NOTE
2 - LIQUIDITY AND PLAN OF OPERATIONS
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 currently incurs and historically has incurred losses from operations and expects
to do so in the foreseeable future. In the second quarter of 2019, the Company raised $3,200 through the issuance of Series
E Preferred Stock. Despite the cash infusion, the Company will not have sufficient resources to fund its operations for the next
twelve months from the date of this filing. These conditions raise substantial doubt about the Company’s 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 and may continue to be dependent on additional capital raising as long
as its products do not reach commercial profitability.
Management’s plans include the continued
commercialization of the Company’s products and raising capital through the sale of additional equity securities, debt or
capital inflows from strategic partnerships. There are no assurances, however, that the Company will be successful in obtaining
the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital,
it will need to reduce activities, curtail or cease operations. The financial statements do not include any adjustments with respect
to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable
to continue as a going concern.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principles of consolidation
The
Company’s unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) for the interim financial 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 reflect all adjustments, which
include only normal recurring adjustments, 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, 2018, as found in the Company’s Annual Report on Form 10-K
filed with the Securities and Exchange Commission on April 15, 2019.
The
balance sheet for December 31, 2018 was derived from the Company’s audited financial statements for the year ended December
31, 2018. 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.
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
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 and transaction
Non-U.S.
dollar denominated transactions and balances have been re-measured to U.S. dollars. All transaction 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 financial
income or expenses, as appropriate.
Revenue
recognition
The
Company generate revenues from the sale of our products to distributors and patients. Revenues from those products are recognized
in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers), in
which its core principle of Accounting Standards Update (“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.
Revenues
from sales to distributors are recognized at the time the products are delivered to the distributors (“sell-in”).
The Company does not grant rights of return, credits, rebates, price protection, or other privileges on its products to distributors.
Recently
issued accounting pronouncements not yet adopted
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 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 2016-02 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. The
Company (as an EGC) that is taking advantage of the extended transition period offered to private entities would apply
this for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of adopting ASU 2016-02
on its consolidated financial statements.
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
Recently
adopted accounting standards
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from
Equity (Topic 480); Derivatives and Hedging (Topic 815)” (“ASU 2017-11”), which addresses the complexity
of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked
instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity
offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants
and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion
option. The Company adopted ASU 2017-11 on January 1, 2019 and as a result, the down round feature of equity instruments
that were issued in the first and second quarter of 2019 were not considered when determining the derivative liability of those
instruments.
SEC
Disclosure Update and Simplification
In
August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain
disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded
the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an
analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate
statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which
a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. The presentation
of the changes in shareholders’ equity in accordance with the new guidance is included in this Form 10-Q for the quarter
ended June 30, 2019.
NOTE
4 - STOCKHOLDERS’ EQUITY
Stock based compensation
There were 0 and 275,000 shares of Common
Stock issued for services in the three- and six-month period ended June 30, 2019.
During the six-month period ended June
30, 2019, 63,412 employee options were exercised, and 120,000 options were issued. The options issued in 2019, were recorded at
a fair value of $183 and vested immediately. During the three- and six-month period ended June 30, 2019, stock based compensation
expense of $111 and $404 was recorded for options that vested, respectively.
The
fair value for options granted in 2019 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with
the following underlying assumptions:
Price at valuation
|
|
$
|
3.40
|
|
Exercise price
|
|
$
|
3.40
|
|
Risk free interest
|
|
|
2.79
|
%
|
Expected term (in years)
|
|
|
5
|
|
Volatility
|
|
|
48
|
%
|
The total stock-based expense recognized in
the financial statements for services received from employees and non-employees is shown in the following table.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Selling and marketing
|
|
|
11
|
|
|
|
—
|
|
|
|
22
|
|
|
|
3
|
|
General and administrative
|
|
|
100
|
|
|
|
60
|
|
|
|
1,424
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111
|
|
|
$
|
60
|
|
|
$
|
1,446
|
|
|
$
|
168
|
|
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
As of June 30, 2019, the total unrecognized
estimated compensation cost related to non-vested stock options granted prior to that date was $379, which is expected to be recognized
over a weighted average period of approximately 1.22 years.
Series E Preferred Stock
During the second quarter of 2019, the Company
designated 3,999,494 shares of Series E Preferred Stock, par value $0.001 per share. Pursuant to the Series E Certificate of Designation
(“COD”), each share of Series E Preferred Stock is convertible, at any time, at the option of the Series E Holder thereof,
into one share of common stock, par value $0.001 per share, of the Company, subject to adjustments such as stock dividends and
stock splits.
Series E Holders are entitled to receive cash
dividends, on an as-if-converted basis, equal to the amount actually paid on shares of the Common Stock. Additionally, Series E
Holders of each share of Series E Preferred Stock will be entitled to vote with the holders of the Common Stock on an as-converted
basis.
On June 21, 2019, the Company, entered into
and closed a private placement Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain existing
stockholders (the “June Investors”), relating to the sale to such June Investors of (i) 1,600,000 shares of the Company’s
Series E Convertible Preferred Stock, par value $0.001 per share (the “Series E Preferred Stock”), and warrants (the
“June Warrants”) to purchase 1,600,000 shares of Series E Preferred Stock at an exercise price of $2.50 per share,
at a purchase price per unit of $2.00 (the “June Financing”), for aggregate gross proceeds of $3,200,000 (excluding
the exercise of the June Warrants issued in the June Financing).
These Series E Preferred Shares are classified
within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation
outside of permanent equity under ASC 480
Distinguishing Liabilities from Equity
.
Warrants
During the six months ended June 30, 2019,
the Company issued warrants to purchase 190,000 shares of the Company’s Common Stock or series C preferred stock, par value
$0.001 per share (“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. The warrants were issued in conjunction with the issuance of convertible
debt – see Note 5. The warrants were initially accounted for as a derivative liability until the completion of the June Financing
– See Note 6.
In June 2019, the Company issued 1,600,000
warrants to purchase 1,600,000 shares of Series E Preferred Stock in the June Financing.
Warrant
modification
On February 5, 2019, the Company entered into
amendments to its two-year warrants (the “Warrant Amendment”) to purchase an aggregate of 266,667 shares of Common
Stock at an exercise price of $3.00 per share (the “$3.00 Warrants”) and warrants to purchase an aggregate of 420,000
shares of Common Stock at an exercise price of $6.00 per share (the “$6.00 Warrants”), issued in January and February
2015, to extend the expiration date of the warrants for two additional years. The warrants were previously extended for two years
in January 2017. In addition, the Warrant Amendment amended the exercise price with respect to the $3.00 Warrants from $3.00 per
share to $3.35 per share. The exercise price of the $6.00 Warrants was unchanged. Pursuant to the Warrant Amendment, warrants to
purchase 266,667 shares of Common Stock at $3.35 per share and warrants to purchase 266,667 shares of Common Stock at $6.00 per
share will expire on January 29, 2021, and warrants to purchase 140,000 shares of Common Stock at $6.00 per share will expire on
February 10, 2021, and warrants to purchase 13,333 shares of Common Stock at $6.00 per share will expire on February 23, 2021.
The Warrant Amendment is effective as of January 29, 2019. All other terms of the original warrants remain the same.
The
Warrant Amendment was accounted for in warrant modification expense, which was measured at the amount equal to the incremental
value reflecting the change in the fair value of the warrants before and after the Warrant Amendment. Accordingly, warrant modification
expense in the amount of $412 was recorded with a corresponding increase in the additional paid-in capital.
In
estimating the warrants’ fair value, the Company used the following assumptions:
Risk free interest
|
|
|
2.56
|
%
|
Dividend yield
|
|
|
0
|
%
|
Volatility
|
|
|
55.6% -56.5
|
%
|
Contractual term (in years)
|
|
|
2
|
|
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
NOTE
5 - CONVERTIBLE NOTES
On March 29, 2019, the Company completed a
bridge financing, pursuant to which the Company issued to two accredited investors convertible notes on the aggregate principal
amount of $225 (the “Notes”) and seven-year warrants (the “March Warrants”) to purchase an aggregate of
90,000 shares of the Company’s Common Stock or Series C Preferred Stock.
The principal amount and all accrued but unpaid
interest on the Notes are due and payable on the date (the “Maturity Date”) 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
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, the investors will receive, at the option of each the investor, either (a) cash equal to the original principal amount of
the Note and interest then accrued and unpaid thereon, or (b) shares of Common Stock or Series C Preferred Stock of the Company,
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 as of the Maturity Date, 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 , 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, each investor may elect to have the outstanding
principal and accrued but unpaid interest thereon converted into (a) shares of the same class and series of equity securities sold
in such Qualified Financing, (b) shares of Series C Preferred Stock or (c) Common Stock, 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) $4.00 per share, as such
amount may be adjusted for any stock split, stock dividend, reclassification or similar events affecting the Company’s capital
stock.
In no event will the number of shares to be
issued upon (i) exercise of this March Warrants, (ii) conversion of the Notes exceed, in the aggregate, 9.9% of the total shares
outstanding or the voting power outstanding on the date immediately preceding the date of issuance.
Between April and May 2019, the Company completed
multiple bridge financings, pursuant to which the Company issued to two accredited investors convertible notes in the aggregate
principal amount of $250 and seven-year warrants to purchase an aggregate of 100,000 shares of the Company’s Common Stock
or Series C Preferred Stock with the same terms as the notes issued on March 29, 2019.
In June 2019, the Company paid off all
convertible notes and interest with funds raised from the Qualified Financing. The balance of the notes and interest paid off was
$475 and $5, respectively. As a result, a loss of $288 was recorded on extinguishment of derivative liabilities.
|
|
June 30,
2019
|
|
Convertible Notes:
|
|
|
|
Principal value of 6% convertible notes issued during the six months ended June 30, 2019
|
|
$
|
475
|
|
Fair value of derivative liability of convertible notes prior to payoff date
|
|
|
122
|
|
Debt discount less amortization during the period prior to payoff date
|
|
|
(410
|
)
|
Loss on extinguishment of derivative liabilities upon payoff of convertible notes
|
|
|
288
|
|
Payoff of convertible notes
|
|
|
(475
|
)
|
Total carrying value of convertible notes at June 30, 2019
|
|
$
|
—
|
|
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
NOTE
6 - DERIVATIVE LIABILITIES
On March 29, 2019 the Company issued 90,000
warrants in conjunction with the issuance of convertible debt.
Between April and May 2019, the Company
issued 100,000 warrants in conjunction with the issuance of convertible debt.
These warrants were initially accounted for as a derivative liability.
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 six months ended June 30, 2019 is as follows:
Stock price
|
|
$2.77 - $4.05
|
|
Conversion price
|
|
$1.60 - $2.50
|
|
Contractual term (in years)
|
|
|
5
|
|
Volatility (annual)
|
|
|
57.7% - 62.9
|
%
|
Risk-free rate
|
|
|
2.23% - 2.40
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
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.
As of June 26, 2019, the Company completed
a Qualified Financing, at which point the warrants exercise price is fixed and the warrants no longer require derivative treatment.
The warrants were remeasured at fair value on that date and the remaining derivative liability of $196 was eliminated.
Financial
Liabilities Measured at Fair Value on a Recurring Basis
Financial
liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative
liability - warrants and derivative liabilities:
|
|
Fair value measured at June 30, 2019
|
|
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
Fair value at
June 30,
2019
|
|
Derivative liability - warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Embedded conversion feature derivative liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Fair value measured at December 31, 2018
|
|
|
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
Fair value at
December 31,
2018
|
|
Derivative liability – warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Embedded conversion feature derivative liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NANOVIBRONIX,
INC.
Notes
to Consolidated Financial Statements (Unaudited)
Amounts
in thousands (except share and per share data)
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 1, 2 or 3 during the six months ended June 30, 2019.
The
following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30,
2019:
|
|
Derivative
Liability -
-Warrants
|
|
|
Embedded
Conversion
Feature
Derivative
Liability
|
|
|
Total
Derivative
Liabilities
|
|
Balance - January 1, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities
|
|
|
149
|
|
|
|
83
|
|
|
|
232
|
|
Change in fair value of warrant liability
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
Balance – March 31, 2019
|
|
|
151
|
|
|
|
86
|
|
|
|
237
|
|
Liabilities
|
|
|
112
|
|
|
|
76
|
|
|
|
188
|
|
Change in fair value of warrant liability
|
|
|
(67
|
)
|
|
|
(40
|
)
|
|
|
(107
|
)
|
Eliminate derivative treatment
|
|
|
(196
|
)
|
|
|
(122
|
)
|
|
|
(318
|
)
|
Balance – June 30, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 7 - LOSS PER SHARE APPLICABLE
TO COMMON SHAREHOLDER
Basic net loss per common share (“Basic EPS”) is computed by dividing
net loss available to common shareholders by the weighted average number of common shares outstanding during the period. All outstanding
share options and warrants for the three and six months ended June 30, 2019 and 2018 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:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Series D Preferred Shares
|
|
|
303,782
|
|
|
|
303,782
|
|
Series E Preferred Shares
|
|
|
1,600,000
|
|
|
|
—
|
|
Stock Options - employee and non-employee
|
|
|
749,361
|
|
|
|
734,756
|
|
Warrants
|
|
|
266,667
|
|
|
|
266,667
|
|
Total
|
|
|
2,919,810
|
|
|
|
1,305,205
|
|
NANOVIBRONIX, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Amounts in thousands (except share and
per share data)
The diluted loss per share equals
basic loss per share in the three and six months ended June 30, 2019 and 2018 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.
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:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
United States
|
|
$
|
90
|
|
|
$
|
33
|
|
|
$
|
158
|
|
|
$
|
100
|
|
Europe
|
|
|
151
|
|
|
|
42
|
|
|
|
161
|
|
|
|
45
|
|
Israel
|
|
|
12
|
|
|
|
34
|
|
|
|
13
|
|
|
|
38
|
|
India
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
3
|
|
Canada
|
|
|
2
|
|
|
|
21
|
|
|
|
2
|
|
|
|
21
|
|
Rest of the World
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
Total
|
|
$
|
263
|
|
|
$
|
132
|
|
|
$
|
342
|
|
|
$
|
209
|
|
During the three-month period ended June 30,
2019 and 2018, revenues from distributors accounted for 40% and 73% of total revenues, respectively.
During the six-month period ended June 30,
2019 and 2018, revenues from distributors accounted for 50% and 49% of total revenues, respectively.
The Company’s long-lived assets
are all located in Israel.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office facilities and
motor vehicles under operating leases, which expire on various dates, the latest of which is 2020.
Year ended December 31,
|
|
Operating leases
|
|
|
|
|
|
2019
|
|
$
|
21
|
|
2020
|
|
|
29
|
|
Total
|
|
$
|
50
|
|
Rent and related expenses were $27 and $10 for the six months ended June 30, 2019 and 2018 and $15 and
$3 for the three months ended June 30, 2019 and 2018, respectively.
NOTE 10 - SUBSEQUENT EVENTS
On July 31, 2019, the Company entered into
and initially closed a private placement Securities Purchase Agreement with certain existing stockholders (the “Preferred
Investors”) relating to the sale to such Preferred Investors of the Company’s Series E Preferred Stock and warrants
(the “Preferred Warrants”) to purchase shares of Series E Preferred Stock at an exercise price of $2.50 per share,
at a purchase price per unit of $2.00 (the “Preferred Financing”).
Each share of Series E Preferred Stock is convertible
at any time and from time to time from and after the Stockholder Approval Date at the option of a holder of Series E Preferred
Stock into one share of Common Stock.
On July 31, 2019, the Company entered into
and initially closed a private placement Securities Purchase Agreement with certain accredited investors (the “Common Investors”)
relating to the sale to such Common Investors of shares of the Company’s Common Stock, and (ii) warrants to purchase shares
of the Company’s Common Stock at an exercise price of $2.50 per share, at a purchase price per unit of $2.00 (the “Common
Financing”).
The aggregate gross proceeds from the initial
closings of the Preferred Financing and the Common Financing (as defined below) is $1,000,000 (excluding the exercise of the warrants
issued in the Preferred Financing and the Common Financing).
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.
|
|
|
●
|
The timing of clinical studies and eventual U.S. Food and Drug
Administration approval of WoundShield and our other product candidates.
|
|
|
●
|
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.
|
|
|
●
|
Our ability to regain compliance with the continued listing requirements
of the Nasdaq Capital Market and the risk that our common stock will be delisted if we cannot do so.
|
|
|
●
|
Our intellectual property portfolio.
|
|
|
●
|
Our ability to recruit and retain qualified regulatory and research and development
personnel.
|
|
|
●
|
Unforeseen changes in healthcare reimbursement for any of our approved products.
|
|
|
●
|
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.
|
|
|
●
|
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.
|
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.
By letter dated May 20, 2019, we received notice
that the Panel granted our request for continued listing on the NASDAQ Capital Market. Assuming our compliance plan is executed
and compliance with the $2.5 million stockholder equity requirement is demonstrated, the Panel will maintain jurisdiction thereafter
for the balance of the 180-day discretionary period, and imposed certain conditions and reporting requirements during that period.
The Panel determined to continue the listing of our shares of common stock on the NASDAQ Capital Market, partially based upon our assurances that it had a high level of confidence that it will receive the funding needed.
To that end, on June 21, 2019, we entered into
and closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing
stockholders of (i) 1,600,000 shares of the Company’s Series E Preferred Stock, par value $0.001 per share (the “Series
E Preferred Stock”), and warrants to purchase 1,600,000 shares of Series E Preferred Stock at an exercise price of $2.50
per share, at a purchase price per unit of $2.00 (the “June Financing”), for aggregate gross proceeds of $3,200,000
(excluding the exercise of the warrants issued in the June Financing).
On July 31, 2019, we entered into and initially
closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing
investors of the Series E Preferred Stock and warrants to purchase shares of Series E Preferred Stock at an exercise price of $2.50
per share, at a purchase price per unit of $2.00 (the “Preferred Financing”).
On July 31, 2019, we entered into and initially
closed a private placement Securities Purchase Agreement with certain accredited investors relating to the sale to such investors
of shares of our common stock, and (ii) warrants to purchase shares of our common stock at an exercise price of $2.50 per share,
at a purchase price per unit of $2.00 (the “Common Financing”).
The aggregate gross proceeds from the initial
closings of the Preferred Financing and the Common Financing is $1,000,000 (excluding the exercise of the warrants issued in the
Preferred Financing and the Common Financing).
We agreed to use commercially reasonable efforts
to provide each stockholder entitled to vote at a special meeting of stockholders of the Company (the “Stockholder Meeting”)
a proxy statement soliciting each such stockholder’s affirmative vote at the Stockholder Meeting for approval of resolutions
(“Stockholder Resolutions”) providing for the issuance of all of the shares of our common stock issuable upon conversion
of the Series E Preferred Stock in accordance with applicable law and the rules and regulations of the Nasdaq Stock Market (such
affirmative approval being referred to herein as the “Stockholder Approval”, and the date such Stockholder Approval
is obtained, the “Stockholder Approval Date”), and we have agreed to use its commercially reasonable efforts to solicit
its stockholders’ approval of such Stockholder Resolutions and shall cause our board of directors to recommend to the stockholders
that they approve such Stockholder Resolutions.
Each share of Series E Preferred Stock is convertible
at any time and from time to time from and after the Stockholder Approval Date at the option of a holder of Series E Preferred
Stock into one share of our common stock.
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 June 30, 2019
Compared to Three Months Ended June 30, 2018
Revenues
.
For the three months ended June 30, 2019 and 2018, our revenues were approximately $263,000 and $132,000 respectively, an
increase of approximately 99%, or $131,000 between the periods. The increase was mainly attributable to increased sales to
distributors in the three months ended June 30, 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 June 30, 2019, the percentage of revenues attributable to our products was: PainShield - 64% and UroShield 36%. 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, 2019 and 2018, the percentage of revenues attributable to our disposable products was 2% and 31%,
respectively. For the three months ended June 30, 2019 and 2018, the portion of our revenues that was derived from distributors
was 40% and 73%, respectively.
Gross Profit
. For the three months ended
June 30, 2019 and 2018, gross profit was approximately $207,000 and $77,000, respectively, an increase of approximately 169%, or
$130,000, mainly due to new royalty agreement.
Gross profit as a percentage
of revenues was approximately 79% and 58% for the three months ended June 30, 2019 and 2018, respectively. The increase in gross
profit as a percentage is mainly due to the royalty agreement signed in the second quarter which included a nonrefundable deposit.
Research and Development Expenses
. For
the three months ended June 30, 2019 and 2018, research and development expenses were approximately $150,000 and $151,000, respectively,
a decrease of approximately 0%, or $1,000, between the periods.
Research and development
expenses as a percentage of total revenues were approximately 57% and 114% for the three months ended June 30, 2019 and 2018, respectively.
The decrease was due primarily to a large increase in general and administrative expenses.
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, 2019 and 2018, selling and marketing expenses were approximately $271,000 and $297,000,
respectively, a decrease of approximately 9%, or $26,000, between the periods. The decrease was mainly due to decreased spending due to limited cash reserves.
Selling and marketing
expenses as a percentage of total revenues were approximately 103% and 225% for the three months ended June 30, 2019 and 2018, respectively.
The decrease was due primarily to the large increase in general and administrative expenses.
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, 2019 and 2018, general and administrative expenses were approximately $682,000 and
$454,000, respectively, an increase of approximately 50%, or $228,000, between the periods. The increase was mainly due to large legal fees.
General and administrative expenses as
a percentage of total revenues were approximately 259% and 344% for the three months ended June 30, 2019 and 2018, respectively.
The decrease was due primarily to increased revenue in the three months ended June 30, 2019.
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, 2019 and 2018, financial income and (expenses), net was approximately ($24,000) compared to a $11,000,
respectively, a decrease of approximately $35,000, between the periods. The decrease in 2019 was derived primarily from exchange
rate adjustments.
Change in fair value of derivative liabilities
.
For the three months ended June 30, 2019 and 2018, there was a change in fair value of derivative liabilities resulting in a gain
of approximately $107,000 compared to a $0, respectively, an increase of approximately $107,000, between the periods. The income
in 2019 was derived from the valuation of derivative liabilities.
Loss on extinguishment of derivative
liability
. For the three months ended June 30, 2019 and 2018, there was a loss on extinguishment of derivative liability of
approximately ($288,000) compared to a $0, respectively, a decrease of approximately $288,000, between the periods. The loss in
2019 was derived from the elimination of derivative liabilities.
Warrant modification
expenses
. For the three months ended June 30, 2019 and 2018, there was no warrant modification expense.
Tax expenses.
For
the three months ended June 30, 2019 and 2018, tax expenses were $6,000 and $10,000. The tax expense is computed by multiplying
income before taxes at our Israeli subsidiary by the appropriate tax rate.
Net loss.
Our net loss increased
by approximately $283,000, or 34%, to approximately $1,107,000 for the three months ended June 30, 2019 from approximately $824,000
in the same period of 2018. The increase in net loss resulted primarily from the factors described above.
Six Months Ended June 30, 2019 Compared
to Six Months Ended June 30, 2018
Revenues
.
For the six months ended June 30, 2019 and 2018, our revenues were approximately $342,000 and $209,000, respectively, an
increase of approximately 63%, or $133,000, between the periods. The increase was mainly attributable to new royalty
agreement in the six months ended June 30, 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 six months
ended June 30, 2019, the percentage of revenues attributable to our products was: PainShield - 70% and UroShield 30%. 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, 2019 and 2018, the percentage of revenues attributable to our disposable products was 3% and 27%,
respectively. For the six months ended June 30, 2019 and 2018, the portion of our revenues that was derived from distributors
was 50% and 49%, respectively.
Gross Profit
.
For the six months ended June 30, 2019 and 2018, gross profit was approximately $260,000 and $132,000, respectively, an increase of approximately
97%, or $128,000, mainly due new royalty agreement signed in the second quarter of 2019.
Gross profit as a percentage
of revenues was approximately 76% and 63% for the six months ended June 30, 2019 and 2018, respectively. The increase in gross profit
as a percentage is mainly due to the nonrefundable deposit received from the royalty agreement.
Research and Development
Expenses
. For the six months ended June 30, 2019 and 2018, research and development expenses were approximately $302,000 and $286,000,
respectively, an increase of approximately 6%, or $16,000 between the periods. The increase was primarily due to the increased spending in the second quarter to prepare for a meeting with the FDA.
Research and development
expenses as a percentage of total revenues were approximately 88% and 137% for the six months ended June 30, 2019 and 2018, respectively.
The decrease was due primarily to an increase in revenue.
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, 2019 and 2018, selling and marketing expenses were approximately $592,000 and $526,000, respectively,
an increase of approximately 13%, or $66,000, between the periods. The increase was mainly due to a couple of employees who were
hired at the end of the second quarter or 2018.
Selling and marketing
expenses as a percentage of total revenues were approximately 173% and 252% for the six months ended June 30, 2019 and 2018, respectively.
The decrease was due primarily to the increase in revenue.
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, 2019 and 2018, general and administrative expenses were approximately $2,485,000 and $934,000,
respectively, an increase of approximately 166%, or $1,551,000, between the periods. The increase was mainly due to increased legal fees and stock compensation.
General and administrative expenses as a percentage
of total revenues were approximately 727% and 447% for the six months ended June 31, 2019 and 2018, respectively. The increase
was due primarily to the large increase in general and administrative expenses.
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, 2019 and 2018, financial income and (expenses), net was approximately ($51,000) compared to a $23,000, respectively,
a decrease of approximately ($74,000), between the periods. The decrease in 2019 was derived primarily from exchange rate adjustments.
Change in fair value of derivative liabilities
.
For the six months ended June 30, 2019 and 2018, there was a change in fair value of derivative liabilities resulting in a gain
of approximately $102,000 compared to a $0, respectively, an increase of approximately $102,000, between the periods. The income
in 2019 was derived from the valuation of derivative liabilities.
Loss on extinguishment of derivative
liability
. For the six months ended June 30, 2019 and 2018, there was a loss on extinguishment of derivative liability of approximately
($288,000) compared to a $0, respectively, a decrease of approximately $288,000, between the periods. The loss in 2019 was derived
from the elimination of derivative liabilities.
Warrant modification
expenses
. For the six months ended June 30, 2019 and 2018, warrant modification expense was approximately $412,000 compared to
a $0, respectively, and was related to warrant modification.
Tax expenses.
For
the six months ended June 30, 2019 and 2018, tax expenses was approximately $18,000 compared to $22,000, respectively.
The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.
Net loss.
Our net loss increased
by approximately $2,173,000, or 135%, to approximately $3,786,000 for the six months ended June 30, 2019 from approximately $1,613,000
in the same period of 2018. The increase in net loss resulted primarily from the factors described above.
Liquidity and Capital Resources
We incurred losses in the amount of approximately
$3,768,000 during the six-month period ended June 30, 2019 and accumulated negative cash flow from operating activities of $1,729,000
for the six-month period ended June 30, 2019.
During the six months ended June 30, 2019,
and through August 14, 2019, we met our short-term liquidity requirements from our existing cash reserves which includes the proceeds
from issuance of Series E Preferred Stock in the June Financing, Preferred Financing and Common Financing in the amount of $4,200,000.
Despite the cash infusion, the Company will not have sufficient resources to fund its operations for the next twelve months from
the date of this filing. These conditions raise substantial doubt about the Company’s 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 and
may continue to be dependent on additional capital raising as long as its products do not reach commercial profitability. 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 June 30, 2019, and we are not aware of any material trends in capital resources that
would impact our business.
Six Months Ended June 30, 2019 Compared to Six Months Ended
June 30, 2018
General
. As of June 30, 2019, we had
cash and cash equivalents of approximately $2,371,000, compared to approximately $2,515,000 as of June 30, 2018. The increase is
attributable to our net cash provided in financing 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
$1,729,000 for the six months ended June 30, 2019 and $1,872,000 for the same period in 2018. The decrease in our cash usage was
mainly associated with the increase in our working capital liabilities, for the six months ended June 30, 2019 compared to the
six months ended June 30, 2018.
Cash used in investing activities was $0 and
$5 for the six-month periods ended June 30, 2019 and 2018, respectively.
Cash provided by
financing activities was approximately $3,204,000 for the six months ended June 30, 2019 derived from proceeds received from
the issuance of Series E preferred stock, compared to $31,000 for the six months ended June 30, 2018.
Off Balance Sheet Arrangements
Except as disclosed,
as of June 30, 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.