We are offering 1,000,000 shares
of our common stock. Our common stock is listed on the NYSE American under the symbol “NSPR.” On February 26,
2018, the last reported sale price of our common stock as reported on the NYSE American was $3.81 per share.
We have granted the underwriter an option for
a period of 30 days from the date of this prospectus supplement to purchase up to an additional 150,000 shares of
common stock at the public offering price less underwriting discounts and commissions. If the underwriter exercises the option
in full, the total underwriting discounts and commissions payable by us will be $241,500 and the total proceeds to us, before
expenses, will be $3,208,500.
The underwriter expects to deliver the shares
of common stock on or about March 1, 2018.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. Before deciding whether to invest in our common stock, you should
consider carefully the risks described below, together with other information in this prospectus supplement, the accompanying
prospectus, the information and documents incorporated by reference, and in any free writing prospectus that we have authorized
for use in connection with this offering. If any of these risks actually occurs, our business, financial condition, results of
operations or cash flow could be seriously harmed. This could cause the trading price of our common stock to decline, resulting
in a loss of all or part of your investment. The risks and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties not presently known to us, or that we currently see as immaterial, may also harm our business. Please
also read carefully the section below entitled “Special Note Regarding Forward-Looking Statements.”
Risks
Related to Our Business
We
have a history of net losses and may experience future losses.
We
have yet to establish any history of profitable operations. We reported a net loss of $8.4 million for the fiscal year ended December
31, 2017, and had a net loss of approximately $8.5 million during the fiscal year ended December 31, 2016. As of December 31,
2017, we had an accumulated deficit of $140 million. We expect to incur additional operating losses for the foreseeable future.
There can be no assurance that we will be able to achieve sufficient revenues throughout the year or be profitable in the future.
The
report of our independent registered public accounting firm contains an explanatory paragraph as to our ability to continue as
a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Because
we have had recurring losses and negative cash flows from operating activities, substantial doubt exists regarding our ability
to remain as a going concern at the same level at which we are currently performing. Accordingly, the report of Kesselman &
Kesselman, our independent registered public accounting firm, with respect to our financial statements for the year ended December
31, 2017, includes an explanatory paragraph as to our potential inability to continue as a going concern. The doubts regarding
our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms
or at all.
We
will need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly
or difficult to obtain and could dilute our stockholders’ ownership interests.
Without
materially curtailing our operations, we estimate that we only have sufficient capital to finance our operations through the next
four months. As such, in order for us to pursue our business objectives, we will need to raise additional capital, which additional
capital may not be available on reasonable terms or at all. For instance, we will need to raise additional funds to accomplish
the following:
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development
of our current and future products, including CGuard EPS with a smaller delivery catheter;
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furthering
our efforts to obtain an IDE approval for CGuard EPS, to ultimately seek the U.S. Food and Drug Administration approval for
commercial sales in the United States;
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pursuing
growth opportunities, including more rapid expansion and funding regional distribution systems;
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making
capital improvements to improve our infrastructure;
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hiring
and retaining qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration; and
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maintaining
compliance with applicable laws.
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Any additional capital raised through the sale of equity or equity-backed
securities may dilute our stockholders’ ownership percentages and could also result in a decrease in the market value of
our equity securities. See “
Risk Factors
—
Risks Related to Our Common Stock, Preferred Stock and Warrants
and this Offering
—
Because the public offering price per share of common stock in this offering is less than
the respective current conversion price of our Series B, Series C or Series D Preferred Stock, we will be required to issue additional
shares of common stock, as applicable, to the holders of the preferred stock, which will be dilutive to all of our other stockholders,
including new investors in this offering
.”
The
terms of any securities issued by us in future capital transactions 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.
Furthermore,
any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. In connection
with the Series D Private Placement that closed in December 1, 2017, we entered into the Series D Purchase Agreement, as amended,
pursuant to which we agreed, among other things, to refrain from entering into certain variable rate transactions until June 1,
2018. In addition, in connection with the Series D Private Placement, the certificate of designation for the Series B Preferred
Stock was amended to provide that each share of outstanding Series B Preferred Stock will be automatically exchanged into the
securities we sell in a Qualified Offering. The Series D Purchase Agreement, as amended, also require us (i) to use 15% of the
proceeds from any subsequent offering of our securities that is not a Qualified Offering to redeem a portion of our outstanding
shares of the Series C Preferred Stock held by the Series D Investor, except from this offering, in which case such proceeds shall
be used to redeem a portion of the outstanding shares of our Series D Preferred Stock, and (ii) upon closing of any subsequent
offering that is a Qualified Offering, to exchange all remaining outstanding shares of Series C Preferred Stock held by the Series
D Investor for any securities issued in such Qualified Offering. In the event that we fail, or are unable, to issue securities
issued in the Qualified Offering to the Series D Investor in exchange for such investor’s remaining Series C Preferred Stock
due to limitations mandated by the NYSE American, the Securities and Exchange Commission, or for any other reason, we are required
to offer to purchase from such investor those shares of Series C Preferred Stock not exchanged for the securities sold in the
Qualified Offering. The holders of our Series D Preferred Stock also have the option, except in connection with this offering,
to exchange their Series D Preferred Stock into the securities issued in a subsequent offering or into the securities we sell
in a Qualified Offering upon consummation of a Qualified Offering. Furthermore, the certificate of designation for our Series
B Preferred Stock and Series C Preferred Stock contains a full ratchet anti-dilution price protection to be triggered upon issuance
of equity or equity-linked securities at an effective common stock purchase price of less than the conversion price in effect.
Finally, we have agreed to reduce the conversion price of the Series D Preferred Stock to the public offering price of our common
stock in this offering. Such obligations may make any additional financing difficult to obtain or unavailable to us while any
shares of our Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are outstanding. If we are unable
to obtain additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be
forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition
and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely
that stockholders would receive any distribution on their shares. Further, we may not be able to continue operating if we do not
generate sufficient revenues from operations needed to stay in business.
In
addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees,
accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may
adversely impact our financial condition. If we do not have a sufficient number of available shares for any Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock conversions or upon exchange of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, we will be required to increase our authorized shares, which may not be possible
and will be time consuming and expensive.
Our
products may in the future be subject to product notifications, recalls, or voluntary market withdrawals that could harm our reputation,
business and financial results.
The
manufacturing and marketing of medical devices involves an inherent risk that our products may prove to be defective and cause
a health risk even after regulatory clearances have been obtained. Medical devices may also be modified after regulatory clearance
is obtained to such an extent that additional regulatory clearance is necessary before the device can be further marketed. In
these events, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority.
In
the European Economic Area, we must comply with the EU Medical Device Vigilance System. Under this system, manufacturers are required
to take Field Safety Corrective Actions (“FSCAs”) to reduce a risk of death or serious deterioration in the state
of health associated with the use of a medical device that is already placed on the market. A FSCA may include the recall, modification,
exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative
to its customers and/or to the end users of the device through Field Safety Notices.
Any
adverse event involving our products could result in other future voluntary corrective actions, such as recalls or customer notifications,
or agency action, such as inspection or enforcement action. Adverse events have been reported to us in the past, and we cannot
guarantee that they will not occur in the future. Any corrective action, whether voluntary or involuntary, as well as defending
ourselves in a lawsuit, would require the dedication of our time and capital, distract management from operating our business
and could harm our reputation and financial results.
We
expect to derive our revenue from sales of our CGuard EPS and MGuard Prime EPS stent products and other products we may develop,
such as CGuard EPS with a smaller delivery catheter. If we fail to generate revenue from these sources, our results of operations
and the value of our business would be materially and adversely affected.
We
expect our revenue to be generated from sales of our CGuard EPS and MGuard Prime EPS stent products and other products we may
develop. Future sales of CGuard EPS will be subject to the receipt of regulatory approvals and commercial and market uncertainties
that may be outside our control. In addition, sales of MGuard Prime EPS have been hampered by weakened demand for bare metal stents,
which may never improve, and we may not be successful in developing a drug-eluting stent product. In addition, there may be insufficient
demand for other products we are seeking to develop, such as CGuard EPS with a smaller delivery catheter. If we fail to generate
expected revenues from these products, our results of operations and the value of our business and securities would be materially
and adversely affected.
If
we are unable to obtain and maintain intellectual property protection covering our products, others may be able to make, use or
sell our products, which would adversely affect our revenue.
Our
ability to protect our products from unauthorized or infringing use by third parties depends substantially on our ability to obtain
and maintain valid and enforceable patents. Similarly, the ability to protect our trademark rights might be important to prevent
third party counterfeiters from selling poor quality goods using our designated trademarks/trade names. Due to evolving legal
standards relating to the patentability, validity and enforceability of patents covering medical devices and pharmaceutical inventions
and the scope of claims made under these patents, our ability to enforce patents is uncertain and involves complex legal and factual
questions. Accordingly, rights under any of our pending patent applications and patents may not provide us with commercially meaningful
protection for our products or may not afford a commercial advantage against our competitors or their competitive products or
processes. In addition, patents may not be issued from any pending or future patent applications owned by or licensed to us, and
moreover, patents that may be issued to us now or in the future may not be valid or enforceable. Further, even if valid and enforceable,
our patents may not be sufficiently broad to prevent others from marketing products like ours, despite our patent rights.
The
validity of our patent claims depends, in part, on whether prior art references exist that describe or render obvious our inventions
as of the filing date of our patent applications. We may not have identified all prior art, such as U.S. and foreign patents or
published applications or published scientific literature, that could adversely affect the patentability of our pending patent
applications. For example, some material references may be in a foreign language and may not be uncovered during examination of
our patent applications. Additionally, patent applications in the United States are maintained in confidence for up to 18 months
after their filing. In some cases, however, patent applications remain confidential in the U.S. Patent and Trademark Office for
the entire time prior to issuance as a U.S. patent. Patent applications filed in countries outside the U.S. are not typically
published until at least 18 months from their first filing date. Similarly, publication of discoveries in the scientific or patent
literature often lags behind actual discoveries. Therefore, we cannot be certain that we were the first to invent, or the first
to file patent applications relating to, our stent technologies. In the event that a third party has also filed a U.S. patent
application covering our stents or a similar invention, we may have to participate in an adversarial proceeding, known as an interference,
declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. It is possible that
we may be unsuccessful in the interference, resulting in a loss of some portion or all of our position in the United States.
In
addition, statutory differences in patentable subject matter depending on the jurisdiction may limit the protection we obtain
on certain of the technologies we develop. The laws of some foreign jurisdictions do not offer the same protection to, or may
make it more difficult to effect the enforcement of, proprietary rights as in the United States, risk that may be exacerbated
if we move our manufacturing to certain countries in Asia. If we encounter such difficulties or are otherwise precluded from effectively
protecting our intellectual property rights in any foreign jurisdictions, our business prospects could be substantially harmed.
We
may initiate litigation to enforce our patent rights on any patents issued on pending patent applications, which may prompt adversaries
in such litigation to challenge the validity, scope, ownership, or enforceability of our patents. Third parties can sometimes
bring challenges against a patent holder to resolve these issues, as well. If a court decides that any such patents are not valid,
not enforceable, not wholly owned by us, or are of a limited scope, we may not have the right to stop others from using our inventions.
Also, even if our patent rights are determined by a court to be valid and enforceable, they may not be sufficiently broad to prevent
others from marketing products similar to ours or designing around our patents, despite our patent rights, nor do they provide
us with freedom to operate unimpeded by the patent and other intellectual property rights of others that may cover our products.
We may be forced into litigation to uphold the validity of the claims in our patent portfolio, as well as our ownership rights
to such intellectual property, and litigation is often an uncertain and costly process.
We
also rely on trade secret protection to protect our interests in proprietary know-how and for processes for which patents are
difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. In addition, we rely on non-disclosure
and confidentiality agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary
technology. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently
develop equivalent proprietary information, and third parties may otherwise gain access to our trade secrets and proprietary knowledge.
Any disclosure of confidential data into the public domain or to third parties could allow competitors to learn our trade secrets
and use the information in competition against us.
If
our manufacturing facilities are unable to provide an adequate supply of products, our growth could be limited and our business
could be harmed.
We
currently manufacture our MGuard Prime EPS and CGuard EPS products at our facility in Tel Aviv, Israel. If there were a disruption
to our existing manufacturing facility, we would have no other means of manufacturing our MGuard Prime EPS or CGuard EPS stents
until we were able to restore the manufacturing capability at our facility or develop alternative manufacturing facilities. If
we were unable to produce sufficient quantities of our MGuard Prime EPS or CGuard EPS stents to meet market demand or for use
in our current and planned clinical trials, or if our manufacturing process yields substandard stents, our development and commercialization
efforts would be delayed.
Additionally,
any damage to or destruction of our Tel Aviv facility or its equipment, prolonged power outage or contamination at our facility
would significantly impair our ability to produce either MGuard Prime EPS or CGuard EPS stents.
Finally,
the production of our stents must occur in a highly controlled, clean environment to minimize particles and other yield and quality-limiting
contaminants. In spite of stringent quality controls, weaknesses in process control or minute impurities in materials may cause
a substantial percentage of defective products in a lot. If we are unable to maintain stringent quality controls, or if contamination
problems arise, our clinical development and commercialization efforts could be delayed, which would harm our business and results
of operations.
Pre-clinical
and clinical trials will be lengthy and expensive, and any delay or failure of clinical trials could prevent us from commercializing
our MicroNet products, which would materially and adversely affect our results of operations and the value of our business.
As
part of the regulatory process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy
to the satisfaction of the regulatory authorities, including, if we seek in the future to sell our products in the United States,
the U.S. Food and Drug Administration. Clinical trials are subject to rigorous regulatory requirements and are expensive and time-consuming
to design and implement. They require the enrollment of a large number of patients, and suitable patients may be difficult to
identify and recruit, which may cause a delay in the development and commercialization of our product candidates. In some trials,
a greater number of patients and a longer follow-up period may be required. Patient enrollment in clinical trials and the ability
to successfully complete patient follow-up depends on many factors, including the size of the patient population, the nature of
the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial and patient compliance.
For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo
extensive post-treatment procedures or follow-up to assess the safety and efficacy of our products, or they may be persuaded to
participate in contemporaneous clinical trials of competitive products. In addition, patients participating in our clinical trials
may die before completion of the trial or suffer adverse medical events unrelated to or related to our products. Delays in patient
enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays or
result in the failure of the clinical trial.
In
addition, the length of time required to complete clinical trials for pharmaceutical and medical device products varies substantially
according to the degree of regulation and the type, complexity, novelty and intended use of a product, and can continue for several
years and cost millions of dollars. The commencement and completion of clinical trials for our existing products and those under
development may be delayed by many factors, including governmental or regulatory delays and changes in regulatory requirements,
policy and guidelines or our inability or the inability of any potential licensee to manufacture or obtain from third parties
materials sufficient for use in preclinical studies and clinical trials. In addition, market demand may change for products being
tested due to the length of time needed to complete requisite clinical trials.
Physicians
may not widely adopt our products unless they determine, based on experience, long-term clinical data and published peer reviewed
journal articles, that the use of our stents provides a safe and effective alternative to other existing treatments for coronary
artery disease and carotid artery disease.
We
believe that physicians will not widely adopt our products unless they determine, based on experience, long-term clinical data
and published peer reviewed journal articles, that the use of our products provide a safe and effective alternative to other existing
treatments for the conditions we are seeking to address.
If
we fail to demonstrate safety and efficacy that is at least comparable to existing and future therapies available on the market,
our ability to successfully market our products will be significantly limited. Even if the data collected from clinical studies
or clinical experience indicate positive results, each physician’s actual experience with our products will vary. Clinical
trials conducted with our products may involve procedures performed by physicians who are technically proficient and are high-volume
stent users of such products. Consequently, both short-term and long-term results reported in these clinical trials may be significantly
more favorable than typical results of practicing physicians, which could negatively affect rates of adoptions of our products.
We also believe that published peer-reviewed journal articles and recommendations and support by influential physicians regarding
our products will be important for market acceptance and adoption, and we cannot assure you that we will receive these recommendations
and support, or that supportive articles will be published.
Physicians
currently consider drug-eluting stents to be the industry standard for treatment of coronary artery disease. None of our current
coronary products is a drug-eluting stent, and this may adversely affect our business.
Our
ability to attract customers depends to a large extent on our ability to provide goods that meet the customers’ and the
market’s demands and expectations. If we do not have a product that is expected by the market, we may lose customers. The
market demand has shifted away from bare metal stents in favor of drug-eluting stents. Our MGuard Prime EPS is a bare-metal stent
product and has experienced a substantial reduction in sales over the past three years. Such sales may never recover and we do
not currently have the resources to develop a drug-eluting stent product. Our failure to provide industry standard devices could
adversely affect our business, financial condition and results of operations.
Our
products are based on a new technology, and we have only limited experience in regulatory affairs, which may affect our ability
or the time required to navigate complex regulatory requirements and obtain necessary regulatory approvals, if such approvals
are received at all. Regulatory delays or denials may increase our costs, cause us to lose revenue and materially and adversely
affect our results of operations and the value of our business.
Because
our products are new and long-term success measures have not been completely validated, regulatory agencies may take a significant
amount of time in evaluating product approval applications. Treatments may exhibit a favorable measure using one metric and an
unfavorable measure using another metric. Any change in accepted metrics may result in reconfiguration of, and delays in, our
clinical trials. Additionally, we have only limited experience in filing and prosecuting the applications necessary to gain regulatory
approvals, and our clinical, regulatory and quality assurance personnel are currently composed of only four employees. As a result,
we may experience delays in connection with obtaining regulatory approvals for our products.
In
addition, the products we and any potential licensees license, develop, manufacture and market are subject to complex regulatory
requirements, particularly in the United States, Europe and Asia, which can be costly and time-consuming. There can be no assurance
that such approvals will be granted on a timely basis, if at all. Furthermore, there can be no assurance of continued compliance
with all regulatory requirements necessary for the manufacture, marketing and sale of the products we will offer in each market
where such products are expected to be sold, or that products we have commercialized will continue to comply with applicable regulatory
requirements. If a government regulatory agency were to conclude that we were not in compliance with applicable laws or regulations,
the agency could institute proceedings to detain or seize our products, issue a recall, impose operating restrictions, enjoin
future violations and assess civil and criminal penalties against us, our officers or employees and could recommend criminal prosecution.
Furthermore, regulators may proceed to ban, or request the recall, repair, replacement or refund of the cost of, any device manufactured
or sold by us. Furthermore, there can be no assurance that all necessary regulatory approvals will be obtained for the manufacture,
marketing and sale in any market of any new product developed or that any potential licensee will develop using our licensed technology.
Even
if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing regulatory requirements,
or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from
the market.
Any
regulatory approvals that we receive for our products will require surveillance to monitor the safety and efficacy of the product
and may require us to conduct post-approval clinical studies. In addition, if a regulatory authority approves our products, the
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import,
export and recordkeeping for our products will be subject to extensive and ongoing regulatory requirements.
Moreover,
if we obtain regulatory approval for any of our products, we will only be permitted to market our products for the indication
approved by the regulatory authority, and such approval may involve limitations on the indicated uses or promotional claims we
may make for our products. In addition, later discovery of previously unknown problems with our products, including adverse events
of unanticipated severity or frequency, or with our suppliers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
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restrictions
on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
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fines,
warning letters, or untitled letters;
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holds
on clinical trials;
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refusal
by the regulatory authority to approve pending applications or supplements to approved applications filed by us or suspension
or revocation of license approvals;
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product
seizure or detention, or refusal to permit the import or export of our product candidates; and
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injunctions,
the imposition of civil penalties or criminal prosecution.
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The
applicable regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of our products. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable
to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Further,
healthcare laws and regulations may change significantly in the future. Any new healthcare laws or regulations may adversely affect
our business. A review of our business by courts or regulatory authorities may result in a determination that could adversely
affect our operations. In addition, the healthcare regulatory environment may change in a way that restricts our operations.
We
are subject to federal, state and foreign healthcare laws and regulations and implementation of or changes to such healthcare
laws and regulations could adversely affect our business and results of operations.
In
both the United States and certain foreign jurisdictions, there are laws and regulations specific to the healthcare industry which
may affect all aspects of our business, including development, testing, marketing, sales, pricing, and reimbursement. Additionally,
there have been a number of legislative and regulatory proposals in recent years to change the healthcare system in ways that
could impact our ability to sell our products. If we are found to be in violation of any of these laws or any other federal or
state regulations, we may be subject to administrative, civil and/or criminal penalties, damages, fines, individual imprisonment,
exclusion from federal health care programs and the restructuring of our operations. Any of these could have a material adverse
effect on our business and financial results. Since many of these laws have not been fully interpreted by the courts, there is
an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation of
these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal expenses and divert
our management’s attention away from the operation of our business.
We
may be subject, directly or indirectly, to applicable U.S. federal and state anti-kickback, false claims laws, physician payment
transparency laws, fraud and abuse laws or similar healthcare and security laws and regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings
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Healthcare
providers, physicians and others will play a primary role in the recommendation, ordering and utilization of any products for
which we obtain regulatory approval. If we obtain U.S. Food & Drug Administration approval for any of our products and begin
commercializing those products in the United States, our operations may be subject to various federal and state fraud and abuse
laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician payment sunshine
laws and regulations. These laws may impact, among other things, our potential sales, marketing and education programs. In addition,
we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or
in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of
any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such
as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which may be pursued
through civil whistleblower or qui tam actions, impose criminal and civil penalties against individuals or entities for knowingly
presenting, or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid or other
third-party payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay
money to the federal government;
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federal criminal statutes created through the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
which prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program
or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or
under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly
and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements
in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing
regulations, which imposes requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as
well as their respective business associates that perform services for them that involve the use, or disclosure of, individually
identifiable health information, relating to the privacy, security and transmission of individually identifiable health information;
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the federal transparency requirements under The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act, enacted into law in the United States in March 2010 (known collectively as the “Affordable Care Act”), including
the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program
to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members; and
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially
harm consumers.
Additionally,
we may be subject to state and non-U.S. equivalents of each of the healthcare laws described above, among others, some of which
may be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback
Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental
payors, including private insurers. Several states impose marketing restrictions or require medical device companies to make marketing
or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if
we fail to comply with an applicable state law requirement we could be subject to penalties.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our future business activities could be subject to challenge under one or more of such laws. In addition, recent health care
reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amends the intent requirement
of the federal Anti-Kickback and criminal healthcare fraud statutes. As a result of such amendment, a person or entity no longer
needs to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation. Moreover,
the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Violations
of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension
from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government.
In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the False Claims Act
as well as under the false claims laws of several states.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages,
disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which
could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization
of any of our products outside the United States will also likely subject us to non-U.S. equivalents of the healthcare laws mentioned
above, among other non-U.S. laws.
If
any of the physicians or other providers or entities with whom we expect to do business with are found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs. This could adversely affect our ability to operate our business and our results of operations.
Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from marketing our products in such jurisdictions.
We
market our products in international markets. In order to market our products in other foreign jurisdictions, we must obtain separate
regulatory approvals from those obtained in the United States and Europe. The approval procedure varies among countries and can
involve additional testing, and the time required to obtain approval may differ from that required to obtain CE mark or U.S. Food
and Drug Administration approval. Foreign regulatory approval processes may include all of the risks associated with obtaining
CE mark or U.S. Food and Drug Administration approval in addition to other risks. We may not obtain foreign regulatory approvals
on a timely basis, if at all. CE mark approval or any future U.S. Food and Drug Administration approval does not ensure approval
by regulatory authorities in other countries. We may not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize our products in certain markets.
We
operate in an intensely competitive and rapidly changing business environment, and there is a substantial risk our products could
become obsolete or uncompetitive.
The
medical device market is highly competitive. We compete with many medical device companies globally in connection with our current
products and products under development. We face competition from numerous pharmaceutical and biotechnology companies in the therapeutics
area, as well as competition from academic institutions, government agencies and research institutions. We face intense competition
from Boston Scientific Corporation, Guidant Corporation, Medtronic, Inc., Abbott Vascular Devices, Johnson & Johnson, Terumo
Corporation, Covidien Ltd., Cordis Corporation (currently part of Cardinal Health, Inc.) and others. Most of our current and potential
competitors, including but not limited to those listed above, 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. There can be no assurance that we will have sufficient resources to successfully commercialize our products,
if and when they are approved for sale. The worldwide market for stent products is characterized by intensive development efforts
and rapidly advancing technology. Our future success will depend largely upon our ability to anticipate and keep pace with those
developments and advances. Current or future competitors could develop alternative technologies, products or materials that are
more effective, easier to use or more economical than what we or any potential licensee develop. If our technologies or products
become obsolete or uncompetitive, our related product sales and licensing revenue would decrease. This would have a material adverse
effect on our business, financial condition and results of operations.
We
may become subject to claims by much larger and better capitalized competitors seeking to invalidate our intellectual property
or our rights thereto.
Based
on the prolific litigation that has occurred in the stent industry and the fact that we may pose a competitive threat to some
large and well-capitalized companies that own or control patents relating to stents and their use, manufacture and delivery, we
believe that it is possible that one or more third parties will assert a patent infringement claim against the manufacture, use
or sale of our stents based on one or more of these patents. These companies also own patents relating to the use of drugs to
treat restenosis, stent architecture, catheters to deliver stents, and stent manufacturing and coating processes and compositions,
as well as general delivery mechanism patents like rapid exchange that might be alleged to cover one or more of our products.
A number of stent-related patents are owned by very large and well-capitalized companies that are active participants in the stent
market. In addition, it is possible that a lawsuit asserting patent infringement, misappropriation of intellectual property, or
related claims may have already been filed against us of which we are not aware. As the number of competitors in the stent market
grows and as the geographies in which we commercially market grow in number and scope, the possibility of patent infringement
by us, and/or a patent infringement or misappropriation claim against us, increases.
Our
competitors have maintained their position in the market by, among other things, establishing intellectual property rights relating
to their products and enforcing these rights aggressively against their competitors and new entrants into the market. All of the
major companies in the stent and related markets, including Boston Scientific Corporation, C.R. Bard, Inc., W.L. Gore & Associates,
Inc. and Medtronic, Inc., have been repeatedly involved in patent litigation relating to stents since at least 1997. The stent
and related markets have experienced rapid technological change and obsolescence in the past, and our competitors have strong
incentives to stop or delay the introduction of new products and technologies. We may pose a competitive threat to many of the
companies in the stent and related markets. Accordingly, many of these companies will have a strong incentive to take steps, through
patent litigation or otherwise, to prevent us from commercializing our products. Such litigation or claims would divert attention
and resources away from the development and/or commercialization of our products and product development, and could result in
an adverse court judgment that would make it impossible or impractical to sell our products in one or more territories.
If
we fail to maintain or establish satisfactory agreements or arrangements with suppliers or if we experience an interruption of
the supply of materials from suppliers, we may not be able to obtain materials that are necessary to develop our products.
We
depend on outside suppliers for certain raw materials. These raw materials or components may not always be available at our standards
or on acceptable terms, if at all, and we may be unable to locate alternative suppliers or produce necessary materials or components
on our own.
Some
of the components of our products are currently provided by only one vendor, or a single-source supplier. For MGuard Prime EPS
and CGuard EPS, we depend on MeKo Laserstrahl-Materialbearbeitung for the laser cutting of the stent, Natec Medical Ltd. for the
supply of catheters, and Biogeneral Inc. for the fiber. We may have difficulty obtaining similar components from other suppliers
that are acceptable to the U.S. Food and Drug Administration or foreign regulatory authorities if it becomes necessary.
If
we have to switch to a replacement supplier, we will face additional regulatory delays and the interruption of the manufacture
and delivery of our stents for an extended period of time, which would delay completion of our clinical trials or commercialization
of our products. In addition, we will be required to obtain prior regulatory approval from the U.S. Food and Drug Administration
or foreign regulatory authorities to use different suppliers or components that may not be as safe or as effective. As a result,
regulatory approval of our products may not be received on a timely basis or at all.
We
may be exposed to product liability claims and insurance may not be sufficient to cover these claims.
We
may be exposed to product liability claims based on the use of any of our products, or products incorporating our licensed technology,
in the market or clinical trials. We may also be exposed to product liability claims based on the sale of any products under development
following the receipt of regulatory approval. Product liability claims could be asserted directly by consumers, health-care providers
or others. We have obtained product liability insurance coverage; however such insurance may not provide full coverage for our
future clinical trials, products to be sold, and other aspects of our business. Insurance coverage is becoming increasingly expensive
and we may not be able to maintain current coverage, or expand our insurance coverage to include future clinical trials or the
sale of new products or existing products in new territories, at a reasonable cost or in sufficient amounts to protect against
losses due to product liability or at all. A successful product liability claim or series of claims brought against us could result
in judgments, fines, damages and liabilities that could have a material adverse effect on our business, financial condition and
results of operations. We may incur significant expense investigating and defending these claims, even if they do not result in
liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on us, our reputation could suffer, which
could have a material adverse effect on our business, financial condition and results of operations.
We
face risks associated with litigation and claims.
We
may, in the future, be involved in one or more lawsuits, claims or other proceedings. These suits could concern issues including
contract disputes, employment actions, employee benefits, taxes, environmental, health and safety, fraud and abuse, personal injury
and product liability matters.
We
are subject to a lawsuit filed by Medpace Inc. in July 2016, seeking $1,967,822 in damages plus interest, costs, attorneys’
fees and expenses. While we believe that the claims in this suit are without merit, due to the uncertainties of litigation, however,
we can give no assurance that we will prevail on the claims made against us in such lawsuit. Also, we can give no assurance that
any other lawsuits or claims brought in the future will not have an adverse effect on our financial condition, liquidity or operating
results. Adverse outcomes in some or all of these claims may result in significant monetary damages that could adversely affect
our ability to conduct our business.
The
loss of key members of our senior management team or our inability to attract and retain highly skilled scientists and laboratory
and field personnel could adversely affect our business.
We
depend on the skills, experience and performance of our senior management and research personnel. The efforts of each of these
persons will be critical to us as we continue to further develop our products, increase sales and broaden our product offerings.
If we were to lose one or more of these key employees, we may experience difficulties in competing effectively, developing our
technologies and implementing our business strategies. Our research and development programs and commercial laboratory operations
depend on our ability to attract and retain highly skilled scientists and technicians. We may not be able to attract or retain
qualified scientists and technicians in the future due to the intense competition for qualified personnel among life science businesses.
There can be no assurance that we will be able to attract and retain necessary personnel on acceptable terms given the intense
competition among medical device, biotechnology, pharmaceutical and healthcare companies, universities and non-profit research
institutions for experienced management, scientists, researchers, sales and marketing and manufacturing personnel. If we are unable
to attract, retain and motivate our key personnel to accomplish our business objectives, we may experience constraints that will
adversely affect our ability to support our operations, and our results of operations may be materially and adversely affected.
We
are an international business, and we are exposed to various global and local risks that could have a material adverse effect
on our financial condition and results of operations.
We
operate globally and develop and market products in multiple countries. Consequently, we face complex legal and regulatory requirements
in multiple jurisdictions, which may expose us to certain financial and other risks. International sales and operations are subject
to a variety of risks, including:
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foreign
currency exchange rate fluctuations;
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greater
difficulty in staffing and managing foreign operations;
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greater
risk of uncollectible accounts;
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longer
collection cycles;
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logistical
and communications challenges;
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potential
adverse changes in laws and regulatory practices, including export license requirements, trade barriers, tariffs and tax laws;
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changes
in labor conditions;
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burdens
and costs of compliance with a variety of foreign laws;
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political
and economic instability;
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the
escalation of hostilities in Israel, which could impair our ability to manufacture our products;
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increases
in duties and taxation;
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foreign
tax laws and potential increased costs associated with overlapping tax structures;
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greater
difficulty in protecting intellectual property;
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the
risk of third party disputes over ownership of intellectual property and infringement of third party intellectual property
by our products; and
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general
economic and political conditions in these foreign markets.
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International
markets are also affected by economic pressure to contain reimbursement levels and healthcare costs. Profitability from international
operations may be limited by risks and uncertainties related to regional economic conditions, regulatory and reimbursement approvals,
competing products, infrastructure development, intellectual property rights protection and our ability to implement our overall
business strategy. We expect these risks will increase as we pursue our strategy to expand operations into new geographic markets.
We may not succeed in developing and implementing effective policies and strategies in each location where we conduct business.
Any failure to do so may harm our business, results of operations and financial condition.
If
we fail to obtain an adequate level of reimbursement for our products by third party payors, there may be no commercially viable
markets for our products or the markets may be much smaller than expected.
The
availability and levels of reimbursement by governmental and other third party payors affect the market for our products. The
efficacy, safety, performance and cost-effectiveness of our products and of any competing products will determine the availability
and level of reimbursement. Reimbursement and healthcare payment systems in international markets 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 products to other available therapies. We may not obtain international reimbursement or pricing approvals in a timely manner,
if at all. Our failure to receive international reimbursement or pricing approvals would negatively impact market acceptance of
our products in the international markets in which those approvals are sought.
We
believe that future reimbursement may be subject to increased restrictions both in the U.S. and in international markets. There
is increasing pressure by governments worldwide to contain health care costs by limiting both the coverage and the level of reimbursement
for therapeutic products and by refusing, in some cases, to provide any coverage for products that have not been approved by the
relevant regulatory agency. Future legislation, regulation or reimbursement policies of third party payors may adversely affect
the demand for our products and limit our ability to sell our products on a profitable basis. In addition, third party payors
continually attempt to contain or reduce the costs of healthcare by challenging the prices charged for healthcare products and
services. If reimbursement for our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory
levels, market acceptance of our products would be impaired and future revenues, if any, would be adversely affected.
In
the United States and in the European Union, our business could be significantly and adversely affected by healthcare reform legislation
and other administration and legislative proposals.
The
Affordable Care Act, enacted into law in the United States in March 2010, contains certain provisions which are not yet fully
implemented and for which it is unclear what the full impact will be from the legislation. The legislation levies a 2.3% excise
tax on all sales of any U.S. medical device listed with the U.S. Food and Drug Administration under Section 510(j) of the Federal
Food, Drug, and Cosmetic Act and 21 C.F.R. Part 807 on or after January 1, 2013, unless the device falls within an exemption from
the tax, such as the exemption governing direct retail sale of devices to consumers or for foreign sales of these devices. The
tax has not been applied yet as it is subject to a moratorium. If we commence sales of our MGuard Prime EPS or CGuard EPS stent
in the United States, this tax may materially and adversely affect our business and results of operations. The legislation also
focuses on a number of provisions aimed at improving quality, broadening access to health insurance, enhancing remedies for fraud
and abuse, adding transparency requirements, and decreasing healthcare costs, among others. Uncertainties remain regarding what
negative unintended consequences these provisions will have on patient access to new technologies, pricing and the market for
our products, and the healthcare industry in general. The Affordable Care Act includes provisions affecting the Medicare program,
such as value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable
readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care
coordination (such as bundled physician and hospital payments). Additionally, the provisions include a reduction in the annual
rate of inflation for hospitals which started in 2011 and the establishment of an independent payment advisory board to recommend
ways of reducing the rate of growth in Medicare spending. Any reduction in reimbursement from Medicare or other government programs
may result in a similar reduction in payments from private payors. Judicial challenges as well as legislative initiatives to modify,
limit, or repeal the Affordable Care Act have been initiated and continue to evolve, including an Executive Order signed by the
U.S. President directing executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation
of provisions of the Affordable Care Act that would impose a fiscal or regulatory burden on individuals and certain entities to
the maximum extent permitted by law. Recently, there have been renewed efforts to repeal or replace the Affordable Care Act following
the 2017 changes in the U.S. presidential administrations and U.S. Congress. We cannot predict what healthcare programs and regulations
will be implemented or changed at the federal or state level in the United States, or the effect of any future legislation or
regulation. However, any changes that lower reimbursements for our products or reduce medical procedure volumes could adversely
affect our business plan to introduce our products in the United States.
On
September 26, 2012, the European Commission adopted a package of legislative proposals designed to replace the existing regulatory
framework governing medical devices in the European Union. These proposals are currently being reviewed by the European Parliament
and the Council and may undergo significant amendments as part of the legislative process. If adopted by the European Parliament
and the Council in their present form, these proposed revisions would, among other things, impose stricter requirements on medical
device manufacturers and strengthen the supervising competences of the competent authorities of European Union Member States and
the notified bodies. As a result, if and when adopted, the proposed new legislation could prevent or delay the CE marking of our
products under development or impact our ability to modify our currently CE marked products on a timely basis. The regulation
of advanced therapy medicinal products is also in continued development in the European Union, with the European Medicines Agency
publishing new clinical or safety guidelines concerning advanced therapy medicinal products on a regular basis. Any of these regulatory
changes and events could limit our ability to form collaborations and our ability to continue to commercialize our products, and
if we fail to comply with any such new or modified regulations and requirements it could adversely affect our business, operating
results and prospects.
Risks
Related to Operating in Israel
We
anticipate being subject to fluctuations in currency exchange rates because we expect a substantial portion of our revenues will
be generated in Euros and U.S. dollars, while a significant portion of our expenses will be incurred in New Israeli Shekels.
We
expect a substantial portion of our revenues will be generated in U.S. dollars and Euros, while a significant portion of our expenses,
principally salaries and related personnel expenses, is paid in New Israeli Shekels, or NIS. As a result, we are exposed to the
risk that the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the Euro or the U.S. dollar,
or that the timing of this devaluation will lag behind inflation in Israel. Because inflation has the effect of increasing the
dollar and Euro costs of our operations, it would therefore have an adverse effect on our dollar-measured results of operations.
The value of the NIS, against the Euro, the U.S. dollar, and other currencies may fluctuate and is affected by, among other things,
changes in Israel’s political and economic conditions. Any significant revaluation of the NIS may materially and adversely
affect our cash flows, revenues and financial condition. Fluctuations in the NIS exchange rate, or even the appearance of instability
in such exchange rate, could adversely affect our ability to operate our business.
If
there are significant shifts in the political, economic and military conditions in Israel and its neighbors, it could have a material
adverse effect on our business relationships and profitability.
Our
sole manufacturing facility and certain of our key personnel are located in Israel. Our business is directly affected by the political,
economic and military conditions in Israel and its neighbors. Since the establishment of the State of Israel in 1948, a number
of armed conflicts have occurred between Israel and its Arab neighbors. A state of hostility, varying in degree and intensity,
has caused security and economic problems in Israel. Although Israel has entered into peace treaties with Egypt and Jordan, and
various agreements with the Palestinian Authority, there has been a marked increase in violence, civil unrest and hostility, including
armed clashes, between the State of Israel and the Palestinians since September 2000. The establishment in 2006 of a government
in the Gaza Strip by representatives of the Hamas militant group has created heightened unrest and uncertainty in the region.
In mid-2006, Israel engaged in an armed conflict with Hezbollah, a Shiite Islamist militia group based in Lebanon, and in June
2007, there was an escalation in violence in the Gaza Strip. From December 2008 through January 2009 and again in November and
December 2012, Israel engaged in an armed conflict with Hamas, which involved missile strikes against civilian targets in various
parts of Israel and negatively affected business conditions in Israel. In July 2014, Israel launched an additional operation against
Hamas operatives in the Gaza strip in response to Palestinian groups launching rockets at Israel. Recent political uprisings and
social unrest in Syria are affecting its political stability, which has led to the deterioration of the political relationship
between Syria and Israel and have raised new concerns regarding security in the region and the potential for armed conflict. Similar
civil unrest and political turbulence is currently ongoing in many countries in the region. The continued political instability
and hostilities between Israel and its neighbors and any future armed conflict, terrorist activity or political instability in
the region could adversely affect our operations in Israel and adversely affect the market price of our shares of common stock.
In addition, several countries restrict doing business with Israel and Israeli companies have been and are today subjected to
economic boycotts. The interruption or curtailment of trade between Israel and its present trading partners could adversely affect
our business, financial condition and results of operations.
In
addition, many of our officers or key employees may be called to active duty at any time under emergency circumstances for extended
periods of time. See “— Our operations could be disrupted as a result of the obligation of certain of our personnel
residing in Israel to perform military service.”
Our
operations could be disrupted as a result of the obligation of certain of our personnel residing in Israel to perform military
service.
Many
of our officers and employees reside in Israel and may be required to perform annual military reserve duty. Currently, all male
adult citizens and permanent residents of Israel under the age of 40 (or older, depending on their position with the Israeli Defense
Forces reserves), unless exempt, are obligated to perform military reserve duty annually and are subject to being called to active
duty at any time under emergency circumstances. Our operations could be disrupted by the absence for a significant period of one
or more of our key officers and employees due to military service. Any such disruption could have a material adverse effect on
our business, results of operations and financial condition.
We
may not be able to enforce covenants not-to-compete under current Israeli law.
We
have non-competition agreements with most of our employees, many of which are governed by Israeli law. These agreements generally
prohibit our employees from competing with us or working for our competitors for a specified period following termination of their
employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all,
to enforce those provisions for relatively brief periods of time in restricted geographical areas and only when the employee has
unique value specific to that employer’s business and not just regarding the professional development of the employee. Any
such inability to enforce non-compete covenants may cause us to lose any competitive advantage resulting from advantages provided
to us by such confidential information.
We
may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could
result in litigation and adversely affect our business.
A
significant portion of our intellectual property has been developed by our Israeli employees in the course of their employment
for us. Under the Israeli Patent Law, 5727-1967 (the “Israeli Patent Law”), inventions conceived by an employee during
the term and as part of the scope of his or her employment with a company are regarded as “service inventions,” which
belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights.
The Israeli Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation
and Royalties Committee (the “C&R Committee”), a body constituted under the Israeli Patent Law, shall determine
whether the employee is entitled to remuneration for his inventions. The C&R Committee (decisions of which have been upheld
by the Israeli Supreme Court) has held that employees may be entitled to remuneration for their service inventions despite having
specifically waived any such rights. We generally enter into intellectual property assignment agreements with our employees pursuant
to which such employees assign to us all rights to any inventions created in the scope of their employment or engagement with
us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to receive
any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration
in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration
or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
It
may be difficult for investors in the United States to enforce any judgments obtained against us or some of our directors or officers.
The
majority of our assets other than cash are located outside the U.S. In addition, certain of our officers 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 United States any judgments obtained against us
or any of our non-U.S. 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.
The
tax benefits that are currently available to us under Israeli law require us to satisfy specified conditions. If we fail to satisfy
these conditions, we may be required to pay increased taxes and would likely be denied these benefits in the future.
InspireMD
Ltd. has been granted a “Beneficiary Enterprise” status by the Investment Center in the Israeli Ministry of Industry
Trade and Labor, and we are therefore eligible for tax benefits under the Israeli Law for the Encouragement of Capital Investments,
1959. The main benefit is a two-year exemption from corporate tax, commencing when we begin to generate net income derived from
the beneficiary activities in facilities located in Israel, and a reduced corporate tax rate for an additional five to eight years,
depending on the level of foreign investment in each year. In addition, under the January 1, 2011 amendment to the Israeli Law
for the Encouragement of Capital Investments, 1959, a uniform corporate tax rate of 16% applies to all qualifying income of “Preferred
Enterprise,” which we may be able to apply as an alternative tax benefit.
The
tax benefits available to a Beneficiary Enterprise or a Preferred Enterprise are dependent upon the fulfillment of conditions
stipulated under the Israeli Law for the Encouragement of Capital Investments, 1959 and its regulations, as amended, which include,
among other things, maintaining our manufacturing facilities in Israel. If we fail to comply with these conditions, in whole or
in part, the tax benefits could be cancelled and we could be required to refund any tax benefits that we received in the past.
If we are no longer eligible for these tax benefits, our Israeli taxable income would be subject to regular Israeli corporate
tax rates. The standard corporate tax rate for Israeli companies in 2017 is 24% and in 2018 is 23% of taxable income. The termination
or reduction of these tax benefits would increase our tax liability, which would reduce our profits.
In
addition to losing eligibility for tax benefits currently available to us under Israeli law, if we do not maintain our manufacturing
facilities in Israel, we will not be able to realize certain tax credits and deferred tax assets, if any, including any net operating
losses to offset against future profits.
The
tax benefits available to Beneficiary Enterprises may be reduced or eliminated in the future. This would likely increase our tax
liability.
The
Israeli government may reduce or eliminate in the future tax benefits available to Beneficiary Enterprises and Preferred Enterprises.
Our Beneficiary Enterprise status and the resulting tax benefits may not continue in the future at their current levels or at
any level. The tax benefit period is twelve years from the year of election, which means that after a year of election, the two-year
exemption and eight years of reduced tax rate can only be used within the next twelve years. The Company elected the year 2007,
as a year of election and 2011 as an additional year of election. The 2011 amendment regarding Preferred Enterprise may not be
applicable to us or may not fully compensate us for the change. The termination or reduction of these tax benefits would likely
increase our tax liability. The amount, if any, by which our tax liability would increase will depend upon the rate of any tax
increase, the amount of any tax benefit reduction, and the amount of any taxable income that we may earn in the future.
Risks
Related to Our Common Stock, Preferred Stock and Warrants and the Offering
The
market prices of our common stock and our publicly traded warrants are subject to fluctuation and have been and may continue to
be volatile, which could result in substantial losses for investors.
The
market prices of our common stock and our Series A Warrants and Series B Warrants have been and are likely to continue to be highly
volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
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technological
innovations or new products and services by us or our competitors;
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additions
or departures of key personnel;
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our
ability to execute our business plan;
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operating
results that fall below expectations;
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loss
of any strategic relationship;
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industry
developments;
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economic,
political and other external factors; and
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period-to-period
fluctuations in our financial results.
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In
addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. These market fluctuations may also significantly affect the market prices
of our common stock and our publicly traded warrants.
Our
common stock could be delisted from the NYSE American if we fail to regain compliance with the NYSE American’s stockholders’
equity continued listing standards on the schedule required by the NYSE American or if our common stock continues to trade for
a substantial period of time at law selling prices. Our ability to publicly or privately sell equity securities and the liquidity
of our common stock could be adversely affected if we are delisted from the NYSE American.
On
August 17, 2017, we received a notice indicating that we do not meet certain of the NYSE American’s continued listing standards
as set forth in Part 10 of the Company Guide. Specifically, we were not in compliance with Section 1003(a)(iii) of the Company
Guide because we reported stockholders’ equity of less than $6 million as of June 30, 2017, and had net losses in our five
most recent fiscal years ended December 31, 2016. As a result, we have become subject to the procedures and requirements of Section
1009 of the Company Guide. The notice also included an early warning of our potential noncompliance with Section 1003(a)(iv) of
the Company Guide because the uncertainty regarding our ability to generate sufficient cash flows and liquidity to fund operations
raises substantial doubt about its ability to continue as a going concern. In order to maintain our listing on NYSE American,
we submitted a plan of compliance to NYSE American addressing how we intend to regain compliance with Section 1003(a)(iii) of
the Company Guide, which was accepted by NYSE American on October 19, 2017. On November 22, 2017, we received an additional letter
from the NYSE that we are not in compliance with Section 1003(a)(ii) of the Company Guide indicating that we are not in compliance
with the stockholders’ equity and net income continued listing standards. We have until February 17, 2019, to regain compliance
with the continued listing requirements.
We
believe, based on our current estimate, we will be required to complete one or more offerings that will provide us with gross
proceeds of at least $20 million prior to February 17, 2019, in order to regain compliance with Sections 1003(a)(ii)-(iii) of
the Company Guide and demonstrate to NYSE American that our estimated stockholder’s equity will be at least $6 million as
of February 17, 2019 (which should also make us in compliance with Section(a)(ii) by having stockholders’ equity of greater
than $4 million). Even if the net proceeds from our future capital raises provide us with sufficient stockholders’ equity
to regain compliance with Sections 1003(a)(ii)-(iii) of the Company Guide by February 17, 2019, we will be subject to ongoing
review for compliance with NYSE American requirements, and there can be no assurance that we will continue to remain in compliance
with this standard. If we do not regain compliance by February 17, 2019, or fail to remain in compliance as of February 19, 2019,
or anytime thereafter, with Sections 1003(a)(ii)-(iii) of the Company Guide, or if we do not maintain our progress consistent
with the plan during the applicable plan period, the NYSE American will initiate delisting proceedings.
In
addition to our non-compliance with Sections 1003(a)(ii)-(iii) of the Company Guide, on January 16, 2018, we received notification
from the NYSE American that our shares of common stock have been selling for a low price per share for a substantial period of
time. Pursuant to Section 1003(f)(v) of the Company Guide, the NYSE American staff determined that our continued listing is predicated
on us effecting a reverse stock split of our common stock or otherwise demonstrating sustained price improvement within a reasonable
period of time, which the staff determined to be until July 16, 2018. The NYSE American has also advised us that its policy is
to immediately suspend trading in shares of, and commence delisting procedures with respect to, a listed company if the market
price of its shares falls below $0.06 per share at any time during the trading day.
On
February 7, 2018, we effected a reverse stock split of our common stock. One of the primary intents for the reverse stock split
was that the anticipated increase in the price of our common stock immediately following and resulting from a reverse stock split
due to the reduction in the number of issued and outstanding shares of common stock would help us meet the price criteria for
continued listing on NYSE American. There can be no assurance that the market price of our new common stock after the reverse
stock split will remain above the levels viewed as abnormally low for a substantial period of time. It is not uncommon for the
market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of
our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence
of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such
as negative financial or operational results, could adversely affect the market price of our common stock to fall below the levels
viewed as low selling price for a substantial period of time and lead the NYSE American to immediately suspend trading in our
common stock.
Delisting
from NYSE American would adversely affect our ability to raise additional financing through the public or private sale of equity
securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value
and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of confidence
by employees, the loss of institutional investor interest and fewer business development opportunities.
If
you purchase our common stock sold in this offering you will experience immediate dilution in your investment as a result of this
offering.
Because
the price per share of common stock being offered in this offering may be higher than the net tangible book value per share of
our common stock, you will experience dilution to the extent of the difference between the public offering price per share of
common stock you pay in this offering and the net tangible book value per share of our common stock immediately after this offering.
Our net tangible book value as of December 31, 2017, was approximately $3 million, or $2.02 per share of common stock. Net tangible
book value per share is equal to our total tangible assets minus total liabilities, all divided by the number of shares of common
stock outstanding. See “Dilution” on page S-32 for a more detailed discussion of the dilution you will incur in this
offering.
Furthermore, the anti-dilution provisions of our Series B, C and
D Preferred Stock, as well as the reduction of the conversion price of the Series D Preferred Stock conversion price to the public
offering price of our common stock in this offering, may result in further dilution of your investment (see “
Risk Factors
— Risks Related Our Common Stock, Preferred Stock and Warrants and this Offering
—
Because the public
offering price per share of common stock in this offering is less than the respective current conversion price of our Series B,
Series C or Series D Preferred Stock, we will be required to issue additional shares of common stock, as applicable, to the holders
of the preferred stock, which will be dilutive to all of our other stockholders, including new investors in this offering
.”)
Because the public offering price per share of common stock
in this offering is less than the respective current conversion price of our Series B, Series C or Series D Preferred Stock, we
will be required to issue additional shares of common stock, as applicable, to the holders of the preferred stock, which will be
dilutive to all of our other stockholders, including new investors in this offering.
The respective certificate of designation for our Series B Preferred
Stock and Series C Preferred Stock contains anti-dilution provisions, which provisions require the lowering of the applicable conversion
price, as then in effect, to the purchase price of equity or equity-linked securities issued in subsequent offerings. In addition,
we have agreed to reduce the conversion price of the Series D Preferred Stock to the public offering price of our common stock
in this offering. As a result of these obligations, because the public offering price of our common stock in this offering is less
than the respective current conversion price of our Series B, Series C or Series D Preferred Stock, each of these conversion prices
shall be reduced to the public offering price of our common stock. This reduction in the conversion prices will result in a greater
number of shares of common stock being issuable upon conversion of the Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock for no additional consideration, causing greater dilution to our stockholders and investors in this offering.
In addition, should we issue any securities following this offering at an effective common stock purchase price that is less than
the then effective conversion price of our Series B Preferred Stock or Series C Preferred Stock, we will be required to further
reduce the conversion prices of our Series B Preferred Stock and Series C Preferred Stock, which will result in a greater dilutive
effect on our stockholders.
Purchasers in this offering may experience additional dilution of their investment in the future.
Subject
to lock-up provisions described under “Underwriting,” we are generally not restricted from issuing additional securities,
including shares of common stock, securities that are convertible into or exchangeable for, or that represent the right to receive,
common stock or substantially similar securities. In particular, we intend to conduct one or more additional offerings following
this offering and may seek waiver of the lock-up provisions described under “Underwriting” to conduct such offerings.
The issuance of securities in these or any other offerings may cause further dilution to our stockholders, including investors
in this offering. In order to raise additional capital, such securities may be at prices that are not the same as the price per
share in this offering. We cannot assure you that we will be able to sell shares or other securities in any other offering at
a price per share that is equal to or greater than the price per share paid by investors in this offering, and investors purchasing
shares or other securities in the future could have rights superior to existing stockholders, including investors who purchase
securities in this offering. The price per share at which we sell additional shares of our common stock or securities convertible
into common stock in future transactions may be higher or lower than the price per share in this offering. The exercise of outstanding
stock options and the vesting of outstanding restricted stock units may also result in further dilution of your investment.
The
mandatory exchange of shares of Series C Preferred Stock held by the purchasers of Series D Preferred Stock into the securities
we sell in a Qualified Offering, as contemplated by the Series D Purchase Agreement, as amended, may require us to offer to purchase
the shares of Series C Preferred Stock from the Series D Investor, which may delay or make it difficult for us to obtain additional
financing.
The
Series D Purchase Agreement, as amended, provides that, upon closing of any subsequent offering that is a Qualified Offering,
the shares of Series C Preferred Stock held by the Series D Investor will be exchanged into the securities we sell in a Qualified
Offering. The Company Guide Section 713(a)(ii) requires us to obtain stockholder approval in connection with a transaction other
than a public offering involving the sale, issuance or potential issuance by the issuer of additional shares of common stock (or
securities convertible into or exchangeable for common stock) equal to 20% or more of the number of shares of common stock outstanding
before the issuance for a price that is less than the greater of book or market value of the stock on the date the issuer enters
into a binding agreement for the issuance of such securities. Accordingly, if the effective offering price of our common stock
is less than the greater of book or market value of our common stock at the time of such offering, and the issuance of shares
of common stock or shares of common stock underlying securities convertible into common stock in a Qualified Offering upon the
exchange of the then outstanding shares of Series C Preferred Stock held by the Series D Investor is equal to 20% or more of the
number of shares of our common stock outstanding immediately prior to the offering, as we do not have stockholder approval for
this exchange, we will not be enable to fully exchange all of the Series D Investor’s shares Series C Preferred Stock for
securities sold in the Qualified Offering pursuant to the Series D Purchase Agreement. In the event that we fail, or are unable,
to issue securities issued in the Qualified Offering to the Series D Investor in exchange for such investor’s remaining
Series C Preferred Stock due to limitations mandated by the NYSE American, or for any other reason, we are required to offer to
purchase from such investor those shares of Series C Preferred Stock not exchanged for the securities sold in the Qualified Offering.
Such requirement may make any future financing to be both time consuming or difficult to obtain.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our publicly traded securities
to decline.
Sales of a significant number of shares of our common stock or our
warrants in the public market could harm the market prices of our common stock or warrants and make it more difficult for us to
raise funds through future offerings of common stock or warrants. Our stockholders and the holders of our options and warrants
may sell substantial amounts of our common stock or our publicly traded warrants in the public market. In addition, we will be
required to issue additional shares of common stock to the holders of our Series B Preferred Stock upon conversion of shares of
our Series B Preferred Stock and the payment of the dividends thereunder in common stock and to the holders of our Series C Preferred
Stock upon conversion of shares of our Series C Preferred Stock, as a result of the full ratchet anti-dilution price protection
in the respective certificate of designation for the Series B Preferred Stock and the Series C Preferred Stock, if the effective
common stock purchase price in a subsequent offering is less than the respective then current conversion price of the Series B
Preferred Stock or the Series C Preferred Stock, which in turn will increase the number of shares of common stock available for
sale. Moreover, pursuant to the Series D Purchase Agreement and the certificate of designation for the Series D Preferred Stock,
we have agreed to reduce the conversion price of the Series D Preferred Stock to the public offering price of our common stock
in this offering and the purchasers of Series D Preferred Stock have the option to exchange their Series D Preferred Stock into
the securities issued in a subsequent offering (other than this offering) having more favorable terms, such as a lower price, which
would increase the number of shares of common stock issuable to the holders of Series D Preferred Stock following the exercise
of such option. Additionally, we have agreed to file a registration statement to register the resale of the shares of common stock
issuable upon the conversion of the Series D Preferred Stock as soon as practicable following the closing of this offering. The
Series D Purchase Agreement, as amended, also provides for an automatic exchange of all outstanding shares of Series B Preferred
Stock and Series C Preferred Stock held by the Series D Investor into the securities we sell in a Qualified Offering (or repurchased,
to the extent that we fail, or are unable, to issue securities issued in the Qualified Offering to the Series D Investor in exchange
for such investor’s remaining Series C Preferred Stock due to limitations mandated by the NYSE American, the Securities and
Exchange Commission, or for any other reason), which, if the effective offering price of common stock is lower than the conversion
price of Series C Preferred Stock then in effect, would also increase the number of shares issuable to the holder of Series C Preferred
Stock. See “
Risk Factors — Risks Related to Our Common Stock, Preferred Stock and Warrants and this Offering
—
Because the public offering price per share of common stock in this offering is less than the respective current
conversion price of our Series B, Series C or Series D Preferred Stock, we will be required to issue additional shares of common
stock, as applicable, to the holders of the preferred stock, which will be dilutive to all of our other stockholders, including
new investors in this offering
.”
In
addition, the fact that our stockholders, option holders and warrant holders can sell substantial amounts of our common stock
or our publicly traded warrants 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, or at all.
We
do not expect to pay dividends in the future. As a result, any return on investment may be limited to the value of our common
stock.
We
do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common
stock will depend on our earnings, financial condition and other business and economic factors as our board of directors may consider
relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock
will only occur if our stock price appreciates.
The
Series B Preferred Stock provides for the payment of dividends in cash or in shares of our common stock, and we may not be permitted
to pay such dividends in cash, which will require us to have shares of common stock available to pay the dividends.
Each
share of the Series B Preferred Stock is entitled to receive cumulative dividends at the rate per share of 15% per annum of the
stated value per share, until the fifth anniversary of the date of issuance of the Series B Preferred Stock. The dividends are
payable, at our discretion, in cash, out of any funds legally available for such purpose, or in pay-in-kind shares of common stock
calculated based on the conversion price, subject to adjustment as provided in the certificate of designation for the Series B
Preferred Stock. The conversion price is subject to reduction if in the future we issue securities for less than the conversion
price of our Series B Preferred Stock, as then in effect. As there is no floor price on the conversion price, we cannot determine
the total number of shares issuable upon conversion or in connection with the dividend. It is possible that we will not have a
sufficient number of available shares to pay the dividend in common stock, which would require the payment of the dividend in
cash. We will not be permitted to pay the dividend in cash unless we are legally permitted to do so under Delaware law, which
requires cash to be available from surplus or net profits, which may not be available at the time payment is due. In light of
our recurring losses and negative cash flows from operating activities, we do not expect to have cash available to pay the dividends
on our Series B Preferred Stock or to be permitted to make such payments under Delaware law, and will be relying on having available
shares of common stock to pay such dividends, which will result in dilution to our shareholders. If we do not have such available
shares, we may not be able to satisfy our dividend obligations.
Our
management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not
yield a significant return.
Our
management will have broad discretion over the use of proceeds from this offering. We intend to use the proceeds of this offering
to redeem a portion of the outstanding shares of the Series D Preferred Stock held by the Series D Investor pursuant to the Series
D Purchase Agreement, as amended, and for research and development, capital expenditures, working capital and other general corporate
purposes. However, our management will have broad discretion in the application of the net proceeds from this offering and could
spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure
by management to apply these funds effectively could result in financial losses that could have a material adverse effect on our
business and cause the price of our common stock to decline.
The
reverse stock split may decrease the liquidity of the shares of our common stock.
The
liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares
that are outstanding following the reverse stock split. In addition, the reverse stock split increased the number of stockholders
who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase
in the cost of selling their shares and greater difficulty effecting such sales.
There
is no public market for our preferred stock.
There
is no established trading market for our preferred stock. A trading market for our preferred stock is not expected to develop,
and even if a market develops for our preferred stock, it may not provide meaningful liquidity. The absence of a trading market
or liquidity for our preferred stock may adversely affect their value.
We
are subject to financial reporting and other requirements that place significant demands on our resources.
We
are subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements
of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires us to conduct an annual management assessment of the effectiveness
of our internal controls over financial reporting. These reporting and other obligations place significant demands on our management,
administrative, operational, internal audit and accounting resources. Any failure to maintain effective internal controls could
have a material adverse effect on our business, operating results and stock price. Moreover, effective internal control is necessary
for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business
and reputation with investors may be harmed.
There
are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
The
ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 require us to identify material weaknesses
in internal control over financial reporting, which is a process to provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Our
management, including our chief executive officer and chief financial officer, does not expect that our internal controls and
disclosure controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, in our company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Further, controls
can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the
controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, a control may be inadequate because of changes in conditions, such as growth of the company or increased transaction
volume, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
In
addition, discovery and disclosure of a material weakness, by definition, could have a material adverse impact on our financial
statements. Such an occurrence could discourage certain customers or suppliers from doing business with us and adversely affect
how our stock trades. This could in turn negatively affect our ability to access equity markets for capital.
Delaware
law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that
stockholders may consider favorable.
Our
board of directors is authorized to issue shares of preferred stock in one or more series and to fix the voting powers, preferences
and other rights and limitations of the preferred stock. Accordingly, we may issue shares of preferred stock with a preference
over our common stock with respect to dividends or distributions on liquidation or dissolution, or that may otherwise adversely
affect the voting or other rights of the holders of common stock. Issuances of preferred stock, depending upon the rights, preferences
and designations of the preferred stock, may have the effect of delaying, deterring or preventing a change of control, even if
that change of control might benefit our stockholders. In addition, we are subject to Section 203 of the Delaware General Corporation
Law. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with
an “interested stockholder” for a period of three years after the date of the transaction in which the person became
an interested stockholder, unless (i) prior to the date of the transaction, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii)
the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also
officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to the date
of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Section
203 could delay or prohibit mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price
above the prevailing market price.
We
have a staggered board of directors, which could impede an attempt to acquire us or remove our management.
Our
board of directors is divided into three classes, each of which serves for a staggered term of three years. This division of our
board of directors could have the effect of impeding an attempt to take over our company or change or remove management, since
only one class will be elected annually. Thus, only approximately one-third of the existing board of directors could be replaced
at any election of directors.
As
a former shell company, resales of shares of our restricted common stock in reliance on Rule 144 of the Securities Act are subject
to the requirements of Rule 144(i).
We
previously were a “shell company” and, as such, sales of our securities pursuant to Rule 144 under the Securities
Act of 1933, as amended, cannot be made unless, among other things, at the time of a proposed sale, we are subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and have filed all reports and other materials
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 as amended, as applicable, during the preceding
12 months, other than Form 8-K reports. Because, as a former shell company, the reporting requirements of Rule 144(i) will apply
regardless of holding period, restrictive legends on certificates for shares of our common stock cannot be removed except in connection
with an actual sale that is subject to an effective registration statement under, or an applicable exemption from the registration
requirements of, the Securities Act of 1933, as amended. Because our unregistered securities cannot be sold pursuant to Rule 144
unless we continue to meet such requirements, any unregistered securities we issue will have limited liquidity unless we continue
to comply with such requirements.
No
industry analyst publishes research about our business.
The
trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. Because no industry analyst publishes research about us, we could lose visibility in the financial markets,
which in turn could cause our stock price or trading volume to decline.
Aspects
of the tax treatment of the securities may be uncertain.
The
tax treatment of our preferred stock and our warrants is uncertain and may vary depending upon whether you are an individual or
a legal entity and whether or not you are domiciled in the United States. In the event you are a non-U.S. investor, you should
consult your tax advisors as to the consequences, under the tax laws of the country where you are resident for tax purposes, of
acquiring, holding and disposing of our preferred stock and our warrants.