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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 001-36445

 

 

NanoVibronix, Inc

(Exact name of registrant as specified in its charter)

 

Delaware   01-0801232

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

525 Executive Blvd., Elmsford, New York   10523
(Address of principal executive office)   (Zip Code)

 

Registrant’s telephone number, including area code: (914) 233-3004

 

 

 

(Former name, former address and

former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common stock, par value $0.001 per share   NAOV   NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
       
Non-accelerated filer ☒ Smaller reporting company ☒
       
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s Common Stock as of November 15, 2021 was 27,946,793 shares.

 

 

 

 

 

 

NanoVibronix, Inc.

Quarter Ended September 30, 2021

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2021 and 2020 2
     
  Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 3
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
     
Item 4. Controls and Procedures 20
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 21
     
Item 1A. Risk Factors 22
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 25
     
Signatures   26

 

i

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NanoVibronix, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Amounts in thousands except share and per share data)

 

    September 30, 2021     December 31, 2020  
ASSETS:                
Current assets:                
Cash and cash equivalents   $ 8,599     $ 7,142  
Restricted cash     -       391  
Trade receivables     28       25  
Other accounts receivable and prepaid expenses     597       267  
Inventory     201       145  
Total current assets     9,425       7,970  
                 
Non-current assets:                
Fixed assets, net     6       4  
Other assets     16       25  
Severance pay fund     199       199  
Operating lease right-of-use assets, net     20       31  
Total non-current assets     241       259  
Total assets   $ 9,666     $ 8,229  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY:                
                 
Current liabilities:                
Trade payables   $ 62     $ 144  
Other accounts payable and accrued expenses     194       488  
Shares issued in excess of authorized     -       2,257  
Operating lease liabilities - current     10       13  
Total current liabilities     266       2,902  
                 
Non-current liabilities:                
Accrued severance pay   $ 243       245  
Deferred licensing income     165       199  
Deferred revenue     271       -  
Derivative liabilities     -       2,471  
Operating lease liabilities, non-current     10       18  
Total liabilities     955       5,835  
                 
Commitments and contingencies (Note 9)     -       -  
                 
Stockholders’ equity:                
Series C Preferred stock of $0.001 par value - Authorized: 3,000,000 shares at September 30, 2021 and December 31, 2020; Issued and outstanding: 666,667 at September 30, 2021 and December 31, 2020     1       1  
                 
Series D Preferred stock of $0.001 par value - Authorized: 506 shares at September 30, 2021 and December 31, 2020; Issued and outstanding: 153 at September 30, 2021 and December 31, 2020     -       -  
                 
Series E Preferred stock of $0.001 par value - Authorized: 1,999,494 shares at September 30, 2021 and December 31, 2020, respectively; Issued and outstanding: 0 at September 30, 2021 and 875,000 at December 31, 2020     1       1  
Common stock of $0.001 par value - Authorized: 40,000,000 shares at September 30, 2021 and 24,109,634 at December 31, 2020; Issued and outstanding: 27,178,126 and 21,246,523 shares at September 30, 2021 and December 31, 2020, respectively     27       22  
                 
Additional paid in capital     63,086       44,959  
Accumulated other comprehensive income     59       66  
Accumulated deficit     (54,463 )     (42,655 )
Total stockholders’ equity     8,711       2,394  
Total liabilities and stockholders’ equity   $ 9,666     $ 8,229  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

1

 

 

NanoVibronix, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(Amounts in thousands except share and per share data)

 

                                 
   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2021     2020     2021     2020  
                         
Revenues   $ 499     $ 150     $ 920     $ 533  
Cost of revenues     271       51       407       345  
Gross profit     228       99       513       188  
                                 
Operating expenses:                                
Research and development     50       68       178       131  
Selling and marketing     245       289       852       723  
General and administrative     801       546       2,656       2,513  
                                 
Total operating expenses     1,096       903       3,686       3,367  
                                 
Loss from operations     (868 )     (804 )     (3,173 )     (3,179 )
                                 
 Interest expense     -       (123 )     -       (123 )
Financial income (expense), net     (23 )     (15 )     (29 )     (25 )
Change in fair value of derivative liabilities     (5,714 )     -       (6,956 )     -  
Gain on purchase of warrants     -       -       64       -  
Warrant modification expense     -       -       (1,627 )     -  
                                 
Loss before taxes on income     (6,605 )     (942 )     (11,721 )     (3,327 )
                                 
Income tax benefit / (expense)     (70 )     20       (87 )     7  
                                 
Net loss   $ (6,675 )   $ (922 )   $ (11,808 )   $ (3,320 )
                                 
Basic and diluted net loss available for holders of common stock, Series C Preferred Stock and Series D Preferred Stock   $ (0.26 )   $ (0.10 )   $ (0.47 )   $ (0.43 )
                                 
Weighted average common shares outstanding:                                
Basic and diluted     26,096,957       9,344,254       25,014,919       7,649,242  
Comprehensive loss:                                
Net loss available to common
stockholders 		    (6,675 )     (922 )     (11,808 )     (3,320  
Change in foreign currency
translation adjustments 		    1       -       (7 )     -  
Comprehensive loss available to common stockholders     (6,674 )     (922 )     (11,815 )     (3,320 )

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

2

 

 

NanoVibronix, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

(Amounts in thousands except share and per share data)

 

                                                                                         
   

Series C

Preferred Stock

   

Series D

Preferred Stock

   

Series E

Preferred Stock

    Common Stock     Additional Paid - in     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity  
Balance, June 30, 2020     2,993,142     $ 2       304     $ -       1,715,000       2       4,313,764     $ 5     $ 39,935    - $ (40,728 )   $ (784 )
Stock-based compensation     -       -       -       -       -       -       -       -       183       -       183  
Issuance of common stock for services                                                     375,000               567               567  
Issuance of common stock for cash, net                                                     6,326,217       7       4,216               4,223  
Exchange of Series C Preferred Stock into Common Stock     (487,890 )                                             487,890                               -  
Exchange of Series D Preferred Stock into Common Stock                     (151 )                             150,782                               -  
Exchange of Series E Preferred Stock into Common Stock     -       -       -       -       (840,000       -       840,000       -       -       -       -  
Net loss     -       -       -       -       -       -       -       -       -   -    (922 )     (922 )
Balance, September 30, 2020     2,505,252     $ 2       153     $ -       875,000     $ 2       12,493,653     $ 12     $ 44,901   -  $ (41,650 )   $ 3,267  

 

   

Series C

Preferred Stock

   

Series D

Preferred Stock

   

Series E

Preferred Stock

    Common Stock     Additional Paid - in     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity  
Balance, December 31, 2019     2,993,142     $ 2       304     $ -       1,825,000     $ 2       4,203,764     $ 5     $ 39,669    - $ (38,330 )   $ 1,348  
Stock-based compensation     -       -       -       -       -       -       -       -       326       -       326  
Warrants issued with notes payable                                                     375,000               567               567  
Issuance of common stock for services                                                     6,326,217       7       4,216               4,223  
Issuance of common stock for cash, net                                                     -               123               123  
Exchange of Series C Preferred Stock into Common Stock     (487,890 )                                             487,890                               -  
Exchange of Series D Preferred Stock into Common Stock                     (151 )                             150,782                               -  
Exchange of Series E Preferred Stock into Common Stock     -       -       -       -       (950,000 )     -       950,000       -       -       -       -  
Net loss     -       -       -       -       -       -       -       -       -    -   (3,320 )     (3,320 )
Balance, September 30, 2020     2,505,252     $ 2       153     $ -       875,000     $ 2       12,493,653     $ 12     $ 44,901    - $ (41,650 )   $ 3,267  

 

3

 

 

                                                                                                 
    Series C Preferred Stock     Series D Preferred Stock     Series E Preferred Stock     Common Stock     Additional Paid - in     Accumulated Other Comprehensive     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Income     Deficit     Equity  
Balance, June 30, 2021     666,667     $ 1       153     $ -       875,000     $ 1       24,109,634     $ 24     $ 51,867     $ 59     $ (47,788 )   $ 4,164  
Stock-based compensation     -       -       -       -       -       -       -       -       35       -       -       35  
Issuance of common stock for cash, net     -       -       -       -       -       -       -       3       -       -       -       3  
Exercise of warrants     -       -       -       -       -       -       2,193,491       -       3,558       -       -       3,558  
Conversion of preferred stock to common stock     -       -       -       -       (875,000 )     -       875,000       -       -       -       -       -  
Reclass from liability to equity     -       -       -       -       -       -       -       -       7,626       -       -       7,626  
Other comprehensive loss     -       -       -       -       -       -       -       -       -               -       -  
Net loss     -       -       -       -       -       -       -       -       -       -       (6,675 )     (6,675 )
Balance, September 30, 2021     666,667     $ 1       153     $ -       -     $ 1       27,178,126     $ 27     $ 63,086     $ 59     $ (54,463 )   $ 8,711  

 

    Series C Preferred Stock     Series D Preferred Stock     Series E Preferred Stock     Common Stock     Additional Paid - in     Accumulated Other Comprehensive     Accumulated     Total Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Income     Deficit     Equity  
Balance, December 31, 2020     666,667     $ 1       153     $ -       875,000     $ 1       21,246,523     $ 22     $ 44,959     $ 66     $ (42,655 )   $ 2,394  
Stock-based compensation     -       -       -       -       -       -       -       -       114       -       -       114  
Issuance of common stock for cash, net                                                             3                               3  
Exercise of warrants     -       -       -       -       -       -       5,056,603       2       7,050       -       -       7,052  
Conversion of preferred stock to common stock     -       -       -       -       (875,000 )-     -       875,000       -       -       -       -       -  
Reclassification from liability to equity     -       -       -       -       -       -       -       -       10,963       -       -       10,963  
Other comprehensive loss     -       -       -       -       -       -       -       -       -       (7 )     -       (7 )
Net loss     -       -       -       -       -       -       -       -       -       -       (11,808 )     (11,808 )
Balance, September 30, 2021     666,667     $ 1       153     $ -       -     $ 1       27,178,126     $ 27     $ 63,086     $ 59     $ (54,463 )   $ 8,711  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

4

 

 

NanoVibronix, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands except share and per share data)

 

    2021     2020  
    Nine Months Ended September 30,  
    2021     2020  
Cash flows from operating activities:                
Net loss   $ (11,808 )   $ (3,320 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     1       2  
Noncash interest expense     -       123  
Stock-based compensation     114       326  
Warrants received as licensing fee     -       (23 )
Warrant modification expense     1,627       -  
Change in fair value of equity investment     9       (4 )
Common stock payable to consultant     -       566  
Change in fair value of derivative liabilities    

7,148

      -  
Gain on purchase of warrants     (64 )     -  
Changes in operating assets and liabilities:                
Trade receivable     (4 )     8  
Other accounts receivable and prepaid expenses     (330 )     107  
Inventory     (56 )     12  
Trade payables     (82 )     (46 )
Other accounts payable and accrued expenses     (294 )     (19 )
Deferred revenue     237       215  
Accrued severance pay, net     (2 )     (20 )
Net cash used in operating activities     (3,504 )     (2,073 )
                 
Cash flows from investing activities:                
Purchases of property plant and equipment     (3 )     -  
Net cash used in investing activities     (3 )     -  
                 
Cash flows from financing activities:                
Proceeds from issuance of notes payable     -       42  
Proceeds from note issued to related party     -       200  
Payments of note payable to related party     -       (200 )
Proceeds from issuance of Preferred Series E stock     -       4,223  
Proceeds from exercise of warrants     4,968       -  
Buy back of warrants from investors     (388 )     -  
Net cash provided by financing activities     4,580       4,265  
                 
Effects of currency translation on cash and cash equivalents     (7 )     -  
                 
Net increase in cash, cash equivalents and restricted cash     1,066       2,193  
Cash, cash equivalents and restricted cash at beginning of period     7,533       1,338  
                 
Cash, cash equivalents and restricted cash at end of period   $ 8,599     $ 3,531  
                 
Supplemental non-cash financing and investing activities:                
Discount on notes payable     -       123  
Issuance of common stock payable   $ -     $ 566  
Conversion of Series C, D, and E Preferred stock into common stock   $ -     $ 1  
Shares issued from exercise of warrants previously classified as derivative liability   $ 2,087     $ -  
Reclassification liability to equity due to increase in authorized shares   $ 10,963     $ -  

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

5

 

 

NanoVibronix, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

NanoVibronix, Inc. (the “Company”), a Delaware corporation, commenced operations on October 20, 2003 and is 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.

 

The Company’s principal research and development activities are conducted in Israel through its wholly owned subsidiary, NanoVibronix (Israel 2003) Ltd., a company registered in Israel, which commenced operations in October 2003.

 

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. The Company has historically had recurring losses and negative cash used from operations which raised substantial doubt about the Company’s ability to continue as a going concern. During the nine months ended September 30, 2021, the Company used $3,504 of cash in operations. Although we expect to continue to incur losses and negative cash flows from operating activities, we had cash balances of $8,599 as of September 30, 2021. Because the Company has sufficient resources to fund our operation for the next twelve months from the date of this filing, the substantial doubt has been alleviated. The Company may need to continue to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability. If we are unable to increase in the number of authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in its ability to raise additional capital.

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation and principles of consolidation

 

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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, 2020, as found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2021.

 

6

 

 

The balance sheet for December 31, 2020 was derived from the Company’s audited financial statements for the year ended December 31, 2020. 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

 

Non-U.S. dollar denominated transactions and balances have been re-measured to U.S. dollars. All 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 other comprehensive income, as appropriate. The cumulative translation gains (losses) as of the nine months ended September 30, 2021 and 2020 were ($7) and $8, respectively.

 

Revenue recognition

 

It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s financial statements.

 

Revenue from product sales is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from coupons, discounts, chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers.

 

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.

 

7

 

 

Sequencing

 

The Company adopted a sequencing policy under ASC 815-40-35 whereby if reclassification of contracts from equity to liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares. This was due to the Company committing more shares than authorized. While temporary suspensions are in place to keep the potential exercises beneath the number authorized, certain instruments are classified as liabilities, after allocating available authorized shares on the basis of the most recent grant date of potentially dilutive instruments. Pursuant to ASC 815, issuances of securities granted as compensation in a share-based payment arrangement are not subject to the sequencing policy.

 

Recently adopted accounting standards

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of Topic 326 did not have a material on the Company’s financial statements and financial statement disclosures.

 

NOTE 4 – STOCKHOLDERS’ EQUITY

 

Common stock and over-issuance

 

The common stock confers upon the holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends, if declared, and to participate in the distribution of the surplus assets and funds of the Company in the event of liquidation, dissolution or winding up of the Company.

 

As of December 3, 2020, we had 20,000,000 authorized shares of our common stock and 19,850,014 shares of common stock outstanding resulting in 149,986 shares of common stock being available for issuance. On December 4, 2020, certain holders of the Company’s Series C Preferred Stock converted 396,509 shares of Series C Preferred Stock into 396,509 shares of common stock, resulting in an overissue of 246,523 shares of common stock. Beginning on December 17, 2020, through January 22, 2021, certain holders of warrants we had issued in December 2020 (the “December 2020 Warrants”) exercised a portion of the December 2020 Warrants for 2,657,144 shares of Common Stock, resulting in an additional overissue of 2,657,144 shares of Common Stock. As of December 31, 2020, the aggregate number of shares of common stock that was overissued by the Company was 4,109,634. The shares issued in excess of the authorized amount are classified as liabilities. The common stock equivalents are subject to the Company’s sequencing policy and are classified as derivative liabilities (see Note 5). On March 3, 2021, the Company filed a proxy statement in connection with a special meeting of stockholders to was to be held on March 31, 2021, but postponed until May 6, 2021 to (i) ratify the increase in the number of authorized shares of common stock from 20,000,000 to 24,109,635 and the issuance of such 4,109,635 shares of common stock, and (ii) further increase the number of our authorized shares of common stock. On May 6, 2021, the Company’s stockholders voted to approve the ratification of the increase in the number of authorized shares of common stock from 20,000,000 to 24,109,635 and the issuance of such 4,109,635 shares of common stock to be effective as of December 4, 2020, but the stockholders did not approve a further increase in the number of its authorized shares of common stock.

 

On August 17, 2021, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of shares of the Company’s Common Stock authorized for issuance from 24,109,635 shares to 40,000,000 shares. As a result of the vote to increase the number of shares authorized for issuance, the warrants that were previously accounted for as derivative liabilities were marked to market through the date of approval and then reclassified to additional paid in capital (equity), as the Company had sufficient authorized shares to settle the exercise of the warrants.

 

Stock-based compensation and options

 

During the nine-month period ended September 30, 2021 and 2020, 180,000 and 137,000 options were granted, respectively. The options were granted to a employees and consultants in 2021 and were recorded at a fair value and vested over three years. During the three and nine-month period ended September 30, 2021, stock-based compensation expense of $99 and $306 was recorded for options that vested, respectively. During the three and nine-month period ended September 30, 2020, there was stock-based compensation expense of $123 and $326, respectively. During the nine months ended September 30, 2021, 13,845 options expired.

 

The fair value for options granted in 2021 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with the following underlying assumptions:

 

Price at valuation   $ 1.04  
Exercise price   $ 1.04  
Risk free interest     0.49 %
Expected term (in years)     5  
Volatility     81.5 %

 

8

 

 

The total stock-based expense recognized in the financial statements for services received from employees and non-employees is shown in the following table.

 

    2021     2020     2021     2020  
   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2021     2020     2021     2020  
                         
Research and development     5       3       15       5  
Selling and marketing     10       11       41       33  
General and administrative     84       169       250       288  
                                 
Total   $ 99     $ 183     $ 306     $ 326  

 

As of September 30, 2021, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $95, which is expected to be recognized over a weighted average period of approximately 1.04 years.

 

Series E Preferred Stock conversion to common stock

 

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.

 

On August 17, 2021, a shareholder converted 875,000 shares of Series E Preferred Stock into 875,000 shares of common stock at a conversion rate of 1 to 1. No purchase was made in order to convert these shares. As of September 30, 2021, there were no shares of Series E Preferred Stock outstanding.

 

Warrant exercises and modification

 

On December 2, 2020, we entered into a Securities Purchase Agreement with certain institutional and accredited investors pursuant to which the Company issued and sold to such investors in a private placement an aggregate of (i) 5,914,285 shares of the Company’s common stock at an offering price of $0.70 per share and (ii) pre-funded warrants to purchase up to 2,657,144 shares of common stock at a purchase price of $0.699 per pre-funded warrant, for gross proceeds of approximately $6.0 million, and net proceeds of approximately $5.4 million. In January 2021, two investors exercised an aggregate of 1,657,144 warrants at $0.001 per share.

 

On January 21, 2021, Company entered into letter agreements (the “Letter Agreements”) with certain existing accredited investors to exercise certain outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 1,205,968 shares of the Company’s common stock at an exercise price per share of $1.165 (the “Exercise”). Certain of the Existing Warrants (the “Registered Existing Warrants”) and the shares of common stock underlying the Registered Existing Warrants have been registered pursuant to a registration statement on Form S-3 (File No. 333-251264) and a registration statement on Form S-1 (File No. 333-218871). In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered warrants to purchase up to an aggregate of 1,205,967 shares of common stock (the “New Warrants”) at an exercise price of $1.04 per share and with an exercise period of seven years from the initial closing date. The gross proceeds to the Company from the Exercise were approximately $1.4 million.

 

In August and September 2021, investors exercised 1,477,035 warrants between $0.88 and $2.50 per share for proceeds of approximately $3.6 million.

 

The New Warrants were 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 $1,627 was recorded with a corresponding increase in additional paid in capital.

 

In estimating the warrants’ fair value, the Company used the following assumptions:

 

Risk free interest     0.05 – 0.85 %
Dividend yield     0 %
Volatility     82.7% - 211 %
Contractual term (in years)     0.67 – 6.56    

 

9

 

 

NOTE 5 – DERIVATIVE LIABILITIES

 

During 2020, the Company established a sequencing policy to which common stock equivalents are exercisable to shares of common stock more than the Company’s authorized limit. It was determined that all options and warrants by the end of the year were no longer permitted to be classified as equity and were valued at fair market value using Black Scholes and recorded as derivative liabilities.

 

On April 6, 2021, the Company agreed to buy back 663,332 warrants from investors for a total of $368. The warrants had exercise prices between $0.88 and $0.94 per share. The value of the derivative liabilities associated with these warrants was $451. The Company recorded a $64 gain in connection with the buy back of the warrants.

 

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 quarter ended September 30, 2021 is as follows:

 

Stock price   $ 1.02 - 2.94  
Conversion price   $ 0.72 - 6.90  
Contractual term (in years)     0.67 – 6.56  
Volatility (annual)     82.7% - 211 %
Risk-free rate     0.09% - 1.21 %

 

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.

 

Financial Liabilities Measured at Fair Value on a Recurring Basis

 

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 3 during the three and nine months ended September 30, 2021.

 

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2021.

 

   

Derivative

Liabilities

 
Balance – December 31, 2020   $ 2,471  
New issuances     1,819  
Change in fair value of derivative liability     6,916  
Reclassification liability to equity     (10,755 )
Buy back of warrants     (451 )
Balance – September 30, 2021   $ -  

 

10

 

 

NOTE 6 – LEASES

 

The Company has operating lease agreements with terms up to 3 years, including car leases.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 2.92 years, with a weighted-average discount rate of 10%.

 

The Company incurred $4 and $10 of lease expense for its operating leases for the three months and nine months ended September 30, 2021, respectively.

 

The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases as of September 30, 2021:

 

         
2021   $ 3  
2022     10  
2023     10  
Total undiscounted operating lease payments     23  
Less: Imputed interest     3  
Present value of operating lease liabilities   $ 20  

 

NOTE 7 – LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDER

 

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. All outstanding stock options and warrants for the three and nine months ended September 30, 2021 and 2020 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 stock equivalents, which have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

 

    September 30, 2021     September 30, 2020  
Series D Preferred Stock     153       153,000  
Series E Preferred Stock     -       875,000  
Stock Options - employee and non-employee     1,914,699       1,693,332  
Warrants     2,309,347       5,424,739  
Total     4,224,199       8,146,071  

 

The diluted loss per share equals basic loss per share in the three and nine months ended September 30, 2021 and 2020 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.

 

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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:

 

    2021     2020     2021     2020  
   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
    2021     2020     2021     2020  
United States   $ 490     $ 130     $ 874     $ 391  
Europe     4       17       15       137  
Israel     2       1       4       3  
New Zealand     3       2       15       2  
Canada     -       -       12       -  
Total   $ 499     $ 150     $ 920     $ 533  

 

NOTE 9 – OTHER ASSETS

 

On April 9, 2020, pursuant to a licensing agreement entered into in March 2020, the Company received 10-year warrants to purchase 127,000 shares of Sanuwave Health, Inc. at a price of $0.19 per share. The fair value for warrants received is estimated at the date of grant using a Black-Scholes-Merton pricing model with the following underlying assumptions:

 

Price at valuation   $ 0.12  
Exercise price   $ 0.19  
Risk free interest     1.52 %
Expected term (in years)     9  
Volatility     118.0 %

 

The Company considers this to be level 3 inputs and is valued at each reporting period. The fair value of these warrants decreased by $10 during the nine months ended September 30, 2021, leaving a balance of $14.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Other Risks

 

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common shares.

 

Pending litigation

 

On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. As of the date of this report, the parties have respectively submitted the initial Request for Arbitration and Response to Request for Arbitration with Counterclaims and agreed on a procedural timeline pursuant to which final resolution of the arbitration is expected by February 2022 (if not dismissed or settled earlier). The Company believes it is too early to determine the most likely outcome. The Company disputes the claims asserted by Protrade and intends to respond to the Request and defend against the claims vigorously.

 

NOTE 11 – SUBSEQUENT EVENTS

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition of NanoVibronix, Inc. (the “Company”) as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2020 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other reports filed with the SEC, and other factors that we may not know.

 

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 history of losses and expectation of continued losses.
  ● The geographic, social and economic impact of COVID-19 on the Company’s business operations.
  ● Our ability to raise funding for, and the timing of, clinical studies and eventual U.S. Food and Drug Administration approval of our product candidates.
  ● The risk that we may not obtain the requisite votes at our annual meeting to increase the number of authorized shares of common stock.
  ● 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.
  ● Risks of product liability claims and the availability of insurance.
  ● Our ability to successfully develop and commercialize our products.
  ● Our ability to generate internal growth.
  ● Risks related to computer system failures and cyber-attacks.
  ● Our ability to obtain regulatory approval in foreign jurisdictions.
  ● Uncertainty regarding the success of our clinical trials for our products in development.
  ● Risks related to our operations in Israel, including political, economic and military instability.
  ● The price of our securities is volatile with limited trading volume.
  ● Our ability to comply with the continued listing requirements of the NASDAQ capital market.
  ● Our ability to maintain effective internal control over financial reporting and to remedy identified material weaknesses.
  ● We are a “smaller reporting company” and have reduced disclosure obligations that may make our stock less attractive to investors.
  ● Our intellectual property portfolio and our ability to protect our intellectual property rights.
  ● Our ability to recruit and retain qualified regulatory and research and development personnel.
  ● Unforeseen changes in healthcare reimbursement for any of our approved products.
  ● The adoption of health policy changes and health care reform.
  ● 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.
  ● Risks related to our operations in Israel.
  ● 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.

 

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The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and financial performance, you should carefully review the risks and uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, 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.

 

Recent Events and Developments

 

COVID-19

 

In December 2019, a strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in China and other affected countries. The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties located in countries affected by the pandemic. Our third-party manufacturer, which is based in China, temporarily shut down for sixty days due to the pandemic and became fully operational in April 2020 which led to a significant delay in the production of goods needed to fulfill our sales orders, which were scheduled to be fulfilled in our first quarter of 2020. We were able to fulfill these orders in the second quarter of 2020. Additionally, the notified regulatory body we rely on to obtain European CE approval is located in Italy and was shut down for approximately six weeks from March to April 2020, which delayed our submission for CE mark approval for the year 2020. The CE Mark was subsequently approved in April 2020. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The financial downturn compelled us to furlough or reduce working hours for much of our operating staff for several months during the second quarter of 2020, and has forced our remaining staff as well as third-party contractors to work remotely. In addition, many staff members continue to operate remotely from their homes from time to time as government regulations fluctuate, which is continuing to result in delays in obtaining certain financial records and may cause production delays in the foreseeable future. We also rely on third-party professionals to provide services such as the preparation of our financial statements and to conduct audits, and many of these parties have been affected by government-imposed precautionary measures, thereby delaying our receipt of these services. Such government-imposed precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will be put in place again due to a resurgence in COVID-19 cases. Therefore, the COVID-19 pandemic has and may again disrupt production and cause delays in the supply and delivery of our products, may continue to affect our operation, may further divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate and may have a material adverse effect on our operations. Assessment of the complete extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it hard to adequately staff our operations.

 

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Nasdaq Stockholders’ Equity Minimum

 

On April 21, 2021, the Company received notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company no longer satisfied the minimum $2.5 million stockholders’ equity requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the “Equity Requirement”). The Company reported stockholders’ equity of approximately $2.4 million in its Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2020 and did not otherwise satisfy the alternative criteria pertaining to market value of listed securities or net income. In accordance with the Nasdaq Listing Rules, the Company was granted a period of 45 calendar days, or through June 7, 2021, to submit its plan to evidence compliance with the Equity Requirement for the Staff’s review. On May 24, 2021, the Company filed its Quarterly Report on Form 10-Q for the first quarter of 2021 and reported stockholders’ equity of approximately $4.3 million. On June 1, 2021, the Company was notified by Nasdaq that the Company regained compliance with Nasdaq’s listing qualifications and that this matter was now closed.

 

Nasdaq Bid Price Minimum

 

On June 17, 2021, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between May 5, 2021, through June 16, 2021, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until December 14, 2021, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement.

 

On August 9, 2021, the Company received a letter from Nasdaq notifying the Company that for the last 10 consecutive business days, from July 26, 2021 to August 6, 2021, the closing bid price of the Company’s common stock has been at $1.00 per share or greater, and, therefore, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2) and this matter is now closed.

 

On October 29, 2021, the Company’s board of directors approved an amendment, effective immediately, to Article I, Section 1.4 of the Company’s amended and restated bylaws, lowering the number of holders of the shares entitled to vote at a meeting of stockholders constituting a quorum, in person or by proxy, from a majority to one-third.

 

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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 3 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There have not been any material changes to such critical accounting policies since December 31, 2020.

 

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, 2021 Compared to Three Months Ended September 30, 2020

 

Revenues. For the three months ended September 30, 2021 and 2020, our revenues were approximately $499,000 and $150,000, respectively, an increase of approximately 233%, or $349,000, between the periods. The increase was due to increased sales due to our new contract with UPPI, in addition to a new distributor that sells our products to veterans administration facilities. 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. Therefore, any growth or decrease in revenues by quarter may not be linear or consistent.

 

For the three months ended September 30, 2021 and 2020, the percentage of revenues attributable to our products was: PainShield - 99% and UroShield - 1%. For the three months ended September 30, 2021 and 2020, the portion of our revenues that was derived from distributors was 95% and 85%, respectively.

 

Gross Profit. For the three months ended September 30, 2021 and 2020, gross profit was approximately $228,000 and $99,000, respectively, an increase of approximately 130%, or $129,000, mainly due to increased sales of our products somewhat offset by increased costs of manufacturing and shipping compared to the same period last year.

 

Gross profit as a percentage of revenues was approximately 46% and 66% for the three months ended September 30, 2021 and 2020, respectively. The decrease in gross profit as a percentage is mainly due to the reasons described above.

 

Research and Development Expenses. For the three months ended September 30, 2021 and 2020, research and development expenses were approximately $50,000 and $68,000, respectively between the periods. The decrease was mainly due to reduced payroll costs during the three months ended September 30, 2021.

 

Research and development expenses as a percentage of total revenues were approximately 10% and 45% for the three months ended September 30, 2021 and 2020, respectively as we reassigned staff to production

 

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, 2021 and 2020, selling and marketing expenses were approximately $245,000 and $289,000, respectively, a decrease of approximately 15%, or $44,000, between the periods. The decrease was primarily due to decreased salaries and consulting fees during the third quarter of 2021 and reallocation of a member of our sales staff to administration.

 

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Selling and marketing expenses as a percentage of total revenues were approximately 49% and 193% for the three months ended September 30, 2021 and 2020, respectively.

 

Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, conventions, 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, 2021 and 2020, general and administrative expenses were approximately $801,000 and $546,000, respectively, an increase of approximately 47%, or $255,000, between the periods. The increase was primarily due to the increase in professional fees related to our shareholder meeting, increasing the number of outstanding shares, and the addition of two new employees and the reallocation of salary.

 

General and administrative expenses as a percentage of total revenues were approximately 161% and 364% for the three months ended September 30, 2021 and 2020, respectively.

 

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, stock-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, 2021 and 2020, financial expenses, net were approximately $23,000 compared to financial expenses, net of $15,000, respectively, an increase of approximately $8,000 between the periods due to the resolution of the outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities as equity during the three months ended September 30, 2021.

 

Change in fair value of derivative liabilities. For the three months ended September 30, 2021 and 2020, there was a change in fair value of derivative liabilities of approximately $5,714,000 and $0, respectively. The change in 2021 was due to the resolution of outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.

 

Tax benefit (expense). For the three months ended September 30, 2021 and 2020, there was a tax expense of $70,000 and a tax benefit of $20,000, respectively. The tax expense or benefit is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. Tax expenses increased due to the expansion of our Israel operations.

 

Net loss. Our net loss increased by approximately $5,753,000 or 624%, to approximately $6,675,000 for the three months ended September 30, 2021 from approximately $922,000 in the same period of 2020. The increase in net loss resulted primarily from the factors described above.

 

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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

 

Revenues. For the nine months ended September 30, 2021 and 2020, our revenues were approximately $920,000 and $533,000, respectively, an increase of approximately 73%, or $387,000, between the periods. The increase was due to increased sales due to our new contract with UPPI, in addition to a new distributor that sells our products to veterans administration facilities.. 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.

 

For the nine months ended September 30, 2021 and 2020, the percentage of revenues attributable to our products was: PainShield - 100% and UroShield - 0%. For the nine months ended September 30, 2021 and 2020, the portion of our revenues that was derived from distributors was 95% and 68%, respectively.

 

Gross Profit. For the nine months ended September 30, 2021 and 2020, gross profit was approximately $513,000 and $188,000, respectively, an increase of approximately 173%, or $325,000, mainly due to increased sales of our products, enhanced by decreased costs of manufacturing in 2021, as we incurred several one-time costs in the transition of our manufacturing of products to a third-party manufacturer in 2020.

 

Gross profit as a percentage of revenues was approximately 56% and 35% for the nine months ended September 30, 2021 and 2020, respectively. The increase in gross profit as a percentage is mainly due to the reasons described above.

 

Research and Development Expenses. For the nine months ended September 30, 2021 and 2020, research and development expenses were approximately $178,000 and $131,000, respectively between the periods. The increase was mainly due to increased payroll costs in 2021 compared to the same period in 2020, as we furloughed staff in the first six months of 2020 due to the impacts of the COVID-19 pandemic. This was partially offset by reduced payroll costs and reallocation of research and development costs to assembly in the third quarter.

 

Research and development expenses as a percentage of total revenues were approximately 19% and 25% for the nine months ended September 30, 2021 and 2020, 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, 2021 and 2020, selling and marketing expenses were approximately $852,000 and $723,000, respectively, an increase of approximately 18%, or $129,000, between the periods. The increase was mainly due to increased salaries in 2021 compared to the same period in 2020, as we furloughed staff in the first six months of 2020 due to the impacts of the COVID-19 pandemic. This was partially offset by reduced payroll costs and reallocation of salary costs to administration in the third quarter.

 

Selling and marketing expenses as a percentage of total revenues were approximately 93% and 136% for the nine months ended September 30, 2021 and 2020, respectively.

 

Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses, travel expenses, conventions, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing activities.

 

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General and Administrative Expenses. For the nine months ended September 30, 2021 and 2020, general and administrative expenses were approximately $2,656,000 and $2,513,000, respectively, an increase of approximately 6%, or $143,000, between the periods. The increase was primarily due to the addition of new employees as well as the allocation of salary during the period.

 

General and administrative expenses as a percentage of total revenues were approximately 289% and 471% for the nine months ended September 30, 2021 and 2020, respectively.

 

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, stock-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, 2021 and 2020, financial expenses, net were approximately $29,000 compared to a $25,000, respectively, an increase of approximately $4,000 between the periods due to the resolution of the outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities as equity during the three months ended September 30, 2021.

 

Change in fair value of derivative liabilities. For the nine months ended September 30, 2021 and 2020, there was a change in fair value of derivative liabilities resulting in losses of approximately $6,956,000 and $0, respectively. The loss in 2021 was due to the resolution of outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.

 

Gain on purchase of warrants. For the nine months ended September 30, 2021 and 2020, there was a gain of approximately $64,000 and $0, respectively. The gain was related to the settlement of derivative liabilities which was the result of the repurchase of warrants from certain investors.

 

Warrant modification expense. For the nine months ended September 30, 2021 and 2020, warrant modification expense was approximately $1,627,000 and $0, respectively. The warrant modification expense in 2021 was due to the resolution of outstanding shares matter. The outstanding shares matter resulted in a reclassification of derivative liabilities to equity during the three months ended September 30, 2021.

 

Tax expenses. For the nine months ended September 30, 2021, tax expenses were $87,000, and for the nine months ended September 20, 2020, tax benefits were $7,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. Tax expenses increased due to the expansion of our Israel operations.

 

Net loss. Our net loss increased by approximately $8,488,000, or 256%, to approximately $11,808,000 for the nine months ended September 30, 2021 from approximately $3,320,000 in the same period of 2020. The increase in net loss resulted primarily from the factors described above.

 

Liquidity and Capital Resources

 

We have incurred losses in the amount of approximately $11,808,000 and had negative cash flow from operating activities of $3,504,000 during the nine months ended September 30, 2021. Although we expect to continue to incur losses and negative cash flows from operating activities, we had a cash balance of $8,599,000 as of September 30, 2021. Therefore, we have sufficient resources to fund our operation for the next twelve months from the date of this filing. The Company may need to continue to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability. If we do not increase the number of authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in its ability to raise additional capital.

 

During the nine-month period ended September 30, 2021, we received approximately $4,968,000 of net proceeds from the exercise of warrants. 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 as well as our ability to overcome obstacles that may be presented due to developments caused by the coronavirus outbreak. We expect to continue to incur losses and negative cash flows from operations. We intend to use the proceeds generated from equity financings, or strategic alliances with third parties, either alone or in combination with equity financing to meet our short-term liquidity requirements as well as to advance our long-term plans. While we believe we have sufficient capital to execute our business plan over the next twelve months, there are no assurances that we will not need to raise additional capital at a later time, or that we would be able to raise additional capital, if required, on terms favorable to us.

 

We do not have any material commitments to capital expenditures as of September 30, 2021, and we are not aware of any material trends in capital resources that would impact our business.

 

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Cash flows

 

As of September 30, 2021, we had cash and cash equivalents of approximately $8,599,000, compared to approximately $3,531,000 as of September 30, 2020. 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 $3,504,000 for the nine months ended September 30, 2021 and $2,073,000 for the same period in 2020.

 

Cash provided by financing activities was approximately $4,580,000 for the nine months ended September 30, 2021 compared to $4,265,000 for the nine months ended September 30, 2020.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2021, 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 as well issues that may continue to occur due to the development of the coronavirus outbreak. While there were significant delays in the production of goods due to COVID-19 issues, presently, we are no longer experiencing such delays in the production of our products. That said, there are no assurances that we will not experience significant delays if another wave of the pandemic occurs. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel (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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on their evaluation, as of the end of the period covered by this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective because of the material weaknesses in our internal control over financial reporting as described in Item 9A in our Annual Report on Form 10-K for the fiscal ended December 31, 2020, filed with the SEC on April 15, 2021.

 

20

 

 

In addition to the previously existing material weaknesses described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we identified another material weakness in our internal control over financial reporting in that we did not properly account for the number of shares of our common stock issued in connection with the conversion of shares of our preferred stock and the exercise of warrants, which resulted in the Company issuing more shares of common stock than are authorized under our governance documents (the “Overissuance Material Weakness”).

 

During 2020, management developed a remediation plan, whereby we implemented changes to our internal controls for these material weaknesses relating to (i) our controls over information technology and information systems relevant to the preparation of our financial statements, (ii) our controls over management review procedures for processing, recording and reviewing transactions related to certain contracts, accounting memos and certain monthly closing procedures, and (iii) our lack of a formalized written set of policies and procedures including testing documentation for our system of internal control over financial reporting (the “Existing Material Weaknesses”). Our remediation activities with respect to the Existing Material Weaknesses included: (a) expanded consultations with third party specialists on complex accounting matters, financial reporting and regulatory filings, (b) enhanced documentation to support a more precise review process, and (c) enhanced monitoring of the review process. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Although the Company has taken numerous steps with respect to the Existing Material Weaknesses, our remediation plan is not complete due to the lack of a written testing plan to conclude if our controls and procedures and management were operating effectively; and our remediation plan has not operated for a sufficient period of time for the Company to complete testing to conclude that our newly implemented controls and procedures were operating effectively as of September 30, 2021. In addition, in the third quarter of 2021, we were successful in the remediation of the Overissuance Material Weakness and have added compliance measures to monitor our issuance of securities prospectively.

 

Changes in Internal Control over Financial Reporting

 

Other than described above in this Item 4, there has been no change in our internal control over financial reportinthat occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Part II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.

 

On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3 million. As of the date of this report, the parties have respectively submitted the initial Request for Arbitration and Response to Request for Arbitration with Counterclaims, and agreed on a procedural timeline pursuant to which final resolution of the arbitration is expected by February 2022 (if not dismissed or settled earlier). The Company disputes the claims asserted by Protrade and intends to respond to the Request and defend against the claims vigorously.

 

On December 17, 2019, a lawsuit was filed by a former officer and director, Jona Zumeris, in the Haifa Israel District Financial Court, seeking damages of approximately $900,000 for breach of the Separation Agreement executed on July 4, 2018. The Israeli court issued a court order demanding that we restrict approximately $700,000 of the Company’s money until the matter is adjudicated. The Company appealed the court order and in February 2020, the Company agreed to restrict approximately 1,187,000 NIS (“New Israeli Shekel”) and agreed to try to settle the matter in mediation. On November 30, 2020, the Company funded the escrow account with $391,000. In January 2021, the parties reached a settlement in which the Company paid the plaintiff approximately $366,000 as settlement in full.

 

21

 

 

There are no other material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock, or any associate of any of the foregoing is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors

 

The following description of risk factors includes any material changes to, and supersedes the description of, the risk factors addressed below associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on April 15, 2021 and “Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, as filed with the SEC on May 24, 2021. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price.

 

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

 

If we fail to comply with the continued listing requirements of the NASDAQ Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted .

 

Our common stock is currently listed for trading on the NASDAQ Capital Market. We must satisfy NASDAQ’s continued listing requirements, including, among other things, a minimum closing bid price of $1.00 per share and a minimum stockholders’ equity of $2.5 million or risk delisting, which would have a material adverse effect on our business. A delisting of our common stock from the NASDAQ Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.

 

On April 21, 2021, we received a notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market (the “Equity Requirement”). The Company reported stockholders’ equity of approximately $2.4 million in its Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2020 and did not otherwise satisfy the alternative criteria pertaining to market value of listed securities or net income. In accordance with the Nasdaq Listing Rules, the Company was granted a period of 45 calendar days, or through June 7, 2021, to submit its plan to evidence compliance with the Equity Requirement for the Staff’s review On May 24, 2021, the Company filed its Quarterly Report on Form 10-Q for the first quarter of 2021 and reported stockholders’ equity of approximately $4.3 million. On June 1, 2021, the Company was notified by Nasdaq that the Company regained compliance with Nasdaq’s listing qualifications and that this matter was now closed.

 

22

 

 

On June 17, 2021, the Company received a letter from the Listing Qualifications Department of the Nasdaq indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between May 5, 2021, through June 16, 2021, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until December 14, 2021 (the “Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). The letter further provided that if, at any time during the 180-day period, the closing bid price of the Company’s common stock was at least $1.00 for a minimum of 10 consecutive business days, Nasdaq would provide the Company with written confirmation that it had achieved compliance with the minimum bid price requirement.

 

On August 9, 2021, the Company received a letter from Nasdaq notifying the Company that for the last 10 consecutive business days, from July 26, 2021 to August 6, 2021, the closing bid price of the Company’s common stock has been at $1.00 per share or greater, and, therefore, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2) and this matter is now closed.

 

There is no assurance we can maintain compliance with such minimum listing requirements. If our common stock were delisted from Nasdaq, trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of investors to trade in our common stock. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock, causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including our ability to attract and retain qualified employees and to raise capital.

 

23

 

 

If we fail to maintain effective internal control over financial reporting, our business, financial condition or results of operations may be adversely affected.

 

As a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure to establish such internal control, or any failure of such internal control once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds.

 

Rules adopted by the Securities and Exchange Commission pursuant to Section 404 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control over financial reporting as effective, investor confidence and share value may be negatively impacted. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting (including those weaknesses identified in our periodic reports), or disclosure of management’s assessment of our internal control over financial reporting may have an adverse impact on the price of our securities.

 

As disclosed in Part II, Item 9A, “Controls and Procedures,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, we have identified material weaknesses in our internal control over financial reporting due to a lack of a full and complete testing of our disclosure controls and procedures and separately related to the recent overissuance of shares of our common stock. We have concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective as of December 31, 2020. Our management has implemented remediation measures with respect to the controls and written policies and procedures as described in Part II, Item 9A, “Controls and Procedures” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and management expects that such measures will be sufficient to fully remediate such material weaknesses in our internal control over financial reporting. However, we have not implemented remediation measures with respect to the overissuance of shares of our common stock but expect to have a plan of remediation in place during the third quarter of 2021. While on August 17, 2021, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of shares of the Company’s Common Stock authorized for issuance from 24,109,635 shares to 40,000,000 shares, we must address the policies and procedures that allowed such overissuance to occur and implement a remediation plan. We cannot guarantee that these steps will be sufficient to remediate the deficiencies or that we will not have a material weakness in the future. If our remedial measures are insufficient to address the material weakness or if additional material weaknesses arise in the future, our interim or annual financial statements may contain material misstatements or omissions and we could be required to restate our financial results.

 

24

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

All sales of unregistered securities during the three months ended September 30, 2021 were previously disclosed in a Current Report on Form 8-K.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

Not Applicable.

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.   Description
3.1   Amended and Restated Certificate of Incorporation (as presently in effect) (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
3.2   Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)
3.3   Certificate of Amendment of Certificate of Incorporation (creating the Series C Preferred Stock) (incorporated by reference to Exhibit 3.3 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)
3.4   Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 7, 2017)
3.5   Certificate of Designation, Preferences, Rights and Limitations of Series E Preferred Stock (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 19, 2019)
3.6   Certificate of Amendment of the Amended and Restated Certificate of Designation (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2019)
3.7*   Certificate of Amendment of Certificate of Incorporation (increasing the number of shares of common stock authorized for issuance)
31.1*   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*   The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Statements of Changes in Equity (Deficiency) (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements
104   The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.

 

* Filed herewith.

 

25

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NANOVIBRONIX, INC.
     
Date: November 15, 2021 By: /s/ Brian Murphy
  Name: Brian Murphy, Ph.D.
  Title: Chief Executive Officer
     
Date: November 15, 2021 By: /s/ Stephen Brown
  Name: Stephen Brown
  Title: Chief Financial Officer

 

26

 

 

Exhibit 3.7

 

CERTIFICATE OF AMENDMENT

OF

THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

NANOVIBRONIX, INC.

 

Pursuant to Section 242 of the General Corporation Law of the State of Delaware, NanoVibronix, Inc., a corporation organized under and existing by virtue of the General Corporation Law of the State of Delaware (“DGCL”), DOES HEREBY CERTIFY:

 

1. The name of the corporation is NanoVibronix, Inc. (the “Corporation”).

 

2. The date of filing the original Certificate of Incorporation of this Corporation with the Secretary of State of the State of Delaware was October 20, 2003.

 

3. “FOURTH: A” of the Amended and Restated Certificate of Incorporation, as previously amended, is hereby amended to read as follows:

 

“FOURTH: A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is fifty-one million (51,000,000), consisting of forty million (40,000,000) shares of Common Stock, par value $0.001 per share (the “Common Stock”), and eleven million (11,000,000) shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”).”

 

4. The foregoing amendment was effected pursuant to a resolution of the Board of Directors of said corporation.

 

5. Thereafter, pursuant to a resolution by the Board of Directors, this Certificate of Amendment was submitted to the stockholders of the Corporation for their approval in accordance with the provisions of Section 242 of the DGCL. Accordingly, said proposed amendment has been adopted in accordance with Section 242 of the DGCL.

 

Dated: August 17, 2021

 

NANOVIBRONIX, INC.  
     
By: /s/ Stephen Brown  
Name: Stephen Brown  
Title: Chief Financial Officer  

 

 

 

 

Exhibit 31.1

 

CERTIFICATIONS UNDER SECTION 302

 

I, Brian Murphy, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of NanoVibronix, Inc. (the “registrant”);
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 15, 2021  
   
/s/ Brian Murphy  
Brian Murphy  

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

Exhibit 31.2

 

CERTIFICATIONS UNDER SECTION 302

 

I, Stephen Brown, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of NanoVibronix, Inc. (the “registrant”);
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 15, 2021  
   
/s/ Stephen Brown  
Stephen Brown  
Chief Financial Officer  
(Principal Financial and Accounting Officer)  

 

 

 

 

Exhibit 32.1

 

CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2021 of NanoVibronix, Inc. (the “Company”). I, Brian Murphy, the Chief Executive Officer of the Company, certify that, based on my knowledge:

 

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

 

Date: November 15, 2021 By: /s/ Brian Murphy
    Brian Murphy
    Chief Executive Officer
    (Principal Executive Officer)

 

 

 

 

Exhibit 32.2

 

CERTIFICATION FURNISHED PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the three months ended September 30, 2021 of NanoVibronix, Inc. (the “Company”). I, Stephen Brown, the Chief Financial Officer of the Company, certify that, based on my knowledge:

 

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

 

Date: November 15, 2021 By: /s/ Stephen Brown
    Stephen Brown
    Chief Financial Officer
    (Principal Financial and Accounting Officer)