NanoVibronix, Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2015

OR

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

Commission file number: 001-36445

NanoVibronix, Inc.

(Exact name of Registrant as specified in its charter)

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

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 x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant has been required to submit and post such files). Yes x     No ¨

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

The number of shares outstanding of the registrant’s common stock, par value $0. 001 per share, as of November 16, 2015 was 2,611,328 shares.

TABLE OF CONTENTS

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands (except share data)

*) Represents an amount lower than $ 1 thousand.

The accompanying notes are an integral part of the condensed interim consolidated financial statements. 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands

The accompanying notes are an integral part of the condensed interim consolidated financial statements. 

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIENCY)

U.S. dollars in thousands (except share data)

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

*) Represents an amount lower than $ 1 thousand.

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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.

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2014 are applied consistently in these financial statements.

The accompanying unaudited condensed consolidated financial statements as of September 30, 2015 have been prepared in accordance with the U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s consolidated financial position as of September 30, 2015 and the Company’s consolidated results of operation and the consolidated cash flows for the nine months ended September 30, 2015. Results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.

ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value.

During February 2013, the Company signed a convertible Promissory Notes agreement (the “Agreement”) pursuant to which the Company issued secured convertible Promissory Notes (the “Notes”) to certain investors on February 5, 2013.  On each of March 28, 2013, June 3, 2013, August 5, 2013, October 7, 2013, December 9, 2013, February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August 7, 2014, September 7, 2014, October 13, 2014, November 19, 2014 and December 11, 2014, the Agreement and the Notes were amended and restated to increase the principal amount by $100,000.  In addition, with each amendment, the Company issued to the holders of the Note warrants to purchase up to 37,594 shares of common stock in consideration for an additional $100 per amendment. The exercise price at which the warrants may be exercised is $2.66 per share, subject to adjustment for stock splits, fundamental transactions or similar events including "down round" protection. The warrants expire within a period of five years, based on the issuance date. 

In April 2015, the holders of the Notes elected to convert the outstanding principal and interest thereunder into shares of the Company’s series C preferred stock. On that date, an aggregate principal balance of $1,500,000 and $106,027 in accrued interest were converted into 603,769 shares of series C preferred stock.  The shares of series C preferred stock were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Section 3(a)(9) of the Securities Act of 1933, as amended.

The Company measures the warrants at fair value by applying the Black-Scholes option pricing model in each reporting period until they are exercised or expired, with changes in fair value being recognized in the Company’s consolidated statement of comprehensive loss as financial income or expense.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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

Fair value measurement using significant unobservable inputs (Level 3):

In addition, the Company’s financial instruments also include cash and cash equivalents, trade receivables, prepaid expenses and other accounts receivable, accounts payable and other accounts payable. The fair value of these financial instruments was not materially different from their carrying values as of September 30, 2015 due to the short-term maturities of such instruments.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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:

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

During the nine month period ended September 30, 2015, revenues from a distributor accounted for 27% of total revenues. During the nine month period ended September 30, 2014, revenues from a distributor accounted for 40% of total revenues.

During the three month period ended September 30, 2015, revenues from a distributor accounted for 32% of total revenues. During the three month period ended September 30, 2014, revenues from a distributor accounted for 32% of total revenues.

The Company's long-lived assets are all located in Israel.

The Company evaluates events or transactions that occur after the balance sheet date but prior to the issuance of financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. For its interim consolidated financial statements as of September 30, 2015 (unaudited) and for the nine months period then ended (unaudited), the Company evaluated subsequent events through November 16, 2015 the date that the consolidated financial statements were issued.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Unless the context requires otherwise, references in this Form 10-Q to the “Company,” “NanoVibronix,” “we,” “our” and “us” refer to NanoVibronix, Inc., a Delaware corporation, and its subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for additional risks which could adversely impact our business and financial performance. 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 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

In April 2015, the holders of our Fifteenth Amended and Restated Secured Convertible Promissory Notes elected to convert the outstanding principal and interest thereunder into 603,769 shares of our series C preferred stock.

In April 2015, upon the effectiveness of our Form 10 filed with the Securities and Exchange Commission, the outstanding shares of our series A-1 preferred stock, series A-2 preferred stock, series B-1 preferred stock and series B-2 preferred stock converted by their terms into 2,131,081 shares of our common stock.

Critical Accounting Policies

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 2 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have not been any material changes to such critical accounting policies since December 31, 2014.

The currency of the primary economic environment in which our operations are conducted is the U.S. dollar (“$” or “dollar”). Accordingly, our currency is the dollar.

Results of Operations

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Revenues. For the nine months ended September 30, 2015 and 2014, our revenues were approximately $108,000 and $151,000, respectively, a decrease of approximately 28%, or $43,000, between the periods. The decrease was mainly attributable to a decrease in volume of sales to our distributor in the United States and to a lesser degree due to decreased sales and marketing efforts until we are approved for medicare reimbursement in the United States.

For the nine months ended September 30, 2015, the percentage of revenues attributable to our products was: PainShield - 94% and UroShield - 6%. For the nine months ended September 30, 2014, the percentage of revenues attributable to our products was: PainShield - 95%; UroShield 4.8%. For the nine months ended September 30, 2015 and 2014, the percentage of revenues attributable to our disposable products was 41% and 43%, respectively. For the nine months ended September 30, 2015 and 2014, the portion of our revenues that was derived from distributors was 27% and 41%, respectively.

Gross Profit. For the nine months ended September 30, 2015, gross profit decreased by approximately 4%, or $3,000, to approximately $66,000 from approximately $69,000 during the same period in 2014. The decrease was mainly due to the decrease in revenues in 2015 offset by an inventory write-off in 2014.

Our gross profit as a percentage of revenues is affected year-over-year by the mix of revenues from our products. Gross profit as a percentage of revenues was approximately 61% for the nine months ended September 30, 2015 as compared to 46% for the same period in 2014 as patch sales which contain much higher margins than product sales represented a higher percentage of overall sales in the nine months ended September 30, 2015 as compared with the nine months ended September 30, 2014.

Research and Development Expenses. For the nine months ended September 30, 2015 and 2014, research and development expenses were approximately $297,000 and $280,000, respectively, an increase of approximately 6%, or $17,000, between the periods. This increase was mainly due to an increase in salary and stock-based compensation expenses associated with our vice president of research and development in 2015.

Research and development expenses as a percentage of total revenues were approximately 275% and 185% for the nine months ended September 30, 2015 and 2014, respectively. The increase was due primarily to the decrease in revenues.

Selling and Marketing Expenses. For the nine months ended September 30, 2015 and 2014, selling and marketing expenses were approximately $207,000 and $255,000, respectively, a decrease of approximately 19%, or $48,000, between the periods. The decrease was mainly due to the reduction of $75,000 of expenses in 2015, which we incurred in 2014 to settle certain accounts payable and accrued expenses related to termination of a license agreement.

Selling and marketing expenses as a percentage of total revenues were approximately 192% and 169% for the nine months ended September 30, 2015 and 2014, respectively. The increase was due primarily to the decrease in revenues.

General and Administrative Expenses. For the nine months ended September 30, 2015 and 2014, general and administrative expenses were approximately $533,000 and $464,000, respectively, an increase of approximately 15%, or $69,000, between the periods. The increase was mainly due to the hiring of our current chief executive officer and chief financial officer and an increase in stock-based compensation expenses and professional services expenses associated with us becoming a public company.

General and administrative expenses as a percentage of total revenues were approximately 494% and 307% for the nine months ended September 30, 2015 and 2014, respectively. The increase was due primarily to the increase of expenses, as well as the decrease in revenues which were both described above.

Financial Expenses, net. For the nine months ended September 30, 2015 and 2014, financial expenses, net were approximately $1,112,000 and $888,000, respectively, an increase of approximately 25%, or $224,000, between the periods. The increase resulted primarily from the valuation adjustment of the warrants that were issued with our 2013 and 2014 convertible promissory notes partially offset by lower interest expenses accrued for our series B-1 and series B-2 promissory notes, which were converted on February 10, 2015 into shares of our series B-1 preferred stock and series B-2 preferred stock, and our convertible promissory notes, which were converted on April 27, 2015 into shares of our series C preferred stock.

Tax expenses. For the nine months ended September 30, 2015 and 2014, tax expenses were $27,000 and $29,000, respectively and is mostly related to the taxes incurred from our transfer prices from our Israel subsidiary.

Net Loss. Our net loss increased by approximately $256,000 or 14%, to approximately $2,103,000 for the nine months ended September 30, 2015 from approximately $1,847,000 in the same period of 2014. The decrease in net loss resulted primarily from the factors described above.

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Revenues. For the three months ended September 30, 2015 and 2014, our revenues were approximately $40,000 and $25,000, respectively, an increase of approximately 60%, or $15,000, between the periods. The increase was mainly attributable to a decrease in volume of sales in the third quarter of 2014 while management concentrated its efforts on a capital raise for the company.. Our revenues may fluctuate from quarter-to-quarter and, as we continue to grow our business, growth in revenues by quarter may not be linear or consistent.

For the three months ended September 30, 2015, the percentage of revenues attributable to our products was: PainShield - 98% and UroShield - 2%. For the three months ended September 30, 2014, the percentage of revenues attributable to our products was: PainShield - 96% and UroShield - 4%. For the three months ended September 30, 2015 and 2014, the percentage of revenues attributable to our disposable products was 45% and 45%, respectively. For the three months ended September 30, 2015 and 2014, the portion of our revenues that was derived from distributors was 32% and 45%, respectively.

Gross Profit. For the three months ended September 30, 2015, gross profit increased by $40,000, to approximately $30,000 from a deficit of $10,000 during the same period in 2014. The deficit in 2014 was a result of a write-off of obsolete inventory.

Our gross profit as a percentage of revenues is affected year-over-year by the mix of revenues of our products. Gross profit as a percentage of revenues was approximately 75% and negative 40% for the three months ended September 30, 2015 and 2014, respectively as patch sales which contain much higher margins than product sales represented a higher percentage of overall sales in the three months ended September 30, 2015 as compared with 2014.

Research and Development Expenses. For the three months ended September 30, 2015 and 2014, research and development expenses were approximately $87,000 and $101,000, respectively, a decrease of approximately 14%, or $14,000, between the periods. The decrease in 2015 was mainly due to reduced patent related expenses as well as decreased stock-based compensation expenses associated with our vice president of research and development.

Research and development expenses as a percentage of total revenues were approximately 217% and 404% for the three months ended September 30, 2015 and 2014, respectively. The decrease in 2015 was due primarily to the increase in revenues.

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, 2015 and 2014, selling and marketing expenses were approximately $73,000 and $142,000, respectively, a decrease of approximately 49%, or $69,000, between the periods. The decrease was mainly due to a large one-time expense in 2014 related to termination of a license agreement.

Selling and marketing expenses as a percentage of total revenues were approximately 182% and 568% for the three months ended September 30, 2015 and 2014, respectively. The decrease was due primarily to the decrease in selling and marketing expenses described above.

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

General and Administrative Expenses. For the three months ended September 30, 2015 and 2014, general and administrative expenses were approximately $208,000 and $265,000, respectively, a decrease of approximately 22%, or $57,000, between the periods. The decrease was mainly due unusually large expenses the company incurred in its efforts to raise capital in the third quarter of 2014.

General and administrative expenses as a percentage of total revenues were approximately 520% and 1060% for the three months ended September 30, 2015 and 2014, respectively. The increased amount in 2014was due primarily to the increase of expenses, as well as the decrease in revenues which were both described above.

Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, share-based compensation expenses, accounting, legal and facilities expenses associated with general and administrative activities.

Financial Expenses, net. For the three months ended September 30, 2015 and 2014, financial expenses, net were $683,000 and $247,000, respectively, an increase of $436,000, between the periods. The increase in 2015 was primarily due to the valuation adjustment of the warrants that were issued with our 2013 and 2014 convertible promissory notes partially offset by lower interest expenses accrued for our series B-1 and series B-2 promissory notes, which were converted on February 10, 2015 into shares of our series B-1 preferred stock and series B-2 preferred stock, and our convertible promissory notes, which were converted on April 27, 2015 into shares of our series C preferred stock.

Tax expenses. For the three months ended September 30, 2015 and 2014, tax expenses were $18,000 and $1,000, respectively. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The decrease in our tax expenses was due to decreased income.

Net Loss. Our net loss increase by approximately $273,000, or 36%, to approximately 1,039,000 for the three months ended September 30, 2015 from approximately $766,000 in the same period of 2014. The decrease in net loss resulted primarily from the factors described above.

Liquidity and Capital Resources

We continue to incur losses and negative cash flows from operating activities. For the nine months ended September 30, 2015, we had losses of approximately $2,103,000 and negative cash flows from operating activities of approximately $1,100,000.

During the nine months ended September 30, 2015, and through November 16, 2015, we met our short-term liquidity requirements with the total proceeds of $3,150,000 we raised from certain investors. We intend to use these proceeds to meet our short-term liquidity requirements as well as to advance our long-term plans. It is our current belief that such proceeds will provide sufficient funding to meet our liquidity needs for the next twelve months.

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. 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.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

General . As of September 30, 2015, we had cash and cash equivalents of approximately $1,194,000, compared to approximately $90,000 as of December 31, 2014. The increase is attributable primarily to our fund raise of $3,150,000 in the first quarter of 2015. We have historically met our cash needs through a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for product development, research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.

Cash used in our operating activities was approximately $1,100,000 for the nine months ended September 30, 2015 and $653,000 for the same period in 2014. The increase in our cash usage was mainly associated with the decrease in our working capital mainly associated with the decrease in accounts payable and other accounts payable for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

Cash used in investing activities was $1,000 and $3,000 for the nine month periods ended September 30, 2015 and 2014, respectively, and was mainly related to purchases of fixed assets.

Cash provided by financing activities was approximately $3,005,000 for the nine months ended September 30, 2015, which derived from issuance of shares of common stock, series C preferred stock and warrants to purchase shares of common stock for aggregate consideration of $3,005,000, which is net of issuance costs of $145,000, compared to $600,000 of cash provided by financing activities for the nine months ended September 30, 2014, which was derived from the issuance of convertible promissory notes.

Convertible Promissory Notes . On February 10, 2015, our series B-1 promissory notes converted by their terms into an aggregate of 560,594 shares of our series B-1 preferred stock and 123,057 shares of our series C preferred stock, and our series B-2 promissory notes converted by their terms into an aggregate of 1,174,042 shares of our series B-2 preferred stock and 333,959 shares of our series C preferred stock. In April 2015, upon the effectiveness of our Form 10 filed with the Securities and Exchange Commission, the outstanding shares of our series B-1 preferred stock and series B-2 preferred stock converted by their terms into 2,131,081 shares of our common stock. In addition, in April 2015, the holders of our Fifteenth Amended and Restated Secured Convertible Promissory Notes elected to convert the outstanding principal and interest thereunder into 603,769 shares of our series C preferred stock.

Off Balance Sheet Arrangements

As of September 30, 2015, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Factors That May Affect Future Operations

We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials and manufacturing efficiencies due to the learning curve of utilizing new materials and equipment. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or NIS, both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country reimbursement policies pertaining to our products.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4.  Controls and Procedures

As of September 30, 2015, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of September 30, 2015.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2015 that have materially affected, or are 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 litigation that arises through the normal course of business. As of the date of this filing, we are not a party to any material litigation nor are we aware of any such threatened or pending litigation.

There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder 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

During the fiscal quarter ended September 30, 2015, there were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

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

In April 2015, we issued 100,000 shares of common stock to our legal counsel as part of the total consideration for its legal services associated with our fund raising. These securities were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemptions from registration under the Securities Act of 1933, as amended, provided by Section 4(2) and under Regulation D of the Securities Act of 1933, as amended. The investor was an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) at the time of the transaction.

In April 2015, we issued 57,143 shares of series C preferred stock to AYTA Consulting, LLC, a consultant to us, as consideration for the provision of guidance and assistance in connection with the filing of our Form 10 and becoming a public reporting company.  These securities were not registered under the Securities Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act of 1933, as amended. The investor was an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) at the time of the transaction.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

None

Item 6.  Exhibits

See Index to Exhibits.

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.

EXHIBIT INDEX

* Filed herewith.