of $1,613,000 during the six month period ended June 30, 2018, and accumulated
negative cash flow from operating activities of $1,871,000 for the six month period ended June 30, 2018. We expect to continue
to incur losses and negative cash flows from operating activities and as a result, we may not have sufficient resources to fund
our operation for the next twelve months. These conditions raise doubts about our ability to continue as a going concern. During
the next twelve months management expects that the Company will need to raise additional capital to finance its losses and negative
cash flows from operations for the next twelve months and may continue to be dependent on additional capital raising as long as
our products do not reach commercial profitability.
During the six months ended June 30, 2018, and through August 14, 2018, we met our short-term liquidity requirements
from our existing cash reserves which includes the proceeds from the sales of convertible promissory notes between March and September
2017 in an aggregate amount of $1,380,000, as well as the net proceeds of $5,056,000 from our underwritten public offering of common
stock and warrants which closed on November 6, 2017. Our future capital requirements and the adequacy of our available funds will
depend on many factors, including our ability to successfully commercialize our products, our development of future products and
competing technological and market developments. We intend to use these proceeds to meet our short-term liquidity requirements
but may need to sell our securities to advance our long-term plans. It is our current belief that if we do not continue to see
significant increases in revenues, or if we are unable to raise additional capital at a later time in the next twelve months, we
may need to reduce our operating budget as well as sales and marketing expenses which may impair our ability to execute our business
objectives. However, we may be unable to raise sufficient additional capital when we require it or upon terms favorable to us.
In addition, the terms of any securities we issue in future financings may be more favorable to new investors and may include preferences,
superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on
the holders of any of our securities then outstanding. If we are unable to obtain adequate funds on reasonable terms, we may need
to curtail operations significantly, including possibly postponing anticipated clinical trials or entering into financing agreements
with unattractive terms.
We do not have any material commitments to capital expenditures as of June 30, 2018, and we are not aware
of any material trends in capital resources that would impact our business.
Six months Ended June 30, 2018 Compared
to Six months Ended June 30, 2017
General
. As
of June 30, 2018, we had cash and cash equivalents of approximately $2,515,000, compared to approximately $4,360,000 as of December
31, 2017. The decrease is attributable to our net cash used in operating activities. We have historically met our cash needs through
a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for product development,
research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures and general
working capital.
Cash used in our operating
activities was approximately $1,871,000 for the six months ended June 30, 2018 and $919,000 for the same period in 2017. The increase
in our cash usage was mainly associated with the increase in our net operating loss, excluding non-cash items such as stock-based
compensation, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017, for the reasons described
above.
Cash used in investing
activities was $5,000 and $2,000 for the six month periods ended June 30, 2018 and 2017, respectively, and was related to purchases
of fixed assets.
Cash provided by financing
activities was approximately $31,000 for the six months ended June 30, 2018 derived from proceeds received from the exercise of
warrants, compared to $1,030,000 for the six months ended June 30, 2017 derived from proceeds received from the issuance of 2017
Notes.
Off Balance Sheet Arrangements
As of June 30, 2018,
we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships
with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Factors That May Affect Future Operations
We believe that our
future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the
ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials
and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating results could
also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the U.S. dollar.
Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies
pertaining to our products.