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

NanoVibronix, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands except share and per share data)

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

NanoVibronix, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(Amounts in thousands except share and per share data)

NOTE 1 -– DESCRIPTION OF BUSINESS

NanoVibronix, Inc. (the “Company”), a Delaware corporation, commenced operations on October 20, 2003 and is a medical device company focusing on noninvasive biological response-activating devices that target wound healing and pain therapy and can be administered at home, without the assistance of medical professionals.

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

NOTE 2 -– LIQUIDITY AND PLAN OF OPERATIONS

The Company’s ability to continue to operate is dependent mainly on its ability to successfully market and sell its products and the receipt of additional financing until profitability is achieved. The Company currently incurs and historically has incurred losses from operations and expects to do so in the foreseeable future. In 2020, theThe Company raised $200 through the issuance of notes payablehas historically had recurring losses and negative cash used from a related party and received $42 from the Paycheck Protection Program. Despite the recent financing, the Company will not have sufficient resources to fund its operations for the next twelve months from the date of this filing. These conditions raisewhich raised substantial doubt about the Company’s ability to continue as a going concern.concern at that time. During the first quarter of 2021, the Company used $954 of cash in operations. Although we expect to continue to incur losses and negative cash flows from operating activities, we had a cash balances of $7,978 as of March 31, 2021. Because the Company has sufficient resources to fund our operation for the next twelve months management expects thatfrom the date of this filing, the substantial doubt has been alleviated. The Company willmay need to continue to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as itsour products do not reach commercial profitability.

Management’s plans include If we are unable to increase in the continued commercializationnumber of the Company’s products and raising capital through the saleauthorized shares of additional equity securities, debtour common stock, we will be unable to issue common stock or capital inflows from strategic partnerships. There are no assurances, however, thatconvertible instruments. As a result, the Company will be successfullimited in obtaining the level of financing needed for its operations. If the Company is unsuccessful in commercializing its products and raising capital, it will needability to reduce activities, curtail or cease operations. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue as a going concern.raise additional capital.

NOTE 3 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”) for the interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited consolidated financial statements include the accounts of all subsidiaries in which the Company holds a controlling financial interest as of the financial statement date.

The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The terms “we,” “us,” “our,” and the “Company” refer to NanoVibronix, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Unaudited interim financial information

In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the financial position and results of operations of the Company. These consolidated financial statements and notes thereto are unaudited and should be read in conjunction with the Company’s audited financial statements for the year ended December 31,2019,31, 2020, as found in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on May 20, 2020.April 15, 2021.

The balance sheet for December 31, 20192020 was derived from the Company’s audited financial statements for the year ended December 31, 2019.2020. The results of operations for the periods presented are not necessarily indicative of results that could be expected for the entire fiscal year due to seasonality and other factors. Certain information and footnote disclosures normally included in the consolidated financial statements in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC for interim reporting.

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company believe that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash consists of funds on hand and held in bank accounts. Cash equivalents includes demand deposits placed with banks or other financial institutions and all highly liquid investments with original maturities of three months or less. Restricted cash of $202 represents cash restricted per a court order which resulted from a dispute between the Company and a former officer and director, see Note 10.

Foreign currency translation and transaction

Non-U.S. dollar denominated transactions and balances have been re-measured to U.S. dollars. All transaction 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 financialother comprehensive income, or expenses, as appropriate. Gains The cumulative translation gains as of the years ended March 31, 2021 and losses from foreign currency translation for the six months ended June 30, 2020 were $5 and 2019 were $6 and $28,$0, respectively.

Revenue recognition

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

Revenue from product sales is recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from coupons, discounts, chargebacks and distributor fees, processing fees, as well as allowances for returns and government rebates. The Company constrains revenue by giving consideration to factors that could otherwise lead to a probable reversal of revenue. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers. See Note 7 for a detailed breakout of revenue.

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.

Fair Value Measurements

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date. We measure our investment in equity securities at fair value on a recurring basis. The Company’s equity securities are valued using inputs observable in active markets and are therefore classified as Level 1 within the fair value hierarchy.

Sequencing

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

Recently issuedadopted accounting pronouncements not yet adoptedstandards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permittedOn January 1, 2020, we adopted ASU 2016-02 and its related amendments, which changed our accounting for leases. As a result of this change, we recognized right-of-use assets and lease liabilities on the consolidated balance sheet for all public business entitiesleases with a term longer than 12 months and all nonpublic business entities upon issuance.classified them as operating leases. The Company (as an EGC) that is taking advantageright-of-use assets and lease liabilities have been measured by the present value of remaining lease payments over the extended transition period offered to private entities would apply this for fiscal years beginning after December 15, 2021. The Company does not believe that the adoption will have a material effect on the Company’s condensed interim consolidated financial statements and related disclosures.lease term using our incremental borrowing rates or implicit rates, when readily determinable.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The Company will be required to adopt this ASU for fiscal years beginning after December 15, 2022,2021, including interim periods within those fiscal years. The adoption of Topic 326 isdid not expected to have a material on the Company’s financial statements and financial statement disclosures.

Recently adopted accounting standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”, which adds disclosure requirements to Topic 820 for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. Although the Company adopted ASU 2018-13 on January 1, 2020, there was no material impact on the financial statements.

NOTE 4 -– STOCKHOLDERS’ EQUITY

Common stock and over-issuance

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

As of December 3, 2020, we had 20,000,000 authorized shares of our common stock and 19,850,014 shares of common stock outstanding resulting in 149,986 shares of common stock being available for issuance. On December 4, 2020, certain holders of the Company’s Series C Preferred Stock converted 396,509 shares of Series C Preferred Stock into 396,509 shares of common stock, resulting in an overissue of 246,523 shares of common stock. Beginning on December 17, 2020, through January 22, 2021, certain holders of warrants we had issued in December 2020 (the “December 2020 Warrants”) exercised a portion of the December 2020 Warrants for 2,657,144 shares of Common Stock, resulting in an additional overissue of 2,657,144 shares of Common Stock. As of December 31, 2020, the aggregate number of shares of common stock that was overissued by the Company was 4,109,635. The shares issued in excess of the authorized amount are classified as liabilities. The common stock equivalents are subject to the Company’s sequencing policy and are classified as derivative liabilities (see Note 5). On March 3, 2021, the Company filed a proxy statement in connection with a special meeting of stockholders to be held on March 31, 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. We have filed with the Secretary of State of the State of Delaware a Certificate of Validation with respect to the Share Increase Ratification and such Certificate of Validation has become effective.

Stock-based compensation and Options

During the six-monththree-month period ended June 30,March 31, 2021 and 2020, 180,000 and 2019, 15,000 and 120,0000 options were granted, respectively.

The options were granted in 2020 were to a non-employeeemployees and consultants in 2021 and were recorded at a fair value of $14 and vest quarterly over 12 months. The options granted in 2019 were to a non-employee and were recorded at a fair value of $183 and vested immediately.over three years. During the three and six-monththree-month period ended June 30,March 31, 2021 and 2020, there was stock-based compensation expense of $72$109 and $143, respectively. During the three and six-month period ended June 30, 2019, there$71 was stock-based compensation expense of $111 and $1,446,recorded for options that vested, respectively.

The fair value for options granted in the 2020first quarter of 2021 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with the following underlying assumptions:

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

As of June 30, 2020,March 31, 2021, the total unrecognized estimated compensation cost related to non-vested stock options granted prior to that date was $122,$197, which is expected to be recognized over a weighted average period of approximately 0.620.55 years.

Series E Preferred Stock conversion to common stock

Each share of Series E Preferred Stock is convertible at any time and from time to time at the option of a holder of Series E Preferred Stock into one share of the Company’s common stock, provided that each holder would be prohibited from converting Series E Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, any such holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. This limitation may be waived with respect to a holder upon such holder’s provision of not less than 61 days’ prior written notice to the Company.

In February 2020, a shareholderstockholder converted 110,000 shares of Series E Preferred Stock into 110,000 shares of common stock at a conversion rate of 1 to 1. No purchase was made in order to convert these shares.

NOTE 5 – NOTES PAYABLEWarrant exercises and modification

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

On January 21, 2021, Company entered into letter agreements (the “Letter Agreements”) with certain existing accredited investors to exercise certain outstanding warrants (the “Existing Warrants”) to purchase up to an aggregate of 1,205,968 shares of the Company’s common stock at an exercise price per share of $1.165 (the “Exercise”). Certain of the Existing Warrants (the “Registered Existing Warrants”) and the shares of common stock underlying the Registered Existing Warrants have been registered pursuant to a registration statement on Form S-3 (File No. 333-251264) and a registration statement on Form S-1 (File No. 333-218871). In May, 2020,consideration for the exercise of the Existing Warrants for cash, the exercising holders will receive new unregistered warrants to purchase up to an aggregate of 1,205,967 shares of common stock (the “New Warrants”) at an exercise price of $1.04 per share and with an exercise period of seven years from the initial closing date. The gross proceeds to the Company from the Exercise were approximately $1.4 million.

The New Warrants were accounted for in warrant modification expense, which was granted a loan (the “PPP Loan”)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 $42, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Securities (“CARES”) Act, which$1,627 was enacted March 27, 2020. The application for these funds required the Company to,recorded with a corresponding increase in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to consider its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operationsadditional paid in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the adverse impact the COVID-19 pandemic had on its business and the global economy. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.

The PPP Loan, which was in the form of a note that was granted on May 14, 2020, matures in two years and accrues interest at a rate of 1.00% per annum, payable in monthly payments commencing six months after loan disbursement. The Company also has the option to negotiate with the lender to extend the maturity date to up to five years. The note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used for payroll costs and any payments of certain covered interest, lease and utility payments. The Company intends to use the entire PPP Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The ultimate forgiveness of the PPP Loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven, the amount forgiven is applied to outstanding principalcapital.

On June 22,In estimating the warrants’ fair value, the Company used the following assumptions:

NOTE 5 – DERIVATIVE LIABILITIES

During 2020, the Company issued and soldestablished a sequencing policy to a related party an unsecured promissory note in the principal amount of $200, which accrues interest at 10% per annum and matures in one year. In additioncommon stock equivalents are exercisable to the promissory note, the Company granted a seven-year equity warrant to purchase 100,000 shares of common stock more than the Company’s common stock. The exercise price for each warrant share is equal to $2.50,authorized limit. It was determined that all options and warrants by the warrants may also be exercised, in whole or in part, by means of a cashless exercise. The warrants were recognized as a debt discount and is amortized over the lifeend of the note. The warrantsyear were no longer permitted to be classified as equity and were valued at $123fair market value using a Black Scholes Merton pricing model with the following underlying assumptions:and recorded as derivative liabilities.

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s purchase warrants that were categorized within Level 3 of the fair value hierarchy during the quarter ended March 31, 2021 is as follows:

The foregoing assumptions were reviewed quarterly and were subject to change based primarily on management’s assessment of the probability of the events described occurring.

Financial Liabilities Measured at Fair Value on a Recurring Basis

The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

There were no transfers between Level 3 during the three months ended March 31, 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the three months ended March 31, 2021.

NOTE 6 – LEASES

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

The Company’s weighted-average remaining lease term relating to its operating leases is 2.80 years, with a weighted-average discount rate of 10%.

The Company incurred $6 of lease expense for its operating leases for the quarter ended March 31, 2021.

The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases as of March 31, 2021:

NOTE 6 -7 – LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDER

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. All outstanding stock options and warrants for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 have been excluded from the calculation of the diluted net loss per share because all such securities are anti-dilutive for all periods presented.

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

The diluted loss per share equals basic loss per share in the three months ended March 31, 2021 and 2020 because the Company had a net loss and the impact of the assumed exercise of stock options and the vesting of restricted stock would have been anti-dilutive.

NOTE 7 -8 – GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA

Summary information about geographic areas:

The Company manages its business on the basis of one reportable segment and derives revenues from selling its products directly to patients as well as through distributor and licensing agreements. The following is a summary of revenues within geographic areas:

During the three-month period ended June 30, 2020 and 2019, revenues from distributors accounted for 88% and 40% of total revenues, respectively.

During the six-month period ended June 30, 2020 and 2019, revenues from distributors accounted for 91% and 50% of total revenues, respectively.

NOTE 89 – OTHER ASSETS

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

We considerThe Company considers this to be level 3 inputs and is valued at each reporting period. The fair value of these warrants on April 9, 2020 and June 30, 2020 was $23 and $32, respectively. The change in fair value fordecreased by $2 during the six months ended June 30, 2020 was $9.

NOTE 9 – COMMON STOCK PAYABLE

On February 11, 2019, the Company entered intoquarter, leaving a consulting agreement (the “Agreement”) with Bespoke Growth Partners, Inc. (“Bespoke”), pursuant to which, amongst other things, Bespoke was entitled to receive up to 650,000 sharesbalance of common stock$21 as of the Company, of which 275,000 shares were issued on the date of signing. On August 5, 2020, the Company paid $75 and issued an additional 375,000 shares of common stock to Bespoke under the Agreement. Such issuance was undertaken in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. As of June 30, 2020, 375,000 shares of common stock, valued at $2.25 per share, or $844, was owed to Bespoke.March 31, 2021.

NOTE 10 -– COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office facilities and motor vehicles under operating leases, which expire on various dates, the latest of which is 2020.

Rent and related expenses were $13 and $25, for the three and six months ended June 30, 2020, respectively, and $15 and $27 for the three and six months ended June 30, 2019, respectively.

Other Risks

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

Pending litigation

On February 26, 2021, Protrade Systems, Inc. (“Protrade”) filed a Request for Arbitration (the “Request”) with the International Court of Arbitration (the “ICA”) of the International Chamber of Commerce alleging the Company is in breach of an Exclusive Distribution Agreement dated March 27, 2020,7, 2019 (the “Agreement”) between Protrade and the Coronavirus Aid, Relief,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 believes it is too early to determine the most likely outcome. The Company disputes the claims asserted by Protrade and Economic Security Act (“CARES Act”) was enacted in responseintends to respond to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryoversRequest and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition,defend against 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.claims vigorously.

NOTE 11 – OTHER LIABILITIES

In June 2020, the Company experienced a cybersecurity incident. Specifically, the Company believes that one or two unauthorized third parties were able to useJanuary 2021, investors attempted exercise warrants for 663,332 shares of common stock for an email domain similaraggregate amount of $390. Due to the Company’s to convince twolack of authorized shares, in April 2021, the Company’s customers to send payments inproceeds from the aggregate amountexercise of approximately $308 to unauthorized bank accounts that should have been sent$390 was returned to the Company. The total amount of customer payments has been recovered and received by the Company.investors.

Legal Proceedings

We are subject to a lawsuit filed by our former officer and director, Jona Zumeris, on December 17, 2019 in the Haifa Israel District Financial Court, seeking damages of approximately $900,000 for breach of the Separation Agreement executed on July 4, 2018, and to which matter both parties have agreed to proceed to settle in mediation scheduled to begin in late May 2020. We believe that a major part of the allegations included in the suit are without merit, however, due to the uncertainties of litigation or mediation, we can give no assurance that we will be able to reach reasonable settlement, or if it were to proceed in court, prevail on the claims made against us in such lawsuit. The Israeli court issued a court order demanding that we restrict approximately $700,000 of the Company’s money until the matter is adjudicated. The Company appealed the court order. In February 2020, the Company agreed to restrict approximately $350,000 and agreed to try to settle the matter in mediation which commenced in May 2020. The cash restriction is relating to this dispute is reflected on the balance sheet as “restricted cash.” The court did not require the Company to keep such cash reserves in an escrow or any other restricted account, nor have they implemented any monitoring procedures on this matter. As such, the Company’s bank accounts do not have any restrictions in place which prohibit the Company from using its available funds at their discretion. A settlement was not reached in May and although the mediation process has not yet concluded, the Company believes that it and will now likely go to trial, although no date has been set.

NOTE 11 -12 – SUBSEQUENT EVENTS

In July 2020, the Company granted 122,000 options to board members and 50,000 options to a non-employee consultant.

On July 7, 2020,April 6, 2021, the Company agreed to purchase 663,332 warrants from investors for a shareholder converted 300,000total of $388. The warrants had exercise prices between $0.88 and $0.94 per share.

At the Special Meeting on May 6, 2021, our stockholders approved the ratification, pursuant to Section 204 of the Delaware General Corporation Law and Delaware common law, of an increase in the number of authorized shares of Series E Preferred Stock into 300,000our common stock from 20,000,000 to 24,109,635 shares and the issuance of 4,109,635 shares of common stock at aupon conversion rateand exercise of 1 to 1. No purchase was made in order to convert these shares.

On September 14, 2018, the Company received a letter from the Listing Qualifications Staff (the “Staff”)certain of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it was no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain stockholders’ equity of at least $2.5 million (the “Equity Requirement”).

Following a hearing on May 2, 2019, a Nasdaq Hearings Panel was appointed to review the Company’s compliance withsecurities as more particularly described in the Equity Requirement, and on August 5, 2020, the Staff issued a letter to the Company in which it indicated that, since the Company had failed to report stockholders’ equity of at least $2.5 million in each of its last three periodic reportsCompany’s definitive proxy statement filed with the Securities and Exchange Commission, its common shares would be subject to delistingSEC on August 14, 2020, unlessMarch 3, 2021 (the “Share Increase Ratification”). We have filed with the Company requests an appealSecretary of this determination by 4:00 p.m. Eastern Time on August 12, 2020 (the “Hearing Request”).

The Company submittedState of the State of Delaware a Hearing Request on August 12, 2020 and a hearing has been scheduled for September 10, 2020. The Hearing Request will automatically stay any suspension or delisting action pending a decisionCertificate of a Nasdaq Hearings Panel. At the hearing, the Company will provide the Nasdaq Hearings PanelValidation with an update on its compliance plan and, if necessary, request a further extension of time in which to regain compliance. Pursuantrespect to the Nasdaq Listing Rules, the Nasdaq Hearings PanelShare Increase Ratification and such Certificate of Validation has the discretion to grant an additional extension of time of up to 180 calendar days, as measured from August 5, 2020.

There can be no assurance that the Company’s plan will be accepted by the Nasdaq Hearings Panel or that, if it is, the Company will be able to regain compliance with the applicable Nasdaq listing requirements. If the Company’s common stock is delisted, it could be more difficult to buy or sell the Company’s common stock or to obtain accurate quotations, and the price of the Company’s common stock could suffer a material decline. Delisting could also impair the Company’s ability to raise capital.become effective.

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

The following discussion and analysis of the results of operations and financial condition of NanoVibronix.NanoVibronix, Inc. (the “Company”) as of June 30, 2020March 31, 2021 and for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 20192020 and for the year then ended, which are included in the Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 20, 2020.April 15, 2021. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to the Company. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this Quarterly Report, in our other reports filed with the SEC, and other factors that we may not know.

Cautionary Note Regarding Forward-Looking Statements

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

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and financial performance, you should carefully review the risks and uncertainties described under the heading “Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Moreover, new risks regularly emerge, and it is not possible for us to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

We are a medical device company focusing on non-invasivenoninvasive 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.

Implications of being an Emerging Growth Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” including, but not limited to:

We intend to take advantage of these and other exemptions available to “emerging growth companies.” We could remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock in an offering registered under the Securities Act of 1933, as amended, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (d) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards.

Recent Events and Developments

COVID-19

In December 2019, a strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in China and other affected countries. The ongoing COVID-19 pandemic has and may continue to adversely impact our business, as our operations are based in and rely on third parties located in countries affected by the outbreak.pandemic. Our third-party manufacturer, which is based in China, temporarily shut down for sixty days due to the outbreakpandemic and became fully operational in April 2020 which led to a significant delay in the production of goods needed to fulfilfulfill our sales orders, which were scheduled to be fulfilled in our first quarter of 2020. We were able to fulfilfulfill 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 has been shut down for approximately six weeks from March to April 2020, which delayed our submission for CE mark approval for the year 2020. The CE Mark was subsequently approved in April 2020. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse effect on the global markets and global economy, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. The financial downturn has compelled us to furlough or reduce working hours for much of our operating staff for several months during the second quarter of 2020, and has forced our remaining staff as well as third-party contractors and our clients may encounter cash-flow issues that will delay their payments to us.work remotely. In addition, remainingmany staff members have been forcedcontinue 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 supply and delivery of our products, may continue to affect our operation, may further divert the attention and efforts of the medical community to coping with COVID-19 and disrupt the marketplace in which we operate and may have a material adverse effect on our operations. Assessment of the complete extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The continuation of the COVID-19 pandemic could materially disrupt our business and operations, hamper our ability to raise additional funds or sell or securities, continue to slow down the overall economy, curtail consumer spending, interrupt our sources of supply, and make it hard to adequately staff our operations.

Cybersecurity IncidentBusiness Developments

In JuneEffective as of January 2020, the Company experiencedU.S. Centers for Medicare and Medicaid Services (“CMS”) approved our PainShield™ for reimbursement for Medicare beneficiaries on a cybersecurity incident. Specifically,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 Company believesNational Supplier Clearinghouse, Palmetto-GBA as well as Noridian Administrative Services, LLC, the two Medicare Administrative Contractors that one or two unauthorized third parties were able to use an email domain similar to the Company’s to convince two of the Company’s customers to send payments in the aggregate amount of approximately $308,000 to unauthorized bank accounts that should have been sent to the Company. Both customers were able to reclaim the fraudulent transfers and subsequently deposited them into the Company’s bank account; $78,000 was paid in June 2020, and $230,000 was paid in July 2020.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.

The Company’s management notified the appropriate government authorities and is exploringIn March 2020, we signed a range of steps to enhance its security protections and prevent future unauthorized activity. We have not incurred, nor do we expect to incur significant costs related to investigating this incident.

Effective June 22, 2020, the Company entered into a two-year exclusivelicense agreement with Ultra Pain Products,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 U.S. Food and Drug Administration 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 U.S. Food and Drug Administration and other regulatory agencies around the world.

In September 2020, the U.S. FDA exercised its Enforcement Discretion to allow distribution of the Company’s proprietary PainShield™ devices and components through and by Durable Medical Equipment (DME) Distributors throughoutour 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.

Nasdaq DelistingStockholders’ Equity Minimum

On September 14, 2018,April 21, 2021, the Company received a letternotice from the Listing Qualifications StaffDepartment (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifyingindicating that the Company that it was no longer in compliance withsatisfied the minimum $2.5 million stockholders’ equity requirement for continued listing on theThe Nasdaq Capital Market.Market under Nasdaq Listing Rule 5550(b)(1) requires listed companies to maintain(the “Equity Requirement”). The Company reported stockholders’ equity of at least $2.5approximately $2.4 million (the “Equity Requirement”).

Followingin its Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2020 and does not otherwise satisfy the alternative criteria pertaining to market value of listed securities or net income. In accordance with the Nasdaq Listing Rules, the Company has been granted a hearing on May 2, 2019, a Nasdaq Hearings Panel was appointedperiod of 45 calendar days, or through June 7, 2021, to reviewsubmit its plan to evidence compliance with the Equity Requirement for the Staff’s review. If the Company’s plan is accepted, the Staff may grant the Company an extension of up to 180 calendar days from the date of the notification letter, or October 18, 2021, to evidence compliance with the Equity Requirement. While the Company is evaluating various courses of action in its effort to regain compliance with the Equity Requirement and on August 5, 2020,plans to timely submit a compliance plan to the Staff issued a letter to the Company in which it indicated that, since the Company had failed to report stockholders’ equity of at least $2.5 million in each offor its last three periodic reports filed with the Securities and Exchange Commission, its common shares would be subject to delisting on August 14, 2020, unless the Company requests an appeal of this determination by 4:00 p.m. Eastern Time on August 12, 2020 (the “Hearing Request”).

The Company submitted a Hearing Request on August 12, 2020 and a hearing has been scheduled for September 10, 2020. The Hearing Request will automatically stay any suspension or delisting action pending a decision of a Nasdaq Hearings Panel. At the hearing, the Company will provide the Nasdaq Hearings Panel with an update on its compliance plan and, if necessary, request a further extension of time in which to regain compliance. Pursuant to the Nasdaq Listing Rules, the Nasdaq Hearings Panel has the discretion to grant an additional extension of time of up to 180 calendar days, as measured from August 5, 2020.

Therereview, there can be no assurance that the Company’s plan will be accepted by the Nasdaq Hearings PanelStaff or, that, if it is,accepted, that the Company will be able to timely satisfy the terms of the extension granted by the Staff. If the Company’s plan is not accepted by the Staff or if accepted but the Company does not timely regain compliance, with the applicable Nasdaq listing requirements. If the Company’s common stock is delisted, it couldwould be more difficultsubject to buy or selldelisting. In such event, the Company’s common stock orCompany would be entitled to obtain accurate quotations, andrequest a hearing before a Nasdaq Hearings Panel, which request would stay any delisting action by Nasdaq at least until the priceultimate conclusion of the Company’s common stock could suffer a material decline. Delisting could also impair the Company’s ability to raise capital.hearing process.

Critical Accounting Policies

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are more fully described in both (i) “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and (ii) Note 3 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. There have not been any material changes to such critical accounting policies since December 31, 2019.2020.

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

Results of Operations

Three Months Ended June 30, 2020March 31, 2021 Compared to Three Months Ended June 30, 2019March 31, 2020

Revenues. For the three months ended June 30,March 31, 2021 and 2020, and 2019, our revenues were approximately $269,000$103,000 and $263,000 respectively, an increase of approximately 2%, or $6,000 between the periods. Our revenues may fluctuate as we add new consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases during another period. Therefore, any growth or decrease in revenues by quarter may not be linear or consistent.

For the three months ended June 30, 2020, the percentage of revenues attributable to our products was: PainShield - 100% and UroShield 0%. For the three months ended June 30, 2019, the percentage of revenues attributable to our products was: PainShield - 64% and UroShield - 36%. For the three months ended June 30, 2020 and 2019, the percentage of revenues attributable to our disposable products was 4% and 2%, respectively. For the three months ended June 30, 2020 and 2019, the portion of our revenues that was derived from distributors was 88% and 40%, respectively.

Gross Profit. For the three months ended June 30, 2020 and 2019, gross profit was approximately $38,000 and $207,000,$114,000 respectively, a decrease of approximately 82% or $169,000, mainly due to an agreement with a distributor where the Company sold roughly $112,000 of products in the second quarter of 2020 at a steep discount in order to gain entry into a new market. The Company has since discontinued selling further products to this distributor.

Gross profit as a percentage of revenues was approximately 14% and 79% for the three months ended June 30, 2020 and 2019, respectively. The decrease in gross profit as a percentage is mainly due to the reason described above.

Research and Development Expenses. For the three months ended June 30, 2020 and 2019, research and development expenses were approximately $16,000 and $150,000, respectively, between the periods. The decrease was mainly due to there being no clinical trials during the three months ended June 30, 2020 as well as the furloughing of our staff members in the second quarter of 2020 due to the impacts of the COVID-19 pandemic.

Research and development expenses as a percentage of total revenues were approximately 6% and 57% for the three months ended June 30, 2020 and 2019, respectively.

Our research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated with and allocated to research and development activities.

Selling and Marketing Expenses. For the three months ended June 30, 2020 and 2019, selling and marketing expenses were approximately $180,000 and $271,000, respectively, a decrease of approximately 34%10%, or $91,000, between the periods. The decrease was primarily due to a significant reduction in sales and marketing activities including related traveling or conventions attended during the first quarter of 2020 as well as a temporary reduction of salaries placed during the second quarter of 2020, both due to the impacts of the COVID-19 pandemic.

Selling and marketing expenses as a percentage of total revenues were approximately 67% and 103% for the three months ended June 30, 2020 and 2019, respectively.

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

General and Administrative Expenses. For the three months ended June 30, 2020 and 2019, general and administrative expenses were approximately $1,310,000 and $682,000, respectively, an increase of approximately 92%, or $628,000, between the periods. The increase was primarily due to the settlement with Bespoke for $918,750, partially offset by a $208,000 decrease in professional fees of approximately $197,000 in 2020 compared to $405,000 in 2019 as well as a temporary reduction of salaries placed during the second quarter of 2020 due to the impacts of the COVID-19 pandemic.

General and administrative expenses as a percentage of total revenues were approximately 487% and 259% for the three months ended June 30, 2020 and 2019, respectively.

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

Financial expenses, net. For the three months ended June 30, 2020 and 2019, financial expenses, net was approximately $5,000 compared to a $24,000, respectively, a decrease of approximately $19,000, between the periods. The decrease in 2020 was derived primarily from exchange rate adjustments.

Change in fair value of derivative liabilities. For the three months ended June 30, 2020 and 2019, there was a change in fair value of derivative liabilities resulting in a gain of approximately $0 and $107,000, respectively. The income in 2019 was derived from the valuation of derivative liabilities.

Loss on extinguishment of derivative liability. For the three months ended June 30, 2020 and 2019, there was a loss on extinguishment of derivative liability of approximately $0 and $288,000, respectively. The loss in 2019 was derived from the extinguishment of embedded derivative liabilities upon repayment of its related debt.

Tax expenses. For the three months ended June 30, 2020 and 2019, tax expenses were $4,000 and $6,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.

Net loss. Our net loss increased by approximately $370,000, or 33%, to approximately $1,477,000 for the three months ended June 30, 2020 from approximately $1,107,000 in the same period of 2019. The decrease in net loss resulted primarily from the factors described above.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenues. For the six months ended June 30, 2020 and 2019, our revenues were approximately $383,000 and $342,000 respectively, an increase of approximately 12%, or $41,000$11,000 between the periods. Our revenues may fluctuate as we add new consumers or when existing distributors or consumers make large purchases of our products during one period and no purchases during another period. Therefore, any growth or decrease in revenues by quarter may not be linear or consistent.

For the sixthree months ended June 30,March 31, 2021 and 2020, the percentage of revenues attributable to our products was: PainShield - 100% and UroShield 0%. For the sixthree months ended June 30, 2019, the percentage of revenues attributable to our products was: PainShield - 70%March 31, 2021 and UroShield - 30%. For the six months ended June 30, 2020, and 2019, the percentage of revenues attributable to our disposable products was 4% and 3%, respectively. For the six months ended June 30, 2020 and 2019, the portion of our revenues that was derived from distributors was 91%94% and 50%99%, respectively.

Gross Profit. For the sixthree months ended JuneMarch 31, 20202021 and 2019,2020, gross profit was approximately $89,000$77,000 and $260,000,$51,000, respectively, a decreasean increase of approximately 66%51% or $171,000, mainly due$26,000, mainly due to an agreement with a distributor wheresales of our products to distributors at higher margins and during the same period, the Company sold roughly $112,000 ofdid not offer special discounts on products as was done in the second quarter of 2020 at a steep discount in order to gain entry into a new market. The Company has since discontinued selling further products to this distributor.same fiscal period during 2020.

Gross profit as a percentage of revenues was approximately 23%75% and 76%45% for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The decreaseincrease in gross profit as a percentage is mainly due to the reason described above.

Research and Development Expenses. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, research and development expenses were approximately $63,000$64,000 and $302,000,$47,000, respectively between the periods. The decreaseincrease was mainly due to there being no clinical trialsoptions expense during the sixthree months ended June 30, 2020 as well as the furloughing of our staff members in the second quarter of 2020 due to the impacts of the COVID-19 pandemic.March 31, 2021.

Research and development expenses as a percentage of total revenues were approximately 16%62% and 88%42% for the sixthree months ended JuneMarch 30, 20202021 and 2019,2020, respectively.

Our research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, stock-based compensation expenses, expenses related to subcontracting, patents application and registration, clinical trial and facilities expenses associated with and allocated to research and development activities.

Selling and Marketing Expenses. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, selling and marketing expenses were approximately $434,000$311,000 and $592,000,$254,000, respectively, a decreasean increase of approximately 27%22%, or $158,000,$57,000, between the periods. The decreaseincrease was primarily due to a significant reduction in salesincreased salaries and marketing activities including related traveling or conventions attendedconsulting fees during the first quarter of 2020 as well as a temporary reduction of salaries placed during the second quarter of 2020, both due to the impacts of the COVID-19 pandemic.2021.

Selling and marketing expenses as a percentage of total revenues were approximately 113%302% and 173%223% for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

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

General and Administrative Expenses. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, general and administrative expenses were approximately $1,967,000$1,016,000 and $2,485,000,$657,000, respectively, a decreasean increase of approximately 21%55%, or $518,000,$359,000, between the periods. The decreaseincrease was primarily due to the generallegal fees related to a lawsuit with a former officer and administrative portiondirector and efforts to ratify our prior overissuances of stock-based compensation expense of approximately $1,424,000 in 2019 compared to $120,000 in 2020, as well as a decrease in professional fees and a temporary reduction of salaries placed during the second quarter of 2020 due to the impacts of the COVID-19 pandemic which was partially offset by the settlement with Bespoke for $918,750.common stock.

General and administrative expenses as a percentage of total revenues were approximately 514%986% and 727%576% for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.

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

Financial expenses, net. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, financial expenses, net was approximately $10,000$7,000 compared to a $51,000,$5,000, respectively, a decreasean increase of approximately $41,000,$2,000 between the periods. Theperiods due to the change was derived primarily from exchange rate adjustments and interest expense on notes.in fair value of the investment in Sanuwave.

Change in fair value of derivative liabilities. For the sixthree months ended June 30,March 31, 2021 and 2020 and 2019,, there was a change in fair value of derivative liabilities resulting in a gainlosses of approximately $1,948,000 and $0, and $102,000, respectively, an increase of approximately $102,000, between the periods.respectively. The incomeloss in 20192021 was derived from the valuation of derivative liabilities.

Loss on extinguishment of derivative liability. ForCompany’s total potentially dilutive shares exceed the six months ended June 30, 2020 and 2019, there was a loss on extinguishment of derivative liability of approximately $0 compared to a $288,000, respectively. The loss in 2019 was derived from the extinguishment of embedded derivative liabilities upon repayment of its related debt.Company’s authorized share limit.

Warrant modification expense. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, warrant modification expense was approximately $0$1,627,000 and $412,000,$0, respectively. The warrant modification expense in 20192021 was related to an amendmentwarrants held by a certain investor that were repriced. The investor was also granted new warrants to replace the repriced warrants that extended the expiration date by two years.after they were exercised.

Tax expenses. For the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, tax expenses were $13,000$21,000 and $18,000.$9,000. The tax expense is computed by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate.

Net loss. Our net loss decreasedincreased by approximately $1,388,000,$3,996,000, or 37%434%, to approximately $2,398,000$4,917,000 for the sixthree months ended June 30, 2020March 31, 2021 from approximately $3,786,000$921,000 in the same period of 2019.2020. The decreaseincrease in net loss resulted primarily from the factors described above.

Liquidity and Capital Resources

We have incurred losses in the amount of approximately $2,398,000 during the six-month period ended June 30, 2020$4,917,000 and accumulatedhad negative cash flow from operating activities of $1,378,000 for$954,000 during the six-month periodquarter ended June 30, 2020.

WeMarch 31, 2021. Although we expect to continue to incur losses and negative cash flows from operating activities, we had a cash balance of just over $7,953,000 as of March 31, 2021 and as a result. Without additional funding,therefore, we will not have sufficient resources to fund its operationsour operation for the next twelve months from the date of this filing. These conditions raise substantial doubt about our abilityThe Company may need to continue as a going concern.

During the six-month period ended June 30, 2020, we raised $200,000 through the issuance of notes payable to a related party and received $42,000 from the Paycheck Protection Program. During the next twelve months management expects that we will need to raise additional capital to finance its losses and negative cash flows from operations beyond the next twelve months and may continue to be dependent on additional capital raising as long as itsour products do not reach commercial profitability. If we do not increase the number of authorized shares of our common stock, we will be unable to issue common stock or convertible instruments. As a result, the Company will be limited in its ability to raise additional capital.

During the quarter ended March 31, 2021, we received approximately $1,406,000 of net proceeds from the exercise of warrants. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products, our development of future products and competing technological and market developments.developments as well as our ability to overcome obstacles that may be presented due to developments caused by the coronavirus outbreak. We have been relying on pastexpect 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 activities to meet our short-term liquidity requirements but may need to sell additional securitiesas well as to advance our long-term plans. WeWhile we believe we have historically metsufficient capital to execute our cash needs through a combination of issuance of equity, borrowing activities and sales.

It is our current beliefbusiness plan over the next twelve months, there are no assurances that if we dowill not continue to see significant increases in revenues, or if we are unableneed to raise additional capital at a later time, in the next twelve months,or that we may need to reduce our operating budget as well as sales and marketing expenses which may impair our ability to execute our business objectives. However, we maywould be unableable to raise sufficient additional capital, when we require it or uponif required, on terms favorable to us. Delisting from NASDAQ Capital Markets would adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our Common Stock. In addition, the terms of any securities we issue in future financings may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding. If we are unable to obtain adequate funds on reasonable terms, we may need to curtail operations significantly, or enter into financing agreements with unattractive terms in order to provide sufficient working capital for our operations.

Furthermore, the COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. 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 stock.

We do not have any material commitments to capital expenditures as of June 30, 2020,March 31, 2021, and we are not aware of any material trends in capital resources that would impact our business.