NanoVibronix, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2018

OR

For the transition period from __________ to ___________

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 ☒    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 ☒     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.

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, par value $0. 001 per share, as of May 15, 2018 was 3,935,865 shares.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

*) Represents an amount lower than $ 1.

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

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

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

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2017 are applied consistently in these financial statements.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

During the three-month period ended March 31, 2018 and 2017, the Company recorded share based compensation in a total amount of $109 and $351, respectively.

As of March 31, 2018, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $680, which is expected to be recognized over a weighted average period of approximately 2.4 years.

The Company currently leases its office facilities on a month to month lease.

Rent and related expenses were $7 and $6 for the three months ended March 31, 2018 and 2017, respectively.

NANOVIBRONIX, INC. AND ITS SUBSIDIARY

All outstanding share options and warrants for the three months ended March 31, 2018 and 2017 have been excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.

The following table summarizes the Company’s securities, in common share equivalents, which have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:

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:

During the three month period ended March 31, 2018 and 2017, revenues from distributors accounted for 8% and 35% of total revenues, respectively

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

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

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

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

Cautionary Note Regarding Forward-Looking Statements

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

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and financial performance, you should carefully review the risks and uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Moreover, new risks regularly emerge and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this prospectus. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

We are a medical device company focusing on noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home, without the assistance of medical professionals. Our WoundShield, PainShield and UroShield products are backed by novel technology which relates to ultrasound delivery through surface acoustic waves.

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, 2017. There have not been any material changes to such critical accounting policies since December 31, 2017.

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

Results of Operations

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

Revenues. For the three months ended March 31, 2018 and 2017, our revenues were approximately $77,000 and $52,000, respectively, an increase of approximately 48.1%, or $25,000, between the periods. The increase was mainly attributable to increased sales from our direct-to-consumer web sales attributed to our new marketing campaigns in the three months ended March 31, 2018. Our revenues may fluctuate as we add new customers or when existing customers make large purchases of our products during one period and no purchases during another period. Our revenues may fluctuate from quarter-to-quarter and any growth or decrease in revenues by quarter may not be linear or consistent.

For the three months ended March 31, 2018, the percentage of revenues attributable to our products was: PainShield - 96% and UroShield - 4%. For the three months ended March 31, 2017, the percentage of revenues attributable to our products was: PainShield - 94% and UroShield - 6%. For the three months ended March 31, 2018 and 2017, the percentage of revenues attributable to our disposable products was 21% and 47%, respectively. For the three months ended March 31, 2018 and 2017, the portion of our revenues that was derived from distributors was 8% and 35%, respectively.

Gross Profit. For the three months ended March 31, 2018, gross profit increased by approximately 20%, or $19,000, to approximately $55,000 from approximately $36,000 during the same period in 2017. The increase was due mainly to the increase in sales as well as to a shift in higher sales of products not sold through distributors that typically carry higher gross margins as well as a higher percentage of disposable products that also carry higher margins partially offset by a decrease in our disposable products.

Gross profit as a percentage of revenues was approximately 71% and 69% for the three months ended March 31, 2018 and 2017, respectively. The increase in gross profit as a percentage is mainly due to the increased percentage of higher margin sales described above. 

Research and Development Expenses. For the three months ended March 31, 2018 and 2017, research and development expenses were approximately $136,000 and $150,000, respectively, a decrease of approximately 9.3%, or $14,000, between the periods. The decrease was primarily due to a temporary decrease in expenses related to our clinical trials in the first quarter of 2018.

Research and development expenses as a percentage of total revenues were approximately 177% and 288% for the three months ended March 31, 2018 and 2017, respectively. The decrease was due to the decrease in expenses described above as well as the increase in sales.

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, patent applications and registrations, clinical trials and facilities expenses associated with and allocated to research and development activities.

Selling and Marketing Expenses. For the three months ended March 31, 2018 and 2017, selling and marketing expenses were approximately $229,000 and $94,000, respectively, an increase of approximately 259%, or $135,000, between the periods. The increase was mainly due to an increase in our sales staff, sales consultants and increased selling and marketing activities.

Selling and marketing expenses as a percentage of total revenues were approximately 297% and 181% for the three months ended March 31, 2018 and 2017, respectively. The increase was due primarily to the increase in expenses described above partially offset by the increase in sales.

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

General and Administrative Expenses. For the three months ended March 31, 2018 and 2017, general and administrative expenses were approximately $480,000 and $593,000, respectively, a decrease of approximately 19%, or $113,000, between the periods. The decrease was due to a $242,000 reduction in our stock based compensation incurred in the first quarter of 2017, offset by increased compensation costs and public company expenses incurred in the first quarter of 2018.

General and administrative expenses as a percentage of total revenues were approximately 623% and 1140% for the three months ended March 31, 2018 and 2017, respectively. The decrease was due primarily to the decrease in expenses described above and by the increase in sales.

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

Financial Income and Expenses, net. For the three months ended March 31, 2018 and 2017, financial income and expenses, net were approximately $13,000 and an expense of $64,000, respectively, an increase of approximately $77,000, between the periods. The income in 2018 was generated from interest income and favorable currency fluctuations. In addition the company no longer needed to record valuation adjustments of our warrants that were issued with our 2013 and 2015 convertible promissory notes, as such notes were converted into equity in the fourth quarter of 2017. In addition we also recorded an additional expense related to the issuance of the Warrants amortized over the life of the Notes issued in the first quarter of 2017.

Tax expenses. For the three months ended March 31, 2018 and 2017, tax expenses were $12,000 and $11,000, respectively. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The increase in our tax expenses was due to increased spending by our Israel subsidiary.

Net Loss. Our net loss decreased by approximately $88,000, or 10%, to approximately $789,000 for the three months ended March 31, 2018 from approximately $877,000 in the same period of 2017. The decrease in net loss resulted primarily from the factors described above.

Liquidity and Capital Resources

We incurred losses in the amount of $789,000 during the three month period ended March 31, 2018, and accumulated negative cash flow from operating activities of $867,000 for the three month period ended March 31, 2018.

During the three months ended March 31, 2018, and through May 15, 2018, we met our short-term liquidity requirements from our existing cash reserves which includes the proceeds from the sales of convertible promissory notes between March and September 2017 in an aggregate amount of $1,380,000, as well as the net proceeds of $5,056,000 from our underwritten public offering of common stock and warrants which closed on November 6, 2017. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products, our development of future products and competing technological and market developments. We 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. 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 March 31, 2018, and we are not aware of any material trends in capital resources that would impact our business.

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

General. As of March 31, 2018, we had cash and cash equivalents of approximately $3,491,000, compared to approximately $4,360,000 as of December 31, 2017. The decrease is attributable to our net cash used in operating activities. We have historically met our cash needs through a combination of issuance of equity, borrowing activities and sales. Our cash requirements are generally for product development, research and development cost, marketing and sales activities, finance and administrative cost, capital expenditures and general working capital.

Cash used in our operating activities was approximately $867,000 for the three months ended March 31, 2018 and $405,000 for the same period in 2017. The increase in our cash usage was mainly associated with the increase in our net operating loss, excluding non-cash items such as stock-based compensation, for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, for the reasons described above.

Cash used in investing activities was $2,000 and $0 for the three month periods ended March 31, 2018 and 2017, respectively, and was related to purchases of fixed assets.

Cash provided by financing activities was approximately $0 for the three months ended March 31, 2018 compared to $350,000 for the three months ended March 31, 2017 derived from proceeds received from the issuance of 2017 Notes.

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

Based upon this evaluation, our chief executive officer and chief financial officer concluded that there were no changes to our disclosure controls and procedures during the three months ended March 31, 2018 and that they are effective at the reasonable assurance level as of March 31, 2018.

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 March 31, 2018 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 March 31, 2018, there were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 31, 2018.

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

None.

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