UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2017
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
(State or other jurisdiction of incorporation or
organization)
525 Executive Blvd
Elmsford, NY 10523
(Address of principal executive office)
01-0801232
(I.R.S. Employer Identification Number)
36651
(Zip Code)
Registrant’s telephone number, including area code: (914) 233-3004
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 Website, if any, every Interactive
Data File required to be submitted and posted 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 and post such files) . Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
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.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
☐
☐
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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of June 30, 2017, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant based on the average bid and asked price of the common equity on
such date, was approximately $10.8 million. For purposes of this computation only, all officers, directors and 10% or greater stockholders
of the registrant are deemed to be affiliates.
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of April 1, 2018 was 3,935,865 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement on Schedule 14A to be furnished to stockholders in connection with its 2018 Annual
Meeting of Stockholders, which shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year
to which this Annual Report on Form 10-K relates, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-
K.
NANOVIBRONIX, INC.
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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ITEM 1. BUSINESS
Overview
PART I
We were organized as a Delaware corporation in October 2003. Through our wholly-owned subsidiary, NanoVibronix Ltd., a private
company incorporated under the laws of the State of Israel, we focus on noninvasive biological response-activating devices that target
biofilm prevention, wound healing and pain therapy and can be administered at home, without the assistance of medical professionals. Our
primary products, which are in various stages of clinical and market development, currently consist of:
● UroShield™, an ultrasound-based product that is designed to prevent bacterial colonization and biofilm in urinary
catheters, increase antibiotic efficacy and decrease pain and discomfort associated with urinary catheter use.
● PainShield™, a patch-based therapeutic ultrasound technology to treat pain, muscle spasm and joint contractures by
delivering a localized ultrasound effect to treat pain and induce soft tissue healing in a targeted area; and
● WoundShield™, a patch-based therapeutic ultrasound device intended to facilitate tissue regeneration and wound healing
by using ultrasound to increase local capillary perfusion and tissue oxygenation.
Each of our PainShield, UroShield, and WoundShield products employs a small, disposable transducer that transmits low frequency, low
intensity ultrasound acoustic waves that seek to repair and regenerate tissue, musculoskeletal and vascular structures, and decrease biofilm
formation on urinary catheters and associated urinary tract infections. Through their size, effectiveness and ease of use, these products are
intended to eliminate the need for technicians and medical personnel to manually administer ultrasound treatment through large
transducers, thereby promoting patient independence and enabling more cost-effective home-based care.
PainShield is currently cleared for marketing in the United States by the U.S. Food and Drug Administration although there has not been a
significant sales and marketing effort to date. All three of our products have CE Mark approval in the European Union, a Canadian medical
device license and a certificate allowing us to sell PainShield, UroShield and WoundShield in Israel. We are able to sell PainShield,
UroShield and WoundShield in India and Ecuador based on our CE Mark. We have consummated sales of PainShield and UroShield in the
relevant markets, although to date sales have been minimal; WoundShield has not generated significant revenue to date. Outside of the
United States we generally apply, through our distributor, for approval in a particular country for a particular product only when we have a
distributor in place with respect to such product.
In the United States, PainShield requires a prescription from a licensed healthcare practitioner. If U.S. Food and Drug Administration
clearance is obtained, we anticipate that WoundShield and UroShield will require a prescription from a licensed healthcare practitioner in
the United States. We anticipate that UroShield will be sold directly to health care facilities and therefore will not require a prescription for
these venues. However in other countries in which we sell PainShield, UroShield, and WoundShield, such products are eligible for sale
without a prescription.
In addition to the need to obtain regulatory approvals, we anticipate that sales volumes and prices of our UroShield, PainShield, and
WoundShield products will depend in large part on the availability of insurance coverage and reimbursement from third party payers. Third
party payers include governmental programs such as Medicare and Medicaid in the United States, private insurance plans and workers’
compensation plans. We do not currently have reimbursement codes for use of WoundShield in any of the markets in which we have
regulatory authority to sell WoundShield. Of the markets in which we have regulatory authority to sell PainShield, we have reimbursement
codes in the United States (i.e., CPT codes) for clinical use only, but do not have such reimbursement codes for at-home use of the product,
although the product is marketed and sold for such use. With respect to UroShield, which may be used in a clinical and home setting, we do
not currently have reimbursement codes in any of the markets in which we have regulatory authority to sell UroShield. We anticipate that
we will begin to seek reimbursement codes for use of our products in the markets in which we have regulatory authority to sell such
products; however, additional clinical data will be required in order to obtain such reimbursement codes. Our current ongoing research and
planned research may facilitate our ability to obtain reimbursement codes and there is no guarantee that we will be successful in obtaining
such codes quickly, or at all.
3
We have completed 6 separate clinical studies with UroShield that together evaluated approximately 194 patients with urinary catheters. In
patients where the UroShield product was used there were no serious adverse events reported, while a variety of clinical beneficial
observations were seen including: catheter biofilm reduction, reduction in catheter associated pain, reduction in urinary tract infections, and
a significant decrease in bacteriuria rates. We recently completed a double blind clinical trial for UroShield in the United States in order to
obtain 510(k) clearance from the U.S. Food and Drug Administration. In July 2017, we engaged Idonea Solutions, Inc., an FDA consultant,
to assist in our efforts. If we are able to successfully obtain 510(k) clearance, we intend to pursue obtaining reimbursement codes and to
target completion of partnerships with leading catheter product companies for sales and marketing efforts in the United States.
In addition, we are currently ramping up our clinical development and marketing efforts in North America with respect to PainShield. In
February 2018, we have completed a clinical trial to evaluate the effect of PainShield in patients with trigeminal neuralgia. The double
blinded, crossover trial was conducted across the United States with the intent to recruit 60 patients with a diagnosis of unilateral trigeminal
neuralgia. Positive interim results were reported in the 4th quarter of 2017. 45 patients had completed the study, with 23 in the active
treatment group and 22 in the control group. Based on the interim data, there was a significant difference in the outcomes of the two groups
relative to pain, quality of life, and breakthrough medications taken. In addition to measurable differences in all aforementioned
measurement categories, there was a general improvement in uninterrupted sleep. The results have been further validated in the crossover
group from placebo device to the PainShield group. We have submitted comprehensive data from this clinical trial for expected publication
in the second quarter of 2018, at which time we plan to report the final results. We believe that a positive outcome in this trial will assist in
our expanding the commercial use of this product through a direct sales effort that we intend to manage.
We have also identified a market for PainShield in the professional sports industry, where in some cases reimbursement may be available
from sports alumni organizations or, more likely, self-pay. In order to pursue this market, we are exhibiting at sports trainers meetings,
pursuing alumni associations, advertising in their media, and, on January 18, 2018, signed an agreement with a leading medical device
distributor, which has a sports trainer focused sales organization. The PainShield device is offered for sale to practitioners with a provider
rental program which was implemented in January 2017. We are also contemplating establishment of a direct rental program with a rent-to-
own option. The PainShield product was also modified and enhanced through various accessories for use within the equine community. We
are contemplating pursuing this market through prominent equine clinicians and independent sales representatives and distributors. We
believe there is an attractive opportunity in this segment due to the lack of an expectation for reimbursement and the opportunity to sell at a
premium price point. We are pursuing appropriate distributors in the U.S. market with resources and qualifications to sell PainShield in the
different segments of the pain treatment market.
WoundShield has been evaluated in two published clinical studies done to-date that suggest improved localized blood flow and
oxygenation, and improved topical oxygen saturation (Morykwas M, “Oxygen Therapy with Surface Acoustic Waveform Sonication,”
European Wound Management Association 2011; Covington S, “Ultrasound-Mediated Oxygen Delivery to Lower Extremity Wounds,”
Wounds 2012; 24(8))). We supplied devices for these studies but had no further involvement with them. We are pursuing licensing
opportunities to develop commercial markets for the WoundShield product.
Business Model
All of our products consist of a reusable controller device and a disposable component, or transducer. The controllers have a life expectancy
of up to three years, while the disposable transducer, has a life expectancy of up to a month and must be replaced to provide the intended
therapy. The components are purchased by either the distributor or end user for use in any of the intended applications. Once the controller
is purchased by the end user, recurring revenue will be realized by purchases of replacement transducers to the extent that the end user
continues treatment with our product.
In all product categories, our products are intended to be distributed both by independent distributors as well as by potential licensees.
Distributor cost is discounted to account for their intended margins, based upon purchase volumes and/or periodic purchase commitments,
with the disposable transducer sold and distributed in the same fashion. We currently have an established distributor network and are
implementing certain criteria within such network to ensure the appropriate assignment of a distributor or licensee. We also intend to add
additional distributors to our network.
4
Ultrasound Technology and Our Products
As noted above, our primary products are based on the use of low frequency ultrasound, which delivers energy through mechanical
vibrations in the form of sound waves. Ultrasound has long been used in physical therapy, physical medicine, rehabilitation and sports
medicine. Moreover, there is a growing body of research that supports the positive biological effects of ultrasound. A 2002 study indicates
that low frequency ultrasound increases nerve regeneration (Crisci AR, Ferreira AL, “Low-intensity pulsed ultrasound accelerates the
regeneration of the sciatic nerve after neurotomy in rats”, Ultrasound Med. Biol. 2002 October; 28(10):1335-41). According to Atland, et.
al., low frequency ultrasound also has important therapeutic metabolic effects (Altland OD, Dalecki D, Suchkova VN, Francis CW, “Low-
intensity ultrasound increases endothelial cell nitric oxide synthase activity and nitric oxide synthesis”, J. Thromb. Haemost. 2004 April;
2(4):637-43). In addition, there is evidence that ultrasound increases the healing of fractures (Warden SJ, Favaloro JM, Bennell KL,
McMeeken JM, Ng KW, Zajac JD, Wark JD, “Low-intensity pulsed ultrasound stimulates the bone-forming response in UMR-106 cells”,
Biochem. Biophys. Res. Commun. 2001 August 24; 286(3):443-50 and Warden SJ, Bennell KL, McMeeken JM, Wark JD, “Acceleration
of fresh fracture repair using the sonic accelerated fracture healing system (SAFHS)”, Calcif. Tissue Int. 2000 February; 66(2):157-63).
Research has further shown that ultrasound therapy has resulted in increased collagen repair (Da Cunha A, Parizotto NA, Vidal BC, “The
effect of therapeutic ultrasound on repair of the achilles tendon (tendo calcaneus) of the rat”, Ultrasound Med. Biol. 2001 December;
27(12):1691-6), improved resolution of inflammation (Young SR, Dyson M, “Macrophage responsiveness to therapeutic ultrasound”,
Ultrasound Med. Biol. 1990; 16(8):809-16) and increased tissue healing (Young SR, Dyson M, “Effect of therapeutic ultrasound on the
healing of full-thickness excised skin lesions”, Ultrasonics. 1990 May; 28(3):175-80), which are all important factors in the wound healing
process. Furthermore, research has shown that ultrasound therapy can contribute to increased membrane permeability (Sundaram J, Mellein
BR, Mitragotri S, “An experimental and theoretical analysis of ultrasound-induced permeabilization of cell membranes,” Biophys. J. 2003
May; 84(5):3087-101) and accelerated fibrinolysis, a process that prevents blood clots from growing and becoming problematic (Harpaz D,
“Ultrasound enhancement of thrombolytic therapy: observations and mechanisms”, Int. J. Cardiovasc Intervent. 2000 June; 3(2):81-89),
which collectively improve the tissue regeneration process and healing of wounds. Sonophoresis, a process that increases the absorption of
semisolid topical compounds, including medications, into the skin, is an additional significant effect of ultrasound therapy (Tezel A,
Paliwal S, Shen Z, Mitragotri S, “Low-frequency ultrasound as a transcutaneous immunization adjuvant”, Vaccine 2005 May 31;
23(29):3800-7).
In general, ultrasound offers the benefits cited above by increasing local blood circulation, increasing vascular wall permeability, promoting
protein secretion, promoting enzymatic reactions, accelerating nitric oxide production, promoting angiogenesis (the formation of new blood
vessels from pre-existing vessels) and promoting fibroblast proliferation (fibroblasts are a type of cell that play a critical role in wound
healing). We believe that the body of evidence, and the positive therapeutic effect that ultrasound has for various indications, potentially
provides for future product development opportunities for us.
Our proprietary technology consists of a small, thin (1 millimeter) transducer that is capable of transmitting ultrasonic acoustic waves onto
treatment surfaces with a radius of up to 10 centimeters beyond the transducer. This technology allows us to treat wounds by implanting our
transducers into a small, portable self-adhering acoustic patch, thereby eliminating the need for technicians and medical personnel to
manually administer ultrasound therapy, which should reduce the cost of therapy. Moreover, we believe that, based upon the body of
evidence, the delivery of ultrasound through our portable devices is equal to or more effective than existing competitive products, as our
technology is better positioned to target the affected areas of the body.
While there are currently a number of products on the market that treat pain through ultrasound therapy, we believe that our products
differentiate themselves because they are portable, without the requirement to be plugged into an outlet and they operate with a frequency
of 100kHz (in contrast to other devices, which have a frequency of 1MHz), which means our products do not produce heat that can damage
tissue. Our products can therefore (i) be self-administered by the patient without the need to be moved about the treated area by the patient
or a clinician, (ii) be applied for a significantly longer period without the risk of tissue damage and (iii) do not require the use of gel. We
are aware of one competitive product with similar ultrasound technology, the SAM® Sport4 by a company called Zetroz Systems LLC, aka
ZetrOz, Inc. However, it is our belief that this product does not generate surface acoustic waves as our products do, the treatment area is
generally limited to that of the transducer’s diameter, the use of transmission gel is still required and the transducer thickness is
significantly greater than ours (approximately 1.5cm). To our knowledge, the device only provides a battery life of 4 hours and is
continuous therapy versus intermittent therapy. We are also aware of a small clinical study, for which results were reported in August 2013,
in which the SAM® Sport4 showed positive results in the treatment of venous ulcers, a type of chronic wound.
5
Traditional ultrasound device and our portable ultrasound patch-based device and a comparison of their energy distribution, where the X-
axis represents treatment surface and the Y-axis represents ultrasound energy penetration depth within tissue.
In a comparison of a traditional ultrasound device and our portable ultrasound patch-based device, the bulk wave conventional ultrasound
machines with handheld transducers distribute the energy deeply into the body, as shown above in diagram (A) on the left. In comparison,
our device distributes the energy on the surface, as shown in diagram (B), thereby meaningfully increasing the treatment area. Our
transducers may also be incorporated into treatment patches, including patches that are designed to deliver medicine and other compounds
through the skin. The generation and delivery of low frequency ultrasound over a period of time to a specific area has been termed “targeted
slow-release ultrasound”. We believe that this delivery method of ultrasound may be comparable to that of slow release medication in the
pharmaceutical industry. This “targeted slow-release” capability is intended to allow for more frequent targeting of the intended treatment
area and thus may result in a more effective therapeutic response.
Micro Vibrations Technology and Our Products
It is well established that increasing blood flow to the wound and peri-wound area helps accelerate the healing of ischemic wounds. Micro-
vibrations applied on the skin tissue increase local blood flow and oxygen delivery to the wound area and stimulate angiogenesis and
growth factors that are helpful for the wound healing process. Vibration therapy has been found to stimulate blood flow due to mechanical
stresses of endothelial cells resulting in increased production of nitric oxide and vasodilation, as well as increase soft tissue and skin
circulation (Maloney-Hinds et al., “The Role of Nitric Oxide in Skin Blood Flow Increases due to vibration in healthy adults and adults
with type 2 diabetes,” School of Medicine, Loma Linda University. Ca. Diabetes Technology & Therapeutics, 2009 p. 39-43). In addition,
micro vibrations induce skin surface nerve axon reflex and type IIa muscle fibers contraction rates, resulting in vasodilation (Nakagami et
al., “Effect of vibration on skin blood flow in an in vivo microcirculatory model”, The University of Tokyo, Bio-Science Trends 2007; 1
(3): 161-166). Ten minutes of vibration therapy with laser doppler revealed a consistent increase in water content of the upper dermis (TJ
Ryan et al., “The effect of mechanical forces (vibration or external compression) on the dermal water content of the upper dermis and
epidermis, assessed by high frequency ultrasound”, Oxford Wound Healing Institute, Journal of Tissue Viability, 2001. In another study,
mean blood flow increase was higher in the vibration group than the placebo group. Improvements in local blood flow may be beneficial in
the therapeutic alleviation of pain or other symptoms resulting from acute or chronic injuries (C. Button et al., “The effect of
multidirectional mechanical vibration on peripheral circulation of humans”, University of Otago New Zealand, Clinical Physiology and
functional Imaging, 2007 27, p211-216). A study on the effect of whole body vibration on lower extremity skin blood flow suggests, that
short duration vibration alone significantly increases lower extremity skin blood flow, doubling skin blood for a minimum of 10 minutes
following treatment (Lohman et al., “The effect of whole body vibration on lower extremity skin blood flow in normal subjects”,
Department of Physical Therapy, Loma Linda university, USA, Med Sci Monit, 2007; 13(2) 71-76). Vibration has also been shown to
stimulate angiogenesis and growth factors such as vascular endothelial growth factor (Suhr F et al., “Effects of short-term vibration and
hypoxia during high intensity cycling exercise on circulating level of angiogenic regulators in humans”, J Appl Physiol, 2007, 103:474-
483,. Yue Z. et al., “On the cardiovascular effects of whole-body vibration I. Longitudinal effects: hydrodynamic analysis”, Studies Appl
Math, 2007, 119:95-109). Of import with respect to diabetic wounds, in which a prolonged inflammatory phase occurs, vibration
vasodilation has generated an indirect anti-inflammatory action, mainly by suppression of nuclear factor-kβ, the key gene for inflammatory
mediators (Sackner, M.A., “Nitric Oxide is released into circulation with whole-body, periodic acceleration”, Chest 2005;127;30-39).
6
Urinary catheter usage is associated with pain and discomfort caused by the friction between the catheter surface and the urethral tissue.
Generally, this friction is treated by applying lubricating gels and low friction catheter coatings. These methods are effective for a short
term during the catheter insertion as the lubricating gel is quickly absorbed into the surrounding tissue and loses its effect and the catheter
coatings lose their lubricity within a few days, as the coating is covered by a thin film of mucous.
Our product provides vibrations along the surface of the urinary catheter that is in contact with urethral tissue. We believe that these
vibrations create a continuous acoustic lubrication effect along the surface of the indwelling catheter that is in contact with the surrounding
tissue, thus reducing catheter-tissue contact time, which may lessen trauma from urethra abrasion and adhesion. We have also shown in
animals and in humans that the micro-vibration technology can reduce the level of biofilm formation on urinary catheters.
Our Products
UroShield
UroShield is intended to prevent bacterial colonization and biofilm formation, increase antibiotic efficacy in the catheter lumen and decrease
pain and discomfort associated with urinary catheter use. It is designed to be used with any type of indwelling urinary catheter regardless of
the material or coating. We believe that if it is approved for marketing, UroShield could be the first medical device on the market that
attempts to simultaneously address all of the aforementioned catheter-related issues. UroShield is similar in design to WoundShield and
PainShield, in that it uses a driver unit that produces low frequency, low intensity ultrasound. The driver unit connects to a disposable
transducer that is clipped onto the external portion of the catheter to deliver ultrasound therapy to all catheter surfaces as well as the tissue
surrounding the catheter.
The UroShield system has the following advantageous effects:
Picture of UroShield with actuator
● Prevention or Reduction of Biofilm. The low frequency ultrasound generated by UroShield has been shown to decrease adherence
of bacteria to catheter surfaces, thereby reducing biofilm. Biofilm is the complex matrix required for bacteria to grow and cause
infection. See the discussion of our Heidelberg 1 trial below.
7
● Decreased Catheter Associated Pain and Discomfort. We believe that UroShield creates an acoustic envelope on the surfaces of
the catheter, which decreases friction and tissue trauma, pain and discomfort caused by the catheter. In addition, in vivo (rabbit)
studies have shown the tissue in contact with the catheter remains healthier and less traumatized as a result of the application of low
frequency and low intensity ultrasound (Applebaum I, et.al., “The Effect of Acoustic Energy Induced By UroShield on Foley
Catheter Related Trauma and Inflammation in a Rabbit Model” Department of Urology, Shaarey Zedek Medical Center and the
Hadassah Hebrew University Medical School).
● Acoustically Augmented Antibiotic Therapy. Antibiotic resistance in biofilm bacteria is a well-known phenomenon. Although it
has been known that ultrasound can increase antibiotic efficacy in in-vitro models, we do not believe that there has been a practical
ultrasound-based medical device that was able to augment antibiotic efficacy in the clinical setting. In a clinical study, UroShield
technology has been shown to eradicate biofilm-residing bacteria by greater than 85% when applied simultaneously with an
antibiotic in three clinically relevant species, escherichia coli, staphylococcus epidermidis and pseudomonas aeruginosa (Banin E, et
al., “Surface acoustic waves increase the susceptibility of Pseudomonas aeruginosa biofilms to antibiotic treatment,” Biofouling,
August 2011; we supplied devices for this study, but had no further involvement with it).
● Preservation of the Patency of Catheters. We believe that low frequency ultrasound applied to catheters will add an anti-clogging
effect and will preserve patency of catheters. This effect is achieved by ultrasound waves creating an acoustic layer on the inner
lumen of the urinary catheter, thereby preventing adherence of biological material and biofilm formation. We believe that this anti-
clogging benefit will help prevent local infection and sepsis secondary to catheter obstruction.
UroShield has undergone a number of clinical trials. The Heidelberg 1 trial, which we sponsored, was a 22 patient randomized, double
blind, sham-controlled, independent trial that tested UroShield’s safety and ability to prevent biofilm in patients with an indwelling Foley
catheter. The trial demonstrated that UroShield prevented biofilm in all patients with the active device as compared to biofilm being found
in seven of eleven of the control patients. In addition, there was a marked decrease in pain, discomfort and spasm in the active UroShield
patients, as evidenced by a statistically significant decrease in the requirement for the medications required to treat urinary catheter
associated pain and discomfort (Ikinger U, “Biofilm Prevention by Surface Acoustic Nanowaves: A New Approach to Urinary Tract
Infections?,” 25th World Congress of Endourology and SWL, Cancun, Mexico, October 2007).
In a subsequent physician-sponsored trial known as Heidelberg 2, 40 patients who underwent radical prostatectomies were divided into two
groups, with the active group receiving one intra-operative dose of antibiotics and UroShield and the control group receiving one intra-
operative dose of antibiotics and then five subsequent doses over three days. At the end of the trial, the control group had four cases of
bacteruria, as compared to one in the active group. In a third trial, a physician-sponsored open label trial, ten patients who received
emergency placement of a urinary catheter due to acute obstruction were given a UroShield device and followed with regard to their pain,
discomfort, spasm and overall well-being. Within 24 hours, all patients showed improvement and increased toleration of the catheter
(Zillich S., Ikinger U, “Biofilmprävention durch akustische Nanowellen: Ein neuer Aspekt bei katheterassoziierten Harnwegsinfektionen?,”
Gesellschaft für Urologie, Heilbronn, Germany, May 2008). We supplied devices for this trial, but had no further involvement with it.
Market for UroShield
Approximately 25% of patients who are admitted to a hospital will have an indwelling catheter at some point during their stay and 7% of
nursing home residents are managed by long term catheterization.
8
Catheter acquired urinary tract infection (CAUTI) is the most common nosocomial infection in hospitals and nursing homes, representing
over 40% of all hospital-acquired infections (HAIs) and 20% of intensive care unit HAIs (Maki, P and Tambyah, D. Engineering Out the
Risk for Infection with Urinary Catheters., Emerging Infectious Diseases., Vol. 7, No. 2, March–April 2001). In addition, CAUTIs are the
source for approximately 20% of healthcare acquired bacteremia in acute care and 50% in long-term care facilities (Nicolle, Lindsay E.
“Catheter Associated Urinary Tract Infections.” Antimicrobial Resistance and Infection Control 3 (2014). The risk of acquiring CAUTI
depends on the method and duration of catheterization and patient susceptibility. Patients requiring a urinary catheter have a daily risk of
approximately five percent of developing bacteriuria and approximately 25% of patients develop nosocomial bacteriuria or candiduria over
one week (Maki, P and Tambyah, D. Engineering Out the Risk for Infection with Urinary Catheters., Emerging Infectious Diseases., Vol. 7,
No. 2, March–April 2001). Virtually all patients requiring indwelling urinary catheters for longer than a month become bacteriuric.
CAUTI occurs because urethral catheters inoculate organisms into the bladder and promote colonization by providing a surface for
bacterial adhesion and causing mucosal irritation. The presence of a urinary catheter is the most important risk factor for bacteriuria. Once a
catheter is placed, the daily incidence of bacteriuria is 3-10%. Between 10% and 30% of patients who undergo short-term catheterization
(ie, 2-4 days) develop bacteriuria and are asymptomatic. Between 90% and 100% of patients who undergo long-term catheterization
develop bacteriuria. About 80% of nosocomial UTIs are related to urethral catheterization; only 5-10% are related to genitourinary
manipulation. (John L. Brusch, Catheter-Related Urinary Tract Infection, Medscape, August 18, 2015).
According to a report by Zion Market Research, the global catheter market totaled approximately $26.6 billion in 2015 and is estimated to
grow at a CAGR of 9.7% through 2021. In the United States there are 25 million Foley catheters sold annually and there are 75 million
catheters sold elsewhere yielding a total global Foley catheter market of 100 million units worldwide. The cost to treat a simple CAUTI has
been estimated at $675 per case, and the cost of treating bacteremia has been estimated at $3,800 per case, yielding a total healthcare
burden of $830 million per year. While there are currently both antibiotic and silver coated catheters in the market, they often sell for
approximately $10 above the non-antimicrobial equivalent.
In addition, as of October 1, 2008, Medicare stopped authorizing its payment to hospitals in which patients have developed a catheter-
associated urinary tract infection that was not present on admission. This provides hospitals in the United States with a substantial financial
incentive to reduce the occurrence of such infections through the use of products such as UroShield, which help prevent infections hospitals
would otherwise have to treat without reimbursement. In addition, it has been noted that the Centers for Medicare & Medicaid Services
may fine hospitals in the future when their patients develop CAUTI, which will likely increase the incentive of hospitals to invest in
technologies that may prevent this complication (Brown J, et al. “Never Events: Not Every Hospital-Acquired Infection Is Preventable,
Clinical Infectious Diseases, 2009, 49 (5)).
Competition for UroShield
Several types of products have been introduced to address the growing problem of catheter-acquired infection and biofilm formation on
catheter surfaces. Manufacturers offer antibiotic-coated and antiseptic-impregnated catheters. In addition, manufacturers have produced
silver-coated catheters, which have been shown in small studies to delay bacteruria for about two to four days. However, larger studies did
not corroborate this result; on the contrary, silver hydrogel was associated with overgrowth of gram positive bacteria in the urine (Riley
DK, Classen DC, “A large randomized clinical trial of a silver-impregnated urinary catheter: lack of efficacy and staphylococcal
superinfection,” Am. J. Med. 1995 April; 98(4):349-56).
UroShield has been designed to be added to any type of catheter, including Foley catheters and silver-coated catheters, to improve a
catheter’s infection prevention performance. UroShield is not intended to replace any existing products or technologies, but instead is
intended to assist these existing products or technologies in preventing catheter-acquired urinary injury and catheter associated
complications. UroShield may be unable to successfully compete in this market due to an inability to obtain clearance from the U.S. Food
and Drug Administration and failure to be adopted by health care practitioners and facilities.
9
Regulatory Strategy
UroShield received CE Mark approval in September 2007 and was also approved for sale by the Israeli Ministry of Health in 2008. We are
able to sell UroShield in India and Ecuador based on our CE Mark. UroShield was granted a Canadian medical device license in September
2016.
In the European Union, UroShield has been marketed for the prevention of biofilm, decreased pain and discomfort associated with urinary
catheters and increased antibiotic efficacy.
In the United States, we intend to seek clearance from the U.S. Food and Drug Administration through the de novo classification process
for UroShield. We submitted our application for 510(k) clearance on January 3, 2011. On March 11, 2011, we received a response from the
U.S. Food and Drug Administration proposing that the approval go through the de novo route, which will require clinical trials with
proposed study protocols to be pre-cleared by the U.S. Food and Drug Administration. We are currently seeking a strategic partner that is
active in the urology market to coincide with the U.S. Food and Drug Administration clearance. We have not made any further submissions
to the U.S. Food and Drug Administration related to UroShield, but we recently completed a more robust study conducted at 5 different
nursing facilities in the United States. This study was approved by the institutional review board, or IRB. In November 2017, we
announced interim results of this study.
Sales and Marketing
We believe the business opportunity for UroShield is in the hundreds of millions in U.S. dollars to the extent that UroShield obtains 510(k)
clearance from the U.S. Food and Drug Administration, is recognized as effective and becomes widely adopted for use in catheters. To that
end, we are exploring sales distribution models in the United States through a distributor network and direct sales. In order to have a
distribution network in place if UroShield receives clearance from the U.S. Food and Drug Administration, we are currently identifying
distributors through several vehicles, including our sales staff, commissionable representation, and independent contractors. We have
recently appointed distributors for UroShield in the United Kingdom and Canada, and an outside management organization, Morulaa
Health, to assist with regulatory matters and distribution of UroShield in India. Each of these distributors is paid a small retainer and will be
paid a commission between 10 to 20% of sales going forward.
From time to time we have had interest from strategic companies in the catheter market to partner, license or acquire the UroShield
technology. These strategic partners are active in the urology market and may be interested in integrating UroShield as an accessory, into
its range of products. Discussions with these partners are ongoing.
Clinical Trials
To date, we have conducted the clinical trials set forth below:
Doctor/Location
Dr. U. Ikinger, Salem
Academic Hospital,
University of Heidelberg,
Germany
Time,
subjects
2005-2006
22 patients
Dr. U. Ikinger, Salem
Academic Hospital,
University of Heidelberg,
Germany
2007
40 patients
Purpose
To assess the safety of
the UroShield Double
Blind, Comparative,
Randomized Study for
the Safety Evaluation of
the UroShield System
(HD1)
Double Blind,
Comparative,
Randomized Study for
the Safety Evaluation of
the UroShield System
(HD2 )
Physician initiated
Objectives
To demonstrate that the use of the
UroShield is safe and that the device is
well tolerated by the patients and user
friendly to the medical staff.
Efficacy objectives were to demonstrate
that the UroShield helps in prevention
of biofilm formation in comparison with
the urinary catheter alone, as well as
bacteriuria.
Results
UroShield was both safe
and well tolerated.
UroShield proved
efficacious in prevention of
biofilm. Subjects required
significantly less
medications than the
control group for catheter
related pain and
discomfort.
To demonstrate that the use of the
In this trial, only 1/20
UroShield is safe and helps in prevention
of biofilm formation and UTI in
comparison with the urinary catheter
alone, as well as decrease antibiotic use.
patients in UroShield device
(no antibiotics) group
developed urinary tract
infection compared to 4/20
patients within control
group treated with the
antibiotic prophylaxis
alone.
10
The Effect of UroShield
on Pain and Discomfort
in Patients Released
from the Emergency
Room with Urinary
Catheter Due to Urine
Incontinence
Physician initiated
The Use of the
UroShield Device in
Patients with Indwelling
Urinary Catheters Open
labeled, comparative,
randomized study
Evaluation of the
UroShield in urinary and
nephrostomies to reduce
bacteruria Physician
initiated
Double Blind,
Randomized Control
Study for Prevention of
Bacterial Colonization
and UTI associated with
Indwelling Urinary
Catheters
Shaare Zedek Medical
2007
The study aimed to assess the
Center Jerusalem, Israel.
10 patients
effectiveness of the UroShield in
reducing pain and discomfort levels and
improve the well-being of the subjects.
Efficacy objectives included reduction
of pain, spasm, burning and itching
sensation levels of the subjects.
The results demonstrated a
reduction in pain, itching,
burning and spasm levels.
Additionally, the well-
being of the subjects
showed a significant
increase.
Dr. Shenfeld
Shaare Zedek Medical
Center Jerusalem, Israel.
2007-2009
40 patients
Prof. P.Tenke,
Hungary
2010-2011
27 patients
Patient complaints related to catheter
regarding pain according to VAS scale
and discomfort according to 0-10 scale
Presence of Clinically Significant UTI
Presence of Bacteriuria
Presence of Biofilm
Use of medication
UroShield device was
effective in reducing
postoperative catheter
related pain discomfort and
bladder spasms. There was
also a notable trend towards
reduction of bacteriuria.
● Pain, disability and QOL
● Catheter patency
● Bacteriuria / UTI
● Hospitalization period
● Analgesics and Antibiotics intake
Showed reduction in pain
and significant decrease in
bacteriuria rate.
Dr. Shira Markowitz
2017
Buffalo, NY
51 patients
To demonstrate the use of the UroShield
reduces bacterial colonization on the
urinary catheter
Final results expected in
the second quarter 2018
Based on the 90-day
interim evaluation,13 of 25
subjects (52%) in the
control group developed a
CAUTI requiring systemic
antibiotics, while only 1 of
26 patients (4%) in the
UroShield group required
antibiotics. All study
subjects had an initial
colony count of greater
than 100,000 CFU cultured
from their urinary tract.
At 30 days, all subjects
within the control group
showed no change in the
number of their bacteria
count which was greater
than 100,000 CFU, while
those in the treatment
group showed a reduction
to 10,000 CFU in 15 of 26
subjects and only 1,000
CFU in 10 of 26 subjects.
11
Current, Ongoing and Planned Clinical Trial
If we are able to locate a strategic partner or otherwise obtain sufficient funding, we anticipate conducting the following clinical trial:
Trial
UroShield U.S. Food and Drug
Administration trial 80 patient trial
Place
To be determined
Start Date/Timing Objectives
To be determined
Safety and efficacy of UroShield in urinary catheter
related pain and infection and biofilm formation.
The results of previous clinical trials may not be predictive
of future results, and the results of our planned clinical
trial, if we are able to locate a strategic partner or
otherwise obtain sufficient funding, may not satisfy the
requirements of the FDA
PainShield®
PainShield is an ultrasound device, consisting of a reusable driver unit and a disposable patch, which contains our proprietary therapeutic
transducer. It delivers a localized ultrasound effect to treat pain and induce soft tissue healing in a targeted area, while keeping the level of
ultrasound energy at a safe and consistent level of 0.4 watts. We believe that PainShield is the smallest and most portable therapeutic
ultrasound device on the market and the only product in which the ultrasound transducer is integrated in a therapeutic disposable
application patch.
The existing ultrasound therapy devices being used for pain reduction are primarily large devices used exclusively by clinicians in medical
settings. PainShield is able to deliver ultrasound therapy without being located in a health care facility or clinic because it is portable, due to
it being lightweight and battery operated. Because it is patch based and easy to apply, PainShield does not require medical personnel to
apply ultrasound therapy to the patient. The patient benefits include ease of application and use, faster recovery time, high compliance, and
increased safety and efficacy over existing devices that rely on higher-frequency ultrasound (Adahan M, et al, “A Sound Solution to
Tendonitis: Healing Tendon Tears With a Novel Low-Intensity, Low-Frequency Surface Acoustic Ultrasound Patch,” American Academy
of Physical Medicine and Rehabilitation Vol. 2, 685-687, July 2010). PainShield can be used by patients at home or work or in a clinical
setting and can be used even while the patient is sleeping. Its range of applications includes acute and chronic pain reduction and anti-
inflammatory treatment.
Picture of PainShield with Patch
PainShield is used to treat tendon disease and trigeminal neuralgia (a chronic pain condition that affects the trigeminal or 5th cranial nerve,
one of the most widely distributed nerves in the head); previously, the therapeutic options for these disorders have been very limited.
PainShield has also been used to treat pelvic and abdominal pain. To date, to the best of our knowledge, the only treatment options for these
conditions are pain medication and surgery. Several additional causes of pain, and the treatment of that pain with the PainShield product,
can be explored through clinical trials.
12
Market for PainShield
Pain-related complaints are one of the most common reasons patients seek treatment from physicians (Prince V, “Pain Management in
Patients with Substance-Use Disorders,” Pain Management, PSAP-VII, Chronic Illnesses). According to Landro L, “New Ways to Treat
Pain: Tricking the Brain, Blocking the Nerves in Patients When all Else Has Failed,” Wall Street Journal, May 11, 2010, approximately
26% of adult Americans, or approximately 76.5 million people, suffer from chronic pain. The National Center for Health Statistics has
estimated that approximately 54% of the adult population experiences musculoskeletal pain. Studies have shown that low-frequency
ultrasound treatment has yielded positive results for a variety of indications, including tendon injuries and short-term pain relief (Warden
SJ, “A new direction for ultrasound therapy in sports medicine,” Sports Med. 2003; 33 (2):95-107), chronic low back pain (Ansari NN,
Ebadi S, Talebian S, Naghdi S, Mazaheri H, Olyaei G, Jalaie SA, “Randomized, single blind placebo controlled clinical trial on the effect
of continuous ultrasound on low back pain,” Electromyogr Clin Neurophysiol. 2006 Nov; 46(6):329-36) and sinusitis (Ansari NN, Naghdi
S, Farhadi M, Jalaie S, “A preliminary study into the effect of low-intensity pulsed ultrasound on chronic maxillary and frontal sinusitis,”
Physiother Theory Pract. 2007 Jul-Aug; 23(4):211-8). We believe that PainShield’s technology, portability and ease of use may result in it
becoming an attractive product in the pain management and therapy field.
Competition
There are numerous products and approaches currently utilized to treat chronic pain. The pharmacological approach, which may be the
most common, focuses on drug-related treatments with the over-the-counter internal analgesic market estimated at $3.8 billion in 2013.
Alternatively, there are a large number of non-pharmacological pain treatment options available, such as ultrasound, transcutaneous
electrical nerve stimulation, or TENS, laser therapy and pulsed electromagnetic treatment. In addition, there are some technologies and
devices in the market that utilize low frequency ultrasound or patch technology. Many patients are initially prescribed anti-pain medication;
however, ongoing use of drugs may cause substantial side effects and lead to addiction. Therefore, patients and clinicians have shown
increased interest in alternative pain therapy using medical devices that do not carry these side effects.
The currently available ultrasound treatments for chronic pain have generally been accepted by the medical community as standard
treatment for pain management. However, the traditional ultrasound treatments, such as those manufactured or distributed by Mettler
Electronics Corp, Metron USA and Zimmer MedizinSysteme, are stationary devices found only in clinics and other health care facilities
that need to be administered to patients by health care professionals. We are aware of three companies that market smaller ultrasound
devices capable of certain self-administered use for the treatment of pain: Koalaty Products, Inc., Sun-Rain System Corp. and PhysioTEC.
These devices generally function in the same manner, at the same frequency and with the same administration and safety requirements and
limitations as traditional, larger ultrasound devices. We are also aware of one product, which has recently received U.S. Food and Drug
Administration approval and also has CE Mark approval, marketed by ZetrOZ, Inc., that we understand may eliminate certain of these
requirements and limitations, namely the requirement to be plugged in, the need for movement around the treated area and the relatively
short safe treatment period. However, we understand that this product does not generate surface acoustic waves as our products do, which
means that the treatment area is generally limited to that under the transducer, that the use of transmission gel is still required and that the
transducer thickness is significantly greater than ours (approximately 1.5cm). It is also our understanding that the U.S. Food and Drug
Administration has prohibited the manufacturer from labeling or promoting this product for use directly over bone that is near the skin
surface. In addition, there are other patch-based methods of pain treatment, such as TENS therapy. TENS therapy may be painful and
irritating for the patient due to the muscle contractions resulting from the electrical pulses. PainShield combines the efficacy of ultrasound
treatment for pain with the ease of use and portability of a patch-based system. PainShield also may be self-administered by the patient,
including while the patient is sleeping. However, if we are unable to obtain widespread insurance coverage and reimbursement for
PainShield, its acceptance as a pain management treatment would likely be hindered, as patients may be reluctant to pay for the product out-
of-pocket.
13
Regulatory Strategy
PainShield received 510(k) clearance from the U.S. Food and Drug Administration in August 2008 for treatment of pain relief. PainShield
received CE Mark approval in July 2008 and was also approved for sale by the Israeli Ministry of Health in 2010. We have a Canadian
medical device license for PainShield and we are able to sell PainShield in India and Ecuador based on our CE Mark. We are in discussions
with distributors in Southeast Asia, and, if a distributor is engaged, intend to seek regulatory approvals for PainShield in Southeast Asia
through such distributor.
In the United States, a prescription from a licensed healthcare practitioner is required for the use of PainShield. We have engaged a
consultant to assist us in the process of reclassifying the PainShield device to remove the prescription requirement for the use of PainShield.
We believe that such reclassification will open up mass market opportunities which are currently not available to us due to the prescription
requirement. However, there is no assurance that we will be able to remove the prescription requirement for the use of PainShield or that,
even if we accomplish such reclassification and the use of PainShiled no longer requires a prescription, PainShield will be successful
commercially in the mass market or we will be able to generate significant revenues from the mass market opportunities, if any.
In the United States, PainShield falls under the diathermy classification for the treatment of pain for initial reimbursement purposes. The
permitted reimbursement codes can be used in the outpatient supervised medical setting. We intend to coordinate with the Centers for
Medicare and Medicaid Services and private insurers so that reimbursement can be extended to cover the administration of PainShield
outside of health care facilities and clinics. In addition, we intend to conduct clinical trials in order to effectively market PainShield for a
larger range of indications. The targeted reimbursement would be based upon specific indications, where study data serves as justification
for payment.
Sales and Marketing
PainShield was introduced in 2009 as a treatment for pain, such as tendonitis, sports injuries, pelvic pain and neurologic pain and we have
sold approximately 1,700 units and 15,000 treatment patches since its introduction. We have entered into distribution agreements in North
America, Europe, Asia and India for the distribution of PainShield. We intend to seek additional distribution opportunities in Europe, East
Asia and Ecuador. In addition, we sell PainShield directly to patients through our website. We are currently ramping up our marketing
efforts in North America and throughout the world. We anticipate that these efforts will include recruiting additional sales personnel and
representatives, making in-office calls to physicians and attending trade shows and conferences. We intend to pursue the veterinary market
with our equine PainShield device.
We have identified a unique and effective application for PainShield, the treatment of a severe facial nerve pain called Trigeminal
Neuralgia, otherwise known as tic douloureux. Two studies were performed in Israel, “a randomized control trial examining the efficacy of
low intensity low frequency Surface Acoustic wave ultrasound in trigerminal neuralgia pain”, and “A sound solution for Trigerminal
Neuralgia”. Two trials which enrolled a total of 16 and 15 patients respectively, both conducted at the Sheba Medical Center in Israel,
concluded that this study supports the hypothesis that the application of Low Intensity Low Frequency Surface Acoustic Wave Ultrasound
(LILF/SAW) may be associated with a clinically significant reduction of pain severity among patients suffering from trigeminal neuralgia
disease. One of the studies showed a reduction in pain among 73% of the participants. We believe this to be an ideal market to address with
the PainShield. With few existing treatment alternatives, we believe the PainShield’s effectiveness is a practical and safe alternative. A
broader RCT, targeting 60 patients suffering from unilateral trigeminal neuralgia, was recently completed. The article will be completed
and ready for submission within 90 days.
GlobalData’s epidemiological analysis forecasts that the total prevalent cases of trigeminal neuralgia in the seven major markets (United
States, France, Germany, Italy, Spain, U.K and Japan) will grow at 15% between 2012 and 2022. According to an estimate by Ronald
Brisman, M.D., in 2013 the prevalence of trigeminal neuralgia in the U.S. may have been as high as approximately 280,000 patients. With
the favorable results from our current, ongoing study (explained in detail below), we plan to aggressively pursue this market through direct
marketing efforts and distributor relationships.
We have also identified a market for PainShield in the professional sports industry, where in some cases, reimbursement may be available
from sports alumni organizations or, more likely, self-pay. In order to pursue this market we are exhibiting at sports trainers meetings,
pursuing alumni associations, advertising in their media, and have recently engaged a national distributor in the United States. Discussions
and ongoing negotiations continue with other appropriate distributors in these various market segments.
14
Recently Completed Research
A double blind randomized control trial of a Painshield Surface Acoustic Wave Patch, the patch used in conjunction with the PainShield
device, was completed in the first quarter of 2018.
After the enrollment and lead-in period, subjects were given a sham device to sleep with every night for a month. They were asked to fill
out their pain and analgesic use logs, and undergo the bi weekly assessments. After a month they were crossed over to an active “Painshield
SAW patch device” and continued to complete their pain and analgesic use logs as well as undergo biweekly assessments for months two
and three of the study.
In the fourth quarter of 2017, the interim results were reported on 45 patients that had been evaluated as fully completing the study. Results
from these patients showed a greater than 3 point difference in pain measured by the Visual Analog Scale between the active treatment
group and the control group. This was further validated in the crossover group from sham to active groups. Patients also showed quality of
life by greater than 35% in the treatment group versus the control group, which was validated in the crossover group. We have submitted
comprehensive data from this clinical trial for expected publication in a peer review journal in the second quarter of 2018, at which time we
plan to report the final results.
Clinical Trials
To date, we have conducted or are in the process of conducting the clinical trials set forth below:
Purpose
A sound solution for
Trigerminal Neuralgia
Physician initiated
Doctor/Location
Dr. Ch. Adahan
Sheba Medical
Center
Time,
subjects
2009
15 patients
Dr. M. Zwecker
Chaim Sheba
Medical Center, Tel
Hashomer, Israel
2012-2012
16 patients
Randomized control trial
examining the efficacy
of low intensity low
frequency Surface
Acoustic wave
ultrasound in trigerminal
neuralgia pain For Ph.D.,
Funded by Israeli
Ministry of Health
Treating Rutgers
university athletic
injuries with bandaid
sized ultrasound unit
PainShield
R. Monaco,
G. Sherman,
Rutgers University
Athletic, Rutgers,
New Jersey
2011
35 patients
Objectives
●Reduction in pain
●Reduction in disability
●Improvement of function and
quality of life
●Accelerating of healing
●Reduction in pain
●Reduction in disability
●Improvement of function and
quality of life
●Accelerating of healing
Results
73% of the subjects experienced
complete or near complete relief.
In conclusion this study supports the
hypothesis that the application of Low
Intensity Low Frequency Surface
Acoustic Wave Ultrasound
(LILF/SAW) may be associated with a
clinically significant reduction of pain
severity among patients suffering from
trigeminal neuralgia disease.
●To assess the pain, functional
capacity and discomfort of the
subject
●To assess the subject’s quality of
life
●To assess the injury status
●To assess the efficacy of the
treatment
●To assess compliance factors
Active group:
74% had improvement, 26% no
change
Sham group:
56% no change, 44% had
improvement
This is an indication of the
effectiveness of the device.
Lack of funding for statistical analysis
has stopped this trial prior to
fulfillment.
15
D. Wiseman,
2011
●To assess the efficacy of
Synechion Institute
for Pelvic Pain
19 patients
PainShield for pelvic and related
pain
Improvement in pain related symptoms
noted for all symptoms.
Reduction of chronic
abdominal and pelvic
pain, urological and GI
symptoms using
wearable device
delivering low frequency
ultrasound
PainShield for
Trigeminal Neuralgia
Shira Markowitz,
MD, New York, NY
Early 2018
60 patients
●To assess the efficacy of
PainShield for treating trigeminal
nerualgia
Interim results released in the fourth
quarter of 2017, which reported
improvement in pain and quality of
life; final results expected to be
reported in the second quarter of 2018
If we are able to obtain sufficient funding, we anticipate conducting the following clinical trials:
Trial
PainShield for Pelvic Pain
200 patient trial
WoundShield®
Place
To be determined To be determined
Start Date/Timing
Objectives
Safety and Efficacy of PainShield in Chronic Pelvic Pain
Our WoundShield product was granted the European Wound Closure Customer Value Leadership Award, Ultrasound Therapy – Wound
Closure in 2014. WoundShield is intended to treat acute and chronic wounds with a disposable treatment patch that delivers localized
therapeutic low frequency ultrasound. The WoundShield patch has two configurations: one that is placed adjacent to the wound and
another, called the instillation patch, that is placed on the wound to enable instillation through sonophoresis, a process that increases the
absorption of semisolid topical compounds, including medications, into the skin. Based on studies conducted by BIO-EC Microbiology
Laboratory and Rosenblum, we believe that our WoundShield product possesses significant potential for the treatment of, among other
things, diabetic foot ulcers and burns (Gasser P, Study Report delivered by BIO-EC Microbiology Laboratory, Dec 2007, which we
ordered, paid for, and provided devices for; Rosenblum J, “Surface Acoustic Wave Patch Diathermy Generates Healing In Hard To Heal
Wounds,” European Wound Management Association 2011, for which we supplied devices but had no further involvement).
Picture of WoundShield Driver and Instillation Patch
WoundShield delivers surface acoustic waves to the location of the wound. Surface acoustic waves move laterally across the surface of the
wound, which enables the transfer of the acoustic energy of the waves along the entire wound surface in a continuous and consistent mode,
providing access to the waves’ benefits for a longer treatment period than conventional ultrasound without the need for supervision or a
treatment session by a clinician.
16
The technology has been found to have a positive effect on the epithelialization (healing by the growth of epithelial cells) of diabetic
wounds, as well as on the stimulation of the precursors of dermal and epidermal (skin) growth. As such, it is a useful adjunct to wound care
by increasing dermal and epidermal growth, including glycosaminoglycans, or GAGs (which bind to extracellular proteins like collagen,
fibronectin, laminin, etc. and retain considerable amounts of water, thus preserving the skin structure) as well as the amount of collagen (a
protein that helps skin heal) and decreasing the number of cells in mitosis (a type of cell division) (Rosenblum J, “Surface Acoustic Wave
Patch Diathermy Generates Healing In Hard To Heal Wounds,” European Wound Management Association 2011, for which we supplied
devices which were precursors to WoundShield, but had no further involvement). In addition, the WoundShield instillation patch allows for
administration of therapeutic agents into the wound area through a sonophoresis effect.
Many key processes in wound healing are dependent upon an adequate supply of oxygen. Diabetic foot ulcers are particularly in need of an
adequate oxygen supply because the disease often results from poor perfusion (blood flow) and decreased oxygen tension. Oxygen is also
important for the immune system to combat bacteria, synthesize collagen, help with fibroblast proliferation (fibroblasts are a type of cell
that play a critical role in wound healing), form oxidative (taking place in the presence of oxygen) pathways for adenosine triphosphate, or
ATP, formation (ATP transports chemical energy within cells for metabolism), and the nitric oxide dependent signaling pathways. It is
generally believed that a lack of available oxygen is a basic contributing factor in the perpetuation of these wounds. Recently, wound
healing experts have developed a technique of perfusing ischemic wounds (which occur when blood flow is blocked) with hyper-
oxygenated saline, while the wound is being treated with ultrasound, also known as sonication. This localized oxygenation therapy has
many advantages over the use of hyperbaric chambers (large chambers in which the oxygen pressure is above normal), a common method
for delivering oxygen to wounds, as it is more cost-effective, can be done at the patient’s bedside and can be administered more frequently.
The WoundShield instillation patch was tested as a potential ultrasound technology for this localized oxygen therapy. In one study
(Morykwas M, “Oxygen Therapy with Surface Acoustic Waveform Sonication,” European Wound Management Association 2011; we
supplied devices for this study, but had no further involvement with it), oxygen sensors were placed in the wound bed to directly measure
partial pressure of oxygen in an ischemic wound bed on a pig. The wound was perfused with hyperbaric oxygen and sonicated using the
WoundShield instillation patch. With surface acoustic wave ultrasound technology, tissue oxygen levels (partial pressure of oxygen in the
blood, or PaO2) were raised from a range of 20 mmHg (millimeters of mercury) to 60 mmHg in peripheral (periwound) areas, a 3
centimeter distance away from the transducer, and from 40 mmHg to greater than 100 mmHg in the central wound bed lying below the
WoundShield instillation patch (see table below). The results of this study illustrated that the WoundShield instillation patch allowed
oxygen to directly enter into the wound. The direct entry of the oxygen increased the amount of oxygen reaching the wound, which has
been shown to advance the healing process. In addition, we believe that WoundShield’s small size, lower cost and ease of use makes
localized oxygen treatment commercially viable.
17
In 2012, results were published of a human feasibility trial for the WoundShield instillation patch that was performed at Duke University in
North Carolina. Seven patients were treated with the WoundShield instillation patch for their wounds and average tissue oxygen levels
(PaO2) increased by an average of 58% over baseline (Covington S, “Ultrasound-Mediated Oxygen Delivery to Lower Extremity Wounds,”
Wounds 2012; 24(8)). We supplied devices for this trial, but had no further involvement with it. Based upon the results of this trial, we are
planning a series of clinical trials, which we expect to begin in the fourth quarter of 2017, with an end point claim that our WoundShield
product enhances perfusion in chronic wounds.
Market for Wound-Healing Devices
The global wound care device market totaled approximately $24 billion in 2015 and it is expected to grow at a CAGR of 6.7% during 2016-
2022 (as reported by P&S Global Research in January 2017). According to the Global Report on Diabetes produced by the World Health
Organization in 2016, globally, an estimated 422 million adults were living with diabetes in 2014, compared to 108 million in 1980.
According to a report entitled “Advances in Wound Closure Technology” by Frost and Sullivan (2005), foot complexities are the most
frequent causes for patients with diabetes to get hospitalized, with complications usually starting with the formation of skin ulcers. In
addition, according to the American Burn Association, approximately 486,000 patients received medical treatment annually for burn
injuries in 2016 in the United States. There are also policy-based factors that may increase the size of the wound care market. We
anticipate that reimbursement decisions with respect to hospital acquired wounds may create a large market opportunity for wound care
products, including WoundShield. Furthermore, in 2009, the Centers for Medicare and Medicaid Services announced that they would stop
reimbursements for treatment of certain complications that they believed were preventable with proper care. One such complication was
surgical site infections after certain elective procedures, including some orthopedic surgeries and bariatric surgery. We believe that such
developments incentivize medical care providers to invest in reducing the risk of infection through the use of wound care products,
including WoundShield.
Competition for WoundShield
The market for advanced wound care includes a number of competitors, such as Kinetic Concepts, Inc., or KCI, Smith and Nephew plc and
Convatec Inc., all of whom market wound-healing medical devices. Due to their size, in general these companies may have significant
advantages over us. These competitors have their own distribution networks for their products, which gives them an advantage over us in
reaching potential customers. In addition, they are vertically-integrated, which may allow them to maximize efficiencies that we cannot
achieve with our third-party suppliers and distributors. Finally, because of their significantly greater resources, they could potentially
choose to focus on research and development of technology similar to ours, more than we are able to. In general, we believe that these
competitors have, and will continue to have, substantially greater financial, technological, research and development, regulatory and
clinical, manufacturing, marketing and sales, distribution and personnel resources than we do. However, we believe that our products
differentiate us from these competitors, and we will be competitive on the basis of our technology. We believe that the strength of these
competitors may create an opportunity through strategic partnerships.
At present, ultrasound treatment for wounds is limited only to wound debridement (removal of damaged tissue or foreign objects from a
wound) and such products are marketed by Arobella Medical, LLC, which produces the Qoustic Wound Therapy System, Misonix Inc.,
which produces SonicOne products, and Alliqua Biomedical, Inc., which produces the MIST Therapy System. Due to their size, in general
these companies may have the same advantages over us as discussed with respect to our competitors in the paragraph above. However,
these ultrasound devices are indicated for use only in medical clinics and require an operator to deliver their treatment, thus limiting their
use and application. The MIST Therapy System and Quostic Therapy System are a non-contact ultrasound device that delivers ultrasound
through a mist that is applied directly on the wound.
We believe that these therapies are less advantageous than WoundShield because they require an operator to deliver the treatment and the
removal of bandages to target the wound bed. In contrast, the WoundShield patch sits on normal skin bordering the open wound and no
manipulation of the wound bandage is required. Moreover, WoundShield can be self-administered, without an operator, in both clinics and
home settings. We also believe that WoundShield will prove to be an effective alternative to treating chronic wounds at a lower price than
the existing products being used by medical practitioners. As such, we believe that facilities that are reimbursed based upon diagnosis-
related groups will be more inclined to adopt WoundShield because it will provide the same therapeutic results at a significantly lower cost
than traditional ultrasound therapies.
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We are also aware of a small clinical study, for which results were reported in August 2013, in which a small ultrasound device showed
positive results in the treatment of venous ulcers, a type of chronic wound. Based upon currently available information about this device,
we believe it will be at least 2018 before this device is available on the market for treatment of venous ulcers. We understand that this
product does not generate surface acoustic waves as our products do, which means that the treatment area is generally limited to that of the
transducer’s diameter. We believe our products would have certain other advantages over this potential device, if developed, including that
our products weigh less and are thinner. However, given the early stage of development of this potential device, we cannot say with
certainty how our products would compare.
The most common method of oxygen administration for wound healing is hyperbaric oxygen therapy, especially to treat specific ulcerations
in diabetic patients. Hyperbaric oxygen therapy has been shown to increase vascular endothelial growth factor expression, which measures
the creation of new blood vessels (Fok TC, at el, “Hyperbaric oxygen results in increased vascular endothelial growth factor (VEGF)
protein expression in rabbit calvarial critical-sized defects”, Schulich School of Medicine and Dentistry, University of Western Ontario,
Canada). The activation of endothelial cells by VEGF sets in motion a series of steps toward the creation of new blood vessels (J Lewis et
al, National Cancer Institute, Understanding Cancer and Related Topics, Understanding Angiogenesis). We believe that the WoundShield
instillation patch, which can be used as an oxygen instillation system, will be complementary to, or in some cases an alternative, to the use
of hyperbaric chamber therapy. This complementary treatment option will allow the treating physician greater therapeutic versatility in
treating wounds. For a certain populace of patients, we believe that the WoundShield instillation patch could provide physicians with an
alternative to hyperbaric oxygen therapy because it provides the same benefits as hyperbaric oxygen therapy at a lower cost to the patient.
There are a number of competitors in the hyperbaric chamber therapy market, including approximately eight companies in the United
States. Due to their size, in general these companies may have the same advantages over us discussed with respect to our competitors in the
first paragraph of this section. However, we believe that the WoundShield instillation patch possesses certain advantages over the existing
hyperbaric chamber therapy, including lower cost and greater ease of use. In addition, we do not believe that the WoundShield instillation
patch will necessarily compete with hyperbaric chamber therapy, but rather will often complement such therapy.
While we believe that WoundShield is well positioned to capture a share of the wound care market, WoundShield may be unable to achieve
its anticipated place in the wound care market due to a number of factors, including, but not limited to, an inability to obtain the approval of
the U.S. Food and Drug Administration, for which it is indicated and its failure to be adopted by health care practitioners and facilities or
patients because of its status as a new product in a market that relies on patient-focused initiative to treat wounds.
Regulatory Strategy
For a general discussion of the U.S. Food and Drug Administration approval process with respect to our products, and regulation of our
products in general, see “– Government Regulation” below.
Our general regulatory strategy for WoundShield is focused on seeking U.S. Food and Drug Administration approval for a variety of
indications. WoundShield obtained CE Mark approval in November 2012, and obtained Canadian License approval in November 2016,
both for use in wound healing.
Sales and Marketing
WoundShield has generated minimal revenues to date. We intend to aggressively market WoundShield in Europe and Canada, and pursue
the necessary approvals to commence marketing in the United States. Our strategy for selling WoundShield in the United States is to find a
strategic partner in the wound care market. We are actively pursuing this strategy. WoundShield could be an effective adjunct to existing
wound treatment devices or a stand alone wound treatment modality.
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Clinical Trials
With respect to WoundShield, to date, we have conducted the following evaluation studies:
Purpose
Clinical evaluation
Physician initiated
Doctor/Location
Dr. J. Rosenblum,
2008
Time,
subjects
Shaare Zedek
Medical Center
8 patients
Objectives
To evaluate novel technology
on wound healing in diabetic
foot ulcers.
Clinical evaluation
Physician initiated
Dr. J. Rosenblum,
2010
Shaare Zedek
Medical Center
8 patients
To evaluate novel technology
on wound healing in diabetic
foot ulcers.
Clinical evaluation
Physician initiated
Dr. S. Covington
2010
The study aimed to determine if
7 patients
hyper oxygenated saline
delivered by surface acoustic
waves improves tissue
oxygenation in lower extremity
wounds.
Third Party Reimbursement
Results
Therapy showed significant changes in wound,
wound size was reduced, patients felt less pain,
necrotic tissue was less adhesive, necrotic tissue
decreased in size. The duration of the trial was
one week.
The device, a precursor device to WoundShield
using the same technology as Woundshield, had
a positive effect on both epitheliazation of
diabetic wounds and stimulating the precursors
of dermal and epidermal growth. The duration of
the trial was one week.
Surface acoustic wave technology in conjunction
with oxygenated saline can increase interstitial
oxygen in wound bed. This trial to validate proof
of concept was put on hold due to financial
constraints. The duration of the trial was two
weeks.
We anticipate that sales volumes and prices of the products we commercialize will depend in large part on the availability of coverage and
reimbursement from third party payers. Third party payers include governmental programs such as Medicare and Medicaid, private
insurance plans and workers’ compensation plans, among others. These third party payers may deny coverage and reimbursement for a
product or therapy, in whole or in part, if they determine that the product or therapy was not medically appropriate or necessary. The third
party payers also may place limitations on the types of physicians or clinicians that can perform specific types of procedures. In addition,
third party payers are increasingly challenging the prices charged for medical products and services. Some third party payers must also pre-
approve coverage for new or innovative devices or therapies before they will reimburse health care providers who use the products or
therapies. Even though a new product may have been approved or cleared by the U.S. Food and Drug Administration for commercial
distribution, we may find limited demand for the device until adequate reimbursement has been obtained from governmental and private
third party payers.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted
price ceilings on specific product lines and procedures. There can be no assurance that procedures using our products will be considered
medically reasonable and necessary for a specific indication, that our products will be considered cost-effective by third party payers, that
an adequate level of reimbursement will be available or that the third party payers’ reimbursement policies will not adversely affect our
ability to sell our products profitably.
In the United States, some insured individuals are receiving their medical care through managed care programs, which monitor and often
require pre-approval of the services that a member will receive. Some managed care programs are paying their providers on a per capita
basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined
payment per member per month, and consequently, may limit the willingness of these providers to use certain products, including ours.
One of the components in the reimbursement decision by most private insurers and governmental payers, including the Centers for
Medicare and Medicaid Services, which administers Medicare, is the assignment of a billing code. Billing codes are used to identify the
procedures performed when providers submit claims to third party payers for reimbursement for medical services. They also generally form
the basis for payment amounts.
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Obtaining reimbursement approval for a product from any government or other third party payer is a time-consuming and costly process
that could require us or our distributors to provide supporting scientific, clinical and cost-effectiveness data for the use of our product to
each payer. Even if a code is obtained for a product, a third party payer must still make coverage and payment determinations. When a
payer determines that a product that is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for
some uses that are approved by the FDA or other foreign regulatory authorities. We believe that the overall escalating costs of medical
products and services has led to, and will continue to lead to, increased pressures on the health care industry to reduce the costs of products
and services. In addition, recent health care reform measures, as well as legislative and regulatory initiatives at the federal and state levels,
create significant additional uncertainties. There can be no assurance that third party coverage and reimbursement will be available or
adequate, or that future legislation, regulation, or reimbursement policies of third party payers will not adversely affect the demand for our
products or our ability to sell these products on a profitable basis. The unavailability or inadequacy of third party payer coverage or
reimbursement would have a material adverse effect on our business, operating results and financial condition.
UroShield. We expect these products to be used in inpatient settings and therefore reimbursed under the DRG or per diem reimbursement
system. In addition, in an outpatient or home setting, we anticipate that these products will initially be purchased privately until a
reimbursement code is obtained. However, we believe that if we can empirically demonstrate UroShield’s efficacy in preventing recurrent
hospitals admission in chronic Foley catheter patients and reducing overall per-patient cost, third party payers may accelerate the
reimbursement approval process since the device could reduce their overall per-patient cost. We believe the natural progression of the
adoption of this technology will allow for use in the home setting. We intend pursue reimbursement in the Medicare Part B code to support
the use for long term catheter use and infection prevention in the home.
PainShield. Although it is a minimal amount, PainShield is presently reimbursed in the United States by many private insurers under the
national umbrella for diathermy service, CPT code 97024, for use of the ultrasound device in a supervised medical setting and is
reimbursed in 15-minute increments for up to an hour a day, 5 hours a week and 20 hours a month. The current reimbursement mechanism
is inadequate to support the end user or distributor cost of the device. If the device is efficacious in the treatment of the patient’s condition,
the treatment period can be extended in some cases for months. Presently, when used in an outpatient setting, such as by a clinic, PainShield
is typically purchased by the clinic that then can bill the existing reimbursement codes. PainShield is not currently reimbursed for therapy
in the home setting. When we have sufficient funding, we intend to work to obtain reimbursement in the home setting as well as codes that
would allow for reimbursement for use of the non-disposable and disposable components of the PainShield device. Our anticipated clinical
trials for PainShield would support this effort. In the United States, Painshield requires a prescription from a physician.
WoundShield. We believe that the initial usage of these products will be in the hospital setting. Reimbursement in the hospital setting is
typically governed by the Diagnosis Related Group system, or DRG system, which is a prospective payment methodology that assigns a
predetermined, fixed amount based on the patient’s diagnoses. In parallel to introducing these devices to hospitals, we intend to apply for
reimbursement codes for outpatient use. Although obtaining these codes can take years and may require extensive clinical data, we believe
that the desirable characteristics of these products may serve as an incentive to insurance companies to grant these codes more quickly.
New Products Under Development
Renooskin
In 2016, we started developing a device for the facial rejuvenation market called Renooskin. Previous in vitro studies on human skin were
done showing that the SAW technology provided skin rejuvenation comparable to Retinol A which is a well-accepted anti-aging cream.
We have developed a head band like applicator for the PainShield SAW treatment and are in the process of arranging for a pilot trial with a
cosmetic dermatologist and/or plastic surgeon. We believe that, subject to proof of efficacy of the Renooskin and receiving regulatory
approval, the device can be sold in a non-reimbursement market since cosmetic devices are private pay. We expect to complete the
development of the prototype of the Renooskin product by June 2018, and Renooskin is currently under evaluation by a major cosmetics
companies.
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Lungshield
A pilot study, adapting the UroShield technology to endotracheal tubes, is currently underway at Shaare Zedek Medical Center. The
purpose of this study is to examine the effect of a device which generates low energy ultrasound waves like the UroShield product. The
endpoint of the study is to show its effect on development of bacterial colonies on endotracheal tubes, in patient receiving mechanical
ventilation, and to determine whether this effect lowers the rate of bacterial resistance to antibiotics. Results of this study are not known at
this time. The targeted completion for the study is the second quarter of 2018.
Research and Development Expenses
During the years ended December 31, 2017 and 2016, we spent approximately $693,000 and $584,000, respectively, on research and
development activities. None of the cost of such activities is borne directly by our customers.
Intellectual Property
Patents
We have rights to six patents in the United States. Granted U.S. Patent No. 7,393,501 (having the following foreign counter-parts: China
ZL03818327.7; Israel 165422; Japan 4504183; India 246351; Australia 2003231892; European Union 1511414 B), “Method, apparatus and
system for treating biofilms associated with catheters” and granted U.S. Patent No. 7,829,029 (having the following foreign counter-parts:
China ZL200780019732.3 and European Union 1998834), “Acoustic add-on device for biofilm prevention in urinary catheter,” both relate
to the use of surface acoustic waves to prevent biofilm formation on indwelling catheters. These granted U.S. patents expire on December
19, 2023 and October 27, 2025, respectively. Granted U.S Patent No. 9,028,748, “System and method for surface acoustic wave treatment
of medical devices,” relate to methods of generating surface acoustic waves on medical device surfaces on both indwelling medical devices
and implants to prevent biofilm formation This U.S. patent expires on July 11, 2030. Granted U.S. Patent No. 9,585,977 (having the
following foreign counter-parts: China ZL200780014875.5, European Union, and allowed Israel application), “System and method for
surface acoustic waves treatment of skin,” relates to methods of using surface acoustic waves for treatment of skin for the purpose of
wound-healing, reducing infection, pain reduction and cosmetic enhancements. This U.S. patent expires August 20, 2033.
We also license two in-force patents pursuant to a license agreement with Piezo-Top Ltd and PMG Medica Ltd., U.S. Patent No. 6,454,716
B1, “System and method for detection of fetal heartbeat,” and U.S. Patent No. 6,964,640 B2, “System and method for detection of motion,”
which incorporate certain technology related to detecting in-vivo motion relating to biological parameters such as, for example, blood flow
detection, heartbeat monitoring, fetal motion monitoring, fetal heartbeat monitoring, etc.. The configuration allows for an optimal scanning
range at an unlimited number of angles. These patents expire on May 23, 2020 and January 22, 2023, respectively.
We believe the granted patents, patent applications and license agreement (described below) collectively cover our existing products to the
extent necessary, and may be useful for protecting our future technology developments. We intend to continue patenting new technology as
it is developed, and to actively pursue any infringement of any of our patents.
To date, we are not aware of other companies that have patent rights to a comparable system and method for surface acoustic wave
treatment for skin.
Trademarks
We believe that our product brand names are an important factor in establishing and maintaining brand recognition. We have the following
trademark registrations in the United States: NanoVibronix®, WoundShield®, PainShield®, and UroShield®. We intend to re-file and
pursue our previously acquired trademark registration “Curing though prevention”®, which expired in July 2015. Generally, the protection
afforded for trademarks is perpetual, if they are renewed on a timely basis, if registered, and continue to be used properly as trademarks.
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License Agreement
In October 2003, we entered into a license agreement with Piezo-Top Ltd and PMG Medica Ltd, pursuant to which we were granted an
exclusive, worldwide license for the duration of the patent life of U.S. Patent No. 6,454,716 B1, U.S. Patent No. 6,964,640 B2 and U.S.
Patent No. 7,431,892 B2 (see “—Patents” above). U.S. Patent No. 7,431,892 B2 has since expired. In exchange for the license, we paid
Piezo-Top Ltd and PMG Medica Ltd payments of (i) $5,000 each after the first round of investment in us, (ii) $7,500 each after the second
round of investment in us, and (iii) $25,000 each after either the third round of investment, the purchase of at least 40% of our stock or our
initial public offering. We have made all three of the required payments under this agreement.
Government Regulation
U.S. Food and Drug Administration Regulation
Each of our products must be approved, cleared by, or registered with the U.S. Food and Drug Administration before it is marketed in the
United States. Before and after approval or clearance in the United States, our products, approved or cleared products and product
candidates, are subject to extensive regulation by the U.S. Food and Drug Administration under the Federal Food, Drug, and Cosmetic Act
and/or the Public Health Service Act, as well as by other regulatory bodies. The U.S. Food and Drug Administration regulations govern,
among other things, the development, testing, manufacturing, labeling, safety, storage, record-keeping, market clearance or approval,
advertising and promotion, import and export, marketing and sales, and distribution of medical devices and pharmaceutical products.
PainShield has already obtained 510(k) marketing approval by the U.S. Food and Drug Administration.
U.S. Food and Drug Administration Approval or Clearance of Medical Devices
In the United States, medical devices are subject to varying degrees of regulatory control and are classified in one of three classes
depending on the extent of controls the U.S. Food and Drug Administration determines are necessary to reasonably ensure their safety and
efficacy:
● Class I: general controls, such as labeling and adherence to quality system regulations, and a pre-market notification (510(k)) unless
exempt;
● Class II: special controls, pre-market notification (510(k)) unless exempt, specific controls such as performance standards, patient
registries and post-market surveillance and additional controls such as labeling and adherence to quality system regulations; and
● Class III: special controls and approval of a Pre-Market Approval, or PMA, application.
WoundShield and PainShield are classified as Class II medical devices and require U.S. Food and Drug Administration authorization prior
to marketing, by means of 510(k) clearance, except for our UroShield product, which we intend to seek clearance from the U.S. Food and
Drug Administration through the de novo classification process, described below.
To request marketing authorization by means of a 510(k) clearance, we must submit a pre-market notification demonstrating that the
proposed device is substantially equivalent to another legally marketed medical device, has the same intended use, and is as safe and
effective as a legally marketed device and does not raise different questions of safety and effectiveness than a legally marketed device.
510(k) submissions generally include, among other things, a description of the device and its manufacturing, device labeling, medical
devices to which the device is substantially equivalent, safety and biocompatibility information and the results of performance testing. In
some cases, a 510(k) submission must include data from human clinical studies. Marketing may commence only when the U.S. Food and
Drug Administration issues a clearance letter finding substantial equivalence. The typical duration to receive 510(k) approval is
approximately nine months from the date of the initial 510(k) submission, although there is no guaranty that the timing will not be longer.
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The U.S. Food and Drug Administration may require us to perform clinical studies to show a product candidate’s safety and efficacy in
addition to technological equivalence in support of our filed 510(k). No matter which regulatory pathway we may take in the future towards
marketing products in the United States, we believe we will be required to provide clinical proof of device effectiveness and safety.
After a device receives 510(k) clearance, any product modification that could significantly affect the safety or effectiveness of the product,
or that would constitute a significant change in intended use, requires a new 510(k) clearance or, if the device would no longer be
substantially equivalent, would require a PMA. If the U.S. Food and Drug Administration determines that the product does not qualify for
510(k) clearance, then a company must submit and the U.S. Food and Drug Administration must approve a PMA before marketing can
begin.
A PMA application must provide a demonstration of safety and effectiveness, which generally requires extensive nonclinical and clinical
trial data. Information about the device and its components, device design, manufacturing and labeling, among other information, must also
be included in the PMA. As part of the PMA review, the U.S. Food and Drug Administration will inspect the manufacturer’s facilities for
compliance with quality system regulation requirements, which govern testing, control, documentation and other aspects of quality
assurance with respect to manufacturing. If the U.S. Food and Drug Administration determines the application or manufacturing facilities
are not acceptable, the U.S. Food and Drug Administration may outline the deficiencies in the submission and often will request additional
testing or information. Notwithstanding the submission of any requested additional information, the U.S. Food and Drug Administration
ultimately may decide that the application does not satisfy the regulatory criteria for approval. During the review period, a U.S. Food and
Drug Administration advisory committee, typically a panel of clinicians and statisticians, is likely to be convened to review the application
and recommend to the U.S. Food and Drug Administration whether, or upon what conditions, the device should be approved. The U.S.
Food and Drug Administration is not bound by the advisory panel decision. While the U.S. Food and Drug Administration often follows
the panel’s recommendation, there have been instances where the U.S. Food and Drug Administration has not. If the U.S. Food and Drug
Administration finds the information satisfactory, it will approve the PMA. The PMA approval can include post-approval conditions,
including, among other things, restrictions on labeling, promotion, sale and distribution, or requirements to do additional clinical studies
post-approval. Even after approval of a PMA, a new PMA or PMA supplement is required to authorize certain modifications to the device,
its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for
an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the
product covered by the original PMA. The typical duration to receive PMA approval is approximately two years from the date of
submission of the initial PMA application, although there is no guarantee that the timing will not be longer.
As described above, we anticipate that our UroShield product will receive a de novo review from the U.S. Food and Drug Administration.
De novo review is a two-step process that requires a company to submit a 510(k) and complete a standard review, including an analysis of
the risk to the patient and operator associated with the use of the device and the substantial equivalence rationale. Once that has been
accomplished, and the medical device in question has been determined to be not substantially equivalent to another approved device, the
product is automatically classified as a Class III device. The manufacturer can then submit a request for an evaluation to have the product
reclassified from Class III into Class I or Class II. The U.S. Food and Drug Administration will review the device classification proposal
and either recommend special controls to create a new Class I or II device classification or determine that the product is a Class III device.
If the U.S. Food and Drug Administration determines that the level of risk associated with the use of the device is appropriate for a Class II
or Class I designation, then the product can be cleared as a 510(k) and the U.S. Food and Drug Administration will issue a new
classification regulation and product code. If the device is not approved through de novo review, then it must go through the standard PMA
process for Class III devices.
Clinical Trials of Medical Devices
One or more clinical trials are generally required to support a PMA application and more recently are becoming necessary to support a
510(k) submission. Clinical studies of unapproved or uncleared medical devices or devices being studied for uses for which they are not
approved or cleared (investigational devices) must be conducted in compliance with U.S. Food and Drug Administration requirements. If
an investigational device could pose a significant risk to patients, the sponsor company must submit an investigational device exemption
application to the U.S. Food and Drug Administration prior to initiation of the clinical study. An investigational device exemption
application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device on
humans and that the testing protocol is scientifically sound. The investigational device exemption will automatically become effective 30
days after receipt by the U.S. Food and Drug Administration unless the U.S. Food and Drug Administration notifies the company that the
investigation may not begin. Clinical studies of investigational devices may not begin until an institutional review board has approved the
study.
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During the study, the sponsor must comply with the U.S. Food and Drug Administration’s investigational device exemption requirements.
These requirements include investigator selection, trial monitoring, adverse event reporting, and record keeping. The investigators must
obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational
devices, and comply with reporting and record keeping requirements. The sponsor, the U.S. Food and Drug Administration, or the
institutional review board at each institution at which a clinical trial is being conducted may suspend a clinical trial at any time for various
reasons, including a belief that the subjects are being exposed to an unacceptable risk. During the approval or clearance process, the U.S.
Food and Drug Administration typically inspects the records relating to the conduct of one or more investigational sites participating in the
study supporting the application.
Post-Approval Regulation of Medical Devices
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
● the U.S. Food and Drug Administration quality systems regulation, which governs, among other things, how manufacturers design,
test, manufacture, exercise quality control over, and document manufacturing of their products;
● labeling and claims regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other
restrictions on labeling; and
● the Medical Device Reporting regulation, which requires reporting to the U.S. Food and Drug Administration of certain adverse
experiences associated with use of the product.
Good Manufacturing Practices Requirements
Manufacturers of medical devices are required to comply with the good manufacturing practices set forth in the quality system regulations
promulgated under section 520 of the Food, Drug and Cosmetic Act as further set forth in the Code of Federal Regulations as 21 CFR Part
820. Current good manufacturing practices (“cGMP”) regulations require, among other things, quality control and quality assurance as well
as the corresponding maintenance of records and documentation. The manufacturing facility for an approved product must meet current
good manufacturing practices requirements to the satisfaction of the U.S. Food and Drug Administration pursuant to a pre-PMA approval
inspection before the facility can be used. Manufacturers, including third party contract manufacturers, are also subject to periodic
inspections by the U.S. Food and Drug Administration and other authorities to assess compliance with applicable regulations. Failure to
comply with statutory and regulatory requirements subjects a manufacturer, and possibly us, to possible legal or regulatory action, including
the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations,
and civil and criminal penalties. Adverse experiences with the product must be reported to the U.S. Food and Drug Administration and
could result in the imposition of marketing restrictions through labeling changes or in product withdrawal. Product approvals may be
withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur
following the approval.
International Regulation
We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including
in the areas of product standards, packaging requirements, labeling requirements, import and export restrictions and tariff regulations,
duties and tax requirements. The time required to obtain clearance required by foreign countries may be longer or shorter than that required
for U.S. Food and Drug Administration clearance, and requirements for licensing a product in a foreign country may differ significantly
from U.S. Food and Drug Administration requirements.
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The primary regulatory environment in Europe is the European Union, which consists of 25 member states and 42 competent authorities
encompassing most of the major countries in Europe. In the European Union, the European Medicines Agency and the European Union
Commission determined that PainShield, UroShield, and WoundShield are to be regulated as medical device products. These products are
classified as Class II devices. These devices are CE Marked and as such can be marketed and distributed within the European Economic
Area. We are required to be recertified each year for CE by Intertek, which conducts an annual audit. The audit procedure, which includes
on-site visits at our facility, requires us to provide Intertek with information and documentation concerning our management system and all
applicable documents, policies, procedures, manuals, and other information.
The primary regulatory bodies and paths in Asia, Australia, Canada and Latin America are determined by the requisite country authority. In
most cases, establishment registration and device licensing are applied for at the applicable Ministry of Health through a local intermediary.
The requirements placed on the manufacturer are typically the same as those contained in ISO 9001 or ISO 13485, requirements for quality
management systems published by the International Organization of Standardization. In some countries outside Europe, we are or will be
able to sell on the basis of our CE Mark. We have the Health Canada medical device license for PainShield, WoundShield and UroShield, a
certificate by the Israel Ministry of Health allowing us to sell PainShield, WoundShield and UroShield in Israel, a certificate allowing us to
sell PainShield in Australia, and we are able to sell PainShield, WoundShield and UroShield in India and Ecuador based on our CE Mark.
In addition, our distributor in Korea has applied for approval to sell PainShield and UroShield. We generally apply, through our distributor,
for approval in a particular country for a particular product only when we have a distributor in place with respect to such product.
European Good Manufacturing Practices
In the European Union, the manufacture of medical devices is subject to good manufacturing practice, as set forth in the relevant laws and
guidelines of the European Union and its member states. Compliance with good manufacturing practice is generally assessed by the
competent regulatory authorities. Typically, quality system evaluation is performed by a notified body, which also recommends to the
relevant competent authority for the European Community CE Marking of a device. The competent authority may conduct inspections of
relevant facilities, and review manufacturing procedures, operating systems and personnel qualifications. In addition to obtaining approval
for each product, in many cases each device manufacturing facility must be audited on a periodic basis by the notified body. Further
inspections may occur over the life of the product.
U.S. Fraud and Abuse and Other Health Care Laws
In the United States, federal and state fraud and abuse laws prohibit the payment or receipt of kickbacks, bribes or other remuneration
intended to induce the purchase or recommendation of health care products and services. Other provisions of federal and state laws prohibit
presenting, or causing to be presented, to third party payers for reimbursement, claims that are false or fraudulent, or which are for items or
services that were not provided as claimed. In addition, other health care laws and regulations may apply, such as transparency and
reporting requirements, and privacy and security requirements. Violations of these laws can lead to civil and criminal penalties, including
exclusion from participation in federal and state health care programs. These laws are potentially applicable to manufacturers of products
regulated by the U.S. Food and Drug Administration as medical devices, such as us, and hospitals, physicians and other potential
purchasers of such products. The health care laws that may be applicable to our business or operations include:
● The federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for
referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of, items or services payable
by Medicare, Medicaid or any other federal health care program.
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● Federal false claims laws and civil monetary penalty laws, including the False Claims Act, that prohibit, among other things, individuals
or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other government health
care programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government.
● The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program,
and for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statements in
connection with the delivery of or payment for health care benefits, items or services.
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing
regulations, which also impose obligations and requirements on health care providers, health plans, and healthcare clearinghouses as well as
their respective business associates that perform certain services for them that involve the use or disclosure of individually identifiable
health information, with respect to safeguarding the privacy and security of certain individually identifiable health information.
● The federal transparency requirements under the Affordable Care Act, including the provision commonly referred to as the Physician
Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under
Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare and Medicaid Services, or CMS,
information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests
held by physicians and their immediate family members.
● Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope and
apply to referrals and items or services reimbursed by both governmental and non-governmental third-party payers, including private
insurers, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating
compliance efforts.
Customers
We currently sell our products both through our website and distribution agreements, with approximately 47% of our sales coming through
distributors in 2017. We expect that percentage to grow significantly as we enter into additional distribution agreements. We have
exclusive and non-exclusive distribution agreements for our products with medical product distributors based in the United States, various
countries throughout Europe, India, Canada and Asia. We have recently enlisted Diligence Wound Care Global LLC on a solely incentive
based basis, to assist in identifying and obtaining distribution in various parts of the world, in particular, Southeast Asia, China and Mexico.
We are currently in discussions with a number of distribution companies in the United States, Canada, Europe, and Asia, as well as a
distributor which will allow access into Veterans Administration facilities. Our current agreements stipulate that distributors will be
responsible for carrying out local marketing activities and sales. We are responsible for training, providing marketing guidance, marketing
materials, and technical guidance. In addition, in most cases, all sales costs, including sales representatives, incentive programs, and
marketing trials, will be borne by the distributor. We expect any future distribution agreements to contain substantially similar stipulations.
Under our current agreements, distributors purchase our products from us at a fixed price. Our current agreements with distributors are
generally for a term of approximately two to three years and automatically renew for an additional annual terms unless modified by either
party.
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Manufacturing and Suppliers
We assemble our products in-house at our facilities in Nesher, Israel. All of the component parts of our products are readily available from a
number of manufacturers and suppliers. We order component parts on an as-needed basis, generally from the manufacturer that provides us
with the most competitive pricing. Our most significant suppliers are APC International, Ltd., R&D Medical Products, DI-EL Tack Ltd.,
Rotel Product Engineering Ltd. and Afinity. We do not have written agreements with any of these suppliers, but we believe anyone could
be easily replaced if necessary.
ITEM 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should
consider carefully the risks described below, together with other information with the other information set forth in this Annual Report on
Form 10-K. If any of these risks actually occur, our business, financial condition, results of operations or cash flow could be seriously
harmed. This could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment. The risks
and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we
currently see as immaterial, may also harm our business. Please also read carefully the section below entitled “Cautionary Note
Regarding Forward-Looking Statements.”
Risks Related to Our Business
We have a history of losses and we expect to continue to incur losses and may not achieve or maintain profitability.
For the fiscal year ended December 31, 2017, we had a net loss of $4,965, with revenues of $239. As of December 31, 2017, we
had an accumulated deficit of $28,382.We expect to incur losses for at least the next year, as we continue to incur expenses related to
seeking U.S. Food and Drug Administration approval for UroShield and WoundShield, and market acceptance and reclassification of
PainShield, which will require costly additional clinical trials and research, further product development and professional fees associated
with regulatory compliance. Even if we succeed in commercializing our new products, we may not be able to generate sufficient revenues
to cover our expenses and achieve profitability or be able to maintain profitability.
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If we are unable to raise additional capital, our clinical trials and product development will be limited and our long-term viability will be
threatened; however, if we do raise additional capital, your percentage ownership as a stockholder could decrease and constraints could
be placed on the operations of our business.
We have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds
of the sale of our securities, with only limited revenue being generated from our product sales. In order to fully realize our business
objectives, we may need to raise additional capital. We may seek to raise such additional funds through equity or debt financings, or
strategic alliances with third parties, either alone or in combination with equity financings. These financings could result in substantial
dilution to the holders of our common stock, or require contractual or other restrictions on our operations or on alternatives that may be
available to us. If we raise additional funds by issuing debt securities, these debt securities could impose significant restrictions on our
operations through the imposition of restrictive covenants and requiring us to pledge assets in order to secure repayment. In addition, if we
raise funds through the sale of equity, we may issue equity securities with rights superior to our common stock, including voting rights,
rights to proceeds upon our liquidation or sale, rights to dividends and rights to appoint board members. Any such required financing may
not be available in amounts or on terms acceptable to us, and the failure to procure such required financing could have a material adverse
effect on our business, financial condition and results of operations, or threaten our ability to continue as a going concern.
A variety of factors could impact the timing and amount of any required financings, including, without limitation:
● unforeseen developments during our clinical trials;
● delays in our receipt of required regulatory approvals;
● delayed market acceptance of our products;
● unanticipated expenditures in our acquisition and defense of intellectual property rights, and/or the loss of those rights;
● the failure to develop strategic alliances for the marketing of some of our product candidates;
● unforeseen changes in healthcare reimbursement for any of our approved products;
● lack of financial resources to adequately support our operations;
● difficulties in maintaining commercial scale manufacturing capacity and capability;
● unanticipated difficulties in operating in international markets;
● unanticipated financial resources needed to respond to technological changes and increased competition;
● unforeseen problems in attracting and retaining qualified personnel;
● enactment of new legislation or administrative regulations;
● the application to our business of new regulatory interpretations;
● claims that might be brought in excess of our insurance coverage;
● the failure to comply with regulatory guidelines; and
● the uncertainty in industry demand.
In addition, although we have no present commitments or understandings to do so, we may seek to expand our operations and
product lines through acquisitions or joint ventures. Any acquisition or joint venture would likely increase our capital requirements.
If we fail to obtain an adequate level of reimbursement for our approved products by third party payers, there may be no commercially
viable markets for our approved products or the markets may be much smaller than expected.
The availability and levels of reimbursement by governmental and other third party payers affect the market for our approved
products. The efficacy, safety, performance and cost-effectiveness of our product and product candidates, and of any competing products,
will determine the availability and level of reimbursement. Reimbursement and healthcare payment systems vary significantly by country,
and include both government sponsored healthcare and private insurance. To obtain reimbursement or pricing approval in some countries,
we may be required to produce clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our
approved products to other available therapies. We may not obtain reimbursement or pricing approvals in markets we seek to enter in a
timely manner, if at all. Our failure to receive reimbursement or pricing approvals in target markets would negatively impact market
acceptance of our products in these jurisdictions, placing us at a material cost disadvantage to our competitors.
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Even if we obtain reimbursement approvals for our products, we believe that, in the future, reimbursement for any of our products
or product candidates may be subject to increased restrictions both in the United States and in international markets. Future legislation,
regulation or policies of third party payers that limit reimbursement may adversely affect the demand for our products currently under
development and our ability to sell our products on a profitable basis. In addition, third party payers continually attempt to contain or
reduce the costs of healthcare by challenging the prices charged for healthcare products and services.
In the United States, specifically, health care providers, such as hospitals and clinics, and individual patients, generally rely on
third-party payers. Third-party reimbursement is dependent upon decisions by the Centers for Medicare and Medicaid Services, contracted
Medicare carriers or intermediaries, individual managed care organizations, private insurers, other governmental health programs and other
payers of health care costs. Failure to receive or maintain favorable coding, coverage and reimbursement determinations for our products by
these organizations could discourage medical practitioners from using or prescribing our products due to their costs. In addition, with recent
federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and state legislatures will likely
continue to focus on health care reform including the reform of the Medicare and Medicaid programs, and on the cost of medical products
and services, which could limit reimbursement. Additionally, third-party payers are increasingly challenging the prices charged for medical
products and services, and imposing conditions on payment. We may be unable to sell our products on a profitable basis if third-party
payers deny coverage, provide low reimbursement rates or reduce their current levels of reimbursement.
The medical device and therapeutic product industries are highly competitive and subject to rapid technological change. If our
competitors are better able to develop and market products that are safer and more effective than any products we may develop, our
commercial opportunities will be reduced or eliminated.
Our success depends, in part, upon our ability to maintain a competitive position in the development of technologies and products.
We face competition from established medical device companies, such as Neurometrix Inc., Zetrox, Kinetic Concepts, Inc. and Smith &
Nephew plc, manufacturers of certain portable ultrasound devices capable of self-administered use, as well as from academic institutions,
government agencies, and private and public research institutions in the United States and abroad. Most, if not all, of our principal
competitors have significantly greater financial resources and expertise than we do in research and development, manufacturing, pre-
clinical testing, conducting clinical trials, obtaining regulatory approvals, marketing approved products, protecting and defending their
intellectual property rights and designing around the intellectual property rights of others. Other small or early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements, or mergers with, or acquisitions by, large and
established companies, or through the development of novel products and technologies.
The industry in which we operate has undergone, and we expect it to continue to undergo, rapid and significant technological
change, and we expect competition to intensify as technological advances are made. Our competitors may be able to respond to changes in
technology or the marketplace faster than us. Our competitors may develop and commercialize medical devices that are safer or more
effective or are less expensive than any products that we may develop. We also compete with our competitors in recruiting and retaining
qualified scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring
technologies complementary to our programs or advantageous to our business. Given our small size and lack of resources, we are often at a
disadvantage with our competitors in all of these areas, which could limit or eliminate our commercial opportunities.
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We face the risk of product liability claims and may not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that are inherent in the development of medical devices and
products. If the use of one or more of our products harms people, we may be subject to costly and damaging product liability claims brought
against us by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products. We
currently carry clinical trial and product liability insurance for the products we sell. However, we cannot predict all of the possible harms or
side effects that may result and, therefore, the amount of insurance coverage we hold may not be adequate to cover all liabilities we might
incur. We intend to expand our insurance coverage to include the sale of additional commercial products as we obtain marketing approval
for our product candidates in development and as our sales expand, but we may be unable to obtain commercially reasonable product
liability insurance for such products. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential
product liability claims and we continue to make sales, or if our coverages turns out to be insufficient, we may be exposed to significant
liabilities, which may materially and adversely affect our business and financial position. If we are sued for any injury allegedly caused by
our products and do not have sufficient insurance coverage, our liability could exceed our total assets and our ability to pay the liability. A
product liability claim or series of claims brought against us would decrease our cash and could reduce our value or marketability.
Our product candidates may not be developed or commercialized successfully.
Our product candidates are based on a technology that has not been used previously in the manner we propose and must compete
with more established treatments currently accepted as the standards of care. Market acceptance of our products will largely depend on our
ability to demonstrate their relative safety, efficacy, cost-effectiveness and ease of use.
We are subject to the risks that:
● the U.S. Food and Drug Administration or a foreign regulatory authority finds our product candidates ineffective or unsafe;
● we do not receive necessary regulatory approvals;
● the regulatory review and approval process may take much longer than anticipated, requiring additional time, effort and expense to
respond to regulatory comments and/or directives;
● we are unable to get our product candidates in commercial quantities at reasonable costs; and
● the patient and physician community does not accept our product candidates.
In addition, our product development program may be curtailed, redirected, eliminated or delayed at any time for many reasons,
including:
● adverse or ambiguous results;
● undesirable side effects that delay or extend the trials;
● the inability to locate, recruit, qualify and retain a sufficient number of clinical investigators or patients for our trials; and
● regulatory delays or other regulatory actions.
Additionally, we currently have limited experience in marketing or selling our products, and we have a limited marketing and sales
staff and distribution capabilities. Developing a marketing and sales force is time-consuming and will involve the investment of significant
amounts of financial and management resources, and could delay the launch of new products or expansion of existing product sales. In
addition, we compete with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to
establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to
generate revenues will suffer.
Furthermore, even if we enter into marketing and distributing arrangements with third parties, we may have limited or no control
over the sales, marketing and distribution activities of these third parties, and these third parties may not be successful or effective in selling
and marketing our products. If we fail to create successful and effective marketing and distribution channels, our ability to generate revenue
and achieve our anticipated growth could be adversely affected. If these distributors experience financial or other difficulties, sales of our
products could be reduced, and our business, financial condition and results of operations could be harmed.
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We cannot predict whether we will successfully develop and commercialize our product candidates. If we fail to do so, we will
not be able to generate substantial revenues, if any.
The loss of our key management would likely hinder our ability to execute our business plan.
As a small company with eight full-time employees and four contract employees, our success depends on the continuing
contributions of our management team and qualified personnel and on our ability to attract and retain highly qualified personnel. We face
intense competition in our hiring efforts from other medical device companies, as well as from universities and nonprofit research
organizations, and we may have to pay higher salaries to attract and retain qualified personnel. We are also at a disadvantage in recruiting
and retaining key personnel as our small size and limited resources may be viewed as providing a less stable environment, with fewer
opportunities than would be the case at one of our larger competitors. The loss of one or more of these individuals, or our inability to attract
additional qualified personnel, could substantially impair our ability to implement our business plan.
Our failure to protect our intellectual property rights could diminish the value of our solutions, weaken our competitive position and
reduce our revenue.
We regard the protection of our intellectual property, which includes patents and patent applications, trade secrets, trademarks and
domain names, as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law
rights, as well as contractual restrictions. We enter into confidentiality and invention assignment agreements with our employees,
consultants and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and
disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect
our intellectual property may not prevent the misappropriation of our proprietary information or deter independent development of similar
technologies by others.
We have obtained patents and we have patent applications pending in both the United States and foreign jurisdictions. There can
be no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, or
that these patents will not be challenged by third parties or found to be invalid or unenforceable. We have also obtained trademark
registration in the United States and in foreign jurisdictions. Effective trade secret, trademark and patent protection is expensive to develop
and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. We may be required to
protect our intellectual property in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we
may not pursue in every location. We may, over time, increase our investment in protecting our intellectual property through additional
patent filings that could be expensive and time-consuming.
Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may
not be adequate to prevent misappropriation of our intellectual property. We may not be able to detect unauthorized use of, or take
appropriate steps to enforce, our intellectual property rights. Further, our competitors may independently develop technologies that are
similar to ours but which avoid the scope of our intellectual property rights. Further, the laws in the United States and elsewhere change
rapidly, and any future changes could adversely affect us and our intellectual property. Our failure to meaningfully protect our intellectual
property could result in competitors offering solutions that incorporate our most technologically advanced features, which could seriously
reduce demand for our products. In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we
are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel,
which could harm our business, whether or not the litigation results in a determination that is unfavorable to us. In addition, litigation is
inherently uncertain, and thus we may not be able to stop our competitors from infringing our intellectual property rights.
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We could incur substantial costs and disruption to our business as a result of any dispute related to, or claim of infringement of another
party’s intellectual property rights, which could harm our business and operating results.
In recent years, there has been significant litigation in the United States over patents and other intellectual property rights. From
time to time, we may face allegations that we or customers who use our products have infringed the trademarks, copyrights, patents and
other intellectual property rights of third parties, including allegations made by our competitors or by non-practicing entities, or that we or
our customers have misappropriated the intellectual property rights of such third parties. We cannot predict whether assertions of third
party intellectual property rights or claims arising from these assertions will substantially harm our business and operating results. If we are
forced to defend any infringement or misappropriation claims or attacks on the validity of our intellectual property rights, whether they are
with or without merit or are ultimately determined in our favor, we may face costly litigation and diversion of technical and management
personnel. Most of our competitors have substantially greater resources than we do and are able to sustain the cost of complex intellectual
property litigation to a greater extent and for longer periods of time than we could. Furthermore, an adverse outcome of a dispute may
require us, among other things: to pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully
infringed a party’s patent or other intellectual property rights; to cease making, licensing or using products that are alleged to incorporate or
make use of the intellectual property of others; to expend additional development resources to redesign our products; and to enter into
potentially unfavorable royalty or license agreements in order to obtain the rights to use necessary technologies. Royalty or licensing
agreements, if required, may be unavailable on terms acceptable to us, or at all. In any event, we may need to license intellectual property
which would require us to pay royalties or make one-time payments. Even if these matters do not result in litigation or are resolved in our
favor or without significant cash settlements, the time and resources necessary to resolve them could harm our business, operating results,
financial condition and reputation.
Risks Related to the Regulation of Our Products
We are subject to extensive governmental regulation, including the requirement of U.S. Food and Drug Administration approval or
clearance, before our product candidates may be marketed.
The process of obtaining U.S. Food and Drug Administration approval is lengthy, expensive and uncertain, and we cannot be sure
that our additional product candidates will be approved in a timely fashion, or at all. If the U.S. Food and Drug Administration does not
approve or clear our product candidates in a timely fashion, or at all, our business and financial condition would likely be adversely
affected.
Both before and after approval or clearance of our product candidates, we, our product candidates, our suppliers and our contract
manufacturers are subject to extensive regulation by governmental authorities in the United States and other countries. Failure to comply
with applicable requirements could result in, among other things, any of the following actions:
● FDA issuance of Form 483 or Warning Letters, which may be made public and may lead to further regulatory or enforcement
actions, or similar letters by other regulatory authorities;
● fines and other monetary penalties;
● unanticipated expenditures;
● delays in U.S. Food and Drug Administration approval and clearance, or U.S. Food and Drug Administration refusal to approve or
clear a product candidate;
● product recall or seizure;
● interruption of manufacturing or clinical trials;
● operating restrictions;
● injunction or other restrictions imposed on our operations, including closing our facilities or our contract manufacturers’ facilities;
or
● criminal prosecutions.
In addition to the approval and clearance requirements, numerous other regulatory requirements apply, both before and after
approval or clearance, to us, our products and product candidates, and our suppliers and contract manufacturers. These include
requirements related to the following:
● testing and quality control;
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● manufacturing;
● quality assurance
● labeling;
● advertising;
● promotion;
● distribution;
● export;
● reporting to the U.S. Food and Drug Administration certain adverse experiences associated with the use of the products; and
● obtaining additional approvals or clearances for certain modifications to the products or their labeling or claims.
We are also subject to inspection by the U.S. Food and Drug Administration to determine our compliance with regulatory
requirements, as are our suppliers and contract manufacturers, and we cannot be sure that the U.S. Food and Drug Administration will not
identify compliance issues that may disrupt production or distribution, or require substantial resources to correct.
The U.S. Food and Drug Administration’s requirements may change and additional government regulations may be promulgated
that could affect us, our product candidates, and our suppliers and contract manufacturers. We cannot predict the likelihood, nature or
extent of government regulation that may arise from future legislation or administrative action. There can be no assurance that we will not
be required to incur significant costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a
material adverse effect upon our business.
Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
International sales of our products and any of our product candidates that we commercialize are subject to the regulatory
requirements of each country in which the products are sold. Accordingly, the introduction of our product candidates in markets outside the
United States where we do not already possess regulatory approval will be subject to regulatory approvals in those jurisdictions. The
regulatory review process varies from country to country. Many countries impose product standards, packaging and labeling requirements,
and import restrictions on medical devices. In addition, each country has its own tariff regulations, duties and tax requirements, as well as
reimbursement and healthcare payment systems. The approval by foreign government authorities is unpredictable and uncertain, and can be
expensive. We may be required to perform additional pre-clinical, clinical or post-approval studies even if U.S. Food and Drug
Administration approval has been obtained. Our ability to market our approved products could be substantially limited due to delays in
receipt of, or failure to receive, the necessary approvals or clearances.
We are uncertain regarding the success of our clinical trials for our products in development.
We believe that all of our products in development, which consist of LungShield and RenooSkin, will require clinical trials to
determine their safety and efficacy by regulatory bodies in their target markets, including the U.S. Food and Drug Administration and
various foreign regulators. There can be no assurance that we will be able to successfully complete the U.S. and foreign regulatory approval
processes for products in development. In addition, there can be no assurance that we will not encounter additional problems that will cause
us to delay, suspend or terminate our clinical trials. In addition, we cannot make any assurance that clinical trials will be deemed sufficient
in size and scope to satisfy regulatory approval requirements, or, if completed, will ultimately demonstrate our products to be safe and
efficacious.
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The adoption of health policy changes and health care reform in the United States may adversely affect our business and financial
results.
On March 23, 2010, President Obama signed into law major health care reform legislation under the Patient Protection and
Affordable Care Act of 2010, commonly referred to as the Affordable Care Act, which was modified on March 30, 2010, by the enactment
of the Health Care and Education Reconciliation Act of 2010. The Affordable Care Act contains numerous regulations regarding the
payment for and provision of health care, including provisions aimed at improving quality, extending health care coverage to tens of
millions of individuals, enhancing remedies for fraud and abuse, adding transparency requirements and conditions to reimbursement, and
decreasing health care costs. The Affordable Care Act also includes significant provisions that encourage state and federal law enforcement
agencies to increase activities related to preventing, detecting and prosecuting those who commit fraud, waste and abuse in federal
healthcare programs, including Medicare, Medicaid and Tricare. This legislation is one of the most comprehensive and significant reforms
ever experienced by the United States health care industry and has significantly changed the way health care is financed by both
governmental and private insurers. Extending health care coverage to those who previously lacked coverage will likely result in substantial
cost to the United States federal government, which may force additional changes to the health care system in the United States. Much of
the funding for expanded health care coverage may be sought through cost savings. While some of these savings may come from realizing
greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the
cost savings may come from reducing the cost of health care and increased enforcement activities. The cost of health care could be reduced
by decreasing the level of reimbursement for medical services or products (including products we may sell or market), or by restricting
coverage of medical services or products. A reduction in the use of or reimbursement for products we may sell in the United States could
materially adversely affect our business and results of operations.
Some of the provisions of the Affordable Care Act have not yet been fully implemented and the effect of the legislation is difficult
to predict. The Affordable Care Act continues to be implemented through regulation and government activity, and is subject to possible
additional implementing regulations and interpretive guidelines. Further, the Affordable Care Act has been subject to judicial and
Congressional challenges, and legislative initiatives to modify, limit, or repeal the Affordable Care Act continue. It remains to be seen,
however, precisely what new health care reform legislation will be enacted, if any, and what impact it will have on the availability of health
care and containing or lowering the cost of health care. The manner in which the Affordable Care Act continues to evolve could materially
affect the extent to which and the amount at which health care products and services are reimbursed by government programs such as
Medicare, Medicaid and Tricare. We cannot predict all impacts the Affordable Care Act or other health care reform legislation may have
on our products, but it may result in our products being chosen less frequently or the pricing being substantially lowered.
In addition, other health care reform proposals have emerged at the federal and state levels, including those aimed at reducing
health care costs and increasing transparency. We cannot predict the effect these newly enacted laws or any future legislation or regulation
will have on us. However, the implementation of new legislation and regulation may lower reimbursements for our products, increase our
compliance and other costs, and adversely affect our business.
We cannot predict what additional healthcare reform initiatives may be adopted in the future or how federal and state legislative
and regulatory developments are likely to evolve, but we expect ongoing initiatives in the United States to increase pressure on pricing for
health care products and services. Such reforms could have an adverse effect on the pricing and market for our products.
If we fail to comply with the U.S. federal and state fraud and abuse and other health care laws and regulations, we could be subject to
criminal and civil penalties and exclusion from the Medicare and Medicaid programs, which would have a material adverse effect on
our business and results of operations.
All of our financial relationships with health care providers and others who provide products or services to federal health care
program beneficiaries are potentially governed by the federal and state fraud and abuse laws, and other health care laws and regulations
may be or become applicable to our business and operations and expose us to risk. For example:
● The federal Anti-Kickback Statute, which prohibits the offer, payment, solicitation or receipt of any form of remuneration in
return for referring, ordering, leasing, purchasing or arranging for, or recommending the ordering, purchasing or leasing of,
items or services payable by Medicare, Medicaid or any other federal health care program.
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● Federal false claims laws and civil monetary penalty laws, including the False Claims Act, that prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or
other government health care programs that are false or fraudulent, or making a false statement to avoid, decrease or conceal an
obligation to pay money to the federal government.
● The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or
fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of,
any health care benefit program, and for knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false statements in connection with the delivery of or payment for health care benefits, items or services.
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its
implementing regulations, which also impose obligations and requirements on health care providers, health plans, and
healthcare clearinghouses as well as their respective business associates that perform certain services for them that involve the
use or disclosure of individually identifiable health information, with respect to safeguarding the privacy and security of certain
individually identifiable health information.
● The federal transparency requirements under the Affordable Care Act, including the provision commonly referred to as the
Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies that
are reimbursable under Medicare, Medicaid or Children’s Health Insurance Program to report annually to Centers for Medicare
and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians and teaching
hospitals, and ownership and investment interests held by physicians and their immediate family members.
● Analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may be broader in
scope and apply to referrals and items or services reimbursed by both governmental and non-governmental third-party payers,
including private insurers, many of which differ from each other in significant ways and often are not preempted by federal law,
thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that
some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has strengthened these laws. Efforts to ensure that our business arrangements with third parties and our operations are compliant
with applicable health care laws and regulations will involve the expenditure of appropriate, and possibly significant, resources. If we are
found to be in violation of any current or future statutes or regulations involving applicable fraud and abuse or other health care laws and
regulations, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment,
exclusion from government funded health care programs, such as Medicare and Medicaid, contractual damages, reputational harm,
diminished profits and future earnings, which could have a material adverse effect on our business, results of operations and financial
condition. If any physicians or other health care providers or entities with whom we expect to do business are found to not be in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded
health care programs, which could adversely affect our ability to operate our business and our results of operations.
36
Risks Related to our Operations in Israel
We conduct our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in
Israel and its region.
Our principal offices and manufacturing facilities are located in Israel and most of our officers and employees are residents of
Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors. Any
hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely
affect our operations and results of operations and could make it more difficult for us to raise capital. During the summer of 2014, Israel
was engaged in an armed conflict with Hamas in Gaza, which involved missile strikes against civilian targets in various parts of Israel and
negatively affected business conditions in Israel. In addition, recent political uprisings and conflicts in various countries in the Middle East,
including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it
will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and
the potential for armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been
stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant (“ISIL”), a violent jihadist group, is
involved in hostilities in Iraq and Syria. Although ISIL’s activities have not directly affected the political and economic conditions in Israel,
ISIL’s stated purpose is to take control of the Middle East, including Israel. The tension between Israel and Iran and/or these groups may
escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any armed conflicts, terrorist
activities or political instability in the region could adversely affect business conditions and could harm our results of operations. For
example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform military duty
for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during periods of heightened
unrest or tension, forcing us to make alternative arrangements when necessary. In addition, the political and security situation in Israel may
result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions in such agreements.
Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the
Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks
or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a
material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business
conditions and could harm our results of operations.
Further, in the past, the State of Israel and Israeli companies have been subjected to an economic boycott. Several countries still
restrict business and trade activity with the State of Israel and with Israeli companies. These restrictive laws and policies may have an
adverse impact on our operating results, financial condition or the expansion of our business.
Our operations may be disrupted as a result of the obligation of management or personnel to perform military service.
Many of our male employees in Israel, including members of our senior management, perform up to one month, and in some cases
more, of annual military reserve duty until they reach the age of 45 or older and, in the event of a military conflict, may be called to active
duty. There have also been periods of significant call-ups of military reservists, and it is possible that there will be military reserve duty
call-ups in the future. Our operations could be disrupted by the absence of a significant number of our employees. Such disruption could
materially adversely affect our business, financial condition and results of operations.
Because a certain portion of our expenses is incurred in currencies other than the U.S. dollar, our results of operations may be harmed
by currency fluctuations and inflation.
We expect our revenues from future licensing agreements to be denominated mainly in U.S. dollars or in Euros. We pay a
substantial portion of our expenses in U.S. dollars; however, a portion of our expenses, related to salaries of the employees in Israel and
payment to part of the service providers in Israel and other territories, are paid in New Israeli Shekels, or NIS, and in other currencies. In
addition, a portion of our financial assets is held in NIS and in other currencies. As a result, we are exposed to the currency fluctuation
risks, and we do not attempt to hedge against such risks. For example, if the NIS strengthens against the U.S. dollar, our reported expenses
in U.S. dollars may be higher than anticipated. In addition, if the NIS weakens against the U.S. dollar, the U.S. dollar value of our financial
assets held in NIS will decline.
37
It may be difficult for investors in the United States to enforce any judgments obtained against us or any of our directors or officers.
Almost all of our assets are located outside the United States, although we do maintain a permanent place of business within the
United States. In addition, some of our officers and directors are nationals and/or residents of countries other than the United States, and all
or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce
within the United States any judgments obtained against us or any of our non-U.S. directors or officers, including judgments predicated
upon the civil liability provisions of the securities laws of the United States or any state thereof. Additionally, it may be difficult to assert
U.S. securities law claims in actions originally instituted outside of the United States. Israeli courts may refuse to hear a U.S. securities law
claim because Israeli courts may not be the most appropriate forums in which to bring such a claim. Even if an Israeli court agrees to hear a
claim, it may determine that the Israeli law, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable,
certain content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of
procedure would still be governed by the Israeli law. Consequently, you may be effectively prevented from pursuing remedies under U.S.
federal and state securities laws against us or any of our non-U.S. directors or officers.
Risks Related to Our Organization and Our Securities
The price of our securities may be volatile, and the market price of our securities may drop below the price you pay.
We expect that the price of our securities will fluctuate significantly. Market prices for securities of early-stage medical device
companies have historically been particularly volatile. In addition to the factors discussed in this “Risk Factors” section and elsewhere in
this report, these factors include:
● progress, or lack of progress, in developing and commercializing our products;
● favorable or unfavorable decisions about our products or intellectual property from government regulators, insurance companies or
other third-party payers;
● our ability to recruit and retain qualified regulatory and research and development personnel;
● changes in investors’ and securities analysts’ perception of the business risks and conditions of our business;
● changes in our relationship with key collaborators;
● changes in the market valuation or earnings of our competitors or companies viewed as similar to us;
● changes in key personnel;
38
● depth of the trading market in our common stock;
● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
● the granting or exercise of employee stock options or other equity awards;
● realization of any of the risks described under this section entitled “Risk Factors”; and
● general market and economic conditions.
In recent years, the stock markets, in general, have experienced extreme price and volume fluctuations especially in the
biotechnology sector. Broad market and industry factors may materially harm the market price of shares of our common stock. In the past,
following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted
against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and
resources could be diverted.
We have a significant number of warrants and options, and future sales of our common stock upon exercise of these options or
warrants, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our
business is doing well.
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common
stock and make it more difficult for us to raise funds through future offerings of common stock. Our stockholders and the holders of our
outstanding warrants and options, upon exercise of these options or warrants, may sell substantial amounts of our common stock in the
public market. The availability of these shares of our common stock for resale in the public market has the potential to cause the supply of
our common stock to exceed investor demand, thereby decreasing the price of our common stock.
39
In addition, the fact that our stockholders and holders of our warrants and options can sell substantial amounts of our common
stock in the public market, whether or not sales have occurred or are occurring, could make it more difficult for us to raise additional
financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Although our shares of common stock are now listed on the NASDAQ Capital Market, we currently have a limited trading volume,
which results in higher price volatility for, and reduced liquidity of, our common stock.
Although our shares of common stock are now listed on the NASDAQ Capital Market under the symbol “NAOV,” trading volume
in our common stock has been limited and an active trading market for our shares of common stock may never develop or be maintained.
The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this condition
continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market
prices prevailing immediately before such shares are offered.
If we cannot continue to satisfy the continuing listing criteria of the NASDAQ Capital Market, the exchange may subsequently delist
our common stock.
NASDAQ requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to
continue the listing of our common stock. Generally, we must maintain a minimum amount of stockholders equity and a minimum number
of holders of our securities. If we fail to meet any of the continuing listing requirements, our common stock may be subject to delisting. If
our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities
would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant material adverse
consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our
securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future.
There can be no assurance that an active trading market for our common stock will develop or be sustained.
Complying with the laws and regulations affecting public companies has increased and will increase our costs and the demands on
management and could harm our operating results.
As a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company, including costs associated with public company reporting requirements. We also anticipate that we will incur costs associated
with relatively recently adopted corporate governance requirements, including requirements of the Securities Exchange Commission and
the NASDAQ Stock Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some
activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with
respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
40
For example, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over
financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. Section 404 of the Sarbanes-Oxley
Act (“Section 404”) requires us to perform system and process evaluation and testing of our internal control over financial reporting to
allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our
internal control over financial reporting. Our compliance with applicable provisions of Section 404, including the requirement that our
independent registered public accounting firm undertake an assessment of our internal control over financial reporting, will require that we
incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional
corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of
Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our
internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we
could be subject to sanctions or investigations by the Securities Exchange Commission or other regulatory authorities, which would require
additional financial and management resources. Furthermore, investor perceptions of our company may suffer if deficiencies are found, and
this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control
over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to
implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could
result in an adverse opinion on our internal control over financial reporting from our independent registered public accounting firm.
If we fail to maintain effective internal control over financial reporting, the market price of our securities 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.
While we currently qualify as an “emerging growth company” under the Jumpstart of Business Startups Act of 2012, or the JOBS Act,
we could lose that status, which may increase the costs and demands placed upon our management.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, and would continue to be an
emerging growth company until the December 31, 2022, or until the earliest of (i) the last day of the fiscal year during which we had total
annual gross revenues of $1.07 billion (as indexed for inflation); (ii) the date on which we have, during the previous 3-year period, issued
more than $1 billion in non-convertible debt; or (iii) the date on which we are deemed to be a ‘large accelerated filer,’ as defined by the
Securities and Exchange Commission, which would generally occur upon our attaining a public float of at least $700 million. Once we lose
emerging growth company status, we expect the costs and demands placed upon our management to increase, as we would have to comply
with additional disclosure and accounting requirements, particularly if we would also no longer qualify as a smaller reporting company.
41
We are an “emerging growth company” and we cannot be certain that the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
The JOBS Act permits “emerging growth companies” like us to rely on some of the reduced disclosure requirements that are
already available to smaller reporting companies. As long as we qualify as an emerging growth company or a smaller reporting company,
we would be permitted to omit an auditor’s attestation on internal control over financial reporting that would otherwise be required by the
Sarbanes-Oxley Act, and are also exempt from the requirement to submit “say-on-pay”, “say-on-pay frequency” and “say-on-parachute”
votes to our stockholders and may avail ourselves of reduced executive compensation disclosure that is already available to smaller
reporting companies.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption
from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, as long
as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this until we are no
longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may
therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will cease to be an emerging growth company at such time as described in the risk factor immediately above. Until such time,
however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile and could cause our stock price to decline.
Anti-takeover provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of us, which may
be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members
of our board and management.
Certain provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a
merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to
replace or remove members of our board of directors. These provisions also could limit the price that investors might be willing to pay in
the future for our securities, thereby depressing the market price of our securities. Stockholders who wish to participate in these
transactions may not have the opportunity to do so. These provisions, among other things:
● allow the authorized number of directors to be changed only by resolution of our board of directors;
● authorize our board of directors to issue, without stockholder approval, preferred stock, the rights of which will be determined at the
discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential
hostile acquirer to prevent an acquisition that our board of directors does not approve;
● establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be
acted on at stockholder meetings; and
● limit who may call a stockholder meeting.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law that may, unless certain
criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from
merging or combining with us for a prescribed period of time.
42
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price of
our securities and their trading volume could decline.
The trading market for our securities will depend in part on the research and reports that securities or industry analysts publish
about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no
securities or industry analysts commence coverage of us the trading price for our securities would be negatively affected. In the event we
obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our
securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the
purchase of our securities could decrease, which could cause the price of our securities and their trading volume to decline.
We may be subject to ongoing restrictions related to grants from the Israeli Office of the Chief Scientist.
Through our Israeli subsidiary, as of December 31, 2017, we received grants of $437,000 from the Office of the Chief Scientist of
the Israeli Ministry of Industry, Trade and Labor, or the Office of the Chief Scientist, for research and development programs related to
products that we are not currently commercializing or marketing. Because we are no longer developing the product to which the grants
relate, we do not believe that we are subject to any material conditions with respect to the grants, except for the restrictions on our ability to
make certain transfers of the technology or intellectual property related to these grants described below. We could in the future determine
to apply for further grants. If we receive any such grants, we would have to comply with specified conditions, including paying royalties
with respect to grants received. If we fail to comply with these conditions in the future, sanctions might be imposed on us, such as grants
could be cancelled and we could be required to refund any payments previously received under these programs.
Pursuant to the Israeli Encouragement of Industrial Research and Development Law, any products developed with grants from the
Office of the Chief Scientist are required to be manufactured in Israel and certain payments may be required in connection with the change
of control of the grant recipient and the financing, mortgaging, production, exportation, licensing and transfer or sale of its technology and
intellectual property to third parties, which will require the Office of the Chief Scientist’s prior consent and, in case such a third party is
outside of Israel, extended royalties and/or other fees. This could have a material adverse effect on and significant cash flow consequences
to us if, and when, any technologies, intellectual property or manufacturing rights are exported, transferred or licensed to third parties
outside Israel. If the Office of the Chief Scientist does not wish to give its consent in any required situation or transaction, we would need
to negotiate a resolution with the Office of the Chief Scientist. In any event, such a transaction, assuming it was approved by the Office of
the Chief Scientist, would involve monetary payments, such as royalties or fees, of not less than the applicable funding received from the
Office of the Chief Scientist plus interest, not to exceed, in aggregate, six times the applicable funding received from the Office of the
Chief Scientist.
Because we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation of our common stock price for
any return on your investment. Even if we change that policy, we may be restricted from paying dividends on our common stock.
We do not intend to pay cash dividends on shares of our common stock for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial performance,
contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, you
will have to rely on capital appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends
in the foreseeable future should not purchase our common stock.
Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Our ability to utilize our federal net operating loss, carryforwards and federal tax credit may be limited under Sections 382 and 383
of the Internal Revenue Code of 1986, as amended. The limitations apply if an “ownership change,” as defined by Section 382, occurs.
Generally, an ownership change occurs if the percentage of the value of the stock that is owned by one or more direct or indirect “five
percent shareholders” increases by more than 50% over their lowest ownership percentage at any time during the applicable testing period
(typically three years). If we have experienced an “ownership change” at any time since our formation, we may already be subject to
limitations on our ability to utilize our existing net operating losses and other tax attributes to offset taxable income. In addition, future
changes in our stock ownership, which may be outside of our control, may trigger an “ownership change” and, consequently, Section 382
and 383 limitations. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and other
tax attributes to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax
liability to us.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We lease an office and manufacturing facility in Nesher, Israel and an office in Elmsford, New York. Our lease for the facility in Nesher
expired June 30, 2017 and we have continued to rent the facility on a month by month basis with the expectation to enter into a new lease in
the second quarter of 2018. The space is approximately 160 square meters. We pay approximately $2,500 per month under our lease. We
also use a small office in Elmsford, New York. The use of this space is included in a services agreement pursuant to which we pay $7,000
per month for, among other services, processing products for shipping, customer service, payment processing and maintenance of certain
records. We believe that our facilities are adequate to meet our current and proposed needs.
44
ITEM 3. 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 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock has been quoted on the NASDAQ Capital Market under the symbol “NAOV” since November 8, 2017. Prior
to that date, our common stock had been quoted on the OTCQB over-the-counter marketplace under the symbol “NAOV” since April 10,
2015. Prior to April 10, 2015, there was no established public trading market for our common stock.
The following table sets forth (i) the intra-day high and low sales price per share for our common stock, as reported on the
NASDAQ Capital Market, for the period of November 8, 2017 to December 31, 2017, and (ii) the high and low bid prices of our common
stock as reported on the OTCQB, for the period January 1, 2016, to November 7, 2018. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual transactions.
Fiscal Year Ending December 31, 2017
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal Year Ended December 31, 2016
Fourth quarter
Third quarter
Second quarter
First quarter
Common Stock
High
Low
$
$
$
$
$
$
$
$
7.32 $
6.75 $
6.25 $
6.20 $
7.00 $
5.56 $
5.50 $
4.95 $
3.68
5.50
5.80
5.95
5.50
5.20
4.75
4.15
The last reported sale price for our common stock on the NASDAQ as of March 29, 2018 was $4.76 per share. As of March 29,
2018, we had 3,935,865 issued and outstanding shares of common stock, which were held by 129 holders of record.
As of March 29, 2018, we had a total of 2,483,142 shares of our Series C Preferred Stock outstanding. Each share of our Series C
Preferred Stock is convertible into one share of our common stock (subject to adjustment as provided in the related designation of
preferences) at any time at the option of the holder, provided that the holder would be prohibited from converting Series C Preferred Stock
into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of
the total number of shares of our common stock then issued and outstanding. This limitation may be waived upon not less than 61 days’
prior written notice to us.
As of March 29, 2018, we had a total of 304 shares of our Series D Preferred Stock outstanding. Each share of our Series D
Preferred Stock is convertible into one thousand shares of our common stock (subject to adjustment as provided in the related designation
of preferences) at any time at the option of the holder, provided that the holder would be prohibited from converting Series D Preferred
Stock into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than
9.99% of the total number of shares of our common stock then issued and outstanding. This limitation may be waived upon not less than 61
days’ prior written notice to us.
Dividend Policy
In the past, we have not declared or paid cash dividends on our common stock, Series C Preferred Stock or Series D Preferred
Stock, and we do not intend to pay any cash dividends on our common stock or preferred stock. Rather, we intend to retain future earnings
(if any) to fund the operation and expansion of our business and for general corporate purposes. Subject to legal and contractual limits, our
board of directors will make any decision as to whether to pay dividends in the future.
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Recent Sales of Unregistered Securities
None
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. 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 Annual Report on Form 10-K. In addition to
historical information, the following discussion and analysis includes forward-looking information that involves risks, uncertainties and
assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements
as a result of many factors, including those discussed under “Item 1A. Risk Factors” and elsewhere in this Form 10 -K. See “Cautionary
Note Regarding Forward-Looking Statements” included elsewhere in this Form 10 -K.
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
Underwritten Public Offering
On November 6, 2017, we closed an underwritten public offering of 1,224,488 shares of our common stock (and Series D
Convertible Preferred Stock in lieu of common stock if the purchase of common stock in the offering would otherwise result in a purchaser,
together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding common stock immediately
following the consummation of the offering), together with warrants to purchase up to 918,366 shares of common stock at an offering price
of $4.90 per share of common stock and accompanying warrant to purchase 0.75 of one share of common stock. We sold 327 shares of
Series D Convertible Preferred Stock in lieu of 327,000 shares of common stock in the offering. Additionally in connection with this
offering, we issued to the underwriters a unit purchase option to purchase units at an exercise price equal to $6.125 pursuant to which an
aggregate of 61,224 shares and warrants to purchase 45,918 shares are issuable to the underwriters. Total gross proceeds from the offering
totaled approximately $6,000,000, and net proceeds totaled approximately $5,056,000 after deducting underwriting and estimated offering
expenses. Each warrant has an exercise price of $6.95 per full share of common stock with a life of five years. We intend to use the net
proceeds from this offering: (i) to cover expenses related to listing our shares on The NASDAQ Capital Market; (ii) to expand our sales
leadership and field level sales resources; (iii) for research and development; (iv) to implement our Surface Acoustic Wave platform to
other applications; (v) to pursue complimentary acquisitions; and (vi) for general working capital. The securities were issued pursuant to
our registration statement on Form S-1 originally filed with the Securities and Exchange Commission on June 21, 2017, and declared
effective on November 1, 2017.
Conversion of Convertible Promissory Notes
In September 2017, all of the holders of the convertible promissory notes issued in connection with a series of bridge financings
between March 1, 2017 and September 30, 2017 (collectively, the “2017 Notes”) agreed to convert the full principal and accrued interest on
the 2017 Notes into our equity securities in the event we consummated an equity financing pursuant to which we issue and sell shares of
capital stock resulting in aggregate proceeds of at least $2,000,000 (a “Qualified Financing”) any time before December 31, 2017. The
offering that closed on November 6, 2017, constituted a Qualified Financing, and based on the outstanding principal amount and all
accrued but unpaid interest on the 2017 Notes at 80% of the offering price of $4.90 per share of common stock and accompanying warrant,
we issued an aggregate of 361,462 shares of common stock (and common stock equivalents) and warrants to purchase an aggregate of
271,096 shares of common stock to the holders of the 2017 Notes, all of which are subject to lock-up agreements for 180 days from
November 1, 2017.
46
Critical Accounting Policies
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates,
judgments and assumptions. We 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.
Revenue recognition
We generate revenues from the sale of our products to distributors and patients. Revenues from those products are recognized in
accordance with ASC 605, “Revenue Recognition,” when delivery has occurred, persuasive evidence of an agreement exists, the fee is
fixed or determinable, no further obligation exists and collectability is probable.
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.
47
Stock-based compensation
We account for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, (“ASC 718”),
which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model.
The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods on a
straight line method in our consolidated statement of comprehensive loss.
We have early adopted Accounting Standard Update (“ASU”) 2016-09, “Compensation - Stock Compensation”, in the 2016
consolidated financial statements and account for forfeitures as they occur.
We selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for our stock-options
awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility
and the expected option term. Expected volatility was calculated based upon similar traded companies’ historical share price movements.
The expected option term represents the period that our stock options are expected to be outstanding. We currently use the simplified
method, in accordance with ASC No.718-10-S99-1 (SAB No. 110), and will continue to do so until sufficient historical exercise data
supports using expected life assumptions. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an
equivalent term. The expected dividend yield assumption is based on our historical experience and expectation of no future dividend
payouts. We have historically not paid cash dividends and have no foreseeable plans to pay cash dividends in the future.
We apply ASC 505-50, “Equity-Based Payments to Non-Employees” (“ASC 505”) with respect to options and warrants issued to
non-employees which requires the use of option valuation models to measure the fair value of the options and warrants at the measurement
date.
Income taxes
We account for income taxes in accordance with ASC 740, “Income Taxes”. This topic prescribes the use of the liability method
whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. We provide full valuation allowance, to reduce deferred tax assets to the amount that is more likely than not to be realized.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, related to balance sheet
classification of deferred taxes. The ASU requires that deferred tax assets and liabilities be classified as noncurrent in the statement of
financial position, thereby simplifying the current guidance that requires an entity to separate deferred assets and liabilities into current and
noncurrent amounts. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning
after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. We early adopted ASU 2015-17 as
of December 31, 2017, which had no impact on our consolidated financial statements.
We implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position
taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that,
on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation
processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized
upon ultimate settlement.
Warrants
We account for stock warrants held by investors as either equity instruments or liabilities in accordance with ASC
480, Distinguishing Liabilities from Equity (“ASC 480”), depending on the specific terms of the warrant agreement.
Stock warrants are accounted for as a liability if they contain “down-round protection” or other terms that could potentially require
“net cash settlement” in accordance with the provisions of ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity
(“ASC 815”), which provides a two-step model to be applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock and thus able to qualify to be a derivative financial instrument. We measure such 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 the fair value
being recognized in the our statement of comprehensive loss as financial income or expense, as appropriate.
Debt Issued with Warrants
We consider guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting for the issuance of
convertible debt with detachable warrants. As described above under the caption “Warrants”, we classify stock warrants as either equity
instruments or liabilities depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with liability-
classified warrants, the proceeds from the issuance of convertible debt are first allocated to the warrants at their full estimated fair value
and established as both a liability and a debt discount. The remaining proceeds, as further reduced by discounts created by the bifurcation
of embedded derivatives and a beneficial conversion feature, is allocated to the debt. We account for debt as liabilities measured at
amortized cost and amortize the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest
method over the expected term of the debt instrument pursuant to ASC 835, Interest (ASC 835).
48
Recently issued accounting standards
For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 2, “Significant
Accounting Policies” to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
49
Extended Transition Period for “Emerging Growth Companies”
We have elected to use the extended transition period for complying with new or revised accounting standards under Section
102(b)(1) of the Jumpstart Our Business Act of 2012 (known as the JOBS Act). This election allows us to delay the adoption of new or
revised accounting standards that have different effective dates for public and private companies until those standards apply to private
companies. As a result of this election, our consolidated financial statements may not be comparable to companies that comply with public
company effective dates. Because our consolidated financial statements may not be comparable to companies that comply with public
company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to
other public companies, which may have a negative impact on the value and liquidity of our common stock.
Going Concern
The financial statements have been prepared assuming that we will continue as a going concern. Since our formation, we utilized
funds generated from public offerings, private placement offerings and debt to fund our product development. We incurred losses in the
amount of $4,965 during the year ended December 31, 2017, and have an accumulated deficit of $28,382 as of December 31, 2017. Our
future capital requirements and the adequacy of available funds will depend on many factors, including our ability to successfully clear
regulatory requirements and commercialize our products, our development of future products and competing technological and market
developments. We intend to use the proceeds generated from equity or debt 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.
Results of Operations
Twelve Months Ended December 31, 2017 Compared to Twelve Months Ended December 31, 2016
Revenues. For the twelve months ended December 31, 2017 and 2016, our revenues were approximately $239,000 and $229,000,
respectively, an increase of approximately 4.3%, or $10,000, between the periods. The increase was mainly attributable to increased sales
from adding distributors. Our revenues may fluctuate as we add new customers or when existing distributors make large purchases of our
products during one period and no purchases during another period. Our revenues may fluctuate from period to period and, as we continue
to grow our business, growth in revenues by quarter may not be linear or consistent. We do not anticipate that our revenues will be
impacted by inflation or changing prices in the forseeable future.
For the twelve months ended December 31, 2017, the percentage of revenues attributable to our products was: PainShield – 75.7%
and UroShield – 24.3%. For the twelve months ended December 31, 2016, the percentage of revenues attributable to our products was:
PainShield – 90.8% and UroShield – 9.2%. For the twelve months ended December 31, 2017 and 2016, the percentage of revenues
attributable to our disposable products was 47.4% and 42.5%, respectively. For the twelve months ended December 31, 2017 and 2016, the
portion of our revenues that was derived from distributors was 47% and 30.3%, respectively.
Gross Profit. For the twelve months ended December 31, 2017, gross profit increased by approximately 7.1%, or $10,000, to
approximately $151,000 from approximately $141,000 during the same period in 2016.
Gross profit as a percentage of revenues were approximately 63.2% and 61.6% for the twelve months ended December 31, 2017
and 2016, respectively. The slight increase in gross profit as a percentage is mainly due to the increased percentage of our disposable
product sales which typically have higher margins.
50
Our gross profit may be affected year-over-year by the mix of revenues between sales to distributers and sales directly to the end
customers (where sales directly to the end customers generally have a higher margin). As a result, we are subject to year-over-year
fluctuation in our gross profits.
Research and Development Expenses. For the twelve months ended December 31, 2017 and 2016, research and development
expenses were $693,000 and $584,000, respectively, an increase of approximately 18.7%, or $109,000, between the periods. This increase
was mainly due to an increased volume of clinical trial costs that took place in 2017 as well as increased development of new products.
Research and development expenses as a percentage of total revenues were approximately 290.0% and 255.0% for the twelve
months ended December 31, 2017 and 2016, respectively.
51
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, clinical trial and facilities expenses associated
with and allocated to research and development activities.
Selling and Marketing Expenses. For the twelve months ended December 31, 2017 and 2016, selling and marketing expenses were
approximately $465,000 and $514,000, respectively, a decrease of approximately 9.5%, or $49,000, between the periods.
The decrease in selling and marketing expenses was mainly due to decreased selling and marketing activities, particularly
decreased trade show expenses and marketing campaigns due to limited capital resources in 2017 and our focus on research and
development.
Selling and marketing expenses as a percentage of total revenues were approximately 194.6% and 224.5% for the twelve months
ended December 31, 2017 and 2016, respectively. The decrease in our percentage was due to the decreased spending mentioned 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 twelve months ended December 31, 2017 and 2016, general and administrative
expenses were approximately $2,084,000 and $1,359,000, respectively, an increase of approximately 53.5%, or $725,000, between the
periods.
The increase was mainly attributable to increased executive compensation for the management team that started in the fourth
quarter of 2016 as well as the increased stock-based compensation of our new management as well as increased spending to position us to
raise additional capital through the sale of our securities.
General and administrative expenses as a percentage of total revenues were approximately 872.0% and 593.4% for the twelve
months ended December 31, 2017 and 2016, respectively. The increase was due to the increase in general and administrative expenses,
described above.
Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, costs
associated with being a publicly traded company, stock-based compensation expenses, accounting and facilities expenses associated with
general and administrative activities.
Financial Expenses, net. For the twelve months ended December 31, 2017 and 2016, financial expenses, net were $1,836,000 and
$398,000, respectively, an increase of approximately 361.3%, or $1,438,000, between the periods. The increase resulted primarily from an
increased valuation adjustment of our warrants due to the increased stock price at the time of the exercise of the warrants and discount
amortization of promissory notes issued in 2017.
Tax expenses. For the twelve months ended December 31, 2017 and 2016, tax expenses were $38,000 and $117,000 respectively.
The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate and unrecognized tax
benefits as a result of tax positions taken.
Net Loss. Our net loss increased by approximately $2,134,000, or 75.4%, to approximately $4,965,000 for the twelve months
ended December 31, 2017 from approximately $2,831,000 during the same period in 2016. The increase in net loss resulted primarily from
the factors described above.
52
Liquidity and Capital Resources
We have incurred losses in the amount of $4,965,000 during the year ended December 31, 2017, and have accumulated negative
cash flow from operating activities of $2,182,000 for the year ended December 31, 2017.
During the year ended December 31, 2017, and through March 29, 2018, we met our short-term liquidity requirements from our
existing cash reserves and from proceeds from the sales of convertible promissory notes 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 December 31, 2017, and we are not aware of any material
trends in capital resources that would impact our business.
Twelve Months Ended December 31, 2017 Compared to Twelve Months Ended December 31, 2016
General. As of December 31, 2017, we had cash and cash equivalents of approximately $4,360,000, compared to approximately
$106,000 as of December 31, 2016. 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, general and administrative cost, capital expenditures and general working capital.
Cash used in our operating activities was approximately $2,182,000 for the twelve months ended December 31, 2017 and
approximately $1,533,000 for the same period in 2016. The increase in our usage of cash in our operating activities in the amount of
$649,000 is mainly attributable to the increase in costs associated the increase in research and development, increased compensation of the
new management teams and the costs incurred in the raising of capital described above.
No cash was used in our investing activities during the twelve months ended December 31, 2017 compared to $8,000 during the
twelve months ended December 31, 2016.
53
Cash provided by financing activities was approximately $6,436,000, from proceeds from the sales of the 2017 Notes in an aggregate
amount of $1,380,000, as well as the net proceeds of $5,056,000 from our underwritten public offering which closed on November 6, 2017,
compared to $33,000 for the twelve months ended December 31, 2016, which were derived from the proceeds from the exercise of options.
Our future capital requirements and the adequacy of 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.
Off Balance Sheet Arrangements
As of December 31, 2017, we have no off-balance sheet transactions, arrangements, 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.
54
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLMENTARY DATA
Our Consolidated Financial Statements and the relevant notes to those statements are attached to this report beginning on page F-
1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures .
We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined
by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2017, the
end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and
with the participation of management, including our chief executive officer and chief financial officer. 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 have concluded that our Disclosure Controls were effective at the reasonable assurance level as of December 31, 2017.
Management’s Report on Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external reporting purposes
in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate over time.
55
Management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on its
assessment and those criteria, management has concluded that we maintained effective internal control over financial reporting as of
December 31, 2017.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during the year ended December 31, 2017, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required in response to this Item 10 will be set forth in our definitive proxy statement on Schedule 14A for the
2018 annual meeting of stockholders, which shall be filed with the Securities and Exchange Commission no later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K (the “Proxy Statement”), and is incorporated herein by reference.
We have adopted a code of ethics that applies to all of our directors, officers and employees, including the principal executive
officer and the principal financial officer. The full text of our code of ethics was filed as Exhibit 14.1 to the annual report on Form 10-K for
the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 31, 2017.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item 11 will be set forth in our Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The information required in response to this Item 12 will be set forth in our Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required in response to this Item 13 will be set forth in our Proxy Statement and is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required in response to this Item 14 will be set forth in our Proxy Statement and is incorporated herein by
reference.
56
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017 and 2016
Consolidated Statements of Changes in Stockholders’ Deficiency for the years ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
F-2
F-3
F-5
F-6
F-7
F-8
(2) Financial Statement Schedules:
None
(3) Exhibits:
See “Index to Exhibits” for a description of our exhibits.
57
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of NanoVibronix Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NanoVibronix Inc. and its subsidiary (“the Company”) as of
December 31, 2017 and 2016, the related consolidated statements of comprehensive loss, shareholders’ equity (deficiency) and cash flows
for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company’s auditor since 2003.
Tel-Aviv, Israel
March 29, 2018
F-2
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables
Prepaid expenses and other accounts receivable (Note 3)
Inventories (Note 4)
Total current assets
NON-CURRENT ASSETS:
Long-term prepaid expense
Severance pay fund
Property and equipment, net (Note 5)
Total non- current assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
F-3
NANOVIBRONIX INC. AND ITS SUBSIDIARY
December 31,
2017
2016
$
4,360 $
24
56
76
4,516
5
338
6
349
$
4,865 $
106
6
42
67
221
5
257
11
273
494
NANOVIBRONIX INC. AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Trade payables
Other accounts payables (Note 6)
Total current liabilities
NON- CURRENT LIABILITIES:
Warrants to purchase Common stock (Notes 8, 10i)
Accrued severance pay
Total long-term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
$
STOCKHOLDERS’ EQUITY (DEFICIENCY) (Note 10):
Stock capital -
Common stock of $ 0.001 par value - Authorized: 20,000,000 shares at December 31, 2017 and 2016;
Issued and outstanding: 3,935,865 and 2,632,710 shares at December 31, 2017 and 2016, respectively
Series C Preferred stock of $ 0.001 par value - Authorized: 5,000,000 shares at December 31, 2017 and
2016; Issued and outstanding: 2,483,142 and 1,951,261 at December 31, 2017 and 2016, respectively
Series D Preferred stock of $ 0.001 par value - Authorized: 5,000 and 0 shares at December 31, 2017
and 2016, respectively; Issued and outstanding: 304 and 0 at December 31, 2017 and 2016,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity (deficiency)
December 31,
2017
2016
$
168
629
797
—
434
434
4
2
*)
82
483
565
2,079
349
2,428
2
2
—
32,010
(28,382)
20,073
(22,576)
3,634
(2,499)
Total liabilities and stockholders’ equity (deficiency)
$
4,865
$
494
*) Represents an amount lower than $ 1 thousands.
The accompanying notes are an integral part of the consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
U.S. dollars in thousands (except share and per share data)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Operating loss
Financial expense, net (Note 12)
Loss before taxes on income
Taxes on income (Note 11)
Loss
Deemed dividend related to extension of February 2015 warrants to Common stock in January 2017
Total comprehensive loss attributable to holders of Common stock, Preferred C stock and Preferred D
stock
Common stock, Preferred C stock and Preferred D stock basic and diluted net loss per share (Note 2q)
Year ended
December 31,
2017
2016
$
239 $
88
151
693
465
2,084
3,242
229
88
141
584
514
1,359
2,457
(3,091)
(2,316)
1,836
398
(4,927)
(2,714)
38
117
$
(4,965) $
(2,831)
841
—
(5,806) $
(2,831)
(1.17) $
(0.62)
$
$
Weighted average number of shares of Common stock, Preferred C stock and Preferred D stock used in
computing basic and diluted net loss per share (Note 2q)
4,964,077
4,578,470
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Issuance of Common
stock upon exercise of
options
Issuance of Common
stock to consultant
Stock-based compensation
related to options
granted to employees
ASU 2016-09 adoption,
Note 2o
Stock-based compensation
related to restricted
stock granted to
consultant
Total comprehensive loss
—
—
—
—
—
—
Balance as of December
31, 2016
1,951,261 $
—
—
Stock-based compensation
related to options
granted to employees
Issuance of warrants to
Common stock
Deemed dividend related
to extension of
February 2015 warrants
to Common stock in
January 2017
Proceeds from issuance of
Common stock,
Preferred D stock and
warrants, net of
issuance costs
Conversion of convertible
notes and accrued
interest into Common
and Preferred D stock
Conversion of Preferred
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
U.S. dollars in thousands (except share data)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Preferred C stocks
Preferred D stocks
Common stocks
Number Amount
Number Amount
Number Amount
Additional
paid-in
capital
Accumulated
deficit
Total
stockholders’
equity
(deficiency)
Balance as of January 1,
2016
1,951,261 $
—
—
—
2,611,328 $
2
$
19,521 $
(19,734) $
(209)
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
12,382
9,000
*)
*)
—
—
—
—
—
—
—
—
33
—
459
11
—
—
—
(11)
33
—
459
—
49
—
—
(2,831)
49
(2,831)
—
—
2,632,710 $
2
$
20,073 $
(22,576) $
(2,499)
—
—
—
—
—
—
—
—
800
852
—
—
800
852
—
—
—
—
—
—
841
(841)
—
—
—
327
*)
897,958
1
1
5,055
—
5056
1,761
—
1,762
—
131
*)
230,680
—
—
D into Common stock
—
(154)
*)
153,530
*)
—
—
—
Issuance of Common and
Preferred C stock upon
cashless exercise of
warrants and
reclassification from
liability to equity
Total comprehensive loss
531,881
—
*)
—
—
—
—
—
20,987
—
*)
—
2,628
—
—
(4,965)
2,628
(4,965)
Balance as of December
31, 2017
2,483,142 $
2
304 $
0
3,935,865 $
4
$
32,010 $
(28,382) $
3,634
*) Represents an amount lower than $1.
The accompanying notes are an integral part of the interim consolidated financial statements
F-6
NANOVIBRONIX, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
U.S. dollars in thousands
Cash flows from operating activities:
Loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Stock-based compensation
Discount amortization of promissory notes
Revaluation of warrants to purchase Common stock
Increase in trade receivables
Increase (decrease) in prepaid expenses and other accounts receivable
Decrease (increase) in inventories
Increase in trade payables
Increase in other accounts payable
Increase in accrued severance pay, net
Increase in long-term prepaid expense
Net cash used in operating activities
Cash flows from investment activities:
Purchase of property and equipment
Net cash used in investment activities
Cash flows from financing activities:
Proceeds from issuance of Convertible Promissory Notes and warrants
Proceeds from issuance of Common stock, Preferred D stock and warrants, net of issuance costs
Proceeds from exercise of options
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplemental information and disclosure of non-cash financing transactions:
Carve out of warrants’ fair value from Convertible Promissory Notes
Conversion of convertible notes and accrued interest into Common and Preferred D stock
Cashless exercise of warrants
Stock-based compensation- ASU 2016-09 adoption
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Year ended
December 31,
2017
2016
$
(4,965) $
(2,831)
5
800
1,197
549
(18)
(14)
(9)
86
183
4
—
7
508
—
383
(1)
44
4
24
244
90
(5)
(2,182)
(1,533)
—
—
1,380
5,056
—
6,436
(8)
(8)
—
—
33
33
4,254
106
(1,508)
1,614
$
4,360 $
106
$
$
$
$
852 $
1,762 $
2,628 $
— $
—
—
—
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:- GENERAL
NANOVIBRONIX INC. AND ITS SUBSIDIARY
a.
b.
c.
d.
NanoVibronix Inc. (“the Company”), a U.S. (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 also commenced operations in
October 2003.
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 has incurred losses in the
amount of $4,965 during the year ended December 31, 2017, has an accumulated deficit of $28,382 as of December
31, 2017 and has accumulated negative cash flow from operating activities amounted to $ 2,182 for the year ended
December 31, 2017. The Company expects to continue incurring losses and negative flows from operations. The
Company’s management believes that the Company has sufficient capital to execute its business plan over the next
twelve months. Management’s plans include the continued commercialization of the Company’s products and raising
capital through the sale of additional equity securities, debt or capital inflows from strategic partnerships. There are no
assurances, however, that the Company will be successful in obtaining the level of financing needed for its operations.
If the Company is unsuccessful in commercializing its products and raising capital, it may need to reduce activities,
curtail or cease operations.
On February 9, 2015, the Company filed a Registration Statement on Form 10 under the Securities Exchange Act of
1934, as amended, to register its Common stock under Section 12(g) of that act. The Form 10 was effective on April
10, 2015.
On November 6, 2017, the Company closed an underwritten public offering (the “Offering”) of 897,958 shares of the
Company’s common stock, 327 shares of the Company’s Series D Preferred shares and warrants resulting in net
proceeds of approximately $5,056 (See Note 10g).The securities were issued pursuant to the Company’s registration
statement on a Form S-1 originally filed with the Securities and Exchange Commission on June 21, 2017, and declared
effective on November 1, 2017.
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”).
a.
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’s management believes 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.
b.
Financial statements in U.S. dollars:
The accompanying financial statements have been prepared in U.S. dollars.
The majority of the Company’s expenses, financing activities and revenues are denominated and determined in U.S.
dollars. The Company’s management believes that the U.S. dollar is the currency of the primary economic
environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the
functional and reporting currency of the Company is the U.S. dollar.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
The Company’s transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-
dollar transactions and balances have been re-measured to U.S. dollars in accordance with the Accounting Standards
Codification (ASC) 830, “Foreign Currency Matters”. All transaction gains and losses from re-measurement of
monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of comprehensive
loss as financial income or expenses, as appropriate.
c.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,
NanoVibronix (Israel 2003) Ltd. All intercompany balances and transactions have been eliminated upon
consolidation.
d.
Cash equivalents:
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities
of three months or less at acquisition.
e.
Inventories:
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in
the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is
determined using the “first-in, first-out” method.
Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence. The
Company periodically evaluates the quantities on hand relative to current and historical selling prices and historical
and projected sales volume. Based on this evaluation, provisions are made when required to write-down inventory to
its market value. As of December 31, 2017 and 2016, no provisions for inventory write-downs were recorded.
f.
Non-current prepaid expenses:
Non-current prepaid expenses consist of non-current lease deposits as security for the Company’s motor vehicles
leases.
g.
Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, at the following annual rates:
Computers and peripheral equipment
Office furniture and equipment
h.
Impairment of long-lived assets:
%
33
7 – 15
The Company’s long-lived assets are reviewed for impairment in accordance with Accounting Standard Codification
(“ASC”) 360, “Property, Plant, and Equipment”, whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31,
2017 and 2016, no impairment losses have been identified.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
i.
Severance pay:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
The Company’s liability for severance pay is for its Israeli employees and is calculated pursuant to Israeli Severance
Pay Law based on the most recent salary of the employees multiplied by the number of years of employment as of the
balance sheet date, and is in large part covered by regular deposits with recognized pension funds, deposits with
severance pay funds and purchases of insurance policies. The value of these deposits and policies is recorded as an
asset in the Company’s balance sheet.
Severance expenses for the years ended December 31, 2017 and 2016 amounted to $ 85 and $ 150, respectively.
j.
Warrants:
The Company accounts for stock warrants held by investors as either equity instruments or liabilities in accordance
with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), depending on the specific terms of the warrant
agreement.
Stock warrants are accounted for as a liability if they contain “down-round protection” or other terms that could
potentially require “net cash settlement” in accordance with the provisions of ASC 815-40, Derivatives and Hedging -
Contracts in Entity’s Own Equity (“ASC 815”), which provides a two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify to be a
derivative financial instrument. The Company measures such 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 the fair value being
recognized in the Company’s statement of comprehensive loss as financial income or expense, as appropriate.
k.
Debt Issued with Warrants:
The Company considers guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting for
the issuance of convertible debt with detachable warrants. As described above under the caption “Warrants”, the
Company classifies stock warrants as either equity instruments or liabilities depending on the specific terms of the
warrant agreement. In circumstances in which debt is issued with liability-classified warrants, the proceeds from the
issuance of convertible debt are first allocated to the warrants at their full estimated fair value and established as both a
liability and a debt discount. The remaining proceeds, as further reduced by discounts created by the bifurcation of
embedded derivatives and a beneficial conversion feature, is allocated to the debt. The Company accounts for debt as
liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to
interest expense using the effective interest method over the expected term of the debt instrument pursuant to ASC
835, Interest (ASC 835).
The Company applied ASC 470-20 and ASC 815 to the Convertible promissory notes (see Note 7).
l.
Revenue recognition:
The Company generates revenues from the sale of its products to distributors and patients. Revenues from those
products are recognized in accordance with ASC 605, “Revenue Recognition,” when delivery has occurred, persuasive
evidence of an agreement exists, the fee is fixed or determinable, no further obligation exists and collectability is
probable.
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.
m.
Research and development costs:
Research and development costs are charged to the statement of comprehensive loss, as incurred.
n.
Income taxes:
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. This topic prescribes the use
of the liability method whereby deferred tax assets and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The Company provides full valuation
allowance, to reduce deferred tax assets to the amount that is more likely than not to be realized.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, related to
balance sheet classification of deferred taxes. The ASU requires that deferred tax assets and liabilities be classified as
noncurrent in the statement of financial position, thereby simplifying the current guidance that requires an entity to
separate deferred assets and liabilities into current and noncurrent amounts. ASU 2015-17 is effective for financial
statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual
periods. ASU 2015-17 was early adopted by the Company as of December 31, 2017, and had no impact on its
consolidated financial statements.
The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to
evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available
evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be
sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure
the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate
settlement.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
o.
Stock-based payments:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock
Compensation”, (“ASC 718”), which requires companies to estimate the fair value of equity-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to
vest is recognized as an expense over the requisite service periods on a straight line method in the Company’s
consolidated statement of comprehensive loss.
The Company has early adopted ASU 2016-09 in the 2016 consolidated financial statements using a modified
retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period
in which the guidance is adopted. As a result of this adoption, the Company recorded an increase to accumulated
deficit of $11 resulting from the election of accounting policy to account for forfeitures as they occur as of January 1,
2016.
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for
its stock-options awards. The option-pricing model requires a number of assumptions, of which the most significant
are the expected stock price volatility and the expected option term. Expected volatility was calculated based upon
similar traded companies’ historical share price movements. The expected option term represents the period that the
Company’s stock options are expected to be outstanding. The Company currently uses the simplified method and will
continue to do so until sufficient historical exercise data supports using expected life assumptions. The risk-free
interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. The expected
dividend yield assumption is based on the Company’s historical experience and expectation of no future dividend
payouts. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in
the future.
There were no options granted in 2017. The fair value for options granted in 2016 is estimated at the date of grant
using a Black-Scholes-Merton options pricing model with the following underlying assumptions:
Risk free interest
Dividend yields
Volatility
Expected term (in years)
Year ended
December 31,
2017
2016
—
—
—
—
1.21%-1.88%
0%
61.3%-63.9%
5.5-6.25
The Company applies ASC 505-50, “Equity-Based Payments to Non-Employees” (“ASC 505”) with respect to options
and warrants issued to non-employees which requires the use of option valuation models to measure the fair value of
the options and warrants at the measurement date.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
p.
Fair value of financial instruments:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an
asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the
measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs
by requiring that the most observable inputs be used when available. Observable inputs are inputs that market
participants would use in pricing the asset or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the
assumptions market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
Level 1 -
Valuations based on quoted prices (unadjusted) in active markets for identical assets that the Company
has the ability to access at the measurement date.
Level 2 -
Valuations based on one or more quoted prices in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
Level 3 -
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The carrying amounts of cash and cash equivalents, trade receivables, prepaid expenses and other accounts receivable,
trade payables and other accounts payables approximate their fair value due to the short-term maturities of such
instruments.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q.
Basic and diluted net loss per share:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Basic net loss per share is computed based on the weighted average number of shares of Common stock, Preferred C
and Preferred D stock outstanding during each year. Diluted net loss per share is computed based on the weighted
average number of shares of Common stock, Preferred C and Preferred D stock outstanding during each year plus
dilutive potential equivalent shares of Common stock, Preferred C and Preferred D stock considered outstanding
during the year, in accordance with ASC 260, “Earnings per Share.”
For the years ended December 31, 2017 and 2016, all outstanding stock options and warrants have been excluded from
the calculation of the diluted net loss per share as all such securities are anti-dilutive for all years presented.
r.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents. Cash and cash equivalents are invested in major banks in U.S. and Israel. Management believes
that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal
credit risk exists with respect to these investments.
The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements.
s.
Contingent liabilities:
The Company accounts for its contingent liabilities in accordance with ASC 450 “Contingencies”. A provision is
recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations,
estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular
matter. As of December 31, 2017 and 2016, the Company is not a party to any litigation that could have a material
adverse effect on the Company’s business, financial position, results of operations or cash flows.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
t.
JOBS Act Accounting Election:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
The Company qualifies as an “emerging growth company” under the Jumpstart of Business Startups Act of 2012, or
the JOBS Act. The JOBS Act exempts emerging growth companies from being required to comply with new or
revised financial accounting standards until private companies (that is, those that have not had a Securities Act of
1933, as amended, or Securities Act, registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the
requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The
Company has elected not to opt out of such extended transition period which means that when a standard is issued or
revised and it has different application dates for public or private companies, the Company, as an emerging growth
company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s financial statements with another public company which is neither an
emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult because of the potential differences in accounting standards used.
u.
Impact of recently issued accounting standards:
1.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from
Contracts with Customers (Topic 606). For public entities, this standard is effective for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period. For all other entities,
this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods
within annual periods beginning after December 15, 2019. Early adoption is permitted.
The standard will supersede existing revenue recognition guidance, including industry-specific guidance, and
will provide companies with a single revenue recognition model for recognizing revenue from contracts with
customers. The two permitted transition methods under the new standard are the full retrospective method, in
which case the standard would be applied to each prior reporting period presented, or the modified retrospective
method, in which case the cumulative effect of applying the standard would be recognized at the date of initial
application.
The Company chose to early adopt this new standard on January 1, 2018 using the Modified Retrospective
Adoption Transition Method.
The Company has completed its evaluation of the new standard and expects that, as a result of the adoption of
this ASU, the timing of recognizing revenue from sales of products to its distributors under agreements that will
allow certain rights of return and other special rights may be earlier than under the existing revenue recognition
guidance, when these distributors are not considered as end customers.
However, as of January 1, 2018, the Company has determined that this ASU does not require any cumulative
effect to its accumulated deficit.
2.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new guidance
requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by
all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give
financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.
For public entities, this standard is effective for annual reporting periods beginning after December 15, 2018,
including interim periods within that reporting period. For all other entities, this standard is effective for annual
reporting periods beginning after December 15, 2019, and interim periods within annual periods beginning after
December 15, 2020. Early adoption is permitted. The ASU requires a modified retrospective transition approach
and provides certain optional transition relief. The Company is currently evaluating when it will adopt this new
standard and the expected impact on its consolidated financial statements and related disclosures.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:-
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
3.
4.
5.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments (“ASU 2016-15”). This new standard clarifies certain aspects of the
statement of cash flows, including the classification of debt prepayment or debt extinguishment costs or other
debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the
borrowing, contingent consideration payments made after a business combination, proceeds from the settlement
of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions
received from equity method investees and beneficial interests in securitization transactions. This new standard
also clarifies that an entity should determine each separately identifiable source of use within the cash receipts
and payments on the basis of the nature of the underlying cash flows. In situations in which cash receipts and
payments have aspects of more than one class of cash flows and cannot be separated by source or use, the
appropriate classification should depend on the activity that is likely to be the predominant source or use of cash
flows for the item. For public entities, this standard is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. For all other entities, this standard is
effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual
periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect that this
new guidance will have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of
Modification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting in Topic 718. For all entities, this
standard is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted.
The Company does not expect that this new guidance will have a material impact on its consolidated financial
statements.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from
Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with
Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a
Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or
convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for
certain mandatorily redeemable non-controlling interests and mandatorily redeemable financial instruments of
nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception
and does not impact the accounting for these mandatorily redeemable instruments. For public entities, this
standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods
within that reporting period. For all other entities, this standard is effective for annual reporting periods beginning
after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early
adoption is permitted. The Company is currently evaluating the impact that the adoption of the standard may have
on its consolidated financial statements.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-
PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Prepaid expenses
Other accounts receivable
NOTE 4:-
INVENTORIES
Raw materials
Work in process
Finished goods
December 31,
2017
2016
45 $
11
56 $
December 31,
2017
2016
68 $
—
8
76 $
34
8
42
44
5
18
67
$
$
$
$
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:-
PROPERTY AND EQUIPMENT, NET
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Cost:
Computers and peripheral equipment
Office furniture and equipment
Accumulated depreciation:
Computers and peripheral equipment
Office furniture and equipment
Depreciated cost
December 31,
2017
2016
$
$
48 $
3
51
42
3
45
6 $
48
3
51
38
2
40
11
During the years ended December 31, 2017 and 2016, fully depreciated assets that were no longer in use with a total cost and
accumulated depreciation of $0 and $ 67 were disposed from the consolidated balance sheets.
Depreciation expenses for the years ended December 31, 2017 and 2016 were $5 and $7, respectively.
NOTE 6:- OTHER ACCOUNTS PAYABLE
Employees and payroll accruals
Accrued expenses
Income tax accrual
December 31,
2017
2016
$
219 $
150
260
629
170
99
214
483
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:- CONVERTIBLE PROMISSORY NOTES
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Since March 1, 2017 through September 30, 2017, the Company completed a series of bridge financings pursuant to which the
Company has received from accredited investors $1,380 of loans and issued to the investors convertible promissory notes (the
“2017 Notes”) in the aggregate principal amount of $1,380, and seven-year warrants (the “Warrants”) to purchase an aggregate
of 552,000 shares of common stock at an exercise price of $5.90 per share.
The 2017 Notes accrued interest at a rate of 6% per annum, payable on the earlier of a 5-year anniversary of the issuance date,
or the date that the Company completes a Qualified Financing, as defined in the agreement (the “Maturity Date”). To the extent
not previously converted, on the Maturity Date, each investor had the right to receive, at the option of the investor, either (a)
cash equal to the original principal amount of the 2017 Notes and interest then accrued and unpaid thereon, or (b) shares of
common stock or Series C Convertible Preferred Stock of the Company, at a price per share equal to the lesser of: (x) 80% of
the amount equal to the quotient obtained by dividing (i) the estimated value of the Company as of the Maturity Date, as
determined in good faith by the Company’s board of directors, by (ii) the aggregate number of outstanding shares of the
Company’s common stock, as of the Maturity Date on a fully diluted basis, and (y) $5.90 per share, as such amount may be
adjusted for any stock split, stock dividend, reclassification or similar events affecting the capital stock of the Company. Upon
consummation of a Qualified Financing, the investors may elect to have the outstanding principal and accrued but unpaid
interest thereon converted into shares of the same class and series of equity securities sold in such Qualified Financing,
provided that the investor may elect to receive shares of Series C Convertible Preferred Stock instead of shares of common
stock, to the extent that common stock are issued in such Qualified Financing, at a price per share equal to the lesser of: (a) 80%
of the price per share at which such securities are sold in such Qualified Financing and (b) $5.90 per share, as such amount may
be adjusted for any stock split, stock dividend, reclassification or similar events affecting the Company’s capital stock.
As a result of issuing the warrants and as a result of the discount on the conversion price of the 2017 Notes, the Company
amortized the embedded benefit in the amount of $1,197 in the year ended December 31, 2017.
In September 2017, all of the holders of the 2017 Notes agreed to convert the full principal and accrued interest on the 2017
Notes into equity securities of the Company in the event the Company consummated a Qualified Financing anytime before
December 31, 2017.
On November 6, 2017, the Company completed a public offering, which constituted a Qualified Financing, upon which the
2017 Notes were automatically converted. Based on the outstanding principal amount and all accrued but unpaid interest on the
2017 Notes, at 80% of the offering price of $4.90 per share of common stock and accompanying warrant, the Company issued
an aggregate of 361,462 shares of common stock (and common stock equivalents) and warrants to purchase an aggregate of
271,096 shares of common stock to the holders of the 2017 Notes, all of which are subject to lock-up agreements for 180 days
from November 1, 2017.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
FAIR VALUE MEASUREMENTS
NANOVIBRONIX INC. AND ITS SUBSIDIARY
a. During February 2013 through December 2014, the Company issued to certain lenders, who are also shareholders of the
Company, warrants to purchase 563,910 shares of Common stock at an exercise price of $ 2.66 per share, subject to
adjustment for stock splits, fundamental transactions or similar events including “down round” protection. The warrants
were expected to expire in February 2018 through December 2019, based on the issuance date. On October 4, 2017, these
warrants were cashless exercised (see also Note 10e, i).
The Company accounted for these warrants as a liability according to the provisions of ASC 815-40 and measured the
warrants at fair value by applying the Black-Scholes option pricing model in each reporting period until they were
exercised, with changes in fair values being recognized in the Company’s consolidated statement of comprehensive loss as
financial income or expenses.
In estimating the warrants’ fair value the Company used the following assumptions:
Dividend yield (1)
Expected volatility (2)
Risk-free interest (3)
Expected term (years) (4)
December 31,
2017
2016
0%
0%
39.6%-52.2% 54.07%-65.59%
0.89%-1.47%
1.13%-1.5%
1.1-2.94
0.0-2.1
(1) Dividend yield - was based on the fact that the Company has not paid dividends to its stockholders in the past and does
not expect to pay dividends to its stockholders in the future.
(2) Expected volatility - was calculated based on actual historical stock price movements of companies in the same
industry over the term that is equivalent to the expected term of the option.
(3) Risk-free interest - based on yield rate of non-index linked U.S. Federal Reserve treasury stock.
(4) Expected term - the expected term was based on the earliest of the maturity date of the warrants or the date of
exercise.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
FAIR VALUE MEASUREMENTS (Cont.)
The level of inputs used to measure fair value was Level 2.
Balance at January 1
Change in fair value of warrants
Balance at October 4
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Fair value of warrants
to Common stock
2017
2016
$
2,079 $
1,696
549
383
$
2,628 $
2,079
b. Effective as of January 27, 2017, the Company entered into amendments to its two-year warrants (the “Warrant
Amendment”) to purchase an aggregate of 420,000 shares of common stock at an exercise price of $3.00 per share and
warrants to purchase an aggregate of 420,000 shares of common stock at an exercise price of $6.00 per share, issued in
January and February 2015, to extend the expiration date of the warrants for two additional years. Pursuant to the Warrant
Amendment, warrants to purchase 266,667 shares of common stock at $3.00 per share and warrants to purchase 266,667
shares of common stock at $6.00 per share were to expire on January 29, 2019, and the warrants to purchase 140,000 shares
of common stock at $3.00 per share and warrants to purchase 140,000 shares of common stock at $6.00 per share were to
expire on February 10, 2019, and the warrants to purchase 13,333 shares of common stock at $3.00 per share and warrants
to purchase 13,333 shares of common stock at $6.00 per share were to expire on February 23, 2019. The exercise price and
all other terms of the original warrants remain the same. Since substantially all of the warrants to purchase 840,000 shares
of common stock subject to the Warrant Amendment are held by the Company’s stockholders, the Warrant Amendment
was accounted for as “deemed dividend,” 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, a deemed dividend in the
amount of $841 was recorded to the Statement of Changes in Stockholders’ Equity as an increase in additional paid-in
capital with a corresponding increase in the accumulated deficit.
F-20
NANOVIBRONIX INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
FAIR VALUE MEASUREMENTS (Cont.)
c. From March 2017 through September 2017, the Company completed a series of bridge financings, pursuant to which the
Company received from eleven investors aggregate proceeds of $1,380 in exchange for 2017 Notes in an aggregate
principal amount of $1,380 and seven-year Warrants to purchase an aggregate of 552,000 shares of common stock at an
exercise price of $5.90 per share (see Note 10h, i). The Company measured the Warrants at fair value on their issuance date
by applying the Black-Scholes options pricing model, according to the following assumptions:
Dividend yield (1)
Expected volatility (2)
Risk-free interest (3)
Expected term (years) (4)
December 31,
2017
0%
39.6%-65.85%
1.0%-2.27%
7
(1) Dividend yield - was based on the fact that the Company has not paid dividends to its stockholders in the past and does
not expect to pay dividends to its stockholders in the future.
(2) Expected volatility - was calculated based on actual historical stock price movements of companies in the same
industry over a term that is equivalent to the expected term of the warrants.
(3) Risk-free interest – was based on yield rate of non-index linked U.S. Federal Reserve treasury stock.
(4) Expected term - was based on the maturity date of the warrants.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES
NANOVIBRONIX INC. AND ITS SUBSIDIARY
a.
The Company leases office facilities and motor vehicles under operating leases, which expire on various dates, the
latest of which is 2017.
There are no future minimum lease commitments under non-cancelable operating lease agreements as of December
31, 2017.
The Company leases motor vehicles under cancelable lease agreements. The Company has an option to be released
from this lease agreement, which may result in penalties in a maximum amount of approximately $5.
Rent and related expenses were $27 and $30 for the years ended December 31, 2017 and 2016, respectively.
Motor vehicle leases, and related expenses were $15 and $17 for the years ended December 31, 2017 and 2016,
respectively.
b.
Royalties to the Israel Innovation Authority (“the IIA”):
Under the Company’s subsidiary research and development agreements with the IIA and pursuant to applicable laws,
the Company is required to pay royalties at the rate of 3-3.5% of sales of products developed with funds provided by
the IIA, up to an amount equal to 100% of the IIA research and development grants received, linked to the dollar
including accrued interest at the LIBOR rate. The Company has received through the years grants in the amount of $
437. The Company is obligated to repay the Israeli Government for the grants received only to the extent that there are
sales of the funded products. As of December 31, 2017, there are no sales from the funded projects.
As of December 31, 2017, the Company has a contingent obligation to pay royalties in the principal amount of
approximately $ 465. In addition, the IIA may impose certain conditions on any arrangement under which it permits
the Company to transfer technology or development out of Israel.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY)
a.
Common Stock:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
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.
b.
Series C Preferred Stock:
Each share of Series C Preferred stock is convertible into one share of Common stock (subject to adjustment) at any
time at the option of the holders, provided that each holder would be prohibited from converting Series C Preferred
stock into shares of 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 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.
In the event of liquidation, dissolution, or winding up, each holder of Series C Preferred stock could elect to receive
either (i) in preference to any payments made to the holders of Common stock and any other junior securities, a
payment for each share of Series C Preferred stock then held equal $ 0.001, plus an additional amount equal to any
dividends declared but unpaid on such shares, and any other fees or liquidated damages then due and owing thereon or
(ii) the amount of cash, securities or other property to which such holder would be entitled to receive with respect to
each share of Series C Preferred stock if such share of Series C Preferred stock had been converted to Common stock
immediately prior to such liquidation, dissolution, or winding up (without giving effect to any conversion limitations).
Shares of Series C Preferred stock are not entitled to receive any dividends, unless and until specifically declared by
the board of directors. However, holders of Series C Preferred stock are entitled to receive dividends on shares of
Series C Preferred stock equal (on an as-if-converted-to-Common-stock basis) to and in the same form as dividends
actually paid on shares of the Common stock when such dividends are specifically declared by the board of directors.
The Company is not obligated to redeem or repurchase any shares of Series C Preferred stock. Shares of Series C
Preferred stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous fund
provisions.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Each holder of Series C Preferred stock is entitled to the number of votes equal to the number of whole shares of
Common stock into which the shares of Series C Preferred stock held by such holder are then convertible (subject to
the beneficial ownership limitations) with respect to any and all matters presented to the stockholders for their action
or consideration. Holders of Series C Preferred stock vote together with the holders of Common stock as a single class,
except as provided by law and except that the consent of holders of a majority of the outstanding Series C Preferred
stock is required to amend the terms of the Series C Preferred stock.
c.
Series D Preferred Stock:
Each share of Series D Preferred Stock is convertible into 1,000 shares of common stock (subject to the beneficial
ownership limitations and adjustment as provided in the certificate of designation) at any time at the option of the
holders, provided that each holder would be prohibited from converting Series D Preferred Stock into shares of
common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than
4.99% of the total number of shares of common stock then issued and outstanding. However, any holder may increase
or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such
percentage shall not be effective until the 61st day after such notice to the Company.
In the event of our liquidation, dissolution, or winding up, each holder of Series D Preferred Stock will be entitled to
receive the amount of cash, securities or other property to which such holder would be entitled to receive with respect
to such shares of Series D Preferred Stock if such shares had been converted to common stock immediately prior to
such event (without giving effect for such purposes to the 4.99% or 9.99% beneficial ownership limitation, as
applicable) subject to the preferential rights of holders of any class or series of the Company’s capital stock specifically
ranking by its terms senior to the Preferred D stock as to distributions of assets upon such event, whether voluntarily
or involuntarily.
Shares of Series D Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by
the board of directors. However, holders of Series D Preferred Stock are entitled to receive dividends on shares of
Series D Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends
actually paid on shares of the common stock when such dividends are specifically declared by the board of directors,
except for stock dividends or distributions payable in shares of common stock on shares of common stock or any other
common stock equivalents for which the conversion price will be adjusted. The Company is not obligated to redeem
or repurchase any shares of Series D Preferred Stock. Shares of Series D Preferred Stock are not otherwise entitled to
any redemption rights, or mandatory sinking fund or analogous fund provision.
The holders of the Series D Preferred Stock have no voting rights, except as required by law. The Company may not
alter or change adversely the powers, preferences and rights of the Series D Preferred Stock or amend the certificate of
designation or amend its certificate of incorporation or bylaws in any manner that adversely affects any right of the
holders of the Series D Preferred Stock without the affirmative vote of the holders of a majority of the shares of Series
D Preferred Stock then outstanding.
The Company is obligated to deliver shares of common stock upon conversion of the Series D Preferred Stock (the
“Conversion Shares”), within the time period specified in the certificate of designation. Failure to comply with the
timely delivery requirement triggers certain liquidated damages payable by the Company to each of the Series D
Preferred Stock holders.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
If, at any time while the Series D Preferred Stock is outstanding, the Company completed a Fundamental Transaction
(as defined in the certificate of designation), then upon any subsequent conversion of the Series D Preferred Stock, the
holder will receive, for each Conversion Share that would have been issuable upon such conversion immediately prior
to the occurrence of such Fundamental Transaction, the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving corporation, and any additional cash, securities and/or
other property or consideration (the “Alternate Consideration”) receivable by holders of common stock as a result of
such Fundamental Transaction for each share of common stock for which this Series D Preferred Stock is convertible
immediately prior to such Fundamental Transaction. For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of common stock in such Fundamental Transaction. If holders
of common stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any
conversion of this Series D Preferred Stock following such Fundamental Transaction. If such Fundamental
Transaction is also a Change of Control Transaction in which the Company is not the surviving entity, then all shares
of Series D Preferred Stock shall, upon consummation of such Change of Control Transaction, automatically be
converted into Conversion Shares.
Since the Company has sufficient authorized and unissued shares available to settle its commitments and since all
holders of equally (both preferred stock and common stock) would receive the same form of consideration upon the
consummation of a Fundamental Transaction, and the shares are not otherwise redeemable, the shares of Series D
Preferred Stock are classified within permanent equity, consistent with the guidance of ASC 480.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
d.
e.
f.
g.
h.
In April 2016, the Company issued 9,000 restricted shares of Common stock to a consultant as part of the total
consideration for its services associated with the Company’s investor relation services. The restricted shares were fully
vested during the year ended December 31, 2017. The stock based expense recognized in the financial statements for
services received from the consultant in the year ended December 31, 2017 amounted to $49.
On October 4, 2017, the Company issued 358,995 shares of Series C Preferred stock, to the holders of certain warrants
to purchase an aggregate of 563,910 shares of common stock that contained full ratchet anti-dilution price protection
in such warrants pursuant to a cashless exercise of such warrants.
On November 2, 2017, the Company issued 20,987 shares of common stock and 172,886 shares of Series C Preferred
Stock to the holders of certain warrants to purchase an aggregate of 299,733 shares of common stock pursuant to a
cashless exercise of such warrants.
On November 6, 2017, the Company closed the Offering of 897,958 shares of the Company’s common stock, 327
shares of the Company’s Series D Preferred shares of the Company’s common stock (and common stock equivalents)
at an offering price of $4.90 per share of common stock, and $0.049 per share of Series D Preferred stock, and
accompanying warrant to purchase 0.75 of one share of common stock. Total gross proceeds from the offering totaled
approximately $6,000, and net proceeds of approximately $5,056 after deducting underwriting and estimated offering
expenses. Each warrant has an exercise price of $6.95 per full share of common stock with a life term of five years.
The securities were issued pursuant to the Company’s registration statement on Form S-1 originally filed with the
Securities and Exchange Commission on June 21, 2017, and declared effective on November 1, 2017.
Starting from March 1, 2017 through September 30, 2017, the Company completed a series of bridge financings
pursuant to which the Company have received from accredited investors aggregate proceeds of $1,380 in exchange for
2017 Notes in the aggregate principal amount of $1,380, and seven-year Warrants to purchase an aggregate of 552,000
shares of common stock at an exercise price of $5.90 per share. Upon closing of the Offering, the 2017 Notes were
automatically converted and as a result the Company issued an aggregate of 230,680shares of common stock (and
common stock equivalents), 131 shares of the Company’s Series D preferred stock and warrants to purchase an
aggregate of 271,096 shares of common stock.
F-26
NANOVIBRONIX INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
i.
Warrants issued to investors:
The following table below summarizes the outstanding warrants issued to investors as of December 31, 2017 and 2016,
respectively:
Warrants outstanding as
of December 31,
2017
2016
Exercise
price
$
Expiration date
November 2011 Warrants (1)
February 2013 Warrants (2)
February 2015 Warrants (3)
March 2015 Warrants (4)
March through September 2017 Warrants (5)
November 2017 Warrants (6)
245,893
331,293
1.23
—
686,667
—
552,000
1,250,687
563,910
840,000
61,000
—
—
2.66
3.00/6.00
2.57
5.90
6.9
November 15, 2018
February 2018 through December
2019
February 30, 2019
March 25, 2020
May through September 2022
November 1, 2022
Total outstanding
2,735,247
1,796,203
1.
2.
In November 2011, the Company issued to some of its stockholders warrants to purchase 2,319,062 shares of
Series B-2 Preferred stock with a fixed exercise price of $ 0.199 per share (reflecting a 30% discount on the fair
value of the Company’s Preferred stock on that date). The warrants expire on November 15, 2018. On May 2014,
the Company effected a reverse split of the Company’s stock of seven to one. In addition, on April 2015 all of the
Company’s B-2 warrants were reclassified as warrants to common shares. As a result, these warrants have a fixed
exercise price of $1.393 to purchase 331,293 shares of Common Stock. On November 2, 2017, 85,400 of such
warrants were cashless exercised (see also Note 10f).
In February 2013 through December 2014, the Company issued to some of its stockholders warrants to purchase
563,910 shares of Common stock. The exercise price at which the warrant may be exercised is $ 2.66 per share,
subject to adjustment for stock splits, fundamental transactions or similar events. The warrants were to expire in
February 2018 through December 2019, based on the issuance date (see also Note 8a). On October 4, 2017, these
warrants were cashless exercised (see also Note 10e).
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
3.
In February 2015, the Company negotiated a securities purchase agreement which included warrants to purchase
840,000 shares of Common stock. The exercise price at which the warrant may be exercised is $3 for 420,000
shares and $6 for 420,000 shares, subject to certain adjustments. The warrants to purchase the 840,000 shares
were to expire by February 2017. However, in January 2017, the Company agreed to extend the warrants to
purchase the 840,000 shares by additional two years until February 2019 pursuant to the Warrant Amendment.
On November 2, 2017, 153,333 of such warrants were cashless exercised (see also Note 10f).
4. On March 25, 2015, the Company issued warrants to purchase up to 61,000 shares of Common stock to a
consultant as consideration for the provision of guidance and assistance in connection with the filing of the
Company’s Form 10 and becoming a public reporting company. The warrants had an exercise price of $2.57 per
share, subject to adjustment for stock splits, fundamental transactions or similar events and were scheduled to
expire on March 25, 2020. On November 2, 2017, these warrants were cashless exercised (see also Note 10f).
5. During the period March 1, 2017 through September 30, 2017, the Company completed a series of bridge
financings pursuant to which the Company have received from accredited investors aggregate proceeds of
$1,380 in exchange for 2017 Notes in the aggregate principal amount of $1,380, and seven-year Warrants to
purchase an aggregate of 552,000 shares of common stock at an exercise price of $5.90 per share.
6.
In conjunction with the Company’s Offering for the issuance of 1,224,488 shares of the Company’s Common
stock, the Company also issued warrants to purchase up to 918,366 shares of common stock. Additionally, the
Company issued to the underwriters a unit purchase option to purchase units at an exercise price equal to $6.125
pursuant to which an aggregate of 61,224 shares and warrants to purchase 45,918 shares are issuable to the
underwriters. Upon closing of the Offering, the 2017 Notes were automatically converted and as a result the
Company issued an aggregate of 361,462 shares of common stock (and common stock equivalents) and warrants
to purchase an aggregate of 271,096 shares of common stock. The warrants have an exercise price of $6.90 per
share, subject to adjustment for stock splits, fundamental transactions or similar events and shall expire on
November 1, 2022.
j.
Stock option plan:
In November 2004, the Board of Directors of the Company adopted a stock option plan (“the Plan”), according to
which options may be granted to employees, directors and consultants.
Pursuant to the Plan, the Company reserved for issuance 400,000 shares of Common stock. Each option entitles the
holder to purchase one share of Common stock of the Company and expires after 10 years from the date of grant. Any
options that are terminated, cancelled, forfeited or not exercised, become available for future grants.
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
In November 2014, 10 years after it was adopted, the Plan expired.
In February 2014, the Board of Directors of the Company adopted a new stock option plan (“the New Plan”),
according to which options may be granted to employees, directors and consultants.
Pursuant to the New Plan, the Company reserved for issuance 714,286 shares of Common stock. Each option entitles
the holder to purchase one share of Common stock of the Company and expires after 10 years from the date of grant.
Any options that are terminated, cancelled, forfeited or not exercised, become available for future grants.
As of December 31, 2017, under the New Plan, no options were available for future grants.
In addition, the Company issued options to purchase 275,038 shares of Common Stock outside of the New Plan.
1. Option issued to employees and directors:
A summary of the Company’s options activity and related information with respect to options granted to
employees and directors during the years ended December 31, 2017 are as follows:
Outstanding - beginning of the year
Granted
Exercised
Expired or Forfeited
Outstanding - end of the year
Exercisable at end of year
Weighted
average
exercise
price
Weighted
average
remaining
contractual
life
Aggregate
intrinsic
value
3.75
—
—
10.08
3.03
2.23
8.18
3,419
7.18
7.09
3,419
2,896
Number of
options
1,202,006 $
— $
— $
(7,160) $
1,194,846 $
851,139 $
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Weighted average fair value of options granted to employees and directors during the years 2017 and 2016 was $
0 and $ 3.34 per option, respectively.
Aggregate intrinsic value of exercised options by employees and directors during the years 2017 and 2016 was $ 0
and $ 22, respectively. The Aggregate intrinsic value of the exercised options represents the total intrinsic value
(the difference between the sale price of the Company’s share at the date of exercise, and the exercise price)
multiplied by the number of options exercised.
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the
Company’s closing share price on the last trading day of calendar 2017 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by the option holders had all option holders
exercised their options on December 31, 2017. This amount is impacted by the changes in the fair market value of
the Company’s shares.
As of December 31, 2017, the total unrecognized estimated compensation cost related to non-vested options
granted prior to that date was $ 729 which is expected to be recognized over a weighted average period of
approximately 2.02 years.
2. Option issued to non-employees:
The Company’s outstanding options granted to consultants as of December 31, 2017 are as follows:
Issuance date
Options for
Common
stock
Weighted
Average
exercise price
per share
Options
exercisable Expiration date
April 2009
December 2010
March 2013
October 2013
February 2015
Total
1,071 $
786 $
30,000 $
1,000 $
714 $
10.35
1.99
1.96
1.96
1.96
1,071
April 2019
786 December 2020
30,000 March 2023
1,000 October 2023
714 February 2025
33,571 $
2.23
33,571
As of December 31, 2017, all options granted to non-employees are fully vested.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- STOCKHOLDERS’ EQUITY (DEFICIENCY) (Cont.)
3. Total stock-based compensation:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
The total stock based expense recognized in the financial statements for services received from employees and
non-employees is shown in the following table (refer also to Note 10d):
Research and development
Selling and marketing
General and administrative
Total
Year ended
December 31,
2017
2016
$
$
30 $
13
757
800 $
30
12
466
508
In connection with the resignation of a director from the board of directors, on March 30, 2017, the Company
amended the option agreement, dated March 25, 2015, for the grant of an option to purchase 30,000 shares of
common stock at an exercise price of $2.57 per share, all of which have vested, and the option agreement, dated
July 18, 2016, for the grant of an option to purchase 40,000 shares of common stock at an exercise price of $5.35
per share, all of which were vesting on July 18, 2017, to (i) accelerate the vesting of the option granted to the
director in 2016 so that it will be fully vested as of March 30, 2017, and (ii) permit the director to exercise the
options granted in 2015 and 2016 at any time prior to the expiration of the option period as set forth in the
applicable option agreement. This modification resulted in additional share based compensation expense of $98 in
the year ended December 31, 2017.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:- TAXES ON INCOME
NANOVIBRONIX INC. AND ITS SUBSIDIARY
a. As of December 31, 2017, the U.S. Company had federal and state net operating loss carry forward for tax purposes of
approximately $ 12,841. The federal operating loss can be offset against taxable income for 20 years. Utilization of the U.S.
net operating losses may be subject to substantial limitations due to the change of ownership provisions of the Internal
Revenue Code of 1986.
b. U.S. Tax Cuts and Jobs Acts:
On December 22, 2017, the U.S. Tax Cuts and Jobs Acts was enacted into law. The new legislation contains several key
tax provisions that will impact the Company. Changes include, but are not limited to, a corporate tax rate decrease
from 35% to 21% effective for tax years beginning after December 31, 2017, a one-time repatriation tax on accumulated
foreign earnings, a limitation on the tax deductibility of interest expense, an acceleration of business asset expensing, and
a reduction in the amount of executive pay that could qualify as a tax deduction. The lower corporate income tax rate will
require the Company to remeasure its U.S. deferred tax assets as well as reassess the realizability of its deferred tax assets.
ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the
SEC staff has issued SAB 118 which will allow the Company to record provisional amounts during a measurement
period.
The Company has concluded that a reasonable estimate could be developed for the effects of the tax reform. However,
due to the short time frame between the enactment of the reform and the year end, its fundamental changes, the
accounting complexity, and the expected ongoing guidance and accounting interpretations over the next 12 months, the
Company considers the accounting of the deferred tax remeasurement and other items to be incomplete. These effects
have been included in the consolidated financial statements for the year ended December 31, 2017 as provisional
amounts, which had an immaterial effect on the taxes on income due to the valuation allowance.
During the measurement period, the Company might need to reflect adjustments to the provisional amounts upon
obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment
date that, if known, would have affected the income tax effects initially reported as provisional amounts.
The measurement period will end when the Company obtains, prepares, and analyzes the information needed in order to
complete the accounting requirements under ASC Topic 740 or on December 22, 2018, whichever is earlier. The
Company expects to complete its analysis within the measurement period in accordance with SAB 118.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:- TAXES ON INCOME (Cont.)
c. Foreign tax:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
1. Tax rates applicable to the income of the Israeli subsidiary:
The Israeli corporate tax rate in 2017 and 2016 is 24% and 25%, respectively.
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for
Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which reduces the corporate income tax
rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.
2. The subsidiary has final tax assessments through 2012.
d. Loss before taxes on income:
Domestic
Foreign
e. Deferred income taxes:
Year ended
December 31,
2017
2016
$
$
4,930 $
(3)
4,927 $
2,738
(24)
2,714
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s
deferred tax assets are as follows:
Deferred tax assets:
Net operating loss carry forward
Temporary differences
Deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax asset
December 31,
2017
2016
$
$
2,722 $
35
2,757
(2,757)
3,894
34
3,928
(3,928)
— $
—
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that all or some
portion of the deferred tax assets will not be realized.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the
periods in which temporary differences are deductible and net operating losses are utilized. Based on consideration of these
factors, the Company recorded a full valuation allowance at December 31, 2017 and 2016.
f. Reconciliation of the theoretical tax expense to the actual tax expense:
The main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-
recognition of tax benefits from accumulated net operating loss carryforward among the Company and its subsidiary due
to the uncertainty of the realization of such tax benefits.
f. A reconciliation of the beginning and ending balances of uncertain tax benefits is as follows:
Balance at beginning of the year
Increases related to tax positions from prior years
Lapses of statutes of limitation
December 31,
2017
2016
$
170 $
17
)
97
73
Balance at the end of the year
$
(19
168 $
—
170
The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the year ended
December 31, 2017, the Company accrued $15 for interest and penalties expenses related to uncertain tax positions.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- FINANCIAL EXPENSE, NET
Interest on promissory notes
Discount amortization of promissory notes
Change in fair value of warrants
Other financial expense
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Year ended
December 31,
2017
2016
$
37 $
1,197
549
53
$
1,836 $
—
—
383
15
398
NOTE 13:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
Summary information about geographic areas:
ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments
are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages
its business on the basis of one reportable segment, and derives revenues from selling its products mainly through distributor
agreements. The following is a summary of revenues within geographic areas:
United States
Israel
United Kingdom
European Union (excluding United Kingdom)
India
Other
Year ended
December 31,
2017
2016
$
90 $
8
74
14
14
39
89
13
22
30
24
51
$
239 $
229
During the year ended December 31, 2017, there were sales to two distributors each of which accounted for approximately 11%
of total sales. During the year ended December 31, 2016, there were no sales to a single customer exceeding 10% of the
Company’s revenues.
The Company’s long-lived assets are all located in Israel.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- RELATED PARTIES BALANCES AND TRANSACTIONS
Balances with related parties:
NANOVIBRONIX INC. AND ITS SUBSIDIARY
Year ended
December 31,
2017
2016
Warrants to purchase Common stock (a)
$
— $
2,079
Related parties’ expenses:
Year ended
December 31,
2017
2016
Financial expenses (a)
$
549 $
383
(a) During February 2013 through December 2014, the Company issued to certain lenders, who are also shareholders of the
Company, warrants to purchase 563,910 shares of Common stock. 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. On November 2, 2017, the Company issued 13,409 shares of common stock and 180,464 shares
of Series C Preferred Stock to the holders of these warrants pursuant to a cashless exercise of such warrants (see also Note
8a).
(b) Refer to Note 7 for additional information regarding the issuance of convertible promissory notes to these lenders along
with warrants to purchase Common stock of the Company.
F-35
Exhibit
No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
Index to Exhibits
Description
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).
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)
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)
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)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)
Form of Warrant Agency Agreement, (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on October 31, 2017)
Form of Unit Purchase Option (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1, filed with
the Securities and Exchange Commission on October 18, 2017)
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form
S-1, filed with the Securities and Exchange Commission on October 18, 2017)
Fourteenth Amended and Restated Securities Purchase Agreement, dated June 16, 2014, by and between NanoVibronix, Inc.
and Globis Overseas Fund, Ltd. (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed
with the Securities and Exchange Commission on February 9, 2015)
Fourteenth Amended and Restated Securities Purchase Agreement, dated December 11, 2014, by and between NanoVibronix,
Inc. and Globis Capital Partners, L.P. (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form 10
filed with the Securities and Exchange Commission on February 9, 2015)
Fifteenth Amended and Restated Secured Convertible Promissory Note, dated December 11, 2014, by NanoVibronix, Inc. in
favor of and Globis Overseas Fund, Ltd. (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form
10 filed with the Securities and Exchange Commission on February 9, 2015)
Fifteenth Amended and Restated Secured Convertible Promissory Note, dated December 11, 2014, by NanoVibronix, Inc. in
favor of and Globis Capital Partners, L.P. (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form
10 filed with the Securities and Exchange Commission on February 9, 2015)
10.5
Form of Amended and Restated 2013 and 2014 Warrant to Purchase Common Stock (incorporated by reference to Exhibit
10.13 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on
March 25, 2014)
58
10.6+
NanoVibronix, Inc. 2004 Global Share Option Plan (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)
10.7+
10.8+
Personal Employment Agreement, dated March 1, 2008, by and between Nano-Vibronix (Israel 2003) Ltd and Jona Zumeris
(incorporated by reference to Exhibit 10.15 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 6, 2014)
Form of Indemnification Agreement between NanoVibronix, Inc. and certain of its officers and directors (incorporated by
reference to Exhibit 10.16 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on March 6, 2014)
10.9
Amendment to Subscription Agreement Convertible Promissory Notes, dated February 28, 2014, by and between
NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to
the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)
10.10
Second Amendment to Subscription Agreement Series B Convertible Preferred Stock and Warrants), dated February 28,
2014, by and between NanoVibronix, Inc. and the holders signatory thereto (incorporated by reference to Exhibit 10.19 to
Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March
6, 2014)
10.11
Third Amendment to Subscription Agreement Series B Convertible Preferred Stock and Warrants), dated February 28, 2014,
by and between NanoVibronix, Inc. and the holders signatory thereto (incorporated by reference to Exhibit 10.20 to
Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March
6, 2014)
10.12+
NanoVibronix, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.27 to Amendment No. 3 to the
Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)
10.13+
First Amendment to Personal Employment Agreement, dated June 16, 2014, by and between NanoVibronix, Inc. and Dr. Jona
Zumeris (incorporated by reference to Exhibit 10.29 to Amendment No. 8 to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on June 23, 2014)
10.14
Services Agreement, dated March 25, 2015, by and between Multigon Industries, Inc. and NanoVibronix, Inc. (incorporated
by reference to Exhibit 10.35 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on
March 30, 2015).
10.15+
Employment Agreement, dated March 25, 2015, by and between William Stern and NanoVibronix, Inc. (incorporated by
reference to Exhibit 10.36 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2015).
10.16+
Warrant to Purchase Common Stock, dated March 25, 2015 (incorporated by reference to Exhibit 10.38 to the Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30, 2015).
10.17+
Letter Agreement, dated March 25, 2015, by and between NanoVibronix, Inc. and Martin Goldstein (incorporated by
reference to Exhibit 10.39 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2015).
10.18+
Form of Incentive Stock Option Award Agreement under the 2014 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.40 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2015).
59
10.19+
Form of Nonqualified Stock Option Award Agreement under the 2014 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.41 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30,
2015).
10.20+
Form of Restricted Stock Award Agreement under the 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit
10.42 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2015).
10.21+
Form of 3(i) Award Agreement under the Israeli Appendix to the 2014 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.43 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30,
2015).
10.22+
Form of 102 Award Agreement under the Israeli Appendix to the 2014 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.44 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30,
2015).
10.23+
Employment Agreement, dated October 13, 2016, by and between NanoVibronix, Inc. and Brian Murphy (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October
19, 2016).
10.24
Form of Amendment to Warrant to Purchase Common Stock, effective as of January 27, 2017 (incorporated by reference to
Exhibit 10.46 to the Annual Report on Form 10-K filed with the Securities Exchange Commission on March 31, 2017).
10.25
Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 7, 2017).
10.26
Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 7, 2017).
10.27
Convertible Promissory Note, dated March 23, 2017, by and between NanoVibronix, Inc. and an individual investor
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 27, 2017).
10.28
Warrant to Purchase Common Stock, dated March 23, 2017, by and between NanoVibronix, Inc. and an individual investor
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 27, 2017).
10.29+
First Amendment to Nonqualified Stock Option Agreement, dated March 30, 2017, between NanoVibronix, Inc. and Ira A.
Greenstein (incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K filed with the Securities
Exchange Commission on March 31, 2017).
10.30+
First Amendment to Nonqualified Stock Option Agreement, dated March 30, 2017, between NanoVibronix, Inc. and Ira A.
Greenstein (incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K filed with the Securities
Exchange Commission on March 31, 2017).
10.31+
Offer Letter, dated October 14, 2016, between NanoVibronix, Inc. and Christopher M. Fashek (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2016).
10.32+
Nonqualified Stock Option Agreement, dated October 14, 2016, between NanoVibronix, Inc. and Christopher M. Fashek
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 19, 2016).
60
10.33
Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 5, 2017).
10.34
Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 5, 2017).
10.35
Form of Letter Agreement, dated September 7, 2017, between NanoVibronix, Inc. and holders of the 2017 Notes
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-KA/filed with the Securities and Exchange
Commission on September 14, 2017).
21.1
List of Subsidiaries (incorporated by reference to Exhibit 21.1 to Amendment No. 1 to the Registration Statement on Form S-
1 filed with the Securities and Exchange Commission on March 6, 2014).
23.1*
31.1*
31.2*
32.1*
32.2*
101 *
Consent of Kost Forer Gabbay & Kasierer, a member firm of Ernst & Young Global, Independent Registered Public
Accounting Firm
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,
formatted in XBRL (eXtensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Comprehensive Loss, (iii) Consolidated Statements of Changes in Stockholders’ Deficiency, (iv) Consolidated
Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements.
Filed herewith.
*
+ Management contract or compensatory plan or arrangement.
61
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
NANOVIBRONIX, INC.
By: /s/ Brian Murphy
Brian Murphy
Chief Executive Officer
Date: March 29, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/Brian Murphy
Brian Murphy
/s/ WILLIAM STERN
William Stern
/s/ STEPHEN BROWN
Stephen Brown
/s/Christopher Fashek
Christopher Fashek
/s/ MARTIN GOLDSTEIN
Martin Goldstein
/s/ HAROLD JACOB M.D.
Harold Jacob, M.D.
/s/ JONA ZUMERIS, PH.D.
Jona Zumeris, Ph.D.
/s/ MICHAEL FERGUSON
Michael Ferguson
/s/ THOMAS R. MIKA
Thomas R. Mika
Chief Executive Officer and Director
(principal executive officer)
President
March 29, 2018
March 29, 2018
Chief Financial Officer,
(principal financial and accounting officer)
March 29 2018
Chairman of the Board of Directors
March 29, 2018
Director
Director
Director
Director
Director
62
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-205577) pertaining to the Stock Option
Plan of NanoVibronix, Inc. of our report dated March 29, 2018 with respect to the consolidated financial statements of NanoVibronix, Inc.
and its subsidiary, included in this Annual Report on Form 10-K for the year ended December 31, 2017.
Tel-Aviv, Israel
March 29, 2018
/s/Kost Forer Gabbay & Kasierer
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
EXHIBIT 23.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)
I, Brian Murphy, certify that:
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NanoVibronix, Inc. (the “registrant”);
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;
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;
T h e 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)) for the registrant and have:
a)
b)
c)
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;
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
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)
b)
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
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: March 29, 2018
/s/ Brian Murphy
By:
Name: Brian Murphy
Title: Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)
I, Stephen Brown, certify that:
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of NanoVibronix, Inc. (the “registrant”);
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;
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;
T h e 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)) for the registrant and have:
a)
b)
c)
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;
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
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)
b)
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
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: March 29, 2018
/s/ Stephen Brown
By:
Name: Stephen Brown
Title: Chief Financial Officer (Principal Financial 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
Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2017 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-K 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-K 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: March 29, 2018
/s/ Brian Murphy
By:
Name: Brian Murphy
Title: Chief Executive Officer (Principal Executive Officer)
The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and
Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and,
accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.
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
Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2017 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-K 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-K 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: March 29, 2018
/s/ Stephen Brown
By:
Name: Stephen Brown
Title: Chief Financial Officer, Treasurer and Secretary (Principal
Financial Officer)
The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and
Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and,
accordingly, is not being filed as part of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.