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, 2022
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, New York
(Address of principal executive office)
01-0801232
(I.R.S. Employer
Identification Number)
10523
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (914) 233-3004
Title of each class
Common stock, par value $0.001 per share
Trading Symbol
NOAV
Name of each exchange on which registered
NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the 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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of our common stock held by non-affiliates as of June 30, 2022, was approximately $17,539,360.
The number of shares outstanding of the registrant’s Common Stock as of April 17, 2023 was 1,662,377 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated by reference from the registrant’s definitive proxy
statement for its 2023 Annual Meeting of Stockholders. Such proxy statement shall be filed with the Securities and Exchange Commission within 120 days
after the end of the fiscal year to which this report relates.
PART I
ITEM 1. BUSINESS
Cautionary Note Regarding Forward-Looking Statements; Risk Factor Summary
This Annual Report on Form 10-K contains “forward-looking statements,” which include information relating to future events, future financial
performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,”
“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as
statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or
results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we
have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to a number of risks,
and uncertainties and assumptions that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-
looking statements. These risks are more fully described in the “Risk Factors” section of this Annual Report on Form 10-K. The following is a summary of
such risks:
● Our history of losses and expectation of continued losses.
● Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business,
financial condition or results of operations
● Increasing inflation could adversely affect our business, financial condition, results of operations or cash flows.
● The geographic, social and economic impact of COVID-19 on the Company’s business operations.
● Our ability to raise funding for, and the timing of, clinical studies and eventual U.S. Food and Drug Administration (“FDA”) approval of our
product candidates.
● Regulatory actions that could adversely affect the price of or demand for our approved products.
● Market acceptance of existing and new products.
● Favorable or unfavorable decisions about our products from government regulators, insurance companies or other third-party payers.
● Risks of product liability claims and the availability of insurance.
● Our ability to successfully develop and commercialize our products.
● Our ability to generate internal growth.
● Risks related to computer system failures and cyber-attacks.
● Our ability to obtain regulatory approval in foreign jurisdictions.
● Uncertainty regarding the success of our clinical trials for our products in development.
● Risks related to our operations in Israel, including political, economic and military instability.
● The price of our securities is volatile with limited trading volume
● Our ability to comply with the continued listing requirements of the Nasdaq capital market.
● Our ability to maintain effective internal control over financial reporting and to remedy identified material weaknesses.
● We are a “smaller reporting company” and have reduced disclosure obligations that may make our stock less attractive to investors.
● Our intellectual property portfolio and our ability to protect our intellectual property rights.
● Our ability to recruit and retain qualified regulatory and research and development personnel.
● Unforeseen changes in healthcare reimbursement for any of our approved products.
● The adoption of health policy changes and health care reform.
● Lack of financial resources to adequately support our operations.
● Difficulties in maintaining commercial scale manufacturing capacity and capability.
● Changes in our relationship with key collaborators.
● Changes in the market valuation or earnings of our competitors or companies viewed as similar to us.
● Our failure to comply with regulatory guidelines.
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● Uncertainty in industry demand and patient wellness behavior.
● General economic conditions and market conditions in the medical device industry.
● Future sales of large blocks of our common stock, which may adversely impact our stock price.
● Depth of the trading market in our common stock.
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk
factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Item 1A.
Risk Factors” for additional risks which could adversely impact our business and financial performance. Moreover, new risks regularly emerge, and it is not
possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or
combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in
this Form 10-K are based on information available to us on the date hereof. Except to the extent required by applicable laws or rules, we undertake no
obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Unless the context otherwise indicates or requires, the terms “we,” “our,” “us,” “NanoVibronix,” and the “Company,” as used in this Annual
Report on Form 10-K, refer to NanoVibronix, Inc. and its subsidiaries as a combined entity, except where otherwise stated or where it is clear that the terms
mean only NanoVibronix, Inc. exclusive of its subsidiaries.
Overview
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, pain
therapy, and wound healing 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, which has been marketed in the U.S. under FDA’s policy of
enforcement discretion during the COVID-19 pandemic and is currently undergoing clinical testing that will, hopefully, support 510(k) clearance;
● 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. Our PainShield family of products include:
● PainShield™ MD, a single 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.
● PainShield™ Plus, a dual 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. Similar to PainShield MD, it has a dual
ultrasound delivery; 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 UroShield, PainShield, 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.
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PainShield™, MD is currently cleared for marketing in the United States by the U.S. Food and Drug Administration (“FDA”). In September 2020,
the FDA exercised its Enforcement Discretion to allow distribution of the UroShield device in the U.S. during the COVID-19 health emergency. While the
permitted use is currently temporary, it does permit the import of the UroShield to the U.S. during the ongoing COVID-19 pandemic. Our understanding is
that this permitted use will be terminated six months after the health emergency is officially ended. All three of our products have CE Mark approval in the
European Union, and a certificate allowing us to sell PainShield and UroShield in Israel. We are able to sell PainShield and UroShield in India and Ecuador
based on our CE Mark. We have consummated sales of PainShield and UroShield in the relevant markets, and we saw sales increase in 2021, but decline
slightly in 2022. 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 and UroShield require a prescription from a licensed healthcare practitioner. If FDA clearance is obtained, we
anticipate that WoundShield will require a prescription from a licensed healthcare practitioner in the United States. As stated previously, UroShield has
been approved through the FDA under Enforcement Discretion for the duration of the Covid-19 health emergency and is intended to be sold directly to
health care facilities and individuals. Individuals will require a prescription but healthcare facilities will deploy based upon clinical need. 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 and PainShield, 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, prior to January 2020, we only had reimbursement codes in the United States (i.e., CPT codes) for clinical use
only. Effective as of January 2020, the U.S. Centers for Medicare and Medicaid Services (“CMS”) approved our PainShield™ for reimbursement for
Medicare beneficiaries on a national basis. However, the company continues to work toward a reimbursement value from CMS. We are working with
qualified legal representation toward that goal. The company was denied reimbursement in September 2022 due to a lack of “life-cycle” testing. The
company has engaged Carmel Labs in Israel to conduct this testing. We are approximately 85% of the way through this testing, with all devices working
properly. In January 2023, we submitted another application to CMS with “life-cycle” testing pending. Along with our application, we submitted an interim
report which was positive in nature. The latest CMS application will include both PainShield and UroShield products and supplies. 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 are seeking reimbursement codes for use of our products in the markets in which we have regulatory authority,
including the United States, to sell such products. 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. We have engaged a reimbursement expert, the law firm
of Brown and Fortunato as regulatory counsel, to help facilitate our applications, potentially leading to reimbursement.
We have completed seven separate clinical studies with UroShield that together evaluated approximately 220 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 completed a double blind clinical trial for UroShield in the United States in October 2018. The results of the study, entitled “The Effect of Surface
Acoustic Waves on Bacterial Load and Preventing Catheter-Associated Urinary Tract Infections (CAUTI) in Long Term Indwelling Catheters,” were
published in the December 2018 issue of Medical & Surgical Urology, a peer-reviewed journal in the field of urology. In the study, 55 patients in skilled
nursing facilities treated with long term indwelling catheters were evaluated. There was a significant difference between the treated group and the placebo
group in the number of colony forming units (“CFU”) present upon evaluation, as well as on the number of treated urinary tract infections (“UTI”), and the
effect lasted beyond the time of active treatment. The study concluded that the UroShield™ device was shown to be effective in significantly reducing the
number of CFUs in patients with indwelling catheters. The study also concluded that the UroShield™ device was shown to be effective in reducing the
number of treated UTIs in this patient population, and surface acoustic waves in the form of the UroShield™ device is an effective tool in the prevention of
catheter-associated UTI and while further evaluation is encouraged, can be safely utilized with a high likelihood of success. In July 2017, we engaged
Idonea Solutions, Inc., an FDA consultant, to assist in our efforts to obtain clearance under the FDA’s Enforcement Discretion, and obtain 510(k) clearance
which is still ongoing. If we are successful, we intend to pursue obtaining reimbursement codes and to target completion of partnerships with leading
catheter product companies and distributors for sales and marketing efforts in the United States. The Company has entered into recent distribution
partnerships for UroShield in the U.K., Australia, and Malta.
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We have one clinical study recently completed for our product UroShield. We announced positive interim results from an independent, real world
patient study of UroShield at Southampton University Health Sciences in December 2021. The independent study, which was launched in the first half of
2021, was devised to evaluate how UroShield helps to reduce infection by preventing bacteria colonization and the buildup of biofilms on long-term
indwelling urinary catheters in real world patients and to better understand the patient benefits and experiences of using UroShield. The study consists of
both laboratory and patient studies and is nearing completion. At the conclusion of the study, Southern Health reported a significant reduction in catheter
blockage and a positive effect on the microbiome. Full results of the study are expected to be published in 2023.
In addition, we continue to expand our clinical development and marketing efforts in North America with respect to PainShield. In February 2018,
we 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 and included 59 patients with a diagnosis of unilateral trigeminal neuralgia. Among the 59 patients, 30 were in the active treatment
group and 29 were in the control group. The values which were assessed included the Visual Analog Scale (“VAS”) pain score, both baseline prior to trial
and VAS pain score at the end of the study. The study also assessed breakthrough medications per week at the start of the trial and breakthrough
medications per week at the end of the trial, with a particular focus on the use of opioids. Breakthrough medications are used for chronic pain directly
related to the pre-existing trigeminal neuralgia condition. There was a significant difference in the outcomes of the two groups relative to pain, quality of
life, and breakthrough medications taken, which was directly correlated to pain experienced during treatment. Specifically, the control group saw an
improvement in baseline scores of 2.3% versus the treatment group, which saw a 55.2% improvement in baseline scores. Additionally, the control group
saw a reduction in breakthrough pain medication of 1.5% versus the treatment group, which saw a 46.4% reduction in breakthrough pain medication.
We are currently in advanced negotiations with a major teaching medical university to conduct a study on UroShield, which is intended to satisfy
the FDA requirements for traditional 510k clearance. We expect that study to commence in either the third or fourth quarter of 2023.
In 2019, the Company completed a study which was intended to assess the PainShield’s ability to effectively treat Lateral Epicondylitis (Tennis
Elbow). This was a double blinded, randomized control trial. The study has been completed and we are contemplating submission to an appropriate journal.
The interim results were reported as follows:
● 91% of the patients in the PainShield treatment group had complete or partial resolution of symptoms. Patients used PainShield in
conjunction with over-the-counter medication, as needed, but without the benefit of opioid-based prescription medication.
We believe results of the Birmingham study could further reinforce that PainShield is safe, easy-to-use and highly effective in treating soft tissue
pain. Patients in the study who wore our device reported marked reduction in pain and when combined with over-the-counter, anti-inflammatory
medications, those same patients reported a complete resolution of symptoms within 10 days.
Dr. David Lemak, MD, Lead Investigator of the Birmingham Study, added, “Patient outcomes were markedly improved with the use of PainShield
and importantly, no patients returned with signs or symptoms of an exacerbation. Most encouraging are the results we were able to achieve for our patients
without the use of prescription opioid medications, which can often lead to prolonged use and addiction.”
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.
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Recent Developments
On March 21, 2023 we announced that we filed a new provisional patent application with the United States Patent and Trademark Office
(“USPTO”) entitled “Multiple Frequency Surface Acoustic Waves for Internal Medical Device” (the “Patent Application”) related to its UroShield. The
Patent Application covers a recently developed enhancement to the UroShield product, UroShield “Ultra”, which incorporates improvements to the
Company’s original UroShield. The next generation UroShield Ultra includes modified housing that is designed to improve catheter coupling and
incorporates multiple actuators that work in sequence to discourage bacterial docking by delivering SAWs at multiple frequencies directly to indwelling
catheters.
On March 15, 2023 we announced the positive evaluation results for our UroShield device, presented at a recent medical conference by clinicians
from the Royal National Orthopaedic Hospital (“RNOH”). The report concluded that our UroShield device showed a decrease in the number of blockages
and infections and an increase in catheter satisfaction in the patients studied. In addition, evaluators concluded that the device has the potential to improve
quality of life and reduce healthcare associated costs for patients with spinal cord injuries who experience recurrent blockages or infections and who have
complicated catheter issues.
In April 2022, we announced that UroShield was approved for sale by NHS Supply Chain through a new contract. This new contract with NHS
Supply Chain provides a dedicated end-to-end supply chain service of our UroShield for every NHS healthcare organization. UroShield will be available to
all patients who need the device with full clinical support, through the NHS supply chain. On September 23, 2022, UroShield was approved for sale by the
NHS Supply Chain through a new contract. The new contract, which is designed to provide new innovative products for healthcare providers, begins in
October 2022 and will merge with the existing Urology and Stoma framework contract in February 2024 with optional extension periods.
PainShield was granted a dedicated reimbursement code (K1004) by CMS in 2021, which was an initial step towards paving the way for many
millions of beneficiaries enrolled in Medicare to have access to our product. In addition, CMS expanded its reimbursement approval of the company’s
PainShield™ product by adding the device to its Durable Medical Equipment (DME) schedule. ricing was not established at that time, and our efforts to
obtain favorable pricing resulted in a denial, pending further testing of the device’s life expectancy. Testing to gather life expectancy data began in October
2022, and we are preparing to demonstrate the life expectancy in the next few months. We are hopeful of a positive outcome that will allow us to secure
pricing and remove the barriers for distribution to beneficiaries under Medicare.
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of
Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated
March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by
discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages
estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
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On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, nevertheless awarded Protrade about $1.5
million, on the grounds that the Company allegedly failed to fulfill an order for reusable hydrogel patches placed after the Agreement was terminated. The
arbitrator based her decision on the basis of testimony of Protrade’s president who asserted that a patient would use in excess of 33 reusable patches per
each device, which the Company believes is a grossly inflated number.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award. On April 13, 2022,
the Company submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Company only sold 2-3 reusable
patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Company filed a cross-motion seeking to vacate the arbitration award on the grounds that the arbitrator exceeded her
authority, that the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Company
averred in its motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade
and that has no factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Award and denying the cross-motion.
On November 9, 2022, the Company filed a motion to re-argue and renew its cross-motion to vacate the arbitration decision based on newel
information that was not available during the initial hearing. On the same day, the Company also filed a notice of appeal with the Appellate Division,
Second Department. On March 21, 2023, the Court denied the motion to re-argue and renew. The Company intends to file a notice of appeal with the
Appellate Division, Second Department and to continue to vigorously pursue its opposition to the award in all appropriate fora. As of December 31, 2022,
the Company accrued the amount of the award to Protrade amounting to $1,846,794 with $1,500,250 as part of “General and administrative expenses” and
$346,544 as part of “Interest expense”, and the full amount included in “Other accounts payable and accrued expenses”.
Business Model
All of our products consist of a reusable controller device and a disposable component, which includes a transducer, and in the case of PainShield,
a 30 day supply of adhering patches. The controllers have a life expectancy of three years, while the UroShield 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 disposables to
the extent that the end user continues treatment with our product.
Our products are intended to be distributed directly by the company, independent distributors, and 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 are in the process of adding additional distributors to our network, and continue our
efforts to identify market leaders in various segments to private label both PainShield and UroShield.
We also have a direct sales component, where we sell directly to consumers, in order to satisfy customer demand generated through on-line
advertising and social media. We have seen an increase in demand as a direct result of an expanded social media and on-line advertising presence.
Our business plan continues to focus on these types of transactions/agreements. We continue to focus on the foundational aspects of each
respective product, including the design and performance of each, the reimbursement, regulatory status, and quality control, in order to strengthen our
position with prospective partners.
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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.
Our proprietary PainShield 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 pain 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 may provide a competitive advantage over other existing therapies marketed for similar intended use(s) (e.g., to treat pain associated with
muscle, tendon, and contractures), as our technology is positioned to directly target the affected areas of the body within the scope of the applicable FDA
clearance.
While there are currently a number of products on the market that treat pain through ultrasound therapy, we believe that our products may be
preferable in certain instances because they are portable, without the requirement to be plugged into an outlet and they have a frequency of 100kHz (in
contrast to other devices, which have a frequency of closer to 1MHz and above), which means our products, when functioning as intended and in
accordance with applicable design specifications, should not produce excessive 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 also aware of one product, the SAM® Sport family of products, which
received FDA approval and 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 FDA has issued contraindications which do not apply to the PainShield product.
There has been an article published in 2019 on SAM® Sport4 regarding clinical evidence demonstrating that ultrasound dose timing (i.e. daily
treatment) and duration significantly impact benefits and treatment results, we are aware of a prospective randomized, double-blinded, placebo-controlled
study on the effects of the long-duration low-intensity ultrasound treatment using SAM® Sport4 suggesting that ultrasound may be used as a conservative
non-pharmaceutical and non-invasive treatment option for patients with knee osteoarthritis.
In general, ultrasound offers the benefits 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 soft tissue 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.
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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.
The PainShield Plus was introduced in March 2022. The new product design provides the same therapy as PainShield MD, but through two
transducers which alternate in its duty cycle. This dual transducer design provides for a broader treatment are with three hours of therapy.
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
In a 2007 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).
8
Relative to soft tissue repair, 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. 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).
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 UroShield 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
Product Design, Packaging, Identity
All products were redesigned in the fourth quarter 2019, with an updated look and improved performance. These new designs were coupled with
new branding, packaging, instructional manuals, and marketing materials. Beginning in the fourth quarter of 2019, our manufacturing in China, Singapore,
and Israel have commenced producing the redesigned products for distribution and delivered their first completed units in April 2020.
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. Use of the device is contraindicated for use while there is an active Urinary Tract Infection. We believe that UroShield may 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 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.
9
Clinical studies of the UroShield system have supported 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.
● 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, conducted in 2005-2006, 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).
10
In a subsequent physician-sponsored trial, known as Heidelberg 2, conducted in 2007, 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 bacteriuria, as
compared to one in the active group. In a third trial, a physician-sponsored open label trial, 10 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.
As recently announced, the Company submitted to The National Institute for Health and Care Excellence, for review, the findings from an
independent evaluation of its UroShield® device on patients who had used the device for up to two years. Clinical data from the study conducted by
Coventry University’s Assistant Professor, Ksenija Maravic da Silva, during 2020 reported statistically significant outcomes for the device including a
reduced number of urinary tract infections (UTIs), reduced instances of prescribed antibiotics, reduced catheter blockages, reduced the need for unplanned
catheter changes and reduced pain reported as a result of catheter associated complications. The study also provided important insights into the lives of
those using the device including improvement of overall well-being, relating specifically to decreased levels of worry and increased ability to socialize. In
addition, patient feedback on product improvements was addressed and has been incorporated in the present commercially available device.
In September 2022, UroShield was approved for sale by the U.K.’s National Health System’s (NHS) internal supply organization, NHS Supply
Chain, through a new contract.
This new contract with NHS Supply Chain provides dedicated end-to-end supply chain service of our UroShield for every NHS healthcare
organization. UroShield will be available to all patients who the need the device with full clinical support, through the NHS supply chain. It represents a
significant opportunity for us to expand distribution of UroShield as it will now be made available to all clinicians and their patients through the NHS
organization’s own supply channel. NHS Supply Chain manages the sourcing, delivery and supply of healthcare products and services for NHS trusts and
healthcare organizations across England and Wales. The organization processes more than eight million orders per year across 94,000 order points and
17,465 locations serving as an integral part of the national healthcare system in the U.K. We are ramping up production to meet an increase in demand that
we anticipate as a result of this exciting development.
The new contract, which is designed to provide new innovative products for healthcare providers, begins in October 2022 and will merge with the
existing Urology and Stoma framework contract in February 2024 with optional extension periods.
Under the contract, NHS Supply Chain describes UroShield as a disposable ultrasound device designed to reduce the risk of catheter-associated
urinary tract infection (CAUTI) by reducing bacterial colonization and biofilm formation on indwelling urinary catheters. This ultimately translates into
improved outcomes for patients and care provides, reduces the need for antibiotics, catheter changes and washouts and incidence of hospital visits, thereby
reducing nursing time, bed days and ambulance transfers.
On March 1, 2023 the Company launched its month-to-month rental program for UroShield.
Market for UroShield
According to the Centers for Disease Control and Prevention, urinary tract infection (UTI) is an infection involving any part of the urinary system,
including urethra, bladder, ureters, and kidney. UTIs are the most common type of healthcare-associated infection reported to the National Healthcare
Safety Network (NHSN). Among UTIs acquired in the hospital, approximately 75% are associated with a urinary catheter, which is a tube inserted into the
bladder through the urethra to drain urine. Between 15-25% of hospitalized patients receive urinary catheters during their hospital stay. The most important
risk factor for developing a catheter-acquired urinary tract infection (CAUTI) is prolonged use of the urinary catheter.
This study was written up in the December 2018 issue of “Medical & Surgical Urology”, a leading peer-reviewed journal in the field of urology.
Approximately 15-25% 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.
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 (i.e., 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).
11
The global catheter market size was valued at USD 37.3 billion in 2018 and is expected to witness a CAGR of 9.7% through 2026. Rising
prevalence of chronic disorders leading to hospitalization has fueled the growth of this market. Presence of multi-national manufacturers, improving
medical facilities, supportive insurance policies are also some of the key factors propelling the market growth. North America is the largest regional market
due to the presence of multi-national manufacturers and sophisticated healthcare infrastructure along with high product awareness levels. Asia Pacific is
projected to expand at the maximum CAGR of 10.4%, over the study period. According to a Grandview research report published 2018, there are 25
million Foley catheters sold annually in the United States and 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 $13,793 per case (AHRQ), and the cost of treating bacteremia has been
estimated at $8,355 (NIH) 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 bacteriuria 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. However, in the United States, we do not have the requisite regulatory authorization to market UroShield for such use, as
we have not yet obtained FDA clearance or approval for UroShield, and the FDA’s temporary, COVID-19-related policy of Enforcement Discretion under
which we have been marketing UroShield since September 2020 expressly excludes use with a coated catheter. 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. While UroShield was temporarily authorized for use in the United States per FDA’s Enforcement Discretion during the
COVID-19 health emergency, the public health emergency has since-been terminated, and the applicable FDA policy under which we have been marketing
UroShield will similarly terminate before the end of 2023. In particular, recent FDA guidance confirmed that its medical-device enforcement policies
issued during the COVID-19 pandemic will officially expire on November 7, 2023. The guidance outlines a three-phase plan for ensuring that any devices
marketed under a specifically listed enforcement policy will be able to be marketed lawfully after the termination of those enforcement policies. During the
180-day period between the termination of the public health emergency and the expiration of FDA’s relevant enforcement policies, manufacturers, like us,
who desire to continue marketing their respective devices must submit an appropriate premarket submission, such as a 510(k) application or de novo
reclassification request, and bring the device into compliance with applicable FDA regulations. If we do not obtain permanent clearance from the FDA by
November 7, 2023, we will have to discontinue distribution of UroShield in the United States until the necessary FDA clearance or approval is granted. We
cannot guarantee that FDA will clear or approve UroShield for continued marketing in the United States in a timely manner or at all.
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, although, due to
a modification of regulatory standards in Canada, we have lost our Canadian license. We are working toward reinstatement of our Canadian license. To that
extent, we passed an audit in or around October 2022.
In the European Union, UroShield has been marketed for the prevention of CAUTI and biofilm formation, decreased pain and discomfort
associated with urinary catheters and increased antibiotic efficacy.
12
In September 2020, the FDA exercised its Enforcement Discretion to allow distribution of the UroShield device in the United States. According to
the FDA, “UroShield® device can use Intended Use Code (IUC) 081.006: Enforcement discretion per final guidance, and FDA product code QMK
(extracorporeal acoustic wave generating accessory to urological indwelling catheter for use during the COVID-19 pandemic)”.
Accordingly, the FDA’s Enforcement Discretion temporarily cleared the way for import of UroShield to the U.S. during the Covid-19 pandemic,
immensely expanding the company’s addressable market for the device during this time period, which will officially end in November 2023. The device is
designed to aid in the prevention of CAUTI incidence in patients requiring long-term indwelling catheterization, defined as 14 days or greater.
After reviewing the body of scientific evidence that we presented, the FDA took decisive action to clear the way for patient access to UroShield
for the duration of the Covid-19 pandemic. We believe the evidence presented to the FDA on UroShield demonstrated decreases in the risk of catheter-
associated urinary tract infections and related complications in patients using UroShield who required long-term indwelling catheterization.
We intend to seek long-term marketing authorization from the FDA through the de novo classification process for UroShield, which is a premarket
pathway intended for devices that cannot pursue 510(k) clearance because there is no substantially equivalent predicate device but which the applicant
believes are sufficiently low-risk that they need not undergo the rigorous premarket approval pathway to be deemed safe and effective for the applicable
indications for use. We are currently seeking advice from the FDA prior to submission. We also intend to seek advice and validation of supporting studies
we intend to undertake in advance of a De Novo application.
The FDA has made it clear that we will need to generate more clinical study data in order to achieve) de novo reclassification. Our intent is to
conduct a community based PRO study (Patient Reported Outcomes) measuring the impact UroShield will have on prevention of CAUTI, Prevention of
Blockage, and prevention of Pain. We currently are in the early stages of putting together a team and plan to start this process.
Studies completed to assess the safety of UroShield for human use:
● A large animal model (female sheep) study has been conducted to establish local tissue response from a urinary catheter with UroShield
attached as compared to a control group of animals with a urinary catheter with no UroShield attached.
The pre-clinical animal study was intended to demonstrate safety of UroShield device when used for 30-days with a urinary catheter. The
study compared local tissue and organ response in two groups of 4 (female) sheep where one group was catheterized (urethral) using an
uncoated silicone Foley catheter (only) and the other group was catheterized using an uncoated silicone Foley catheter with UroShield
device attached to it. All catheters were identical in their size, material composition and manufacturer.
After 30 days the animals were euthanized and local tissue and organs were examined. The results showed the group with UroShield
device had fewer observations of swelling, redness or discharge at the vulva as compared to the group without UroShield. The animals
did not exhibit signs of discomfort or pain during study period (of 30 days). The gross and histopathology findings were also very similar
between the two groups.
● A comparative study of leachables from a urinary catheter with and without UroShield attached has been performed to demonstrate that
the leachables with UroShield attached do not exceed toxicological safe limits allowed for a medical device.
The chemical characterization of leachables was intended to demonstrate safety for UroShield device for 30-day use with a urinary
catheter. The study compared leachables from a group consisting of 3 uncoated silicone catheters with leachables from a group consisting
of 3 uncoated silicone catheters with UroShield attached to it. All catheters were identical in their size, material composition and
manufacturer.
The exhaustive extractions were performed with non-polar, polar and aqueous solvents. An additional simulated use extraction using
Saline and Ethanol was performed. Overall the extractables from both groups were comparable and toxicological evaluation showed that
all compounds from extraction with UroShield were below the tolerable exposure limits. Most of compounds had a margin of safety
greater than 10 and 4 compounds had margin of safety between 1.5 and 10. Overall, the toxicological risk for using UroShield with a
urinary catheter is similar and at even lower as compared to a catheter without UroShield attached.
Sales and Marketing
Since the FDA exercised its Enforcement Discretion to allow the distribution of the UroShield device in the United States, we have been actively
seeking partnerships for marketing our product in the United States. We believe the business opportunity for UroShield is in the hundreds of millions in
U.S. dollars to the extent that UroShield obtains permanent marketing authorization from the FDA, is recognized as effective and becomes widely adopted
for use on catheters, none of which can be guaranteed. To that end, we are seeking a strategic partnership with various companies which have an existing
“footprint” in the Urology market. Those discussions and negotiations are ongoing at this time. We have appointed distributors for UroShield in the United
Kingdom. Malta, and Australia. We recently appointed the Benion group to identify distributor opportunities outside of the United States.
We announced in December 2022 that we have appointed a new distributor in the United Kingdom. The newly appointed distributor is Peak
Medical.
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. There has also been interest from other companies with various invasive line applications.
13
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
Purpose
To assess the safety of
the UroShield Double
Comparative,
Blind,
Randomized Study for
the Safety Evaluation of
the UroShield System
(HD1)
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
well
and
safe
tolerated.
proved
UroShield
in
efficacious
of
prevention
biofilm.
Subjects
required significantly
less medications than
the control group for
catheter related pain
and discomfort.
Dr. U. Ikinger, Salem
Academic Hospital,
University of
Heidelberg, Germany
2007
40 patients
To demonstrate that the use of the 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.
Shaare Zedek
Medical Center
Jerusalem, Israel.
2007
10 patients
The study aimed to assess the 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.
Blind,
Double
Comparative,
Randomized Study for
the Safety Evaluation of
the UroShield System
(HD2 )
Physician initiated
The Effect of UroShield
on Pain and Discomfort
in Patients Released
from
the Emergency
Room with Urinary
Catheter Due to Urine
Incontinence
Physician initiated
In this trial, only 1/20
patients in UroShield
(no
device
group
antibiotics)
developed
urinary
infection
tract
to 4/20
compared
patients
within
control group treated
with
the antibiotic
prophylaxis alone.
The
results
a
demonstrated
reduction
in pain,
itching, burning and
levels.
spasm
the
Additionally,
well-being of
the
subjects showed a
significant increase.
of
the
The Use
UroShield Device
in
Patients with Indwelling
Urinary Catheters Open
comparative,
labeled,
randomized study
Dr. Shenfeld
Shaare Zedek
Medical Center
Jerusalem, Israel.
2007-2009
40 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
14
UroShield
device
in
effective
was
reducing
postoperative
catheter related pain
discomfort
and
bladder
spasms.
There was also a
notable trend towards
of
reduction
bacteriuria.
of
Purpose
Evaluation
the
UroShield in urinary and
nephrostomies to reduce
bacteriuria
Physician
initiated
Blind,
Double
Randomized
Control
Study for Prevention of
Bacterial Colonization
and UTI associated with
Urinary
Indwelling
Catheters
Doctor/Location
Prof. P.Tenke,
Hungary
Time,
subjects
2010-2011
27 patients
Objectives
● Pain, disability and QOL
● Catheter patency
● Bacteriuria / UTI
● Hospitalization period
● Analgesics and Antibiotics intake
Results
Showed reduction in
pain and significant
in
decrease
bacteriuria rate.
Dr. Shira Markowitz
Buffalo, NY
2017
55 patients
To demonstrate the use of the UroShield reduces
bacterial colonization on the urinary catheter
Effect
Tract
(CAUTI)
Term
Final results entitled
of
“The
Surface
Acoustic
Waves on Bacterial
Load and Preventing
Catheter-Associated
Urinary
Infections
in
Indwelling
which
Catheters,”
was published in the
December 2018 issue
of Medical
&
Surgical Urology, a
leading
peer-
reviewed journal in
the field of urology.
Long
Mean
improvement
in
advantage
treatment vs control
was 87.2K CFU, (t
(53) 18.1, p<0.001)
at thirty days. At 60
days
the mean
improvement
advantage
in
treatment vs control
was 87.5K CFU, (t
(53) 18.1, p<0.001).
At 90 days the mean
improvement
advantage
in
treatment vs control
was 79.3K CFU, (t
(53) 12.4, p<0.001).
15
Purpose
Doctor/Location
Time,
subjects
Objectives
in
Results
After cessation of
treatment
the
active group at 30
days,
there was a
minimal increase in
CFU count at both 60
and 90 days. In the
same group,
there
statistical
was no
difference
the
in
decrease of CFU
count from 30 to 60
days after treatment,
t (28)=1. p=
.326,
however there was a
marginally
increase
significant
in CFU from 60 to 90
days for the active
group (28)=1.7 p=
0.09.
At baseline, every
enrolled patient had
been
for
treated
infection during the
90 days prior
to
enrollment.
to
Compared
the
baseline,
group
treatment
showed
significant
statistical and clinical
improvement (100%)
at 30 days relative to
the
control
(73%). There were
reported
no
infections
the
in
Group
Treatment
while in the control
there were
group
seven
reported
infections.
sham
sham
At 90 days after
the
treatment,
group
treatment
a
showed
significantly stronger
improvement
(89.7%) compared to
the
control
(46.2%). There were
reported
three
the
infection
in
Treatment
group,
while in the control
there were
group
reported
fourteen
infections
requiring
antimicrobial
therapy.
regression
Wald
(df=1)
p=0.001.)
(logistic
B=2.3,
Chi-Square
=10.1,
16
Purpose
UroShield Randomized
Control trial
Doctor/Location
5 different nursing
facilities
Time,
subjects
2017 - 2018
51 subjects
Objectives
51 subjects were evaluated with 26
the
active/treatment group and 25 in the control group.
All patients had been treated for at least one incident
of a catheter-acquired urinary
infection
(CAUTI) requiring antibiotics in the preceding 6
months prior to trial initiation.
tract
in
17
Results
At
the
days,
count
90-day
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
antibiotic. All study
subjects had an initial
colony
of
greater than 100,000
CFU cultured from
their urinary tract. At
all
thirty
the
subjects within
control
group
showed no change in
the number of their
bacteria count which
was
than
greater
100,000 CFU, while
those in the treatment
a
group
reduction to 10,000
CFU in 15 of 26
subjects and only
1,000 CFU in 10 of
26 subjects, proving
a decrease in both
bacterial colonization
and the incidence of
Tract
Urinary
Infection.
showed
Recently Completed, 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 FDA Administration
trial ~300 patient trial
Place
To be determined To be determined
Start Date/Timing
Objectives
Safety and efficacy of UroShield in urinary catheter related pain and
Intended
2023
to begin
in
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.
We believe 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. Some patient benefits reported in prior studies included ease of application and use, relatively quick recovery time, high patient
compliance, and potentially increased safety and efficacy over certain other 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
In other countries outside the United States where the product is approved for such use, 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. In the United States, PainShield is only cleared to treat pain, muscle spasms, and joint
contractures associated with or caused by various conditions or diseases. It has also been used to treat pelvic and abdominal pain. To date, to the best of our
knowledge, the primary treatment options for several of 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.
18
On March 1, 2023 the Company launched its month-to-month rental program for Painshield.
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 $19 billion in 2019. 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, the SAM® Sport4,
which has recently received FDA 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 FDA has issued contraindications which do not apply to the PainShield
product. 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.
CMS has approved PainShield for reimbursement for Medicare beneficiaries on a national basis effective January 2020, we are currently awaiting
reimbursement values to be determined. We will be notified in May 2023. A positive determination would become effective on October 1st, 2023. If we are
denied, the appeal process would begin in June 2023.
19
Our marketing efforts continue to expand in the Direct to Consumer, Veterans Administration facilities, and Workers’ Compensation market.
Relative to the VA market, we are currently represented by Applied Medical and Delta Medical. Delta Medical is a Service Disabled Veteran Organization
Small Business (SDVOSB). PainShield is approaching the Workers’ Compensation market through various sales agents and on a direct basis. Additionally,
on March 1st, 2023, we established a rental program for Direct to Consumer marketing for patients without health insurance coverage.
Regulatory Strategy
PainShield received 510(k) clearance from the FDA in August 2008 as an ultrasonic diathermy device intended to apply ultrasonic energy to
generate deep heat within body tissues for the treatment of selected medical conditions, such as relief of pain, muscle spasms, and joint contractures.
PainShield received CE Mark approval in July 2008 and was also approved for sale by the Israeli Ministry of Health in 2010. We are able to sell PainShield
in India and Ecuador based on our CE Mark.
In the United States, a prescription from a licensed healthcare practitioner is required for the use of PainShield.
Recently, we announced our intention to pursue marketing authorization for a non-prescription version of PainShield MD, which we refer to as
PainShield Relief. The PainShield Relief is intended to be an Over-The Counter (OTC) product, not requiring a prescription from a medical professional.
We believe that such reclassification, if approved by the FDA, 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 Relief or
that, even if we accomplish such reclassification and the use of PainShield Relief no longer requires a prescription, PainShield Relief 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 order to prove to the FDA that the requirement for a physician prescription is not necessary to ensure safe and effective use of the product,
proof of safety and consumer “usability” need to be established. We engaged User-View, Inc to facilitate our Usability study and received the favorable
results we expected. The product packaging and all instruction documents have been modified in an effort to meet OTC standards. We also engaged an
outside laboratory to perform acoustic testing on all PainShield products. We previously anticipated submission of a 510(k) for PainShield Relief to the
FDA, for OTC use as a class 1 device, in early April 2022, but we are reconsidering our target timeline for such submission and whether any additional
data or action steps are needed including potentially redesigning the product in appearance and functionality.
The PainShield Plus, is a dual applicator device, which will also be submitted for specific clearance from the FDA. Submission for PainShield
Plus was made in late February 2022. We received FDA clearance in November 2023.
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 continue to work 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. We have
engaged outside legal counsel to assist with all aspects of reimbursement and FDA regulatory actions. In addition, we intend to conduct clinical trials in
order to pursue FDA authorization to 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, depending on the
scope of the approval or clearance from each applicable jurisdiction, and we have sold over 5,000 units since its introduction. We have entered into
distribution agreements in United States, Europe, Australia, 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 in jurisdictions where direct-to-
consumer sale is permitted. We are currently ramping up our marketing efforts in the U.S. market and throughout the world to establish licensing and
private label partnerships as well.
20
We have identified a unique application for PainShield in applicable foreign jurisdictions where such application is authorized, which is the
treatment of a severe facial nerve pain called Trigeminal Neuralgia, otherwise known as tic douloureux. The FDA lists facial application as a
contraindication and has not cleared or approved PainShield for such use in the United States. We are considering pursuing FDA approval of the PainShield
for Trigeminal Neuralgia, which will likely require additional data and clinical investigation to support an application for premarket approval (“PMA”) for
this indication, if such PMA is required by FDA. Two studies were performed in Israel, “a randomized control trial examining the efficacy of low intensity
low frequency Surface Acoustic wave ultrasound in trigeminal neuralgia pain”, and “A sound solution for Trigeminal 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 could prove to be a
practical and safe alternative. A broader RCT, targeting 60 patients suffering from unilateral trigeminal neuralgia, was also completed. The article was
published on January 22, 2019, in the Journal of Anesthesiology and Pain Research, under the title “The Effect of a Surface Acoustic Wave (SAW) Device
on the Symptomatology of Trigeminal Neuralgia”. We cannot predict the success of any future trials, nor can we guarantee that FDA will grant approval for
such use.
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 continue to plan to aggressively pursue this market in the foreign jurisdictions where PainShield has been
approved 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.
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
Trigeminal Neuralgia
Physician initiated
Doctor/Location Time, subjects
Dr. Ch. Adahan
2009
15 patients
Sheba Medical
Center
Objectives
●Reduction in pain
Results
73% of the subjects experienced complete or near
●Reduction in disability
●Improvement of function and
quality of life
●Accelerating of healing
complete relief.
low
intensity
Randomized control trial
examining the efficacy
low
of
frequency
Surface
wave
Acoustic
ultrasound in trigeminal
neuralgia
For
Ph.D., Funded by Israeli
Ministry of Health
pain
2012-2012
16 patients
Dr. M. Zwecker
Chaim
Sheba
Medical Center,
Tel
Hashomer,
Israel
●Reduction in pain
●Reduction in disability
●Improvement of function and
quality of life
●Accelerating of healing
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.
21
Purpose
Rutgers
Treating
university
athletic
injuries with bandaid
sized ultrasound unit
PainShield
2011
35 patients
Doctor/Location Time, subjects
R. Monaco,
G. Sherman,
Rutgers
University
Athletic, Rutgers,
New Jersey
Objectives
●To assess the pain, functional
capacity and discomfort of the
subject
● To assess
quality of life
●To assess the injury status
●To assess the efficacy of the
treatment
●To assess compliance factors
the subject’s
Results
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.
Reduction of chronic
abdominal and pelvic
pain, urological and GI
using
symptoms
wearable
device
delivering low frequency
ultrasound
the
The Effects of
NanoVibronix’s
PainShield®
Surface
Acoustic Waves on the
Symptoms of Lateral
Epicondylitis
D. Wiseman,
Synechion
Institute for Pelvic
Pain
2011
19 patients
● To assess the efficacy of
for pelvic and
PainShield
related pain
Improvement in pain related symptoms noted for
all symptoms.
Dr. David Lemak,
leading
a
orthopedic
surgeon
Birmingham
Orthopedic
and
Sports Specialists.
with
We plan to publish an article at the time and in
conjunction with adding a marketing partner.
2019, 24 patients A randomized, double blinded
study
that
for 30 days
evaluated the effectiveness and
safety of PainShield™ Surface
(SAW)
Acoustic Wave
patients
technology
on
suffering
and
from
discomfort, as well as limited
mobility caused by the effects
of chronic or acute lateral
epicondylitis
(“tennis
elbow”).
(LE)
pain
The Effect of a Surface
Acoustic Wave (SAW)
the
Device
Symptomatology
of
Trigeminal Neuralgia
on
Shira Markowitz,
MD, New York,
NY
Early 2018 59
patients
of
To measure pain
scores,
quality
and
breakthrough drug use of 59
patients with a diagnosis of
unilateral trigeminal neuralgia.
life,
in
There was a significant difference
the
outcomes of the two groups relative to pain,
quality of life, and breakthrough medications
taken, which was directly correlated to pain
experienced during treatment. Specifically, the
treatment
55.2%
improvement in baseline pain scores versus 2.3%
for the control group. The treatment group
experienced a 46.4% reduction in breakthrough
pain medication versus 1.5% for the control
group.
experienced
group
a
22
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
Start Date/Timing
To be determined
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). In March 2020,
we signed a license agreement with Sanuwave Health, Inc. (“Sanuwave”) for the manufacture and delivery of our WoundShield technology. Under the
terms of the agreement, NanoVibronix received 127,000 warrants of Sanuwave stock upon signing, will receive a $250,000 milestone payment based on
FDA approval, and 10% royalty on Sanuwave’s gross revenues from sales or rentals of WoundShield. In return, Sanuwave has received the worldwide,
exclusive rights to the Company’s WoundShield product and technology. In addition, Sanuwave will bear the costs and clinical validation responsibilities
associated with obtaining approval for WoundShield from the FDA and other regulatory agencies around the world.
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.
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.
23
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. 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.
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.
24
Market for Wound-Healing Devices
The global wound care device market totaled approximately $20.8 billion in 2022 and it is expected to grow to $27.2 billion by 2027 at a CAGR
of 65.4% during 2022-2027 (as reported by Markets and Markets in June 2022). According to the Global Report on Diabetes produced by the World Health
Organization (“WHO”) 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. (a subsidiary of the 3M Company), 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.
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. 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.
25
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 believe that the WoundShield instillation patch will not 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 FDA , 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 FDA approval process with respect to our products, and regulation of our products in general, see “– Government
Regulation” below.
Our general regulatory strategy for WoundShield has been to allow our licensee to pursue FDA clearance. To date, SanuwaveHealth, Inc. has not
met their contracted milestones to retain the license for WoundShield.
Sales and Marketing
WoundShield has generated minimal revenues to date. In March 2020, we signed a license agreement with Sanuwave Health, Inc. for the
manufacture and delivery of our WoundShield technology.
Clinical Trials
With respect to WoundShield, to date, we have conducted the following evaluation studies:
Purpose
Clinical
evaluation
Physician
initiated
Clinical
evaluation
Physician
initiated
Clinical
evaluation
Physician
initiated
Doctor/Location
Dr. J. Rosenblum,
Shaare Zedek
Medical Center
Time,
subjects Objectives
2008
8
patients
To evaluate novel technology
on wound healing in diabetic
foot ulcers.
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.
Dr. J. Rosenblum,
Shaare Zedek
Medical Center
2010
8
patients
To evaluate novel technology
on wound healing in diabetic
foot ulcers.
The device, a precursor device to WoundShield using the same
technology as WoundShield, had a positive effect on both
epithelization of diabetic wounds and stimulating the precursors
of dermal and epidermal growth. The duration of the trial was
one week.
Dr. S. Covington
2010
7
patients
The study aimed to determine
if hyper oxygenated saline
delivered by surface acoustic
tissue
improves
waves
lower
in
oxygenation
extremity wounds.
Surface acoustic wave
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.
technology
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Third Party Reimbursement
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 FDA for
commercial distribution, we may find limited demand for the device until adequate reimbursement has been obtained from governmental and private third -
party payers.
Over-the-counter products, such as the anticipated PainShield Relief product that we are developing, if ultimately cleared for marketing by the
FDA, are generally not reimbursed by any 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.
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 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, 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.
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UroShield. If cleared or approved by the FDA for the U.S. market, we expect these products to be used in inpatient settings and therefore
reimbursed under the Diagnosis Related Group (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 to pursue reimbursement in the Medicare Part B code to support the use for
long term catheter use and infection prevention in the home.
PainShield. Effective as of January 2020, CMS approval for Medicare reimbursement was added through code K1004. The value of the
reimbursement has not yet been confirmed. We continue to work toward a favorable reimbursement with outside legal counsel and reimbursement
consultants. The most recent application for reimbursement from CMS/Medicare was submitted on January 3rd, 2023. A determination should be provided
in or around May 2023.
WoundShield. We believe that the initial usage of these products, if approved or cleared by the FDA, will be in the hospital setting.
Reimbursement in the hospital setting is typically governed by the DRG system, which is a prospective payment methodology that assigns a predetermined,
fixed amount based on the patient’s diagnoses. Sanuwave Health Inc., as the licensee of this technology, is responsible to apply for such reimbursement, but
has not yet done so.
New Product Under Development
Renooskin
In 2016, we started developing a device candidate 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, neither of which are guaranteed,
the device candidate could potentially be sold in a non-reimbursement market since cosmetic devices are private pay. We are still considering several paths
towards commercialization.
Intellectual Property
Stemming from a combination of patent, copyright, trademark and trade secret laws, as well as non-disclosure agreements and other contracts, our
intellectual property rights represent a vital resource to the management of our company. Therefore, we are continuing our practice of investing in obtaining
appropriate legal protection for our innovations whenever possible and have adopted a more fully integrative approach to the management of our
intellectual property that mutually aligns with our ongoing R&D strategies, commercial opportunities based on market analyses, and longer-term business
objectives.
From our patented technologies to our trademarked brands, we believe our intellectual property has substantial value and has significantly
contributed to our success to date.
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From our patented technologies to our trademarked brands, we believe our intellectual property has substantial value and has significantly
contributed to our success to date.
Patents
We seek patent protection for our inventions not only to differentiate our products and technologies, but also to develop opportunities for licensing
and securing our rights to profits therefrom. With the aim of optimizing commercial and regulatory success, our proprietary technology and innovative
applications thereof are protected by a variety of patent claims. We believe that our granted patents and pending applications collectively protect our
technology, both in terms of our existing products, as well as our anticipated pipeline of new offerings.
Our patent portfolio includes at least the following issued patents, as well as a number of corresponding foreign patents in relevant jurisdictions:
(1) U.S. Patent No. 7,393,501 to “Method, Apparatus and System for Treating Biofilms Associated With Catheters” (expiring on December 19, 2023); (2)
U.S. Patent No. 7,829,029 to “Acoustic Add-On Device for Biofilm Prevention in Urinary Catheter” (expiring on October 27, 2025); (3) U.S. Patent No.
9,028,748 to “System and Method for Surface Acoustic Wave Treatment of Medical Devices” (expiring on July 11, 2030); and (4) U.S. Patent No. 9,585,977
directed to “System and Method for Surface Acoustic Waves Treatment of Skin” (expiring on August 20, 2033). These patents cover a wide range of
embodiments and applications of our proprietary surface acoustic wave (SAW) technology, including our commercialized PAINSHIELD®, PAINSHIELD
PLUSTM, WOUNDSHIELD® and UROSHIELD® devices. Specifically, the patents provide for methods of generating SAW on surfaces of indwelling
medical devices and to topical and urological applications therefor, for alleviating pain and for wound healing, and for preventing formation of bacterial
biofilms on catheters.
In addition to the above patents, our pending patent applications and new filings are representative of our ongoing efforts to broaden our portfolio
as we continue to develop new applications for our ultrasound technology. Pending patent applications related to UROSHIELD® devices are directed to
Multiple Frequency Surface Acoustic Waves for Internal Medical Device and System, Device, and Method for Mitigating Bacterial Biofilms Associated with
Indwelling Medical Devices. Ths new patent applications cover the next generation of UROSHIELD® devices operating at multiple frequencies and
devices which are compatible in portable and wireless systems.
Pending patent applications related to PAINSHIELD®, PAINSHIELD PLUSTM, WOUNDSHIELD® devices are directed to Transdermal Patch
of a Portable Ultrasound-Generating System for Improved Delivery of Therapeutic Agents and Associated Methods of Treatment; Portable Ultrasound
System and Methods of Treating Facial Skin by Application of Surface Acoustic Waves and Improved Injection Needle Assembly.
Although not yet granted, the aim of our growing number of patent applications is to secure our rights within additional industry sectors we
foresee as most readily benefiting from our technology. Therefore, looking beyond just pain management and urology, our patent applications relate to,
inter alia: novel transdermal patches uniquely configured to work with our ultrasound technology to additionally provide for improved absorption and
transdermal delivery of therapeutic agents during treatment; cosmetic applications of our ultrasound technology to provide anti-aging benefits; and certain
new or improved stand-alone therapeutic medical devices or so-called “indwelling medical devices” (e.g., catheters, intravenous (IV) needle assemblies,
and percutaneous endoscopic gastronomy (PEG) tubes) that include our SAW-generating technology to provide the accompanying antimicrobial effect for
preventing infections typically associated with available indwelling devices.
We intend to further grow our patent portfolio by continuing to patent new technology as it is developed, to defend intellectual property as we
believe necessary by actively pursuing any infringements, to pursue commercial opportunities our patents provide for our innovations, and to continue to
develop our brands and trademarks.
Trademarks
In addition to patent protection, we own numerous registered trademarks for our commercialized WOUNDSHIELD® (in the U.S. and Canada),
NanoVibronix® (in the U.S. and Canada), WOUNDSHIELD® (in the U.S. and Canada), PAINSHIELD®. (in the U.S. and Canada), and UROSHIELD®
(in the U.S.). Generally, the protection afforded by trademarks is perpetual, subject to paying timely renewals and continuing proper use in commerce. In
addition to the above, we expect to pursue additional trademark registrations to the extent we believe they would be beneficial and cost-effective.
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Other Rights
We regularly enter into, and rely on, confidentiality and proprietary rights agreements with our employees, consultants, contractors and business
partners to protect our trade secrets, proprietary technology and other confidential information. We control the use of our proprietary technology through
relevant provisions, notifications, and disclaimers provided on our website, our customer terms of use, and our vendor terms and conditions.
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 (“FDA”) before they can be
marketed in the United States, and they can only be marketed consistently with their respective approved or cleared indication(s) of use. 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
FDA under the Federal Food, Drug, and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. The FDA 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, distribution and market withdrawal and recalls of medical devices and pharmaceutical products.
PainShield MD and PainShield MD Plus have each already obtained 510(k) marketing clearance by the FDA. We are in the process of conducting clinical
and non-clinical testing to support a submission for FDA clearance for PainShield Relief as an over-the-counter drug.
In September 2020, the FDA exercised its Enforcement Discretion to allow distribution of the UroShield device in the United States. According to
the FDA, “UroShield® device can use Intended Use Code (IUC) 081.006: Enforcement Discretion per final guidance, and FDA product code QMK
(extracorporeal acoustic wave generating accessory to urological indwelling catheter for use during the COVID-19 pandemic)”. Accordingly, the FDA’s
Enforcement Discretion temporarily cleared the way for import of UroShield to the U.S. for limited use during the Covid-19 pandemic. The public health
emergency has since-been terminated in the U.S., and the FDA, accordingly, issued guidance confirming that devices marketed under Enforcement
Discretion must be cleared or approved by November 2023 to remain on the market. The fact that FDA authorized UroShield’s use under the COVID-19
Enforcement Discretion does not ensure that UroShield will be granted marketing approval or clearance under any of the traditional pathways.
FDA 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 FDA 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. Due to its nature and the lack of existing predicate devices on the market, UroShield is automatically classified as
a Class III device for which a PMA is required, unless our request for de novo reclassification is successful, in which case, it will be classified as a Class II
device and subject to the same postmarket framework as 510(k)-cleared devices.
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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 a legally marketed medical device (referred to as a “predicate device”). A finding of substantial equivalence requires
that the proposed new device (i), has the same intended use as a predicate device; (ii) has the same or similar technological characteristics as the predicate
device; (iii) is as safe and effective as the predicate device; and (iv) does not raise different questions of safety and effectiveness than the predicate 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 FDA 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 guarantee that
the timing will not be longer.
The FDA 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 FDA determines that the product does not qualify for 510(k) clearance, then a company must submit and the FDA must approve a
PMA before marketing can begin. An alternative to a new 510(k) submission is a “letter to File”, citing substantial equivalence to a product which has been
granted 510(k) clearance.
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 FDA 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 FDA determines the application or
manufacturing facilities are not acceptable, the FDA may outline the deficiencies in the submission and often will request additional testing or information.
Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory
criteria for approval. During the review period, a FDA advisory committee, typically a panel of clinicians and statisticians, is likely to be convened to
review the application and recommend to the FDA whether, or upon what conditions, the device should be approved. The FDA is not bound by the
advisory panel decision. While the FDA often follows the panel’s recommendation, there have been instances where the FDA has not. If the FDA 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 stated above, we anticipate that we will seek FDA authorization to market our UroShield product via the de novo reclassification process.
Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified into Class III regardless of the level of risk
they ultimately pose to patients and/or users. The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to
moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of
Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically
classified into Class III to request down-classification of its medical device into Class I or Class II based on a benefit-risk analysis demonstrating the device
actually presents low or moderate risk, rather than requiring the submission and approval of a PMA application. Prior to the enactment of the Food and
Drug Administration Safety and Innovation Act of 2012, or FDASIA, a medical device could only be eligible for de novo classification if the manufacturer
first submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially equivalent. FDASIA
streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k)
premarket notification to the FDA and receiving a not substantially equivalent determination. If the manufacturer seeks reclassification into Class II, the
manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the
medical device. In addition, the FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for
a 510(k) or determines that the device is not low-to-moderate risk or that general controls would be inadequate to control the risks and special controls
cannot be developed. De novo reclassification requests are also subject to user fees, unless a specific exemption applies. If the device is not approved
through de novo review, then it must go through the standard PMA process for Class III devices.
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Clinical Trials of Medical Devices
Clinical trials are almost always required to support a PMA application and are sometimes required for a de novo classification request or 510(k)
pre-market notification. In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness
of a medical device, an investigator acting on behalf of the company must, among other things, apply for and obtain IRB approval of the proposed
investigation. In addition, if the clinical study involves a “significant risk” (as defined by the FDA) to human health, the company sponsoring the
investigation must also submit and obtain FDA approval of an IDE. An IDE must be supported by appropriate data, such as animal and laboratory testing
results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the
FDA for a specified number of study participants, unless the product is deemed a non-significant risk device and eligible for abbreviated IDE requirements.
Generally, clinical trials for a significant risk device may begin once the IDE is approved by the FDA and the study protocol and informed consent are
approved by a duly-appointed IRB at each clinical trial site.
FDA’s IDE regulations govern investigational device labeling, prohibit promotion, and specify an array of GCP requirements, which include,
among other things, recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply
with the FDA’s regulations for IRB approval and for informed consent and other human subject protections. Required records and reports are subject to
inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not
be considered sufficient for the FDA to grant approval or clearance of a product.
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 FDA 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;
● if applicable, the Electronic Product Regulations found in 21 CFR parts 1000-1050, which provide additional requirements applicable to electronic
products, including records and reporting requirements; and
● the Medical Device Reporting regulation, which requires reporting to the FDA of certain adverse experiences associated with use of the product.
Under the FDA medical device reporting (“MDR”) regulations, medical device manufacturers are required to report to the FDA information that a
device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or
serious injury if the malfunction of the device or a similar device of such manufacturer were to recur. The decision to file an MDR involves a judgment by
the manufacturer. If the FDA disagrees with the manufacturer’s determination, the FDA can take enforcement action.
Additionally, the FDA has the authority to require the recall of commercialized products in the event of material deficiencies or defects in design
or manufacture. The authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious
adverse health consequences or death. Manufacturers may, under their own initiative, recall a product if any distributed devices fail to meet established
specifications, are otherwise misbranded or adulterated, or if any other material deficiency is found. The FDA requires that certain classifications of recalls
be reported to the FDA within ten working days after the recall is initiated.
The failure to comply with applicable device regulatory requirements can result in enforcement action by the FDA, which may include any of the
following sanctions:
●warning letters, fines, injunctions, or civil penalties;
●recalls, detentions or seizures of products;
●operating restrictions;
●delays in the introduction of products into the market;
●total or partial suspension of production;
●delay or refusal of the FDA or other regulators to grant 510(k) clearance or PMA approvals of new products;
●withdrawals of marketing authorization; or
●in the most serious cases, criminal prosecution.
To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and
unannounced inspections by the FDA, and these inspections may include the manufacturing facilities of subcontractors and third-party component suppliers
Good Manufacturing Practices Requirements
As noted above, 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 FDA 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 FDA and other authorities to assess compliance with applicable
regulations. Failure to comply with or to promptly 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 FDA and could result in the
imposition of marketing restrictions through labeling changes or in product recall. 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.
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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 FDA clearance, and
requirements for licensing a product in a foreign country may differ significantly from UFDA requirements.
The primary regulatory environment in Europe is the European Union, which consists of 27 member states and 32 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, 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 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 FDA 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.
Manufacturing and Suppliers
In December 2018, we announced we appointed Quasar Engineering Ltd, as contract manufacturer for the PainShield®, UroShield® and
WoundShield®, as well as other devices. Following our agreement with Sanuwave, Quasar is no longer the manufacturer of the WoundShield®. Quasar is a
medical device manufacturer, located in China, with over 30 years of experience, serving major brands worldwide, with complex catheters, disposables,
and FDA regulated assemblies. Starting in the fourth quarter of 2019, we started using Quasar to manufacture all of our newly redesigned products. Quasar
temporarily shut down for sixty days in early 2020, due to the COVID-19 outbreak which lead to a significant delay in the production of goods needed to
fulfill our sales orders, and became fully operational in April 2020. Presently, we are no longer experiencing delays in the production of our products.
Quasar added a new manufacturing facility in Singapore late in the third quarter of 2022. Our product manufacturing moved to this plant for final
production and packaging.
We order certain component parts on an as-needed basis, generally from the manufacturer that provides us with the most competitive pricing. Our
most significant suppliers for these components are B Star, Inc, Plastic One, We do not have written agreements with any of these suppliers, but we believe
anyone could be easily replaced if necessary.
Customers
We currently sell our products both directly, through our website, and indirectly via distribution agreements, with approximately 99% of our sales
coming through distributors and Sales Agents in 2022. We expect that percentage to decline as we enter into additional sales agent agreements We have
exclusive and non-exclusive distribution agreements for our products with medical product distributors based in the United States, in the United Kingdom
and various countries throughout Europe, India, Canada and Asia. For the year ended December 31, 2022, our two largest customers were Applied Medical
Solutions LLC who comprised approximately 44% of total sales and Ultra Pain Products Inc, who comprised approximately 36% of total sales.
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We are currently in discussions with several distribution companies with access to various markets in the United States, Europe, and Asia, as well
as 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.
Employees
Our People and Human Capital Resources
Employees
As of December 31, 2022, we had 9 full-time employees and 5 part-time employees, which is a decrease from the 12 full-time employees and an
increase of one-part-time employee we had as of December 31, 2021, and as of March 31, 2023, we have added one additional full-time employee in 2023.
We also regularly work with several independent consultants and other contract organizations to support our business and we regularly evaluate additional
talent to help support our product manufacturing, development, financial, and other capabilities.
Diversity and Inclusion
We believe that an inclusive culture is required to understand and develop products that benefit all patients. By embracing differences, we aim to
foster an environment of respect and trust in an effort to facilitate creativity, spark passion, and help us achieve better outcomes for all those who work at
the Company. We are committed to creating and maintaining a workplace free from discrimination or harassment, including on the basis of any class
protected by applicable law, and our recruitment, hiring, development, training, compensation, and advancement practices are based on qualifications,
performance, skills, and experience without regard to gender, race, or ethnicity. Our management team and employees are expected to exhibit and promote
honest, ethical, and respectful conduct in the workplace, including adhering to the standards for appropriate behavior set forth in our code of conduct.
Compensation and Benefits
We operate in a highly competitive environment for human capital, particularly as we seek to attract and retain talent with relevant experience in
the medical device sector. Therefore, we strive to provide a total rewards package to our employees that is competitive with our peer companies, including
competitive healthcare benefits and in certain cases, stock options. We also offer paid leave as mandated by government regulations, flexible work
schedules, and other benefits as mandated by government regulations.
We also offer key employees the benefit of equity ownership in NanoVibronix through stock option grants. We believe these grants both help
promote alignment between our employees and our stockholders and provide retention benefits, as the awards generally vest over a three-year period.
We do not have any employees that are represented by a labor union or that have entered into a collective bargaining agreement with the Company.
Safety, Wellness, and Our Response to COVID-19
At NanoVibronix, we believe that health matters to everyone, and the safety health, and wellness of our employees is one of our top priorities. We
are committed to developing and fostering a work environment that is safe, professional, and promotes teamwork, diversity, and trust in order to afford all
of our employees the opportunity to contribute to the best of their abilities.
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During 2020 and 2021, in response to the COVID-19 pandemic, we took certain measures and responded to changes in our operational needs,
including actions designed to provide a safe work environment for our employees. These actions included investing in technology solutions to support
increased work-from-home capabilities, shifting work schedules to reduce the number of people present in our offices, requiring mask wearing and social
distancing, making hand sanitizer readily available, and other measures intended to comply with health and safety protocols as required by federal, state,
and local governmental agencies, as well as guidance from the U.S. Centers for Disease Control and Prevention and similar public health authorities.
Available Information
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments thereto, are filed
with the SEC. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and
files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company with the SEC are
available free of charge on the Company’s website at nanovibronix.com, as soon as reasonably practicable after we have electronically filed with, or
furnished to, the SEC. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references
to website URLs are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
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
● Increasing inflation could adversely affect our business, financial condition, results of operations or cash flows.
● The ongoing COVID-19 pandemic has and may continue to adversely impact our business.
● 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.
● 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 medical device and therapeutic product industries are highly competitive and subject to rapid technological change. If our competitors are
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.
● We face the risk of product liability claims and may not be able to obtain insurance.
● Our product candidates may not be developed or commercialized successfully.
● If we fail to retain our key management, or to attract and keep additional key personnel, we may be unable to successfully execute our business
plan.
● Our need to increase the size of our organization in order to successfully manage our growth.
● Our failure to protect our intellectual property rights could diminish the value of our solutions, weaken our competitive position and reduce our
revenue.
● 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.
● We face risks associated with litigation and claims.
● The Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the
Company is unable to continue as a going concern. Management has substantial doubt about the Company’s ability to continue as a going concern.
● Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
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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 and after approval or clearance and during the marketing of our products.
● UroShield has not been cleared or approved by the FDA, nor has it undergone the same type of review as an FDA-approved or cleared device.
● Failure to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products abroad.
● We are uncertain regarding the success of our clinical trials for our products in development.
● We depend on Sanuwave for developing and commercializing our WoundShield technology.
● Healthcare reform measures could adversely affect our business and financial results.
● 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.
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.
● 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.
● It may be difficult for investors in the United States to enforce any judgments obtained against us or any of our 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 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.
● Although our shares of common stock are 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.
● If we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our
common stock and our ability to access the capital markets could be negatively impacted.
● We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to our filing status will make our
common stock less attractive to investors.
● 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.
● 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.
● We may be subject to ongoing restrictions related to grants from the Israeli 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.
● Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
● If we fail to maintain effective internal control over financial reporting, our business, financial condition or results of operations may be adversely
affected.
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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, 2022 we had a net loss of approximately $5.4 million, with revenues of approximately $0.8 million. As of
December 31, 2022, we had an accumulated deficit of approximately $62.4 million. 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 (“FDA”) approval for UroShield, and market acceptance 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.
Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial
condition or results of operations.
Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and
geopolitical conflicts, such as the conflict between Russia and Ukraine. While we do not have any customer or direct supplier relationships in either
country at this time, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations including the
United States, the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely
affect our business and/or our supply chain, business partners, employees or customers, and interrupt our ability to supply products, or otherwise adversely
impact our business.
Increasing inflation could adversely affect our business, financial condition, results of operations or cash flows.
Inflation, as well as some of the measures taken by or that may be taken by the governments in countries where we operate in an attempt to curb
inflation may have negative effects on the economies of those countries generally. If the United States or other countries where we operate experience
substantial inflation in the future, our business may be adversely affected. This could have a material adverse effect on our business, financial condition,
results of operations, or cash flows. Specifically, our existing distributor agreements limit the amount that we can increase the price that we sell our
products to the distributors. Accordingly, an inflationary environment, including factors such as increasing freight and materials prices, could make it less
profitable for us to do business.
The ongoing COVID-19 pandemic has and may continue to adversely impact our business.
The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties
located in countries affected by the pandemic. Our third-party manufacturer, which is based in China, temporarily shut down for sixty days during 2020 due
to the pandemic and became fully operational in April 2020 which led to a significant delay in the production of goods needed to fulfill our sales orders
which were scheduled to be fulfilled in our first quarter of 2020. We were able to fulfill these orders in the second quarter of 2020. Additionally, the
notified regulatory body we rely on to obtain European CE approval is located in Italy and was shut down for approximately six weeks from March to
April 2020, which delayed our submission for CE mark approval for the year 2020. The CE Mark approval was subsequently approved in April 2020. The
various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 have had and may
continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials,
manufacturing and delivery efforts and other aspects of the global economy. The financial downturn had compelled us to furlough or reduce working hours
for much of our operating staff in 2020, and continue to force remaining staff as well as third-party contractors, to work remotely from time to time. In
addition, many staff members continue to operate remotely from their homes, which is continuing to result in delays in obtaining certain financial records.
We also rely on third-party professionals to provide services such as the preparation of our financial statements and to conduct audits, and many of these
parties have been affected by government-imposed precautionary measures, thereby delaying our receipt of these services. Such government-imposed
precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will be put in place again
due to a resurgence in COVID-19 cases. Therefore, the COVID-19 pandemic has and may again disrupt production and cause delays in the development,
supply and delivery of our products, our operation, further divert the attention and efforts of the medical community coping with COVID-19 and disrupt the
marketplace in which we operate. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and
cannot be predicted, including new information which may emerge concerning the severity of COVID-19, its variants and the actions to contain COVID-19
or treat its impact, among others. The COVID-19 pandemic could continue to materially disrupt our business and operations, hamper our ability to raise
additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it
hard to adequately staff our operations.
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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 will 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. There can be no assurance that we
will be able to complete a required financing on acceptable terms or at all. If such financing is not available on satisfactory terms, or is not available in
sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities. 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;
● the delisting of our common stock from the Nasdaq Capital Market; and
● the geographic, social and economic impact of COVID-19 on the Company’s business operations.
Any required financing efforts may divert our management from their day-to-day activities, which may adversely affect its ability to develop and
commercialize our products Moreover, if we complete additional financing by issuing equity securities, the percentage ownership of its existing
stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. Given our need for cash and that equity issuances are
the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders.
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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 commercial 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.
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 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., (a subsidiary of the 3M Company) 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.
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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.
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 FDA 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.
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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.
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.
If we fail to retain our key management, or to attract and keep additional key personnel, we may be unable to successfully execute our business plan.
Our success depends on our ability to attract, retain and motivate highly qualified management and personnel. As a small company with nine full-
time employees and five 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. In addition, the replacement of key personnel likely
would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives.
Our need to increase the size of our organization in order to successfully manage our growth.
We are a clinical-stage company with a small number of planned employees, and our management systems currently in place are not likely to be
adequate to support our future growth plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and
motivate additional employees and to implement and improve its operational, financial and management systems. These demands also may require the
hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant
number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail to expand and
enhance its operational, financial and management systems in conjunction with its potential future growth, such failure could have a material adverse effect
on our business, financial condition and results of operations.
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.
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We have patents, as well as pending patent applications, in both the United States and relevant 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 or that our patents would prevent a competitor from designing around our claims in our
patents. 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.
We have granted US issued patents, as well as issued patents in Europe and China and a number of corresponding foreign patents in other relevant
jurisdictions, covering UROSHIELD® devices and have expiration dates ranging from May of 2023 to July of 2030. We also have pending patent
applications related to UROSHIELD® devices, which would have expected expiration dates, if granted, ranging from December of 2041 to March of 2044.
Granted patents related to PAINSHIELD®, PAINSHIELD PLUSTM, WOUNDSHIELD® have expiration dates of August of 2033 in the United
States, and February of 2027 in Europe, China and Israel. We also have pending patent applications related to PAINSHIELD®, PAINSHIELD PLUSTM,
WOUNDSHIELD® devices, which would have expected expiration dates, if granted, ranging from September of 2040 to December of 2041.
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 as 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.
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.
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We face risks associated with litigation and claims.
We may, in the future, be involved in one or more lawsuits, claims or other proceedings. These suits could concern issues including contract
disputes, employment actions, employee benefits, taxes, environmental, health and safety, fraud and abuse, personal injury and product liability matters.
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of
Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated
March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by
discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. While the Company has
vigorously defended the claims asserted by Protrade, the litigation is ongoing and we may be subject to other lawsuits, claims, or proceedings. See “Item 3.
Legal Proceedings – Protrade Proceeding” for a full description of the Protrade proceeding.
The Company’s financial statements have been prepared on a going concern basis, and do not include adjustments that might be necessary if the
Company is unable to continue as a going concern. Management has substantial doubt about the Company’s ability to continue as a going concern.
The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. During the year ended December 31, 2022, the Company’s cash used in operations was
$7,035 leaving a cash balance of $2,713 as of December 31, 2022. Because the Company does not have sufficient resources to fund our operations for the
next twelve months from the date of this filing, management has substantial doubt of the Company’s ability to continue as a going concern. The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company will need to raise additional capital to finance its losses and negative cash flows from operations and may continue to be dependent
on additional capital raising as long as our products do not reach commercial profitability. There are no assurances that the Company would be able to raise
additional capital on terms favorable to it. If the Company is unsuccessful in commercializing its products and raising capital, it will need to reduce
activities, curtail, or cease operations.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, research data, our proprietary business
information and that of our suppliers, technical information about our products, clinical trial plans and employee records. Similarly, our third-party
providers possess certain of our sensitive data and confidential information. The secure maintenance of this information is critical to our operations and
business strategy. Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are
vulnerable to damage from computer viruses, malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical
failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside
our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign
governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the
world have increased. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, encrypted,
lost or stolen. Any such access, inappropriate disclosure of confidential or proprietary information or other loss of information, including our data being
breached at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal
information, disruption of our operations or our product development programs and damage to our reputation, which could adversely affect our business.
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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 and after approval or clearance and during the marketing of our products.
The process of obtaining FDA 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 FDA 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 FDA approval and clearance, or FDA 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;
● manufacturing;
● quality assurance;
● labeling;
● advertising;
● promotion (including the prohibition on promoting devices for “off-label” uses);
● distribution;
● export;
● reporting to the FDA certain adverse experiences associated with the use of the products, as well as our discovery of defects or a product’s failure
to comply with design specifications or applicable law; 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 FDA to determine our compliance with regulatory requirements, as are our suppliers and contract
manufacturers, and we cannot be sure that the FDA will not identify compliance issues that may disrupt production or distribution, or require substantial
resources to correct. We also cannot be sure that the FDA will agree with our analysis of, conclusions regarding, or handling of various situations that arise
with our products. If it is determined that we failed to comply with any of our regulatory obligations, we could be subject to a wide range of enforcement
actions that could limit our ability to continue to successfully commercialize impacted products or otherwise adversely impact us.
The FDA’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.
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UroShield has not been cleared or approved by the FDA, nor has it undergone the same type of review as an FDA-approved or cleared device.
In September 2020, the FDA exercised its Enforcement Discretion to allow distribution of our UroShield device in the United States. This
temporary authorization is limited to use as an extracorporeal acoustic wave generating accessory to urological indwelling catheter for use during the
COVID-19 pandemic. The U.S. government has since-terminated the public health emergency, and FDA recently confirmed via guidance that the
applicable policy of Enforcement Discretion under which UroShield was maketed during the pandemic will expire in November 2023. Accordingly, if we
do not obtain FDA approval or clearance by the expiration of the applicable Enforcement Discretion policy in November 2023, we will have to discontinue
distribution of UroShield in the U.S. until FDA grants the requisite premarket authorization, which may not occur in a timely manner, if at all. There is no
guarantee that our collaborators or customers will purchase or use the UroShield, that any sales of UroShield by us will generate any revenue or profits, or
that we will ever be successful in obtaining FDA clearance or approval for the UroShield.
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 FDA 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 novel lines of product candidates in development, which currently consists of only RenooSkin, will require clinical trials
to determine their safety and efficacy by regulatory bodies in their target markets, including the FDA 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.
We depend on Sanuwave for developing and commercializing our WoundShield technology.
In March 2020, we entered into a license agreement with Sanuwave for the manufacture and delivery of our WoundShield technology. Under this
agreement, Sanuwave has received the worldwide, exclusive rights to our WoundShield technology. Sanuwave will bear the cost and clinical validation
responsibilities associated with obtaining approval for WoundShield from the FDA and other regulatory agencies around the world. Sanuwave is also
responsible for manufacturing and commercializing the WoundShield product and technology. Our right to receive a milestone payment under the license
agreement depends on the achievement of FDA approval by Sanuwave and our ability to receive royalties under the agreement depends on Sanuwave’s
successful commercialization of the WoundShield product and technology.
The development and commercialization of the WoundShield product and technology and our ability to receive a potential milestone and royalty
payments under the license agreement with Sanuwave, could be adversely affected if Sanuwave:
●lacks or does not devote sufficient time and resources to the development and commercialization of the WoundShield product and technology;
●lacks or does not devote sufficient capital to fund the development and commercialization of the WoundShield product and technology;
●develops, either alone or with others, products that compete with the WoundShield product and technology;
●fails to gain the requisite regulatory approvals for the WoundShield product and technology;
●does not successfully commercialize the WoundShield product and technology;
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●does not conduct its activities in a timely manner;
●terminates its license with us; or
●does not effectively pursue and enforce intellectual property rights relating to the WoundShield product and technology.
We have limited or no control over the occurrence of any of the foregoing. Furthermore, disagreements with Sanuwave could lead to disputes,
which could be time-consuming and expensive. If any of these issues arise, it may delay the development and commercialization milestone and royalties
based on further development and sales of the WoundShield product and technology.
Healthcare reform measures could adversely affect our business and financial results.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system in ways that may adversely affect our business and financial results. Federal and state lawmakers regularly propose and, at times, enact legislation
that could result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services.
Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for our
products. The cost containment measures that payers and providers are instituting and the effect of any healthcare reform initiative implemented in the
future could impact our revenue from the sale of our products. For example, the Patient Protection and Affordable Act of 2010, commonly referred to as the
Affordable Care Act, contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and
fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs.
There have been executive, judicial and Congressional challenges to certain aspects of the Affordable Care Act for over a decade. However, as of
the Supreme Court’s ruling ordering the dismissal of, arguably, the most promising case challenging the Affordable Care Act to-date in June 2021, it
appears that the Affordable Care Act will remain in-effect in its current form for the foreseeable future. We cannot predict what additional challenges to the
Affordable Care Act may arise in the future, the outcome thereof, or the impact any such actions may have on our business. Additionally, the Biden
administration has introduced various measures in recent years, focusing on healthcare and medical-product pricing, in particular. It remains to be seen how
these measures will affect our business and there is uncertainty as to what other healthcare programs and regulations may be implemented or changed at the
federal and/or state level in the U.S., but it is possible that such initiatives could have an adverse effect on our ability to obtain FDA approval or clearance
and/or successfully commercialize products in the U.S. in the future. For example, any changes that reduce, or impede the ability of healthcare providers to
obtain reimbursement for medical procedures in which the products we currently, or intend to, commercialize are used, or that reduce medical procedure
volumes, could adversely affect our operations and/or future business plans. The financial impact of U.S. healthcare reform legislation over the next few
years will depend on a number of factors, including the policies reflected in implementing regulations and guidance and changes in sales volumes for
medical devices affected by the legislation. From time to time, legislation is drafted, introduced, and passed that could significantly change the statutory
provisions governing coverage, reimbursement, pricing, and marketing of medical device products. In addition, third-party payor coverage and
reimbursement policies are often revised or interpreted in ways that may significantly affect our business and our products.
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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.
● 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.
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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.
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. Civil unrest and political turbulence has occurred in other countries in the region, including Syria which shares a
common border with Israel, and is affecting the political stability of those countries. The civil war that has been ongoing in Syria has escalated, and this
instability and any intervention may lead to additional conflicts in the region. In addition, Iran has threatened to attack Israel and is widely believed to be
developing nuclear weapons. Iran also has a strong influence among extremist groups in the region. These situations may potentially escalate in the future
to more violent events which may affect Israel and our operations. 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. Our operations could be disrupted by the absence of a
significant number of our employees. 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.
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.
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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;
● 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. On March 12, 2020, the WHO declared
COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty since then. In addition,
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict
between Russia and Ukraine. A continuation or worsening of the levels of market disruption and volatility could have an adverse effect on our ability to
access capital, on our business, results of operations and financial condition, and on the market price of our common shares.
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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.
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 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 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 fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our
common stock and our ability to access the capital markets could be negatively impacted.
Our common stock is currently listed for trading on the Nasdaq Capital Market. We must satisfy Nasdaq’s continued listing requirements,
including, among other things, a minimum stockholders’ equity of $2.5 million and a minimum closing bid price of $1.00 per share or risk delisting, which
would have a material adverse effect on our business. A delisting of our common stock from the Nasdaq Capital Market could materially reduce the
liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our
ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by
investors, suppliers, customers and employees and fewer business development opportunities.
On March 2, 2022, the Company received notice from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price
of the Company’s common stock for the 30 consecutive business day period between January 14, 2022, through March 1, 2022, we did not meet the
minimum bid price of $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 555(a)(2). The letter
also indicated that the Company will be provided with a compliance period until August 29, 2022 (the “Compliance Period”), in which to regain
compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
On August 30, 2022, the Company received notice from Nasdaq indicating that the Company’s securities would be subject to delisting due to the
Company’s continued non-compliance with the minimum bid price requirement unless the Company timely requests a hearing before the Nasdaq Hearings
Panel (the “Panel”). The Company timely requested a hearing before the Panel, which stayed any further action by Nasdaq at least pending the issuance of
a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing. On October 17, 2022, the Panel
granted the Company’s request for continued listing on The Nasdaq Capital Market until December 15, 2022, subject to the Company providing a written
update to the Panel on December 15, 2022.
51
On February 8, 2023, the Company effected a reverse stock split of its common stock at a ratio of 1 post-split share for every 20 pre-split shares.
The Company’s common stock continued to be traded on the Nasdaq Capital Market under the symbol NAOV and began trading on a split-adjusted basis
at market open on February 9, 2023.
On February 28, 2023 The Company was notified by Nasdaq that it regained compliance with all Nasdaq listing requirements and the matter was
closed. See “Item 3. Legal Proceedings – Nasdaq Deficiency and Hearings Panel Decision,” for a full description of the Nasdaq hearing and the Company’s
actions to regain compliance.
There is no assurance that we will maintain compliance with such minimum listing requirements. If our common stock were delisted from Nasdaq,
trading of our common stock would most likely take place on an over-the-counter market established for unlisted securities, such as the OTCQB or the
Pink Market maintained by OTC Markets Group Inc. An investor would likely find it less convenient to sell, or to obtain accurate quotations in seeking to
buy, our common stock on an over-the-counter market, and many investors would likely not buy or sell our common stock due to difficulty in accessing
over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. In addition, as a delisted
security, our common stock would be subject to SEC rules as a “penny stock,” which impose additional disclosure requirements on broker-dealers. The
regulations relating to penny stocks, coupled with the typically higher cost per trade to the investor of penny stocks due to factors such as broker
commissions generally representing a higher percentage of the price of a penny stock than of a higher-priced stock, would further limit the ability of
investors to trade in our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms
acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business
development opportunities. For these reasons and others, delisting would adversely affect the liquidity, trading volume and price of our common stock,
causing the value of an investment in us to decrease and having an adverse effect on our business, financial condition and results of operations, including
our ability to attract and retain qualified employees and to raise capital.
We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to our filing status will make our
common stock less attractive to investors.
We are a “smaller reporting company” and, thus, have certain decreased disclosure obligations in our SEC filings, including, among other things,
simplified executive compensation disclosures and only being required to provide two years of audited financial statements in annual reports. Decreased
disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and
financial prospects and may make our common stock a less attractive investment. If some investors find our common stock less attractive, there may be a
less active trading market for our common stock and our stock price may be more volatile.
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.
52
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.
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. Currently there is only one research coverage by a securities and industry analyst. 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.
53
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.
If we fail to maintain effective internal control over financial reporting, our business, financial condition or results of operations may be adversely
affected.
As a public reporting company, we are required to establish and maintain effective internal control over financial reporting. Failure to establish
such internal control, or any failure of such internal control once established, could adversely impact our public disclosures regarding our business,
financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent us from maintaining accurate
accounting records and discovering accounting errors and financial frauds.
Rules adopted by the Securities and Exchange Commission pursuant to Section 404 of Sarbanes-Oxley Act of 2002 require annual assessment of
our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as
effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems
or delays in completing activities necessary to make an assessment of our internal control over financial reporting. If we cannot assess our internal control
over financial reporting as effective, investor confidence and share value may be negatively impacted. In addition, management’s assessment of internal
control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting or other
matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over
financial reporting (including those weaknesses identified in our periodic reports), or disclosure of management’s assessment of our internal control over
financial reporting may have an adverse impact on the price of our securities.
As disclosed in Part II, Item 9A, “Controls and Procedures,” we have identified material weaknesses in our internal control over financial
reporting due to a lack of a full and complete testing of our disclosure controls and procedures. We concluded that our internal control over financial
reporting and related disclosure controls and procedures were not effective as of December 31, 2022. Our management is in the process of implementing
remediation measures with respect to the controls and written policies and procedures as described in Part II, Item 9A, “Controls and Procedures,” and
management expects that such measures, once fully implemented, will be sufficient to remediate such material weaknesses in our internal control over
financial reporting that existed as of December 31, 2022.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We lease an office and manufacturing facility in Nesher, Israel and maintain an office in Tyler, Texas. Our lease for the facility in Nesher expires
on December 31, 2023 with an option to renew the lease for an additional 24 months. The space is approximately 284 square meters. We pay approximately
$4,200 per month under our lease. We also use a facility in Tyler, Texas from an unrelated party, for which we pay rent of $1,200 a month although we do
not have a lease. This space is approximately 200 square meters. We believe that our facilities are adequate to meet our current and proposed needs.
54
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in certain claims and litigation arising out of the ordinary course and conduct of business. Management
assesses such claims and, if it considers that it is probable that an asset had been impaired or a liability had been incurred and the amount of loss can be
reasonably estimated, provisions for loss are made based on management’s assessment of the most likely outcome.
See “Item 8. Financial Statements and Supplementary Data – Note 12. Commitments and Contingencies,” which information is incorporated
herein by reference, for a description of pending and recent litigation.
Protrade Proceeding
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of
Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated
March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by
discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages
estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, nevertheless awarded Protrade about $1.5
million, on the grounds that the Company allegedly failed to fulfill an order for reusable hydrogel patches placed after the Agreement was terminated. The
arbitrator based her decision on the basis of testimony of Protrade’s president who asserted that a patient would use in excess of 33 reusable patches per
each device, which the Company believes is a grossly inflated number.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award. On April 13, 2022,
the Company submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Company only sold 2-3 reusable
patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Company filed a cross-motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority,
that the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Company averred
in its motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that
has no factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Award and denying the cross-motion.
On November 9, 2022, the Company filed a motion to re-argue and renew its cross-motion to vacate the arbitration decision based on newel
information that was not available during the initial hearing. On the same day, the Company also filed a notice of appeal with the Appellate Division,
Second Department. On March 21, 2023, the Court denied the motion to re-argue and renew. The Company intends to file a notice of appeal with the
Appellate Division, Second Department and to continue to vigorously pursue its opposition to the award in all appropriate fora.
As of December 31, 2022, the Company accrued the amount of the award to Protrade amounting to $1,500,250 as part of “General and
administrative expenses”. In addition, as the Company has not made payments on this award since it continues to appeal, the Company accrued the amount
of $346,544 as part of “Interest Expense”, with the total amount of $1,846,794 included in “Other accounts payable and accrued expenses”.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
55
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.
As of April 17, 2023, we had 1,662,377 issued and outstanding shares of common stock. The common stock was held by 96 holders of record. The
actual number of holders of our common stock is greater than the number of record holders, and includes stockholders who are beneficial owners, but
whose shares are held in street names by brokers or other nominees.
On March 3, 2021, we filed a proxy statement in connection with a special meeting of stockholders that was held on March 31, 2021, and
ultimately adjourned until May 6, 2021, to (i) ratify the increase in the number of authorized shares of common stock from 20,000,000 to 24,109,635 and
the issuance of such 4,109,635 shares of common stock, and (ii) further increase the number of our authorized shares of common stock. On May 6, 2021,
the Company’s stockholders voted to approve the ratification of the increase in the number of authorized shares of common stock from 20,000,000 to
24,109,635 and the issuance of such 4,109,635 shares of common stock to be effective as of December 4, 2020, but the stockholders did not approve a
further increase in the number of its authorized shares of common stock.
On August 17, 2021, the Company’s stockholders voted to approve an amendment to our Amended and Restated Certificate of Incorporation to
increase the number of shares of our common stock authorized for issuance from 24,109,635 shares to 40,000,000 shares.
As of April 17, 2023, we had a total of no shares of our Series C Preferred Stock issued and 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 beneficially 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 April 17, 2023, we had a total of no 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.
As of April 17, 2023, we had a total of no shares of our Series E Preferred Stock issued and outstanding. Each share of our Series E 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 E Preferred Stock into shares of our common stock if, as a result
of such conversion, the holder, together with its affiliates, would beneficially 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 April 17, 2023, we held no shares of our Series F Preferred Stock issued and outstanding. Each share of Series F Preferred Stock entitles the
holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of Series F Preferred Stock has a ratable number of
votes). Thus, each one-thousandth of a share of Series F Preferred Stock entitles the holder thereof to 1,000 votes. The outstanding shares of Series F
Preferred Stock will vote together with the outstanding shares of common stock of the Company as a single class exclusively with respect to (1) any
proposal to adopt an amendment to Certificate of Incorporation to reclassify the outstanding shares of common stock at a ratio specified in or determined in
accordance with the terms of such amendment (the “Reverse Stock Split”) and (2) any proposal to adjourn any meeting of stockholders called for the
purpose of voting on the Reverse Stock Split (the “Adjournment Proposal”). The Series F Preferred Stock is not entitled to vote on any other matter, except
to the extent required under the Delaware General Corporation Law.
56
Unless otherwise provided on any applicable proxy or ballot with respect to the voting on the Reverse Stock Split or the Adjournment Proposal,
the vote of each share of Series F Preferred Stock (or fraction thereof) entitled to vote on the Reverse Stock Split, the Adjournment Proposal or any other
matter brought before any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal will be cast in the same manner
as the vote, if any, of the share of common stock (or fraction thereof) in respect of which such share of Series F Preferred Stock (or fraction thereof) was
issued as a dividend is cast on the Reverse Stock Split, the Adjournment Proposal or such other matter, as applicable, and the proxy or ballot with respect to
shares of common stock held by any holder on whose behalf such proxy or ballot is submitted will be deemed to include all shares of Series F Preferred
Stock (or fraction thereof) held by such holder. Holders of Series F Preferred Stock will not receive a separate ballot or proxy to cast votes with respect to
the Series F Preferred Stock on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before any meeting of stockholders held to
vote on the Reverse Stock Split. All shares of Series F Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to
vote on the Reverse Stock Split and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption
Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the
Company or the holder of shares of Series F Preferred Stock (the “Initial Redemption”). Any outstanding shares of Series F Preferred Stock that have not
been redeemed pursuant to an Initial Redemption will be redeemed in whole, but not in part, (i) if such redemption is ordered by the Board in its sole
discretion, automatically and effective on such time and date specified by the Board in its sole discretion or (ii) automatically upon the approval by the
Company’s stockholders of the Reverse Stock Split at any meeting of the stockholders held for the purpose of voting on such proposal (the “Subsequent
Redemption” and, together with the Initial Redemption, the “Redemption”). As of December 31, 2022, both the Initial Redemption and the Subsequent
Redemption have occurred. As a result, no shares of Series F Preferred Stock remain outstanding.
Each share of Series F Preferred Stock redeemed in any redemption described above will be redeemed in consideration for the right to receive an amount
equal to $0.10 in cash for each one hundred whole shares of Series F Preferred Stock that are “beneficially owned” by the “beneficial owner” (as such
terms are defined in the Certificate of Designation) thereof as of the applicable redemption time and redeemed pursuant to such redemption, payable upon
receipt by the Company of a written request submitted by the applicable holder to the corporate secretary of the Company (each a “Redemption Payment
Request”) following the applicable redemption time. Such Redemption Payment Request shall (i) be in a form reasonably acceptable to the Company (ii)
set forth in reasonable detail the number of shares of Series F Preferred Stock beneficially owned by the holder at the applicable redemption time and
include evidence reasonably satisfactory to the Company regarding the same, and (iii) set forth a calculation specifying the amount in cash owed to such
Holder by the Company with respect to the shares of Series F Preferred Stock that were redeemed at the applicable redemption time. However, the
redemption consideration in respect of the shares of Series F Preferred Stock (or fractions thereof) redeemed in any redemption described above: (i) will
entitle the former beneficial owners of less than one hundred whole shares of Series F Preferred Stock redeemed in any redemption to no cash payment in
respect thereof and (y) will, in the case of a former beneficial owner of a number of shares of Series F Preferred Stock (or fractions thereof) redeemed
pursuant to any redemption that is not equal to a whole number that is a multiple of one hundred, entitle such beneficial owner to the same cash payment, if
any, in respect of such redemption as would have been payable in such redemption to such beneficial owner if the number of shares (or fractions thereof)
beneficially owned by such beneficial owner and redeemed pursuant to such redemption were rounded down to the nearest whole number that is a multiple
of one hundred (such, that for example, the former beneficial owner of 150 shares of Series F Preferred Stock redeemed pursuant to any redemption will be
entitled to receive the same cash payment in respect of such redemption as would have been payable to the former beneficial owner of 100 shares of Series
F Preferred Stock redeemed pursuant to such redemption).
Recent Sales of Unregistered Securities
All sales of unregistered securities during the year ended December 31, 2022 were previously disclosed in a Quarterly Report on Form 10-Q or a
Current Report on Form 8-K.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report.
ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial
statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors
that may affect our future results. 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
COVID-19
The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties
located in countries affected by the pandemic. Our third-party manufacturer, which is based in China, temporarily shut down for sixty days during 2020 due
to the pandemic and became fully operational in April 2020 which led to a significant delay in the production of goods needed to fulfill our sales orders
which were scheduled to be fulfilled in our first quarter of 2020. We were able to fulfill these orders in the second quarter of 2020. Additionally, the
notified regulatory body we rely on to obtain European CE approval is located in Italy and was shut down for approximately six weeks from March to
April 2020, which delayed our submission for CE mark approval for the year 2020. The CE Mark approval was subsequently approved in April 2020. The
various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 have had and may
continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials,
manufacturing and delivery efforts and other aspects of the global economy. During the first six months of 2020, the financial downturn compelled us to
furlough or reduce working hours for much of our operating staff, and forced our remaining staff as well as third-party contractors, to work remotely. In
addition, many staff members continue to operate remotely from their homes which is continuing to result in delays in obtaining certain financial records.
We also rely on third-party professionals to provide services such as the preparation of our financial statements and to conduct audits, and many of these
parties have been affected by government-imposed precautionary measures, thereby delaying our receipt of these services. Such government-imposed
precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will be put in place again
due to a resurgence in COVID-19 cases. Although there were no material disruptions during 2021, the COVID-19 pandemic again disrupt production and
cause delays in the development, supply and delivery of our products, our operation, further divert the attention and efforts of the medical community
coping with COVID-19 and disrupt the marketplace in which we operate. The extent to which COVID-19 impacts our results will depend on future
developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, its
variants and the actions to contain COVID-19 or treat its impact, among others. The COVID-19 pandemic could continue to materially disrupt our business
and operations, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending,
interrupt our sources of supply, and make it hard to adequately staff our operations.
Protrade Proceeding
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of
Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated
March 7, 2019 (the “Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by
discontinuing the manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages
estimated at $3 million. The Company vigorously defended the claims asserted by Protrade.
58
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, nevertheless awarded Protrade about $1.5
million, on the grounds that the Company allegedly failed to fulfill an order for reusable hydrogel patches placed after the Agreement was terminated. The
arbitrator based her decision on the basis of testimony of Protrade’s president who asserted that a patient would use in excess of 33 reusable patches per
each device, which the Company believes is a grossly inflated number.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award. On April 13, 2022,
the Company submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Company only sold 2-3 reusable
patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Company filed a motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority, that
the award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Company averred in its
motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that has no
factual basis.
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Award and denying the cross-motion.
On November 9, 2022, the Company filed a motion to re-argue and re-plead the arbitration decision based on additional information that was not
available during the initial hearing. On the same day, the Company also filed a notice of appeal with the Appellate Division, Second Department. The
Company expects to continue to vigorously pursue its opposition to the award in all appropriate fora.
As of December 31, 2022 and 2021, the Company accrued the amount of the award to Protrade amounting to approximately $1.9 million and $1.5
million, respectively, with the $0.4 million of interest accrued in 2022 as part of “Interest expense” and “Other accounts payable and accrued expenses”.
Business Developments
Effective as of January 2020, the U.S. CMS approved our PainShield™ for reimbursement for Medicare beneficiaries on a national basis. We were
notified on March 30, 2020 that our Medicare Enrollment Application was approved, and we are now an approved Medicare Supplier for DME through the
National Supplier Clearinghouse, Palmetto-GBA as well as Noridian Administrative Services, LLC, the two Medicare Administrative Contractors that
handle DME reimbursement nationwide. PainShield is currently available for Medicare reimbursement on a national level under new HCPCS (Healthcare
Common Procedure Coding System) code K1004.
In March 2020, we signed a license agreement with Sanuwave Health, Inc. for the manufacture and delivery of our WoundShield technology.
Under the terms of the agreement, we will receive warrants to purchase 127,000 shares of Sanuwave stock, a $250,000 milestone payment based on receipt
of FDA approval, and 10% royalty on Sanuwave’s gross revenues from sales or rentals of WoundShield. In return, Sanuwave has received the worldwide,
exclusive rights to our WoundShield product and technology. In addition, Sanuwave will bear the costs and clinical validation responsibilities associated
with obtaining approval for WoundShield from the FDA and other regulatory agencies around the world.
In September 2020, the FDA exercised its Enforcement Discretion to allow distribution of our UroShield device in the United States. This
temporary authorization is limited to use as an extracorporeal acoustic wave generating accessory to urological indwelling catheter for use during the
COVID-19 pandemic.
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Nasdaq Deficiency and Hearings Panel Decision
On March 2, 2022, the Company received a letter from Nasdaq indicating that, based upon the closing bid price of the Company’s common stock
for the 30 consecutive business day period between January 14, 2022, through March 1, 2022, the Company did not meet the minimum bid price of $1.00
per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The letter also indicated that the
Company will be provided with a compliance period of 180 calendar days, or until August 29, 2022 (the “Compliance Period”), in which to regain
compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).
On August 30, 2022, the Company received notice from Nasdaq indicating that the Company’s securities would be subject to delisting due to the
Company’s continued non-compliance with the minimum bid price requirement unless the Company timely requests a hearing before the Nasdaq Hearings
Panel (the “Panel”). The Company timely requested a hearing before the Panel, which stayed any further action by Nasdaq at least pending the issuance of
a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing. On October 17, 2022, the Panel
granted the Company’s request for continued listing on The Nasdaq Capital Market until December 15, 2022, subject to the Company providing a written
update to the Panel on December 15, 2022.
On September 13, 2022, subject to stockholder approval, the Board approved an amendment to our Certificate of Incorporation to, at the discretion
of the Board, effect the reverse stock split of our common stock at a ratio of 1-for-2 to 1-for-50, with the exact ratio within such range to be determined by
the Board at its discretion. The primary goal of the reverse stock split is to increase the per share market price of the Company’s common stock to meet the
minimum per share bid price requirements for continued listing on Nasdaq. As indicated by the Company’s proxy statement filed on October 31, 2022,
stockholders of the Company’s common stock and Series F Preferred Stock were able to vote on the reverse stock split at the annual meeting held on
December 15, 2022.
At an annual meeting of stockholders held on December 15, 2022, the Company’s stockholders granted Board the discretion to effect a reverse
stock split of the Company’s common stock through an amendment to its Certificate of Incorporation at a ratio of not less than 1-for-2 and not more than 1-
for-50, such ratio to be determined by the Board.
On February 8, 2023, the Company effected a reverse stock split of its common stock at a ratio of 1 post-split share for every 20 pre-split shares.
The Company’s common stock continued to be traded on the Nasdaq Capital Market under the symbol NAOV and began trading on a split-adjusted basis
at market open on February 9, 2023.
On February 28, 2023 the Company was notified by Nasdaq that it regained compliance with all Nasdaq listing requirements and the matter was
closed.
Regulatory Update
On May 26, 2022, we were notified by the U.S. Food and Drug Administration (the “FDA”) that we should discontinue any new marketing of our
PainShield Plus products until we receive the requisite regulatory clearance. The Company retained a qualified third-party laboratory to prepare and submit
the appropriate 510(k) premarket notification to FDA. And, on November 28, 2023, the Company announced that the FDA officially granted 510(k)
clearance of PainShield â MD PLUS to apply ultrasonic energy to generate deep heat within body tissues for the treatment of selected medical conditions,
such as relief of pain, muscle spasms, and joint contractures.
In addition, the Company is working with the laboratory on our PainShield Relief product so that it meets the predicate product category
specifications, There is no guarantee that we will ever be successful in obtaining FDA clearance or approval for the Painshield Relief products.
We also filed an application with the Centers for Medicare and Medicaid Services for reimbursement earlier this year. The application was rejected
due to a lack of data supporting PainShield MD’s life expectancy. We subsequently entered into an agreement with a qualified third-party laboratory to
conduct testing that we hope will provide the necessary independent data to support our resubmission of an application for reimbursement.
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Critical Accounting Policies and Significant Estimates
This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other
assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions differ from our assumptions.
While our significant accounting policies are more fully described in Note 3 in the “Notes to Financial Statements”, we believe the following accounting
policies are critical to the process of making significant estimates in preparation of our financial statements.
Inventory
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 net market value. As of December 31, 2022 and 2021, there was no allowance on
inventory.
Impairment of Long-Lived Assets
Management reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment
may not be recoverable under the provisions of accounting for the impairment of long-lived assets. If it is determined that an impairment loss has occurred
based upon expected future cash flows, the loss is recognized in the Consolidated Statements of Operations.
Sequencing
The Company adopted a sequencing policy under ASC 815-40-35 whereby if reclassification of contracts from equity to liabilities is necessary
pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares. This was due to the Company committing more
shares than authorized. While temporary suspensions are in place to keep the potential exercises beneath the number authorized, certain instruments are
classified as liabilities, after allocating available authorized shares on the basis of the most recent grant date of potentially dilutive instruments. Pursuant to
ASC 815, issuances of securities granted as compensation in a share-based payment arrangement are not subject to the sequencing policy.
Revenue recognition
It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps
must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that create(s) enforceable rights and obligations; (2)
Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price,
meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a
customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to
each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5)
Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of
revenue recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the
Company’s revenue recognition and there has been no material effect on the Company’s financial statements.
Revenue from product sales is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result
from coupons, discounts, chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. The Company
constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. Collectability of revenue is reasonably
assured based on historical evidence of collectability between the Company and its customers.
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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.
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.
Stock-based compensation
We rely on the Black-Scholes option pricing model for estimating the fair value of stock-based awards granted, and expected volatility is based on
the historical volatilities of peer company’s common stock. Stock options generally vest over one or two years from the grant date and generally have ten-
year contractual terms. Information about the assumptions used in the calculation of stock-based compensation expense is set forth in Notes 3 and 6 in the
“Notes to Financial Statements”.
Income taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19
pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning
before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to
generate a refund of previously paid income taxes. The Company has been consistently in a loss position in the U.S. and at present does not expect that the
NOL carryback provision of the CARES Act would result in a material cash benefit to the Company.
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.
We implemented 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.
We recognize interest and penalties related to uncertain tax positions on the income tax expense line in the accompanying consolidated statement
of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.
Recently issued accounting standards
For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 3, “Summary of Significant
Accounting Policies” to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
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Results of Operations
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Revenues. For the years ended December 31, 2022 and 2021, our revenues were approximately $752,000 and $1,695,000, respectively, a decrease
of approximately 56%, or $943,000, between the periods. The decrease was attributable to absence of sales from our Ultra Pain Products distributor in the
third and fourth quarter of 2022 due to suspension of PainShield Plus by the FDA. 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 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 foreseeable future.
For the years ended December 31, 2022, the percentage of revenues attributable to our products was: PainShield – 96% and UroShield – 4%. For
the year ended December 31, 2021, the percentage of revenues attributable to our products was: PainShield – 99% and UroShield – 1%. For the years
ended December 31, 2022 and 2021, the portion of our revenues that was derived from distributors was 89% and 93%, respectively.
Gross Profit. For the years ended December 31, 2022 and 2021, gross profit was approximately $167,000 and $770,000, respectively. The
decrease was mainly due to the large decrease in revenues as we suspended sales of our most popular product, Painshield Plus, until we received marketing
clearance from the FDA, which was not received until very late in the fourth quarter in 2022, and to a lesser degree due to (i) incurring additional labor and
material costs due to in the third and fourth quarter of 2022 which usually produced higher margins in the prior years, production delays caused by the
suspension of Painshield Plus by the FDA and minor changes we made to the product and its packaging to regain compliance, (ii) increases in certain
components of our devices due to inflation, (iii) increased importing and delivery costs because of inflation and transportation supply chain issues and (iv)
to a lesser degree obsolescence costs pertaining to certain components that were changed to regain compliance with the FDA as well as the retirement of
inventory repurchased from a former customer pursuant to an agreement to cancel a contract that had certain exclusive international distribution rights.
Gross profit as a percentage of revenues were approximately 22% and 45% for the years ended December 31, 2022 and 2021, respectively. The
decrease in gross profit as a percentage is mainly due to the reasons described above.
Research and Development Expenses. For the years ended December 31, 2022 and 2021, research and development expenses were approximately
$283,000 and $293,000, respectively, a decrease of approximately 3%, or $10,000 between the periods. This decrease was mainly due to studies performed
in the prior year and development of an over-the-counter PainShield product and a CBD application for our PainShield product in 2021 that did not occur
in 2022.
Research and development expenses as a percentage of total revenues were approximately 38% and 17% for the years ended December 31, 2022
and 2021, respectively.
Our research and development expenses consist mainly of payroll expenses to employees involved in research and development activities,
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 years ended December 31, 2022 and 2021, selling and marketing expenses were approximately $965,000
and $1,101,000, respectively, a decrease of approximately 12%, or $136,000 between the periods. The decrease in selling and marketing expenses was
mainly due to 50% re-allocation of a sales executive’s payroll to administrative costs amounting to $120,000 as his roles and responsibilities changed in
2022.
Selling and marketing expenses as a percentage of total revenues were approximately 128% and 65% for the years ended December 31, 2022 and
2021, respectively. The increase in our percentage was due to the decrease in revenues.
Selling and marketing expenses consist mainly of payroll expenses to direct sales and marketing employees, stock-based compensation expenses,
travel expenses, conventions, advertising and marketing expenses, rent and facilities expenses associated with and allocated to selling and marketing
activities.
General and Administrative Expenses. For the years ended December 31, 2022 and 2021, general and administrative expenses were approximately
$3,931,000 and $5,059,000, respectively, a decrease of approximately 22%, or $1,128,000 between the periods. The decrease was mainly due to the
recognition of a $1,500,000 arbitration settlement expense in 2021 from final award of arbitration issued in favor of the Company’s former distributor to
cover for “lost profits” and reimbursement of arbitration costs.
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Interest expense. For the years ended December 31, 2022 and 2021, were $347,000 and $0, respectively. This pertain to the interest on the
Company’s judgment liability in the current year.
Change in fair value of derivative liabilities. For the years ended December 31, 2022 and 2021, there was a change in fair value of derivative
liabilities resulting in a loss of approximately $0 and $6,956,000, respectively. The loss in 2021 was derived from the Company’s total potentially dilutive
shares exceed the Company’s authorized share limit.
Gain on purchase of warrants. For the years ended December 31, 2022 and 2021, there was a gain of approximately $0 and $64,000, respectively.
The gain in 2021 was related to the settlement of derivative liabilities which was the result of the repurchase of warrants from certain investors.
Warrant modification expense. For the years ended December 31, 2022 and 2021, warrant modification expense was approximately $0 and
$1,627,000, respectively. The warrant modification expense was due to the resolution of the over-issuance shares matter. The over-issuance shares matter
resulted in a reclassification of derivative liabilities to equity during 2021. There was no warrant modification in 2022.
Income tax expense. For the years ended December 31, 2022 and 2021, our income tax expense was approximately $35,000 and $32,000,
respectively. The low tax expense for 2021 was a result of favorable adjustments due to lapses of statutes of limitations on its Israel tax positions. In 2022,
there was no such adjustment.
Net Loss. Our net loss decreased by approximately $8,834,000 or 62%, to approximately $5,448,000 for the years ended December 31, 2022 from
approximately $14,282,000 during the same period in 2021. The decrease in net loss resulted primarily from the factors described above.
Liquidity and Capital Resources
We have incurred losses in the amount of approximately $5,448,000 during the year ended December 31, 2022, which primarily consisted of
decreased revenues and increase in interest expense from judgement liability. We also had negative cash flow from operating activities of $7,035,000 for
the year ended December 31, 2022. Although we received proceeds from sale of common stock amounting to $2,090,000 and had a cash balance of just
over $2,713,000 as of December 31, 2022, we expect to continue to incur losses and negative cash flows from operating activities, and therefore, we do not
have sufficient resources to fund our operation for the next twelve months from the date of this filing causing us to have substantial doubt of the Company’s
ability to continue as a going concern The Company will need to continue to raise additional capital to finance its losses and negative cash flows from
operations beyond the next years and may continue to be dependent on additional capital raising as long as our products do not reach commercial
profitability. If we are unable to obtain stockholder ratification of certain prior issuances of our common stock and approval of an increase in the number of
authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in its
ability to raise additional capital.
During the year ended December 31, 2022, we met our short-term liquidity requirements from our existing cash reserves and proceeds from sale
of common stock. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to
successfully commercialize our products, our development of future products and competing technological and market developments as well as our ability
to overcome obstacles that may be presented due to developments caused by the coronavirus outbreak. We expect to continue to incur losses and negative
flows from operations. We intend to use the proceeds generated from equity financings, or strategic alliances with third parties, either alone or in
combination with equity financing to meet our short-term liquidity requirements as well as to advance our long-term plans. There are no assurances that we
are able to raise additional capital, as required, on terms favorable to us.
We do not have any material commitments to capital expenditures as of December 31, 2022, and we are not aware of any material trends in capital
resources that would impact our business.
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As of December 31, 2022, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other
relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Years Ended December 31, 2022 Compared to Years Ended December 31, 2021
General. As of December 31, 2022, we had cash of approximately $2,713,000, compared to approximately $7,737,000 as of December 31, 2021.
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 $7,035,000 for the years ended December 31, 2022 and approximately $4,367,000 for the
same period in 2021. The increase in our net cash used in operating activities in the amount of $2,668,000 is mainly attributable to the increase in changes
in working capital accounts, partially offset by decrease in noncash expense of arbitration settlement expense and warrant modification expense.
Cash used in our investing activities was approximately $3,000 for both years ended December 31, 2022 and 2021 from purchases of fixed assets.
Cash provided by financing activities during the year ended December 31, 2022 was approximately $2,092,000, which was composed of the net
proceeds received from the sale of common stock and exercise of employee stock options in 2022 compared to $4,580,000 in 2021, which was the net
proceeds received from the exercise of warrants completed in 2021. 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.
Factors That May Affect Future Operations
We believe that our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors, including the
ordering patterns of our distributors, timing of regulatory approvals, the implementation of various phases of our clinical trials and manufacturing
efficiencies due to the learning curve of utilizing new materials and equipment as well issues that may continue to occur due to the development of the
coronavirus outbreak. While there were significant delays in the production of goods due to COVID-19 issues, presently, we are no longer experiencing
such delays in the production of our products. That said, there are no assurances that if a second wave of the pandemic occurs that we will not experience
significant delays in the future. Our operating results could also be impacted by a weakening of the Euro and strengthening of the New Israeli Shekel, or
NIS, both against the U.S. dollar. Lastly, other economic conditions we cannot foresee may affect customer demand, such as individual country
reimbursement policies pertaining to our products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 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.
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ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to
ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act),
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that
management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in
the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the
attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the
Securities Exchange Act of 1934, as amended (Exchange Act). Our management including the Chief Executive Officer and Chief Financial Officer has
determined that, as of December 31, 2022, the Company’s disclosure controls and procedures are not effective due to the material weaknesses described
below. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that,
notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements for the periods covered by
and included in this Annual Report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods
presented in conformity with GAAP.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. GAAP. Internal control over financial reporting includes policies and procedures that:
1)
2)
3)
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness 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 policies and procedures may deteriorate.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2022 based on the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission, known as COSO, in Internal Control — Integrated Framework (2013). Based on this evaluation, our management, including the
Chief Executive Officer and Chief Financial Officer, has concluded that our internal control over financial reporting was not effective as of December 31,
2022, as the result of the material weaknesses described below.
A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In
previously filed Annual Reports on Form 10-K’s, we disclosed material weaknesses related to the design and effectiveness of our internal control over
financial reporting.
● We did not have adequate controls in place to ensure adequate review, including (1) effective controls over our information technology and
information systems relevant to the preparation of our financial statements, (2) the controls over managements review procedures for processing,
recording and reviewing transactions related to certain contracts, accounting memos and certain monthly closing procedures, (3) proper
accounting of the number of shares of our common stock issued in connection with the conversion of shares of our preferred stock and the
exercise of warrants, which resulted in the Company issuing more shares of common stock than are authorized under our governance documents,
and (4) lacking a formalized written set of policies and procedures including testing documentation to provide evidence that our system of internal
controls over financial reporting meets the requirements of the COSO 2013 framework.
● Additionally, we did not maintain effective controls over the operating effectiveness of information technology (“IT”) general controls for
information systems that are relevant to the preparation of our financial statements. Specifically, we did not establish or formalize appropriate IT
policies, segregation of duties and monitoring procedures and without monitoring procedures over third-party service providers, did not evaluate
whether the providers were appropriately managing its and the Company’s IT infrastructure, operations, and critical financial systems.
● As of December 31, 2022, we did not have adequate controls in place to ensure adequate review, including (1) effective controls over our IT and
information systems relevant to the issuance of securities, (2) the controls over managements review procedures for processing, recording and
reviewing such issuances of securities, and (3) we implemented a new inventory system in the fourth quarter of 2021 which lacked adequate
inventory control procedures, (4) we lacked a formalized written set of policies and procedures including testing documentation to provide
evidence that our system of internal controls over our issuance of securities meets the requirements of the COSO 2013 framework, and (5) we did
not maintain effective controls over the operating effectiveness of IT general controls for information systems that are relevant to the preparation
of their financial statements.
As a smaller reporting company, the Company is not required to include in this Annual Report on Form 10-K a report on the effectiveness of
internal control over financial reporting by the Company’s independent registered public accounting firm.
Management’s Remediation Plans
To date, we have implemented certain measures to address the identified material weaknesses. These measures include adding personnel as well as
improving our internal controls around financial systems and processes. We intend to continue to take steps to remediate the material weaknesses described
above and further evolve our internal controls and processes. We will not be able to remediate these material weaknesses until these steps have been
completed and have been operating effectively for a sufficient period of time. The following remedial actions were taken through the year ended December
31, 2021:
● We have been able to remediate the material weakness identified above with respect to the issuance of shares in excess of the number of
authorized shares in 2021 and implemented a plan in place to have adequate controls in place to avoid future issuances in excess of authorized
shares. The Company took steps to remediate the stock issuance material weakness through creating procedures over the approval of any new
equity issuances to ensure that there are no further over-issuances which includes the creation of an equity roll forward master sheet that must
be approved and signed off by senior management before the issuance of any new equity issuances, including warrants, stock options and
issuances of any shares of stock.
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The following remedial actions were taken during the year ended December 31, 2022:
● With assistance from a current finance and accounting third-party service provider, the Company is formalizing our risk assessment process,
policies and procedures, implementing revised control activities, controls documentation, and ongoing monitoring activities related to the
internal controls over financial reporting including testing documentation to provide evidence that our system of internal controls over
financial reporting meets the requirements of the COSO 2013 framework, and provide a foundation for the Company to communicate internal
control deficiencies in a timely manner to those parties responsible for taking corrective action.
● expanded consultations with third party specialists on complex accounting matters, financial reporting and regulatory filings,
● enhanced documentation to support a more precise review process,
● enhanced monitoring of the review process, and
● review of inventory recording system.
During the period covered by this Annual Report on Form 10-K, with exception for the issuance of excess shares, we have not been able to
remediate the material weaknesses identified above. Although the Company has taken numerous steps, our remediation plan is not complete due to the lack
of a written testing plan to conclude if our controls and procedures and management were operating effectively; and our remediation plan has not operated
for a sufficient period of time for the Company to complete testing to conclude that our newly implemented controls and procedures were operating
effectively as of December 31, 2022. We will look to develop a full testing plan and document to determine that management designs, implements and
maintains adequate controls over our financial processes and reporting in the future our controls and procedures and management are operating effectively.
To address these internal control deficiencies, management will continue to perform additional analyses and other procedures to ensure that the financial
statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
In addition, under the direction of the audit committee of the Board of Directors, management will continue to review and make necessary changes
to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of
internal control over financial reporting of the Company.
Changes in Internal Control over Financial Reporting.
Other than described above in this Item 9A, there have been no changes in our internal control over financial reporting during the year ended
December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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 2023 annual
meeting of stockholders, which shall be filed with the Securities and Exchange Commission no later than May 1, 2023 (the “Proxy Statement”).
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.
68
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.
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 (PCAOB ID: 688)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022 and 2021
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
(2) Financial Statement Schedules:
None
(3) Exhibits:
See “Index to Exhibits” for a description of our exhibits.
ITEM 16. FORM 10-K SUMMARY
None.
69
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 Subsidiaries (the “Company”) as of December 31, 2022 and
2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period
ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of
America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully
described in Note 2, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audits 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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2018.
New York, NY
April 17, 2023
F-1
NanoVibronix, Inc.
Consolidated Balance Sheets
(Amounts in thousands except share and per share data)
December 31, 2022
December 31, 2021
ASSETS:
Current assets:
Cash
Trade receivables
Prepaid expenses and other accounts receivable
Inventory
Total current assets
Noncurrent assets:
Fixed assets, net
Other assets
Severance pay fund
Operating lease right-of-use assets, net
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Trade payables
Other accounts payable and accrued expenses
Deferred revenue
Operating lease liabilities, current
Total current liabilities
Non-current liabilities:
Accrued severance pay
Deferred licensing income
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Series C Preferred stock of $0.001 par value - Authorized: 3,000,000 shares at both
December 31, 2022 and 2021; Issued and outstanding: 0 shares at both December 31, 2022
and 2021, respectively
Series D Preferred stock of $0.001 par value - Authorized: 506 shares at both December
31, 2022 and 2021; Issued and outstanding: 0 shares at both December 31, 2022 and 2021,
respectively
Series E Preferred stock of $0.001 par value - Authorized: 1,999,494 shares at both
December 31, 2022 and 2021, respectively; Issued and outstanding: 0 shares at both
December 31, 2022 and 2021, respectively
Series F Preferred stock of $0.01 par value - Authorized: 40,000 and 0 shares at December
31, 2022 and 2021, respectively; Issued and outstanding: 0 shares at both December 31,
2022 and 2021, respectively
Common stock of $0.001 par value - Authorized: 40,000,000 shares at December 31, 2022
and December 31, 2021, respectively; Issued and outstanding: 1,641,146 and 1,399,890
shares at December 31, 2022 and December 31, 2021, respectively
Additional paid in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
2,713 $
9
712
2,175
5,609
7
3
179
81
270
5,879 $
66 $
2,148
21
81
2,316
223
107
2,646
-
-
-
-
2
7,737
200
230
175
8,342
5
19
207
49
280
8,622
87
1,723
44
49
1,903
253
153
2,309
-
-
-
-
1
65,634
(18)
(62,385)
3,233
5,879 $
63,189
60
(56,937)
6,313
8,622
The accompanying notes are an integral part of these consolidated financial statements
F-2
NanoVibronix, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands except share and per share data)
Revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Selling and marketing
General and administrative
Total operating expenses
Loss from operations
Interest expense
Financial expense, net
Change in fair value of derivative liabilities
Gain on purchase of warrants
Warrant modification expense
Loss before taxes
Income tax expense
Net loss
Basic and diluted net loss available for holders of common stock, Series C Preferred Stock and
Series D Preferred Stock
Weighted average common shares outstanding:
Basic and diluted
Comprehensive loss:
Net loss available to common stockholders
Change in foreign currency translation adjustments
Comprehensive loss available to common stockholders
$
$
$
Year Ended December 31,
2022
2021
752 $
585
167
283
965
3,931
5,179
(5,012)
(347)
(54)
-
-
-
(5,413)
(35)
1,695
925
770
293
1,101
5,059
6,453
(5,683)
-
(48)
(6,956)
64
(1,627)
(14,250)
(32)
(5,448) $
(14,282)
(3.84) $
(11.35)
1,419,670
1,258,141
(5,448)
(78)
(5,526)
(14,282)
(6)
(14,288)
The accompanying notes are an integral part of these consolidated financial statements
F-3
NanoVibronix, Inc.
Consolidated Statement of Stockholders’ Equity
Series C Preferred
Stock
Series D
Preferred Stock
Series E Preferred
Stock
Series F
Preferred Stock Common Stock
Additional
Paid - in
Accumulated
Other
Comprehensive Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital
Income
Deficit
Total
Stockholders’
Equity
Balance,
December 31,
2020
666,667 $
1
153 $
- 875,000 $
1
- $
- 1,062,326 $
1 $
44,980 $
66 $
(42,655) $
2,394
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 252,830
-
-
190
7,056
-
-
-
-
-
-
-
-
-
-
10,963
-
-
-
-
-
-
190
7,056
10,963
(666,667)
(1)
-
-
-
-
-
-
33,333
-
-
-
-
(1)
-
-
(153)
-
-
-
-
-
7,650
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
- $
-
- (875,000)
(1)
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
- $
-
-
43,750
-
-
-
-
-
-
-
-
-
-
-
(6)
-
-
(1)
-
(14,282)
(6)
(14,282)
- 1,399,890 $
1 $
63,189 $
60 $
(56,937) $
-
-
-
354
-
-
-
-
-
-
-
-
-
-
6,313
354
2,090
-
-
2
(78)
-
-
(5,448)
(78)
(5,448)
-
-
-
-
-
-
-
- 240,000
1
2,089
-
-
-
-
-
- 27,998
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
-
-
- $
-
-
-
-
- (27,998)
-
-
-
-
-
1,256
-
-
-
-
-
-
-
-
-
-
-
2
-
-
The accompanying notes are an integral part of these consolidated financial statements
F-4
- $
- 1,641,146 $
2 $
65,634 $
(18) $
(62,385) $
3,233
Stock-based
compensation
Exercise of
warrants
Reclass of
derivative
liabilities to
APIC
Conversion of
Series C
Preferred
Stock into
Common
Stock
Conversion of
Series D
Preferred
Stock into
Common
Stock
Conversion of
Series E
Preferred
Stock into
Common
Stock
Currency
translation
adjustment
Net loss
Balance,
December 31,
2021
Stock-based
compensation
Issuance of
common
stock, net of
offering costs
of $310,424
Issuance of
redeemable
Series F
preferred stock
Redemption of
redeemable
Series F
preferred stock
Exercise of
options
Other
comprehensive
loss
Net loss
Balance,
December 31,
2022
NanoVibronix, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands except share and per share data)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Year Ended December 31,
2022
2021
$
(5,448) $
(14,282)
Depreciation and amortization
Stock-based compensation
Noncash interest expense
Arbitration settlement expense
Warrant modification expense
Change in fair value of equity investment
Change in fair value of derivative liabilities
Gain on purchase of warrants
Changes in operating assets and liabilities:
Trade receivable
Other accounts receivable and prepaid expenses
Inventory
Trade payables
Other accounts payable and accrued expenses
Deferred revenue
Accrued severance pay, net
Net cash used in operating activities
Cash flows from investing activities:
Purchases of fixed assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from sale of common stock, net
Proceeds from exercise of options
Proceeds from exercise of warrants
Buy back of warrants from investor
Net cash provided by financing activities
Effects of currency translation on cash
Net (decrease) increase in cash
Cash at beginning of period
Cash at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for taxes
Supplemental non-cash financing and investing activities:
Exchange of common stock into preferred stock
Shares issued from exercise of warrants previously classified as derivative liability
Reclass derivative liability to equity due to increase in authorized shares
Reclass liability to equity after increase in authorized shares
1
354
347
-
-
16
-
-
191
(482)
(2,000)
(21)
78
(69)
(2)
(7,035)
(3)
(3)
2,090
2
-
-
2,092
(78)
(5,024)
7,737
2,713 $
- $
- $
- $
- $
- $
- $
2
382
-
1,500
1,627
6
6,956
(64)
(175)
37
(30)
(59)
(265)
(2)
-
(4,367)
(3)
(3)
-
-
4,968
(388)
4,580
(6)
204
7,533
7,737
-
-
1
2,087
8,706
2,257
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements
F-5
NANOVIBRONIX, INC.
Notes to Consolidated Financial Statements
(Amounts in thousands except share and per share data)
NOTE 1 - DESCRIPTION OF BUSINESS
NanoVibronix, Inc. (the “Company”), a Delaware corporation, commenced operations on October 20, 2003, and is a medical device company focusing on
noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home, without the assistance of
medical professionals.
The Company’s principal research and development activities are conducted in Israel through its wholly-owned subsidiary, NanoVibronix Ltd., a company
registered in Israel, which commenced operations in October 2003.
NOTE 2 - LIQUIDITY AND PLAN OF OPERATIONS
The Company’s ability to continue to operate is dependent mainly on its ability to successfully market and sell its products and the receipt of additional
financing until profitability is achieved. In 2022, the Company’s cash used in operations was $7,035 and received net proceeds of $2,090 (net of offering
costs of $310,424) from the sale of our equity securities, leaving a cash balance of $2,713 as of December 31, 2022. Because the Company does not have
sufficient resources to fund our operation for the next twelve months from the date of this filing, management has substantial doubt of the Company’s
ability to continue as a going concern. The Company will need to raise additional capital to finance its losses and negative cash flows from operations and
may continue to be dependent on additional capital raising as long as our products do not reach commercial profitability.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements include the accounts of NanoVibronix, Inc. and its wholly owned subsidiary. Intercompany accounts
and transactions have been eliminated. The consolidated financial statements and accompanying notes have been prepared in conformity with U.S.
generally accepted accounting principles (“US GAAP”).
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 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.
Foreign currency translation
Non-U.S. dollar denominated transactions and balances have been re-measured to U.S. dollars. All gains and losses from re-measurement of monetary
balance sheet items denominated in non-U.S. dollar currencies are reflected in the statements of operations as other comprehensive income, as appropriate.
The cumulative translation losses and gains as of the years ended December 31, 2022 and 2021 were $85 and $6, respectively.
Earnings per share
Basic loss per share was computed using the weighted average number of common shares outstanding. Diluted loss per share includes the effect of diluted
common stock equivalents. Potentially dilutive securities from the exercise of stock option, warrants and exercise of preferred stock as of December 31,
2022 and 2021, respectively, were excluded from the computation of diluted net loss per share because the effect of their inclusion would have been
antidilutive.
F-6
Inventory
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 net market value. As of December 31, 2022 and 2021, there was no allowance on inventory.
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
Impairment of Long-Lived Assets
Years
3
5-7
Management reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be
recoverable under the provisions of accounting for the impairment of long-lived assets. If it is determined that an impairment loss has occurred based upon
expected future cash flows, the loss is recognized in the Consolidated Statements of Operations.
Sequencing
The Company adopted a sequencing policy under ASC 815-40-35 whereby if reclassification of contracts from equity to liabilities is necessary pursuant to
ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares. This was due to the Company committing more shares than
authorized. While temporary suspensions are in place to keep the potential exercises beneath the number authorized, certain instruments are classified as
liabilities, after allocating available authorized shares on the basis of the most recent grant date of potentially dilutive instruments. Pursuant to ASC 815,
issuances of securities granted as compensation in a share-based payment arrangement are not subject to the sequencing policy.
Severance pay
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. Accrued severance pay liability at December 31, 2022 and 2021 was $223 and $253, respectively.
Leases
The Company accounts for its leases in accordance with ASU 2016-02, “Leases” (Topic 842). This topic requires that a lessee recognize the assets and
liabilities that arise from operating leases. The Company recognizes right-of-use assets and lease liabilities on the consolidated balance sheet for all leases
with a term longer than 12 months and classify them as operating leases. For leases with a term of 12 months or less, the Company elects to implement in a
class of underlying asset not to recognize lease assets and lease liabilities. The right-of-use assets and lease liabilities have been measured by the present
value of the Company’s remaining lease payments over the lease term using our incremental borrowing rates or implicit rates, when readily determinable.
Revenue recognition
It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps must be
followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that create(s) enforceable rights and obligations; (2) Identifying
the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning
the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4)
Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to each
performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing
revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue
recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the Company’s
revenue recognition and there has been no material effect on the Company’s financial statements.
F-7
Revenue from product sales is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from
coupons, discounts, chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. The Company constrains
revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. Collectability of revenue is reasonably assured based
on historical evidence of collectability between the Company and its customers.
Revenues from sales to distributors are recognized at the time the products are delivered to the distributors (sell-in”). The Company does not grant rights of
return, credits, rebates, price protection, or other privileges on its products to distributors.
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.
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.
The Company recognizes interest and penalties related to uncertain tax positions on the income tax expense line in the accompanying consolidated
statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.
Stock-based compensation
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.
Recently adopted accounting standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial
guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit
losses for financial assets held. This ASU is effective for interim and annual reporting periods beginning after December 15, 2022. The adoption of Topic
326 did not have a material effect on the Company’s consolidated financial statements.
F-8
NOTE 4 - PREPAID EXPENSES AND OTHER RECEIVABLES
Prepaid expenses and other receivables consist of the following:
Prepaid expenses
Other receivables
NOTE 5 – INVENTORY
Inventory consists of the following components:
Raw materials
Finished goods
NOTE 6 - STOCKHOLDERS’ EQUITY
Common Stock
December 31,
2022
2021
612 $
100
712 $
December 31,
2022
2021
30 $
2,145
2,175 $
166
64
230
-
175
175
$
$
$
$
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.
On August 17, 2021, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation to
increase the number of shares of the Company’s Common Stock authorized for issuance from 24,109,635 shares to 40,000,000 shares. As a result of the
vote to increase the number of shares authorized for issuance, the warrants that were previously accounted for as derivative liabilities were marked to
market through the date of approval and then reclassified to additional paid in capital (equity), as the Company had sufficient authorized shares to settle the
exercise of the warrants.
Issuance of common stock for cash
On November 29, 2022, the Company entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company
agreed to sell in a registered direct offering (the “Offering”), 240,000 shares of the Company’s common stock at an offering price of $10.00 per share. The
Company received net proceeds from the sale of such offering, after deducting placement agent fees and expenses and offering expenses payable by the
Company, of approximately $2.1 million. The Company intends to use the net proceeds for general working capital purposes.
On October 6, 2022, the Company entered into an engagement letter with H.C. Wainwright & Co., LLC (the “Wainwright”), pursuant to which Wainwright
agreed to serve as the exclusive placement agent for the Company, on a reasonable best-efforts basis, in connection with the Offering. The Company will
pay Wainwright an aggregate cash fee equal to 7.5% of the gross proceeds of the Offering, a management fee equal to 1.0% of the gross proceeds of the
Offering, a non-accountable expense allowance of $50,000 and $15,950 for clearing fees. Additionally, the Company has agreed to issue to Wainwright or
its designees as compensation, warrants to purchase up to 18,000 shares of common stock. The warrants expire on November 29, 2027 and have an
exercise price of $12.50 per share.
F-9
Series C, D and E Preferred Stock conversion to common stock
Each share of Series E Preferred Stock is convertible at any time and from time to time at the option of a holder of Series E Preferred Stock into one
twentieth of a share of the Company’s common stock, provided that each holder would be prohibited from converting Series E Preferred Stock into shares
of the Company’s common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the total
number of shares of the Company’s common stock then issued and outstanding. This limitation may be waived with respect to a holder upon such holder’s
provision of not less than 61 days’ prior written notice to the Company.
During the years ended December 31, 2022 and 2021, shareholders converted 0 and 875,000 shares of Series E Preferred Stock into 0 and 43,750 shares of
common stock, respectively, at a conversion rate of 20 to 1. No purchase was made to convert these shares.
Each share of Series D Preferred Stock is convertible into fifty shares of common stock 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. 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.
During the years ended December 31, 2022 and 2021, shareholders converted 0 and 153 shares of Series D Preferred Stock into 0 and 7,650 shares of
common stock, respectively, at a conversion rate of 1 to 50. No purchase was made in order to convert these shares.
Each share of Series C Preferred Stock is convertible into one twentieth of a share of common stock 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.
During the years ended December 31, 2022 and 2021, shareholders converted 0 and 666,667 shares of Series C Preferred Stock into 0 and 33,333 shares of
common stock, respectively, at a conversion rate of 20 to 1. No purchase was made in order to convert these shares.
Series F Preferred Stock
On September 13, 2022, the Board declared a dividend of one one-thousandth of a share of Series F Preferred Stock, par value $0.001 per share (“Series F
Preferred Stock”), for each one share of the Company’s common stock, par value $0.001 per share, to stockholders of record at 5:00 p.m. Eastern Time on
October 14, 2022.
Each share of Series F Preferred Stock entitles the holder thereof to 1,000,000 votes per share (and, for the avoidance of doubt, each fraction of a share of
Series F Preferred Stock has a ratable number of votes). Thus, each one-thousandth of a share of Series F Preferred Stock entitles the holder thereof to
1,000 votes. The outstanding shares of Series F Preferred Stock will vote together with the outstanding shares of common stock of the Company as a single
class exclusively with respect to (1) any proposal to adopt an amendment to Certificate of Incorporation to reclassify the outstanding shares of common
stock at a ratio specified in or determined in accordance with the terms of such amendment (the “Reverse Stock Split”) and (2) any proposal to adjourn any
meeting of stockholders called for the purpose of voting on the Reverse Stock Split (the “Adjournment Proposal”). The Series F Preferred Stock is not
entitled to vote on any other matter, except to the extent required under the Delaware General Corporation Law.
F-10
Unless otherwise provided on any applicable proxy or ballot with respect to the voting on the Reverse Stock Split or the Adjournment Proposal,
the vote of each share of Series F Preferred Stock (or fraction thereof) entitled to vote on the Reverse Stock Split, the Adjournment Proposal or any other
matter brought before any meeting of stockholders held to vote on the Reverse Stock Split and the Adjournment Proposal will be cast in the same manner
as the vote, if any, of the share of common stock (or fraction thereof) in respect of which such share of Series F Preferred Stock (or fraction thereof) was
issued as a dividend is cast on the Reverse Stock Split, the Adjournment Proposal or such other matter, as applicable, and the proxy or ballot with respect to
shares of common stock held by any holder on whose behalf such proxy or ballot is submitted will be deemed to include all shares of Series F Preferred
Stock (or fraction thereof) held by such holder. Holders of Series F Preferred Stock will not receive a separate ballot or proxy to cast votes with respect to
the Series F Preferred Stock on the Reverse Stock Split, the Adjournment Proposal or any other matter brought before any meeting of stockholders held to
vote on the Reverse Stock Split. All shares of Series F Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to
vote on the Reverse Stock Split and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption
Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the
Company or the holder of shares of Series F Preferred Stock (the “Initial Redemption”). Any outstanding shares of Series F Preferred Stock that have not
been redeemed pursuant to an Initial Redemption will be redeemed in whole, but not in part, (i) if such redemption is ordered by the Board in its sole
discretion, automatically and effective on such time and date specified by the Board in its sole discretion or (ii) automatically upon the approval by the
Company’s stockholders of the Reverse Stock Split at any meeting of the stockholders held for the purpose of voting on such proposal (the “Subsequent
Redemption” and, together with the Initial Redemption, the “Redemption”). As of December 31, 2022, both the Initial Redemption and the Subsequent
Redemption have occurred. As a result, no shares of Series F Preferred Stock remain outstanding.
Each share of Series F Preferred Stock redeemed in any redemption described above will be redeemed in consideration for the right to receive an
amount equal to $0.10 in cash for each one hundred whole shares of Series F Preferred Stock that are “beneficially owned” by the “beneficial owner” (as
such terms are defined in the Certificate of Designation) thereof as of the applicable redemption time and redeemed pursuant to such redemption, payable
upon receipt by the Company of a written request submitted by the applicable holder to the corporate secretary of the Company (each a “Redemption
Payment Request”) following the applicable redemption time. Such Redemption Payment Request shall (i) be in a form reasonably acceptable to the
Company (ii) set forth in reasonable detail the number of shares of Series F Preferred Stock beneficially owned by the holder at the applicable redemption
time and include evidence reasonably satisfactory to the Company regarding the same, and (iii) set forth a calculation specifying the amount in cash owed
to such Holder by the Company with respect to the shares of Series F Preferred Stock that were redeemed at the applicable redemption time. However, the
redemption consideration in respect of the shares of Series F Preferred Stock (or fractions thereof) redeemed in any redemption described above: (i) will
entitle the former beneficial owners of less than one hundred whole shares of Series F Preferred Stock redeemed in any redemption to no cash payment in
respect thereof and (y) will, in the case of a former beneficial owner of a number of shares of Series F Preferred Stock (or fractions thereof) redeemed
pursuant to any redemption that is not equal to a whole number that is a multiple of one hundred, entitle such beneficial owner to the same cash payment, if
any, in respect of such redemption as would have been payable in such redemption to such beneficial owner if the number of shares (or fractions thereof)
beneficially owned by such beneficial owner and redeemed pursuant to such redemption were rounded down to the nearest whole number that is a multiple
of one hundred (such, that for example, the former beneficial owner of 150 shares of Series F Preferred Stock redeemed pursuant to any redemption will be
entitled to receive the same cash payment in respect of such redemption as would have been payable to the former beneficial owner of 100 shares of Series
F Preferred Stock redeemed pursuant to such redemption).
No shares of Series F Preferred Stock may be transferred by the holder thereof except in connection with a transfer by such holder of any shares of
common stock held by such holder, in which case a number of one one-thousandths (1/1,000ths) of a share of Series F Preferred Stock equal to the number
of shares of common stock to be transferred by such holder will be automatically transferred to the transferee of such shares of common stock. The holders
of Series F Preferred Stock, as such, are not entitled to receive dividends of any kind.
The Certificate of Designation was filed with the Delaware Secretary of State and became effective on September 14, 2022.
As described in the proxy statement filed on October 31, 2022, holders of The Company’s common stock and Series F Preferred Stock as of the
close of business on October 17, 2022, are entitled to vote on the amendment to the Company’s Certificate of Incorporation to effect, at the discretion of the
Company’s Board but prior to the six-month anniversary of the date on which the reverse stock split is approved by the Company’s stockholders at the
Annual Meeting, a reverse stock split of all of the outstanding shares of the Company’s common stock at a ratio in the range of 1-for-2 to 1-for-50, with
such ratio to be determined by the Board in its discretion and included in a public announcement, and the proposal to adjourn the Annual Meeting to a later
date at the Annual Meeting held on December 15, 2022.
F-11
Stock-based compensation and options
During the years ended December 31, 2022 and 2021, 1,256 and 0 employee options were exercised, and 21,875 and 43,875 options were granted,
respectively. The options granted during 2022 and 2021 vest at different schedules ranging from date granted to 9 years and were recorded at fair values of
$201 and $583, respectively. During the years ended December 31, 2022 and 2021, stock-based compensation expense of $148 and $258 was recorded for
options that vested, respectively.
Outstanding – December 31, 2021
Granted
Forfeited
Expired
Exercised
Outstanding – December 31, 2022
Shares Under
Options
Weighted
Average
Exercise Price
per Share
Weighted
Average
Remaining
Life (Years)
127,000
21,875
-
-
(1,256)
147,619
$
$
31.86
10.76
-
-
1.40
24.42
7.77
9.55
-
-
0.24
7.24
The fair value for options granted in 2022 and 2021 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with the
following underlying assumptions:
Price at valuation
Exercise price
Risk free interest
Expected term (in years)
Volatility
$
$
2022
0.45 – 0.78
0.45 – 0.78
2.32 – 3.58%
$
$
5
125.3 – 127.9%
2021
0.72 – 2.07
0.72 – 2.07
0.27 – 1.29%
5
60.9 – 82.7%
The total stock-based expense recognized in the financial statements for services received from employees and non-employees is shown in the following
table.
Research and development
Selling and marketing
General and administrative
Total
Year Ended
December 31,
2022
2021
$
$
6 $
25
323
354 $
13
28
341
382
As of December 31, 2022, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $328,
which is expected to be recognized over a weighted average period of approximately 7.24 years.
Warrants
On December 2, 2020, we entered into a Securities Purchase Agreement with certain institutional and accredited investors pursuant to which the Company
issued and sold to such investors in a private placement an aggregate of (i) 295,714 shares of the Company’s common stock at an offering price of $14.00
per share and (ii) pre-funded warrants to purchase up to 132,857 shares of common stock at a purchase price of $13.98 per pre-funded warrant, for gross
proceeds of approximately $6.0 million, and net proceeds of approximately $5.4 million. In January 2021, two investors exercised an aggregate of 82,857
warrants at $0.02 per share.
On January 21, 2021, Company entered into letter agreements (the “Letter Agreements”) with certain existing accredited investors to exercise certain
outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 60,298 shares of the Company’s common stock at an exercise price per
share of $23.30 (the “Exercise”). Certain of the Existing Warrants (the “Registered Existing Warrants”) and the shares of common stock underlying the
Registered Existing Warrants have been registered pursuant to a registration statement on Form S-3 (File No. 333-251264) and a registration statement on
Form S-1 (File No. 333-218871). In consideration for the exercise of the Existing Warrants for cash, the exercising holders received new unregistered
warrants to purchase up to an aggregate of 60,298 shares of common stock (the “New Warrants”) at an exercise price of $20.80 per share and with an
exercise period of seven years from the initial closing date. The gross proceeds to the Company from the Exercise were approximately $1.4 million.
F-12
The New Warrants were accounted for in warrant modification expense, which was measured at the amount equal to the incremental value reflecting the
change in the fair value of the warrants before and after the Warrant Amendment. Accordingly, warrant modification expense in the amount of $1,627 was
recorded with a corresponding increase in additional paid in capital.
In August and September 2021, investors exercised warrants to purchase 109,675 shares of common stock between $17.60 and $50.00 per share for
proceeds of approximately $3.6 million.
On June 14, 2022, the Company issued warrants to two sales consultants to purchase 12,500 shares of common stock which will expire on June 14, 2029
and have an exercise price of $20.00 per share. Accordingly, expense related to these warrants in the amount of $135,000 was recorded with a
corresponding increase in additional paid in capital.
On September 30, 2022, the Company and the two sales consultants mutually agreed to cancel the latter’s annual stock warrants to purchase 12,500 shares
of common stock. Accordingly, expense related to these warrants were reversed in the amount of $135,000 with a corresponding decrease in additional paid
in capital.
On November 29, 2022, the Company granted 18,000 warrants to purchase Company’s common stock in conjunction with the private placements.
In estimating the warrants’ fair value, the Company used the following assumptions:
Risk free interest
Dividend yield
Volatility
Contractual term (in years)
Outstanding – December 31, 2020
Granted
Exercised
Exercised - cashless
Expired
Canceled
Outstanding – December 31, 2021
Granted
Expired
Canceled
Outstanding – December 31, 2022
NOTE 7 - DERIVATIVE LIABILITIES
2022
2021
0.34%
0%
60.7%
5
1.44%
0%
55.6 - 56.5 %
2
Warrants
386,237
60,298
(252,830)
(14,071)
(31,000)
(33,167)
115,467
30,500
(55,215)
(12,500)
78,252
During 2020, the Company established a sequencing policy to which common stock equivalents are exercisable to shares of common stock more than the
Company’s authorized limit. It was determined that all options and warrants by the end of the year were no longer permitted to be classified as equity and
were valued at fair market value using Black Scholes and recorded as derivative liabilities.
On April 6, 2021, the Company agreed to buy back 33,167 warrants from investors for a total of $368. The warrants had exercise prices between $17.6 and
$18.8 per share. The value of the derivative liabilities associated with these warrants was $451. The Company recorded a $64 gain in connection with the
buyback of the warrants.
F-13
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s purchase
warrants that were categorized within Level 3 of the fair value hierarchy during the years ended December 31, 2022 and 2021 is as follows:
Stock price
Conversion price
Contractual term (in years)
Volatility (annual)
Risk-free rate
$
$
2022
$
$
1.01 – 2.94
0.72 – 6.90
0.67 – 6.56
82.70 – 211%
0.09 – 1.21%
2021
1.01 – 2.94
0.72 – 6.90
0.67 – 6.56
82.70 - 211%
0.09 – 1.21%
The foregoing assumptions were reviewed quarterly and were subject to change based primarily on management’s assessment of the probability of the
events described occurring.
NOTE 8 – LEASES
The Company has operating lease agreements with terms up to 2-3 years, including car and office space leases.
The Company’s weighted-average remaining lease term relating to its operating leases is 1.05 years, with a weighted-average discount rate of 10%.
The Company incurred $75 of lease expense for its operating leases for the year ended December 31, 2022.
The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases as of December 31, 2022:
2023
2024
Total undiscounted operating lease payments
Less: Imputed interest
Present value of operating lease liabilities
73
4
77
4
73
$
NOTE 9 - LOSS PER SHARE APPLICABLE TO COMMON SHAREHOLDER
Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common shareholders by the weighted average number of
common shares outstanding during the period. All outstanding share options and warrants for the years ended December 31, 2022 and 2021 have been
excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.
The following table summarizes the Company’s securities, in common share equivalents, which have been excluded from the calculation of dilutive loss
per share as their effect would be anti-dilutive:
Stock options - employee and non-employee
Warrants
Total
December 31, 2022
147,619
78,252
225,871
December 31, 2021
127,000
115,467
242,467
The diluted loss per share equals basic loss per share in the year ended December 31, 2022 and 2021 because the Company had a net loss and the impact of
the assumed exercise of stock options and the vesting of restricted stock would have been anti-dilutive.
F-14
NOTE 10 - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
Summary information about geographic areas:
The Company manages its business on the basis of one reportable segment and derives revenues from selling its products directly to patients as well as
through distributor agreements. The following is a summary of revenues within geographic areas:
United States
Europe
Australia
India
Israel
Other
Total
The Company’s long-lived assets are all located in Israel.
NOTE 11 – OTHER ASSETS
Year Ended December 31,
2022
2021
710 $
25
9
3
-
5
752 $
1,627
18
6
-
5
39
1,695
$
$
On April 9, 2020, pursuant to a licensing agreement entered into in March 2020, the Company received 10-year warrants to purchase 127,000 shares of
Sanuwave Health, Inc. at a price of $0.19 per share. The fair value for warrants received is estimated at the date of grant using a Black-Scholes-Merton
pricing model with the following underlying assumptions:
Price at valuation
Exercise price
Risk free interest
Expected term (in years)
Volatility
2022
$
$
$
$
0.02
0.19
3.96%
8
155.6%
2021
0.19 – 0.26
0.19
0.66 – 0.73 %
10
140.6 – 143.9%
The Company considers this to be Level 3 inputs and is valued at each reporting period. The fair value of these warrants for the years ended December 31,
2022 and 2021 was $3 and $19, respectively. There was a net $16 and $6 change in fair value during the year ended December 31, 2022 and 2021,
respectively.
Financial Liabilities Measured at Fair Value on a Recurring Basis
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or
liability. Fair value measurements are rated on a three-tier hierarchy as follows:
● Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
● Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
● Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
There were no transfers between Level 3 during the years ended December 31, 2022 and 2021.
F-15
The following table presents changes in Level 3 asset and liability measured at fair value for the years ended December 31, 2022 and 2021:
Balance – December 31, 2020
New Issuances
Fair value adjustments – Sanuwave warrants
Fair value adjustments – Warrant liability
Reclassification liability to equity
Buy back of warrants
Balance – December 31, 2021
New Issuances
Fair value adjustments – Sanuwave warrants
Balance – December 31, 2022
As of December 31, 2022
Asset
Liability
25 $
-
(6)
-
-
-
19 $
-
(16)
3 $
2,471
1,819
-
6,956
(10,793)
(453)
-
-
-
-
$
$
$
The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value
hierarchy:
Asset:
Other assets
Asset:
Other assets
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Pending and settled litigation
Fair Value Measurements as of December 31, 2022
Level I
Level II
Level III
Total
$
$
-
$
- $
3 $
3
Fair Value Measurements as of December 31, 2021
Level I
Level II
Level III
Total
-
$
- $
19 $
19
On December 17, 2019, a lawsuit was filed by a former officer and director, Jona Zumeris, in the Haifa Israel District Financial Court, seeking damages of
approximately $900 for breach of the Separation Agreement executed on July 4, 2018. The Israeli court issued a court order demanding that we restrict
approximately $700 of the Company’s money until the matter is adjudicated. The Company appealed the court order and in February 2020, the Company
agreed to restrict approximately 1,187 NIS (“New Israeli Shekel”) and agreed to try to settle the matter in mediation. On November 30, 2020, the Company
funded the escrow account with $391. In January 2021, the parties reached a settlement in which the Company paid the plaintiff approximately $366 as
settlement in full.
On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the
“ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated March 7, 2019 (the
“Agreement”) between Protrade and the Company. Protrade alleges, in part, that the Company has breached the Agreement by discontinuing the
manufacture of the DV0057 Painshield MD device in favor of an updated 10-100-001 Painshield MD device. Protrade claims damages estimated at $3
million. The Company vigorously defended the claims asserted by Protrade.
On March 15, 2022, the arbitrator issued a final award, which, although denied all Protrade’s claims, nevertheless awarded Protrade about $1.5 million, on
the grounds that the Company allegedly failed to fulfill an order for reusable hydrogel patches placed after the Agreement was terminated. The arbitrator
based her decision on the basis of testimony of Protrade’s president who asserted that a patient would use in excess of 33 reusable patches per each device,
which the Company believes is a grossly inflated number.
On April 5, 2022, Protrade filed a Petition with the Supreme Court of New York Nassau County seeking to confirm the Award. On April 13, 2022, the
Company submitted an application to the ICA seeking to correct an error in the award based on the evidence that the Company only sold 2-3 reusable
patches per device contrary to the 33 reusable patches claimed by Protrade. The same arbitrator who issued the award, denied the application.
On July 22, 2022, the Company filed a cross-motion seeking to vacate arbitration award on the grounds that the arbitrator exceeded her authority, that the
award was procured by fraud, and that the arbitrator failed to follow procedures established by New York law. In particular, the Company averred in its
motion that Protrade’s witness made false statements in arbitration, and that the arbitrator resolved a claim that was never raised by Protrade and that has no
factual basis.
F-16
On October 3, 2022, the court issued a decision granting Protrade its petition to confirm the Award and denying the cross-motion.
On November 9, 2022, the Company filed a motion to re-argue and renew its cross-motion to vacate the arbitration decision based on newel information
that was not available during the initial hearing. On the same day, the Company also filed a notice of appeal with the Appellate Division, Second
Department. On March 21, 2023, the Court denied the motion to re-argue and renew. The Company intends to file a notice of appeal with the Appellate
Division, Second Department and to continue to vigorously pursue its opposition to the award in all appropriate fora.
Other Risks
On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant
financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have
an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common
shares.
NOTE 13 – RELATED PARTY TRANSACTION
The firm of FisherBroyles LLP is handling our Protrade litigation and appeals. For the year ended December 31, 2022, we have been billed and paid legal
fees from Fisher Broyles amounting to $256,908 and recorded as part of “General and administrative expenses” in the condensed consolidated statements
of operations. As has been previously disclosed, one of our board members, Aurora Cassirer, is a partner at Fisher Broyles. Ms. Cassirer does not provide
any legal services or legal advice to the Company.
NOTE 14 – INCOME TAXES
As of December 31, 2022, the U.S. Company had federal and state net operating loss carry forward for tax purposes of approximately $33,000 and $6,000,
respectively. $19,200 of the federal net operating loss can be carried forward indefinitely but can only offset up to 80% of taxable income in a given year,
and $14,000 of the federal net operating loss can be used to fully offset taxable income in the period it is utilized but can only be carried forward for 20
years. Utilization of the U.S. net operating losses may be subject to substantial limitations in the event of a change of ownership under the provisions of the
Internal Revenue Code of 1986. The Company has not performed an analysis, but the potential impact of any limitation would not be material to the
financial statements due to the fact that the respective DTAs are fully offset by a valuation allowance.
Income tax expense is comprised of the following:
Current Tax
Federal
State
Foreign
Total
Deferred Tax
Federal
State
Foreign
Total
Less: Valuation Allowance
Total Tax
Year ended December 31,
2022
2021
- $
-
37
37 $
(1,545) $
653
(1)
(893) $
893
37 $
-
-
32
32
(1,263)
(131)
(4)
(1,398)
1,398
32
$
$
$
$
$
$
F-17
The difference between the statutory tax rate of the Company and the effective tax rate is primarily the result of tax benefits generated by the Company and
its subsidiary which have not been recognized due to the uncertainty that such tax benefits will ultimately be realized. A reconciliation of the statutory U.S
Federal rate to the Company’s effective tax rate is as follows:
Federal income tax benefit at statutory rate
State income taxes, net of federal benefit
Foreign rate differential
Permanent Items
Change in valuation allowance
Return to provision adjustments
Forfeited options
Other
Effective tax rate
Foreign tax
Tax rates applicable to the income of the Israeli subsidiary:
The Israeli corporate tax rate in 2022 and 2021 is 23%.
The subsidiary has final tax assessments through 2016.
Loss before taxes:
Domestic
Foreign
Deferred income taxes
Year ended December 31,
2022
2021
21.00%
-12.06%
-0.03%
-0.61%
-16.61%
7.54%
0.00%
0.09%
-0.68%
21.00%
0.92%
0.02%
-13.04%
-9.81%
-0.01%
-0.16%
0.86%
-0.22%
Year ended December 31,
2022
2021
$
$
5,557 $
(144)
5,413 $
14,333
(82)
14,250
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
Arbitration accrual
Stock compensation and other
Deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax asset
Year ended December 31,
2022
2021
$
$
7,306 $
414
483
8,203
(8,203)
- $
6,563
414
327
7,304
(7,304)
-
For the year ended December 31, 2022 and 2021, the net increases in valuation allowance of $894 and $1,417, respectively was primarily driven by the
increase in net operating loss carryforwards.
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.
F-18
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 able to be utilized. Based on consideration of these factors, the Company concluded that all of its
recorded deferred tax assets are not more likely than not realizable and recorded a full valuation allowance at December 31, 2022 and 2021.
The Company considers the earnings of its non-U.S. subsidiary to be indefinitely invested outside the United States on the basis of estimates that future
domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. We
have not recorded a deferred tax liability related to the U.S. federal and state income taxes as an estimate of undistributed earnings of foreign subsidiaries
would not be practicable to estimate at this time. If the Company does decide to repatriate the foreign earnings, we would need to adjust our income tax
provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.
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.
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of
operations. As of December 31, 2022 and 2021, the Company does not have any liabilities recorded for uncertain tax positions and does not expect there to
be any events which could potentially result in the need for a material liability to be recorded. There were no changes in the Company’s unrecognized tax
benefits during the years ended December 31, 2022 and 2021. The Company did not recognize any interest or penalties during fiscal 2022 or 2021 related
to unrecognized tax benefits.
U.S. federal and New York State income taxes are open for examination for years 2019-2022 and Israel tax returns are open for examination for years
2018-2022.
NOTE 15 - SUBSEQUENT EVENTS
On February 8, 2023, the Company effected a reverse stock split of its common stock at a ratio of 1 post-split share for every 20 pre-split shares. The
Company’s common stock begin trading on a split-adjusted basis when the market opened on February 9, 2023.
At an annual meeting of stockholders held on December 15, 2022, the Company’s stockholders granted the Company’s Board of Directors the discretion to
effect a reverse stock split of the Company’s common stock through an amendment to its Amended and Restated Certificate of Incorporation at a ratio of
not less than 1-for-2 and not more than 1-for-50, with such ratio to be determined by the Company’s Board of Directors.
At the effective time of the reverse stock split, every 20 shares of the Company’s issued and outstanding common stock was converted automatically into
one issued and outstanding share of common stock without any change in the par value per share. Stockholders holding shares through a brokerage account
had their shares automatically adjusted to reflect the 1-for-20 reverse stock split. The reverse stock split affected all stockholders uniformly and did not
alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the reverse stock split resulted in a stockholder owning a
fractional share. Any fractional share of a stockholder resulting from the reverse stock split was rounded up to the nearest whole number of shares.
Proportional adjustments were made to the number of shares of the Company’s common stock issuable upon exercise or conversion of the Company’s
equity awards, warrants and other convertible securities, as well as the applicable exercise or conversion price thereof.
Accordingly, on February 28, 2023, the Company received official notice from Nasdaq that the Company evidenced compliance with all applicable criteria
for continued listing on The Nasdaq Capital Market, including the $1.00 bid price requirement. As previously disclosed, the Company was granted an
extension by the Nasdaq Hearings Panel through February 23, 2023 to regain compliance with the $1.00 bid price requirement for continued listing on The
Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2).
F-19
Exhibit No.
Index to Exhibits
Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
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)
Certificate of Designation, Preferences, Rights and Limitations of Series E Preferred Stock (incorporated by reference to Exhibit 4.1 to the
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 19, 2019)
Certificate of Amendment of the Amended and Restated Certificate of Designation (incorporated herein by reference to Exhibit 3.1 to the
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2019)
Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.7 to the Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on November 15, 2021)
Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on
November 3, 2021)
Certificate of Designation, Preferences, Rights and Limitations of Series F Preferred Stock (incorporated by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2022)
3.10
Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report filed with the
Securities and Exchange Commission on February 8, 2023)
4.1
4.2
4.3
4.4
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 Amendment No. 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)
70
4.5
4.6
4.7
4.8
4.9
Form of May 10 and May 15, 2019 Warrants (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 20, 2019)
Form of Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 26, 2019)
Form of Preferred Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 31, 2019)
Form of Common Warrant (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 31, 2019)
Form of Warrant Amendment (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on May 20, 2020)
4.10
Form of Underwriter Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 26, 2020).
4.11
Form of Underwriter Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 24, 2020).
4.12
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 7, 2020).
4.13
Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 7, 2020).
4.14
Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 1, 2020).
4.15*
Description of Securities
10.1
10.2
10.3
10.4
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)
71
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)
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+
10.9
10.10
10.11
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)
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)
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)
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)
72
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)
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+
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 10.51 to the Annual Report on Form 10-K filed with the Securities Exchange Commission on March
31, 2017)
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)
73
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)
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-K/A filed with the Securities and Exchange Commission on September 14, 2017)
10.36
Consulting Agreement dated as of February 21, 2019, between NanoVibronix, Inc and Bespoke Growth Partners, Inc. (incorporated by
reference to Exhibit 10.36 to the Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on May 13, 2019)
10.37
Convertible Promissory Note (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K/A filed with the Securities
and Exchange Commission on May 13, 2019)
10.38
Convertible Promissory Note (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K/A filed with the Securities
and Exchange Commission on May 13, 2019)
10.39
Form of Warrant (incorporated by reference to Exhibit 10.39 to the Annual Report on Form 10-K/A filed with the Securities and Exchange
Commission on May 13, 2019)
10.40
Convertible Promissory Note (Globis), May 10, 2019 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on May 20, 2019)
10.41
Convertible Promissory Note (AiGH), May 15, 2019 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on May 20, 2019)
10.42+
CFO Consulting Agreement, dated as of June 1, 2019, between NanoVibronix Inc. and James S. Cardwell (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 4, 2019)
10.43
10.44
10.45
Securities Purchase Agreement, dated as of June 21, 2019, by and among the Company and each investor identified on the signature pages
thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
June 26, 2019)
Securities Purchase Agreement, dated as of July 31, 2019, by and among the Company and each investor identified on the signature pages
thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 31, 2019)
Securities Purchase Agreement, dated as of July 31, 2019, by and among the Company and each investor identified on the signature pages
thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 31, 2019)
10.46
Form of Note (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 26, 2020).
10.47
Form of Warrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 26, 2020).
74
10.48
Note with Cross River Bank (SBA-Payroll Protection Program loan) dated May 14, 2020 (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 19, 2020).
10.49+
Employment Agreement, dated as of October 5, 2020, between NanoVibronix, Inc. and Stephen Brown (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 2020).
10.50+
10.51+
10.52+
10.53+
10.54+
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Brian Murphy (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2020).
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Christopher Fashek
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 5, 2020).
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Martin Goldstein
(incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 5, 2020).
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Michael Ferguson
(incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 5, 2020).
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Stephen Brown
(incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on
November 5, 2020).
10.55+
Option Cancellation and Release Agreement, dated November 2, 2020, by and between NanoVibronix, Inc. and Thomas Mika (incorporated
by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2020).
10.56
Form of Securities Purchase Agreement, dated December 2, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on December 7, 2020).
10.57
Form of Registration Rights Agreement, dated December 2, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form
8-K filed with the Securities and Exchange Commission on December 7, 2020).
10.58#
Amended and Restated Distribution Agreement for “Private Labeled” Products dated December 10, 2020 by and between NanoVibronix,
Inc. and Ultra Pain Products Inc (incorporated by reference to Exhibit 10.58 to the Annual Report on Form 10-K filed with the Securities
and Exchange Commission on April 15, 2021).
10.59+
Second Amendment to the NanoVibronix, Inc. 2014 Long-Term Incentive Plan. (incorporated by reference to Annex A to the Company’s
definitive proxy statement on Schedule 14A filed with the SEC on April 30, 2019).
10.60+
Third Amendment to the Nanovibronix, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission on December 30, 2021).
75
10.61
Fourth Amendment to the Nanovibronix, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2022)
10.62
Form of Securities Purchase Agreement, dated November 29, 2022 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed with the Securities and Exchange Commission on December 1, 2022)
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)
Consent of Marcum, LLP, 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
23.1*
31.1*
31.2*
32.1**
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
32.2**
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
101*
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline
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.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan or arrangement.
# Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii)
would likely cause competitive harm to the Company if publicly disclosed.
76
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
Date: April 17, 2023
NANOVIBRONIX, INC.
By: /s/ Brian Murphy
Brian Murphy
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian Murphy as his true and
lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to
sign any and all amendments to this Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all
said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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/ STEPHEN BROWN
Stephen Brown
/s/ CHRISTOPHER FASHEK
Christopher Fashek
/s/ MARTIN GOLDSTEIN
Martin Goldstein
/s/ HAROLD JACOB M.D.
Harold Jacob, M.D.
/s/ MICHAEL FERGUSON
Michael Ferguson
/s/ THOMAS R. MIKA
Thomas R. Mika
/s/ AURORA CASSIRER
Aurora Cassirer
/s/ MARIA SCHROEDER
Maria Schroeder
Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer,
(principal financial and accounting officer)
April 17, 2023
April 17, 2023
Chairman of the Board of Directors
April 17, 2023
Director
Director
Director
Director
Director
Director
77
April 17, 2023
April 17, 2023
April 17, 2023
April 17, 2023
April 17, 2023
April 17, 2023
Exhibit 4.15
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
As of May 14, 2020, NanoVibronix, Inc., a Delaware corporation (“we,” “our” and the “Company”) has its common stock, par value $0.001 per
share, registered under Section 12 of the Securities Exchange Act of 1934, as amended.
The following description is intended as a summary and is qualified in its entirety by reference to our amended and restated certificate of
incorporation, as amended (the “Amended & Restated Certificate of Incorporation”) and the amended and restated by-laws, as amended (the “By-laws”) as
currently in effect, copies of which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein.
Authorized Capital Stock
As of April 17, 2023, our authorized capital stock consists of shares, of which 40,000,000 shares are common stock, par value $0.001 per share,
and 5,040,000 shares are preferred stock, par value $0.001 per share, 3,000,000 of which have been designated as Series C Convertible Preferred Stock
(“Series C Preferred Stock”), 506 of which have been designated as Series D Convertible Preferred Stock (“Series D Preferred Stock”), 1,994,494 of which
have been designated as Series E Convertible Preferred Stock (“Series E Preferred Stock”) and 40,000 of which have been designated as Series F
Convertible Preferred Stock (“Series F Preferred Stock”). As of April 17, 2023, there were 1,662,377 shares of common stock issued and outstanding, 0
shares of Series C Convertible Preferred Stock issued and outstanding, 0 shares of Series D Convertible Preferred Stock issued and outstanding, 0 shares of
Series E Convertible Preferred Stock issued and outstanding and 0 shares of Series F Convertible Preferred Stock issued and outstanding.
Our Board, in consultation with counsel, determined that it was in the best interests of the Company and our stockholders to ratify, pursuant to
Section 204 of the Delaware General Corporation Law (“DGCL”) and Delaware common law, an increase in the number of authorized shares of our
common stock from 20,000,000 to 24,109,635 (the “Authorized Share Increase”) and the issuance of 4,109,635 shares of common stock (the “Authorized
Share Increase Issuance”) upon conversion of the Series C Preferred Stock and the exercise of certain December 2020 Warrants and Pre-Existing Warrants
(the “Share Increase Ratification”). On March 3, 2021, we filed a proxy statement in connection with a special meeting of stockholders (the “Special
Meeting”) to be held at 10:00 a.m. Eastern time on March 31, 2021 to (i) ratify the Authorized Share Increase and the Authorized Share Increase Issuance,
and (ii) further increase the number of our authorized shares of common stock. On March 31, 2021, we did not have the requisite vote to approve the Share
Increase Ratification and the meeting was adjourned. At the reconvened Special Meeting on May 6, 2021, our stockholders voted to approve the ratification
of the Authorized Share Increase, but the stockholders did not approve the Share Increase Ratification.
On August 17, 2021, at our 2021 Annual Meeting of Stockholders, our stockholders voted to approve an amendment to our Amended and Restated
Certificate of Incorporation to increase the number of shares of our common stock authorized for issuance from 24,109,635 shares to 40,000,000 shares.
Common Stock
Voting Rights
Each stockholder has one vote for each share of common stock held on all matters submitted to a vote of stockholders. A stockholder may vote in
person or by proxy. Elections of directors are determined by a plurality of the votes cast and all other matters are decided by a majority of the votes cast by
those stockholders entitled to vote and present in person or by proxy.
Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the voting power of our shares of common
stock will be able to elect all of our directors. Our Amended & Restated Certificate of Incorporation and By-laws provide that stockholder actions may be
effected at a duly called meeting of stockholders or pursuant to written consent of the majority of stockholders.
Dividend Rights
The holders of outstanding shares of common stock are entitled to receive dividends out of funds legally available at the times and in the amounts
that the board of directors (the “Board”) may determine, provided that required dividends, if any, on preferred stock have been paid or provided for.
However, the current policy of our Board is to retain earnings, if any, for operations and growth.
No Preemptive or Similar Rights
The holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of
holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be
designated solely by action of the Board and issued in the future.
Right to Receive Liquidation Distributions
Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets that are legally available for
distribution.
The NASDAQ Capital Market Listing
Our common stock is listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “NAOV.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
Options and Warrants
As of April 17, 2023, we had 147,619 shares of common stock issuable upon exercise of outstanding options and 78,252 shares of common stock
issuable upon the exercise of warrants. There are no other outstanding warrants or options at this time.
Preferred Stock
We may issue any class of preferred stock in any series. The Board has the authority, subject to limitations prescribed under Delaware law and the
rights of the holders of any series of preferred stock, to issue preferred stock in one or more series, to establish from time to time the number of shares to be
included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations and
restrictions. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of our capital stock entitled to
vote thereon, without a vote of the holders of the preferred stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms
of any preferred stock designation. The Board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our
company and may adversely affect the market price of common stock and the voting and other rights of the holders of common stock.
Series C Convertible Preferred Stock
Conversion Rights
Each share of the Series C Preferred Stock is convertible into one (1) share of common stock, provided that the holder will be prohibited from
converting Series C Preferred Stock into shares of common stock if, as a result of such conversion, the holder would own more than 9.99% of the number
of shares of common stock outstanding immediately after giving effect to the issuance of the shares of common stock issuable upon conversion of the
Series C Preferred Stock, or, at the election of a holder, together with its affiliates, would own more than 9.99% of the number of shares of common stock
outstanding immediately after giving effect to the issuance of the shares of common stock issuable upon conversion of the Series C Preferred Stock. The
conversion rate of the Series C Preferred Stock is subject to proportionate adjustments for stock splits, reverse stock splits and similar events.
Dividend Rights
Shares of Series C Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Board. 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. 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.
Voting Rights
Except as provided in the Designation, Preferences, Rights and Limitations of Series C Preferred Stock or as otherwise required by law, each
holder of Series C Preferred Stock will be entitled to the number of votes equal to the number of shares of common stock into which such share of Series C
Preferred Stock could be converted, provided that the holder would be prohibited from converting Series C Preferred Stock if, as a result of such
conversion, the holder, together with its affiliates, would beneficially own more than 9.99% of the total number of shares of our common stock then issued
and outstanding, for purposes of determining the shares entitled to vote at any regular, annual or special meeting of stockholders of the Company, and shall
have voting rights and powers equal to the voting rights and powers of the common stock (except as otherwise expressly provided herein or as required by
law, voting together with the common stock as a single class) and shall be entitled to notice of any stockholders’ meeting in accordance with the By-laws of
the Company. Fractional votes shall not, however, be permitted and any fractional voting rights shall be rounded to the nearest whole number (with one-
half being rounded upward). We may not, without the written consent of holders of a majority of the then issued and outstanding shares of Series C
Preferred Stock, increase the number of authorized shares of Series C Preferred Stock.
Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series C Preferred Stock are
entitled to receive, pari passu with the holders of common stock, out of the assets available for distribution to stockholders an amount equal to such amount
per share as would have been payable had all shares of Series C Preferred Stock been converted into common stock immediately before such liquidation,
dissolution or winding up, without giving effect to any limitation on conversion as a result of the Beneficial Ownership Limitation, as described above.
Series D Convertible Preferred Stock
Conversion Rights
Each share of the Series D Preferred Stock is convertible into fifty (50) shares of common stock, provided that the holder will be prohibited from
converting Series D Preferred Stock into shares of common stock if, as a result of such conversion, the holder would own more than 9.99% of the number
of shares of common stock outstanding immediately after giving effect to the issuance of the shares of common stock issuable upon conversion of the
Series D Preferred Stock, or, at the election of a holder, together with its affiliates, would own more than 9.99% of the number of shares of common stock
outstanding immediately after giving effect to the issuance of the shares of common stock issuable upon conversion of the Series D Preferred Stock. The
conversion rate of the Series D Preferred Stock is subject to proportionate adjustments for stock splits, reverse stock splits and similar events.
Dividend Rights
Shares of Series C Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Board. Series D Preferred
Stockholders (“Series D Holders”) are entitled to receive, and the Company shall pay, 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, as and if such dividends are
paid on shares of the common stock. No other dividends shall be paid on shares of Series D Preferred Stock.
Voting Rights
Except as provided in the Series D Preferred Stock Certificate of Designation or as otherwise required by law, Series D Holders shall have no
voting rights. However, as long as any shares of Series D Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Series
D Holders of a majority of the then outstanding shares of the Series D Preferred Stock, (a) alter or change adversely the powers, preferences or rights given
to the Series D Preferred Stock or alter or amend the Series D Preferred Stock Certificate of Designation, (b) amend its certificate of incorporation or other
charter documents in any manner that adversely affects any rights of the Series D Holders, (c) increase the number of authorized shares of Series D
Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Liquidation Rights
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the Series D Holders shall be entitled to
receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series D
Preferred Stock were fully converted (disregarding for such purpose any conversion limitations hereunder) to common stock which amounts shall be paid
pari passu with all holders of common stock. The Company shall mail written notice of any such liquidation, not less than 30 days prior to the payment date
stated therein, to each Series D Holder.
Series E Convertible Preferred Stock
Conversion Rights
Each share of Series E Preferred Stock is convertible at any time and from time to time at the option of a holder of Series E Preferred Stock (a
“Series E Holder”) into one twentieth (1/20) of a share of our common stock, provided that each holder is prohibited from converting Series E Preferred
Stock into shares of our 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 our 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. The conversion rate of the Series E Preferred Stock is subject to proportionate
adjustments for stock splits, reverse stock splits and similar events.
Dividend Rights
Shares of Series E Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Board. However, Series E
Holders are entitled to receive dividends on shares of Series E Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same
form as dividends actually paid on shares of the common stock when such dividends are specifically declared by the Board. The Company is not obligated
to redeem or repurchase any shares of Series E Preferred Stock. Shares of Series E Preferred Stock are not otherwise entitled to any redemption rights, or
mandatory sinking fund or analogous fund provisions.
Voting Rights
Each Series E Holder shall be entitled to the number of votes equal to the number of shares of our common stock equal to the voting ratio, which,
for each share of Series E Preferred Stock, is equal to $2.00 divided by $3.53. Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which shares of Series E Preferred Stock held by each Series E Holder could be
converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
Liquidation Rights
Upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, each Series E Holder shall be entitled to receive
the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series E Preferred Stock if
such shares had been converted to our common stock immediately prior to such liquidation.
Series F Convertible Preferred Stock
Conversion Rights
Each share of Series F Preferred Stock is convertible at any time and from time to time at the option of a holder of Series E Preferred Stock (a
“Series E Holder”) into one twentieth (1/20) of a share of our common stock, provided that each holder is prohibited from converting Series E Preferred
Stock into shares of our 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 our 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. The conversion rate of the Series F Preferred Stock is subject to proportionate
adjustments for stock splits, reverse stock splits and similar events.
Dividend Rights
Shares of Series F Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Board. However, Series E
Holders are entitled to receive dividends on shares of Series F 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. The Company is not obligated
to redeem or repurchase any shares of Series F Preferred Stock. Shares of Series F Preferred Stock are not otherwise entitled to any redemption rights, or
mandatory sinking fund or analogous fund provisions.
Voting Rights
Each Series F Holder shall be entitled to the number of votes equal to the number of shares of our common stock equal to the voting ratio, which,
for each share of Series F Preferred Stock, is equal to $2.00 divided by $3.53. Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which shares of Series F Preferred Stock held by each Series F Holder could be
converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
Liquidation Rights
Upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, each Series F Holder shall be entitled to receive
the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series F Preferred Stock if
such shares had been converted to our common stock immediately prior to such liquidation.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law (the “DGCL”). Section 203 generally prohibits a public Delaware
corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which
the person became an interested stockholder, unless:
● prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
● the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding (i) shares owned by persons who are directors and also officers and
(ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
● on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
Section 203 defines a business combination to include:
● any merger or consolidation involving the corporation and the interested stockholder;
● any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
● subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder; or
● the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with, or controlling, or controlled by, the entity or person. The term “owner” is broadly defined to
include any person that, individually, with or through that person’s affiliates or associates, among other things, beneficially owns the stock, or has the right
to acquire the stock, whether or not the right is immediately exercisable, under any agreement or understanding or upon the exercise of warrants or options
or otherwise or has the right to vote the stock under any agreement or understanding, or has an agreement or understanding with the beneficial owner of the
stock for the purpose of acquiring, holding, voting or disposing of the stock.
The restrictions in Section 203 do not apply to corporations that have elected, in the manner provided in Section 203, not to be subject to Section
203 of the DGCL or, with certain exceptions, which do not have a class of voting stock that is listed on a national securities exchange or authorized for
quotation on the Nasdaq Stock Market or held of record by more than 2,000 stockholders. Our certificate of incorporation and bylaws do not opt out of
Section 203.
Section 203 could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market
price.
Amended and Restated Certificate of Incorporation and By-laws
The provisions of our Amended and Restated Certificate of Incorporation and By-laws may delay or discourage transactions involving an actual or
potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their
shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price
of our common stock. Among other things, our Certificate of Incorporation and By-laws:
● permit our board of directors to issue up to 11,000,000 shares of preferred stock, without further action by the stockholders, with any rights,
preferences and privileges as they may designate, including the right to approve an acquisition or other change in control;
● provide that the authorized number of directors may be changed only by resolution of a majority of the total number of authorized directors
whether or not there exist any vacancies in previously authorized directorships (the “Whole Board”);
● provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of
a majority of directors then in office, even if less than a quorum;
● do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any
election of directors to elect all of the directors standing for election, if they should so choose);
● provide that special meetings of our stockholders may be called only by a resolution adopted by a majority of the Whole Board; and
● set forth an advance notice procedure with regard to the nomination, other than by or at the direction of our Board, of candidates for election
as directors and with regard to business to be brought before a meeting of stockholders.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of NanoVibronix, Inc. on Form S-3 (File Nos. 333-229106, 333-236000, 333-
239965 and 333-251264) and Form S-8 (File Nos. 333-259274 and 333-205577) of our report dated April 17, 2023, which includes an explanatory
paragraph as to the Company’s ability to continue as a going concern, with respect to our audits of the consolidated financial statements of NanoVibronix,
Inc. and Subsidiaries as of December 31, 2022 and 2021 and for each of the two years in the period ended December 31, 2022, which report is included in
this Annual Report on Form 10-K of NanoVibronix, Inc. for the year ended December 31, 2022.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
New York, NY
April 17, 2023
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)
I, Brian Murphy, certify that:
1.
I have reviewed this Annual Report on Form 10-K of NanoVibronix, Inc. (the “registrant”);
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: April 17, 2023
/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:
1.
I have reviewed this Annual Report on Form 10-K of NanoVibronix, Inc. (the “registrant”);
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: April 17, 2023
/s/ Stephen Brown
By:
Name: Stephen Brown
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
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, 2022 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
EXHIBIT 32.1
as of and for the periods covered in this report.
Date: April 17, 2023
/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, 2021 of NanoVibronix, Inc. (the “Company”). I, Stephen Brown, the Chief Financial
Officer of the Company, certify that, based on my knowledge:
(1) The Form 10-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: April 17, 2023
/s/ Stephen Brown
By:
Name: Stephen Brown
Title: Chief Financial Officer
(Principal Financial and Accounting 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.