UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549



FORM 10-K



| | þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------



For the fiscal year ended: December 31,
2014



OR



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



COMMISSION FILE NUMBER: 001-36445



NanoVibronix,
Inc.

(Exact name of Registrant as specified in
its charter)



|Delaware                                        |  | 01-0801232                             
|----------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation)  |  | (I.R.S. Employer Identification Number)
|                                                |  |                                        
|525 Executive Boulevard

    Elmsford, New York |  | 10523                                  
|(Address of principal executive office)         |  | (Zip Code)                             



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



Securities registered pursuant to Section
12(b) of the Exchange Act: None



Securities registered pursuant to Section
12(g) of the Exchange Act:



Common Stock, par value $0.001 per share



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈  No
þ



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
þ



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 þ



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files) . Yes  ̈  No
 ̈



Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. þ



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



|Large accelerated filer                        |  ̈ | Accelerated filer         |  ̈
|---------------------------------------------- | - | ------------------------- | -
|Non-accelerated filer                          |  ̈ | Smaller reporting company | þ
|(Do not check if a smaller reporting 
company) |   |                           |  



Indicate by check mark whether the registrant
is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes  ̈  No
þ



The registrant was not a public company
as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate
market value of its voting and non-voting common equity held by non-affiliates as of such date.



The number of shares outstanding of the
registrant’s common stock, par value $0.001 per share, as of March 25, 2015was
380,247 shares.


















NANOVIBRONIX, INC.



TABLE OF CONTENTS



|         |                                                                                                              |  | Page
|-------- | ------------------------------------------------------------------------------------------------------------ |  | ----
|PART I   |                                                                                                              |  |     
|         |                                                                                                              |  |     
|ITEM 1.  | BUSINESS                                                                                                     |  | 3   
|         |                                                                                                              |  |     
|ITEM 1A. | RISK FACTORS                                                                                                 |  | 24  
|         |                                                                                                              |  |     
|ITEM 1B. | UNRESOLVED STAFF COMMENTS                                                                                    |  | 35  
|         |                                                                                                              |  |     
|ITEM 2.  | PROPERTIES                                                                                                   |  | 36  
|         |                                                                                                              |  |     
|ITEM 3.  | LEGAL PROCEEDINGS                                                                                            |  | 36  
|         |                                                                                                              |  |     
|ITEM 4.  | MINE SAFETY DISCLOSURES                                                                                      |  | 36  
|         |                                                                                                              |  |     
|PART II  |                                                                                                              |  |     
|         |                                                                                                              |  |     
|ITEM 5.  | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 36  
|         |                                                                                                              |  |     
|ITEM 6.  | SELECTED FINANCIAL DATA                                                                                      |  | 37  
|         |                                                                                                              |  |     
|ITEM 7.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 37  
|         |                                                                                                              |  |     
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 43  
|         |                                                                                                              |  |     
|ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 43  
|         |                                                                                                              |  |     
|ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 43  
|         |                                                                                                              |  |     
|ITEM 9A. | CONTROLS AND PROCEDURES                                                                                      |  | 43  
|         |                                                                                                              |  |     
|ITEM 9B. | OTHER INFORMATION                                                                                            |  | 44  
|         |                                                                                                              |  |     
|PART III |                                                                                                              |  |     
|         |                                                                                                              |  |     
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 44  
|         |                                                                                                              |  |     
|ITEM 11. | EXECUTIVE COMPENSATION                                                                                       |  | 46  
|         |                                                                                                              |  |     
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 50  
|         |                                                                                                              |  |     
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  | 53  
|         |                                                                                                              |  |     
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  | 56  
|         |                                                                                                              |  |     
|PART IV  |                                                                                                              |  |     
|         |                                                                                                              |  |     
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 56  



2







PART I



ITEM 1.  BUSINESS



Cautionary Note Regarding Forward-Looking
Statements



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 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 timing of clinical studies and eventual U.S. Food and Drug Administration approval of WoundShieldTM and our other product candidates.
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| | · | Regulatory actions that could adversely affect the price of or demand for our approved products.
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| | · | Market acceptance of existing and new products.
| | - | -----------------------------------------------



| | · | Favorable or unfavorable decisions about our products from government regulators, insurance companies or other third-party payers.
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| | · | Our intellectual property portfolio.
| | - | ------------------------------------



| | · | Possible litigation related to our terminated license agreement for NanoVibronix NPWT.
| | - | --------------------------------------------------------------------------------------



| | · | Our ability to recruit and retain qualified regulatory and research and development personnel.
| | - | ----------------------------------------------------------------------------------------------



| | · | 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.
| | - | -----------------------------------------------------------------------------------



| | · | Our ability to generate internal growth.
| | - | ----------------------------------------



| | · | 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.
| | - | -------------------------------------------------



| | · | 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.
| | - | ------------------------------------------------



3







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.



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 wound healing and pain therapy and can be
administered at home, without the assistance of medical professionals. Our primary products currently consist of:



| | · | WoundShield, a patch-based therapeutic ultrasound device that facilitates tissue regeneration and wound healing by using ultrasound to increase local capillary perfusion and tissue oxygenation;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | PainShieldTM, a disposable patch-based therapeutic ultrasound technology to treat pain, muscle spasm and joint contractures by delivering a localized ultrasound effect to treat pain and induce soft tissue healing in a targeted area; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | UroShieldTM, an ultrasound-based product that is designed to prevent biofilm in urinary catheters, increase antibiotic efficacy and decrease pain and discomfort associated with urinary catheter use.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Each of our WoundShield, PainShield and
UroShield 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 increase antibiotic efficacy. Through their
size, effectiveness and ease of use, these products are intended to eliminate the need for technicians and medical personnel to
manually administer ultrasound treatment through large transducers, thereby promoting patient independence and enabling more cost-effective
home-based care.



PainShield is currently approved for marketing
in the U.S. by the U.S. Food and Drug Administration and all of our products have CE Mark approval in the European Union. We have
a Canadian medical device license for PainShield, a certificate allowing us to sell PainShield, WoundShield and UroShield in Israel
and we are able to sell PainShield, WoundShield and UroShield in India and Ecuador based on our CE Mark. We generally apply, through
our distributor, for approval in a particular country for a particular product only when we have a distributor in place with respect
to such product.



In the United States, PainShield requires
a prescription from a licensed physician or a physical therapist. If U.S. Food and Drug Administration approval is obtained, the
Company anticipates that WoundShield will require a prescription from a licensed physician in the United States. UroShield is sold
directly to facilities, not patients, and therefore does not require a prescription. In other countries in which we sell them,
PainShield, WoundShield and UroShield are eligible for sale without a prescription.



In addition to the need to obtain regulatory
approvals, as described above, we anticipate that sales volumes and prices of our WoundShield and PainShield products will depend
in large part on the availability of coverage and reimbursement for self-administered use from third party payers. Third party
payers include governmental programs such as Medicare and Medicaid in the U.S., private insurance plans and workers’ compensation
plans. We do not currently have reimbursement codes for self-administered use or clinical use of WoundShield in any of the markets
in which we have regulatory authority to sell WoundShield. Of the markets in which we have regulatory authority to sell PainShield,
we have reimbursement codes in the United States (i.e., Current Procedural Terminology codes or “CPT codes”) for clinical
use only, but do not have such reimbursement codes for self-administered use of the product, although the product is marketed and
sold for such use. With respect to UroShield, which will be used primarily in a clinical setting, we do not currently have reimbursement
codes in any of the markets in which we have regulatory authority to sell UroShield. We anticipate that we will begin to seek reimbursement
codes for self-administered and clinical use of our products in the markets in which we have regulatory authority to sell such
products, however, there is no guarantee that we will be successful in obtaining such codes quickly, or at all.



4







We also plan to commence selling two products,
WoundShield Micro TherapyTM and CathBotTMin the United States. These products are similar to WoundShield and
UroShield and employ a lower frequency of vibration, in the hertz range rather than the kilohertz range. The WoundShield Micro
Therapy patch is, like WoundShield, aimed at wound healing. It is applied on the healthy skin in the peri-wound area and provides
a micro vibration massaging effect, aimed to enhance local blood flow to expedite healing of acute and chronic wounds. CathBot
is intended to be applied as a clip-on accessory on the external region of a urinary Foley catheter and, by providing micro vibrations
of the catheter surface, is intended to create an acoustic lubrication effect that reduces contact (and adhesion) between urethra
and catheter, which may help reduce tissue trauma and related pain and discomfort. Due the lower frequency range used in these
products, they are classified as Class I medical devices and will not require clearance by the U.S. Food and Drug Administration
prior to being sold in the United States. The introduction of these Class I products will allow us to expedite the introduction
of products in the U.S. market due to the shorter regulatory path, but these products are not our main long-term focus. We plan
to commercialize these products through a distribution partner that is active either in the wound care or the urology markets and
would be interested in integrating our product into its range of products.



When we obtain adequate financing, we plan
to conduct clinical trials for WoundShield and UroShield in order to obtain 510(k) clearance from the U.S. Food and Drug Administration.
In addition, we are currently ramping up our marketing efforts in North America with respect to PainShield. We anticipate that
these efforts will include recruiting direct sales personnel and representatives, making in-office calls to physicians and attending
trade shows and conferences.



Ultrasound Technology and Our Products



As noted above, our primary products are
based on the use of low frequency ultrasound, which delivers energy through mechanical vibrations in the form of sound waves. Ultrasound
has long been used in physical therapy, physical medicine, rehabilitation and sports medicine. Moreover, there is a growing body
of research that supports the positive biological effects of ultrasound. A recent study indicates that low frequency ultrasound
increases nerve regeneration (Crisci AR, Ferreira AL, “Low-intensity pulsed ultrasound accelerates the regeneration of the
sciatic nerve after neurotomy in rats”, Ultrasound Med. Biol. 2002 October; 28(10):1335-41). According to Atland, et. al.,
low frequency ultrasound also has important therapeutic metabolic effects (Altland OD, Dalecki D, Suchkova VN, Francis CW, “Low-intensity
ultrasound increases endothelial cell nitric oxide synthase activity and nitric oxide synthesis”, J. Thromb. Haemost. 2004
April; 2(4):637-43). In addition, there is evidence that ultrasound increases the healing of fractures (Warden SJ, Favaloro JM,
Bennell KL, McMeeken JM, Ng KW, Zajac JD, Wark JD, “Low-intensity pulsed ultrasound stimulates the bone-forming response
in UMR-106 cells”, Biochem. Biophys. Res. Commun. 2001 August 24; 286(3):443-50 and Warden SJ, Bennell KL, McMeeken JM, Wark
JD, “Acceleration of fresh fracture repair using the sonic accelerated fracture healing system (SAFHS)”, Calcif. Tissue
Int. 2000 February; 66(2):157-63).



Research has further shown that ultrasound
therapy has resulted in increased collagen repair (Da Cunha A, Parizotto NA, Vidal BC, “The effect of therapeutic ultrasound
on repair of the achilles tendon (tendo calcaneus) of the rat”, Ultrasound Med. Biol. 2001 December; 27(12):1691-6), improved
resolution of inflammation (Young SR, Dyson M, “Macrophage responsiveness to therapeutic ultrasound”, Ultrasound Med.
Biol. 1990; 16(8):809-16) and increased tissue healing (Young SR, Dyson M, “Effect of therapeutic ultrasound on the healing
of full-thickness excised skin lesions”, Ultrasonics. 1990 May; 28(3):175-80), which are all important factors in the wound
healing process. Furthermore, research has shown that ultrasound therapy can contribute to increased membrane permeability (Sundaram
J, Mellein BR, Mitragotri S, “An experimental and theoretical analysis of ultrasound-induced permeabilization of cell membranes,”
Biophys. J. 2003 May; 84(5):3087-101) and accelerated fibrinolysis, a process that prevents blood clots from growing and becoming
problematic (Harpaz D, “Ultrasound enhancement of thrombolytic therapy: observations and mechanisms”, Int. J. Cardiovasc
Intervent. 2000 June; 3(2):81-89), which collectively improve the tissue regeneration process and healing of wounds. Sonophoresis,
a process that increases the absorption of semisolid topical compounds, including medications, into the skin, is an additional
significant effect of ultrasound therapy (Tezel A, Paliwal S, Shen Z, Mitragotri S, “Low-frequency ultrasound as a transcutaneous
immunization adjuvant”, Vaccine 2005 May 31; 23(29):3800-7).



In general, ultrasound causes the benefits
cited above by increasing local blood circulation, increasing vascular wall permeability, promoting protein secretion, promoting
enzymatic reactions, accelerating nitric oxide production, promoting angiogenesis (the formation of new blood vessels from pre-existing
vessels) and promoting fibroblast proliferation (fibroblasts are a type of cell that play a critical role in wound healing).



Our proprietary technology consists of a
small, thin (1 millimeter) transducer that is capable of transmitting ultrasonic acoustic waves onto treatment surfaces with a
radius of up to 10 centimeters. This technology allows us to treat wounds by implanting our transducers into a small, portable
self-adhering acoustic patch, thereby eliminating the need for technicians and medical personnel to manually administer ultrasound
therapy, which should reduce the cost of therapy. Moreover, we believe that the delivery of ultrasound through our portable devices
is more effective than existing products, as our technology is better positioned to target the affected areas of the body.



5







While there are currently a number of products
on the market that treat pain through ultrasound therapy, we believe that our products differentiate themselves because they are
portable, without the requirement to be plugged into an outlet and they have a frequency of 100kHz (in contrast to other devices,
which have a frequency of 1MHz), which means they do not produce heat that can damage tissue. They can therefore be self-administered
by the patient without the need to be moved about the treated area by the patient or a clinician, they can be applied for a significantly
longer period without the risk of tissue damage and they do not require the use of gel. We are aware of one product, which has
recently received U.S. Food and Drug Administration approval and also has CE Mark approval, that we understand does not need to
be plugged in and operates at a frequency of 3 MHz, which its manufacturer claims overcomes the need for movement around the treated
area and allows for a longer treatment period. 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 (see the diagram
below), that the use of transmission gel is still required and that the transducer thickness is significantly greater than ours
(approximately 1.5cm). It is also our understanding that the U.S. Food and Drug Administration has prohibited the manufacturer
from labeling or promoting this product for use directly over bone that is near the skin surface. We are also aware of a small
clinical study, for which results were reported in August 2013, in which a small ultrasound device showed positive results in the
treatment of venous ulcers, a type of chronic wound. Based upon currently available information about this device, we believe it
will be at least five years before this device is available on the market. We understand that this product also does not generate
surface acoustic waves, as our products do, and would likely be heavier and thicker than our products. However, given the early
stage of development of this potential device, we cannot say with certainty how our products would compare.







Traditional ultrasound
device and our portable ultrasound patch-based device and a comparison of their energy distribution, where the X-axis represents
treatment surface and the Y-axis represents ultrasound energy penetration depth within tissue.



In a comparison of a traditional ultrasound
device and our portable ultrasound patch-based device, the bulk wave conventional ultrasound machines with handheld transducers
distribute the energy deeply into the body, as shown above in diagram (A) on the left. In comparison, our device distributes the
energy on the surface, as shown in diagram (B), thereby greatly increasing the treatment area. Our transducers may also be incorporated
into treatment patches, including patches that are designed to deliver medicine and other compounds through the skin. The generation
and delivery of low frequency ultrasound over a period of time to a specific area has been termed “targeted slow-release
ultrasound”. We believe that this delivery method of ultrasound may be comparable to that of slow release medication in the
pharmaceutical industry. This “targeted slow-release” capability is intended to allow for more frequent targeting of
the intended treatment area and thus may result in a more effective therapeutic response.



Micro Vibrations Technology and Our
Products



It is well established that increasing blood
flow to the wound and peri-wound area helps accelerate the healing of ischemic wounds. Micro vibrations applied on the skin tissue
increase local blood flow and oxygen delivery to the wound area and stimulate angiogenesis and growth factors that are helpful
for the wound healing process. Vibration therapy has been found to stimulate blood flow due to mechanical stresses of endothelial
cells resulting in increased production of nitric oxide andvasodilation, 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 blood supply (TJ Ryan et al.," The effect of mechanical forces (vibration or external compression) on the dermal
water content of the upper dermis and epidermis, assessed by high frequency ultrasound",Oxford Wound Healing
Institute, Journal of Tissue Viability, 2001.In another study, mean blood flow increase was higher in the vibration group
than the placebo group. Improvements in local blood flow may be beneficial in the therapeutic alleviation of pain or other symptoms
resulting from acute or chronic injuries (C. Button et al., "The effect of multidirectional mechanical vibration on peripheral
circulation of humans", University of Otago New Zealand,Clinical Physiology and functional Imaging, 2007 27, p211-216). A
study on the effect of whole body vibration on lower extremity skin blood flow suggests, that short duration vibration alone significantly
increases lower extremity skin blood flow, doubling skin blood for a minimum of 10 minutes following treatment (Lohman et al.,
" The effect of whole body vibration on lower extremity skin blood flow in normal subjects", Department of Physical Therapy,
Loma Linda university, USA, Med Sci Monit, 2007; 13(2) 71-76). Vibration has also been shown to stimulate angiogenesis and growth
factors such as vascular endothelial growth factor (Suhr F et al., " Effects of short-term vibration and hypoxia during high
intensity cycling exercise on circulating level of angiogenic regulators in humans", J Appl Physiol, 2007, 103:474-483,. Yue
Z. et al., " On the cardiovascular effects of whole-body vibration I. Longitudinal effects: hydrodynamic analysis", Studies
Appl Math, 2007, 119:95-109).Of import with respect to diabetic wounds, in which a prolonged inflammatory phase occurs,
vibration vasodilation has generated an indirect anti-inflammatory action, mainly by suppression of nuclear factor-kβ, the
key gene for inflammatory mediators (Marvin A., " Nitric Oxide is released into circulation with whole-body, periodic acceleration",
Chest 2005;127;30-39).



6







We believe that theWoundShield Micro
Therapy is the first patch device that provides micro vibrations (hertz range vibrations) to the healthy tissue adjacent to the
wound in order to stimulate these biological effects, which we believe will lead to faster healing.



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.



CathBot 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.



Our Products



WoundShield



Our WoundShield product is intended to treat
acute and chronic wounds with a disposable treatment patch that delivers localized therapeutic low frequency ultrasound. The WoundShield
patch has two configurations: one that is placed adjacent to the wound and another, called the instillation patch, that is placed
on the wound to enable instillation through sonophoresis, a process that increases the absorption of semisolid topical compounds,
including medications, into the skin. Based on studies conducted by BIO-EC Microbiology Laboratory and Rosenblum, we believe that
our WoundShield product possesses significant potential for the treatment of, among other things, diabetic foot ulcers and burns
(Gasser P, Study Report delivered by BIO-EC Microbiology Laboratory, Dec 2007, which we ordered, paid for, and provided devices
for; Rosenblum J, “Surface Acoustic Wave Patch Diathermy Generates Healing In Hard To Heal Wounds,” European Wound
Management Association 2011, for which we supplied devices but had no further involvement).







Picture of WoundShield Driver and Instillation
Patch



WoundShield delivers surface acoustic waves
to the location of the wound. Surface acoustic waves move laterally across the surface of the wound, which enables the transfer
of the acoustic energy of the waves along the entire wound surface in a continuous and consistent mode, providing access to the
waves’ benefits for a longer treatment period than conventional ultrasound without the need for supervision or a treatment
session by a clinician.



7







This device 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) (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 addition, the WoundShield instillation patch allows for administration of therapeutic
agents into the wound area through a sonophoresis effect.



Many key processes in wound healing are
dependent upon an adequate supply of oxygen. Diabetic foot ulcers are particularly in need of an adequate oxygen supply because
the disease often results from poor perfusion (blood flow) and decreased oxygen tension. Oxygen is also important for the immune
system to ensure bacterial killing, synthesis of collagen, fibroblast proliferation (fibroblasts are a type of cell that play a
critical role in wound healing), oxidative (taking place in the presence of oxygen) pathways for adenosine triphosphate, or ATP,
formation (ATP transports chemical energy within cells for metabolism) and the nitric oxide dependent signaling pathways. It is
generally believed that a lack of available oxygen is a basic contributing factor in the perpetuation of these wounds. Recently,
wound healing experts have developed a technique of perfusing ischemic wounds (which occur when blood flow is blocked) with hyper-oxygenated
saline, while the wound is being treated with ultrasound, also known as sonication. This localized oxygenation therapy has many
advantages over the use of hyperbaric chambers (large chambers in which the oxygen pressure is above normal), a common method for
delivering oxygen to wounds, as it is more cost-effective, can be done at the patient’s bedside and can be administered more
frequently. The WoundShield instillation patch was tested as a potential ultrasound technology for this localized oxygen therapy
and we believe that its performance would exceed the performance of the other ultrasound technologies. 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. Based upon the results of this trial, we are planning
a series of clinical trials with an end point claim that our WoundShield product enhances perfusion in chronic wounds.



WoundShield Micro
Therapy







WoundShield Micro Therapy Patch placed
next to the wound



8







The WoundShield Micro Therapy device consists
of a small electronic driver and a treatment patch. The patch is placed on the healthy skin next to the wound and the incorporated
actuator vibrates in the hertz range and provides gentle vibrations to the surrounding tissue. The novelty of this technology is
that the vibration effect is produced due to bending vibrations of the actuator (piezo element) and not by means of a motor. These
micro vibrations applied on the skin tissue increase local blood flow, vasodilation,Nitric Oxide production and oxygen
delivery to the wound area and stimulate angiogenesis and growth factors that help the healing process.



In October 2014, Rosenblum et.al. published
in Wounds Journal a study entitled “Surface Acoustic Wave Patch Therapy Affects Tissue Oxygenation in Ischemic Feet.”
In this study, the WoundShield Micro Therapy device was found to significantly increase oxygen saturation level in the ischemic
tissue in all patients by an average of more than 50%. The rate of the drop off after usage varied, but no patient’s value
returned to pre-device usage levels.



Market for Wound-Healing
Devices



The global wound care device market is continuously
growing and expected to reach $20.3 billion by 2015 (“Anticipated market in 2015, Wound Care Products: A Global Strategic
Business Report,” September 2011). According to a report entitled “Advances in Wound Closure Technology” by Frost
and Sullivan (2005), approximately 25% of all patients with diabetes develop a foot or leg ulceration at some time during the course
of their disease. Some 3.5 million individuals globally suffer from diabetes related foot or leg ulcerations each year. In addition,
according to the National Hospital Ambulatory Medical Survey (2000-2004), approximately 500,000 patients receive medical treatment
annually for burn injuries in the U.S., with the global number estimated at 1 million. There are also policy-based factors that
may increase the size of the wound care market. For example, the Commonwealth of Massachusetts announced a policy not to pay for
patients who develop Grade 3 or 4 pressure ulcers acquired in a healthcare facility. We anticipate that these types of decisions
will be made on a more widespread basis, which 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 and WoundShield Micro Therapy



The market for advanced wound care includes
a large number of competitors, such as Kinetic Concepts, Inc., or KCI, Smith and Nephew plc and Convatec Inc., all of whom market
wound-healing medical devices. Due to their size, in general these companies may have significant advantages over us. These competitors
have their own distribution networks for their products, which gives them an advantage over us in reaching potential customers.
In addition, they are vertically-integrated, which may allow them to maximize efficiencies that we cannot achieve with our third-party
suppliers and distributors. Finally, because of their significantly greater resources, they could potentially choose to focus on
research and development of technology similar to ours, more than we are able to. In general, we believe that these competitors
have, and will continue to have, substantially greater financial, technological, research and development, regulatory and clinical,
manufacturing, marketing and sales, distribution and personnel resources than we do. However, we believe that our products differentiate
us from these competitors, and we will be competitive on the basis of our advantageous technology.



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 Misonix Inc., which produces SonicOne products, and Celleration Inc., which produces the MIST Therapy System. Due to their size,
in general these companies may have the same advantages over us discussed with respect to our competitors in the paragraph above.
However, both of 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 is 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 be able to provide superior wound care therapy 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.



9







We are also aware of a small clinical study,
for which results were reported in August 2013, in which a small ultrasound device showed positive results in the treatment of
venous ulcers, a type of chronic wound. Based upon currently available information about this device, we believe it will be at
least five years before this device is available on the market. We understand that this product does not generate surface acoustic
waves as our products do, which means that the treatment area is generally limited to that of the transducer’s diameter.
We believe our products would have certain other advantages over this potential device, if developed, including that our products
weigh less and are thinner. However, given the early stage of development of this potential device, we cannot say with certainty
how our products would compare.



The most common method of oxygen administration
for wound healing is hyperbaric oxygen therapy, especially to treat specific ulcerations in diabetic patients. Hyperbaric oxygen
therapy has been shown to increase vascular endothelial growth factor expression, which measures the creation of new blood vessels
(Fok TC, at el, "Hyperbaric oxygen results in increased vascular endothelial growth factor (VEGF) protein expression in rabbit
calvarial critical-sized defects", Schulich School of Medicine and Dentistry, University of Western Ontario, Canada). The
activation of endothelial cells by VEGF sets in motion a series of steps toward the creation of new blood vessels (J Lewis et al,
National Cancer Institute, Understanding Cancer and Related Topics, Understanding Angiogenesis). We believe that the WoundShield
instillation patch, which can be used as an oxygen instillation system, will be complementary to, or in some cases an alternative,
to the use of hyperbaric chamber therapy. This complementary treatment option will allow the treating physician greater therapeutic
versatility in treating wounds. For a certain populace of patients, we believe that the WoundShield instillation patch could provide
physicians with an alternative to hyperbaric oxygen therapy because it provides the same benefits as hyperbaric oxygen therapy
at a lower cost to the patient. There are a number of competitors in the hyperbaric chamber therapy market, including over twelve
companies in the U.S. Due to their size, in general these companies may have the same advantages over us discussed with respect
to our competitors in the first paragraph of this section. However, we believe that the WoundShield instillation patch possesses
certain advantages over the existing hyperbaric chamber therapy, including lower cost and greater ease of use. In addition, we
do not believe that the WoundShield instillation patch will necessarily compete with hyperbaric chamber therapy, but rather will
often complement such therapy.



While we believe that WoundShield is well
positioned to capture a share of the wound care market, WoundShield may be unable to achieve its anticipated place in the wound
care market due to a number of factors, including, but not limited to, an inability to obtain the approval of the U.S. Food and
Drug Administration, its failure to treat wounds 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.



We are aware of one product that may be
competitive with WoundShield Micro Therapy. The Vibro-Pulse is a large, vibrating surface that is placed under the patient’s
limb that provides massaging vibration. It is marketed for the repair and regeneration of soft tissue and vascular structures primarily
for stimulating wound healing. We believe that our product has the advantage of being smaller and capable of targeting a specific
wound area in comparison to this product. In addition, the WoundShield Micro Therapy’s patch-based configuration allows a
longer treatment period without limiting the patient to a stationary position.



Regulatory Strategy



For a general discussion of the U.S. Food
and Drug Administration approval process with respect to our products, and regulation of our products in general, see “–Government
Regulation” below.



Our general regulatory strategy for WoundShield
is focused on seeking U.S. Food and Drug Administration approval for a variety of indications. WoundShield obtained CE Mark approval
in November 2012 for use in wound healing.



Following preliminary clinical studies that
demonstrated WoundShield’s ability to enhance blood perfusion, in June 2014, we started a clinical trial for WoundShield
with an end point of enhanced perfusion in chronic wounds at REX hospital in North Carolina. To date, only two patients have been
recruited for this study, therefore we are considering whether to continue this trial at the same hospital or move it to another
site. Based on this study, we intend to seek U.S. Food and Drug Administration clearance for an indication limited to enhancing
perfusion in chronic wounds as an intermediate step towards a broader wound healing claim in the future.



We also intend to begin a clinical study
that to evaluate WoundShield’s ability to enhance wound healing in chronic wounds. For this study, we intend to coordinate
with the Centers for Medicare and Medicaid Services, private insurers and the U.S. Food and Drug Administration to ensure that
the data generated will be adequate to obtain U.S. Food and Drug Administration approval for the WoundShield product and lead to
reimbursement of this product.



10







WoundShield Micro Therapy is a Class I device
that does not require a premarket notification application or U.S. Food and Drug Administration clearance before it can be marketed
in the U.S. We have listed it with the U.S. Food and Drug Administration.



Sales and Marketing



We have sold limited numbers of our WoundShield
products through our website. We intend to aggressively market WoundShield in Europe and pursue the necessary approvals to commence
marketing in the United States.



Clinical Trials



With respect to WoundShield, to date, we
have conducted the following evaluation studies:



|Purpose                                         |  | Doctor/Location                             |  | Time,subjects           |  | Objectives                                                                                                                                         |  | Results                                                                                                                                                                                                                                             
|----------------------------------------------- |  | ------------------------------------------- |  | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Clinical evaluation
        Physician initiated |  | Dr. J. Rosenblum,Shaare ZedekMedical Center |  | 2008
        8 patients |  | To evaluate novel technology on wound healing in diabetic foot ulcers.                                                                             |  | 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.                                         
|                                                |  |                                             |  |                         |  |                                                                                                                                                    |  |                                                                                                                                                                                                                                                     
|Clinical evaluation
        Physician initiated |  | Dr. J. Rosenblum,Shaare ZedekMedical Center |  | 2010
        8 patients |  | To evaluate novel technology on wound healing in diabetic foot ulcers.                                                                             |  | The device had a positive effect on both epitheliazation of diabetic wounds as and stimulating the precursors of dermal and epidermal growth. The duration of the trial was 20 days.                                                                
|                                                |  |                                             |  |                         |  |                                                                                                                                                    |  |                                                                                                                                                                                                                                                     
|Clinical evaluation
        Physician initiated |  | Dr. S. Covington                            |  | 2010
        7 patients |  | The study aimed to determine if hyper oxygenated saline delivered by surface acoustic waves improves tissue oxygenation in lower extremity wounds. |  | Surface acoustic wave technology in conjunction with oxygenated saline can increase interstitial oxygen in wound bed. This trial to validate proof of concept was put on hold due to financial constraints. The duration of the trial was two weeks.



If we are able to obtain sufficient funding,
we anticipate conducting the following clinical trials:



|Trial                                                                             |  | Place            |  | Targeted Start Date/Timing |  | Objectives                                                                           
|--------------------------------------------------------------------------------- |  | ---------------- |  | -------------------------- |  | -------------------------------------------------------------------------------------
|Woundshield ultrasound patch enhances perfusion of blood
        30 patient trial |  | To be determined |  | During 2015                |  | Safety and efficacy of Woundshield in enhancing blood flow and oxygenation of wounds.
|                                                                                  |  |                  |  |                            |  |                                                                                      
|Woundshield ultrasound patch enhances wound healing
        200 patient trial     |  | To be determined |  | During 2016                |  | Safety and efficacy of WoundShield in wound healing.                                 



The target dates above reflect our best
estimate as to when these trials will commence, however, numerous factors, both anticipated and unanticipated, may negatively impact
our ability to meet these targeted dates. These factors include, without limitation, delays in obtaining regulatory approvals,
management’s need to change its allocation of resources in light of market and other developments and unanticipated results
of prior clinical trials.



11







PainShield



PainShield is an ultrasound diathermy device
(diathermy is the production of heat in a part of the body by high-frequency electric currents), consisting of a driver unit and
a disposable patch, which contains our proprietary therapeutic transducer. It delivers a localized ultrasound effect to treat pain
and induce soft tissue healing in a targeted area, while keeping the level of ultrasound energy at a safe and consistent level
of 0.4 watts. We believe that PainShield is the smallest and most portable therapeutic ultrasound device on the market and the
only product in which the ultrasound transducer is integrated in a therapeutic disposable application patch.



The existing ultrasound therapy devices
being used for pain reduction are primarily large devices used exclusively by clinicians in medical settings. PainShield is able
to deliver ultrasound therapy without being located in a health care facility or clinic because it is portable, due to it being
lightweight and battery operated. Because it is patch based and easy to apply, PainShield does not require medical personnel to
apply ultrasound therapy to the patient. The patient benefits include its ease of application and use, faster recovery time, high
compliance, safety and efficacy (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 clinical setting and can be used even while the patient is
sleeping. Its range of applications includes acute and chronic pain reduction and anti-inflammatory treatment.







Picture of PainShield with Patch



PainShield is used to treat tendon disease
and trigeminal neuralgia (a chronic pain condition that affects the trigeminal or 5th cranial nerve, one of the most widely distributed
nerves in the head); previously, the therapeutic options for these disorders have been very limited. PainShield has also been used
to treat pelvic and abdominal pain. To date, the only treatment options for these conditions are pain medication and surgery.



Market for PainShield



Pain is one of the most common conditions
that hinder quality of life of vast populations of patients on a regular basis. Pain-related complaints are the most common reason
patients seek treatment from physicians (Prince V, “Pain Management in Patients with Substance-Use Disorders,” Pain
Management, PSAP-VII, Chronic Illnesses). According to Bonica’s Management of Pain (2001), a work considered current in the
industry based on available industry data, and 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 25% of the U.S. population, 75 million
people, suffer from chronic pain. We estimate that approximately 150 million individuals globally suffer from chronic 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.
Alternatively, there are a large number of non-pharmacological pain treatment modalities 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 great interest in alternative pain therapy using medical devices that do not carry these side effects.



12







The currently available ultrasound treatments
for chronic pain have generally been accepted by the medical community as standard treatment for pain management. However, the
traditional ultrasound treatments, such as those manufactured or distributed by Mettler Electronics Corp, Metron USA and Zimmer
MedizinSysteme, are stationary devices found only in clinics and other health care facilities that need to be administered to patients
by health care professionals. We are aware of three companies that market smaller ultrasound devices capable of certain self-administered
use for the treatment of pain: Koalaty Products, Inc., Sun-Rain System Corp. and PhysioTEC. These devices generally function in
the same manner, at the same frequency and with the same administration and safety requirements and limitations as traditional,
larger ultrasound devices. We are also aware of one product, which has recently received U.S. Food and Drug Administration approval
and also has CE Mark approval, marketed by ZetrOZ, Inc., that we understand may eliminate certain of these requirements and limitations,
namely the requirement to be plugged in, the need for movement around the treated area and the relatively short safe treatment
period. However, we understand that this product does not generate surface acoustic waves as our products do, which means that
the treatment area is generally limited to that under the transducer, that the use of transmission gel is still required and that
the transducer thickness is significantly greater than ours (approximately 1.5cm). It is also our understanding that the U.S. Food
and Drug Administration has prohibited the manufacturer from labeling or promoting this product for use directly over bone that
is near the skin surface. In addition, there are other patch-based methods of pain treatment, such as TENS therapy. TENS therapy
is generally not supported by widespread clinical evidence of its efficacy. In addition, 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.



Regulatory Strategy



PainShield received 510(k) clearance from
the U.S. Food and Drug Administration in August 2008 for treatment of selected medical conditions such as relief of pain, muscle
spasms and joint contraction. PainShield received CE Mark approval in July 2008 and was also approved for sale by the Israeli Ministry
of Health in 2010. We have a Canadian medical device license for PainShield and we are able to sell PainShield in India and Ecuador
based on our CE Mark.



In the U.S., PainShield falls under the
diathermy classification for the treatment of pain for initial reimbursement purposes. The permitted reimbursement codes can be
used in the outpatient supervised medical setting. We intend to coordinate with the Centers for Medicare and Medicaid Services
and private insurers so that reimbursement can be extended to cover the administration of PainShield outside of health care facilities
and clinics. In addition, we intend to conduct clinical trials in order to effectively market PainShield for a larger range of
indications.



Sales and Marketing



PainShield was introduced in 2009 as a treatment
for pain and other clinical problems, such as tendonitis, sports injuries, pelvic pain and neurologic pain and we have sold approximately
1,500 units and 8,000 treatment patches since its introduction. We have entered into distribution agreements in North America,
Europe, Asia and the Middle East for the distribution of PainShield. We intend to seek additional distribution opportunities in
Europe, East Asia and South America. In addition, we sell PainShield directly to patients through our website. We are currently
ramping up our marketing efforts in North America. We anticipate that these efforts will include recruiting additional sales personnel
and representatives, making in-office calls to physicians and attending trade shows and conferences.



13







Clinical
Trials



To date, we have conducted the clinical
trials set forth below:



|Purpose                                                                                                                                                                                                       |  | Doctor/Location                                                                         |  | Time,subjects                 |  | Objectives                                                                                                                                                                                                                                                                                       |  | Results                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A sound solution for Trigerminal Neuralgia
        Physician initiated                                                                                                                                        |  | Dr. Ch. Adahan
        Shiba medical Center                                             |  | 2009
        15 patients      |  | ·
        Reduction in pain
        ·
        Reduction in disability
        ·
        Improvement of function and quality of life
        ·
        Accelerating of healing                                                                                                                    |  | 73% of the subjects experienced complete or near complete relief.                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                              |  |                                                                                         |  |                               |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                
|Randomized control trial examining the efficacy of low intensity
        low frequency Surface Acoustic wave ultrasound in trigerminal neuralgia pain
        For Ph.D., Funded by Israeli Ministry of Health |  | Dr. M. Zwecker
        Chaim Sheba Medical Center, Tel Hashomer, Israel                 |  | 2012-2012
        19 patients |  | ·
        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 trigerminal neuralgia disease.                                                       
|                                                                                                                                                                                                              |  |                                                                                         |  |                               |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                
|Treating Rutgers university athletic injuries with bandaid sized ultrasound unit PainShield                                                                                                                   |  | R. Monaco,
        G. Sherman,
        Rutgers University Athletic, Rutgers, New Jersey |  | 2011
        40 patients      |  | ·
        To assess the pain, functional capacity and discomfort of the subject
        ·
        To assess the subject’s quality of life
        ·
        To assess the injury status
        ·
        To assess the efficacy of the treatment
        ·
        To assess compliance factors |  | Preliminary results:
        Active group:
        70% had improvement, 30% no change
        Sham group:
        70% no change, 30% had improvement
        This is a really good 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 symptoms using wearable device delivering low frequency ultrasound                                                                          |  | D. Wiseman,
        Synechion Institute for Pelvic Pain                                 |  | 2011
        19 patients      |  | ·To assess the efficacy of PainShield for pelvic and related pain                                                                                                                                                                                                                                |  | Improvement in pain related symptoms noted for all symptoms.                                                                                                                                                                                                                                                                                   



If we are able to obtain sufficient funding,
we anticipate conducting the following clinical trials:



|Trial                                                |  | Place            |  | Start Date/Timing |  | Objectives                                               
|---------------------------------------------------- |  | ---------------- |  | ----------------- |  | ---------------------------------------------------------
|PainShield for Trigeminal Neuralgia 80 patient trial |  | To be determined |  | To be determined  |  | Safety and Efficacy of PainShield in Trigeminal Neuralgia
|                                                     |  |                  |  |                   |  |                                                          
|PainShield for Pelvic Pain
        200 patient trial |  | To be determined |  | To be determined  |  | Safety and Efficacy of PainShield in Chronic Pelvic Pain 



UroShield



UroShield is intended to prevent biofilm,
increase antibiotic efficacy in the catheter lumen and decrease pain and discomfort associated with urinary catheter use. It is
designed to be used with any type of indwelling urinary catheter regardless of the material or coating. We believe UroShield is
the first medical device on the market that attempts to simultaneously address all of the aforementioned catheter-related issues.
UroShield is similar in design to WoundShield and PainShield, in that it uses a driver unit that produces low frequency, low intensity
ultrasound. The driver unit connects to a disposable transducer that is clipped onto the external portion of the catheter to deliver
ultrasound therapy to all catheter surfaces as well as the tissue surrounding the catheter.



14











Picture of UroShield with actuator



The UroShield system has the following advantageous
effects:



| | · | 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, 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 (Tenke P, “The effectiveness of acoustic energy induced by UroShield in the prevention of bacteriuria and the reduction of patients’ complaints related to long-term indwelling urinary catheters,” 26th Annual Congress of the European Association of Urology (EAU) Congress, Vienna, March 2011; we supplied devices for this study and paid for electron microscopy analysis, but had no further involvement with it).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 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. 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 bilofilm formation. We believe that this anti-clogging benefit will help prevent local infection and sepsis secondary to catheter obstruction.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



UroShield has undergone a number of clinical
trials. The Heidelberg 1 trial, which we sponsored, was a 22 patient randomized, double blind, sham-controlled, independent trial
that tested UroShield’s safety and ability to prevent biofilm in patients with an indwelling Foley catheter. The trial demonstrated
that UroShield prevented biofilm in all patients with the active device as compared to biofilm being found in seven of eleven of
the control patients. In addition, there was a marked decrease in pain, discomfort and spasm in the active UroShield patients,
as evidenced by a statistically significant decrease in the requirement for the medications required to treat urinary catheter
associated pain and discomfort (Ikinger U, “Biofilm Prevention by Surface Acoustic Nanowaves: A New Approach to Urinary Tract
Infections?,” 25th World Congress of Endourology and SWL, Cancun, Mexico, October 2007).



In a subsequent physician-sponsored trial
known as Heidelberg 2, 40 patients who underwent radical prostatectomies were divided into two groups, with the active group receiving
one intra-operative dose of antibiotics and UroShield and the control group receiving one intra-operative dose of antibiotics and
then five subsequent doses over three days. At the end of the trial, the control group had four cases of bacteruria, as compared
to one in the active group. In a third trial, a physician-sponsored open label trial, ten patients who received emergency placement
of a urinary catheter due to acute obstruction were given a UroShield device and followed with regard to their pain, discomfort,
spasm and overall well-being. Within 24 hours, all patients showed improvement and increased toleration of the catheter (Zillich
S., Ikinger U, “Biofilmprävention durch akustische Nanowellen: Ein neuer Aspekt bei katheterassoziierten Harnwegsinfektionen?,”
Gesellschaft für Urologie, Heilbronn, Germany, May 2008). We supplied devices for this trial, but had no further involvement
with it.



15







CathBot



The CathBot device has the same configuration
and hardware as UroShield, except that the vibration frequency is in herz rather than kilohertz.



Urinary catheter usage is associated with
pain and discomfort caused by the friction between the catheter surface and the urethral tissue. CathBot provides a non-pharmacological
approach to resolve pain and discomfort in patients requiring the use of urinary catheter and we believe it will improve these
patients’ quality of life.



CathBot is intended to be applied as a clip-on
accessory on the external region of the urinary Foley catheter. By providing micro vibrations along the catheter surface, we believe
it creates an acoustic lubrication effect that reduces contact (and adhesion) between the urethra and catheter, reducing friction
and related tissue abrasion, trauma, pain and discomfort. 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.



Market for UroShield
and CathBot



According to State of the Globe: Catheterizations
Continue to Cultivate Urinary Infections – Journal of Global Infectious Diseases May-Aug 2010 , over 55 million indwelling
urinary catheters are consumed annually worldwide. 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 U.S. 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 catheter acquired urinary tract infection, 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 and CathBot



Several types of products have been introduced
to address the growing problem of catheter-acquired infection and biofilm formation on catheter surfaces. Manufacturers offer antibiotic-coated
and antiseptic-impregnated catheters. In addition, manufacturers have produced silver-coated catheters, which have been shown in
small studies to delay bacteruria for about two to four days. However, larger studies did not corroborate this result; on the contrary,
silver hydrogel was associated with overgrowth of gram positive bacteria in the urine (Riley DK, Classen DC, “A large randomized
clinical trial of a silver-impregnated urinary catheter: lack of efficacy and staphylococcal superinfection,” Am. J. Med.
1995 April; 98(4):349-56).



UroShield has been designed to be added
to any type of catheter, including Foley catheters and silver-coated catheters, to improve a catheter’s infection prevention
performance. UroShield is not intended to replace any existing products or technologies, but instead is intended to assist these
existing products or technologies in preventing catheter-acquired urinary injury and catheter associated complications. UroShield
may be unable to achieve its anticipated catheter market share due to a number of factors, including, but not limited to, an inability
to obtain approval of the U.S. Food and Drug Administration and failure to be adopted by health care practitioners and facilities
because of its status as a new product in the market, without an established niche.



CathBot provide a non-pharmacological approach
to resolve pain and discomfort in patients requiring the use of urinary catheter. We are not aware of any other similar medical
device intended to help relieve suffering and improve these patients’ quality of life. Lubricating gels and low friction
catheter coatings are currently used, however, these methods are effective for only 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. Furthermore, CathBot is not intended to replace
these products, but rather we expect it would be used along with them.



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.



16







In the European Union, UroShield has been
marketed for the prevention of biofilm, decreased pain and discomfort associated with urinary catheters and increased antibiotic
efficacy. In the U.S., we intend to seek clearance from the U.S. Food and Drug Administration through the de novo classification
process for UroShield. We submitted our application for 510(k) approval on January 3, 2011. On March 11, 2011, we received a response
from the U.S. Food and Drug Administration proposing that the approval go through the de novo route, which will require clinical
trials with proposed study protocols to be pre-cleared by the U.S. Food and Drug Administration. We are currently seeking a strategic
partner that is active in the urology market to help fund the clinical trials for UroShield to support our U.S. Food and Drug Administration
application. We have not made any further submissions to the U.S. Food and Drug Administration related to UroShield.



CathBot is a Class I device that does not
require a premarket notification application or U.S. Food and Drug Administration clearance before it can be marketed in the U.S.
We have listed it with the U.S. Food and Drug Administration.



Sales and Marketing



We are currently seeking a strategic partner
that is active in the urology market and would be interested in integrating UroShield and CathBot into its range of products. We
have sold limited numbers of our UroShield products through our website and our distributor in Italy.



Clinical Trials



To date, we have conducted the clinical
trials set forth below:



|Purpose                                                                                                                                                                         |  | Doctor/Location                                                            |  | Time,
        subjects        |  | Objectives                                                                                                                                                                                                                                                                                                                                            |  | Results                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | ----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|To assess the safety of the UroShield
        Double Blind, Comparative, Randomized Study for the Safety Evaluation
        of the UroShield System (HD1)                       |  | Dr. U. Ikinger, Salem Academic Hospital, University of Heidelberg, Germany |  | 2005-2006
        40 patients |  | 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. |  | UroShield was both safe and well tolerated.
        UroShield proved markedly efficacious in prevention of biofilm.
        Subjects required significantly less medications than the control group for catheter related pain and discomfort.
|                                                                                                                                                                                |  |                                                                            |  |                               |  |                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                              
|Double Blind, Comparative, Randomized Study for the Safety Evaluation
        of the UroShield System (HD2)
        Physician initiated                                         |  | 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.                                                                                                                                                          |  | In this trial, only 1/20 patients in UroShield device (no antibiotics) group developed urinary tract infection compared to 4/20 patients within control group treated with the antibiotic prophylaxis alone.                                 
|                                                                                                                                                                                |  |                                                                            |  |                               |  |                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                              
|The Effect of UroShield on Pain and Discomfort in Patients Released
        from the Emergency Room with Urinary Catheter Due to Urine Incontinence
        Physician initiated |  | 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.                                                                                          |  | The results demonstrated a reduction in pain, itching, burning and spasm levels. Additionally, the well-being of the subjects showed a significant increase.                                                                                 
|                                                                                                                                                                                |  |                                                                            |  |                               |  |                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                              
|The Use of the UroShield Device in Patients with Indwelling
        Urinary Catheters
        Open labeled, comparative, 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                                                                                      |  | UroShield device was effective in reducing postoperative catheter related pain discomfort and bladder spasms. There was also a notable trend towards reduction of bacteriuria.                                                               
|                                                                                                                                                                                |  |                                                                            |  |                               |  |                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                              
|Evaluation of the UroShield in urinary and nephrostomies to
        reduce bacteruria
        Physician initiated                                                               |  | Prof. P.Tenke,
        Hungary                                             |  | 2010-2011
        26 patients |  | ·
        Pain, disability and QOL
        ·
        Catheter patency
        ·
        Bacteriuria / UTI
        ·
        Hospitalization period
        ·
        Analgesics and Antibiotics intake                                                                                                                                                |  | Showed reduction in pain and significant decrease in bacteriuria rate.                                                                                                                                                                       



17







If we are able to locate a strategic partner
or otherwise obtain sufficient funding, we anticipate conducting the following clinical trial:



|Trial                                |  | Place            |  | Start Date/Timing |  | Objectives                                                                     
|------------------------------------ |  | ---------------- |  | ----------------- |  | -------------------------------------------------------------------------------
|UroShield FDA trial 80 patient trial |  | To be determined |  | To be determined  |  | Safety and efficacy of UroShield in urinary catheter related pain and infection



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. 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 healthcare providers who use the products or therapies. Even though
a new product may have been approved or cleared by the U.S. Food and Drug Administration for commercial distribution, we may find
limited demand for the device until adequate reimbursement has been obtained from governmental and private third party payers.



In international markets, reimbursement
and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product
lines and procedures. There can be no assurance that procedures using our products will be considered medically reasonable and
necessary for a specific indication, that our products will be considered cost-effective by third party payers, that an adequate
level of reimbursement will be available or that the third party payers’ reimbursement policies will not adversely affect
our ability to sell our products profitably.



In the U.S., 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 products, including ours.



One of the components in the reimbursement
decision by most private insurers and governmental payers, including the Centers for Medicare & 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. We
anticipate that our distributors will be responsible for the process for obtaining billing codes for our products.



The initial phase of establishing a professional
billing code for a medical service typically includes applying for a Current Procedural Terminology, or CPT, Category III code.
This is a tracking code without relative value assigned that allows third party payers to identify and monitor the service as well
as establish value if deemed medically necessary. The process includes CPT application submission, clinical discussion with Medical
Professional Society CPT advisors as well as American Medical Association CPT Editorial Panel review. A new CPT Category III code
will be assigned if the American Medical Association CPT Editorial Panel committee deems it meets the applicable criteria and is
appropriate.



18







The secondary phase in the CPT billing code
process includes the establishment of a permanent CPT Category I code in which relative value is analyzed and established by the
American Medical Association. The approval of this code is based on, among other criteria, widespread usage and established clinical
efficacy of the medical service.



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 healthcare industry to reduce
the costs of products and services. In addition, recent healthcare 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.



The Diagnosis Related Group System, or DRG,
is the system of reimbursement that is used in the United States for hospitalized patients as well as patients who are cared for
in skilled nursing facilities and long term care facilities. These facilities are not subject to the same reimbursement codes as
described above. In the DRG system, each patient admitted to the hospital or facility is assigned a code based on his or her diagnosis.
That code is known to be associated with an average hospital stay and the health care facility is reimbursed for the amount of
days as defined by the DRG code, regardless of how many days the patient is in the facility. This system gives a strong incentive
for these health care facilities to deliver efficient care and to complete the needed treatment as quickly as possible. For example,
if the patient has a wound that requires healing before discharge and they succeed in treating the wound in less hospital days
than allowed by the DRG code for this diagnosis, the facility will be rewarded by being paid more for more days than the patient
was actually in the hospital for. Conversely, if the treatment takes longer, the facility would actually lose income, as they will
be paid for the DRG code only. This system serves as a stimulus for these facilities to purchase and utilize devices and technologies
that allow more efficient therapy.



PainShield.PainShield is presently
reimbursed in the U.S. by many private insurers for use of the ultrasound device in a supervised medical setting and is reimbursed
in units of 15 minutes up to an hour a day, 5 hours a week and 20 hours a month. If the device is efficacious in the treatment
of the patient’s condition, the treatment period can be extended in some cases for months. Presently, when purchased by a
clinic, PainShield is typically purchased by the clinic that then bills the existing reimbursement codes. PainShield is not reimbursed
for therapy in the home setting. When we have sufficient funding, we intend to work to obtain reimbursement in the home setting
as well as codes that would allow for reimbursement for use of the non-disposable and disposable components of the PainShield device.
Our anticipated clinical trials for PainShield would support this effort.



WoundShield and WoundShield Micro Therapy.
We believe that the initial usage of these products will be in the hospital setting. Reimbursement in the hospital setting is governed
by the diagnosis-related group system, which does not require specific reimbursement codes. In parallel to introducing these devices
to hospitals, we intend to apply for reimbursement codes for outpatient use. Although obtaining these codes can take two to five
years and may require extensive clinical data, we believe that the desirable characteristics of these products may serve as an
incentive to insurance companies to grant these codes more quickly.



UroShield and CathBot. We expect
these products to be used in hospital settings and therefore reimbursed under the diagnosis-related group reimbursement system.
In addition, 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 hospital 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.



Research and Development Expenses



During the years ended December 31, 2014
and 2013, we spent approximately $431,000 and $620,000 on research and development activities, respectively.



19







Intellectual Property



Patents



We believe that our patent portfolio provides
us with sufficient protection of our patentable intellectual property. We have six patents in the U.S. and three filed applications.
Granted U.S. Patent No. 7,393,501 (having the following foreign counter-parts: China ZL03818327.7; Israel 165422; Japan 4504183;
India 246351; Australia 2003231892; European Union 1511414 B), “Method, apparatus and system for treating biofilms associated
with catheters” and granted U.S. Patent No. 7,829,029 (having the following foreign counter-parts: China ZL200780019732.3
and European Union 1998834), “Acoustic add-on device for biofilm prevention in urinary catheter,” both relate to the
use of surface acoustic waves to prevent biofilm formation on indwelling catheters. These granted U.S. patents expire on December
19, 2023 and October 27, 2025, respectively. Granted U.S. Patent No. 7,892,191 (having the following foreign counter-parts: Russia
2419395 and Australia 2005331251), “Nanovibration coating process for medical devices using multi vibration modes of a thin
piezo element” and allowed U.S Patent Application No. 11/710,616, “System and method for surface acoustic wave treatment
of medical devices,” relate to methods of generating surface acoustic waves on medical device surfaces on both indwelling
medical devices and implants to prevent biofilm formation. These U.S. patents expire on December 19, 2023 and February 26, 2027,
respectively. U.S. Patent Application No. 11/710,615 (having the following foreign counter-parts: China ZL200780014875.5; applications
in India, European Union, Canada and Israel), “System and method for surface acoustic waves treatment of skin,” relates
to methods of using surface acoustic waves for treatment of skin for the purpose of wound-healing, reducing infection, pain reduction
and cosmetic enhancements. U.S Patent Application No. 13/521,060, “Method for friction reduction in medical tubing and applications
using this method,” relates to the use of acoustic lubrication (complex vibrations) to reduce friction between indwelling
medical devices and vital tissue.



We also license three patents pursuant to
a license agreement with Piezo-Top Ltd and PMG Medica Ltd., U.S. Patent No. 6,454,716 B1, “A system and method for detection
of fetal heartbeat,” and U.S. Patent No. 6,964,640 B2, “A system and method for detection of motion,” which incorporate
certain technology related to biofilm prevention for medical purposes, including biofilm prevention in indwelling catheters, biofilm
prevention in dialysis and respiratory assist devices and control of bacteria in hospital and outpatient environments by biofilm
prevention and the killing of bacteriato. These patents expire on May 23, 2020 and January 22, 2023, respectively. U.S. Patent
No. 7,431,892 B2, “Apparatus for sterilizing a liquid with focused acoustic standing waves,” relates to our original
work introducing multiple modes of power into an ultrasonic transducer for purpose of sterilizing liquids. This patent has been
the genesis of the more practical patents described above. This patent expires on July 29, 2024. See “—License Agreements”
below.



We believe the granted patents, patent applications
and license agreement (described below) collectively cover our existing products to the extent necessary, and may be useful for
protecting our future technology developments. We intend to continue patenting new technology as it is developed, and to actively
pursue any infringement of any of our patents.



To date, we are not aware of other companies
that have patent rights to a system and method for surface acoustic wave treatment.



Trademarks



We believe that our product brand names
are an important factor in establishing and maintaining brand recognition. We have the following trademark registrations in the
U.S.: NanoVibronix®, WoundShield®, PainShield®, UroShield® and “Curing though prevention”®. Generally,
the protection afforded for trademarks is perpetual, if they are renewed on a timely basis, if registered, and continue to be used
properly as trademarks.



License Agreement



In October 2003, we entered into a license
agreement with Piezo-Top Ltd and PMG Medica Ltd, pursuant to which we were granted an exclusive, worldwide license for the duration
of the patent life of U.S. Patent No. 6,454,716 B1, U.S. Patent No. 6,964,640 B2 and U.S. Patent No. 7,431,892 B2 (see “—Patents”
above). In exchange for the license, we paid Piezo-Top Ltd and PMG Medica Ltd payments of (i) $5,000 each after the first round
of investment in us, (ii) $7,500 each after the second round of investment in us, and (iii) $25,000 each after either the third
round of investment, the purchase of at least 40% of our stock or our initial public offering. We have made all three of the required
payments under this agreement.



Government Regulation



U.S. Food and
Drug Administration Regulation



Each of our products must be approved, cleared
by or registered with the U.S. Food and Drug Administration before it is marketed in the U.S. Before and after approval or clearance
in the U.S., our product candidates are subject to extensive regulation by the U.S. Food and Drug Administration under the Federal
Food, Drug, and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. The U.S. Food and Drug
Administration regulations govern, among other things, the development, testing, manufacturing, labeling, safety, storage, record-keeping,
market clearance or approval, advertising and promotion, import and export, marketing and sales, and distribution of medical devices
and pharmaceutical products. PainShield has already obtained 510(k) marketing approval by the U.S. Food and Drug Administration.
WoundShield Micro Therapy and CathBot are Class I devices and will not need a premarket notification application or U.S. Food and
Drug Administration clearance before they can be marketed in the U.S. However, we have listed them with the U.S. Food and Drug
Administration.



20







U.S. Food and
Drug Administration Approval or Clearance of Medical Devices



In the U.S., medical devices are subject
to varying degrees of regulatory control and are classified in one of three classes depending on the extent of controls the U.S.
Food and Drug Administration determines are necessary to reasonably ensure their safety and efficacy:



| | · | Class I: general controls, such as labeling and adherence to quality system regulations;                                                                                                                                                                
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Class II: special controls, pre-market notification (510(k)), specific controls such as performance standards, patient registries and post-market surveillance and additional controls such as labeling and adherence to quality system regulations; and
| | · | Class III: special controls and approval of a pre-market approval, or PMA, application.                                                                                                                                                                 



WoundShield and PainShield are classified
as Class II medical devices and require U.S. Food and Drug Administration authorization prior to marketing, by means of 510(k)
clearance, except for our UroShield product, which we intend to seek clearance from the U.S. Food and Drug Administration through
the de novo classification process, described below. WoundShield Micro Therapy and CathBot are classified as Class I medical devices,
and do not require any additional authorization from the U.S. Food and Drug Administration. However, we have listed them with the
U.S. Food and Drug Administration.



To request marketing authorization by means
of a 510(k) clearance, we must submit a pre-market notification demonstrating that the proposed device is substantially equivalent
to another legally marketed medical device, has the same intended use, and is as safe and effective as a legally marketed device
and does not raise different questions of safety and effectiveness than a legally marketed device. 510(k) submissions generally
include, among other things, a description of the device and its manufacturing, device labeling, medical devices to which the device
is substantially equivalent, safety and biocompatibility information and the results of performance testing. In some cases, a 510(k)
submission must include data from human clinical studies. Marketing may commence only when the U.S. Food and Drug Administration
issues a clearance letter finding substantial equivalence. The typical duration to receive 510(k) approval is approximately nine
months from the date of the initial 510(k) submission, although there is no guaranty that the timing will not be longer.



In the past, the 510(k) pathway for product
marketing required only the proof of significant equivalence in technology for a given indication with a previously cleared device.
Currently, there has been a trend of the U.S. Food and Drug Administration requiring additional clinical work to prove efficacy
in addition to technological equivalence. Thus, no matter which regulatory pathway we may take in the future towards marketing
products in the U.S., we believe we will be required to provide clinical proof of device effectiveness.



After a device receives 510(k) clearance,
any product modification that could significantly affect the safety or effectiveness of the product, or that would constitute a
significant change in intended use, requires a new 510(k) clearance or, if the device would no longer be substantially equivalent,
would require a PMA. If the U.S. Food and Drug Administration determines that the product does not qualify for 510(k) clearance,
then a company must submit and the U.S. Food and Drug Administration must approve a PMA before marketing can begin.



A PMA application must provide a demonstration
of safety and effectiveness, which generally requires extensive pre-clinical and clinical trial data. Information about the device
and its components, device design, manufacturing and labeling, among other information, must also be included in the PMA. As part
of the PMA review, the U.S. Food and Drug Administration will inspect the manufacturer’s facilities for compliance with quality
system regulation requirements, which govern testing, control, documentation and other aspects of quality assurance with respect
to manufacturing. If the U.S. Food and Drug Administration determines the application or manufacturing facilities are not acceptable,
the U.S. Food and Drug Administration may outline the deficiencies in the submission and often will request additional testing
or information. Notwithstanding the submission of any requested additional information, the U.S. Food and Drug Administration ultimately
may decide that the application does not satisfy the regulatory criteria for approval. During the review period, a U.S. Food and
Drug Administration advisory committee, typically a panel of clinicians and statisticians, is likely to be convened to review the
application and recommend to the U.S. Food and Drug Administration whether, or upon what conditions, the device should be approved.
The U.S. Food and Drug Administration is not bound by the advisory panel decision. While the U.S. Food and Drug Administration
often follows the panel’s recommendation, there have been instances where the U.S. Food and Drug Administration has not.
If the U.S. Food and Drug Administration finds the information satisfactory, it will approve the PMA. The PMA approval can include
post-approval conditions, including, among other things, restrictions on labeling, promotion, sale and distribution, or requirements
to do additional clinical studies post-approval. Even after approval of a PMA, a new PMA or PMA supplement is required to authorize
certain modifications to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission
of the same type of information required for an original PMA, except that the supplement is generally limited to that information
needed to support the proposed change from the product covered by the original PMA. The typical duration to receive PMA approval
is approximately two years from the date of submission of the initial PMA application, although there is no guaranty that the timing
will not be longer.



21







As describe above, we anticipate that our
UroShield product will receive, a de novo review from the U.S. Food and Drug Administration. De novo is a two-step process that
requires a company to submit a 510(k) and complete a standard review, including an analysis of the risk to the patient and operator
associated with the use of the device and the substantial equivalence rationale. Once that has been accomplished, and the medical
device in question has been determined to be not substantially equivalent to another approved device, the product is automatically
classified as a Class III device. The manufacturer can then submit a request for an evaluation to have the product reclassified
from Class III into Class I or Class II. The U.S. Food and Drug Administration will review the device classification proposal and
either recommend special controls to create a new Class I or II device classification or determine that the product is a Class
III device. If the U.S. Food and Drug Administration determines that the level of risk associated with the use of the device is
appropriate for a Class II or Class I designation, then the product can be cleared as a 510(k) and the U.S. Food and Drug Administration
will issue a new classification regulation and product code. If the device is not approved through de novo review, then it must
go through the standard PMA process for Class III devices.



Clinical Trials
of Medical Devices



One or more clinical trials are generally
required to support a PMA application and more recently are becoming necessary to support a 510(k) submission. Clinical studies
of unapproved or uncleared medical devices or devices being studied for uses for which they are not approved or cleared (investigational
devices) must be conducted in compliance with U.S. Food and Drug Administration requirements. If an investigational device could
pose a significant risk to patients, the sponsor company must submit an investigational device exemption application to the U.S.
Food and Drug Administration prior to initiation of the clinical study. An investigational device exemption application must be
supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device on humans
and that the testing protocol is scientifically sound. The investigational device exemption will automatically become effective
30 days after receipt by the U.S. Food and Drug Administration unless the U.S. Food and Drug Administration notifies the company
that the investigation may not begin. Clinical studies of investigational devices may not begin until an institutional review board
has approved the study.



During the study, the sponsor must comply
with the U.S. Food and Drug Administration’s investigational device exemption requirements. These requirements include investigator
selection, trial monitoring, adverse event reporting, and record keeping. The investigators must obtain patient informed consent,
rigorously follow the investigational plan and study protocol, control the disposition of investigational devices, and comply with
reporting and record keeping requirements. The sponsor, the U.S. Food and Drug Administration, or the institutional review board
at each institution at which a clinical trial is being conducted may suspend a clinical trial at any time for various reasons,
including a belief that the subjects are being exposed to an unacceptable risk. During the approval or clearance process, the U.S.
Food and Drug Administration typically inspects the records relating to the conduct of one or more investigational sites participating
in the study supporting the application.



Post-Approval
Regulation of Medical Devices



After a device is cleared or approved for
marketing, numerous and pervasive regulatory requirements continue to apply. These include:



| | · | the U.S. Food and Drug Administration quality systems regulation, which governs, among other things, how manufacturers design, test, manufacture, exercise quality control over, and document manufacturing of their products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                               
| | · | labeling and claims regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; and                                                                   
| |   |                                                                                                                                                                                                                               
| | · | the Medical Device Reporting regulation, which requires reporting to the U.S. Food and Drug Administration of certain adverse experiences associated with use of the product.                                                 



22







Good Manufacturing
Practices Requirements



Manufacturers of medical devices are required
to comply with the good manufacturing practices set forth in the quality system regulations promulgated under section 520 of the
Food, Drug and Cosmetic Act. Current good manufacturing practices regulations require, among other things, quality control and
quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facility for an approved
product must meet current good manufacturing practices requirements to the satisfaction of the U.S. Food and Drug Administration
pursuant to a pre-PMA approval inspection before the facility can be used. Manufacturers, including third party contract manufacturers,
are also subject to periodic inspections by the U.S. Food and Drug Administration and other authorities to assess compliance with
applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal
or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions
on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported
to the U.S. Food and Drug Administration and could result in the imposition of marketing restrictions through labeling changes
or in product withdrawal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur following the approval.



International
Regulation



We are subject to regulations and product
registration requirements in many foreign countries in which we may sell our products, including in the areas of product standards,
packaging requirements, labeling requirements, import and export restrictions and tariff regulations, duties and tax requirements.
The time required to obtain clearance required by foreign countries may be longer or shorter than that required for U.S. Food and
Drug Administration clearance, and requirements for licensing a product in a foreign country may differ significantly from U.S.
Food and Drug Administration requirements.



The primary regulatory environment in Europe
is the European Union, which consists of 25 member states and 42 competent authorities encompassing most of the major countries
in Europe. In the European Union, the European Medicines Agency and the European Union Commission determined that WoundShield,
PainShield and UroShield are to be regulated as medical device products. These products are classified as Class II devices. These
devices are CE Marked and as such can be marketed and distributed within the European Economic Area. We are required to be recertified
each year for CE by Intertek, which conducts an annual audit. The audit procedure, which includes on-site visits at our facility,
requires us to provide Intertek with information and documentation concerning our management system and all applicable documents,
policies, procedures, manuals, and other information.



The primary regulatory bodies and paths
in Asia, Australia, Canada and Latin America are determined by the requisite country authority. In most cases, establishment registration
and device licensing are applied for at the applicable Ministry of Health through a local intermediary. The requirements placed
on the manufacturer are typically the same as those contained in ISO 9001 or ISO 13485, requirements for quality management systems
published by the International Organization of Standardization. In some countries outside Europe, we are or will be able to sell
on the basis of our CE Mark. We have a Canadian medical device license for PainShield, a certificate 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, and our distributor in Chile has applied for approval to sell PainShield. 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.



23







U.S. Anti-Kickback
and False Claims Laws



In the U.S., there are federal and state
anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase
or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including
exclusion from participation in federal healthcare programs. These laws are potentially applicable to manufacturers of products
regulated by the U.S. Food and Drug Administration as medical devices, such as us, and hospitals, physicians and other potential
purchasers of such products. Other provisions of federal and state laws provide civil and criminal penalties for 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, certain states have implemented regulations requiring medical device and
pharmaceutical companies to report all gifts and payments over $50 to medical practitioners. This requirement does not apply to
instances involving clinical trials.



Customers



We initially sell our products both through
our website and distribution agreements, though a majority of our sales are currently through distributors. We currently have exclusive
distribution agreements for our products with medical product distributors based in the U.S. (for PainShield for abdominal and
pelvic pain since 2012, Italy (since 2013), India (since 2012), United Kingdom (since 2010) and Israel (since 2012).



We are currently in discussions with a number
of distribution companies in Europe, Asia, and Latin America. Current and future agreements with distributors stipulate that, while
we are responsible for training, providing marketing guidance, marketing materials, and technical guidance, distributors will be
responsible for carrying out local marketing activities and sales. In addition, in most cases, all sales costs, including sales
representatives, incentive programs, and marketing trials, will be borne by the distributor. Under 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.



Manufacturing and Suppliers



We assemble our own products at our facilities
in Nesher, Israel. All of the component parts of our products are readily available from a number of manufacturers and suppliers.
We order component parts on an as-needed basis, generally from the manufacturer that provides us with the most competitive pricing.
Our most significant suppliers are APC International, Ltd., Rotel Product Engineering Ltd. and Amit Industries L.T.D (AmiCell).
We do not have written agreements with any of these suppliers, but we believe any one could be easily replaced if necessary.



Employees



As of March 25, 2015, we had seven full-time
employees and four part-time employees. Our employees are not party to any collective bargaining agreements. We consider our relations
with our employees to be good. We believe that our future success will depend, in part, on our continued ability to attract, hire
and retain qualified personnel.



ITEM 1A.  RISK FACTORS



Investing in our securities involves a high degree of risk.
You should carefully consider the following risk factors and all other information contained in this Annual Report on Form 10-K,
including the consolidated financial statements and the related notes, before purchasing our securities. If any of the following
risks actually occur, they may materially harm our business and our financial condition and results of operations. In any such
event, the market price of our securities could decline and you could lose all or part of your investment.



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, 2014,
we had a net loss of $2,647,000, with revenues of $203,000. As of December 31, 2014, we had an accumulated deficit of $16,850,000
and a total stockholders’ deficit of $5,616,000. We expect to incur losses for at least the next year, as we continue to
incur expenses related to seeking U.S. Food and Drug Administration approval for WoundShield and seek market acceptance of PainShield,
which will require costly 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 sustained profitability or be able to maintain profitability.



24







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. We will seek to obtain additional funds in the future through equity or debt financings,
or strategic alliances with third parties, either alone or in combination with equity financings. These financings could result
in substantial dilution to the holders of our common stock, or require contractual or other restrictions on our operations or on
alternatives that may be available to us. If we raise additional funds by issuing debt securities, these debt securities could
impose significant restrictions on our operations through the imposition of restrictive covenants and requiring us to pledge assets
in order to secure repayment. In addition, if we raise funds through the sale of equity, we may issue equity securities with rights
superior to our common stock, including voting rights, rights to proceeds upon our liquidation or sale, rights to dividends and
rights to appoint board members. Any such required financing may not be available in amounts or on terms acceptable to us, and
the failure to procure such required financing could have a material adverse effect on our business, financial condition and results
of operations, or threaten our ability to continue as a going concern.



A variety of factors could impact the timing
and amount of any required financings, including, without limitation:



| | · | unforeseen developments during our clinical trials;                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------
| | · | delays in our receipt of required regulatory approvals;                                                                    
| | · | delayed market acceptance of our products;                                                                                 
| | · | unanticipated expenditures in our acquisition and defense of intellectual property rights, and/or the loss of those rights;
| | · | the failure to develop strategic alliances for the marketing of some of our product candidates;                            
| | · | unforeseen changes in healthcare reimbursement for any of our approved products;                                           
| | · | lack of financial resources to adequately support our operations;                                                          
| | · | difficulties in maintaining commercial scale manufacturing capacity and capability;                                        
| | · | unanticipated difficulties in operating in international markets;                                                          
| | · | unanticipated financial resources needed to respond to technological changes and increased competition;                    
| | · | unforeseen problems in attracting and retaining qualified personnel;                                                       
| | · | enactment of new legislation or administrative regulations;                                                                
| | · | the application to our business of new regulatory interpretations;                                                         
| | · | claims that might be brought in excess of our insurance coverage;                                                          
| | · | the failure to comply with regulatory guidelines; and                                                                      
| | · | the uncertainty in industry demand.                                                                                        



In addition, although we have no present
commitments or understandings to do so, we may seek to expand our operations and product line through acquisitions or joint ventures.
Any acquisition or joint venture would likely increase our capital requirements.



If we fail to obtain an adequate level of reimbursement
for our approved products by third party payers, there may be no commercially viable markets for our approved products or the markets
may be much smaller than expected.



The availability and levels of reimbursement
by governmental and other third party payers affect the market for our approved products. The efficacy, safety, performance and
cost-effectiveness of our product and product candidates, and of any competing products, will determine the availability and level
of reimbursement. Reimbursement and healthcare payment systems vary significantly by country, and include both government sponsored
healthcare and private insurance. To obtain reimbursement or pricing approval in some countries, we may be required to produce
clinical data, which may involve one or more clinical trials, that compares the cost-effectiveness of our approved products to
other available therapies. We may not obtain reimbursement or pricing approvals in markets we seek to enter in a timely manner,
if at all. Our failure to receive reimbursement or pricing approvals in target markets would negatively impact market acceptance
of our products in these jurisdictions, placing us at a material cost disadvantage to our competitors.



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 U.S. 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.



25







In the U.S., 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, foreign 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 entitlement 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. We may be unable to sell our products on a profitable basis if third-party payers deny
coverage, provide low reimbursement rates or reduce their current levels of reimbursement.



The medical device and therapeutic product industries
are highly competitive and subject to rapid technological change. If our competitors are better able to develop and market products
that are safer and more effective than any products we may develop, our commercial opportunities will be reduced or eliminated.



Our success depends, in part, upon our ability
to maintain a competitive position in the development of technologies and products. We face competition from established medical
device companies, such as Misonix Inc., Celleration Inc., Kinetic Concepts, Inc. and Smith & Nephew plc, manufacturers of certain
portable ultrasound devices capable of self-administered use, as well as from academic institutions, government agencies, and private
and public research institutions in the U.S. and abroad. Most, if not all, of our principal competitors have significantly greater
financial resources and expertise than we do in research and development, manufacturing, pre-clinical testing, conducting clinical
trials, obtaining regulatory approvals, marketing approved products, protecting and defending their intellectual property rights
and designing around the intellectual property rights of others. Other small or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements, or mergers with, or acquisitions by, large and established companies,
or through the development of novel products and technologies.



The industry in which we operate has undergone,
and we expect it to continue to undergo, rapid and significant technological change, and we expect competition to intensify as
technological advances are made. Our competitors may be able to respond to changes in technology or the marketplace faster than
us. Our competitors may develop and commercialize medical devices that are safer or more effective or are less expensive than any
products that we may develop. We also compete with our competitors in recruiting and retaining qualified scientific and management
personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring technologies complementary
to our programs or advantageous to our business. Given our small size and lack of resources, we are often at a disadvantage with
our competitors in all of these areas, which could limit or eliminate our commercial opportunities.



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 or our collaborators’ products and do not have sufficient insurance coverage, our liability
could exceed our total assets and our ability to pay the liability. A product liability claim or series of claims brought against
us would decrease our cash and could reduce our value or marketability.



Our product candidates may not be developed or commercialized
successfully.



Our product candidates are based on a technology
that has not been used previously in the manner we propose and must compete with more established treatments currently accepted
as the standards of care. Market acceptance of our products will largely depend on our ability to demonstrate their relative safety,
efficacy, cost-effectiveness and ease of use.



We are subject to the risks that:



| | · | the U.S. Food and Drug Administration or a foreign regulatory authority finds our product candidates ineffective or unsafe;                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | we do not receive necessary regulatory approvals;                                                                                                                                   
| | · | the regulatory review and approval process may take much longer than anticipated, requiring additional time, effort and expense to respond to regulatory comments and/or directives;



26







| | · | we are unable to get our product candidates in commercial quantities at reasonable costs; and
| | - | ---------------------------------------------------------------------------------------------
| | · | the patient and physician community does not accept our product candidates.                  



In addition, our product development program
may be curtailed, redirected, eliminated or delayed at any time for many reasons, including:



| | · | adverse or ambiguous results;                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| | · | undesirable side effects that delay or extend the trials;                                                                         
| | · | the inability to locate, recruit, qualify and retain a sufficient number of clinical investigators or patients for our trials; and
| | · | regulatory delays or other regulatory actions.                                                                                    



Additionally, we currently have limited
experience in marketing or selling our products, and we have a limited marketing and sales staff and distribution capabilities.
Developing a marketing and sales force is time-consuming and will involve the investment of significant amounts of financial and
management resources, and could delay the launch of new products or expansion of existing product sales. In addition, we compete
with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful
marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to generate
revenues will suffer.



Furthermore, even if we enter into marketing
and distributing arrangements with third parties, we may have limited or no control over the sales, marketing and distribution
activities of these third parties, and these third parties may not be successful or effective in selling and marketing our products.
If we fail to create successful and effective marketing and distribution channels, our ability to generate revenue and achieve
our anticipated growth could be adversely affected. If these distributors experience financial or other difficulties, sales of
our products could be reduced, and our business, financial condition and results of operations could be harmed.



We cannot predict whether we will successfully
develop and commercialize our product candidates. If we fail to do so, we will not be able to generate substantial revenues, if
any.



The loss of our key management would likely hinder our
ability to execute our business plan.



As a small company with seven full-time
employees and four part-time employees, our success depends on the continuing contributions of our management team and qualified
personnel and on our ability to attract and retain highly qualified personnel. We face intense competition in our hiring efforts
from other medical device companies, as well as from universities and nonprofit research organizations, and we may have to pay
higher salaries to attract and retain qualified personnel. We are also at a disadvantage in recruiting and retaining key personnel
as our small size and limited resources may be viewed as providing a less stable environment, with fewer opportunities than would
be the case at one of our larger competitors. The loss of one or more of these individuals, or our inability to attract additional
qualified personnel, could substantially impair our ability to implement our business plan.



Our failure to protect our intellectual property rights
could diminish the value of our solutions, weaken our competitive position and reduce our revenue.



We regard the protection of our intellectual
property, which includes patents and patent applications, trade secrets, trademarks and domain names, as critical to our success.
We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual
restrictions. We enter into confidentiality and invention assignment agreements with our employees, consultants and contractors,
and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of,
our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual
property may not prevent the misappropriation of our proprietary information or deter independent development of similar technologies
by others.



We have obtained patents and we have patent
applications pending in both the U.S. and foreign jurisdictions. There can be no assurance that our patent applications will be
approved, that any patents issued will adequately protect our intellectual property, or that these patents will not be challenged
by third parties or found to be invalid or unenforceable. We have also obtained trademark registration in the U.S. 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.



27







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 U.S. and elsewhere change rapidly, and any future changes could adversely
affect us and our intellectual property. Our failure to meaningfully protect our intellectual property could result in competitors
offering solutions that incorporate our most technologically advanced features, which could seriously reduce demand for our products.
In addition, we may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or
a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which
could harm our business, whether or not the litigation results in a determination that is unfavorable to us. In addition, litigation
is inherently uncertain, and thus we may not be able to stop our competitors from infringing our intellectual property rights.



We could incur substantial costs and disruption to our
business as a result of any 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 U.S. 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. 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 claims, 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.



We could be subject to litigation related to our terminated
license agreement for NanoVibronix NPWT.



We licensed the technology that was the
basis of our negative wound pressure pump, NanoVibronix NPWT. Under the license agreement, we had the exclusive license to manufacture,
market, sell, lease and distribute the technology within the U.S. until June 29, 2014, after which date, the license agreement
terminated and we ceased selling this product. Following such termination, the licensor sent us a letter requesting a payment of
approximately $75,000 under the license agreement. We responded disputing that any further payment is due. Although we do not believe
we owe any further payment, there can be no guarantee that the licensor will not take further actions in this matter, including
initiating litigation against us, nor any guaranty as to the ultimate outcome of such actions. Even if this matter does not result
in litigation or is resolved in our favor, the time and resources necessary to resolve this dispute could harm our business, operating
results, financial condition and reputation.



Risks Related to the Regulation of Our
Products



We are subject to extensive governmental regulation, including
the requirement of U.S. Food and Drug Administration approval or clearance, before our product candidates may be marketed.



The process of obtaining U.S. Food and Drug
Administration approval is lengthy, expensive and uncertain, and we cannot be sure that our product candidates will be approved
in a timely fashion, or at all. If the U.S. Food and Drug Administration does not approve or clear our product candidates in a
timely fashion, or at all, our business and financial condition would likely be adversely affected.



Both before and after approval or clearance
of our product candidates, we, our product candidates, our suppliers and our contract manufacturers are subject to extensive regulation
by governmental authorities in the U.S. and other countries. Failure to comply with applicable requirements could result in, among
other things, any of the following actions:



28







| | · | warning letters;                                                                                                                                         
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | fines and other monetary penalties;                                                                                                                      
| | · | unanticipated expenditures;                                                                                                                              
| | · | delays in U.S. Food and Drug Administration approval and clearance, or U.S. Food and Drug Administration refusal to approve or clear a product candidate;
| | · | product recall or seizure;                                                                                                                               
| | · | interruption of manufacturing or clinical trials;                                                                                                        
| | · | operating restrictions;                                                                                                                                  
| | · | injunctions; and                                                                                                                                         
| | · | 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;                                                                                                                   
| | - | ---------------------------------------------------------------------------------------------------------------------------
| | · | manufacturing;                                                                                                             
| | · | quality control;                                                                                                           
| | · | labeling;                                                                                                                  
| | · | advertising;                                                                                                               
| | · | promotion;                                                                                                                 
| | · | distribution;                                                                                                              
| | · | export;                                                                                                                    
| | · | reporting to the U.S. Food and Drug Administration certain adverse experiences associated with the use of the products; and
| | · | obtaining additional approvals or clearances for certain modifications to the products or their labeling or claims.        



We are also subject to inspection by the
U.S. Food and Drug Administration to determine our compliance with regulatory requirements, as are our suppliers and contract manufacturers,
and we cannot be sure that the U.S. Food and Drug Administration will not identify compliance issues that may disrupt production
or distribution, or require substantial resources to correct.



The U.S. Food and Drug Administration’s
requirements may change and additional government regulations may be promulgated that could affect us, our product candidates,
and our suppliers and contract manufacturers. We cannot predict the likelihood, nature or extent of government regulation that
may arise from future legislation or administrative action. There can be no assurance that we will not be required to incur significant
costs to comply with such laws and regulations in the future, or that such laws or regulations will not have a material adverse
effect upon our business.



Failure to obtain regulatory approval in foreign jurisdictions
will prevent us from marketing our products abroad.



International sales of our products and
any of our product candidates that we commercialize are subject to the regulatory requirements of each country in which the products
are sold. Accordingly, the introduction of our product candidates in markets outside the U.S. where we do not already possess regulatory
approval will be subject to regulatory approvals in those jurisdictions. The regulatory review process varies from country to country.
Many countries impose product standards, packaging and labeling requirements, and import restrictions on medical devices. In addition,
each country has its own tariff regulations, duties and tax requirements, as well as reimbursement and healthcare payment systems.
The approval by foreign government authorities is unpredictable and uncertain, and can be expensive. We may be required to perform
additional pre-clinical, clinical or post-approval studies even if U.S. Food and Drug Administration approval has been obtained.
Our ability to market our approved products could be substantially limited due to delays in receipt of, or failure to receive,
the necessary approvals or clearances.



We are uncertain regarding the success of our clinical
trials for our products in development.



We believe that all of our products in development
will require clinical trials to determine their safety and efficacy by regulatory bodies in their target markets, including the
U.S. Food and Drug Administration and various foreign regulators. There can be no assurance that we will be able to successfully
complete the U.S. and foreign regulatory approval processes for products in development. In addition, there can be no assurance
that we will not encounter additional problems that will cause us to delay, suspend or terminate our clinical trials. In addition,
we cannot make any assurance that clinical trials will be deemed sufficient in size and scope to satisfy regulatory approval requirements,
or, if completed, will ultimately demonstrate our products to be safe and efficacious.



29







The adoption of healthcare reform in the U.S. may adversely
affect our business and financial results.



On March 23, 2010, President Obama signed
into law major healthcare reform legislation under the Patient Protection and Affordable Care Act of 2010, or the PPACA, which
was modified on March 30, 2010 by the enactment of the Health Care and Education Reconciliation Act of 2010. Under the PPACA, it
is expected that expanded healthcare coverage will be made available to an additional 30 million Americans. The increased costs
to the U.S. government from the PPACA are expected to be funded through a combination of payment reductions for providers over
time and several new taxes. The PPACA imposes, among other things, an annual excise tax of 2.3% on any entity that manufactures
or imports medical devices offered for sale in the U.S. beginning in 2013, resulting in an anticipated cost to the medical device
industry of up to $20 billion over the next decade. We believe that we will be exempt from this excise tax with respect to PainShield
under the exemption for devices of a “type which is generally purchased by the general public at retail for individual use.”
We will also need to assess whether we are subject to it with respect to other products when they are approved for sale in the
U.S. The PPACA also provides for the establishment of an Independent Medicare Advisory Board that could recommend changes in payment
for physicians under certain circumstances beginning in 2014. In addition, the PPACA authorizes certain voluntary demonstration
projects beginning no later than 2013 around development of bundling payments for acute, inpatient hospital services, physician
services, and post acute services for episodes of hospital care. The PPACA increases fraud and abuse penalties and expands the
scope and reach of the Federal Civil False Claims Act and government enforcement tools, which may adversely impact healthcare companies.



The U.S. Supreme Court heard a constitutional
challenge to the PPACA and in June 2012 held that the PPACA is constitutional. However, states are allowed to opt out of the expansion
of eligibility criteria for Medicaid under the PPACA. In addition to the PPACA, the effect of which cannot presently be quantified
given its recent enactment, various healthcare reform proposals have also emerged at the state level. We cannot predict whether
future healthcare initiatives will be implemented at the federal or state level or the effect any future legislation or regulation
will have on us. However, we anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and an additional downward pressure on the price that we receive for any
approved product, and could adversely affect our business. Any reduction in reimbursement from Medicare or other government programs
may result in a similar reduction in payments from private payors. Insurers may also refuse to provide any coverage of uses of
approved products for medical indications other than those for which the U.S. Food and Drug Administration has granted market approvals,
all of which may adversely affect our business, financial condition and results of operations, possibly materially.



If we fail to comply with the U.S. federal Anti-Kickback
Statute and similar state laws, 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.



A provision of the Social Security Act,
commonly referred to as the federal Anti-Kickback Statute, 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 healthcare program. The federal Anti-Kickback
Statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case
law or regulations. In addition, most of the states have adopted laws similar to the federal Anti-Kickback Statute, and some of
these laws are even broader than the federal Anti-Kickback Statute in that their prohibitions are not limited to items or services
paid for by federal healthcare programs, but instead apply regardless of the source of payment. Violations of the federal Anti-Kickback
Statute may result in substantial civil or criminal penalties and exclusion from participation in federal healthcare programs.



All of our financial relationships with
healthcare providers and others who provide products or services to federal healthcare program beneficiaries are potentially governed
by the federal Anti-Kickback Statute and similar state laws. We believe our operations are in compliance with the federal Anti-Kickback
Statute and similar state laws. However, we cannot be certain that we will not be subject to investigations or litigation alleging
violations of these laws, which could be time-consuming and costly to us and could divert management’s attention from operating
our business, which in turn could have a material adverse effect on our business. In addition, if our arrangements were found to
violate the federal Anti-Kickback Statute or similar state laws, the consequences of such violations would likely have a material
adverse effect on our business, results of operations and financial condition.



30







Risks Related to Our Organization and
Our Securities



We are currently controlled by our executive officers,
directors and principal stockholders, and our executive officers, directors and principal stockholders have significant influence
regarding all matters submitted to our stockholders for approval.



As of March 25, 2015, our directors, executive
officers and 5% or greater stockholders beneficially owned approximately 57% of our voting capital stock, assuming the conversion
of all outstanding shares of our convertible preferred stock (other than our series C preferred stock) and all outstanding convertible
indebtedness, including accrued interest, which will occur automatically upon the effectiveness of our Form 10, which we anticipate
will occur on April 10, 2015, and assuming a March 25, 2015 conversion date. As a result, if these stockholders were to choose
to act together, they would be able to exercise significant influence with respect to all matters submitted to our stockholders
for approval, as well as our management and affairs. For example, these persons, if they choose to act together, will exercise
significant influence with respect to the election of directors and approval of any merger, consolidation, sale of all or substantially
all of our assets or other business combination or reorganization. This concentration of voting power could delay or prevent an
acquisition of us on terms that other stockholders may desire. The interests of this group of stockholders may not always coincide
with your interests or the interests of other stockholders, and they may act in a manner that advances their best interests and
not necessarily those of other stockholders, and might affect the prevailing market price for our securities.



The price of our securities may be volatile, and the market
price of our securities may drop below the price you pay.



There is currently no active market for
our securities. Even if such a market develops and continues, the price of such securities nevertheless may be volatile. Market
prices for securities of early-stage medical device companies have historically been particularly volatile. The factors that may
cause the market price of our securities to fluctuate include, but are not limited to:



| | · | 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 “Item 1A. Risk Factors”; and                                                         
| | · | general market and economic conditions.                                                                                                                    



In addition, the equity markets have experienced
significant price and volume fluctuations that have affected the market prices for the securities of newly public companies for
a number of reasons, including reasons that may be unrelated to our business or operating performance. These broad market fluctuations
may result in a material decline in the market price of our securities and you may not be able to sell your common stock at prices
you deem acceptable. In the past, following periods of volatility in the equity markets, securities class action lawsuits have
been instituted against public companies. Such litigation, if instituted against us, could result in substantial cost and the diversion
of management attention.



Future sales of our common stock, 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 options and 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, option holders and warrant holders 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.



31







An active trading market may not develop for our securities.



There is no established trading market for
our securities, and the market for our securities may be highly volatile or may decline regardless of our operating performance.
An active public market for our securities may not develop or be sustained. We cannot predict the extent to which investor interest
in our company will lead to the development of an active trading market in our common stock or how liquid that market might become.
If a market does not develop or is not sustained, it may be difficult for you to sell your securities at the time you wish to sell
them, at a price that is attractive to you, or at all.



We will incur significant increased costs as a result
of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.



As a public company, we will incur significant
legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules
subsequently implemented by the Securities and Exchange Commission and The Nasdaq Stock Market, have imposed various requirements
on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes
in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these
new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will
make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more expensive
for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same
or similar coverage.



We are obligated to develop and maintain proper and effective
internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting
in a timely manner, or these internal controls may have one or more material weaknesses, which may adversely affect investor confidence
in our company and, as a result, the value of our common stock.



Ensuring that we have adequate internal
financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis
is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires
public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of
internal controls by independent auditors. We would be required to perform the annual review and evaluation of our internal controls
no later than in connection with our second annual report on Form 10-K filing. However, we initially expect to qualify as a smaller
reporting company and as an emerging growth company, and thus, we would be exempt from the auditors’ attestation requirement
until such time as we no longer qualify as a smaller reporting company and an emerging growth company. We would no longer qualify
as a smaller reporting company if the market value of our public float exceeded $75 million as of the last day of our second fiscal
quarter in any fiscal year. We would no longer qualify as an emerging growth company at such time as described in the risk factor
immediately below.



We are in the early stages of the costly
and challenging process of compiling the system and processing documentation necessary to evaluate and correct a material weakness
in internal controls needed to comply with Section 404. The material weakness relates to our being a small company with a limited
number of employees which limits our ability to assert the controls related to the segregation of duties. During the evaluation
and testing process, if we identify one or more additional material weaknesses in our internal control over financial reporting,
we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over
financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports,
which would cause the price of our common stock to decline.



While we currently qualify as an “emerging growth
company” under the Jumpstart of Business Startups Act of 2012, or the JOBS Act, we could lose that status, which may increase
the costs and demands placed upon our management.



We will continue to be deemed an emerging
growth company until the earliest of (i) the last day of the fiscal year during which we had total annual gross revenues of $1
billion (as indexed for inflation); (ii) 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; (iii) the date on which we have, during
the previous 3-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be
a ‘large accelerated filer,’ as defined by the Securities and Exchange Commission, which would generally occur upon
our attaining a public float of at least $700 million. Once we lose emerging growth company status, we expect the costs and demands
placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements, particularly
if we would also no longer qualify as a smaller reporting company.



We are an “emerging growth company” and we
cannot be certain that the reduced disclosure requirements applicable to emerging growth companies will make our common stock less
attractive to investors.



The JOBS Act permits “emerging growth
companies” like us to rely on some of the reduced disclosure requirements that are already available to smaller reporting
companies. As long as we qualify as an emerging growth company or a smaller reporting company, we would be permitted to omit the
auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley
Act, as described above and are also exempt from the requirement to submit “say-on-pay”, “say-on-pay frequency”
and “say-on-parachute” votes to our stockholders and may avail ourselves of reduced executive compensation disclosure
that is already available to smaller reporting companies.



32







In addition, Section 107 of the JOBS Act
also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting
standards provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, as long as we are an emerging growth company.
An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this until we are no longer an emerging growth
company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.



We will cease to be an emerging growth company
at such time as described in the risk factor immediately above. Until such time, however, we cannot predict if investors will find
our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could
cause our stock price to decline.



Anti-takeover provisions of our certificate of incorporation,
our bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may
prevent attempts by our stockholders to replace or remove the current members of our board and management.



Certain provisions of our amended and restated
certificate of incorporation and bylaws that will be in effect upon the effectiveness of our Form 10, which we anticipate will
occur on April 10, 2015, could discourage, delay or prevent a merger, acquisition or other change of control that stockholders
may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore, these
provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors. These
provisions also could limit the price that investors might be willing to pay in the future for our securities, thereby depressing
the market price of our securities. Stockholders who wish to participate in these transactions may not have the opportunity to
do so. These provisions, among other things:



| | · | allow the authorized number of directors to be changed only by resolution of our board of directors;                                                                                                                                                                                                                                                                    
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | authorize our board of directors to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
| | · | establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings; and                                                                                                                                                                                              
| | · | limit who may call a stockholder meeting.                                                                                                                                                                                                                                                                                                                               



In addition, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law that may, unless certain criteria are met, prohibit large stockholders,
in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed
period of time.



If securities or industry analysts do not publish research
or reports or publish unfavorable research about our business, the price of our securities and their trading volume could decline.



The trading market for our securities will
depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently
have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence
coverage of us the trading price for our securities would be negatively affected. In the event we obtain securities or industry
analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely
decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase
of our securities could decrease, which could cause the price of our securities and their trading volume to decline.



33







We may be subject to ongoing restrictions related to grants
from the Israeli Office of the Chief Scientist.



Through our Israeli subsidiary, we received
grants of $436,815 from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, or the Office of
the Chief Scientist, for research and development programs related to products that we are not currently commercializing or marketing.
Because we are no longer developing the product to which the grants relate, we do not believe that we are subject to any material
conditions with respect to the grants, except for the restrictions on our ability to make certain transfers of the technology or
intellectual property related to these grants described below. We could in the future determine to apply for further grants. If
we receive any such grants, we would have to comply with specified conditions, including paying royalties with respect to grants
received. If we fail to comply with these conditions in the future, sanctions might be imposed on us, such as grants could be cancelled
and we could be required to refund any payments previously received under these programs.



Pursuant to the Israeli Encouragement of
Industrial Research and Development Law, any products developed with grants from the Office of the Chief Scientist are required
to be manufactured in Israel and certain payments may be required in connection with the change of control of the grant recipient
and the financing, mortgaging, production, exportation, licensing and transfer or sale of its technology and intellectual property
to third parties, which will require the Office of the Chief Scientist’s prior consent and, in case such a third party is
outside of Israel, extended royalties and/or other fees. This could have a material adverse effect on and significant cash flow
consequences to us if, and when, any technologies, intellectual property or manufacturing rights are exported, transferred or licensed
to third parties outside Israel. If the Office of the Chief Scientist does not wish to give its consent in any required situation
or transaction, we would need to negotiate a resolution with the Office of the Chief Scientist. In any event, such a transaction,
assuming it was approved by the Office of the Chief Scientist, would involve monetary payments, such as royalties or fees, of not
less than the applicable funding received from the Office of the Chief Scientist plus interest, not to exceed, in aggregate, six
times the applicable funding received from the Office of the Chief Scientist.



Because we do not expect to pay cash dividends for the
foreseeable future, you must rely on appreciation of our common stock price for any return on your investment. Even if we change
that policy, we may be restricted from paying dividends on our common stock.



We do not intend to pay cash dividends on
shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion
of our board of directors and will depend upon results of operations, financial performance, contractual restrictions, restrictions
imposed by applicable law and other factors our board of directors deems relevant. Accordingly, you will have to rely on capital
appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.



Our ability to use our net operating loss carry forwards
and certain other tax attributes may be limited.



Our ability to utilize our federal net operating
loss, carryforwards and federal tax credit may be limited under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended.
The limitations apply if an “ownership change,” as defined by Section 382, occurs. Generally, an ownership change occurs
if the percentage of the value of the stock that is owned by one or more direct or indirect “five percent shareholders”
increases by more than 50% over their lowest ownership percentage at any time during the applicable testing period (typically three
years). If we have experienced an “ownership change” at any time since our formation, we may already be subject to
limitations on our ability to utilize our existing net operating losses and other tax attributes to offset taxable income. In addition,
future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change” and,
consequently, Section 382 and 383 limitations. As a result, if we earn net taxable income, our ability to use our pre-change net
operating loss carryforwards and other tax attributes to offset U.S. federal taxable income may be subject to limitations, which
could potentially result in increased future tax liability to us.



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 are located in Israel
and most of our officers, employees and directors are residents of Israel. Accordingly, political, economic and military conditions
in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948,
a number of armed conflicts have taken place between Israel and its Arab neighbors. Any hostilities involving Israel or the interruption
or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results
of operations and could make it more difficult for us to raise capital. During the winter of 2012, Israel was engaged in an armed
conflict with Hamas, a militia group and political party operating in the Gaza Strip. This conflict involved missile strikes against
civilian targets in various parts of Israel and negatively affected business conditions in Israel. Recent political uprisings and
civil resistance demonstrations in various countries in the Middle East, including Egypt and Syria, are affecting the political
stability of those countries. It is not clear how this instability, or the Arab Spring in general, will develop and how it will
affect the political and security situation in the Middle East. This instability may lead to deterioration of the political relationships
that exist between Israel and these countries, and have raised concerns regarding security in the region and the potential for
armed conflict. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping
up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region,
such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel and Iran and/or these groups may escalate in the future
and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist activities
or political instability in the region could adversely affect business conditions and could harm our results of operations. For
example, any major escalation in hostilities in the region could result in a portion of our employees being called up to perform
military duty for an extended period of time. Parties with whom we do business have sometimes declined to travel to Israel during
periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary.



34







Our commercial insurance does not cover
losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government
currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure
you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect
on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions
and could harm our results of operations.



Further, in the past, the State of Israel
and Israeli companies have been subjected to an economic boycott. Several countries still restrict business and trade activity
with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating
results, financial condition or the expansion of our business.



Our operations may be disrupted as a result of the obligation
of management or personnel to perform military service.



Many of our male employees in Israel, including
members of our senior management, perform up to one month, and in some cases more, of annual military reserve duty until they reach
the age of 45 or older and, in the event of a military conflict, may be called to active duty. There have also been periods of
significant call-ups of military reservists, and it is possible that there will be military reserve duty call-ups in the future.
Our operations could be disrupted by the absence of a significant number of our employees. Such disruption could materially adversely
affect our business, financial condition and results of operations.



Because a certain portion of our expenses is incurred
in currencies other than the U.S. dollar, our results of operations may be harmed by currency fluctuations and inflation.



Our reporting and functional currency is
the U.S. dollar. Most of the royalty payments from our agreements with our development and/or commercialization partners are payable
in U.S. dollars, and 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. 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.



It may be difficult for investors in the U.S. to enforce
any judgments obtained against us or any of our directors or officers.



Almost all of our assets are located outside
the U.S., although we do maintain a permanent place of business within the U.S. In addition, all of our officers and some of our
directors are nationals and/or residents of countries other than the U.S., and all or a substantial portion of such persons’
assets are located outside the U.S. As a result, it may be difficult for investors to enforce within the U.S. 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 U.S. or any state thereof. Additionally, it may be difficult to assert U.S. securities law claims in
actions originally instituted outside of the U.S. 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.



ITEM 1B.  UNRESOLVED STAFF COMMENTS



Not applicable.



35







ITEM 2.  PROPERTIES



We lease an office and manufacturing facility in Nesher, Israel
and an office in Melville, New York. Our lease for the facility in Nesher expires December 31, 2015, with an option to renew annually.
The space is approximately 230 square meters. We pay approximately $2,880 per month under our lease. Our lease for the facility
in Melville expires June 30, 2015, with an option to renew annually. The space is approximately 15 square meters. We pay $953 per
month under our lease. We have also begun using a small office in Elmsford, New York as our principal executive office. The use
of this space is included in a services agreement pursuant to which we pay $4,000 per month for, among other services, processing
products for shipping, customer service, payment processing and maintenance of certain records. We believe that our facilities
are adequate to meet our current and proposed needs.



ITEM 3.  LEGAL PROCEEDINGS



From time to time, we may be involved in
litigation that arises through the normal course of business. As of the date of this filing, we are not a party to any material
litigation nor are we aware of any such threatened or pending litigation.



There are no material proceedings in which
any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock, or
any associate of any of the foregoing is an adverse party or has a material interest adverse to our interest.



ITEM 4.  MINE SAFETY DISCLOSURES



Not applicable.



PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



There is no established public trading market
for our common stock.



As of March 25, 2015, we had 2,511,328 shares
of common stock outstanding, held by approximately 140 holders of record, assuming the conversion of all outstanding shares of
our convertible preferred stock (other than our series C preferred stock) and all outstanding convertible indebtedness, including
accrued interest, into an aggregate of 2,131,081 shares of common stock and 1,057,726 shares of series C preferred stock, which
will occur automatically upon the effectiveness of our Form 10, which we anticipate will occur on April 10, 2015, and assuming
a March 25, 2015 conversion date.



As of March 25, we had a total of 1,948,202
shares of our series C preferred stock outstanding, assuming the conversion of all outstanding convertible indebtedness, as described
above. Each share of our series C preferred stock is convertible into one share of our common stock (subject to adjustment as provided
in the related designation of preferences) at any time at the option of the holder, provided that the holder would be prohibited
from converting series C preferred stock into shares of our common stock if, as a result of such conversion, the holder, together
with its affiliates, would own more than 9.99% of the total number of shares of our common stock then issued and outstanding. This
limitation may be waived upon not less than 61 days’ prior written notice to us.



Dividend Policy



In the past, we have not declared or paid
cash dividends on our common stock, and we do not intend to pay any cash dividends on our common stock. Rather, we intend to retain
future earnings (if any) to fund the operation and expansion of our business and for general corporate purposes. Subject to legal
and contractual limits, our board of directors will make any decision as to whether to pay dividends in the future.



Recent Sales of Unregistered Securities



On October 13, 2014, we signed a twelfth
amendment to our agreement with certain investors, as amended, pursuant to which we had issued convertible promissory notes. The
notes are convertible to common stock and bear interest at 6% annually. The amendment was made in exchange for additional consideration
of $100,000, so that the aggregate original principal amount was increased to $1,300,000. In addition on such date, we issued warrants
to purchase up to an aggregate of 37,594 shares of common stock with an exercise price of $2.66 per share, subject to adjustments,
and a five-year term. The securities issued in the above described transactions were not registered under the Securities Act of
1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration under
the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act of 1933, as amended. Each investor was an
accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) at the time of the transaction.



36







On November 19, 2014, we signed a thirteenth
amendment to the agreement described above and issued convertible promissory notes in consideration for $100,000 with the same
terms described above, so that the aggregate original principal amount was increased to $1,400,000. In addition on such date, we
issued warrants to purchase up to an aggregate of 37,594 shares of common stock with an exercise price of $2.66 per share, subject
to adjustments, and a five-year term. The securities issued in the above described transactions were not registered under the Securities
Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration
under the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act of 1933, as amended. Each investor
was an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) at the time of the transaction.



On December 11, 2014, we signed a fourteenth
amendment to the agreement described above and issued convertible promissory notes in consideration for $100,000 with the same
terms described above, so that the aggregate original principal amount was increased to $1,500,000. In addition on such date, we
issued warrants to purchase up to an aggregate of 37,594 shares of common stock with an exercise price of $2.66 per share, subject
to adjustments, and a five-year term. The securities issued in the above described transactions were not registered under the Securities
Act of 1933, as amended, or the securities laws of any state, and were offered and sold pursuant to the exemption from registration
under the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act of 1933, as amended. Each investor
was an accredited investor (as defined by Rule 501 under the Securities Act of 1933, as amended) at the time of the transaction.



ITEM 6.  SELECTED FINANCIAL DATA



Not applicable.



ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



You should read
the following discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial
statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical information,
the following discussion and analysis includes forward-looking information that involves risks, uncertainties and assumptions.
Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements
as a result of many factors, including those discussed under “Item 1A. Risk Factors” and elsewhere in this Form 10
-K. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Form 10 -K.



Overview



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



Recent Events





In January and February,
2015, we entered into securities purchase agreements with certain investors providing for the issuance of shares of common stock,
series C preferred stock and warrants to purchase shares of common stock. Pursuant to these agreements, we have issued an aggregate
of 833,333 shares of series C preferred stock, 216,667 shares of common stock and warrants to purchase 420,000 shares of common
stock at an exercise price of $3.00 per share and warrants to purchase 420,000 shares of common stock at an exercise price of $6.00
per share, for aggregate consideration of $3,150,000.



On February 10, 2015, upon our receipt of
these investment amounts aggregating more than $3 million, our series B-1 promissory notes converted by their terms into an aggregate
of 560,594 shares of our series B-1 preferred stock and 123,057 shares of our series C preferred stock, and our series B-2 promissory
notes converted by their terms into an aggregate of 1,174,042 shares of our series B-2 preferred stock and 333,959 shares of our
series C preferred stock.



37







On February 5, 2013,
we issued secured convertible promissory notes to certain investors. The convertible promissory notes were initially issued in
the original aggregate principal amount of $100,000. On each of March 28, 2013, June 3, 2013, August 5, 2013, October 7, 2013,
December 9, 2013, February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August 7, 2014, September 7, 2014, October 13,
2014, November 19, 2014 and December 11, 2014, such principal amount was increased by $100,000, so that the total current principal
amount outstanding is $1,500,000. The convertible promissory notes mature on April 30, 2015 or on an accelerated date if there
is an event of default, upon which date the entire outstanding principal balance and any outstanding fees or interest will be due
and payable in full. The convertible promissory notes bear interest at the rate of 6% per annum, which rate is increased to 10%
upon and during the occurrence of an event of default. In addition, the convertible promissory notes are convertible either at
the holders’ option or upon maturity into shares of our series C preferred stock at a current conversion price of $2.66 per
share, subject to adjustment for stock splits, fundamental transactions or similar events. The holders of the convertible promissory
notes have a security interest in all of our assets and those of our subsidiaries. To date, no principal or interest has been paid
on these notes. See “Liquidity and Capital Resources—Twelve Months Ended December 31, 2014 Compared to Twelve Months
Ended December 31, 2013—Convertible Promissory Notes” below for more information on the terms of these notes.



In connection with
the issuance of the convertible promissory notes described above, on each of February 5, 2013, March 28, 2013, June 3, 2013, August
5, 2013, October 7, 2013, December 9, 2013, February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August 7, 2014, September
7, 2014, October 13, 2014, November 19, 2014 and December 11, 2014, we issued warrants to purchase 37,594 shares of common stock
(in aggregate warrants to purchase 563,910 shares), with an exercise price of $2.66 per share (subject to adjustment), to the participating
investors.



Critical Accounting Policies



Use of estimates



The preparation of
consolidated financial statements in conformity with Generally Accepted Accounting Principles in the United States (“U.S.
GAAP”) requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.



As applicable to these
consolidated financial statements, the most significant estimates and assumptions relate to estimation of fair value of stock based
compensation and the estimation of the fair value of warrants.



Functional currency



The accompanying consolidated
financial statements have been prepared in U.S. dollars.



We believe that the
currency of the primary economic environment in which our operations are conducted is the U.S. dollar; thus the dollar is our functional
currency. The majority of the proceeds from our financing activities are received in U.S. dollars. Although a portion of our subsidiary’s
expenses are dominated in NIS (mostly salary and rent), a substantial portion of our expenses are denominated in U.S. dollars.
In addition, most of our assets and liabilities are in U.S. dollars and we expect that most of our revenues will be generated in
U.S. dollars.



Transactions and balances
originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies have
been remeasured into U.S. dollars in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”)
830, “Foreign Currency Matters.”



All transaction gains
and losses from the remeasurement of monetary balance sheet items denominated in non- U.S. dollar currencies are reflected in the
consolidated statement of comprehensive loss in financial expenses, net, as appropriate.



Revenue recognition



We generate revenues
from the sale of our products to end users. Revenues from those products are recognized in accordance with Staff Accounting Bulletin
No. 104, “Revenue Recognition,” when delivery has occurred, persuasive evidence of an agreement exists, the vendor’s
fee is fixed or determinable, no further obligation exists and collectability is probable.



Our agreements with
our distributors do not contain any price protection guarantees, rights of return or other post-shipment obligations.



Stock-based compensation



We account for stock-based
compensation in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”). ASC 718 requires
companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value
of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in
our consolidated statement of comprehensive loss.



We recognize compensation
expense for the value of our awards granted based on the straight line method over the requisite service period of each of the
awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations”
or “expirations” and represents only the invested portion of the surrendered option. Ultimately, the actual expenses
recognized over the vesting period will only be for those shares that vest.



38







We selected the Black-Scholes-Merton
option pricing model as the most appropriate fair value method for our stock option awards. This option-pricing model requires
a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected
volatility was calculated based upon similar traded companies’ historical share price movements. The expected option term
represents the period that our stock options are expected to be outstanding. We currently use a simplified method to estimate the
period that our stock options are expected to be outstanding, based on the terms of the awards. We will continue to use this method
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. We use an expected dividend rate of zero, as we have historically
not paid dividends and have no foreseeable plans to pay dividends.



Because there has been
no public market for our common stock, we have determined the fair value of the common stock underlying all of our options and
warrants at the time of grant by considering a number of objective and subjective factors. We have obtained the assistance of an
independent valuation firm and applied a market approach using recent third-party transactions in our equity. The fair value of
the underlying shares of common stock will continue to be determined by our management until such time as the common stock is listed
or quoted on an established stock exchange, national market system or other quotation system.



Income taxes



We account for income
taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 prescribes the use of the liability
method, whereby deferred tax asset 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 a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable
value. As of December 31, 2014 and December 31, 2013, we provided a full valuation allowance.



We implement 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% likely to be
realized upon ultimate settlement. We believe that our tax positions are all highly certain of being upheld upon examination. Provision
for tax expenses was recorded as of December 31, 2014 and 2013 to uncertain tax positions as required.



Convertible promissory
notes



We account for our
outstanding convertible promissory notes in accordance with ASC 470-20, “Debt with Conversion and Other Options” (“ASC
470-20”) and ASC 815 “Derivatives and Hedging” (“ASC 815”).



In accordance with ASC 470-20 we first allocate
the proceeds to freestanding liability instrument (warrants) that are measured at fair value at each reporting date, based on their
fair value. The remaining proceeds are allocated among all other freestanding instruments (embedded beneficial conversion feature
and convertible debt) based on the relative fair values of the instruments at the time of issuance.



In addition, under the guidelines of ASC
470-20, we measure an embedded beneficial conversion feature on the date of issuance, by allocating a portion of the proceeds equal
to the intrinsic value of the feature to additional paid in capital. The intrinsic value of the feature is calculated on the date
of issuance using the effective conversion price which results from the allocation of the proceeds between the convertible debt
and the embedded derivative component. The intrinsic value is limited to the portion of the proceeds allocated to the convertible
debt. We recognize an embedded beneficial conversion feature related to our convertible promissory notes. The beneficial conversion
feature is amortized to our consolidated statements of comprehensive loss over the term of the liability.



Warrant liability



The fair value of the
liability for our warrants issued to investors in 2013 and 2014 was calculated using the Black-Scholes model. We accounted for
these warrants according to the provisions of ASC 815 and, based on the anti-dilution protections contained in the warrants, we
classified them as liabilities, measured at fair value for each reporting period until they are exercised or expire, with changes
in fair value recognized in our consolidated statement of comprehensive loss as financial income or expense.



39







Extended
Transition Period for “Emerging Growth Companies”



We have elected to
use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart
Our Business Act of 2012 (known as the JOBS Act). This election allows us to delay the adoption of new or revised accounting standards
that have different effective dates for public and private companies until those standards apply to private companies. As a result
of this election, our consolidated financial statements may not be comparable to companies that comply with public company effective
dates. Because our consolidated financial statements may not be comparable to companies that comply with public company effective
dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public
companies, which may have a negative impact on the value and liquidity of our common stock.



Results of Operations



Twelve Months
Ended December 31, 2014 Compared to Twelve Months Ended December 31, 2013



Revenues. For
the twelve months ended December 31, 2014 and 2013, our revenues were approximately $203,000 and $211,000, respectively, a decrease
of approximately 3.8%, or $8,000, between the periods. The decrease was attributable primarily to a decrease in volume of sales,
in particular to lack of sales of NanoVibronix NPWT in 2014 compared to 2013 due to the termination of our license agreement for
this product.



For the twelve months
ended December 31, 2014, the percentage of revenues attributable to our products was: PainShield - 95.2%; UroShield - 4.8%; and
NanoVibronix NWPT - 0%. For the twelve months ended December 31, 2013, the percentage of revenues attributable to our products
was: PainShield – 82.5%; UroShield - 8.4%; and NanoVibronix NWPT – 9.1%. For the twelve months ended December 31, 2014
and 2013, the percentage of revenues attributable to our disposable products was 43.2% and 40.3%, respectively. For the twelve
months ended December 31, 2014 and 2013, the portion of our revenues that was derived from distributors was 41% and 64.3%, respectively.



Gross Profit.
For the twelve months ended December 31, 2014, gross profit decreased by approximately 8.3%, or $10,000, to approximately $110,000
from approximately $120,000 during the same period in 2013.



Gross profit as a percentage
of revenues was 54.2% for the twelve months ended December 31, 2014 and 56.9% for the same period in 2013. The decrease was primarily
due to a write-off of inventory in the amount of approximately $14,000 during the twelve months ended December 31, 2014 and the
fact that we ceased the sales of NanoVibronix NWPT, which had greater margin.



Our gross profit
is affected year-over-year by the mix of revenues between sales to distributers and sales directly to the end customers (where
sales directly to the end customers generally have a higher margin) and the geographic regions in which we sell. As such, we are
subject to year-over-year fluctuation in our gross profit.



Research and Development
Expenses. For the twelve months ended December 31, 2014 and 2013, research and development expenses were $431,000 and $620,000,
respectively, a decrease of approximately 30.5%, or $189,000, between the periods. The decrease was mainly associated with a decrease
in stock-based compensation expenses of approximately $211,000 attributable to a grant to our vice president of research and development
during the twelve months ended December 31, 2013.



Research and development
expenses as a percentage of total revenues were approximately 212.3% and 293.8%for the twelve months ended December 31, 2014 and 2013, 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, clinical trial and facilities expenses associated with and allocated to
research and development activities.



Selling and Marketing
Expenses. For the twelve months ended December 31, 2014 and 2013, selling and marketing expenses were approximately $301,000
and $244,000, respectively, an increase of approximately 23.4%, or $57,000, between the periods.



The increase in selling
and marketing expenses is mainly attributable to additional cost we recorded associated with the termination of our license agreement
for NanoVibronix NPWT, to reflect potential amounts due under the license agreement. We dispute that these amounts are actually
owed. This increase was slightly offset by a decrease in stock based compensation expenses between the years.



40







Selling and marketing
expenses as a percentage of total revenues were approximately 148.3% and 115.6% for the twelve months ended December 31, 2014 and
2013, respectively. The increase was due to the increase in our selling and marketing, described above.



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



General and Administrative
Expenses. For the twelve months ended December 31, 2014 and 2013, general and administrative expenses were approximately $589,000
and $366,000, respectively, an increase of approximately 60.9%, or $223,000, between the periods.



The increase was mainly
attributable to an increase in salary expenses due to an increase in our head count. During the second quarter of 2014, we recruited
two new individuals to serve as our chief executive officer and chief financial officer. The cost of such recruitment was slightly
offset by a decrease in our stock-based compensation expenses.



General and administrative
expenses as a percentage of total revenues were approximately 290.1% and 173.5% for the twelve months ended December 31, 2014 and
2013, respectively. The increase was due to the increase in general and administrative expenses, described above.



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



Other Income.
For the twelve months ended December 31, 2013, other income was $36,000, compared to no other income for the twelve months ended
December 31, 2014. The other income was due to a windfall payout derived from the distribution of cash to us as an eligible member
of Medmarc Insurance Group, which was demutualized in its acquisition by Proassurance Corporation.



Financial Expenses,
net. For the twelve months ended December 31, 2014 and 2013, financial expenses, net were $1,387,000 and $880,000, respectively,
an increase of approximately 57.6%, or $507,000, between the periods. The increase resulted primarily from the amortization of
the beneficial conversion feature of our convertible promissory notes and accrued interest on our convertible promissory notes
issued over the years.



Tax expenses.For
the twelve months ended December 31, 2014 and 2013, tax expenses were $49,000 and $35,000 respectively. The tax expense is computed
by multiplying income before taxes at our Israeli subsidiary by the appropriate tax rate. The increase was due to the fact that
our Israeli subsidiary increased its taxable income as defined under Israeli law in 2014 compared to 2013, to an increase in the
applicable corporate tax rate from 25% in 2013 to 26.5% in 2014 and to the fact that we had net operating losses in 2013 to offset
a portion of the taxable income.



Net Loss. Our
net loss increased by approximately $658,000, or 33.1%, to approximately $2,647,000 for the twelve months ended December 31, 2014
from approximately $1,989,000 during the same period in 2013. The increase in net loss resulted primarily from the factors described
above.



Liquidity and Capital Resources



We continue to incur
losses and negative cash flows from operating activities. For the twelve months ended December 31, 2014, we had losses of approximately
$2,647,000 and negative cash flows from operating activities of approximately $900,000.



During the twelve months
ended December 31, 2014, and through March 31, 2015, we met our short-term liquidity requirements with the proceeds of our secured
convertible promissory notes, which are borrowings from a related party (see “Item 13. Certain Relationships and Related
Transactions, and Director Independence—Certain Relationships and Related Transactions”).



As described under
“Recent Events,” we have raised $3,150,000 pursuant to securities purchase agreements with certain investors during
January and February 2015. We intend to use the proceeds of this offering to meet our short-term liquidity requirements as well
as to advance our long-term plans. It is our current belief that the proceeds of this offering will provide sufficient funding
to meet our liquidity needs for the next twelve months.



41







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. However, we may be unable
to raise sufficient additional capital when we require it or upon terms favorable to us. 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 will need to curtail operations significantly,
including possibly postponing anticipated clinical trials or entering into financing agreements with unattractive terms.



Twelve Months
Ended December 31, 2014 Compared to Twelve Months Ended December 31, 2013



General. As
of December 31, 2014, we had cash and cash equivalents of approximately $90,000, compared to approximately $94,000 as of December
31, 2013. 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 $900,000 for the twelve months ended December 31, 2014 and approximately $602,000 for the same period
in 2013. The increase in our usage of cash in our operating activities in the amount of $298,000 is mainly attributable to the
increase in our salary expenses associated with the recruitment of two new individuals to serve as our chief executive officer
and chief financial officer in the second quarter of 2014.



Cash used in our investing
activities was approximately $4,000 during the twelve months ended December 31, 2014 and $5,000 during the twelve months ended
December 31, 2013.



Cash provided by financing
activities was $900,000 and $600,000 for the twelve months ended December 31, 2014 and December 31 2013 respectively, due to the
issuance of convertible promissory notes.



Convertible Promissory
Notes. As of December 31, 2014, we had convertible series B-1 promissory notes and convertible series B-2 promissory notes
with an aggregate principal amount outstanding of approximately $2,536,765, with aggregate accrued interest of $886,135 and secured
convertible promissory notes with an aggregate principal amount of $1,500,000, with aggregate accrued interest of $77,178. As of
December 31, 2014, no principal or interest had been paid on these notes.



The convertible series
B-1 promissory notes matured on November 15, 2014. The entire outstanding principal balance and any outstanding fees or interest
became due and payable in full on such date. We did not repay any amount under these notes, and they continued to accrue interest
until February 10, 2015, when they were converted as described below. The convertible series B-1 promissory notes bore interest
at the rate of 10% per annum, compounded annually. In addition, the convertible series B-1 promissory notes were convertible at
any time at the holder’s option into shares of our series B-1 participating convertible preferred stock at an initial conversion
price of $0.284 per share, subject to adjustment for stock dividends, stock splits or combinations (except for certain such notes,
which were convertible into series C preferred stock, as described under “Item 13. Certain Relationships and Related Transactions,
and Director Independence—Certain Relationships and Related Transactions”). Our series B-1 participating convertible
preferred stock is convertible into shares of our common stock at a rate of one common share for every seven series B-1 participating
convertible preferred shares. The convertible series B-1 promissory notes would automatically convert into series B-1 participating
convertible preferred stock upon the occurrence of (i) an aggregate investment in us of $3 million or more in a transaction or
series of transactions, (ii) our initial public offering of our common stock pursuant to an effective registration statement under
the United States Securities Act of 1933, as amended, or equivalent law of another jurisdiction, or upon such date as we became
subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including,
without limitation, upon consummation of a reverse merger or upon the effectiveness of a registration statement on Form 10 filed
by us under the Securities Exchange Act of 1934, as amended, or equivalent document or (iii) a fundamental transaction. On February
10, 2015, upon our receipt of investment amounts aggregating more than $3 million, the series B-1 notes converted into shares of
series B-1 participating convertible preferred stock (except for certain such notes, which converted into series C preferred stock,
as described under “Item 13. Certain Relationships and Related Transactions, and Director Independence—Certain Relationships
and Related Transactions”), which will then convert into common stock automatically upon the effectiveness of our Form 10,
which we anticipate will occur on April 10, 2015.



The terms of the convertible
series B-2 promissory notes were the same as those of the convertible series B-1 promissory notes, except that the initial conversion
price was $0.199. On February 10, 2015, upon our receipt of investment amounts aggregating more than $3 million, our Series B-2
promissory notes, including accrued interest thereon, converted into shares of series B-2 participating convertible preferred stock
(except for certain such notes, which converted into series C preferred stock, as described under “Item 13. Certain Relationships
and Related Transactions, and Director Independence—Certain Relationships and Related Transactions”), which will then
convert into common stock, automatically upon the effectiveness of our Form 10, which we anticipate will occur on April 10, 2015.



42







As of December 31,
2014, the secured convertible promissory notes were scheduled to mature on the earlier of April 30, 2015 or upon an event of default,
upon which date the entire outstanding principal balance and any outstanding fees or interest would be due and payable in full.
The secured convertible promissory notes bear interest at the rate of 6% per annum, which rate is increased to 10% upon and during
the occurrence of an event of default. Events of default are comprised of: (i) failure to pay indebtedness under the notes when
due; (ii) a default in a covenant, obligation or agreement under the notes or related documents; (iii) any representation, warranty
or certification made by us under the notes is false or incorrect in any material respect on the date made; (iv) the occurrence
of a liquidation, insolvency or bankruptcy event; (v) the entry of certain final judgments against us; (vi) our failure to make
required payments under other debt, the acceleration of the maturity date on other debt, or a demand or requirement that we redeem,
repurchase or retire other debt prior to its maturity; (vii) a material adverse effect, as defined in the notes; (viii) any material
impairment in the value of the collateral or the priority of the lenders’ liens; (ix) any levy upon, seizure or attachment
of a material portion of the collateral; (x) our assertion that any transaction document related to the notes is invalid or unenforceable;
and (xi) the lenders cease to have a perfected lien in any of the collateral, subject to certain exceptions. The secured convertible
promissory notes are convertible either at the holders’ option or upon maturity into shares of our series C preferred stock
at an initial conversion price of $2.66 per share, subject to adjustment for stock splits, fundamental transactions or similar
events (we anticipate that these notes will be amended to convert into series C preferred stock, as described under “Certain
Relationships and Related Transactions”). The holders of the secured convertible promissory notes have a security interest
in all of our assets and those of our subsidiaries.



Off Balance Sheet Arrangements



As of December 31,
2014, we have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships
with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.



Factors That May Affect Future Operations



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



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



Not applicable.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLMENTARY DATA



Our Consolidated Financial
Statements and the relevant notes to those statements are attached to this report beginning on page F-1.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES.



Disclosure Controls and Procedures.



We conducted an evaluation
of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December
31, 2014, the end of the period covered by this Annual Report on Form 10-K. The Disclosure Controls evaluation was done under the
supervision and with the participation of management, including our chief executive officer and chief financial officer. There
are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this
evaluation, our chief executive officer and chief financial officer have concluded that our Disclosure Controls were effective
at the reasonable assurance level as of December 31, 2014.



43







Management’s Report on Internal Control over Financial
Reporting.



This annual report
does not include a report of management's assessment regarding internal control over financial reporting or an attestation report
of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange
Commission for newly public companies.



Changes in Internal Control over Financial Reporting.



There have been no changes in our internal
control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.



ITEM 9B. OTHER INFORMATION



None.



PART III



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The following table sets forth information
regarding our executive officers, the members of our board of directors and certain director nominees who will join our board upon
the effectiveness of our Form 10, which we anticipate will occur on April 10, 2015. All directors hold office for one-year terms
until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion
of the board.



|Name                   |  | Age |  | Position                                 
|---------------------- |  | --- |  | -----------------------------------------
|William Stern, Ph.D.   |  | 72  |  | Chief Executive Officer and Director     
|Stephen Brown          |  | 58  |  | Chief Financial Officer                  
|Harold Jacob, M.D.     |  | 60  |  | Chief Medical Officer and Director       
|Jona Zumeris, Ph.D.    |  | 63  |  | Vice President of Technology and Director
|Ira Greenstein         |  | 53  |  | Chairman of the Board of Directors       
|Martin Goldstein, M.D. |  | 46  |  | Director                                 
|Michael Ferguson       |  | 43  |  | Director Nominee                         
|Thomas R. Mika         |  | 62  |  | Director Nominee                         



William Stern, Ph.D., Chief Executive
Officer and Director. Dr. Stern has served as our chief executive officer and director since December 2014. Dr. Stern has served
as president of Multigon Industries, Inc., which manufactures non-invasive ultrasound technology that measures blood flow in the
brain, since 1984. From 2000 to the present, Dr. Stern has also served as the vice president of Aqua-Eez, Inc., an affiliate of
Multigon Industries, Inc. that manufactures and sells a hydrotherapy pool for labor and delivery. From 1972 to 1983, he was the
president of Unigon Industries, Inc., which manufactured and distributed diagnostic ultrasound for vascular and neurological diagnostics.
Dr. Stern received his Ph.D. in engineering and physics from Columbia University and holds an M.S. and a B.S. degree in electrical
engineering from Columbia University and City College of New York, respectively. Dr. Stern’s qualifications to serve on our
board include his significant scientific background and over 30 years of executive leadership experience in the field of medical
devices and ultrasound technology.



Stephen Brown, Chief Financial Officer.
Mr. Brown has served as our chief financial officer since February 3, 2015. Since 2009, Mr. Brown has been a managing partner of
The Mcguffin Group Financial, a financial consulting firm concentrating on advising early stage companies. Mr. Brown has also served
as a partner in an accounting and tax practice at Brown, Brown and Associates since 2009. From April 1995 to January 2009, Mr.
Brown served in several executive positions, including chief financial officer, at IDT Corporation, a NYSE listed telecommunications
company. During this time, Mr. Brown also served on IDT’s board of directors for six years and on the Board of Net2Phone
Inc. for five years. Mr. Brown was also the founder and chairman of IDT Entertainment Inc., a movie studio and media subsidiary.
Mr. Brown is a certified public accountant and a member of the Academy of Television Arts and Sciences and serves on the board
of directors of several educational institutions, including serving on the board of governors of Touro College.



44







Harold Jacob, M.D., Chief Medical Officer
and Director. Dr. Jacob has served as our chief medical officer since March 1, 2014 and as our director since September 2003.
From September 2003 to February 4, 2014, Dr. Jacob served as chairman of our board of directors and from September 2003 to March
1, 2014, Dr. Jacob served as our chief executive officer. Dr. Jacob also performed the functions of a principal financial officer
until April 1, 2014. Dr. Jacob is our co-founder and has worked extensively in medical device development. Dr. Jacob also served
part-time as an attending gastroenterologist at Shaare Zedek Medical Center in Jerusalem, Israel from 2004 to March 2011. Since
April 2011, he has been an attending physician in Gastroenterology at Hadassah University Hospital in Jerusalem, Israel. From 1999
to the present, Dr. Jacob has served as the president of Medical Instrument Development Inc., which provides consulting services
to start-up and early stage companies and patents its own proprietary medical devices. From 1997 to 2003, Dr. Jacob served as director
of medical affairs at Given Imaging Ltd., a company that developed the first swallowable wireless pill camera for inspection of
the intestines. Dr. Jacob also currently serves as a director for Oramed Pharmaceuticals Inc., a pharmaceutical company focused
on the development of innovative orally ingestible capsule medication. We believe that Dr. Jacob’s qualifications to serve
on our board include his years of experience in the biomedical industry and with our Company and his experience serving in management
roles of various companies.



Jona Zumeris, Ph.D., Vice President
of Technology and Director. Dr. Zumeris is our co-founder and has served as our vice president of technology since September
2003. From 1999 to 2003, Professor Zumeris served as director of research and development for PMG Medica Ltd., a medical device
company focused on ultrasound and piezomechanics technology. Dr. Zumeris was a founder, president and director of research and
development of Nanomotion Ltd., a company that designs and manufactures motion solutions using ceramic servo motors, drivers and
controllers, from 1993 to 1996. Dr. Zumeris’s extensive experience in the nano-technology and medical fields, especially
in leadership and research roles, provide him the appropriate experience to serve on our board.



Ira Greenstein, Director. Mr. Greenstein
has served as our director since August 2009 and as our board chairman since February 4, 2014. Mr. Greenstein has served as president
of Genie Energy Ltd., an energy and gas holding company, since December 2011. Mr. Greenstein currently also serves as counsel to
the chairman of IDT Corporation, a multinational holding company with operations primarily in the telecommunications industry,
and served as the president of IDT Corporation from 2001 through 2011 and counsel to the chairman of IDT Corporation in 2000 and
2001. Mr. Greenstein serves on the boards of directors of Document Security Systems, Inc. and Ohr Pharmaceuticals, Inc. and previously
served on the board of directors of Arista Power, Inc. Mr. Greenstein’s experience serving in corporate roles in publicly-traded
companies provides him with knowledge that assists in directing our long-term strategy.



Martin Goldstein, M.D., Director.
Dr. Goldstein has served as our director since March 25, 2015. Dr. Goldstein has been a practicing urologist since 2000, with particular
expertise in the management of stone disease. Dr. Goldstein is also an entrepreneur in the medical field. He is an executive director
of New Jersey Urology, the largest urology practice group in New Jersey, which he helped develop, and a co-founder and member of
the executive board of Metropolitan Surgery Center, a large multispecialty ambulatory surgery center. Dr. Goldstein is co-founder
and co-inventor of a medical device company that has received a Binational Industrial Research and Development (BIRD) Foundation
grant and he is also co-founder of an IT company that provides advanced inter-physician communication solutions. Dr. Goldstein
brings to our board his medical practice expertise. He is expected to make a valuable contribution in connection with marketing
and facilitating the acceptance of our product offerings within the medical community. We also expect that he will provide assistance
with the U.S. Food and Drug Administration regulatory approval process of our products, particularly our urology offerings. Additionally,
we expect Dr. Goldstein to advise regarding the development of new products and innovations.



Michael Ferguson, Director Nominee.
Mr. Ferguson has agreed to join our board of directors upon the effectiveness of our Form 10, which we anticipate will occur on
April 10, 2015. In January 2009, Mr. Ferguson founded Ferguson Strategies, LLC, a government affairs and strategic business consulting
firm, where he serves as the chief executive officer and chairman. From 2001 to January 2009, he served in the U.S. House of Representatives,
representing New Jersey’s 7th congressional district. While in Congress, he was a member of the House Energy and Commerce
Committee, which has wide jurisdiction over the healthcare, telecommunications and energy industries. He served as vice chairman
of the panel’s Health Subcommittee, where he became a key member on health care issues and helped to ensure passage of the
Medicare Part D prescription drug benefit in 2003. In addition, he served as a member of the Telecommunications and Internet Subcommittee
as well as the Oversight and Investigations Subcommittee. Mr. Ferguson was also a member of the House Financial Services Committee,
where he cosponsored the Sarbanes-Oxley Act of 2002 and helped enact the initial terrorism risk insurance law. Congressman Ferguson
currently serves as a senior fellow of the Center for Medicine in the Public Interest’s Odyssey Initiative for Biomedical
Innovation and Human Health. He has also served on various corporate advisory boards and committees, including for Pfizer, Inc.,
the National Italian American Foundation and the United States Golf Association. Mr. Ferguson received a bachelor’s degree
in government from the University of Notre Dame and a master’s of public policy degree with a specialization in education
policy from Georgetown University. Mr. Ferguson brings to the board his extensive background in government affairs, health care
policy, and business strategy gained from his experiences in Congress and business consulting, which we believe will assist in
strengthening and advancing our strategic focus and regulatory compliance.



45







Thomas R. Mika, Director Nominee.
Mr. Mika has agreed to join our board of directors upon the effectiveness of our Form 10, which we anticipate will occur on April
10, 2015. Mr. Mika has over 25 years of senior management, finance and consulting experience. He has served in various roles at
CollabRx, Inc. (formerly known as Tegal Corporation), a publicly-traded data analytics company focusing on genomics-based medicine,
including as its chief executive officer and president since March 2005 and as chairman of the board since October 2006. From 1992
to 2002, he also served on the company’s board of directors, which included periods of service as the chairman of the compensation
committee and a member of the audit committee, until he was appointed as its executive vice president and chief financial officer
in August 2002. Prior to that, Mr. Mika founded IMTEC, a boutique investment firm active in the management of several companies
in industries such as healthcare, pharmaceuticals, media and information technology. Mr. Mika was also a director of Metrologix,
a semiconductor metrology company, from the time of its initial start-up until its sale to KLA-Tencor Corp. Prior to forming IMTEC,
Mr. Mika was a managing consultant with Cresap, McCormick & Paget and a policy analyst for the National Science Foundation.
He holds a Bachelor of Science degree in microbiology from the University of Illinois at Urbana-Champaign and a Master of Business
Administration degree from the Harvard Graduate School of Business. Mr. Mika’s qualifications to serve on our board include
his significant strategic and business insight from his prior service on the board of directors of other publicly-held companies,
as well as his substantial senior management, finance and consulting experience.



There are no family
relationships among any of our directors and executive officers. Our executive officers are party to certain agreements related
to their service as such, described in “Item 6. Executive Compensation.”



Section 16(a) Beneficial Ownership Reporting Compliance



We are not currently
subject to Section 16(a) of the Securities Exchange Act of 1934, as amended, however, we will become subject to Section 16(a) upon
effectiveness of our Form 10, which we anticipate will occur on April 10, 2015.



Code of Ethics



We have not adopted
a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, given our small size and the fact that we have been a private company. However,
we may determine to do so in the future.



Board Committees



We do not currently
have any board committees.



ITEM 11. EXECUTIVE COMPENSATION



2014 and 2013 Summary Compensation Table



The table below sets forth, for our last
two fiscal years, the compensation earned by our named executive officers, Harold Jacob, M.D., our former chief executive officer
and former chairman of the board of directors (now our chief medical officer and a member of our board of directors), Ophir Shahaf,
our former chief executive officer and a former member of our board of directors, William Stern, Ph.D., our chief executive officer
and a member of our board of directors and Shay Ashkenazy, our former chief financial officer. No other executive officer had compensation
of greater than $100,000 for the last three fiscal years.



46







|Name and Principal Position               |  | Year |  | Salary ($)(1) |         |  | Bonus ($) |  |     | Option Awards ($)(2) |  |  | All Other Compensation ($)(1) |  |  | Total ($)(1) |       
|----------------------------------------- |  | ---- |  | ------------- | ------- |  | --------- |  | --- | -------------------- |  |  | ----------------------------- |  |  | ------------ | ------
|Harold Jacob, M.D.                        |  | 2014 |  |               | -       |  |           |  | 600 |                      |  |  |                               |  |  |              | 12,429
|Former Chief Executive Officer and        |  | 2013 |  |               | -       |  |           |  | -   |                      |  |  | 182,728                       |  |  |              | 15,848
|Former Chairman of the Board of Directors |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|                                          |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|Ophir Shahaf                              |  | 2014 |  |               | 136,036 |  |           |  | -   |                      |  |  | -                             |  |  |              | 54,496
|Former Chief Executive Officer            |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|                                          |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|William Stern, Ph.D.                      |  | 2014 |  |               | -       |  |           |  | -   |                      |  |  | -                             |  |  |              | -     
|Chief Executive Officer and Director      |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|                                          |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|Shay Ashkenazy                            |  | 2014 |  |               | 88,729  |  |           |  | -   |                      |  |  | -                             |  |  |              | 36,958
|Former Chief Financial Officer            |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|                                          |  |      |  |               |         |  |           |  |     |                      |  |  |                               |  |  |              |       
|Jona Zumeris, Ph.D.                       |  | 2014 |  |               | 68,005  |  |           |  | -   |                      |  |  | -                             |  |  |              | 35,850
|Vice President of Technology and Director |  | 2013 |  |               | 52,668  |  |           |  | -   |                      |  |  | 187,536                       |  |  |              | 33,723



| | (1) | Compensation amounts received in non-U.S. currency have been converted into U.S. dollars using the average exchange rate for the applicable year. The average exchange rate for each of 2014 and 2013 was 3.5779 NIS per dollar and 3.759 NIS per dollar, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The amounts in this column reflect the dollar amounts to be recognized for financial statement reporting purposes with respect to the twelve month period ended December 31, 2013 in accordance with FASB ASC Topic 718. Fair value is based on the Black-Scholes option pricing model using the fair value of the underlying shares at the grant date. For additional discussion of the valuation assumptions used in determining stock-based compensation and the grant date fair value for stock options, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies - Stock-based compensation” and Note 2—“Significant Accounting Policies” and Note 10—“Stockholders’ Deficiency” of the Notes to Consolidated Financial Statements as of December 31, 2014 included in this Annual Report on Form 10-K.
| | (3) | Represents car-related benefits for Dr. Jacob.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (4) | Comprised of car-related benefits for Mr. Shahaf of $15,973 and other benefits, comprised of contributions towards a pension fund, disability insurance and an advanced study fund of $38,523.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (5) | Comprised of car-related benefits for Mr. Ashkenazy of $11,043 and other benefits, comprised of contributions towards a pension fund, disability insurance and an advanced study fund of $25,915.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (6) | Comprised of car-related benefits for  Dr. Zumeris of $16,091 in 2014 and $18,745 in 2013 and other benefits, comprised of contributions towards a pension fund, disability insurance, severance pay, an advanced study fund and recreation pay, of  $19,759 in 2014 and $14,978 in 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



Agreement with Ophir Shahaf



On February 26, 2014, we entered into an
employment agreement with Ophir Shahaf to serve as our chief executive officer. On June 16, 2014, we entered into a first amendment
to the employment agreement. The term of the agreement began on March 1, 2014 and continued until terminated. Mr. Shahaf’s
employment was terminated pursuant to this agreement effective as of December 15, 2014. Prior to this effective termination date,
Mr. Shahaf was paid his full base salary and all other earned and accrued benefits and contributions during a ninety day notice
period.



Under the employment agreement, Mr. Shahaf
was entitled to a monthly base salary of 60,000 NIS (720,000 NIS per year). However, during the period beginning on March 1, 2014
and ending on June 1, 2014, we were only required to pay Mr. Shahaf 50% of his base salary plus a corresponding portion of certain
contributions and benefits we agreed to pay/provide. On or before June 16, 2014, we were required to grant Mr. Shahaf an option
to purchase 111,434 shares of our common stock at an exercise price equal to $2.66 per share. This grant was made on June 16, 2014.
These options would have vested in three equal installments on each of March 1, 2015, 2016 and 2017; provided that Mr. Shahaf was
employed by us on the applicable vesting date. Since he is no longer employed with us, these options will not vest. Mr. Shahaf
was also entitled to participate in or receive benefits under our social insurance and benefits plans, including but not limited
to manager’s insurance and/or pension fund, disability insurance and an advanced training fund. These are customary benefits
provided to executive employees in Israel. A management insurance fund is a combination of severance savings (in accordance with
Israeli law), defined contribution tax-qualified pension savings and disability insurance premiums. An advanced training fund is
a savings fund of pre-tax contributions to be used after a specified period of time for educational or other permitted purposes.
We paid a certain percentages of Mr. Shahaf’s base salary towards these insurance and benefits plans, including 7.5% to the
advanced training fund plus either (a) 14.33% to the pension fund, of which 8.33% will be paid to severance compensation and 6%
to the pension savings component or (b) 13.33% to manager’s insurance, of which 8.33% was paid to severance compensation,
5% to the pension savings component and the lower of the amount required to secure at least 75% of his base salary or up to 2.5%
to disability insurance. Mr. Shahaf was entitled to choose whether our contributions were made in accordance with (a), (b) or any
combination of these options; provided that such contributions were calculated based on an amount that did not exceed his base
salary.



47







Mr. Shahaf’s employment agreement
also contained certain noncompetition, non-solicitation, non-disparagement, confidentiality and assignment of work product requirements
for Mr. Shahaf.



Agreement with Shay Ashkenazy



On March 2, 2014, we entered into an employment
agreement with Shay Ashkenazy to serve as our chief financial officer. On June 16, 2014, we entered into a first amendment to the
employment agreement. The term of the agreement began on April 1, 2014 and continued until terminated. Mr. Ashkenazy’s employment
as chief financial officer was terminated pursuant to this agreement effective as of November 15, 2014. Prior to this effective
termination date, Mr. Ashkenazy was paid his full base salary and all other earned and accrued benefits and contributions during
a sixty day notice period. Mr. Ashkenazy continues to serve on a part-time basis, for which he is paid 10,000 NIS per month.



Under the employment agreement, Mr. Ashkenazy
was entitled to a monthly base salary of 40,000 NIS (480,000 NIS per year). On or before June 16, 2014, we were required to grant
Mr. Ashkenazy an option to purchase 37,145 shares of our common stock at an exercise price equal to $2.66 per share. This grant
was made on June 16, 2014. These options vest in three equal installments on each of April 1, 2015, 2016 and 2017; provided that
Mr. Ashkenazy is still providing services to us on the applicable vesting date. Mr. Ashkenazy was also entitled to participate
in or receive benefits under our social insurance and benefits plans, including but not limited to manager’s insurance, disability
insurance and an advanced training fund. We paid certain percentages of Mr. Ashkenazy’s base salary towards these insurance
and benefits plans, including 7.5% to the advanced training fund and 13.33% to manager’s insurance, of which 8.33% was paid
to severance compensation, 5% to the pension savings component, and the lesser of the amount required to secure at least 75% of
his base salary or up to 2.5% to disability insurance.



Mr. Ashkenazy’s employment
agreement also contained certain noncompetition, non-solicitation, non-disparagement, confidentiality and assignment of work
product requirements for Mr. Ashkenazy.



Compensation of William Stern, Ph.D.



Dr. Stern served without cash compensation
or other benefits until March 25, 2015. On March 25, 2015, we entered into an employment agreement with Dr. Stern. The term of
the agreement continues until terminated. Either party may terminate the agreement for any reason by providing 90 days prior written
notice to the other party. In addition, we may terminate the agreement for cause after a 30 day cure period. Dr. Stern is entitled
to the payment of his full base salary and all other earned and accrued benefits and contributions during such notice or cure period.
“Cause” means termination because of: (a) theft, embezzlement, fraud, or willful or material misrepresentation; (b)
indictment or conviction of, or pleading nolo contendere or guilty to, a felony, or a crime involving moral turpitude; (c) refusal
to perform, or intentional disregard of, in any material respect, duties and responsibilities; and (d) a material breach of the
employment agreement or any other agreement with us.



Under this employment agreement, Dr. Stern
is entitled to a fee of $100 per unit of our PainShield product sold in the United States or Canada for which we have received
payment in full during the term of the employment agreement, including direct sales to end users and sales to distributors or dealers,
excluding units sold through our existing Texas distributor, less applicable payroll deductions and tax withholdings.



Dr. Stern’s employment agreement also
contains certain noncompetition, non-solicitation, non-disparagement, confidentiality and assignment of work product requirements
for Dr. Stern.



On March 25, 2015, we granted Dr. Stern
an option to purchase 183,000 shares of common stock at an exercise price of $2.57 per share. The options vest one-third annually
commencing on the one-year anniversary of the date of grant and have a term of ten years. The options were granted under the NanoVibronix,
Inc. 2014 Long-Term Incentive Plan.



Agreement with Jona Zumeris, Ph.D.



NanoVibronix Ltd., our
wholly-owned Israeli subsidiary, is party to an employment agreement with Dr. Zumeris, pursuant to which Dr. Zumeris serves
as its vice president of technology. Dr. Zumeris’s salary pursuant to the agreement is 19,500 NIS per month, which was
increased to 20,000 NIS per month by oral agreement commencing in December 2012 and to 30,000 NIS per month by oral agreement
commencing April 1, 2015, and he is entitled to a car, which we lease on his behalf, and contributions towards a pension fund,
disability insurance, severance pay and an advanced study fund and recreation pay, which are customary or statutorily
prescribed in Israel. Dr. Zumeris is also entitled to 15 vacation days. Dr. Zumeris’s employment agreement contains
confidentiality restrictions and other terms and provisions that are customary in Israel.



48







On June 16, 2014, we entered into a first
amendment to the employment agreement pursuant to which, among other things, we agreed that Dr. Zumeris may only be terminated
without cause with the approval of our board of directors. We also agreed that if we complete an initial public offering pursuant
to which we raise at least $5,000,000 and Dr. Zumeris’s employment is terminated by us without cause before June 16, 2016,
subject to compliance with certain obligations, including the return of a signed release of all claims against us, we will pay
Dr. Zumeris an amount equal to his salary multiplied by the number of months remaining from the date of termination until June
16, 2016.



On March 25, 2015, we granted Dr. Zumeris
an option to purchase 61,000 shares of common stock at an exercise price of $2.57 per share. The options vest one-third annually
commencing on the one-year anniversary of the date of grant and have a term of ten years. The options were granted under the NanoVibronix,
Inc. 2014 Long-Term Incentive Plan.



Outstanding Equity Awards at Fiscal Year End



The following table provides information
on the holdings of stock options of the named executive officer at December 31, 2014. This table includes unexercised and unvested
options awards. Each outstanding award is shown separately.



|                    |  | Option Awards    
|------------------- |  | -----------------
|                    |  |                  
|                    |  |                  
|                    |  |                  
|                    |  |                  
|                    |  | Date of          
|Name                |  | Grant            
|Harold Jacob, M.D.  |  | December 13, 2007
|                    |  | December 9, 2010 
|                    |  | March 28, 2013   
|                    |  |                  
|Shay Ashkenazy      |  | June 16, 2014    
|                    |  |                  
|Jona Zumeris, Ph.D. |  | March 28, 2013   



2004 Global Share Option Plan



In November 2004, our board of directors
adopted the 2004 Global Share Option Plan, pursuant to which 400,000 shares of our common stock are reserved for issuance as awards
to employees, directors, consultants and other service providers. The purpose of the 2004 Global Share Option Plan is to provide
an incentive to attract and retain directors, officers, consultants, advisors and employees, to encourage a sense of proprietorship
and stimulate an active interest of such persons in our development and financial success. The 2004 Global Share Option Plan is
administered by our board of directors.



NanoVibronix, Inc. 2014 Long-Term Incentive Plan



On February 28, 2014, our stockholders approved
the NanoVibronix, Inc. 2014 Long-Term Incentive Plan, which was adopted by our board of directors on February 19, 2014. The NanoVibronix,
Inc. 2014 Long-Term Incentive Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other awards, which may be
granted singly, in combination, or in tandem, and which may be paid in cash, shares of our common stock, or a combination of cash
and shares of our common stock. We have reserved a total of 714,286 shares of our common stock for awards under the NanoVibronix,
Inc. 2014 Long-Term Incentive Plan, 100% of which may be delivered pursuant to incentive stock options.



The purpose of the NanoVibronix, Inc. 2014
Long-Term Incentive Plan is to provide an incentive to attract and retain services of key employees, key contractors, and outside
directors whose services are considered valuable, to encourage a sense of proprietorship and to stimulate active interest of such
persons in our development and financial success. The NanoVibronix, Inc. 2014 Long-Term Incentive Plan is intended to serve as
an “umbrella” plan for us and our subsidiaries worldwide. Therefore, if so required, appendices may be added to the
NanoVibronix, Inc. 2014 Long-Term Incentive Plan in order to accommodate local regulations in foreign countries that do not correspond
to the scope of the NanoVibronix, Inc. 2014 Long-Term Incentive Plan. Unless terminated earlier by the board of directors, the
NanoVibronix, Inc. 2014 Long-Term Incentive Plan will expire on February 19, 2024.



49







Director Compensation



We paid no compensation to our non-employee
directors for the one year period ended December 31, 2014 and have paid no compensation during 2015 to date. On March 25, 2015,
we approved the following compensation package for independent directors: (i) an annual grant of options to purchase 20,000 shares
of common stock to all independent directors; (ii) an additional annual grant of options to purchase 5,000 shares of common stock
for service as the chairperson of a board committee; and (iii) an additional annual grant of options to purchase 2,500 shares of
common stock for service as a member, but not the chairperson, of a board committee.



In addition, on March 25, 2015, we granted
Mr. Greenstein an option to purchase 30,000 shares of common stock at an exercise price of $2.57 per share. The options vest on
the one-year anniversary of the date of grant and have a term of ten years. We also granted Dr. Goldstein an option to purchase
91,500 shares of common stock at an exercise price of $2.57 per share. The options vest one-third annually commencing on the one-year
anniversary of the date of grant and have a term of ten years. These options were granted under the NanoVibronix, Inc. 2014 Long-Term
Incentive Plan.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Security Ownership of Certain Beneficial
Owners and Management



The following table sets forth information
with respect to the beneficial ownership of our common stock as of March 25, 2015 by:



| | · | each person known by us to beneficially own more than 5.0% of our common stock;
| | - | -------------------------------------------------------------------------------
| | · | each of our directors;                                                         
| | · | each of the named executive officers; and                                      
| | · | all of our directors and executive officers as a group.                        



The percentages of common stock beneficially
owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial
ownership of securities. Under the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of the security,
or investment power, which includes the power to dispose of or to direct the disposition of the security. Except as indicated in
the footnotes to this table, each beneficial owner named in the table below has sole voting and sole investment power with respect
to all shares beneficially owned and each person’s address is c/o NanoVibronix, Inc., 525 Executive Boulevard, Elmsford,
New York 10523.



As of March 25, 2015, we had 2,511,328 shares
of common stock and 1,948,202 shares of series C preferred stock outstanding. This amount and the table below reflect the conversion
of all outstanding shares of our convertible preferred stock (other than our series C preferred stock) and all outstanding convertible
indebtedness, including accrued interest, into an aggregate of 2,131,081 shares of common stock and 1,057,726 shares of series
C preferred stock, which will occur automatically upon the effectiveness of our Form 10, which we anticipate will occur on April
10, 2015, and assuming a March 25, 2015 conversion date. The table below also reflects the exchange of all outstanding warrants
to purchase preferred stock into warrants to purchase an aggregate of 331,293 shares of common stock with an exercise price of
$1.393 per share, which will occur automatically upon the effectiveness of our Form 10.



In addition to the shares of common stock
reported below, as described in the footnotes below the table, two stockholders will beneficially own 100% of our issuable and
issued series C preferred stock.



50









|Name of Beneficial Owner                                            |  | Number of Shares Beneficially Owned (1) |         |      | Percentage Beneficially Owned(1) | 
|------------------------------------------------------------------- |  | --------------------------------------- | ------- | ---- | -------------------------------- | 
|5% Owners                                                           |  |                                         |         |      |                                  | 
|CollabRx, Inc.(2)                                                   |  |                                         | 205,095 | (3)  |                                  | 
|IDT Corporation(4)                                                  |  |                                         | 261,575 | (5)  |                                  | 
|Paul Packer(6)                                                      |  |                                         | 258,208 | (7)  |                                  | 
|Miriam Winder-Kelly(8)                                              |  |                                         | 262,485 | (9)  |                                  | 
|Orin Hirschman(10)                                                  |  |                                         | 245,820 | (11) |                                  | 
|                                                                    |  |                                         |         |      |                                  | 
|Officers and Directors                                              |  |                                         |         |      |                                  | 
|William Stern, Ph.D.                                                |  |                                         | -       |      |                                  | 
|Stephen Brown                                                       |  |                                         | -       |      |                                  | 
|Harold Jacob, M.D.                                                  |  |                                         | 225,773 | (12) |                                  | 
|Jona Zumeris, Ph.D.                                                 |  |                                         | 180,308 | (13) |                                  | 
|Ira Greenstein                                                      |  |                                         | 72,763  | (14) |                                  | 
|Martin Goldstein, M.D.                                              |  |                                         | -       |      |                                  | 
|Michael Ferguson                                                    |  |                                         | -       |      |                                  | 
|Thomas R. Mika                                                      |  |                                         | -       |      |                                  | 
|All current directors and executive officers as a group (6 persons) |  |                                         | 478,844 |      |                                  | 



| | (1) | Shares of common stock beneficially owned and the respective percentages of beneficial ownership of common stock assume the exercise of all options, warrants and other securities convertible into common stock beneficially owned by such person or entity currently exercisable or exercisable within 60 days of March 25, 2015. Shares issuable pursuant to the exercise of stock options and warrants exercisable within 60 days are deemed outstanding and held by the holder of such options or warrants for computing the percentage of outstanding common stock beneficially owned by such person, but are not deemed outstanding for computing the percentage of outstanding common stock beneficially owned by any other person.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | CollabRx’s address is 44 Montgomery Street, Suite 800, San Francisco, California 94104.
| | --- | ---------------------------------------------------------------------------------------



| | (3) | Comprised of shares of common stock to be issued upon the conversion of series B-1 preferred stock.
| | --- | ---------------------------------------------------------------------------------------------------



| | (4) | IDT Corporation’s address is 520 Broad Street, Newark, New Jersey 07102.
| | --- | ------------------------------------------------------------------------



| | (5) | Comprised of (i) 155,838 shares of common stock to be issued upon the conversion of series B-2 preferred stock, (ii) 34,236 shares of common stock that may be purchased upon the exercise of warrants and (iii) 71,501 shares of common stock that may be issued upon the conversion of an equal number of shares of series C preferred stock held by a subsidiary of IDT Corporation. Does not include 595,166 shares of series C preferred stock, which IDT Corporation also holds. These shares of series C preferred stock are excluded, even though the terms of the series C preferred stock allow for conversion into common stock and voting on an as if converted basis with the common stock, because these rights are prohibited if their exercise will result in the holder having beneficial ownership of more than 9.99% of our common stock. Does not include 533,334 shares of common stock that may be purchased by IDT Corporation upon the exercise of warrants. These shares of common stock are excluded because the warrants contain provisions that block exercise if such exercise will result in the holder having beneficial ownership of more than 9.99% of our common stock.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Mr. Packer’s address is 805 Third Avenue, 15th Floor, New York, NY 10022.
| | --- | -------------------------------------------------------------------------



| | (7) | Comprised of (i) 2,465 shares of common stock held by Globis Capital Partners, L.P., (ii) 115,301 shares of common stock to be issued upon the conversion of series A-1 preferred stock held by Globis Capital Partners, L.P., (iii) 954 shares of common stock held by Globis Overseas Fund, Ltd., (iv) 44,631 shares of common stock to be issued upon the conversion of series A-1 preferred stock held by Globis Overseas Fund, Ltd., (v) 477 shares of common stock held by Mr. Packer, (vi) 22,315 shares to be issued upon the conversion of series A-1 preferred stock held by Mr. Packer, (vii) 30,571 shares of common stock that may be purchased upon the exercise of stock options held by Mr. Packer and (viii) 41,494 shares of common stock to be issued upon the conversion of restricted series C preferred stock held by AYTA Consulting, LLC.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Does not include the following,
which Mr. Packer also beneficially owns: (i) 255,165 shares of series C preferred stock held by Globis Capital Partners, L.P.,
(ii) 480,568 shares of series C preferred stock to be issued upon the conversion of secured convertible promissory notes held by
Globis Capital Partners, L.P., (iii) 106,360 shares of series C preferred stock held by Globis Overseas Fund, Ltd., (iv) 120,142
shares of series C preferred stock to be issued upon the conversion of secured convertible promissory notes held by Globis Overseas
Fund, Ltd., (v) 51,274 shares of series C preferred held by Globis International Investments L.L.C., (vi) 210,883 shares of series
C preferred stock held by Mr. Packer and (vii) 15,649 shares of restricted series C preferred stock held by AYTA Consulting, LLC.
These shares of series C preferred stock are excluded, even though the terms of the series C preferred stock allow for conversion
into common stock and voting on an as if converted basis with the common stock, because these rights are prohibited if their exercise
will result in the holder having beneficial ownership of more than 9.99% of our common stock.



51







Does not include the following:
(i) 553,198 shares of common stock that may be purchased by Globis Capital Partners, L.P. upon the exercise of warrants, (ii) 151,740
shares of common stock that may be purchased by Globis Overseas Fund, Ltd. upon the exercise of warrants, (iii) 61,000 shares of
common stock that may be purchased by AYTA Consulting, LLC upon the exercise of warrants and (iv) 65,672 shares of common stock
that may be purchased by Mr. Packer upon the exercise of warrants. These shares of common stock are excluded because the warrants
contain provisions that block exercise if such exercise will result in the holder having beneficial ownership of more than 9.99%
of our common stock.



Mr. Packer is the managing member
of Globis Capital Advisors, L.L.C., which is the general partner of Globis Capital Partners, L.P. Mr. Packer is the managing member
of Globis Capital, L.L.C., which is the general partner of Globis Capital Management, L.P., which is the investment manager of
Globis Overseas Fund, Ltd. Mr. Packer is also the managing member of Globis International Investments L.L.C. Mr. Packer is deemed
to have beneficial ownership of the shares held by Globis Capital Partners, L.P., Globis Overseas Fund, Ltd. and Globis International
Investments L.L.C. Mr. Packer also controls, and is deemed to have beneficial ownership of the shares held by, AYTA Consulting,
LLC.



| | (8) | Ms. Winder-Kelly’s address is 900 Abel Wolman Municipal Bldg. 200N. Holliday St. Baltimore, MD 21202.
| | --- | -----------------------------------------------------------------------------------------------------



| | (9)  | Comprised of (i) 828 shares of common stock to be issued upon the conversion of series A-2 preferred stock, (ii) 214,527 shares of common stock to be issued upon the conversion of series B-2 preferred stock and (iii) 47,130 shares of common stock that may be purchased upon the exercise of warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (10) | Mr. Hirschman’s address is 6006 Berkeley Avenue, Baltimore, Maryland 21209.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (11) | Comprised of (i) 5,911 shares of common
        stock to be issued upon the conversion of series B-2 preferred stock held by Mr. Hirschman, (ii) 1,299 shares of common stock that
        may be purchased upon the exercise of warrants held by Mr. Hirschman, (iii) 71,410 shares of common stock to be issued upon the
        conversion of series A-1 preferred stock held by AIGH Investment Partners LLC, of which Mr. Hirschman serves as president, (iv)
        533 shares of common stock held by AIGH Investment Partners LLC and (v) 166,667 shares of common stock held by AIGH Investment
        Partners L.P., of which Mr. Hirschman serves as general partner.
        
        Does not include 133,334 shares of common
        stock that may be purchased by AIGH Investment Partners, L.P. upon the exercise of warrants. These shares of common stock are excluded
        because the warrants contain provisions that block exercise if such exercise will result in the holder having beneficial ownership
        of more than 4.99% of our common stock.



| | (12) | Comprised of (i) 7,909 shares of common stock held by Medical Instrument Development Inc., an entity controlled by Dr. Jacob, (ii) 8,571 shares of common stock held by Dr. Jacob, (iii) 56,269 shares of common stock to be issued upon the conversion of series B-2 preferred stock held by Medical Instrument Development Inc., (iv) 12,362 shares of common stock that may be purchased by Medical Instrument Development Inc. upon the exercise of warrants, (v) 17,091 shares of common stock to be issued upon the conversion of series B-1 preferred stock held by Dr. Jacob and (vi) 123,571 shares of common stock that may be purchased by Dr. Jacob upon the exercise of stock options.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | Comprised of (i) 68,879 shares of common stock held by Piezo Top Ltd, an entity controlled by Dr. Zumeris, and (ii) options to purchase 111,429 shares of common stock held by Dr. Zumeris.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | Comprised of (i) 59,130 shares of common stock to be issued upon the conversion of series B-2 preferred stock, (ii) 12,990 shares of common stock that may be purchased upon the exercise of warrants and (iii) 643 shares of common stock that may be purchased upon the exercise of stock options.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52







Securities Authorized for Issuance Under Equity Compensation
Plans



The following table provides certain information
as of December 31, 2014 with respect to our equity compensation plans under which our equity securities are authorized for
issuance:



|                                                           |  | (a)                                                                                          |         |     | (b)                                                                         |   |      | (c)                                                                                                                                          | 
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | ------- | --- | --------------------------------------------------------------------------- | - | ---- | -------------------------------------------------------------------------------------------------------------------------------------------- | 
|Plan Category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants, and rights |         |     | Weighted-average exercise price of outstanding options, warrants and rights |   |      | Number of securities remaining available for future issuance  under equity compensation plans (excluding securities reflected in column (a)) | 
|Equity compensation plans approved by security holders     |  |                                                                                              | 376,391 |     |                                                                             | $ | 3.84 |                                                                                                                                              | 
|Equity compensation plans not approved by security holders |  |                                                                                              | 57,143  | (1) |                                                                             |   | N/A  |                                                                                                                                              | 
|Total                                                      |  |                                                                                              | 433,534 | (2) |                                                                             | $ | 3.84 |                                                                                                                                              | 



| | (1) | Restricted series C preferred stock award granted to AYTA Consulting, LLC. These shares will fully vest upon the occurrence of any of the events listed in (a) our initial public offering, (b) our becoming subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended or (c) our merger, share exchange or consolidation (other than one in which our stockholders own a majority of the voting power of the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of our assets. These shares are subject to forfeiture until vested and will be forfeited if such shares have not vested on the later of December 31, 2019 or the date of AYTA Consulting, LLC’s termination of service with us.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes 57,143 restricted shares of series C preferred stock.
| | --- | --------------------------------------------------------------



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE



Certain Relationships and Related Transactions



Generally, we do not to enter into related
party transactions unless the members of the board who do not have an interest in the potential transaction have reviewed the transaction
and determined that (i) we would not be able to obtain better terms by engaging in a transaction with a non-related party and (ii)
the transaction is in our best interest. This policy applies generally to any transaction in which we are to be a participant and
the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the previous
two completed fiscal years, and in which any related person had or will have a direct or indirect material interest. This policy
is not currently in writing.



On March 20, 2009, we issued 8,696 shares
of series B participating convertible preferred stock and warrants to purchase 8,696 shares of series B participating convertible
preferred stock to Paul Packer, who was then a member of our board of directors and who remained a director until January 15, 2014,
in exchange for consideration of $150,000. On January 1, 2010, we issued 2,899 shares of series B participating convertible preferred
stock and warrants to purchase 2,899 shares of series B participating convertible preferred stock to a fund controlled by Mr. Packer,
in exchange for consideration of $50,000. On July 12, 2011, we issued 5,797 shares of series B participating convertible preferred
stock and warrants to purchase 5,797 shares of series B participating convertible preferred stock to a fund controlled by Mr. Packer,
in exchange for consideration of $100,000. The warrants had an exercise price of $17.25 per share and a five-year term. The series
B participating convertible preferred stock was convertible into shares of our common stock at a rate of one common share for every
seven series B participating convertible preferred shares.



53







On November 22, 2011,
we issued convertible series B-1 promissory notes to certain investors. These investors included three funds controlled by Mr.
Packer. The notes purchased by these funds were in the original aggregate principal amount of $180,000. Dr. Jacob, our former chief
executive officer and chairman (now our chief medical officer and a member of our board of directors), also participated in the
offering. As compensation for his service from May through December of 2011, Dr. Jacob received notes in the original aggregate
principal amount of $25,000. In addition, CollabRx, Inc., which beneficially owns greater than 5% of our common stock, purchased
convertible series B-1 promissory notes in the original aggregate principal amount of $300,000. The convertible series B-1 promissory
notes matured on November 15, 2014. The entire outstanding principal balance and any outstanding fees or interest became due and
payable in full on such date. We did not repay any amount under these notes, and they continued to accrue interest until February
10, 2015, when they were converted as described below. The convertible series B-1 promissory notes bore interest at the rate of
10% per annum, compounded annually. In addition, the convertible series B-1 promissory notes were convertible at any time at the
holder’s option into shares of our series B-1 participating convertible preferred stock at an initial conversion price of
$0.284 per share, subject to adjustment for stock dividends, stock splits or combinations. Our series B-1 participating convertible
preferred stock is convertible into shares of our common stock at a rate of one common share for every seven series B-1 participating
convertible preferred shares. The convertible series B-1 promissory notes would automatically convert into series B-1 participating
convertible preferred stock upon the occurrence of (i) an aggregate investment in us of $3 million or more in a transaction or
series of transactions, (ii) our initial public offering of our common stock pursuant to an effective registration statement under
the United States Securities Act of 1933, as amended, or equivalent law of another jurisdiction, or upon such date as we became
subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including,
without limitation, upon consummation of a reverse merger or upon the effectiveness of a registration statement on Form 10 filed
by us under the Securities Exchange Act of 1934, as amended, or equivalent document or (iii) a fundamental transaction. On February
10, 2015, an aggregate of $64,637 in interest had accrued on the notes held by the entities controlled by Mr. Packer, an aggregate
of $8,977 had accrued on the notes held by Dr. Jacob and an aggregate of $107,729 had accrued on the notes held by CollabRx, Inc.
On that date, upon our receipt of investment amounts aggregating more than $3 million, the notes held by Dr. Jacob and CollabRx,
including accrued interest thereon, converted into shares of series B-1 participating convertible preferred stock, which will then
convert into common stock automatically upon the effectiveness of our Form 10, which we anticipate will occur on April 10, 2015.
We entered into an amendment agreement with the entities controlled by Mr. Packer pursuant to which their series B-1 promissory
notes converted into the same number of shares of series C preferred stock as the holder would have received in common stock underlying
series B-1 preferred stock absent such amendment. Each share of our series C preferred stock is convertible into one share of our
common stock (subject to adjustment as provided in the related designation of preferences) at any time at the option of the holder,
provided that the holder would be prohibited from converting series C preferred stock into shares of our common stock if, as a
result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of
our common stock then issued and outstanding. This limitation may be waived upon not less than 61 days’ prior written notice
to us.



On November 22, 2011,
we issued convertible series B-2 promissory notes in the original aggregate principal amount of $340,329 and warrants to purchase
513,575 shares of series B-2 participating convertible preferred stock to Mr. Packer and the two funds described above in exchange
for the cancellation of the preferred stock and warrants described above. The principal amount of the notes was equal to the original
investment in the series B participating convertible preferred stock plus simple interest at 8% from the date of the original investment.
The number of shares underlying the warrants was equal to Mr. Packer’s and the two funds’ proportionate share of 30
percent of the number of shares into which the convertible series B-1 promissory notes were convertible. The terms of the convertible
series B-2 promissory notes were the same as those of the convertible series B-1 promissory notes, except that the initial conversion
price was $0.199 per share of series B-2 participating convertible preferred stock. Our series B-2 participating convertible preferred
stock is convertible into shares of our common stock at a rate of one common share for every seven series B-2 participating convertible
preferred shares. We did not repay any amount under these notes, and they continued to accrue interest until February 10, 2015,
when they were converted as described below. On February 10, 2015, an aggregate of $124,876 in interest had accrued on the notes.
On that date, upon our receipt of investment amounts aggregating more than $3 million, our Series B-2 promissory notes, including
accrued interest thereon, converted into shares of series B-2 participating convertible preferred stock, which will then convert
into common stock, automatically upon the effectiveness of our Form 10, which we anticipate will occur on April 10, 2015. However,
we entered into an amendment agreement with the entities controlled by Mr. Packer pursuant to which their series B-2 promissory
notes converted into the same number of shares of series C preferred stock as the holder would have received in common stock underlying
series B-2 preferred stock absent such amendment. The warrants had an exercise price of $0.199 per share of series B-2 participating
convertible preferred stock and a seven-year term. Upon the effectiveness of our Form 10, the warrants will be automatically exchanged
for warrants to purchase 73,368 shares of common stock at an exercise price of $1.393 per share. We have amended and restated the
warrants to purchase series B-2 participating convertible preferred stock currently held by Mr. Packer and the entities controlled
by Mr. Packer to include, and we anticipate that we will include in the warrants issued to Mr. Packer and the entities controlled
by Mr. Packer upon the effectiveness of our Form 10, provisions that block exercise if such exercise will result in the holder
having beneficial ownership of more than 9.99% of our common stock. This limitation may be waived upon not less than 61 days’
prior written notice to us, and will expire the day before the applicable warrant expires.



On February 5, 2013, March 28, 2013, June
3, 2013, August 5, 2013, October 7, 2013, December 9, 2013, February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August
7, 2014, September 7, 2014, October 13, 2014, November 19, 2014 and December 11, 2014, we issued secured convertible promissory
notes to two funds controlled by Mr. Packer. The notes were initially issued in the original aggregate principal amount of $100,000.
On each date listed above, such principal amount was increased by $100,000. The fifteenth amended and restated secured convertible
promissory notes issued on December 11, 2014 have an original aggregate principal amount of $1,500,000. The convertible promissory
notes mature on the earlier of April 30, 2014 or on an accelerated date if there is an event of default, upon which date the entire
outstanding principal balance and any outstanding fees or interest will be due and payable in full. The convertible promissory
notes bear interest at the rate of 6% per annum, which rate is increased to 10% upon and during the occurrence of an event of default.
In addition, as amended, the convertible promissory notes are convertible either at the holders’ option or upon maturity
into shares of our series C preferred stock at a current conversion price of $2.66 per share, subject to adjustment for stock splits,
fundamental transactions or similar events. The holders of the convertible promissory notes have a security interest in all of
our assets and those of our subsidiaries. To date, no principal or interest has been paid on these notes. As of March 25, 2015,
an aggregate of $97,890 in interest has accrued on the notes.



54







In connection with the issuance of the notes
described above, on each of February 5, 2013, March 28, 2013, June 3, 2013, August 5, 2013, October 7, 2013, December 9, 2013,
February 6, 2014, April 1, 2014, May 15, 2014, June 16, 2014, August 7, 2014, September 7, 2014, October 13, 2014, November 19,
2014 and December 11, 2014, we issued warrants to purchase up to an aggregate of 37,594 shares of common stock, with an exercise
price of $2.66 per share, subject to adjustment, to the two funds controlled by Mr. Packer. We have amended and restated these
warrants to include provisions that block exercise if such exercise will result in the holder having beneficial ownership of more
than 9.99% of our common stock. This limitation may be waived upon not less than 61 days’ prior written notice to us, and
will expire the day before the applicable warrant expires.



On February 25, 2014, we entered into a
consulting agreement with AYTA Consulting, LLC, an entity controlled by Mr. Packer, pursuant to which AYTA Consulting, LLC agreed
to provide certain financial and strategic advisory and consulting services to us in exchange for a restricted stock award grant
of 57,143 shares of our common stock, subject to the terms and conditions of a separate restricted stock award agreement, as the
sole compensation for its performance of the consulting services. The agreement will terminate upon (a) our initial public offering,
(b) our becoming subject to the reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
(c) our merger, share exchange or consolidation (other than one in which our stockholders own a majority of the voting power of
the outstanding shares of the surviving or acquiring corporation) or a sale, lease, transfer, exclusive license or other disposition
of all or substantially all of our assets, (d) written termination of the agreement by AYTA Consulting, LLC with 30 days written
notice, or (e) our liquidation, dissolution or winding up. The 57,143 shares of restricted stock were granted to AYTA Consulting,
LLC on February 25, 2014 pursuant to a restricted stock award agreement and will fully vest upon the occurrence of any of the events
listed in (a), (b) or (c) above. On January 30, 2015, we entered into an agreement providing for the exchange of the shares subject
to the award agreement for an equal number of shares of series C preferred stock, subject to the same restrictions as the restricted
common stock. The shares of restricted series C preferred stock are subject to forfeiture until vested and will be forfeited if
such shares have not vested on the later of December 31, 2019 or the date of AYTA Consulting, LLC’s termination of service
with us. We anticipate that these shares will vest upon effectiveness of our Form 10, which we anticipate will occur on April 10,
2015.



In January and February, 2015, we entered
into securities purchase agreements with certain investors providing for the issuance of shares of common stock, series C preferred
stock and warrants to purchase shares of our common stock. Pursuant to these agreements, we issued 666,667 shares of series C preferred
stock, warrants to purchase 266,667 shares of common stock at an exercise price of $3.00 per share and warrants to purchase 266,667
shares of common stock at an exercise price of $6.00 per share, for aggregate consideration of $2,000,000 to a subsidiary of IDT
Corporation, a greater than five percent stockholder of ours, and 166,667 shares of series C preferred stock, warrants to purchase
66,667 shares of common stock at an exercise price of $3.00 per share and warrants to purchase 66,667 shares of common stock at
an exercise price of $6.00 per share, for aggregate consideration of $500,000, to entities controlled by Mr. Packer.



On March 25, 2015, we entered into a services
agreement with Multigon Industries, Inc. (“Multigon”). Dr. Stern serves as the president of Multigon. Pursuant to the
services agreement, we are required to pay Multigon $4,000 per month in exchange for the provision of services to us that include
the use of Multigon’s office, the provision of telephone, fax and utilities at such office, processing for shipping of our
products, customer service, maintenance of quality, service and repair records and payment processing.



On March 25, 2015,
we issued warrants to purchase up to 61,000 shares of common stock to AYTA Consulting, LLC as consideration for the provision of
guidance and assistance in connection with the filing of our Form 10 and our becoming a public reporting company. The warrants
have an exercise price of $2.66 per share, subject to adjustment, and contain a provision that blocks exercise if such exercise
will result in the holder having beneficial ownership of more than 9.99% of our common stock. This limitation may be waived upon
not less than 61 days’ prior written notice to us, and will expire the day before the applicable warrant expires.



On March 25, 2015, we entered into
an agreement with Dr. Goldstein, a member of our board of directors, pursuant to which, as consideration for his
efforts developing, pursuing approval of, and/or raising market awareness and acceptance of  our UroShield product and
CathBot product and any other future vibrating urology catheter-related product, Dr. Goldstein is entitled to a fee of $62.50
per unit of such products sold by us in the United States or Canada during the term of the agreement, less applicable
deductions and tax withholdings. At our option, the per unit fees may be paid in the form of cash or shares of our common
stock. If any portion is paid in cash, within 30 days of receipt, Dr. Goldstein must purchase an amount of common stock in
the open market, subject to any limitations or restrictions that may apply under applicable laws, such that the purchase
price of the common stock purchased plus the value of any common stock provided as payment of the per unit fees in the given
quarter equals at least 50% of the per unit fees paid for that quarter (less applicable taxes). The term of the agreement
continues until terminated. Either party may terminate the agreement for any reason by providing 90 days prior written notice
to the other party.



55







Director Independence



Our board of directors has determined that
Michael Ferguson, Ira Greenstein and Thomas R. Mika satisfy the requirements for independence set out in Section 5605(a)(2) of
the Nasdaq Stock Market Rules and that they have no material relationship with us (other than being a director and/or a stockholder).
In making its independence determinations, the board of directors sought to identify and analyze all of the facts and circumstances
relating to any relationship between a director, his immediate family or affiliates and our company and our affiliates and did
not rely on categorical standards other than those contained in the Nasdaq rule referenced above.



We do not currently have any board committees.



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



The following table presents aggregate fees
for professional services rendered by Kost Forer Gabbay & Kasierer, A Member of Ernst & Young Global, for the fiscal years
ended December 31, 2014 and 2013.



|                   |  | Year Ended December 31, 2014 |        |  | Year Ended December 31, 2013 |  
|------------------ |  | ---------------------------- | ------ |  | ---------------------------- | -
|Audit fees         |  | $                            | 45,000 |  |                              | $
|Audit-related fees |  | $                            | -      |  |                              | $
|Tax fees           |  | $                            | -      |  |                              | $
|All other fees     |  | $                            | -      |  |                              | $
|Total              |  | $                            | 45,000 |  |                              | $



Audit Fees



Audit fees for the
years ended December 31, 2014 and 2013 consist of fees related to the audit of our annual financial statements and the review of
our interim quarterly financial statements.



Pre-Approval of Independent Registered
Public Accounting Firm Fees and Services Policy



The board of directors
considered the audit fees, audit-related fees, tax fees and other fees paid to our accountants, as disclosed above, and determined
that the payment of such fees was compatible with maintaining the independence of the accountants.



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



The following documents
are filed as part of this report:



| | (1) | Financial Statement Schedules:
| | --- | ------------------------------



|Report of Independent Registered Public Accounting Firm                                      | F-2
|-------------------------------------------------------------------------------------------- | ---
|Consolidated Balance Sheets as of December 31, 2014 and 2013                                 | F-3
|Consolidated Statements of Comprehensive Loss for the years ended December 31, 2014 and 2013 | F-4
|Consolidated Statements of Changes in Stockholders’ Deficiency for the years ended           |    
|December 31, 2014 and 2013                                                                   | F-5
|Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013         | F-6
|Notes to Consolidated Financial Statements                                                   | F-7



| | (2) | Financial Statement Schedules:
| | --- | ------------------------------

None



| | (3) | Exhibits:
| | --- | ---------

See “Index to Exhibits” for a description
of our exhibits.



56







SIGNATURES



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.



| | NANOVIBRONIX, INC.     
| | -----------------------
| |                        
| | By:                    
| | William Stern          
| | Chief Executive Officer



Date: March 30, 2015



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/ WILLIAM STERN       |  | Chief Executive Officer and Director         |  | March 30, 2015
|William Stern           |  | (principal executive officer)                |  |               
|                        |  |                                              |  |               
|/s/ STEPHEN BROWN       |  | Chief Financial Officer,                     |  | March 30, 2015
|Stephen Brown           |  | (principal financial and accounting officer) |  |               
|                        |  |                                              |  |               
|/s/ IRA GREENSTEIN      |  | Chairman of the Board of Directors           |  | March 30, 2015
|Ira Greenstein          |  |                                              |  |               
|                        |  |                                              |  |               
|/s/ MARTIN GOLDSTEIN    |  | Director                                     |  | March 30, 2015
|Martin Goldstein        |  |                                              |  |               
|                        |  |                                              |  |               
|/s/ HAROLD JACOB M.D.   |  | Director                                     |  | March 30, 2015
|Harold Jacob, M.D.      |  |                                              |  |               
|                        |  |                                              |  |               
|/s/ JONA ZUMERIS, PH.D. |  | Director                                     |  | March 30, 2015
|Jona Zumeris, Ph.D.     |  |                                              |  |               



57







Index to Exhibits



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                                                                             
|3.1         |  | Form of Amended and Restated Certificate of Incorporation to be in effect upon effectiveness of Form 10 (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)                                                                                         
|3.2         |  | Amended and Restated Certificate of Incorporation as presently in effect (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                                                         
|3.3         |  | Certificate of Amendment of Certificate of Incorporation (providing for automatic conversion of the series A-1, series A-2, series B-1 and series B-2 preferred stock upon effectiveness of our Form 10) (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2015)          
|3.4         |  | Certificate of Amendment of Certificate of Incorporation (creating the series C preferred stock) (incorporated by reference to Exhibit 3.5 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)                                                                                                
|3.5         |  | Certificate of Amendment of Certificate of Incorporation (effecting the reverse stock split) (incorporated by reference to Exhibit 3.6 to Amendment No. 5 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on May 7, 2014)                                                                                                       
|3.6         |  | 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)                                                                                                                                                                     
|4.1         |  | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)                                                                                                                                                                
|10.1        |  | License Agreement, dated October 26, 2003, by and among NanoVibronix, Inc., Piezo-Top Ltd, and PMG Medica Ltd (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                   
|10.2        |  | License Agreement, dated December 11, 2011, by and between NanoVibronix, Inc. and AC Engineering Ltd. (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                           
|10.3        |  | Form of Series B-1 Promissory Note (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                                                                                              
|10.4        |  | Form of Subscription Agreement for Series B-1 Convertible Promissory Notes (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                                                      
|10.5        |  | Form of Series B-2 Promissory Note (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                                                                                              
|10.6        |  | Form of Series B-2 Participating Convertible Preferred Stock Purchase Warrant (incorporated by reference to Exhibit 10.6 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        |  | Form of Subscription Agreement for Series B Convertible Preferred Stock and Warrants (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 25, 2014)                                                                                                           
|10.8        |  | First Amendment to Subscription Agreement for Series B Convertible Preferred Stock and Warrants, dated November 14, 2011, by and between NanoVibronix, Inc. and the investors signatory thereto (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 25, 2014)
|10.9        |  | 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)                                                             
|10.10       |  | 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)                                                     
|10.11       |  | 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)                                                   
|10.12       |  | Fifteenth Amended and Restated Secured Convertible Promissory Note, dated December 11, 2014, by NanoVibronix, Inc. in favor of and Globis Capital Partners, L.P. (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2015)                                                
|10.13       |  | Form of Amended and Restated 2013 and 2014 Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.13 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 25, 2014)                                                                                                                   



58







|10.14+ |  | 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)                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15+ |  | 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)                                                                        
|10.16+ |  | Form of Indemnification Agreement between NanoVibronix, Inc. and certain of its officers and directors (incorporated by reference to Exhibit 10.16 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                                     
|10.17  |  | Amendment to Subscription Agreement Convertible Promissory Notes, dated February 28, 2014, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.17 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                        
|10.18  |  | Amendment to Convertible Promissory Notes (Series B-1), dated February 28, 2014, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.18 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                  
|10.19  |  | Second Amendment to Subscription Agreement Series B Convertible Preferred Stock and Warrants), dated February 28, 2014, by and between NanoVibronix, Inc. and the holders signatory thereto (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)
|10.20  |  | 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) 
|10.21  |  | Amendment to Convertible Promissory Notes (Series B-2), dated February 28, 2014, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                  
|10.22  |  | Master Amendment Agreement, dated March , 2014, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.22 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)                                                                  
|10.23+ |  | Consulting Agreement, dated February 25, 2014, by and among NanoVibronix, Inc., NanoVibronix Ltd. and AYTA Consulting, LLC (incorporated by reference to Exhibit 10.23 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 25, 2014)                                                                
|10.24+ |  | Restricted Stock Award Agreement, dated February 25, 2014, by and between NanoVibronix, Inc. and AYTA Consulting, LLC (incorporated by reference to Exhibit 10.24 to Amendment No. 2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 25, 2014)                                                                     
|10.25+ |  | Employment Agreement, dated February 26, 2014, by and among NanoVibronix, Inc., NanoVibronix Ltd. and Ophir Shahaf (incorporated by reference to Exhibit 10.25 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                         
|10.26+ |  | Employment Agreement, dated March 2, 2014, by and among NanoVibronix, Inc., NanoVibronix Ltd. and Shay Ashkenazy (incorporated by reference to Exhibit 10.26 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on March 6, 2014)                                                                           
|10.27+ |  | 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)                                                                                                                                          
|10.28  |  | Form of Amended and Restated Series B-2 Participating Convertible Preferred Stock Purchase Warrant (incorporated by reference to Exhibit 10.28 to Amendment No. 3 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 30, 2014)                                                                                        
|10.29+ |  | 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)                                                              
|10.30+ |  | First Amendment to Employment Agreement, dated June 16, 2014, by and between NanoVibronix, Inc. and Ophir Shahaf (incorporated by reference to Exhibit 10.30 to Amendment No. 8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 23, 2014)                                                                           
|10.31+ |  | First Amendment to Employment Agreement, dated June 16, 2014, by and between NanoVibronix, Inc. and Shay Ashkenazy (incorporated by reference to Exhibit 10.31 to Amendment No. 8 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 23, 2014)                                                                         
|10.32  |  | Second Amendment to Convertible Promissory Notes (Series B-1), dated January 28, 2015, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.32 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2015)                                             



59









|10.33   |  | Second Amendment to Convertible Promissory Notes (Series B-2), dated January 28, 2015, by and between NanoVibronix, Inc. and the note holders signatory thereto (incorporated by reference to Exhibit 10.33 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2015)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34+  |  | Side Letter to Restricted Stock Award Agreement, dated January 30, 2015, by and between NanoVibronix, Inc. and AYTA Consulting, LLC (incorporated by reference to Exhibit 10.34 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2015)                            
|10.35*  |  | Services Agreement, dated March 25, 2015, by and between Multigon Industries, Inc. and NanoVibronix, Inc.                                                                                                                                                                                                                  
|10.36*+ |  | Employment Agreement, dated March 25, 2015, by and between William Stern and NanoVibronix, Inc.                                                                                                                                                                                                                            
|10.37*+ |  | Side Letter to Consulting Agreement, dated March 25, 2015, by and among NanoVibronix, Inc. and AYTA Consulting, LLC                                                                                                                                                                                                        
|10.38*+ |  | Warrant to Purchase Common Stock, dated March 25, 2015                                                                                                                                                                                                                                                                     
|10.39*+ |  | Letter Agreement, dated March 25, 2015, by and between NanoVibronix, Inc. and Martin Goldstein                                                                                                                                                                                                                             
|10.40*+ |  | Form of Incentive Stock Option Award Agreement under the 2014 Long-Term Incentive Plan                                                                                                                                                                                                                                     
|10.41*+ |  | Form of Nonqualified Stock Option Award Agreement under the 2014 Long-Term Incentive Plan                                                                                                                                                                                                                                  
|10.42*+ |  | Form of Restricted Stock Award Agreement under the 2014 Long-Term Incentive Plan                                                                                                                                                                                                                                           
|10.43*+ |  | Form of 3(i) Award Agreement under the Israeli Appendix to the 2014 Long-Term Incentive Plan                                                                                                                                                                                                                               
|10.44*+ |  | Form of 102 Award Agreement under the Israeli Appendix to the 2014 Long-Term Incentive Plan                                                                                                                                                                                                                                
|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)                                                                                                                           
|31.1*   |  | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                             
|31.2*   |  | Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                             
|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                                                                                                                                                                  



* Filed herewith.

+ Management contract or compensatory plan or arrangement.



60







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



CONSOLIDATED FINANCIAL STATEMENTS



AS OF DECEMBER 31, 2014



U.S. DOLLARS IN THOUSANDS



INDEX



|                                                               | Page      
|-------------------------------------------------------------- | ----------
|                                                               |           
|Report of Independent Registered Public Accounting Firm        | F-2       
|                                                               |           
|Consolidated Balance Sheets                                    | F-3 - F-4 
|                                                               |           
|Consolidated Statements of Comprehensive Loss                  | F-5       
|                                                               |           
|Consolidated Statements of Changes in Stockholders' Deficiency | F-6       
|                                                               |           
|Consolidated Statements of Cash Flows                          | F-7       
|                                                               |           
|Notes to Consolidated Financial Statements                     | F-8 - F-33



- - - - - - - - - - - - - -











| | Kost Forer Gabbay
        & Kasierer
        3 Aminadav St.
        Tel-Aviv 6706703,
        Israel |  | Tel: +972-3-6232525
        Fax: +972-3-5622555
        ey.com
| | ---------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Stockholders and the Board
of Directors of



NANOVIBRONIX, INC.



We have audited
the accompanying consolidated balance sheets of NanoVibronix, Inc. ("the Company") and its subsidiary as of December
31, 2014 and 2013, and the related consolidated statements of comprehensive loss, changes in stockholders' deficiency and cash
flows for each of the two years ended December 31, 2014. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our
audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company's internal control over financing reporting. Our audit includes
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.



In our opinion,
based on our audits, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated
financial position of the Company and its subsidiary as of December 31, 2014 and 2013, and the consolidated results of their operations,
changes in stockholders' deficiency and cash flows for each of the two years ended December 31, 2014, in conformity with
U.S. generally accepted accounting principles.



|Tel-Aviv, Israel | /s/ KOST FORER GABBAY & KASIERER
|---------------- | --------------------------------
|March 30, 2015   | A Member of Ernst & Young Global



- F-2 -







NANOVIBRONIX,
INC. AND ITS SUBSIDIARY



CONSOLIDATED
BALANCE SHEETS

U.S. dollars in thousands



|                                                        |  | December 31, |    
|------------------------------------------------------- |  | ------------ | ---
|                                                        |  | 2014         |    
|                                                        |  |              |    
|ASSETS                                                  |  |              |    
|                                                        |  |              |    
|CURRENT ASSETS:                                         |  |              |    
|Cash and cash equivalents                               |  | $            | 90 
|Trade receivables                                       |  |              | 21 
|Prepaid expenses and other accounts receivable (Note 3) |  |              | 19 
|Inventories                                             |  |              | 35 
|                                                        |  |              |    
|Total current assets                                    |  |              | 165
|                                                        |  |              |    
|PROPERTY AND EQUIPMENT, NET (Note 4)                    |  |              | 18 
|                                                        |  |              |    
|DEFERRED ISSUANCE COSTS                                 |  |              | 358
|                                                        |  |              |    
|SEVERANCE PAY FUND                                      |  |              | 182
|                                                        |  |              |    
|Total assets                                            |  | $            | 723



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



- F-3 -







NANOVIBRONIX, INC. AND ITS
SUBSIDIARY



CONSOLIDATED
BALANCE SHEETS

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



|                                                                                                                                                                                                |  | December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------
|                                                                                                                                                                                                |  | 2014         |        
|                                                                                                                                                                                                |  |              |        
|LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                                                                                                                        |  |              |        
|                                                                                                                                                                                                |  |              |        
|CURRENT LIABILITIES:                                                                                                                                                                            |  |              |        
|Accounts payable                                                                                                                                                                                |  | $            | 101    
|Other accounts payables (Note 5)                                                                                                                                                                |  |              | 702    
|Convertible Promissory notes (Note 7)                                                                                                                                                           |  |              | 4,617  
|                                                                                                                                                                                                |  |              |        
|Total current liabilities                                                                                                                                                                       |  |              | 5,420  
|                                                                                                                                                                                                |  |              |        
|LONG-TERM LIABILITIES:                                                                                                                                                                          |  |              |        
|Warrants to purchase Common stock                                                                                                                                                               |  |              | 734    
|Accrued severance pay                                                                                                                                                                           |  |              | 185    
|                                                                                                                                                                                                |  |              |        
|Total long-term liabilities                                                                                                                                                                     |  |              | 919    
|                                                                                                                                                                                                |  |              |        
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)                                                                                                                                                 |  |              |        
|                                                                                                                                                                                                |  |              |        
|STOCKHOLDERS' DEFICIENCY (Note 10):                                                                                                                                                             |  |              |        
|Stock capital -                                                                                                                                                                                 |  |              |        
|Common stock of $ 0.001 par value - Authorized: 24,000,000 shares at December 31, 2014 and 2013; Issued and outstanding: 163,580 and 155,009 shares at December 31, 2014 and 2013, respectively |  |              | *)     
|Series A-1 Preferred stock of $ 0.001 par value - Authorized: 400,000 shares at December 31, 2014 and 2013; Issued and outstanding: 222,620 shares at December 31, 2014 and 2013                |  |              | *)     
|Series A-2 Preferred stock of $ 0.001 par value - 
Authorized: 300,000 shares at December 31, 2014 and 2013; Issued and outstanding: 171,612 shares at December 31, 2014 and 2013               |  |              | *)     
|Additional paid-in capital                                                                                                                                                                      |  |              | 11,234 
|Accumulated deficit                                                                                                                                                                             |  |              | (16,850
|                                                                                                                                                                                                |  |              |        
|Total stockholders' deficiency                                                                                                                                                                  |  |              | (5,616 
|                                                                                                                                                                                                |  |              |        
|Total liabilities and stockholders' deficiency                                                                                                                                                  |  | $            | 723    



| | *) | Represents an amount lower than $ 1.
| | -- | ------------------------------------



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



- F-4 -







NANOVIBRONIX,
INC. AND ITS SUBSIDIARY



CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS

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



|                                                                                                         |  | Year ended December 31, |        
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                                         |  | 2014                    |        
|                                                                                                         |  |                         |        
|Revenues                                                                                                 |  | $                       | 203    
|                                                                                                         |  |                         |        
|Cost of revenues                                                                                         |  |                         | 93     
|                                                                                                         |  |                         |        
|Gross profit                                                                                             |  |                         | 110    
|                                                                                                         |  |                         |        
|Operating expenses:                                                                                      |  |                         |        
|                                                                                                         |  |                         |        
|Research and development                                                                                 |  |                         | 431    
|                                                                                                         |  |                         |        
|Selling and marketing                                                                                    |  |                         | 301    
|                                                                                                         |  |                         |        
|General and administrative                                                                               |  |                         | 589    
|                                                                                                         |  |                         |        
|Total operating expenses                                                                                 |  |                         | 1,321  
|                                                                                                         |  |                         |        
|Operating loss                                                                                           |  |                         | 1,211  
|                                                                                                         |  |                         |        
|Other income                                                                                             |  |                         | -      
|                                                                                                         |  |                         |        
|Financial expense, net (Note 11)                                                                         |  |                         | 1,387  
|                                                                                                         |  |                         |        
|Loss before taxes on income                                                                              |  |                         | 2,598  
|                                                                                                         |  |                         |        
|Taxes on income (Note 9)                                                                                 |  |                         | 49     
|                                                                                                         |  |                         |        
|Net loss                                                                                                 |  | $                       | 2,647  
|                                                                                                         |  |                         |        
|Total comprehensive loss                                                                                 |  | $                       | 2,647  
|                                                                                                         |  |                         |        
|Basic and diluted net loss per share (Note 13)                                                           |  | $                       | (17.08 
|                                                                                                         |  |                         |        
|Weighted average number of shares of Common stock used in computing basic and diluted net loss per share |  |                         | 155,009



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



- F-5 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

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



|                                                                                 |  | Preferred stock |         |  | Common stock |   |    | Additional
paid-in |  |  | Accumulated |  |  | Total  stockholders' |   
|-------------------------------------------------------------------------------- |  | --------------- | ------- |  | ------------ | - | -- | ------------------ |  |  | ----------- |  |  | -------------------- | --
|                                                                                 |  | Number          |         |  | Amount       |   |    | Number             |  |  | Amount      |  |  | capital              |   
|                                                                                 |  |                 |         |  |              |   |    |                    |  |  |             |  |  |                      |   
|Balance as of January 1, 2013                                                    |  |                 | 394,232 |  |              | $ | *) |                    |  |  | 155,009     |  |  | $                    | *)
|                                                                                 |  |                 |         |  |              |   |    |                    |  |  |             |  |  |                      |   
|Stock-based compensation related to options granted to consultants and employees |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|Benefit component of convertible notes                                           |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|Total comprehensive loss                                                         |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|                                                                                 |  |                 |         |  |              |   |    |                    |  |  |             |  |  |                      |   
|Balance as of December 31, 2013                                                  |  |                 | 394,232 |  |              |   | *) |                    |  |  | 155,009     |  |  |                      | *)
|                                                                                 |  |                 |         |  |              |   |    |                    |  |  |             |  |  |                      |   
|Stock-based compensation related to options granted to consultants and employees |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|Exercise of options                                                              |  |                 | -       |  |              |   | -  |                    |  |  | 8,571       |  |  |                      | *)
|Benefit component of convertible notes                                           |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|Total comprehensive loss                                                         |  |                 | -       |  |              |   | -  |                    |  |  | -           |  |  |                      | - 
|                                                                                 |  |                 |         |  |              |   |    |                    |  |  |             |  |  |                      |   
|Balance as of December 31, 2014                                                  |  |                 | 394,232 |  |              |   | *) |                    |  |  | 163,580     |  |  |                      | *)



| | *) | Represents an amount lower than $ 1.
| | -- | ------------------------------------



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



- F-6 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



CONSOLIDATED
STATEMENTS OF CASH FLOWS

U.S. dollars in thousands



|                                                                            |  | Year ended December 31, |       
|--------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                            |  | 2014                    |       
|Cash flows from operating activities:                                       |  |                         |       
|                                                                            |  |                         |       
|Net loss                                                                    |  | $                       | (2,647
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                         |       
|Depreciation                                                                |  |                         | 9     
|Stock-based compensation                                                    |  |                         | 24    
|Benefit component of promissory notes                                       |  |                         | 885   
|Valuation of warrants to purchase Common stock                              |  |                         | 138   
|Increase in trade receivables                                               |  |                         | (8    
|Decrease (increase) in prepaid expenses and other accounts receivable       |  |                         | 33    
|Decrease (increase) in inventories                                          |  |                         | 30    
|Increase (decrease) in accounts payable                                     |  |                         | 83    
|Increase in other accounts payable                                          |  |                         | 183   
|Increase (decrease) in accrued severance pay, net                           |  |                         | (2    
|Accrued interest on promissory notes                                        |  |                         | 372   
|                                                                            |  |                         |       
|Net cash used in operating activities                                       |  |                         | (900  
|                                                                            |  |                         |       
|Cash flows from investing activities:                                       |  |                         |       
|                                                                            |  |                         |       
|Purchase of property and equipment                                          |  |                         | (4    
|                                                                            |  |                         |       
|Net cash used in investing activities                                       |  |                         | (4    
|                                                                            |  |                         |       
|Cash flows from financing activities:                                       |  |                         |       
|                                                                            |  |                         |       
|Proceeds from issuance of promissory notes and warrants                     |  |                         | 900   
|                                                                            |  |                         |       
|Net cash provided by financing activities                                   |  |                         | 900   
|                                                                            |  |                         |       
|Decrease in cash and cash equivalents                                       |  |                         | (4    
|Cash and cash equivalents at the beginning of the period                    |  |                         | 94    
|                                                                            |  |                         |       
|Cash and cash equivalents at the end of the period                          |  | $                       | 90    
|                                                                            |  |                         |       
|Supplemental information and disclosure of non-cash financing transactions: |  |                         |       
|                                                                            |  |                         |       
|Issuance costs                                                              |  | $                       | 86    



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



- F-7 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 1:- | GENERAL
| | -------- | -------



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



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



| | b. | During the year ended December
                                         31, 2014, the Company incurred  losses of $2,647 and had negative cash flows from
                                         operating activities of $900. As of December 31, 2014,  the Company's ability to
                                         continue to operate as a going concern was dependent upon raising additional funds to
                                         finance its activities. In January and February 2015, the Company raised $3,150 (See
                                         also Note 14a).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES
| | -------- | -------------------------------



The consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S.
GAAP").



| | a. | Use of estimates:
| | -- | -----------------



The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



| | b. | Financial statements in U.S.
                                         dollars:
| | -- | ------------------------------------------------------------------------------



The accompanying
financial statements have been prepared in U.S. dollars.



The majority
of the Company's finances are received in U.S. dollars. Although a portion of the Company's expenses are dominated in New Israeli
Shekel ("NIS") (mostly salary and rent), a substantial portion of the expenses are denominated in U.S. dollars. In addition,
most of the Company's assets and liabilities are in U.S. dollars and management expects that most of its revenues will be generated
in U.S. dollars. The Company's management believes that the currency of the primary economic environment in which the operations
of the Company and its subsidiary are conducted is the U.S. dollar; thus the dollar is the functional currency of the Company
and its subsidiary.



- F-8 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



Transactions
and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other
currencies have been remeasured into U.S. dollars in accordance with Accounting Standards Codification (“ASC”) 830,
"Foreign Currency Matters."



All transaction
gains and losses from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in
the statement of operations in financial expenses, net, as appropriate.



| | c. | Principles of consolidation:
| | -- | ----------------------------



The consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiary, NanoVibronix (Israel 2003) Ltd. All
intercompany balances and transactions have been eliminated upon consolidation.



| | d. | Cash equivalents:
| | -- | -----------------



Cash equivalents
are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less
at the date acquired.



| | e. | Inventories:
| | -- | ------------



Inventories
are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items
or technological obsolescence. The Company periodically evaluates the quantities on hand relative to current and historical selling
prices and historical and projected sales volume. Based on this evaluation, provisions are made when required to write-down inventory
to its market value. As of December 31, 2014 and 2013, inventory write-downs were recorded in the amounts of $ 14 and $ 19, respectively.



Inventories
include finished products and raw materials. Cost is determined using the "first-in, first-out" method.



| | f. | Property and equipment:
| | -- | -----------------------



Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over
the estimated useful lives of the assets, at the following annual rates:



|                                   | %                  
|---------------------------------- | -------------------
|                                   |                    
|Computers and peripheral equipment | 33                 
|Office furniture and equipment     | 10 – 15 (mainly 10)



- F-9 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



| | g. | Impairment of long-lived assets:
| | -- | --------------------------------



The Company's
property and equipment are reviewed for impairment in accordance with ASC 360, "Property Plant and Equipment,” whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected
to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less selling costs. During the years ended December 31, 2014 and 2013, no impairment
losses have been identified.



| | h. | Severance pay:
| | -- | --------------



The Company's
liability for severance pay in respect of its subsidiary is calculated pursuant to Israel's 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. Employees are entitled
to one month's salary for each year of employment or a portion thereof. The Company's liability for all of its Israeli employees
is covered by monthly deposits for insurance policies and/or pension funds and by an accrual. The value of these policies and/or
funds is recorded as an asset in the Company's balance sheet. The deposited funds include profits accumulated to the balance sheet
date. The deposited amounts may be withdrawn only upon the fulfillment of the obligations pursuant to Israel's Severance Pay Law
or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial
profits.



Severance
expenses for the years ended December 31, 2014 and 2013 amounted to $ 43 and $ 37, respectively.



| | i. | Warrants:
| | -- | ---------



The Company
accounts for certain warrants held by investors which include down round protection as a liability according to provisions of
ASC 815-40, "Derivatives and Hedging - Contracts in Entity`s Own Equity,” ("ASC 815") which provides a new
two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer`s own
stock and thus able to qualify to be a derivative financial instrument. The Company measures the warrants at fair value by applying
the Black-Scholes option pricing model in each reporting period until they are exercised or expired, with changes in the fair
value being recognized in the Company`s statement of comprehensive loss as financial income or expense, as appropriate. For more
information see Note 8.



- F-10 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



| | j. | Revenue recognition:
| | -- | --------------------



The Company
generates revenues from the sale of its products to distributors and end users as as well as patients who are using the product
at home. Revenues from those products are recognized in accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition,"
when delivery has occurred, persuasive evidence of an agreement exists, the vendor's fee is fixed or determinable, no further
obligation exists and collectability is probable.



The Company's
agreements with its distributers do not contain any price protection guarantees, rights of return or other post-shipment obligation.



| | k. | Research and development costs:
| | -- | -------------------------------



Research
and development costs are charged to the statement of comprehensive loss, as incurred.



| | l. | Income taxes:
| | -- | -------------



The Company
accounts for uncertain tax position in accordance with ASC 740-10, "Income Taxes" ("ASC 740-10"). ASC 740-10
clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. ASC 740-10 utilizes a two-step approach for evaluating tax positions.



Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not
to be sustained upon examination. Measurement (step two) is only addressed if step one has been satisfied (i.e., the position
is more-likely-than-not to be sustained) otherwise a full liability in respect of a tax position not meeting the more-than-likely-than-not
criteria is recognized.



Under step
two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, that is more-likely-than-not
to be realized upon ultimate settlement.



ASC 740-10,
applies to all tax positions related to income taxes. This includes tax positions considered to be "routine" as well
as those with a high degree of uncertainty. ASC 740-10 has expanded disclosure requirements, which include a tabular roll forward
of the beginning and ending aggregate unrecognized tax benefits as well as specific detail related to tax uncertainties for which
it is reasonably possible the amount of unrecognized tax benefit will significantly increase or decrease within twelve months.



- F-11 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



| | m. | Accounting for stock-based compensation:
| | -- | ----------------------------------------



The Company accounts for stock-based
compensation in accordance with ASC 718, "Compensation-Stock Compensation," which requires companies to estimate the
fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated
statements of operations.



The Company recognizes compensation
expenses for the value of its awards granted based on the straight line method over the requisite service period of each of the
awards, net of estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.



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 Company has historically
not paid dividends and has no foreseeable plans to pay dividends.



The Company
applies ASC 505-50, "Equity-Based Payments to Non-Employees" with respect to options and warrants issued to non-employees.



Because
there has been no public market for the Common stock, the Company has determined the fair value of the Common stock underlying
all of its options and warrants at the time of grant by considering a number of objective and subjective factors. The Company
has applied a market approach using recent third-party transactions in its equity. The fair value of the underlying shares of
Common stock will continue to be determined by the Company’s management until such time as the Common stock is listed or
quoted on an established stock exchange, national market system or other quotation system.



- F-12 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



| | n. | Fair value of financial instruments:
| | -- | ------------------------------------



ASC 820,
"Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset
or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the
measurement date.



In determining
fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value
that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability
developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the
Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on
the best information available in the circumstances.



As a basis
for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:



| | Level 1 - | Valuations based on quoted prices in active markets
for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not applied to
Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market,
valuation of these products does not entail a significant degree of judgment.
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 2 - | Valuations based on one or more quoted prices in markets
that are not active or for which all significant inputs are observable, either directly or indirectly.
| | --------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3 - | Valuations based on inputs that are unobservable and
significant to the overall fair value measurement.
| | --------- | -------------------------------------------------------------------------------------------------------



The carrying
amounts of cash and cash equivalents, trade receivables, prepaid expenses and other accounts receivable, accounts payable and
other accounts payable approximate their fair value due to the short-term maturities of such instruments.



| | o. | Convertible promissory notes:
| | -- | -----------------------------



The Company
applies ASC 470-20, "Debt with Conversion and Other Options" ("ASC 470-20"), when it cannot elect the fair
value option under ASC 825, "Financial Instruments." In accordance with ASC 470-20, the Company first allocates the
proceeds to freestanding liability instrument that are measured at fair value at each reporting date, based on their fair value.
The remaining proceeds are allocated between the convertible debt and all other freestanding instruments based on the relative
fair values of the instruments at the time of issuance. In accordance with ASC 815 "Derivatives and Hedging" ("ASC
815"), the Company bifurcates all embedded derivatives that require bifurcation and accounts for them separately from the
convertible debt.



- F-13 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



In addition,
under the guidelines of ASC 470-20, the Company measures and recognizes the embedded beneficial conversion feature on the commitment
date. The beneficial conversion feature is measured by allocating a portion of the proceeds equal to the intrinsic value of the
feature to additional paid-in-capital. The intrinsic value of the feature is calculated on the commitment date using the effective
conversion price which had resulted subsequent to the allocation of the proceeds between the convertible debt and all other freestanding
instruments. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.



The Company
applied ASC 470-20 and ASC 815 to the Convertible promissory notes (see Note 8).



| | p. | Deferred issuance costs:
| | -- | ------------------------



Deferred
issuance costs represent direct and incremental cost related to the Company's planned registeration of securities (see also Note
14b).



| | q. | Basic and diluted net loss per
                                         share:
| | -- | ------------------------------------------------------------------------------



Basic net loss per share is
computed based on the weighted average number of shares of Common stock outstanding during each year. Diluted net loss per share
is computed based on the weighted average number of shares of Common stock outstanding during each year plus dilutive potential
equivalent shares of Common stock considered outstanding during the year, in accordance with ASC 260, "Earnings per Share."



All outstanding
stock options and warrants have been excluded from the calculation of the diluted net loss per share because all such securities
are anti-dilutive for all periods presented.



| | r. | Concentrations of credit risk:
| | -- | ------------------------------



Financial instruments that
potentially subject the Company and its subsidiary to concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables.



Cash and cash equivalents
are invested in major banks in the United States and Israel. Such deposits in the United States and in Israel may be in excess
of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the
Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.



Trade receivables
are mainly derived from sales to customers, located in the United States, Israel, Europe and India. The Company performs ongoing
credit evaluation of its customers and to date has not experienced any material losses.



- F-14 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
| | -------- | ---------------------------------------



The Company and its subsidiary
have no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging
arrangements.



| | s. | Impact of recently issued accounting
                                         standard not yet adopted:
| | -- | -------------------------------------------------------------------------------------------------------



In May 2014,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, "Revenue from
Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in "Revenue
Recognition (Topic 605),” and requires an entity to recognize revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that
reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption
of ASU 2014-09 on its consolidated financial statements.



In August
2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements - Going Concern
(Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern" ("ASU
2014-15"). ASU 2014-15 requires management to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the entity's ability to continue as a going concern for a period of one year after the date
that the financial statements are issued. If such conditions or events exist, an entity should disclose that there is substantial
doubt about the entity's ability to continue as a going concern for a period of one year after the date that the financial statements
are issued. Disclosure should include the principal conditions or events that raise substantial doubt, management's evaluation
of the significance of those conditions or events in relation to the entity's ability to meet its obligations, and management's
plans that are intended to mitigate those conditions or events. ASU 2014-15 will be effective for the annual period ending after
December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.



The Company is currently in
the process of evaluating the impact of the adoption of ASU 2014-15 on its consolidated financial statements.



| | NOTE 3:- | PREPAID EXPENSES AND OTHER ACCOUNTS RECEIVABLE
| | -------- | ----------------------------------------------



|                          |  | December 31, |   
|------------------------- |  | ------------ | --
|                          |  | 2014         |   
|                          |  |              |   
|Prepaid expenses          |  | $            | - 
|Other accounts receivable |  |              | 19
|                          |  |              |   
|                          |  | $            | 19



- F-15 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 4:- | PROPERTY AND EQUIPMENT, NET
| | -------- | ---------------------------



|                                   |  | December 31, |    
|---------------------------------- |  | ------------ | ---
|                                   |  | 2014         |    
|Cost:                              |  |              |    
|Computers and peripheral equipment |  | $            | 99 
|Office furniture and equipment     |  |              | 10 
|                                   |  |              |    
|                                   |  |              | 109
|Accumulated depreciation:          |  |              |    
|Computers and peripheral equipment |  |              | 83 
|Office furniture and equipment     |  |              | 8  
|                                   |  |              |    
|                                   |  |              | 91 
|                                   |  |              |    
|Depreciated cost                   |  | $            | 18 



Depreciation expenses for the
years ended December 31, 2014 and 2013 were $ 9 and $ 10, respectively.



| | NOTE 5:- | OTHER ACCOUNTS PAYABLE
| | -------- | ----------------------



|                               |  | December 31, |    
|------------------------------ |  | ------------ | ---
|                               |  | 2014         |    
|                               |  |              |    
|Employees and payroll accruals |  | $            | 67 
|Accrued expenses               |  |              | 551
|Deferred revenues              |  |              | -  
|Provision for taxes            |  |              | 84 
|                               |  |              |    
|                               |  | $            | 702



- F-16 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 6:- | COMMITMENTS AND CONTINGENT LIABILITIES
| | -------- | --------------------------------------



| | a. | The Company leases office facilities
                                         and motor vehicles under operating leases, which expire on various dates, the latest
                                         of which is 2017.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Future minimum
lease commitments under non-cancelable operating lease agreements as of December 31, 2014 are as follows:



|Year ended December 31, |  | Operating leases |   
|----------------------- |  | ---------------- | --
|                        |  |                  |   
|2015                    |  | $                | 68
|2016                    |  |                  | 19
|2017                    |  |                  | 1 
|                        |  |                  |   
|Total                   |  | $                | 88



Rent and
related expenses were $ 77 and $ 54 for the years ended December 31, 2014 and 2013, respectively.



| | b. | Royalties to the Office of the
                                         Chief Scientist ("the OCS"):
| | -- | ----------------------------------------------------------------------------------------------------



Under the Company's subsidiary
research and development agreements with the OCS and pursuant to applicable laws, the Company is required to pay royalties at
the rate of 3-3.5% of sales of products developed with funds provided by the OCS, up to an amount equal to 100% of the OCS research
and development grants received, linked to the dollar including accrued interest at the LIBOR rate. The Company is obligated to
repay the Israeli Government for the grants received only to the extent that there are sales of the funded products.



As of December
31, 2014, the Company has a contingent obligation to pay royalties in the principal amount of approximately $ 492. In addition,
the OCS may impose certain conditions on any arrangement under which it permits the Company to transfer technology or development
out of Israel.



| | c. | In December 2011, the Company
                                         entered into a license agreement with a third party to manufacture and sell its products.
                                         According to the agreement, the Company was obligated to market and sell the third party's
                                         products and pay future royalties as a percentage of actual revenues. In the second quarter
                                         of 2014, followed the expiration of the agreement, the Company recorded a provision associated
                                         with a potential dispute with the third party.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- F-17 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 7:- | CONVERTIBLE PROMISSORY NOTES
| | -------- | ----------------------------



| | a. | In November 2011, the Company
                                         issued Convertible B-1 Promissory Notes (the "B-1 Promissory Notes") to new
                                         and existing stockholders for a consideration of $ 1,000. The B-1 Promissory Notes
                                         bore 10% annual interest and were automatically convertible into Series B-1 Participating
                                         Convertible Preferred stock ("Series B-1 Preferred stock") upon certain events
                                         as defined in the agreement, at a fixed conversion price of $ 0.284 per share. If
                                         the B-1 Promissory Notes were not converted, the Company was required to pay the unpaid
                                         principal amount and interest accrued on the earlier of an "Event of Default"
                                         (as defined in the agreement) or November 15, 2014 (the "Maturity Date").
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Following
the above, the Company's then outstanding old Series B Participating Convertible Preferred stock (“Old Series B Preferred
stock”) and warrants to purchase Old Series B Preferred stock, issued during 2009 through 2011, were automatically cancelled
and the holders of the Old Series B Preferred stock received Convertible B-2 Promissory Notes (the "B-2 Promissory Notes")
in an aggregate amount of $ 1,557. The terms of the B-2 Promissory Notes terms were identical to those of the B-1 Promissory Notes,
except that such B-2 Promissory Notes were convertible into shares of series B-2 Participating Convertible Preferred stock ("Series
B-2 Preferred stock") and the conversion price set forth in such notes was $ 0.199 per share (reflecting a 30% discount
on the B-1 Promissory Notes' conversion price mentioned above).



The B-1
Promissory Notes and the B-2 Promissory Notes are considered to be a liability pursuant to ASC 480 "Distinguishing Liabilities
from Equity." The convertible notes are presented at accreted value, which includes the principal amount of the convertible
notes less any discount and accumulated interest accrued over the term of the convertible notes, using the interest method.



In addition,
the Company issued to the holders of the warrants to purchase Old Series B Preferred stock new warrants to purchase 2,319,062
shares of Series B-2 Preferred stock with a fixed exercise price of $ 0.199 (reflecting a 30% discount on the fair value
of the Company's Preferred stock on that date). The warrants expire on November 15, 2018. The fair value of the warrants on the
issuance date was $ 571 and was recorded as equity in accordance with ASC 470.



As a result
of issuing the warrants and as a result of the discount on the conversion price of the B-2 Promissory Note, the Company recorded
in 2011 benefit component in the amount of $ 1,142, to be amortized over the terms of the B-2 Promissory Notes.



The Company’s
B-1 Promissory Notes and B-2 Promissory Notes matured on November 15, 2014. The entire outstanding principal balance and any outstanding
fees or interest became due and payable in full on such date. As of December 31, 2014, the Company had not repaid any amount under
these notes, and they continued to accrue interest. See also Note 14c.



- F-18 -









NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 7:- | CONVERTIBLE
                                         PROMISSORY NOTES (Cont.)
| | -------- | -----------------------------------------------------------------------------



| | b. | During February 2013, the Company
                                         signed a convertible promissory notes agreement ("The Agreement") and issued
                                         convertible promissory notes ("The Notes") to certain investors. In addition,
                                         the Company issued to the stockholder warrants to purchase 37,594 shares of Common stock.
                                         The exercise price at which the warrants may be exercised is $ 2.66 per share, subject
                                         to adjustment for stock splits, fundamental transactions or similar events. The warrants
                                         expire within a period of five years, based on the issuance date (see also Note 10d).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December
31, 2013, the Company had signed a second, third, fourth and fifth amendment to The Agreement, amended and restated The Notes
and issued warrants to purchase an additional 37,594 shares of Common stock per amendment in consideration for a principal amount
of $ 600.



| |  | During February 2014 through December
                                         2014, the Company signed a sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, thirteenth
                                         and fourteenth amendment to The Agreement, amended and restated the Notes with each amendment
                                         and issued warrants to purchase an additional 37,594 shares of Common stock per amendment
                                         in consideration for $ 900.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Notes are
convertible to Common stock and bear 6% interest, computed annually and should be fully due and payable at the earliest of April
30, 2015or upon an event of default, as defined in The Agreement.



| | c. | On April 28, 2014, the Company
                                         signed an amendment to The Agreement, pursuant to which The Notes were amended to be
                                         convertible into shares of Series C Preferred stock rather than Common stock. On the
                                         same date, the Company entered into a master amendment agreement with certain major stockholders
                                         pursuant to which the series B-1 promissory notes and series B-2 promissory notes held
                                         by them were amended to be convertible into shares of Series C Preferred stock rather
                                         than Common stock. Also on April 28, 2014, the Company amended the warrants to purchase
                                         shares of series B-2 participating convertible Preferred stock held by the entities party
                                         to the master amendment agreement to include provisions that block exercise if such exercise
                                         will result in the holder having beneficial ownership of more than 9.99% of the Company's
                                         Common stock. This limitation may be waived upon not less than 61 days prior written
                                         notice to the Company, and will expire the day before the applicable warrant expires..
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- F-19 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 8:- | FAIR
                                         VALUE MEASUREMENTS
| | -------- | ----------------------------------------------------------------



During February
2013 through December 2014, the Company issued to the holders of The Notes warrants to purchase 563,910 shares of Common stock.
The exercise price at which the warrants may be exercised is $ 2.66 per share, subject to adjustment for stock splits, fundamental
transactions or similar events including "down round" protection. The warrants expire on February 2018 through December
2019, based on the issuance date (see also Note 7b, 7c).



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



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



|                          | December 31,
|------------------------- | ------------
|                          | 2014        
|                          |             
|Dividend yield (1)        | 0%          
|Expected volatility (2)   | 63%         
|Risk-free interest (3)    | 0.67%       
|Expected term (years) (4) | 3.5-4.5     



| | (1) | Dividend yield - was based on
                                         the fact that the Company has not paid dividends to its stockholders in the past and
                                         does not expect to pay dividends to its stockholders in the future.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Expected volatility - was calculated
                                         based on actual historical stock price movements of companies in the same industry over
                                         the term that is equivalent to the expected term of the option.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Risk-free interest - based on
                                         yield rate of non-index linked U.S. Federal Reserve treasury stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Expected term - the expected
                                         term was based on the maturity date of the warrants.
| | --- | --------------------------------------------------------------------------------------------------------------------------



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



|                                                                     |  | Fair value of warrants to 
    Common stock |    
|-------------------------------------------------------------------- |  | ------------------------------------------- | ---
|                                                                     |  | 2014                                        |    
|                                                                     |  |                                             |    
|Balance at January 1                                                 |  | $                                           | 253
|Fair value of warrants issued during twelve months ended December 31 |  |                                             | 343
|Change in fair value of warrants                                     |  |                                             | 138
|                                                                     |  |                                             |    
|Balance at December 31                                               |  | $                                           | 734



- F-20 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 9:- | TAXES ON INCOME
| | -------- | ---------------



| | a. | As of December 31, 2014, the
                                         U.S. Company had federal and state net operating carry forward tax losses of approximately
                                         $ 11,430. The federal operating loss can be offset against taxable income for 20
                                         years. Utilization of the U.S. net operating losses may be subject to substantial limitations
                                         due to the change of ownership provisions of the Internal Revenue Code of 1986.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Foreign tax:
| | -- | ------------



| | 1. | Income Tax (Inflationary Adjustments)
                                         Law, 1985:
| | -- | -----------------------------------------------------------------------------------------

According to
the law, until 2007, the results for tax purposes were adjusted for the changes in the Israeli CPI.



In February
2008, the "Knesset" (Israeli parliament) passed an amendment to the Income Tax (Inflationary Adjustments) Law, 1985,
which limits the scope of the law starting 2008 and thereafter. Starting 2008, the results for tax purposes are measured in nominal
values, excluding certain adjustments for changes in the Israeli CPI carried out in the period up to December 31, 2007. The amendment
to the law includes, among other things, the elimination of the inflationary additions and deductions and the additional deduction
for depreciation starting 2008.



| | 2. | The Law for the Encouragement
                                         of Capital Investments, 1959 (“the Law”):
| | -- | ----------------------------------------------------------------------------------------------------------------



According
to the law, the Company's subsidiary is entitled to various tax benefits by virtue of the "Beneficiary Enterprise"
status granted to the subsidiary, defined by this law.



The principal
benefits are:



The subsidiary
is tax exempt for a benefit period of two years and in the five subsequent years of the benefit period is subject to a reduced
tax rate of 10%-25% (based on percentage of foreign ownership).



According to
the law, the benefit period commences in the later of the year elected by the subsidiary or the first year in which the subsidiary
has taxable income, provided that 12 years have not elapsed from the beginning of the year of election. The subsidiary has elected
2005 as the year of election.



If dividends
are distributed out of tax exempt profits, the subsidiary will then become liable for tax at the rate applicable to its profits
from the approved enterprise in the year in which the income was earned, as if it had not chosen the alternative track of benefits.
The subsidiary's policy is not to distribute dividends out of these profits.



- F-21 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 9:- | TAXES ON INCOME
                                         (Cont.)
| | -------- | ----------------------------------------------------------------



Conditions for
the entitlement to the benefits:



The above
benefits are conditional upon the fulfillment of the conditions stipulated by the law, regulations published thereunder and
the letters of approval for the specific investments in the Beneficiary Enterprise. In the event of failure to comply with
these conditions, the benefits may be canceled and the subsidiary may be required to refund the amount of the benefits, in
whole or in part, including interest. The Company’s management believes that the subsidiary is meeting the
aforementioned conditions.



In December
2010, the "Knesset" passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011 ("the 2011
and 2012 Amendment"), which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments,
1959 ("the Law"). The 2011 and 2012 Amendment became effective as of January 1, 2011. According to the 2011 and
2012 Amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income
under its status as a preferred company with a preferred enterprise. Commencing from the 2011 tax year, the Company will be able
to apply (the waiver is non-recourse) the 2011 and 2012 Amendment and from the elected tax year and onwards, it will be subject
to the amended tax rates that are: 2011 and 2012 - 15% (in development area A - 10%), 2013 and 2014 - 12.5% (in development area
A - 7%) and in 2015 and thereafter - 12% (in development area A - 6%). Certain "Special Industrial Companies" that meet
certain criteria would enjoy further reduced tax rates of 5% in Zone A and 8% elsewhere. The profits of these Industrial Companies
would be freely distributable as dividends, subject to a 15% withholding tax (or lower, under an applicable tax treaty)



On August 5,
2013, the "Knesset" issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets
for 2013 and 2014), 2013 which consists of Amendment 71 to the Law for the Encouragement of Capital Investments ("the 2013
and 2014 Amendment"). According to the 2013 and 2014 Amendment, the tax rate on preferred income from a preferred enterprise
in 2014 and thereafter will be 16% (in development area A - 9%).



The 2013 and
2014 Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise's
earnings as above will be subject to tax at a rate of 20%.



The Company
and its subsidiary has tested the impact of the 2013 and 2014 Amendment to the Law on its financial statements, and as of the
publication of the reports the Company and its subsidiary estimate that it will not be impacted by the initiation of the 2013
and 2014 Amendment as of the tax year 2014.



This estimation
of the Company and its subsidiary might change in the future until the submission of the final decision to the tax authorities,
as stated in the 2013 and 2014 Amendment.



- F-22 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 9:- | TAXES ON INCOME
                                         (Cont.)
| | -------- | ----------------------------------------------------------------



| | 3. | Tax rates:
| | -- | ----------



| |  | The Israeli corporate tax rate
                                         in 2014 is 26.5% and in 2013 is 25%.
| |  | ------------------------------------------------------------------------------------------------------------



On July 30,
2013, the “Knesset” approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget
Law") which consists, among others, of fiscal changes whose main aim is to enhance long-term collection of taxes.



These changes
include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, cancelling the lowering of the tax rates applicable
to preferred enterprises (9% in development area A and 16% in other areas), taxing revaluation gains and increasing the tax rates
on dividends within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014.



| | 4. | Taxes on income recorded in
                                         the statement of comprehensive loss for the year ended December 31, 2014 are all current
                                         year taxes.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | The subsidiary
                                         has final tax assessments through 2009.
| | -- | -----------------------------------------------------------------------------------------------



| | c. | Deferred income taxes:
| | -- | ----------------------



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:



|                                               |  | December 31, |       
|---------------------------------------------- |  | ------------ | ------
|                                               |  | 2014         |       
|Deferred tax assets:                           |  |              |       
|                                               |  |              |       
|Net operating loss carry forward               |  | $            | 3,886 
|Temporary differences                          |  |              | 10    
|                                               |  |              |       
|Deferred tax assets before valuation allowance |  |              | 3,896 
|Valuation allowance                            |  |              | (3,896
|                                               |  |              |       
|Net deferred tax asset                         |  | $            | -     



In assessing
the realization of deferred tax assets, management considers whether it is more likely than not that all or some portion of the
deferred tax assets will not be realized.



The ultimate
realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary
differences are deductible and net operating losses are utilized. Based on consideration of these factors, the Company recorded
a full valuation allowance at December 31, 2014 and 2013.





- F-23 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 9:- | TAXES ON INCOME
                                         (Cont.)
| | -------- | ----------------------------------------------------------------



| | d. | Loss before
                                         taxes on income:
| | -- | ---------------------------------------------------------------------



|         |  | Year ended December 31, |      
|-------- |  | ----------------------- | -----
|         |  | 2014                    |      
|         |  |                         |      
|Domestic |  | $                       | 1,821
|Foreign  |  |                         | 777  
|         |  |                         |      
|         |  | $                       | 2,598



| | e. | Taxes on income:
| | -- | ----------------



Taxes on income
for the period ended December 31, 2014 are foreign current taxes related to the Israeli subsidiary following the intercompany
service agreement with the Company.



| | f. | The main reconciling item between
                                         the statutory tax rate of the Company and the effective tax rate is the recognition of
                                         valuation allowances in respect of deferred taxes relating to accumulated net operating
                                         losses carried forward due to the uncertainty of the realization of such deferred taxes.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | NOTE 10:- | STOCKHOLDERS'
                                         DEFICIENCY
| | --------- | -----------------------------------------------------------------



On May 7, 2014, the Company effected
a reverse split of the Company's Common stock of seven (7) for one (1) (i.e., seven shares of Common stock, $ 0.001 nominal value
each, will be combined into one share of Common stock $ 0.001 nominal value). All Common stock and per share data included in
these financial statements for all periods presented have been retroactively adjusted to reflect the reverse split.



| | a. | Composition of stock capital:
| | -- | -----------------------------



|                                                    |  | December 31, 2014 |            |  | December 31, 2013       | 
|--------------------------------------------------- |  | ----------------- | ---------- |  | ----------------------- | 
|                                                    |  | Authorized        |            |  | Issued and  outstanding | 
|                                                    |  | number of shares  |            |  | number of shares        | 
|                                                    |  |                   |            |  |                         | 
|Common stock of
    $ 0.001 par value               |  |                   | 24,000,000 |  |                         | 
|Series A-1 Preferred stock of
    $ 0.001 par value |  |                   | 400,000    |  |                         | 
|Series A-2 Preferred stock of
    $ 0.001 par value |  |                   | 300,000    |  |                         | 
|Series B-1 Preferred stock of
    $ 0.001 par value |  |                   | 4,650,000  |  |                         | 
|Series B-2 Preferred stock of
    $ 0.001 par value |  |                   | 12,650,000 |  |                         | 
|Series C Preferred stock of
    $ 0.001 par value   |  |                   | 5,500,000  |  |                         | 



- F-24 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS'
                                         DEFICIENCY (Cont.)
| | --------- | -------------------------------------------------------------------------



| | b. | Common Stock:
| | -- | -------------



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.



| | c. | Series A, B and C Preferred Stock:
| | -- | ----------------------------------



| | 1. | Series A and B
                                         Preferred Stock
| | -- | -----------------------------------------------------------------------



Liquidation
preference - Upon any liquidation, dissolution or winding up of the Company, (i) first, each series B holder will be entitled
to be paid, before any distribution or payment is made upon any other securities of the Company, an amount in cash equal to the
aggregate Series Issuance Price (subject to adjustments) of all shares of Series B Preferred stock held by such holder; (ii) second,
each series A holder will be entitled to be paid, before any distribution or payment is made upon any junior securities of the
Company, an amount in cash equal to the aggregate Series Issuance Price (subject to adjustments) of all shares of Series A Preferred
stock held by such holder, (iii) thereafter, each series A holder and series B holder shall participate in any distribution or
payment on a pro-rata basis with all junior securities, and such shares shall thereafter confer only the rights of Common stock,
as if such holder's Preferred stock had been converted into Common stock.



Voting rights- Each outstanding share of Series A Preferred stock and Series B Preferred stock shall have the number of votes equal to
the number of whole shares of Common stock, into which such share of Preferred stock is then convertible.



Conversion-
Each share of Series A Preferred stock or Series B Preferred stock shall be convertible, at the option of the holder
thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into
such number of fully paid and non-assessable shares of Common stock as is determined by dividing the applicable Series
Issuance Price by the conversion price in effect at the time of conversion.



In each case,
subject to adjustment for any and all recapitalizations, reclassifications, stock splits, reverse stock splits, stock dividends,
subdivisions, combinations or similar events.



- F-25 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS'
                                         DEFICIENCY (Cont.)
| | --------- | -------------------------------------------------------------------------



| | 2. | Series
                                         C Preferred Stock
| | -- | -----------------------------------------------------------------



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



In the event
of liquidation, dissolution, or winding up, each holder of Series C Preferred stock could elect to receive either (i) in preference
to any payments made to the holders of Common stock and any other junior securities, a payment for each share of Series C Preferred
stock then held equal $ 0.001, plus an additional amount equal to any dividends declared but unpaid on such shares, and any other
fees or liquidated damages then due and owing thereon or (ii) the amount of cash, securities or other property to which such holder
would be entitled to receive with respect to each share of Series C Preferred stock if such share of Series C Preferred stock
had been converted to Common stock immediately prior to such liquidation, dissolution, or winding up (without giving effect to
any conversion limitations).



Shares of Series
C Preferred stock are not entitled to receive any dividends, unless and until specifically declared by the board of directors.
However, holders of Series C Preferred stock are entitled to receive dividends on shares of Series C Preferred stock equal (on
an as-if-converted-to-Common-stock basis) to and in the same form as dividends actually paid on shares of the Common stock when
such dividends are specifically declared by the board of directors. The Company is not obligated to redeem or repurchase any shares
of Series C Preferred stock. Shares of Series C Preferred stock are not otherwise entitled to any redemption rights, or mandatory
sinking fund or analogous fund provisions.



Each holder
of Series C Preferred stock is entitled to the number of votes equal to the number of whole shares of Common stock into which
the shares of Series C Preferred stock held by such holder are then convertible (subject to the beneficial ownership limitations)
with respect to any and all matters presented to the stockholders for their action or consideration. Holders of Series C Preferred
stock vote together with the holders of Common stock as a single class, except as provided by law and except that the consent
of holders of a majority of the outstanding Series C Preferred stock is required to amend the terms of the Series C Preferred
stock.



| | d. | Warrants issued to investors:
| | -- | -----------------------------



| | 1. | In November 2011, the Company
                                         issued to some of its stockholder warrants to purchase 2,319,062 shares of Series B-2
                                         Preferred stock with a fixed exercise price of $ 0.199 per share (reflecting a 30%
                                         discount on the fair value of the Company's Preferred stock on that date). The warrants
                                         expire on November 15, 2018 (see also Note 8a).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- F-26 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS' DEFICIENCY (Cont.)
| | --------- | --------------------------------



| | 2. | In February 2013 through December
                                         2014, the Company issued to some of its stockholder warrants to purchase 563,910 shares
                                         of Common stock. The exercise price at which the warrant may be exercised is $ 2.66
                                         per share, subject to adjustment for stock splits, fundamental transactions or similar
                                         events. The warrants shall expire in February 2018 through December 2019, based on the
                                         issuance date (see also Note 8b, 8c).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Stock option plan:
| | -- | ------------------



In November 2004, the Board of
Directors of the Company adopted a stock option plan ("the Plan"), according to which options may be granted to employees,
directors and consultants.



Pursuant to the Plan, the Company
reserved for issuance 400,000 shares of Common stock. Each option entitles the holder to purchase one share of Common stock of
the Company and expires after 10 years from the date of grant. Any options that are terminated, cancelled, forfeited or not exercised,
become available for future grants.



In November 2014, 10 years after
it was adopted, the Plan expired.



In February 2014, the Board of
Directors of the Company adopted a new stock option plan ("the New Plan"), according to which options may be granted
to employees, directors and consultants.



Pursuant to the New Plan,
the Company reserved for issuance 714,286 shares of Common stock. Each option entitles the holder to purchase one share of
Common stock of the Company and expires after 10 years from the date of grant. Any options that are terminated, cancelled,
forfeited or not exercised, become available for future grants.



As of December 31, 2014, under
the New Plan, 677,141 options were available for future grants.



| | 1. | Option issued to employees
| | -- | --------------------------



The fair value
for options granted in 2014 and 2013 is estimated at the date of grant using a Black-Scholes-Merton options pricing model with
the following weighted average assumptions:



|                         |  | Year ended December 31, |     
|------------------------ |  | ----------------------- | ----
|                         |  | 2014                    |     
|                         |  |                         |     
|Risk free interest       |  |                         | 1.96
|Dividend yields          |  |                         | 0   
|Volatility               |  |                         | 60  
|Expected term (in years) |  |                         | 6   



- F-27 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS' DEFICIENCY (Cont.)
| | --------- | --------------------------------



A summary of
the Company's options activity and related information with respect to options granted to employees during the years ended December
31, 2014 and 2013 are as follows:



|                                    |  | Year ended December 31, |        
|----------------------------------- |  | ----------------------- | -------
|                                    |  | 2014                    |        
|                                    |  | Number of options       |        
|                                    |  |                         |        
|Outstanding - beginning of the year |  |                         | 322,542
|Granted                             |  |                         | 37,145 
|Exercised                           |  |                         | (8,571 
|Expired or Forfeited                |  |                         | (11,257
|                                    |  |                         |        
|Outstanding - end of the year       |  |                         | 339,859
|                                    |  |                         |        
|Exercisable at end of year          |  |                         | 302,714



The weighted
average fair value of the options granted in the year ended December 31, 2014 was $ 1.84.



The weighted
average remaining contractual life as of December 31, 2014 is 8.07 years. The aggregated intrinsic value of outstanding options,
as of December 31, 2014 and 2013 is $ 651 and $ 756, respectively.



As of December
31, 2014, compensation cost in the amount of $ 51 will be recognized in the years 2015-2017.



- F-28 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS' DEFICIENCY (Cont.)
| | --------- | --------------------------------



| | 2. | Option issued to non-employees
| | -- | ------------------------------



The Company's
outstanding options granted to consultants as of December 31, 2014 are as follows:



|Issuance date  |  | Options for Common stock |        |  | Weighted Average exercise price per share |   |       | Options exercisable |  |  | Expiration date
|-------------- |  | ------------------------ | ------ |  | ----------------------------------------- | - | ----- | ------------------- |  |  | ---------------
|               |  |                          |        |  |                                           |   |       |                     |  |  |                
|April 2005     |  |                          | 321    |  |                                           | $ | 47.18 |                     |  |  | 321            
|December 2005  |  |                          | 143    |  |                                           | $ | 47.18 |                     |  |  | 143            
|September 2006 |  |                          | 500    |  |                                           | $ | 23.59 |                     |  |  | 500            
|April 2007     |  |                          | 357    |  |                                           | $ | 24.21 |                     |  |  | 357            
|December 2007  |  |                          | 1,500  |  |                                           | $ | 84.56 |                     |  |  | 1,500          
|April 2009     |  |                          | 1,071  |  |                                           | $ | 72.45 |                     |  |  | 1,071          
|December 2010  |  |                          | 786    |  |                                           | $ | 1.99  |                     |  |  | 786            
|March 2013     |  |                          | 30,000 |  |                                           | $ | 1.96  |                     |  |  | 30,000         
|October 2013   |  |                          | 1,000  |  |                                           | $ | 1.96  |                     |  |  | 1,000          
|February 2014  |  |                          | 714    |  |                                           | $ | 1.96  |                     |  |  | 714            
|               |  |                          |        |  |                                           |   |       |                     |  |  |                
|Total          |  |                          | 36,392 |  |                                           | $ | 7.63  |                     |  |  | 36,392         



As of December
31, 2014 , all options granted to non-employees are fully vested. The fair value of the Company's stock options granted to non-employees
for the year ended December 31, 2014 and 2013was calculated using the following weighted average assumptions:



|                      |  | Year ended
        December 31,
|--------------------- |  | -------------------------------
|                      |  | 2014                           
|                      |  |                                
|Dividend yield        |  | 0%                             
|Expected volatility   |  | 60%                            
|Risk-free interest    |  | 1.73%                          
|Expected term (years) |  | 10                             



- F-29 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 10:- | STOCKHOLDERS' DEFICIENCY (Cont.)
| | --------- | --------------------------------



| | 3. | Stock-based compensation
| | -- | ------------------------



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



|                           |  | Year ended December 31, |   
|-------------------------- |  | ----------------------- | --
|                           |  | 2014                    |   
|                           |  |                         |   
|Research and development   |  | $                       | 2 
|Selling and marketing      |  |                         | 5 
|General and administrative |  |                         | 17
|                           |  |                         |   
|                           |  | $                       | 24



| | NOTE 11:- | FINANCIAL EXPENSE, NET
| | --------- | ----------------------



|                                      |  | Year ended December 31, |      
|------------------------------------- |  | ----------------------- | -----
|                                      |  | 2014                    |      
|                                      |  |                         |      
|Interest on promissory notes          |  | $                       | 372  
|Benefit component of promissory notes |  |                         | 885  
|Change in fair value of warrants      |  |                         | 138  
|Other financial expense (income)      |  |                         | (8   
|                                      |  |                         |      
|                                      |  | $                       | 1,387



| | NOTE 12:- | GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
| | --------- | ----------------------------------------------



Summary
information about geographic areas:



ASC 280, "Segment
Reporting," establishes standards for reporting information about operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one
reportable segment, and derives revenues from selling its products mainly through distributor agreements. The following is a summary
of revenues within geographic areas:



- F-30 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 12:- | GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA (Cont.)
| | --------- | ------------------------------------------------------



|                  |  | Year ended December 31, |    
|----------------- |  | ----------------------- | ---
|                  |  | 2014                    |    
|                  |  |                         |    
|United States     |  | $                       | 83 
|Israel            |  |                         | 28 
|Europe            |  |                         | 46 
|India             |  |                         | 11 
|Rest of the world |  |                         | 35 
|                  |  |                         |    
|                  |  | $                       | 203



During the year
ended December 31, 2014, 10.2% of the Company's revenues were gained from sales to a single customer in the United States.



During the year
ended December 31, 2013, there were no sales to a single customer exceeding 10% of the Company's revenues.



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



| | NOTE 13:- | BASIC AND DILUTED NET LOSS PER SHARE
| | --------- | ------------------------------------



The following
table sets forth the computation of the Company's basic and diluted net loss per share of Common stock:



|                                                                                                         |  | Year ended December 31 |        
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | -------
|                                                                                                         |  | 2014                   |        
|                                                                                                         |  |                        |        
|Net loss attributable to holders of Common stock as reported                                             |  | $                      | (2,647 
|                                                                                                         |  |                        |        
|Weighted average number of shares of Common stock used in computing basic and diluted net loss per share |  | $                      | 155,009
|                                                                                                         |  |                        |        
|Net loss per share of Common stock, basic and diluted                                                    |  | $                      | (17.08 



For the years
ended December 31, 2014 and 2013, all outstanding options and warrants have been excluded from the calculation of the diluted
net loss per share since their effect was anti-dilutive.



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NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | NOTE 14:- | SUBSEQUENT EVENTS
| | --------- | -----------------



| | a. | In January and February, 2015,
                                         the Company entered into securities purchase agreements with certain investors providing
                                         for the issuance of shares of Common stock, Series C Preferred stock and warrants to
                                         purchase shares of Common stock. Pursuant to these agreements, the Company has issued
                                         an aggregate of 833,333 shares of Series C Preferred stock, 216,667 shares of Common
                                         stock and warrants to purchase 420,000 shares of Common stock at an exercise price of
                                         $3.00 per share and warrants to purchase 420,000 shares of Common stock at an exercise
                                         price of $6.00 per share, for aggregate consideration of $3,150.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | On February 9, 2015, the Company
                                         filed a Registration Statement on Form 10 under the Securities Exchange Act of 1934,
                                         as amended, to register its Common stock under Section 12(g) of that act. The Company
                                         anticipates that the Form 10 will be effective on April 10, 2015.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | In February 2015, upon the receipt
                                         by the Company of investment amounts aggregating to $3,150, the B-1 Promissory Notes
                                         converted by their terms into an aggregate of 560,594 shares of Series B-1 Preferred
                                         stock and 123,057 shares of Series C Preferred stock, and the Company's B-2 Promissory
                                         Notes converted by their terms into an aggregate of 1,174,042 shares of Series B-2 Preferred
                                         stock and 333,959 shares of Series C Preferred stock.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | On March 25, 2015, the Company
                                         entered into an employment agreement with its chief executive officer.  Under this
                                         employment agreement, he is entitled to a fee based on sales  of the Company’s
                                         PainShield product in the United States or Canada  during the term of the employment
                                         agreement.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | On March 25, 2015, the Company
                                         entered into a services agreement with an entity controlled by our chief executive officer. 
                                         Pursuant to the agreement, the Company is required to pay this entity $4,000 per month
                                         in exchange for the provision of services that include the use of its office, the provision
                                         of telephone, fax and utilities at such office, processing for shipping of our products,
                                         customer service, maintenance of quality, service and repair records and payment processing.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | On March 25, 2015, the Company
                                         granted options to purchase 451,500 shares of Common stock to employees and directors
                                         pursuant to the NanoVibronix, Inc. 2014 Long-Term Incentive Plan.  The options have
                                         an exercise price of $2.57 and a term of ten years, and primarily vest one-third annually
                                         commencing on the one-year anniversary of the date of grant.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | On March 25, 2015, the Company
                                         issued warrants to purchase up to 61,000 shares of Common stock to related party as consideration
                                         for the provision of guidance and assistance in connection with the filing of the Company’s
                                         Form 10 and becoming a public reporting company.  The warrants have an exercise
                                         price of $2.57 per share, subject to adjustment.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



- F-32 -







NANOVIBRONIX, INC. AND ITS SUBSIDIARY



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

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



| | h. | On March 25, 2015, the Company
                                         entered into an agreement with a member of our board of directors, pursuant to which,
                                         as consideration for his efforts developing, pursuing approval of, and/or raising market
                                         awareness and acceptance of the Company’s vibrating urology catheter-related products,
                                         the director is entitled to a fee for all such products sold in the United States or
                                         Canada during the term of the agreement.  At the Company’s option, the fee
                                         may be paid in the form of cash or shares of our common stock. If paid in cash the director
                                         must use a portion of the fee to purchase shares of our common stock in the open market
                                         within 30 days, subject to any limitations or restrictions that may apply under applicable
                                         laws.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i. | The Company evaluates events
                                         or transactions that occur after the balance sheet date but prior to the issuance of
                                         financial statements to provide additional evidence relative to certain estimates or
                                         to identify matters that require additional disclosure. For its annual consolidated financial
                                         statements as of December 31, 2014 and for the year then ended, the Company evaluated
                                         subsequent events through March 30, 2015, the date that the consolidated financial statements
                                         were issued.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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- F-33 -