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 2019, the Company raised
$3,620 through the issuance of its Series E Preferred Stock and $580 through the issuance of its Common 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 (the
“SEC”) 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.
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. Gains and losses from
foreign currency transactions and translation for the three and nine months ended September 30, 2019 and 2018 and the cumulative translation gains and losses as
of September 30, 2019 and December 31, 2018 were not material.
Revenue recognition
The Company generates 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.
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 September 30, 2019.
NOTE 4 - STOCKHOLDERS’ EQUITY
Stock based compensation and sale of common
stock
In February 2019, the Company issued 275,000
shares of common stock to a consultant for services valued at $3.79 per share, or $1,042.
In July 2019, the Company sold 290,000 shares
of common stock to private investors at $2 per share, or $580.
During the three and nine-month period ended
September 30, 2019, 0 and 63,412 employee options were exercised, and 0 and 120,000 options were issued, respectively. The options
issued in 2019, were recorded at a fair value of $183 and vested immediately. During the three and nine-month period ended September
30, 2019, stock-based compensation expense of $110 and $514 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
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
7
|
|
|
Selling and marketing
|
|
|
11
|
|
|
|
6
|
|
|
|
33
|
|
|
|
9
|
|
|
General and administrative
|
|
|
99
|
|
|
|
492
|
|
|
|
481
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110
|
|
|
$
|
498
|
|
|
$
|
514
|
|
|
$
|
666
|
|
As of September 30, 2019, the total unrecognized
estimated compensation cost related to non-vested stock options granted prior to that date was $269, which is expected to be recognized
over a weighted average period of approximately 1.13 years.
Series E Preferred Stock
On June 21, 2019, the Company filed a Certificate of Designation of the Series E Preferred Stock (the
“Original Certificate of Designation”) with the Secretary of State of the State of Delaware (the “Secretary of
State”). The Original Certificate of Designation was effective upon filing with the Secretary of State and designated the
Series E Preferred Stock. On July 31, 2019 and November 15, 2019, the Company filed with the Secretary of State an Amended and
Restated Certificates of Designation (the “Amended and Restated Certificates of Designation”) which were effective
upon filing with the Secretary of State of Delaware. The Amended Certificates of Designation provide that, among other things,
the Series E Preferred Stock is not convertible into the Company’s common stock, and the holders of Series E Preferred Stock
have no voting rights, until, in each case, the Company receives stockholder approval of the June Offering (as defined below) and
the July Offering (as defined below).
On June 21, 2019, the Company entered into
and closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing
stockholders of 1,600,000 shares of the Company’s Series E Preferred Stock, and seven year warrants to purchase 1,600,000
shares of our Series E Preferred Stock at an exercise price of $2.50 per share, at a purchase price per unit of $2.00 (the “June
Offering”), for aggregate gross proceeds of $3,200,000 (excluding the exercise of the warrants issued in the June Offering).
On July 31, 2019, the Company entered into
and closed a private placement Securities Purchase Agreement with certain existing stockholders relating to the sale to such existing
investors of 210,000 shares of the Company’s Series E Preferred Stock and seven year warrants to purchase 210,000 shares
of our Series E Preferred Stock at an exercise price of $2.50 per share, at a purchase price per unit of $2.00 (the “July
Preferred Offering”), for gross proceeds of $420,000 (excluding the exercise of the warrants issued in the July Preferred
Offering).
Each share of Series E Preferred Stock is convertible
at any time and from time to time at the option of a holder of Series E Preferred Stock into one share of the Company’s common
stock, provided that each holder would be prohibited from converting Series E Preferred Stock into shares of the Company’s
common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the
total number of shares of the Company’s common stock then issued and outstanding. This limitation may be waived with respect
to a holder upon such holder’s provision of not less than 61 days’ prior written notice to the Company.
Upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, each holder of the Series E Preferred Stock shall be entitled to receive the
amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series
E Preferred Stock if such shares had been converted to the Company’s common stock immediately prior to such liquidation.
Shares of Series E Preferred Stock are
not entitled to receive any dividends, unless and until specifically declared by the Board. However, holders of Series E Preferred
Stock are entitled to receive dividends on shares of Series E Preferred stock equal (on an as-if-converted-to-common-stock basis)
to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared
by the Board of Directors of the Company. The Company is not obligated to redeem or repurchase any shares of Series E Preferred
Stock. Shares of Series E Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous
fund provisions.
Subject to the beneficial ownership limitations,
each holder of Series E Preferred Stock shall be entitled to the number of votes equal to the number of shares of the Company’s
common stock equal to the Voting Ratio. The Voting Ratio, for each share of Series E Preferred Stock is equal to $2.00 divided
by $3.53.
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 nine months ended September 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 which has since been repaid and the warrants remain outstanding – See Note 5. The warrants
were initially accounted for as a derivative liability until the completion of the June Financing – See Note 6.
The Company issued warrants to purchase
1,600,000 shares of Series E Preferred Stock in the June Financing and warrants to purchase 210,000 shares of Series E preferred
Stock in the July 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
|
|
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.
|
|
|
September 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 September 30, 2019
|
|
$
|
-
|
|
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 nine months ended September 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 reclassed to equity.
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 September 30, 2019
|
|
|
|
|
|
Quoted prices
in active
markets
(Level 1)
|
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
|
|
Fair value at
September 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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 nine months ended September 30, 2019.
The
following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2019:
|
|
|
Derivative
Liability -
-Warrants
|
|
|
Embedded
Conversion
Feature
Derivative
Liability
|
|
|
Total
Derivative
Liabilities
|
|
|
Balance - January 1, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Liabilities
|
|
|
261
|
|
|
|
159
|
|
|
|
420
|
|
|
Change in fair value of warrant liability
|
|
|
(65
|
)
|
|
|
(37
|
)
|
|
|
(102
|
)
|
|
Eliminate derivative treatment
|
|
|
(196
|
)
|
|
|
(122
|
)
|
|
|
(318
|
)
|
|
Balance – September 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 nine months ended September 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:
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Series D Preferred Shares
|
|
|
303,782
|
|
|
|
303,782
|
|
|
Series E Preferred Shares
|
|
|
1,810,000
|
|
|
|
—
|
|
|
Stock Options - employee and non-employee
|
|
|
749,361
|
|
|
|
734,756
|
|
|
Warrants
|
|
|
266,667
|
|
|
|
266,667
|
|
|
Total
|
|
|
3,129,810
|
|
|
|
1,305,205
|
|
The diluted loss per share equals
basic loss per share in the three and nine months ended September 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
United States
|
|
$
|
101
|
|
|
$
|
28
|
|
|
$
|
259
|
|
|
$
|
129
|
|
|
Europe
|
|
|
-
|
|
|
|
16
|
|
|
|
161
|
|
|
|
61
|
|
|
Israel
|
|
|
-
|
|
|
|
3
|
|
|
|
13
|
|
|
|
41
|
|
|
India
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
3
|
|
|
Canada
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
21
|
|
|
Other
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
9
|
|
|
Total
|
|
$
|
101
|
|
|
$
|
54
|
|
|
$
|
443
|
|
|
$
|
264
|
|
During the three-month period ended September
30, 2019 and 2018, revenues from distributors accounted for 93% and 64% of total revenues, respectively.
During the nine-month period ended September
30, 2019 and 2018, revenues from distributors accounted for 59% and 52% 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
|
|
$
|
11
|
|
|
2020
|
|
|
29
|
|
|
Total
|
|
$
|
40
|
|
Rent and related expenses were $13 and
$12 for the three months ended September 30, 2019 and 2018 and $43 and $22 for the nine months ended September 30, 2019 and 2018,
respectively.
NOTE 10 - SUBSEQUENT EVENTS
None
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 UroShield 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.
|
|
|
|
|
●
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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 Quarterly Report on Form 10-Q. Except to
the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
Overview
We are a medical device company focusing
on noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home,
without the assistance of medical professionals. Our WoundShield, PainShield and UroShield products are backed by novel technology
which relates to ultrasound delivery through surface acoustic waves.
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 Quarterly Report on Form 10-Q;
|
|
●
|
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 the fiscal year following the
fifth anniversary of the date of the first sale of common stock in an offering registered under the Securities Act of 1933, as
amended, (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. The Panel will maintain
a panel Monitor on the Company until September 2020.
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. The Stockholder
Meeting occurred on November 18, 2019 and at the Stockholder
Meeting, the stockholders of the Company approved the Stockholder Resolutions.
Each share of Series E Preferred Stock is convertible at any time and from time to into one share of the
Company’s common stock, provided that each holder would be prohibited from converting Series E Preferred Stock into shares
of the Company’s common stock if, as a result of such conversion, any such holder, together with its affiliates, would own
more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. This limitation
may be waived with respect to a holder upon such holder’s provision of not less than 61 days’ prior written notice
to the Company.
Upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, each holder of the Series E Preferred Stock shall be entitled to receive the
amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series
E Preferred Stock if such shares had been converted to the Company’s common stock immediately prior to such liquidation.
Shares of Series E Preferred Stock are
not entitled to receive any dividends, unless and until specifically declared by the Board. However, holders of Series E Preferred
Stock are entitled to receive dividends on shares of Series E Preferred stock equal (on an as-if-converted-to-common-stock basis)
to and in the same form as dividends actually paid on shares of the common stock when such dividends are specifically declared
by the Board of Directors of the Company. The Company is not obligated to redeem or repurchase any shares of Series E Preferred
Stock. Shares of Series E Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous
fund provisions.
Subject to the beneficial ownership limitations, each holder of Series E Preferred
Stock shall be entitled to the number of votes equal to the number of shares of the Company’s common stock equal to the Voting
Ratio. The Voting Ratio, for each share of Series E Preferred Stock is equal to $2.00 divided by $3.53. Unless and until the stockholders
of the Company approve the June Offering and the July Offering, the holders of the Series E Preferred Stock have no voting rights.
Critical Accounting Policies
A critical accounting policy is one that
is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial Statements
included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018. There have not been any material changes
to such critical accounting policies since December 31, 2018.
The currency of the primary economic environment
in which our operations are conducted is the U.S. dollar (“$” or “dollar”). Accordingly, our functional
currency is the dollar.
Results of Operations
Three Months Ended September 30,
2019 Compared to Three Months Ended September 30, 2018
Revenues. For the three months ended
September 30, 2019 and 2018, our revenues were approximately $101,000 and $54,000 respectively, an increase of approximately 87%,
or $47,000 between the periods. The increase was mainly attributable to customer additions. 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 September 30,
2019, the percentage of revenues attributable to our products was: PainShield - 100% and UroShield 0%. For the three months ended
September 30, 2018, the percentage of revenues attributable to our products was: PainShield - 72% and UroShield - 28%. For the
three months ended September 30, 2019 and 2018, the percentage of revenues attributable to our disposable products was 12% and
23%, respectively. For the three months ended September 30, 2019 and 2018, the portion of our revenues that was derived from distributors
was 93% and 64%, respectively.
Gross Profit. For the three months
ended September 30, 2019 and 2018, gross profit was approximately $47,000 and $8,000, respectively, an increase of approximately
488%, mainly due to increased sales.
Gross profit as a percentage of revenues was
approximately 47% and 15% for the three months ended September 30, 2019 and 2018, respectively. The increase in gross profit as
a percentage is mainly due to extra costs incurred in the third quarter of 2018 that were incurred to correct defective products
.
Research and Development Expenses.
For the three months ended September 30, 2019 and 2018, research and development expenses were approximately $79,000 and $121,000,
respectively between the periods. The decrease was due to there being no clinical trials during the three months ended September
30, 2019.
Research and development expenses as a
percentage of total revenues were approximately 78% and 224% for the three months ended September 30, 2019 and 2018, respectively.
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 September 30, 2019 and 2018, selling and marketing expenses were approximately $228,000 and $345,000,
respectively, a decrease of approximately 34%, or $117,000, between the periods. The decrease was primarily due to bonuses and
vacation payouts in 2018.
Selling and marketing expenses as a percentage
of total revenues were approximately 226% and 639% for the three months ended September 30, 2019 and 2018, respectively.
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 September 30, 2019 and 2018, general and administrative expenses were approximately $533,000 and $868,000,
respectively, a decrease of approximately 39%, or $335,000, between the periods. The decrease was primarily due to higher compensation
costs and public company expenses in 2018.
General and administrative expenses as a percentage
of total revenues were approximately 528% and 1,607% for the three months ended September 30, 2019 and 2018, respectively.
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 September 30, 2019 and 2018, financial expenses, net was approximately $20,000 compared to a $7,000, respectively,
an increase of approximately $13,000, between the periods. The increase in 2019 was derived primarily from exchange rate adjustments.
Tax expenses. For the three months
ended September 30, 2019 and 2018, tax expenses were $2,000 and $11,000. 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 $529,000, or 39%, to approximately $815,000 for the three months ended September 30, 2019 from approximately
$1,344,000 in the same period of 2018. The decrease in net loss resulted primarily from the factors described above.
Nine Months Ended September 30, 2019
Compared to Nine Months Ended September 30, 2018
Revenues. For the nine months ended
September 30, 2019 and 2018, our revenues were approximately $443,000 and $264,000, respectively, an increase of approximately
68%, or $179,000, between the periods. The increase was mainly attributable to new royalty agreement in the nine months ended September
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 nine months ended September 30,
2019, the percentage of revenues attributable to our products was: PainShield - 54% and UroShield 46%. For the nine months ended
September 30, 2018, the percentage of revenues attributable to our products was: PainShield - 75% and UroShield - 25%. For the
nine months ended September 30, 2019 and 2018, the percentage of revenues attributable to our disposable products was 5% and 53%,
respectively. For the nine months ended September 30, 2019 and 2018, the portion of our revenues that was derived from distributors
was 59% and 52%, respectively.
Gross Profit. For the nine months
ended September 30, 2019 and 2018, gross profit was approximately $307,000 and $141,000, respectively, an increase of approximately
118%, or $166,000.
Gross profit as a percentage of revenues was
approximately 69% and 53% for the nine months ended September 30, 2019 and 2018, respectively. The increase in gross profit as
a percentage is mainly due to royalty income generated in the second quarter of 2019.
Research and Development Expenses. For
the nine months ended September 30, 2019 and 2018, research and development expenses were approximately $381,000 and $408,000,
respectively, a decrease of approximately 7%, or $27,000 between the periods. The decrease is due to less clinical trials done
in 2019.
Research and development expenses as a percentage
of total revenues were approximately 86% and 155% for the nine months ended September 30, 2019 and 2018, respectively.
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 nine months ended September 30, 2019 and 2018, selling and marketing expenses were approximately $820,000 and $871,000, respectively,
a decrease of approximately 6%, or $51,000, between the periods. The decrease was primarily due to higher compensation costs and
public company expenses in 2018.
Selling and marketing expenses as a percentage
of total revenues were approximately 185% and 330% for the nine months ended September 30, 2019 and 2018, respectively.
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 nine months ended September 30, 2019 and 2018, general and administrative expenses were approximately $3,018,000 and $1,802,000,
respectively, an increase of approximately 681%, or $1,216,000, between the periods. The increase is due to stock compensation
cost and higher professional fees.
General and administrative expenses as
a percentage of total revenues were approximately 681% and 683% for the nine months ended September 30, 2019 and 2018, respectively.
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
nine months ended September 30, 2019 and 2018, financial income and (expenses), net was approximately ($71,000) compared to a $16,000,
respectively, a decrease of approximately ($87,000), between the periods.
Change in fair value of derivative liabilities.
For the nine months ended September 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 nine months ended September 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 income
in 2019 was derived from the elimination of derivative liabilities.
Warrant modification expenses. For
the nine months ended September 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 nine months
ended September 30, 2019 and 2018, tax expenses was approximately $20,000 compared to $33,000, 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 $1,644,000, or 56%, to approximately $4,601 for the nine months ended September 30, 2019 from approximately $2,957,000
in the same period of 2018.
Liquidity and Capital Resources
We incurred losses in the amount of approximately
$4,601,000 during the nine-month period ended September 30, 2019 and accumulated negative cash flow from operating activities of
$2,842 for the nine-month period ended September 30, 2019.
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 Capital Markets 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 September 30, 2019, and we are not aware of any material trends in capital resources that would impact
our business.
Cash flows
General. As of September 30, 2019,
we had cash and cash equivalents of approximately $2,258,000, compared to approximately $1,727,000 as of September 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 $2,842,000 for the nine months ended September 30, 2019 and $2,669,000 for the same period in 2018.
Cash used in investing activities was $0
and $8,000 for the nine-month periods ended September 30, 2019 and 2018, respectively. Cash invested in 2018 was related to purchase
of fixed assets.
Cash provided by financing activities was
approximately $4,204,000 for the nine months ended September 30, 2019 derived from proceeds received from the issuance of Series
E preferred stock, compared to $44,000 for the nine months ended September 30, 2018.
Off Balance Sheet Arrangements
Except as disclosed, as of September 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.