We have granted the underwriter
an option for a period of 30 days from the date of this prospectus supplement to purchase up to an additional 73,043 shares
of common stock at the public offering price less underwriting discounts and commissions. If the underwriter exercises the option
in full, the total underwriting discounts and commissions payable by us will be $196,000 and the total proceeds to us,
before expenses, will be $2,604,000.
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 $7.2 million for the fiscal year ended December
31, 2018, and had a net loss of approximately $8.4 million during the fiscal year ended December 31, 2017. As of December 31,
2018, we had an accumulated deficit of $148 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, 2018, 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 have sufficient capital to fund operations through the end of the third
quarter of 2019. 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 FDA approval for commercial sales in the United
States;
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pursuing
growth opportunities, including more rapid expansion and funding regional distribution systems;
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making
capital improvements to improve our infrastructure;
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hiring
and retaining qualified management and key employees;
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responding
to competitive pressures;
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complying
with regulatory requirements such as licensing and registration; and
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maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership
percentages and could also result in a decrease in the market value of our equity securities. See
“Risk Factors—Risks
Related to Our Common Stock, Preferred Stock and Warrants and this offering—Because the public offering price per
share of common stock in this offering is less than the respective current conversion price of our Series B or Series C 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. The respective
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 or Series C 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 or Series C Preferred Stock conversions or upon conversion of Series B Preferred Stock or Series C 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 CGuard EPS and MGuard Prime 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 CGuard EPS or MGuard Prime 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 CGuard EPS or MGuard Prime 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 CGuard EPS or MGuard Prime 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,
published peer reviewed journal articles and payor coverage policies, among other factors, 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 no growth in sales over the past three years. Such sales may never grow 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.
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
long-term success measures have not been completely validated for our products, especially CGuard EPS, 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
U.S. Food and Drug Administration also requires that our sales and marketing efforts, as well as promotions, be consistent with
various laws and regulations. Approved medical device promotions must be consistent with and not contrary to labeling, balanced,
truthful and not false or misleading, adequately substantiated (when required), and include adequate directions for use. In addition
to the requirements applicable to approved products, we may also be subject to enforcement action in connection with any promotion
of an investigational new device. A sponsor or investigator, or any person acting on behalf of a sponsor or investigator, may
not represent in a promotional context that an investigational new device is safe or effective for the purposes for which it is
under investigation or otherwise promote the device.
If
the U.S. Food and Drug Administration investigates our marketing and promotional materials or other communications and finds that
any of our investigational devices, or future commercial products, if any, are being marketed or promoted in violation of the
applicable regulatory restrictions, we could be subject to the enforcement actions listed above, among others. Any enforcement
action (or related lawsuit, which could follow such action) brought against us in connection with alleged violations of applicable
device promotion requirements, or prohibitions, could harm our business and our reputation, as well as the reputation of any devices
that may be approved for marketing in the U.S. in the future.
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.
We
are, or may be, 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 healthcare 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.
Healthcare
providers, physicians and others will play a primary role in the recommendation, ordering and utilization of any products for
which we obtain regulatory approval. If we obtain U.S. Food & Drug Administration approval for any of our products and begin
commercializing those products in the United States, our operations may be subject to various federal and state fraud and abuse
laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician payment sunshine
laws and regulations. These laws may impact, among other things, our potential sales, marketing and education programs. In addition,
we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business.
The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or
in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of
any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such
as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which may be pursued
through civil whistleblower or qui tam actions, impose criminal and civil penalties against individuals or entities for knowingly
presenting, or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid or other
third-party payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay
money to the federal government;
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federal criminal statutes created through the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
which prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program
or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or
under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly
and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements
in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing
regulations, which imposes requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as
well as their respective business associates that perform services for them that involve the use, or disclosure of, individually
identifiable health information, relating to the privacy, security and transmission of individually identifiable health information;
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the federal transparency requirements under The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act, enacted into law in the United States in March 2010 (known collectively as the “Affordable Care Act”), including
the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, biologics, devices
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program
to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members; and
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state 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, healthcare reform
legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amended 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 comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our existing or future 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. Any such actions instituted against us could have a significant adverse 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. Even if we are successful in defending against such actions, we may nonetheless be subject to substantial costs,
reputational harm and adverse effects on our ability to operate our business. 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 our employees, agents, or the physicians or other providers or entities with whom we expect to do business are found to
have violated applicable laws, we may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs, or, if we are not subject to such actions, we may suffer reputational harm for conducting business
with persons or entities found, or accused of being, in violation of such laws. Any such events 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 intense competition from numerous pharmaceutical and biotechnology companies
in the therapeutics area, as well as competition from academic institutions, government agencies and research institutions. Abbott
Laboratories, Boston Scientific Corporation, Covidien Ltd. (currently part of Medtronic, Inc.), and Cordis Corporation (currently
part of Cardinal Health, Inc.). Gore Medical and Terumo Medical Corporation produce a polytetrafluoroethylene mesh-covered stent
and a double layer metal stent, respectively. 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 CGuard EPS and MGuard
Prime 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. See “Business — Legal Proceedings” for more information. 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.
Our
business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
In
the ordinary course of our business, we collect and store sensitive data, including intellectual property, research data, our
proprietary business information and that of our suppliers, technical information about our products, clinical trial plans and
employee records. Similarly, our third-party providers possess certain of our sensitive data and confidential information. The
secure maintenance of this information is critical to our operations and business strategy. Despite the implementation of security
measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses,
malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks
or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems
inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including
by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication
of attempted attacks and intrusions from around the world have increased. Any such breach could compromise our networks and the
information stored there could be accessed, publicly disclosed, encrypted, lost or stolen. Any such access, inappropriate disclosure
of confidential or proprietary information or other loss of information, including our data being breached at third-party providers,
could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information,
disruption of our operations or our product development programs and damage to our reputation, which could adversely affect our
business. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays
in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
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.
Even
if one or more of our products are approved by the U.S. Food and Drug Administration, we may fail to obtain an adequate level
of reimbursement for our products by third party payors, such that 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 are factors that may impact
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 healthcare 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 European Union, our business could be significantly and adversely affected by healthcare reform initiatives
and/or other legislation or judicial interpretations of existing or future healthcare laws and/or regulations.
The
Affordable Care Act, signed 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. Effective January
1, 2016, the excise tax was suspended until the end of 2017, and in January 2018, another temporary two-year suspension of the
tax was passed, extending the suspension to December 31, 2019. If we obtain approval to commence sales of any of our applicable
devices 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 asserted against
the Affordable Care Act since its enactment and continue to evolve. While early challenges were largely unsuccessful, there have
been renewed efforts to repeal and/or replace the Affordable Care Act following the 2017 changes in the U.S. presidential administration
and U.S. Congress. Due to such efforts, certain elements of the Affordable Care Act have been invalidated or suspended, which
has, in turn, led to additional challenges against the law as a whole. For example, the Tax Cuts and Jobs Act of 2017 included
a provision repealing, effective January 1, 2019, the tax imposed by the Affordable Care Act’s “individual mandate.”
As a result, at least one federal court has held that the entire Affordable Care Act must be invalidated. However, the ruling
in that case,
Texas, et al, v. United States of America, et al.
, (N.D. Texas), has been stayed by the ruling judge pending
appeal. Additionally, an Executive Order signed by the U.S. President directed 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.
We
cannot predict the impact that such actions against the Affordable Care Act will have on our business, and there is uncertainty
as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the United States,
or the effect of any future legislation or regulation. However, it is possible that such initiatives could have an adverse effect
on our ability to obtain approval and/or successfully commercialize products in the United States in the future. For example,
any changes that reduce, or impede the ability to obtain, reimbursement for the type of products we intend to commercialize in
the United States (or our products more specifically, if approved) 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
W
e
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
executive office, 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 and August 2014, an armed conflict took
place between Israel and Hamas, and since September 2015, there has been an increase in sporadic terror incidents conducted by
individuals not necessarily associated with terror organizations. 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 2018 is 23% and in 2019 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 this 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. 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.
On
February 19, 2019 we received notice from NYSE American that we were back in compliance with three of the NYSE American continued
listing standards set forth in Part 10 of the NYSE American Company Guide. We are subject to ongoing review for compliance with
the NYSE American requirements and our stockholders’ equity may decline and we may again fall out of compliance with Section
1003(a)(i), Section 1003(a)(ii) or Section 1003(a)(iii) of the Company Guide. If we are again determined to be below any of the
continued listing standards within 12 months of the date of such notice, we have been advised that NYSE American will examine
the relationship between the two incidents of noncompliance and re-evaluate our method of financial recovery. NYSE Regulation
will then take the appropriate action, which, depending on the circumstances, may include truncating the compliance procedures
described in Section 1009 of the Company Guide or immediately initiating delisting proceedings.
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.
A
low trading price could lead the NYSE American to take actions toward delisting our common stock, including immediately suspending
trading in our common stock.
On
January 7, 2019, 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 could take
action to delist our common stock in the event that our common stock trades at levels viewed as abnormally low for a substantial
period of time. NYSE American has advised us that if our common stock trades below $0.20 on a 30 trading day average, then it
will be considered non-compliant with NYSE American’s low selling price requirement. 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 7, 2019. We had previously received a notification of non-compliance of the same kind on January 16,
2018, effected a 1-for-35 reverse stock split of our common stock on February 7, 2018, and regained compliance on July 16, 2018.
On
March 29, 2019, we effected a 1-for-50 reverse stock split of our common stock. One of the primary intents for each 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. However, the increase in the price of our common stock from the reverse stock split effected
on February 7, 2018, was not maintained, and our common stock again traded for a low price per share for a substantial period
of time. There can be no assurance that the market price of our new common stock after our March 29, 2019 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.
In
addition, the NYSE American has 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.
Because
the public offering price per share of common
stock in this offering is less than the respective current conversion price of our Series B or Series C 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 accordance with this anti-dilution price protection, because the effective
common stock purchase price in the March 2018 public offering, the April 2018 public offering and the July 2018 public offering
was below the then current Series B Preferred Stock and the Series C Preferred Stock conversion price, we reduced the Series B
Preferred Stock and the Series C Preferred Stock conversion price upon closing of each such public offering. As a result of these
obligations, because the public offering price of our common stock in this offering is less than the respective current
conversion price of our Series B or Series C Preferred Stock, each of these conversion prices shall be reduced, or effectively
reduced, to the public offering price of our common stock. This reduction in the conversion prices will result in a greater
number of shares of common stock being issuable upon conversion of the Series B Preferred Stock or Series C 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.
In addition, as there is no floor price on the conversion price, we cannot determine the total number of shares issuable upon
conversion. As such, it is possible that we will not have a sufficient number of available shares to satisfy the conversion of
the Series B Preferred Stock or the Series C Preferred Stock if we enter into a future transaction that reduces the applicable
conversion price. The foregoing features will increase the number of shares of common stock issuable upon conversion, assuming
that the effective offering price of our common stock in a subsequent financing is lower than the conversion price of these securities
then in effect, of the Series B Preferred Stock or Series C Preferred Stock for no additional consideration, and will result in
a greater dilutive effect on our shareholders.
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.
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 such 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. See
“Risk Factors — Risks Related to Our Common Stock,
Preferred Stock and Warrants and this Offering — Because the public offering price per share of common stock in this
offering is less than the respective current conversion price of our Series B or Series C 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 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, sales and marketing and other general corporate purposes.
However, our management will have broad discretion in the application of the net proceeds from this offering and could spend the
proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by management
to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and
cause the price of our common stock to decline.
The
reverse stock split may decrease the liquidity of the shares of our common stock.
The
liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares
that are outstanding following the reverse stock split. In addition, the reverse stock split increased the number of stockholders
who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase
in the cost of selling their shares and greater difficulty effecting such sales.
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.