NAOV NanoVibronix Inc

NOTE 10 – SUBSEQUENT EVENTS

Between April and May 2019, the Company completed multiple bridge financings, pursuant to which the Company issued to two accredited investors convertible notes on the aggregate principal amount of $250,000 and seven-year warrants to purchase an aggregate of 100,000 shares of the Company’s common stock or series C preferred stock at an exercise price of the  lesser  of: (a) 80% ( i.e ., a 20% discount) of the exercise price per share of the warrants to purchase shares of the Company’s capital stock issued in the first equity financing of the Company following the date of issuance, or (b) $4.80, with a stipulation that in no event will the exercise price be less than $3.00 per warrant share.

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 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, 2018, 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.

Implications of being an Emerging Growth Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” including, but not limited to:

● being permitted to present only two years of audited financial statements and only two years of related disclosure in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;

● being permitted to provide less extensive narrative disclosure than other public companies including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements;

● being permitted to utilize exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved;

● being permitted to defer complying with certain changes in accounting standards; and

● being permitted to use test-the-waters communications with qualified institutional buyers and institutional accredited investors.

We intend to take advantage of these and other exemptions available to “emerging growth companies.” We could remain an “emerging growth company” until the earliest of (a) the last day of our fiscal year following the fifth anniversary of the closing of this offering, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards.

Recent Events 

Our common stock is currently listed for trading on the NASDAQ Capital Market.

On September 14, 2018, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC notifying the Company that it was no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Capital Market. On October 26, 2018, November 23, 2018 and January 9, 2019, we submitted a plan and supporting documentation to regain compliance with the minimum stockholders’ equity requirement and was granted an extension through March 13, 2019 to comply with this requirement.

The Staff notified us by letter dated March 14, 2019 that it determined that we did not meet the terms of the extension because we were unable to complete an equity financing and evidence compliance with the minimum $2.5 million stockholders’ equity requirement for continued listing on the NASDAQ Capital Market by March 13, 2019, and our common stock would be subject to delisting from the NASDAQ Capital Market unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”).

We timely requested a hearing before the Panel, which request stayed any delisting action by the Staff. The hearing occurred on May 2, 2019. At the hearing, we presented our plan to evidence compliance with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Capital Market, and request an extension of time within which to do so. As of the date of this Report, we have not received a decision from the Panel.   

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, 2018. There have not been any material changes to such critical accounting policies since December 31, 2018.

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, 2019 Compared to Three Months Ended March 31, 2018

Revenues . For the three months ended March 31, 2019 and 2018, our revenues were approximately $79,000 and $77,000, respectively, an increase of approximately 3%, or $2,000, between the periods. The increase was mainly attributable to increased sales to distributors in the three months ended March 31, 2019.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 March 31, 2019, the percentage of revenues attributable to our products was: PainShield - 91% and UroShield - 9%. For the three months ended March 31, 2018, the percentage of revenues attributable to our products was: PainShield - 81% and UroShield - 19%. For the three months ended March 31, 2019 and 2018, the percentage of revenues attributable to our disposable products was 7% and 21%, respectively. For the three months ended March 31, 2019 and 2018, the portion of our revenues that was derived from distributors was 82% and 8%, respectively.

Gross Profit . For the three months ended March 31, 2019 and 2018, gross profit was approximately $53,000 and $55,000, respectively, a decrease of approximately 4%, or $2,000, mainly due to 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 67% and 71% for the three months ended March 31, 2019 and 2018, 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 March 31, 2019 and 2018, research and development expenses were approximately $152,000 and $136,000, respectively, an increase of approximately 12%, or $16,000, between the periods. The increase was primarily due to an increase in expenses related to our clinical trials.

Research and development expenses as a percentage of total revenues were approximately 192% and 177% for the three months ended March 31, 2019 and 2018, respectively. The decrease was due primarily to the increase in sales as well as the increase 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 March 31, 2019 and 2018, selling and marketing expenses were approximately $321,000 and $229,000, respectively, an increase of approximately 40%, or $92,000, between the periods. The increase was mainly due to an increase in our sales staff, sales consultants, and marketing activities.

Selling and marketing expenses as a percentage of total revenues were approximately 406% and 297% for the three months ended March 31, 2019 and 2018, 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 March 31, 2019 and 2018, general and administrative expenses were approximately $1,803,000 and $480,000, respectively, an increase of approximately 276%, or $1,323,000, between the periods. The increase was mainly due to an additional 1,300,000 of non-cash compensation relating to restricted shares and options issued to professional consultants in 2019.

General and administrative expenses as a percentage of total revenues were approximately 2,282% and 623% for the three months ended March 31, 2019 and 2018, 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 March 31, 2019 and 2018, financial income and (expenses), net was approximately ($32,000) compared to a $13,000, respectively, a decrease of approximately $45,000, between the periods. The large decrease in 2019 was derived primarily from interest expense on the derivative liabilities.

Warrant modification expenses . For the three months ended March 31, 2019 and 2018, warrant modification expense was approximately ($412,000) compared to a $-, respectively, and was related to the incremental fair value of the warrants modified in January 2019.

Tax expenses.  For the three months ended March 31, 2019 and 2018, tax expenses remained the same at approximately $12,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.

Net loss.  Our net loss decreased by approximately $1,890,000, or 240%, to approximately $2,679,000 for the three months ended March 31, 2019 from approximately $789,000 in the same period of 2018. The decrease in net loss resulted primarily from the factors described above.

Liquidity and Capital Resources

We incurred losses in the amount of $2,679,000 during the three month period ended March 31, 2019, and accumulated negative cash flow from operating activities of $937,000 for the three month period ended March 31, 2019. We expect to continue to incur losses and negative cash flows from operating activities and as a result, we will not have sufficient resources to fund our operation for the next twelve months from the date of this filing. These conditions raise substantial doubt about our ability to continue as a going concern. During the next twelve months management expects that we 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 three months ended March 31, 2019, and through May 20, 2019, we met our short-term liquidity requirements from our existing cash reserves which includes the proceeds from issuance of convertible debt in the amount of $475,000. 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 have been using these proceeds to meet our short-term liquidity requirements but may need to sell additional 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. Delisting from NASDAQ would adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. 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 March 31, 2019, and we are not aware of any material trends in capital resources that would impact our business.

Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

General . As of March 31, 2019, we had cash and cash equivalents of approximately $184,000, compared to approximately $3,491,000 as of March 31, 2018. 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 $937,000 for the three months ended March 31, 2019 and $867,000 for the same period in 2018. 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, 2019 compared to the three months ended March 31, 2018, for the reasons described above.

Cash used in investing activities was $- and $2,000 for the three month periods ended March 31, 2019 and 2018, respectively, and was related to purchases of fixed assets.

Cash provided by financing activities was approximately $225,000 for the three months ended March 31, 2019 derived from proceeds received from the issuance of convertible debt, compared to $- for the three months ended March 31, 2018.

Off Balance Sheet Arrangements

Except as disclosed, as of March 31, 2019, 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.