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
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Risks Related to Our Common Stock, Preferred Stock and
Warrants and this Offering
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If 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, although we intend to seek a waiver of such requirement, 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 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. 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:
● 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;
● 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;
● 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;
● 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;
● 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
● 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
—
If 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
.”)
If 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, the holders of our Series D Preferred Stock have the right to exchange their shares of
Series D Preferred Stock into shares of common stock at the public offering price. As a result of these obligations, if 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, or effectively reduced, to such
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, the holders of the Series D Preferred Stock have the right to exchange their shares of Series D Preferred into
shares of common stock at the public offering price. 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
—
If 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 for research and development, capital
expenditures, working capital and other general corporate purposes. In addition, we may be required to use proceeds of this
offering to redeem outstanding shares of our Series C Preferred Stock and/or our Series D Preferred Stock from the Series D
Investor. 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.