Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the SEC,
including the following risk factors which we face and which are faced by our industry. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. In that event, the trading price of
our ordinary shares would likely decline and you might lose all or part of your investment. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these
forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See also “Special Note Regarding Forward-Looking Statements and Risk Factors Summary” on page (ii).
Risks Related to Our Business and Our Industry
The COVID-19 pandemic has adversely affected and may continue to materially and adversely impact our business, our operations and our financial results.
The impact of the COVID-19 pandemic has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets
around the world. In an effort to halt the outbreak of COVID-19, a number of countries, including the United States and Germany where we have key operations, placed significant restrictions on travel, and many businesses announced extended
closures. It is unclear how long total or partial shutdowns may last and whether additional shutdowns will be necessary to the extent future outbreaks occur.
The COVID-19 outbreak has had, and a continuing outbreak or future outbreaks may have, several adverse effects on our business, results of operations and financial condition.
Sales. In particular, the steps we have taken to safeguard employees and patients have curtailed direct sales activities, including our
ability to train patients and rehabilitation centers on how to use our system, which has adversely impacted our revenues in 2020. The overall impact of the limitations on our sales efforts are currently hard to determine because, in addition to the
short-term impacts, we are unable to interact and test our system with potential new patients at the same levels that we have before the COVID-19 outbreak. It may take an extended period after current restrictions end for us to engage potential new
clients. We continue to monitor our sales pipeline on a day-to-day basis in order to assess the quarterly effect of these limitations as some have short term effects and some affects our future pipeline development.
Repairs. In addition, when a region is under movement restrictions we are sometimes unable to repair the device onsite and as a result ship a
temporary replacement systems in some cases, provide remote service if possible, deliver service parts directly to our customers or perform the repair onsite when circumstances allow it. We cannot be certain when social distancing
restrictions will be fully lifted and, once they are fully lifted, whether sales of our systems will offset the revenue that we have forgone earlier in the year. We also cannot be certain that social distancing restrictions or other
measures will not be reinstated in the event of a future outbreak of COVID-19 or similar outbreak.
Production and Supply Chain. We had several delays in parts shipment and an increase in shipment costs during 2020. These delays have not affected our
product availability, but our manufacturing may be impacted due to supply chain delays or adverse impacts on our production capacity due to government directives or health protocols that might impact
our production facility. In addition, given the impact of current limitations on our sales activities, it has become hard for us to effectively forecast our future requirements for systems. Accordingly, there is a greater risk that we may
overproduce or underproduce compared to sales.
Regulatory and clinical trials. Limitations on travel and business closures recommended by federal, state, and local governments, could,
among other things, impact our ability to enroll patients in clinical trials, recruit clinical site investigators, and obtain timely approvals from local regulatory authorities. In our postmarket study that we continue to conduct, we have faced
decreased ability to contact patients where a patient’s COVID-19 status is unknown. Regulatory oversight and actions regarding our products have been and may continue to be disrupted or delayed in regions impacted by COVID-19, including the United
States and Europe, which have been and may continue to impact review and approval timelines for products in development and/or changes to existing products that need regulatory review and approval.
Negative impacts on our suppliers and employees. COVID-19 may impact the health of our employees, directors, partners, or customers, reduce the
availability of our workforce or those of companies with which we do business, divert our attention toward succession planning, or create disruptions in our supply or distribution networks. The adverse effects of such events on us may include
disruption to our operations, or demand for our products in the short and/or long term.
Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain
disruptions and operational challenges faced by our customers. Continued outbreaks of COVID-19 could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic
downturn or a global recession that could cause significant volatility or decline in the trading price of our securities, affect our ability to execute strategic business activities, affect demand for our products and likely impact our operating
results. These may further limit or restrict our ability to access capital on favorable terms, or at all, lead to consolidation that negatively impacts our business, weaken demand, increase competition, cause us to reduce our capital spend further,
or otherwise disrupt our business.
We may not have sufficient funds to meet certain future capital requirements, which could impair our efforts to develop and commercialize existing and new products, and may need
to take advantage of various forms of capital-raising transactions, future equity financings, strategic transactions, or borrowings may also further dilute our shareholders or place us under restrictive covenants limiting our ability to operate.
We intend to finance operating costs until we reach profitable operation with existing cash on hand, continued close examination of our operating spend and potential reduction in specific
areas, issuances of equity and/or debt securities, and other future public or private issuances of securities, or through a combination of the foregoing. We raised approximately $23.2 million in net proceeds during 2020. However, we may need
to seek additional sources of financing if we require more funds than anticipated during the next 12 months or in later periods.
Raising additional capital in the public markets could entail certain downsides. Although we will become eligible to begin using Form S-3 again on April 1, 2021, we could be limited to
selling no more than one-third of our unaffiliated market capitalization, or public float, on Form S-3 in a 12-month period if our public float again falls below $75 million. For more information on our inability to use Form S-3, see
“Part II. Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Equity Raises” below. Additionally, under our December 2020 purchase agreement with certain investors,
we agreed for a period of one year following December 3, 2020, not to (i) issue or agree to issue equity or debt securities convertible into, or exercisable or exchangeable for, ordinary shares at a conversion price, exercise price or
exchange price which floats with the trading price of the ordinary shares or which may be adjusted after issuance upon the occurrence of certain events or (ii) enter into any agreement, including an equity line of credit, whereby the
Company may issue securities at a future-determined price, other than an at–the-market facility with the placement agent, H.C. Wainwright & Co, LLC, beginning on February 1, 2021. Such limitations may inhibit our ability to access
capital efficiently. Additionally, due to these limitations on our use of Form S-3 and the use of our current at-the-market offering program with a separate bank, Piper Jaffray & Co., we may be required to seek other methods for
access to capital, such as a registration statement on Form S-1. The preparation of a registration statement on Form S-1 is and has in the past been, more time-consuming and costly. We may also conduct fundraising transactions in the
form of private placements, potentially with registration rights or priced at a discount to the market value of our ordinary shares (similar to a transaction we conducted in December 2020), which could require shareholder approval under
the rules of Nasdaq, or other equity raise transactions such as equity lines of credit. In addition to entailing increased capital costs, any such transactions have historically resulted in and could result in substantial dilution of our
shareholders’ interests and may also transfer control to a new investor or diminish the value of an investment in our ordinary shares.
We may also need to pursue strategic transactions, such as joint ventures, in-licensing transactions, or the sale of our business or all or substantially all of our assets. We are in discussions
routinely with such possible sources of additional funding. These private financings and strategic transactions have in the past and could in the future require significant management attention, disrupt our business, adversely affect our
financial results, be unsuccessful or fail to achieve the desired results. Agreements governing any borrowing arrangement may also contain covenants that could restrict our operations.
Overall, if we cannot raise the required funds, or cannot raise them on terms acceptable to us or investors, we may be forced to curtail substantially our current operations or cease
operations altogether.
While we have regained compliance with the quantitative continued listing rules of the Nasdaq Capital Market, we may not be able to maintain the listing of our ordinary shares on the Nasdaq Capital Market going forward, which could adversely affect
our liquidity and the trading volume and market price of our ordinary shares.
As previously disclosed, on March 24, 2020, we received a notification letter from Nasdaq stating that we failed to comply with the closing bid price requirement of Nasdaq Rule 5550(a) (“Rule
5550(a)”). If our closing bid price is less than $1 per share for 30 consecutive business days, we will be deficient with Rule 5550(a). On May 11, 2020, we received a notice from Nasdaq stating that we have regained compliance with Rule 5550(a)
since our share price was above $1 for 10 consecutive business days and that the matter is now closed. Our closing share price as of February 16, 2021 was $5.20 If we become non-compliant with Rule 5550(a) in the future (absent any relief, such
as the temporary relief imposed by Nasdaq during the ongoing COVID-19 pandemic) and we fail to regain compliance with Rule 5550(a) during the rule’s applicable cure period, Nasdaq will notify us that our ordinary shares are subject to delisting.
In the case of non-compliance, there can be no assurance that we will be able to regain compliance with the applicable rules.
Additionally, as previously disclosed, in October 2018, we received a notification letter from Nasdaq stating that, under Nasdaq Rule 5550(b), or Rule 5550(b), we failed to comply
with the minimum $35 million market value of listed securities requirement for continued listing on the Nasdaq Capital Market as of October 26, 2018 and did not meet the rule’s alternative $2.5 million shareholders’ equity and $500,000 net income
standards as of applicable balance sheet and income statement dates. We regained compliance with Rule 5550(b) in April 2019. Our shareholders’ equity was $21.8 million as of December 31, 2020. However, if our quarterly or annual report for a
subsequent fiscal period does not evidence such compliance, we may become immediately subject to delisting without a cure period. For example, if we cannot maintain the requisite cash levels for a compliant amount of shareholders’ equity, our
ordinary shares may be at serious risk of immediate delisting.
We would be permitted to appeal any delisting determination to a Nasdaq Hearings Panel, and our ordinary shares would remain listed on the Nasdaq Capital Market pending the panel’s
decision after the hearing. If we do not appeal the delisting determination or do not succeed in such an appeal, our ordinary shares would be removed from trading on the Nasdaq Capital Market. Any delisting determination could seriously decrease or
eliminate the value of an investment in our ordinary shares and other securities linked to our ordinary shares. While an alternative listing on an over-the-counter exchange could maintain some degree of a market in our ordinary shares, we could face
substantial material adverse consequences, including, but not limited to, the following: limited availability for market quotations for our ordinary shares; reduced liquidity with respect to our ordinary shares; a determination that our ordinary
shares are “penny stock” under SEC rules, subjecting brokers trading our ordinary shares to more stringent rules on disclosure and the class of investors to which the broker may sell the ordinary shares; limited news and analyst coverage, in part due
to the “penny stock” rules; decreased ability to issue additional securities or obtain additional financing in the future; and potential breaches under or terminations of our agreements with current or prospective large shareholders, strategic
investors and banks. The perception among investors that we are at heightened risk of delisting could also negatively affect the market price of our securities and trading volume of our ordinary shares.
Our future growth and operating results will depend on our ability to develop, receive regulatory clearance for and commercialize new products and penetrate new
product and geographic markets.
We are currently engaged in research and development efforts to address the needs of patients with mobility impairments besides paraplegia, such as stroke, and, in the future, we
may engage in efforts to address these needs in patients with other conditions such as multiple sclerosis, cerebral palsy Parkinson’s disease and elderly assistance. We also began commercializing in 2019 our first product for stroke patients, the
ReStore. For more information, see “Part, Item 1. Business—ReStore Products” below. In addition to other research and development projects, we currently collaborate with Harvard University’s Wyss Institute for Biologically Inspired Engineering to
design, research and develop lightweight exoskeleton system technologies for lower limb disabilities intended to treat stroke, multiple sclerosis, mobility limitations for the elderly and other medical applications. As part of the collaboration,
Harvard has also licensed to us certain of its intellectual property relating to lightweight exoskeleton system technologies for lower limb disabilities. We are obligated to use commercially reasonable efforts to develop products under the license in
accordance with an agreed-upon development plan and to introduce and market such products commercially.
We expect that a portion of our revenues will be derived, in the next few years, from the ReStore soft suit exoskeleton product and, in later years, if we chose to advance the
current designs, from other new products such as a home use device for stroke patients or new products of ours aimed at addressing other medical indications which affect the ability to walk, including multiple sclerosis, cerebral palsy, Parkinson’s
disease and elderly assistance. As such, our future results will depend on our ability to successfully develop and commercialize such new products. We cannot ensure you that we will be able to introduce new products, products currently under
development and products contemplated for future development for additional indications in a timely manner, or at all as it depends on our available resources to fund such projects While we received governmental clearance to market our ReStore
product on the anticipated timetable in 2019, obtaining clearance for any other soft suit exoskeleton products we may develop could involve an extensive, costly and time-consuming process, which would delay any planned commercialization. For more
information on the clearance processes, see “Part I, Item 1. Business—Government Regulation” below.
Harvard may also terminate its license agreement with us if we fail to obtain the requisite insurance or become insolvent. Any such termination of this aspect of the collaboration
with Harvard could impair our research and development efforts into lightweight soft suit exoskeleton system technologies for lower limb disabilities. In addition, we may not be able to clinically demonstrate the medical benefits of our products for
new indications. We have limited clinical data demonstrating the benefits of our products and we might not be able to support the economic benefits our products have for the customer. We may also be unable to gain necessary regulatory approvals to
enable us to market new products for additional indications or the regulatory process may be more costly and time-consuming than expected, which could adversely impact us given our cash position and ongoing capital requirements. We might also
terminate or change our research collaboration agreement with Harvard if we see limited market to the current developed products or seek to focus our available resources to other areas of the business.
Even if we are successful in the design and development of new products, our growth and results of operations will depend on our ability to penetrate new markets and gain
acceptance by non-SCI markets such as the stroke rehabilitation market, and, in the longer term, the home use device market for stroke-caused lower limb disability, multiple sclerosis, elderly assist and cerebral palsy patients. We may not be able to
gain such market acceptance in these communities in a timely manner, or at all.
While our new products currently under development will share some aspects of the core technology platform in our current products, their design features and components may differ
from our current products. Accordingly, these products will also be subject to the risks described under “We rely on sales of our ReWalk and ReStore systems and related service contracts and extended warranties for our revenue. We may not be able to
achieve or maintain market acceptance or generate sufficient revenues from such contracts.” To the extent we are unable to successfully develop and commercialize products to address indications other than paraplegia, we will not meet our projected
results of operations and future growth.
We rely on sales of our ReWalk and ReStore systems and related service contracts and extended warranties for our revenue. We may not be able to achieve or
maintain market acceptance of our ReWalk or ReStore systems, or to generate sufficient revenues from these current and future products.
We currently rely, and expect in the future to rely, on sales of our ReWalk and ReStore systems and related service contracts and extended warranties for our revenue. We began marketing in 2019 in
the United States and the EU (following the receipt of FDA and CE mark clearance) the ReStore lightweight soft suit exoskeleton, which is designed to support mobility for individuals suffering from other lower limb disabilities. Several factors
could negatively affect our ability to achieve and maintain market acceptance of our ReWalk system or our ReStore system, which could in turn materially impair our business, financial condition, and operating results.
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ReWalk. We have sold only a limited number of ReWalk systems, and market acceptance and adoption depend on educating people with limited upright mobility and health care providers as to the
distinct features, ease-of-use, positive lifestyle impact and other benefits of ReWalk compared to alternative technologies and treatments. ReWalk may not be perceived to have sufficient potential benefits compared with these alternatives.
Users may also choose other therapies due to disadvantages of ReWalk, including the time it takes for a user to put on ReWalk, the slower pace of ReWalk compared to a wheelchair, the weight of ReWalk when carried, which makes it more
burdensome for a companion to transport than a wheelchair, and the requirement that users be accompanied by a trained companion. Also, we believe that healthcare providers tend to be slow to change their medical treatment practices because
of perceived liability risks arising from the use of new products and the uncertainty of third-party reimbursement. Accordingly, healthcare providers may not recommend ReWalk until there is sufficient evidence to convince them to alter the
treatment methods they typically recommend, such as prominent healthcare providers or other key opinion leaders in the spinal cord injury community recommending ReWalk as effective in providing identifiable immediate and long-term health
benefits.
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In addition, we may be unable to sell on a profitable basis current ReWalk systems or other future products for home and community use if third-party payors deny
coverage, limit reimbursement, or reduce their levels of payment, or if our costs of production increase faster than increases in reimbursement levels. Several private and national insurers in the United States and Europe have provided
reimbursement for ReWalk in certain cases to date, the VA maintains its policy of covering the cost of ReWalk devices for qualifying veterans across the United States and German insurers such as Germany’s national social accident insurance
provider, Deutsche Gesetzliche Unfallversicherung (the “DGUV”) indicated that its member payers will approve the supply of exoskeleton systems for qualifying beneficiaries on a case-by-case basis as the ReWalk device was issued a code in the
medical device directory in Germany and in 2020 we announced that we accepted a binding offer with the DGUV to supply our ReWalk Personal 6.0 to qualified patients as well as with other payors in Germany. However, no broad uniform policy of
coverage and reimbursement for electronic exoskeleton medical technology exists among third-party payors in the United States and Germany. Health insurance companies and other third-party payors in the future may also not deliver adequate
coverage or reimbursement for our current or future products designed for home and community use. The VA or DGUV or other payors may cancel or materially curtail their current policy of providing coverage ReWalk devices in the United States
and Germany for qualifying individuals who have suffered spinal cord injury, or we may not place enough units through to make our sales profitable under their policies. For more information, see “—Risks Related to our Business and our
Industry— We may fail to secure or maintain adequate insurance coverage or reimbursement for our products by third-party payors, which risk may be heightened if insurers find the products to be investigational or experimental or if new
government regulations change existing reimbursement policies. Additionally, such coverage or reimbursement, even if maintained, may not produce revenues that are high enough to allow us to sell our products profitably.”
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ReStore. The ReStore system is designed to provide advantages to stroke rehabilitation clinics and therapists as compared to other traditional therapies and devices
by minimizing setup time, improving patients’ clinical results during therapy, supplying real-time analytics to optimize session productivity, and generating ongoing data reports to assist with tracking patient progress. Other potential
secondary benefits for rehabilitation clinics include reducing staffing requirements, staff fatigue and the risk for potential staff injuries. Since the ReStore device is currently being used only in the rehabilitative clinical setting,
its market reception will depend heavily on our ability to demonstrate to clinics and therapists the systemic and economic benefits of using the ReStore device, its clinical advantage when compared to other devices or manual therapy,
the functionality of the device for a significant portion of the patients that they treat and the overall advantages that the device provides to their patients compared to other technologies.
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As a general matter, achieving and maintaining market acceptance of our current or future products could be negatively impacted by many
other factors, including, but not limited to the following: contribution to death or serious injury or malfunction, results of clinical studies relating to our or similar products; claims that our products, or any of their components, infringe on
patent or other intellectual property rights of third parties; our ability to support financially and leverage our sales, marketing and training infrastructure, as well as our level of research and development efforts; our ability to enhance and
broaden our research and development efforts and product offerings in response to the evolving demands of people with paraplegia and lower limb disability and healthcare providers; our estimates regarding our current or future addressable market;
perceived risks associated with the use of our products or similar products or technologies; the introduction of new competitive products or greater acceptance of competitive products; adverse regulatory or legal actions relating to our products or
similar products or technologies; and problems arising from the outsourcing of our manufacturing capabilities, or our existing manufacturing and supply relationships. Any or all of these factors could materially and negatively impact our business,
financial condition and operating results.
The market for medical exoskeletons, including soft suit devices, remains relatively new and unproven, and important assumptions about the potential market for
our current and future products may be inaccurate.
The market for medical exoskeletons, including lightweight exo-suit devices, remains relatively new and unproven. Accordingly, it is difficult to predict the future size and rate
of growth of the market. We cannot be certain whether the market will continue to develop or if medical exoskeletons will achieve and sustain a level of market acceptance and demand sufficient for us to continue to generate revenue and achieve
profitability.
We obtained FDA clearance for our ReWalk Personal device in June 2014. This clearance permits us to market the device for use by individuals with spinal cord injury at levels T7 to
L5 and for use by individuals in rehabilitation institutions with spinal cord injury at levels T4 to L5. The FDA’s clearance requires users of the device to meet the following criteria: healthy hands and shoulders that can support crutches, healthy
bone density, no skeletal fractures, in good general health, ability to stand with a stander device, weight of less than 220 pounds/100 kilograms and height between 5 feet 3 inches and 6 feet 2 inches/1.60 meters and 1.88 meters. Additionally, the
FDA clearance contraindicates psychiatric or cognitive conditions that could interfere with a user’s proper operation of the device and various other clinical conditions, including pregnancy, severe concurrent medical diseases, a history of severe
neurological injuries other than spinal cord injury, impaired joint mobility, unhealed limbs or pelvic fractures or unstable spine, severe spasticity and significant and chronic loss of joint mobility due to structural changes in non-bony tissue.
We obtained FDA clearance for our ReStore system in June 2019. This clearance permits us to market the device to be used to assist ambulatory functions in rehabilitation
institutions for people with hemiplegia or hemiparesis due to stroke who can ambulate at least 1.5m (5ft) with no more than minimal to moderate levels of assistance. The FDA’s clearance requires users of the device to meet the following criteria:
height between 4 feet 8 inches and 6 feet 3 inches/1.42 meters and 1.92 meters and weight of less than 264 pounds/120 kilograms. Additionally, the FDA clearance contraindicates persons with the following conditions should not use the Restore: serious
co-morbidities that may interfere with ability to safely use ReStore, severe peripheral artery disease (PAD), unresolved deep vein thrombosis (DVT), range of motion (ROM) restrictions at the ankle that preclude safe walking, cognitive impairments
that may interfere with safe operation of the device, presence of open wounds or broken skin at device locations, urethane allergy or current pregnancy.
Future products for those with paraplegia or other mobility impairments or spinal cord injuries, may have the same or other restrictions.
Our business strategy is based, in part, on our estimates of the number of mobility-impaired individuals and the incurrence of spinal cord injuries and strokes in our target markets, and the
percentage of those groups that would be able to use our current and future products. Limited sources exist to obtain reliable market data with respect to the number of mobility-impaired individuals and the incurrence of spinal cord injuries and
strokes in our target markets. In addition, there are no third-party reports or studies regarding what percentage of those with limited mobility, spinal cord injuries would be able to use exoskeletons, in general, or our current or planned future
products, in particular. Our assumptions may be inaccurate and may change.
The National Spinal Cord Injury Statistical Center, or NSCISC, estimates that as of 2019 there were 291,000 people in the United States living with SCI, and that the annual incidence of SCI
cases is approximately 17,730 new cases per year. Based on information from a 2017 report by the NSCISC, 40.6% of the total U.S. population of SCI patients suffered injuries between levels T4 and L5. Three published ReWalk trials with respect
to such eligible SCI patients had an aggregate screening acceptance rate of 79% considering all current FDA limitations, resulting in an estimated 32% of the total population of SCI patients being qualified candidates for current ReWalk
products under its medical labeling criteria. There may be other permanent or short-term factors that affect the market size such as the ability to use the device in the user’s current home environment and available companion support. With
regards to our ReStore product for stroke rehabilitation, as the indication of use is currently in rehabilitation clinics our target market is based on the number of current and future clinics who treat stroke patients. Although there are
thousands of inpatient, outpatient, skilled nursing facilities and rehabilitation clinics providing therapy in the U.S. for example we believe that only a portion of the clinics will decide to include ReStore in their stroke rehab program.
For more information on our expectations regarding these plans, see “—Our future growth and operating results will depend on our ability to develop and commercialize new products and penetrate new markets” below. For more information
regarding the potential market for future products, including our lightweight soft suit exoskeleton, see “Part I, Item 1. Business—ReWalk Personal and ReWalk Rehabilitation Products—Market Opportunity” above.
We cannot assure you that our estimate regarding our current products is accurate or that our estimate regarding future products will remain the same. FDA or CE mark clearance for such products, if
received at all, may contain different limitations from the ones the FDA or EU has placed on the devices we currently market for paraplegia. If our estimates of our current or future addressable market are incorrect, our business may not develop
as we expect, and the price of our securities may suffer.
We may fail to secure or maintain adequate insurance coverage or reimbursement for our products by third-party payors, which risk may be heightened if insurers
find the products to be investigational or experimental or if new government regulations change existing reimbursement policies. Additionally, such coverage or reimbursement, even if maintained, may not produce revenues that are high enough to allow
us to sell our products profitably.
We expect that in the future a significant source of payment for ReWalk systems will be private insurance plans and managed care programs, government programs such as the VA, Medicare and Medicaid,
worker’s compensation, and other third-party payors. We have similar expectations for our ReStore product, although we possess less information regarding the payment by third-party payors for this product as we only began commercializing it in
2019.
In December 2015, the VA issued a national reimbursement policy for the ReWalk system, which entails the evaluation, training and procurement of ReWalk Personal exoskeleton systems
for all qualifying veterans across the United States. Additionally, in September 2017, German insurer BARMER GEK (“Barmer”) signed a confirmation and letter of agreement regarding the provision of ReWalk systems for all qualifying beneficiaries and
the German national social accident insurance provider DGUV indicated that its member payers will approve the supply of exoskeleton systems for qualifying beneficiaries on a case-by-case basis. However, no broad uniform policy of coverage and
reimbursement for electronic exoskeleton medical technology exists among third-party payors in the United States, although reimbursement may be achieved on a case-by-case basis. To date, payments for our products, which are largely for our ReWalk
systems, have been made primarily through case-by-case determinations by third-party payors (including several private insurers in the United States), by self-payors and, to a lesser extent, through the use of funds from insurance and/or accident
settlements.
Generally, private insurance companies do not cover or provide reimbursement for any medical exoskeleton products for personal use, including ReWalk Personal, and may ultimately
provide no coverage at all. For instance, during 2017 we submitted a proposal to a large U.S. national insurance provider for a broader coverage policy for the ReWalk Personal device. While we believe there was support for a change, the insurer was
unable to reach internal consensus and therefore elected not change its existing non-coverage policy. Additionally, there is limited clinical data related to the ReWalk and ReStore systems, and third-party payors may consider use of them to be
experimental and therefore refuse to cover any or all of them. For example, Aetna has determined that certain lower-limb prostheses, including ReWalk, are experimental and investigational because there is inadequate evidence of their effectiveness.
Additionally, the majority of independent medical review decisions made following the denial of ReWalk coverage have determined that ReWalk is experimental and/or investigational, citing a lack of clinical data.
Many private third-party payors use coverage decisions and payment amounts determined by the Center for Medicare and Medicaid Services (the “CMS”), which administers the Medicare program, as
guidelines in setting their coverage and reimbursement policies. We have started the process of obtaining reimbursement coverage from CMS, and in July 2020, CMS issued a Healthcare Common Procedure Coding System Level II Code for ReWalk Personal
6.0 (effective October 1, 2020). These codes are used to identify medical products and supplies and to facilitate insurance claim submissions and processing for these items. However, while we believe that any ultimate positive reimbursement
response by CMS will broaden coverage by private insurers, we cannot currently predict how long it would take for us to receive a coverage decision from CMS for any of our products nor can we predict other business elements that will be decided
by CMS such as the price per unit or product labeling requirements. Even with a positive decision from CMS regarding a product of ours, future action by CMS or other government agencies may diminish possible payments to physicians, outpatient
centers and/or hospitals that purchase our products for use by their patients and possible payments to individuals who purchase the ReWalk Personal for their own use. Additionally, a decision by CMS to provide reimbursement could influence other
payors, including private insurers. If CMS declines to provide for reimbursements of our products or if its reimbursement price is lower than that of other payors, our products may not be reimbursed at a cost-effective level or at all. Those
private third-party payors that do not follow the Medicare guidelines may adopt different coverage and reimbursement policies for purchase of our products or their use in a hospital or rehabilitative setting. In addition, we expect that the
purchase of ReWalk Rehabilitation systems and the ReStore system, as it is currently being sold for use in rehabilitative settings, will require the approval of senior management at hospitals or rehabilitation facilities, inclusion in the
hospitals’ or rehabilitation facilities’ budget process for capital expenditures, and in the case of ReWalk Personal, fundraising, and financial planning or assistance.
Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. These cost control methods include prospective payment systems, capitated rates, benefit
redesigns and an exploration of other cost-effective methods of delivering healthcare. These cost control methods potentially limit the amount that healthcare providers may be willing to pay for electronic exoskeleton medical technology if they
provide coverage at all. We may be unable to sell our products on a profitable basis if third-party payors deny coverage or provide insufficient levels of reimbursement.
Future legislation could result in modifications to the existing public and private health care insurance systems that would have a material adverse effect on the reimbursement
policies discussed above. If enacted and implemented, any measures to restrict health care spending could result in decreased revenue from our products and decrease potential returns from our research and development initiatives.
We have a limited operating history upon which you can evaluate our business plan and prospects.
Although we were incorporated in 2001, we did not begin selling ReWalk Rehabilitation until 2011, and we did not begin selling ReWalk Personal in Europe until 2012. We began
selling ReWalk Personal in the United States in the third quarter of 2014, as we received FDA clearance to do so in June 2014. We began selling our ReStore product in the United States and Europe in June 2019 following receipt of FDA and CE mark
clearance, respectively. Therefore, we have limited operating history upon which you can evaluate our business plan and prospects. Our business plan and prospects must be considered in light of the potential problems, delays, uncertainties and
complications encountered in connection with a more newly established business. The risks include, but are not limited to, that:
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a market will not sufficiently develop for our products;
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we will not be able to develop scalable products and services, or that, although scalable, our products and services will not be economical to market;
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we will not be able to establish brand recognition and competitive advantages for our products;
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we will not receive necessary regulatory clearances or approvals for our products; and
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our competitors market an equivalent or superior product or hold proprietary rights that preclude us from marketing our products.
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There are no assurances that we can successfully address these challenges. If we are unsuccessful, our business, financial condition and operating results could be materially and
adversely affected.
If we are unable to leverage our sales, marketing and training infrastructure, including in light of our reduced corporate spending, we may fail to increase our
sales.
A key element of our long-term business strategy is the continued leveraging of our sales, marketing, training, and reimbursement infrastructure, through the training, retaining and motivating of
skilled sales and marketing representatives and reimbursement personnel with industry experience and knowledge. Our ability to derive revenue from sales of our products depends largely on our ability to market the products and obtain
reimbursements for them. In order to continue growing our business efficiently, we must therefore coordinate the development of our sales, marketing, training and reimbursement infrastructure with the timing of regulatory approvals, decisions
regarding reimbursements, limited resources consideration and other factors in various geographies. Managing and maintaining our sales and marketing infrastructure is expensive and time consuming, and an inability to leverage such an organization
effectively, or in coordination with regulatory or other developments, could inhibit potential sales and the penetration and adoption of our products into both existing and new markets. However, certain decisions we make regarding staffing in
these areas in our efforts to maintain an adequate spending level could have unintended negative effects on our revenues, such as by weakening our sales infrastructure, impairing our reimbursement efforts and/or harming the quality of our
customer service. As we have done throughout the past several years, we intend to continue to evaluate our spending throughout 2020 and focus our resources in areas we believe will support our growth.
Additionally, we expect to face significant challenges as we manage and continue to improve our sales and marketing infrastructure and work to retain the individuals who make up those networks.
Newly hired sales representatives require training and take time to achieve full productivity. If we fail to train new hires adequately, or if we experience high turnover in our sales force in the future, we cannot be certain that new hires will
become as productive as may be necessary to maintain or increase our sales. In addition, if we are not able to retain, subject to our plans to cut operating expenses, and continue to recruit our network of internal trainers, we may not be able to
successfully train customers on the use of ReWalk or ReStore, which could inhibit new sales and harm our reputation. If we are unable to expand our sales, marketing, and training capabilities, we may not be able to effectively commercialize our
products, or enhance the strength of our brand, which could have a material adverse effect on our operating results.
The health benefits of our products have not been substantiated by long-term clinical data, which could limit sales.
Although study participants and other ReWalk users have reported the secondary health benefits of our ReWalk products such as a reduction in pain and spasticity, improved bowel and
urinary tract functions and emotional and psychosocial benefits, among others, currently there is no conclusive clinical data establishing any secondary health benefits of ReWalk. There is also a lack of conclusive clinical data for such health
benefits of the ReStore specifically its long-term benefits following the usage of the product within the clinic and the trials conducted to date using this product are limited.
As a result, potential customers and healthcare providers may be slower to adopt or recommend ReWalk or ReStore and third-party payors may not be willing to provide coverage or
reimbursement for our products. In addition, future studies or clinical experience may indicate that treatment with our current or future products is not superior to treatment with alternative products or therapies. Such results could slow the
adoption of our products and significantly reduce our sales.
We depend on a single third party to manufacture our products, and we rely on a limited number of third-party suppliers for certain components of our products.
We have contracted with Sanmina Corporation, a well-established contract manufacturer with expertise in the medical device industry, for the manufacture of all of our products and
the sourcing of all of our components and raw materials. Pursuant to this contract, Sanmina manufactures ReWalk and ReStore, pursuant to our specifications, at its facility in Ma’alot, Israel. We may terminate our relationship with Sanmina at any
time upon written notice. In addition, either we or Sanmina may terminate the relationship in the event of a material breach, subject to a 30-day cure period. For our business strategy to be successful, Sanmina must be able to manufacture our
products in sufficient quantities, in compliance with regulatory requirements and quality control standards, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. Increases in our product sales, whether forecasted
or unanticipated, could strain the ability of Sanmina to manufacture an increasingly large supply of our current or future products in a manner that meets these various requirements. In addition, although we are not restricted from engaging an
alternative manufacturer, and potentially have the capabilities to manufacture our products in-house, the process of moving our manufacturing activities would be time consuming and costly, and may limit our ability to meet our sales commitments,
which could harm our reputation and could have a material adverse effect on our business.
We also rely on third-party suppliers, which contract directly with Sanmina, to supply certain components of our products, and in some cases, we purchase these components ourselves. Sanmina
does not have long-term supply agreements with most of its suppliers and, in many cases, makes purchases on a purchase order basis. Sanmina’s ability to secure adequate quantities of such products may be limited. Suppliers may encounter
problems that limit their ability to manufacture components for our products, including financial difficulties or damage to their manufacturing equipment or facilities. If Sanmina fails to obtain sufficient quantities of high-quality
components to meet demand on a timely basis, we could lose customer orders, our reputation may be harmed, and our business could suffer.
Our results of operations and liquidity could be adversely impacted by supply chain disruptions and operational challenges faced by our manufacturer or suppliers. Sanmina generally uses a small number
of suppliers for ReWalk and ReStore. Depending on a limited number of suppliers exposes us to risks, including limited control over pricing, availability, quality, and delivery schedules. Such risks are heightened in light of the interruptions in
supply chains and distribution networks related to the COVID-19 pandemic. If any one or more of our suppliers ceases to provide sufficient quantities of components in a timely manner or on acceptable terms, Sanmina would have to seek alternative
sources of supply. It may be difficult to engage additional or replacement suppliers in a timely manner. Failure of these suppliers to deliver products at the level our business requires would limit our ability to meet our sales commitments, which
could harm our reputation and could have a material adverse effect on our business. Sanmina also may have difficulty obtaining similar components from other suppliers that are acceptable to the FDA or other regulatory agencies, and the failure of
Sanmina’s suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action including warning letters, product recalls, termination of distribution, product seizures or civil penalties. It could also require
Sanmina to cease using the components, seek alternative components or technologies and we could be forced to modify our products to incorporate alternative components or technologies, which could result in a requirement to seek additional regulatory
approvals. Any disruption of this nature or increased expenses could harm our commercialization efforts and adversely affect our operating results.
We operate in a competitive industry that is subject to rapid technological change, and we expect competition to increase.
There are several other companies developing technology and devices that compete with our products. Our principal competitors in the medical exoskeleton market consist of Ekso
Bionics, Parker Hannifin, FREE Bionics, Rex Bionics, Cyberdyne, and others. These companies have products currently available for institutional use and in some cases personal use. We expect some of such products to become available for personal use
in the next few years especially as we continue to expand coverage by different payors and geographies. In addition, we compete with alternative devices and alternative therapies, including treadmill-based gait therapies, such as those offered by
Hocoma, AlterG, Aretech, Reha Technology and Bioness. Our competitor base may change or expand as we continue to develop and commercialize our soft suit exoskeleton product in the future. These or other medical device or robotics companies, academic
and research institutions, or others, may develop new technologies or therapies that provide a superior walking experience, are more effective in treating the secondary medical conditions that we target or are less expensive than ReWalk, ReStore or
future products. Our technologies and products could be rendered obsolete by such developments. We may also compete with other treatments and technologies that address the secondary medical conditions that our products seek to mitigate.
Our competitors may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing, and other resources than we do or may be
more successful in attracting potential customers, employees, and strategic partners. In addition, potential customers, such as hospitals and rehabilitation centers, could have long-standing or contractual relationships with competitors or other
medical device companies. Potential customers may be reluctant to adopt ReWalk or ReStore, particularly if it competes with or has the potential to compete with or diminish the need/utilization of products or treatments supported through these
existing relationships. If we are not able to compete effectively, our business and results of operations will be negatively impacted.
In addition, because we operate in a new market, the actions of our competitors could adversely affect our business. Adverse events such as product defects or legal claims with
respect to competing or similar products could cause reputational harm to the exoskeleton market on the whole. Further, adverse regulatory findings or reimbursement-related decisions with respect to other exoskeleton products could negatively impact
the entire market and, accordingly, our business.
We utilize independent distributors who are free to market products that compete with ours.
While we expect that the percentage of our sales generated from independent distributors will decrease over time as we continue to focus our resources on achieving reimbursement
within our direct markets in the United States and Europe, we believe that some percentage of our sales will continue to be generated by independent distributors in the future. None of our independent distributors has been required to sell our
products exclusively. Our distributor agreements generally have one-year initial terms and automatic renewals for an additional year. If any of our key independent distributors were to cease to distribute our products, our sales could be adversely
affected. In such a situation, we may need to seek alternative independent distributors or increase our reliance on our other independent distributors or our direct sales representatives, which may not prevent our sales from being adversely affected.
Additionally, to the extent that we enter into additional arrangements with independent distributors to perform sales, marketing, or distribution services, the terms of the arrangements could cause our product margins to be lower than if we directly
marketed and sold our products.
We are dependent on a single facility for the manufacturing and assembly of our products.
All manufacturing and assembly of our products is conducted at a single facility of our contract manufacturer, Sanmina, located in Ma’alot, Israel. Accordingly, we are highly
dependent on the uninterrupted and efficient operation of this facility. If operations at this facility were to be disrupted as a result of equipment failures, earthquakes and other natural disasters, fires, accidents, work stoppages, power outages,
acts of war or terrorism or other reasons, our business, financial condition and results of operations could be materially adversely affected. In particular, this facility is located in the north of Israel within range of rockets that have from time
to time been fired into the country during armed conflicts with Hezbollah and other armed groups in Lebanon, Syria or other countries in the region. Although our manufacturing and assembly operations could be transferred elsewhere, either in-house or
to an alternative Sanmina facility, the process of relocating these operations would cause delays in production. Lost sales or increased costs that we may experience during the disruption, or a forced relocation, of operations may not be recoverable
under our insurance policies, and longer-term business disruptions could result in a loss of customers. If this were to occur, our business, financial condition and operations could be materially negatively impacted. Additionally, our reliance on
Sanmina as a contract manufacturer or any other contract manufacturer makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs.
We may receive a significant number of warranty claims or our ReWalk and ReStore systems may require significant amounts of service after sale.
Sales of ReWalk generally include a two-year warranty for parts and services, other than for normal wear and tear. We also provide customers with the option to purchase an extended warranty for up
to an additional three years. In the beginning of 2018, we updated our service policy for new devices sold to include a 5-year warranty. Our ReStore product offering includes a two-year warranty for parts and services. If product returns or
warranty claims are significant or exceed our expectations, we could incur unanticipated expenditures for parts and services, which could have a material adverse effect on our operating results.
Defects in our products or the software that drives them could adversely affect the results of our operations.
The design, manufacture and marketing of our products involve certain inherent risks. Manufacturing or design defects, unanticipated use of ReWalk or ReStore, or inadequate
disclosure of risks relating to the use of our products can lead to injury or other adverse events. In addition, because the manufacturing of our products is outsourced to Sanmina, our original equipment manufacturer, we may not be aware of
manufacturing defects that could occur. Such adverse events could lead to recalls or safety alerts relating to our products (either voluntary or required by the FDA or similar governmental authorities in other countries), and could result, in certain
cases, in the removal of our products from the market. A recall could result in significant costs. To the extent any manufacturing defect occurs, our agreement with Sanmina contains a limitation on Sanmina’s liability, and therefore we could be
required to incur the majority of related costs. Product defects or recalls could also result in negative publicity, damage to our reputation or, in some circumstances, delays in new product approvals.
When an exoskeleton is used by a paralyzed individual to walk, the individual relies completely on the exoskeleton to hold him or her upright. In addition, our products incorporate sophisticated
computer software. Complex software frequently contains errors, especially when first introduced. Our software may experience errors or performance problems in the future. If any part of our product’s hardware or software were to fail, the user
could experience death or serious injury. Additionally, users may not use our or maintain our products in accordance with safety, storage and training protocols, which could enhance the risk of death or injury. Any such occurrence could cause
delay in market acceptance of our products, damage to our reputation, additional regulatory filings, product recalls, increased service and warranty costs, product liability claims and loss of revenue relating to such hardware or software
defects.
The medical device industry has historically been subject to extensive litigation over product liability claims. We have been, and anticipate that as part of our ordinary course of business we may
be, subject to product liability claims alleging defects in the design, manufacture, or labeling of our products. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high
punitive damage payments. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product
liability insurance in the future at satisfactory rates or adequate amounts.
We may not be able to enhance our product offerings through our research and development efforts.
In order to increase our sales and our market share in the exoskeleton market, it is best to enhance and broaden our research and development efforts and product offerings in
response to the evolving demands of people with paraplegia or paralysis and healthcare providers, as well as competitive technologies. We are also currently involved in ongoing research and development efforts directed to the needs of patients with
other mobility impairments, such as stroke, and began commercializing our ReStore product for stroke patients in 2019. Depending on our future resources and business focus, we plan to address these needs in patients with other conditions or devices
for stroke patients to be used at home, improving our current products, or developing products to address additional medical conditions such as multiple sclerosis, Parkinson’s disease or cerebral palsy and support elderly assistance. We may decide to
invest our business development resources in partnerships, licensing agreements and other ways that will provide us new product offerings without significant research and development activities. We may not be successful in developing, obtaining
regulatory approval for, or marketing our currently proposed products and products proposed to be created in the future. In addition, notwithstanding our market research efforts, our future products may not be accepted by consumers, their caregivers,
healthcare providers or third-party payors who reimburse consumers for our products. The success of any proposed product offerings will depend on numerous factors, including our ability to:
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identify the product features that people with paraplegia or paralysis, their caregivers, and healthcare providers are seeking in a medical device that restores upright mobility and
successfully incorporate those features into our products;
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identify the product features that people with stroke, multiple sclerosis or other similar indications require while the products are used at home as well as what items are valuable to the clinics that provide them rehabilitation;
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develop and introduce proposed products in sufficient quantities and in a timely manner;
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adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third-parties;
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demonstrate the safety, efficacy, and health benefits of proposed products; and
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obtain the necessary regulatory approvals for proposed products.
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If we fail to generate demand by developing products that incorporate features desired by consumers, their caregivers or healthcare providers, or if we do not obtain regulatory clearance or
approval for proposed products in time to meet market demand, we may fail to generate sales sufficient to achieve or maintain profitability. We have in the past experienced, and we may in the future experience, delays in various phases of product
development, including during research and development, manufacturing, limited release testing, marketing, and customer education efforts. Such delays could cause customers to delay or forgo purchases of our products, or to purchase our
competitors’ products. Even if we are able to successfully develop proposed products when anticipated, these products may not produce sales in excess of the costs of development, and they may be quickly rendered obsolete by changing consumer
preferences or the introduction by our competitors of products embodying new technologies or features.
We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships with third parties that may not result in the development of
commercially viable products or the generation of significant future revenues.
In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships to develop our products and to pursue new
geographic or product markets. Proposing, negotiating, and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships may be a lengthy and complex process. We may not identify, secure, or complete
any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional knowledge and experience with respect to these business development activities, and we may also not
realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenues and could be terminated
prior to developing any products. For example, we have entered into agreements with MediTouch and Myolyn for the distribution of their products in the U.S. We also collaborate with Harvard University’s Wyss Institute for Biologically Inspired
Engineering for the research, design, development, and commercialization of lightweight exoskeleton system technologies for lower limb disabilities, aimed to treat stroke, multiple sclerosis, mobility limitations for the elderly and other medical
applications. Our arrangements with MediTouch, Myolyn and Harvard, may not be as productive or successful as we hope.
Additionally, as we pursue these arrangements and choose to pursue other collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships in the future, we may not be in
a position to exercise sole decision-making authority regarding the transaction or arrangement. This could create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that are,
or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators. Our collaborators may act in their self-interest, which may be adverse to our best interest, and they may breach
their obligations to us. Any such disputes could result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be
terminated or dissolved under the terms of the applicable agreements.
Risks Related to Government Regulation
We have submitted medical device reports, or MDRs, to the FDA (and equivalent authorities outside of the United States) for numerous serious injuries relating to
use of the ReWalk Personal system, and conducted a voluntary correction related to certain use instructions in the device’s labeling, which the FDA classified as a Class II recall. If our product may have caused or contributed to a death or a
serious injury, or if our product malfunctioned and the malfunction’s recurrence would be likely to cause or contribute to a death or serious injury, we must submit an MDR to the FDA (and equivalent authorities outside of the United States), which
could result in voluntary corrective actions or enforcement actions, such as mandatory recalls.
Under the FDA’s MDR regulations, we are required to report to the FDA information that reasonably suggests a product we market may have caused or contributed to a death or serious
injury or malfunctioned and our product or a similar device marketed by us would be likely to cause or contribute to death or serious injury if the malfunction were to recur. In addition, all manufacturers placing medical devices on the market in the
European Union are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the relevant authority in whose jurisdiction the incident occurred. Between 2013 and 2017, we submitted a number of MDRs
to the FDA to report incidents in which ReWalk Personal users sustained falls or fractures. The FDA sent us letters requesting additional information relating to these MDRs submitted in 2017, including a request for a failure analysis. In August
2017, we initiated a voluntary correction for the ReWalk device that related to certain use instructions to reduce the risk of tibia/fibula fractures and submitted a report to the FDA under 21 CFR Part 806. Under Part 806, manufacturers and importers
are required to make a report to the FDA of any correction or removal of a device if the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the U.S. Federal Food, Drug, and Cosmetic Act
caused by the device that may present a risk to health.
In June 2018, we received a letter from the FDA agreeing with our decision to initiate a corrective action for the ReWalk, classifying the recall action as a Class II recall, and requesting that we
make regular status reports to the FDA regarding our progress. While the FDA has statutory authority to require a recall, most recalls are undertaken voluntarily when a medical device is defective, when it could present a risk to health, or when
it is both defective and presents a risk to health. In January 2019, we submitted a recall termination request to the FDA. In November 2019, the FDA informed us that it considered the recall action terminated. In September 2018, we submitted to
the FDA revised labeling that incorporates the revised use instructions intended to prevent the tibia/fibula fractures as a special 510(k). The special 510(k) was not accepted by FDA because it was administratively incomplete, and we withdrew the
submission. In January 2020 we submitted a new 510(k) to the FDA for both the revised labeling/use instructions and additional changes to the device. This new 510(k) was not accepted by FDA because it was administratively incomplete and,
accordingly, FDA notified ReWalk on January 22, 2020 of the Refuse-to-Accept (RTA) designation. The company was in communication with the FDA and has resubmitted an updated 510(k) in February 2020 which was cleared on May 27, 2020. In September
2019, we also submitted a revised technical file with the additional device changes to the EU notified body and were notified in December 2019 that the extension of our certification had been granted.
In 2018, we submitted additional MDRs for tibia/fibula fractures that occurred in foreign countries between 2015 and 2018. In addition, in 2018 and 2019 we submitted MDRs for
tibia/fibula fractures that occurred in the United States and Europe. In 2020 we submitted an MDR for tibial fractures that occurred in the United States. Additional fractures or other adverse events may occur in the future that may require us to
report to the FDA pursuant to the MDR regulations (or other governmental authorities pursuant to equivalent outside of the United States regulations), and/or to initiate a removal, correction, or other action. Any adverse event involving our products
could result in future voluntary corrective actions, such as recalls or customer letters, or in an FDA enforcement action, such as a mandatory recall, notification to healthcare professionals and users, warning letter, seizure, injunction or import
alert. In addition, failure to report such adverse events to appropriate government authorities on a timely basis, or at all, could result in enforcement action against us. Any action, whether voluntary or involuntary, as well as defending ourselves
in a lawsuit, will require financial resources and distract management, and may harm our reputation and financial results.
U.S. healthcare reform measures and other potential legislative initiatives could adversely affect our business.
Recent political changes in the United States could result in significant changes in, and uncertainty with respect to, legislation, regulation, global trade, and government policy that could
substantially impact our business and the medical device industry generally. Certain proposals, if enacted into law, could impose limitations on the prices we will be able to charge for our ReWalk system or any products we may develop and offer
in the future, or the amounts of reimbursement available for such products from governmental agencies or third-party payers. Additionally, any reduction in reimbursement from Medicare or other government-funded federal programs, including the VA,
or state healthcare programs could lead to a similar reduction in payments from private commercial payors. The FDA’s policies may also change, and additional government regulations may be issued that could prevent, limit, or delay regulatory
approval of our future products, or impose more stringent product labeling and post-marketing testing and other requirements. For instance, in September 2017, members of the U.S. Congress introduced legislation with the announced intention to
repeal and replace major provisions of the PPACA. Although this proposed legislation ultimately failed to pass, Congress succeeded in repealing the PPACA’s individual mandate as part of the U.S. Tax Cuts and Jobs Act of 2017 (TCJA).
In January 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the 2.3% excise
tax imposed on manufacturers and importers for certain sales of medical devices through December 31, 2019. Absent further legislative action, the device excise tax was to be reinstated on medical device sales starting January 1, 2020. The
Further Consolidated Appropriations Act, 2020 H.R. 1865 (Pub.L.116-94), signed into law on December 20, 2019, repealed the medical device excise tax previously imposed by Internal Revenue Code Section 4191.
On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of
the TCJA. In December 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed the ruling regarding the individual mandate but remanded the case to the district court for additional analysis of the question of severability and whether portions
of the law remain invalid. The case is currently under consideration by the U.S. Supreme Court, and a decision is expected by the summer of 2021. It is unclear what effect this decision and other efforts to repeal and replace the ACA will have on our
business.
The implementation of cost containment measures or other healthcare reforms may thus prevent us from being able to generate revenue, attain profitability or further commercialize
our existing ReWalk systems or future ReWalk products. We are currently unable to predict what additional legislation or regulation, if any, relating to the health care industry may be enacted in the future or what effect recently enacted federal
legislation or any such additional legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to enter into
collaboration agreements for the further development and commercialization of our programs and products.
While we addressed the observations that the FDA cited in a 2015 warning letter related to our mandatory post-market surveillance study and initiated the study,
we are currently experiencing enrollment issues that make our study progress inadequate and our modified protocol (intended to overcome the enrollment issues so that we may complete the study, as required) has not yet been approved by FDA. Going
forward, if we cannot meet certain FDA requirements and enrollment criteria for the study or otherwise satisfy FDA requests promptly, or if our study produces unfavorable results, we could be subject to additional FDA warnings letters or more
significant enforcement action, which could materially and adversely affect our commercial success.
We are conducting an ongoing mandatory FDA postmarket surveillance study on our ReWalk Personal 6.0, which began in June 2016. Before we began the current study, the FDA sent us a
warning letter on September 30, 2015, (“the September 2015 Warning Letter”), threatening potential regulatory action against us for violations of Section 522 of the U.S. Federal Food, Drug, and Cosmetic Act, based on our failure to initiate a
postmarket surveillance study by the September 28, 2015 deadline, our allegedly deficient protocol for that study, and the lack of progress and communication regarding the study. Between June 2014 and our receipt of the September 2015 Warning Letter,
we had responded late to certain of the FDA’s requests related to our study protocol. In February 2016, the FDA sent us an additional information request, or the February 2016 Letter, requesting additional changes to our study protocol and asking that
we amend the study within 30 days. This letter also discussed the FDA’s request, as further discussed in later communications with the FDA, for a new premarket notification for our ReWalk device, or a special 510(k), linked to what the FDA viewed as
changes to the labeling and the device, including to a computer included with the device. In late March 2016, following multiple discussions with the FDA, including an in-person meeting, the FDA confirmed that the agency would permit the continued
marketing of the ReWalk device conditioned upon our timely submitting a special 510(k) and initiating our postmarket surveillance study by June 1, 2016. The special 510(k) was timely submitted on April 8, 2016, and the FDA’s substantial equivalence
determination was received by us on July 22, 2016, granting us permission to continue marketing the ReWalk device. Additionally, we submitted a protocol to the FDA for the postmarket surveillance study that was approved by the FDA on May 5, 2016.
We began the study on June 13, 2016, with Stanford University as the lead investigational site. In August 2016, the FDA sent us a letter stating that, based on its evaluation
of our corrective and preventive actions in response to the September 2015 Warning Letter, it appeared we had adequately addressed the violations cited in the September 2015 Warning Letter. As part of our study, we provided the FDA with the required
periodic reports on the study’s progress, in a few cases with delay, and we intend to continue providing the FDA with periodic reports as required. Through these reports, we made the FDA aware that due to enrollment issues, we were unable to satisfy
the target enrollment specified in the original study protocol. As of December 31, 2020, we had three active centers participating in the study (one site is closed and another site is on hold), but only two sites have successfully enrolled
patients. Twelve subjects have enrolled in the study, three have completed the study, and one is using the device in the community. This is substantially below the required number of patients included in our original study protocol.
In March 2020, FDA approved a modified postmarket study protocol that will supplement data from the clinical study with real-world
evidence and the study status was updated to progress adequate in September 2020. ReWalk is actively collecting the real-world evidence in order to fulfill the postmarket study order requirements. However, despite the revised study protocol there can
be no assurance that we will be able to satisfy the post-market study requirements. Additionally, we are experiencing some study disruptions due to COVID-19 pandemic. The Company has been engaging with FDA on how to manage and address these study
disruptions.If we cannot meet FDA requirements for the post-market study or timely address requests from the FDA related to the study, or if the results of the study are not as favorable as we expect, the FDA may issue additional warning letters to us,
impose limitations on the labeling of our device or require us to stop marketing the ReWalk Personal device in the United States. We derived 40% of our revenues in the year ended December 31, 2020 from sales of the ReWalk device in the United States
and, if we are unable to market the ReWalk device in the United States, we expect that these sales would be adversely impacted, which could materially adversely affect our business and overall results of operations.
Our devices are subject to the FDA’s regulations pertaining to marketing and promotional communications, among others. Failure to comply with such regulations
may give rise to a number of potential FDA enforcement actions, any of which could have a material adverse effect on our business.
Our sales and marketing efforts, as well as promotions, are subject to various laws and regulations. Medical device promotions must be consistent with and not contrary to labeling,
be truthful and not false or misleading, and be adequately substantiated. In addition to the requirements applicable to 510(k)-cleared 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.
Our marketing and promotional materials are subject to FDA scrutiny to ensure that the device is being marketed in compliance with these requirements. If the FDA investigates our
marketing and promotional materials and finds that any of our current or future commercial products were being marketed for unapproved or uncleared uses or in a false or misleading manner, we could be subject to FDA enforcement and/or false
advertising consumer lawsuits, each of which could have a material adverse effect on our business.
We are subject to extensive governmental regulations relating to the manufacturing, labeling, and marketing of our products, and a failure to comply with such regulations could
lead to withdrawal or recall of our products from the market.
Our medical products and manufacturing operations are subject to regulation by the FDA, the European Union, and other governmental authorities both inside and outside of the United
States. These agencies enforce laws and regulations that govern the development, testing, manufacturing, labeling, storage, installation, servicing, advertising, promoting, marketing, distribution, import, export and market surveillance of our
products.
Our products are regulated as medical devices in the United States under the FFDCA as implemented and enforced by the FDA. Under the FFDCA, medical devices are classified into one of
three classes (Class I, Class II or Class III) depending on the degree of risk associated with the medical device, what is known about the type of device, and the extent of control needed to provide reasonable assurance of safety and effectiveness.
Classification of a device is important because the class to which a device is assigned determines, among other things, the necessity and type of FDA review required prior to marketing the device. For more information, see “Part I, Item 1.
Business—Government Regulation” above
In June 2014, the FDA granted our petition for “de novo” classification, which provides a route to market for medical devices that are low
to moderate risk, but are not substantially equivalent to a predicate device, and classified ReWalk as Class II subject to certain special controls. The ReWalk is intended to enable individuals with spinal cord injuries to perform ambulatory
functions under supervision of a specially trained companion, and inside rehabilitation institutions. The special controls established in the de novo order include the following: compliance with medical device
consensus standards; clinical testing to demonstrate safe and effective use considering the level of supervision necessary and the use environment; non-clinical performance testing, including durability testing to demonstrate that the device performs
as intended under anticipated conditions of use; a training program; and labeling related to device use and user training. In order for us to market ReWalk, we must comply with both general controls, including controls related to quality, facility
registration, reporting of adverse events and labeling, and the special controls established for the device. Failure to comply with these requirements could lead to an FDA enforcement action, which would have a material adverse effect on our
business.
In June 2019, the FDA issued a 510(k) clearance for our ReStore device. ReStore is intended to be used to assist ambulatory functions in rehabilitation institutions under the supervision of a trained
therapist for people with hemiplegia or hemiparesis due to stroke who have a specified amount of ambulatory function. In order for us to market ReStore, we must comply with both general controls, including controls related to quality, facility
registration, reporting of adverse events and labeling, and the special controls established for the device that include clinical testing, non-clinical performance testing, and a training program. Failure to comply with these requirements could lead to
an FDA enforcement action, which would have a material adverse effect on our business.
Following the introduction of a product, the governmental agencies will periodically review our manufacturing processes and quality controls, and we are under a continuing obligation to ensure that all
applicable regulatory requirements continue to be met. The process of complying with the applicable good manufacturing practices, adverse event reporting and other requirements can be costly and time consuming, and could delay or prevent the
production, manufacturing, or sale of our devices. In addition, if we fail to comply with applicable regulatory requirements, it could result in fines or delays of regulatory clearances, closure of manufacturing sites, seizures or recalls of products
and damage to our reputation, as well as enforcement actions against us.
For example, the FDA could request that we recall our ReWalk Personal 6.0 or ReStore device. For more information on certain deficiencies previously identified by the FDA in our
mandatory post-market surveillance study on our ReWalk Personal 6.0, see “—Risks Related to Government Regulation—While we addressed the observations that FDA cited in a 2015 warning letter related to our mandatory post-market surveillance study and
initiated the study, we are currently experiencing enrollment issues that make our study progress inadequate. Going forward, if we cannot meet certain FDA requirements and enrollment criteria for the study or otherwise satisfy FDA requests promptly,
or if our study produces unfavorable results, we could receive additional FDA warnings, which could materially and adversely affect our commercial success.”
In addition, governmental agencies may impose new requirements regarding registration or labeling that may require us to modify or re-register our products or otherwise impact our ability to market
our products in those countries. The process of complying with these governmental regulations can be costly and time consuming, and could delay or prevent the production, manufacturing, or sale of our products. In the European Union, for example,
a new Medical Device Regulation includes additional premarket and post-market requirements, as well as potential product reclassifications or more stringent commercialization requirements that could adversely affect our CE mark. Penalties for
regulatory non-compliance with the Medical Device Regulation could also be substantial, including fines, revocation or suspension of CE mark and criminal sanctions.
If we or our third-party manufacturers fail to comply with the FDA’s Quality System Regulation, or QSR, our manufacturing operations could be interrupted.
We and our manufacturer Sanmina are required to comply with the FDA’s QSR which covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging,
sterilization, storage, and shipping of our products. We, Sanmina, and our suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we or our distributors market our products abroad. We continue to
monitor our quality management in order to improve our overall level of compliance. Our facilities are subject to periodic and unannounced inspection by U.S. and foreign regulatory agencies to audit compliance with the QSR and comparable foreign
regulations. If our facilities or those of Sanmina or our suppliers are found to be in violation of applicable laws and regulations, or if we, Sanmina, or our suppliers fail to take satisfactory corrective action in response to an adverse inspection,
the regulatory authority could take enforcement action, including any of the following sanctions:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
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customer notifications or repair, replacement, or refunds;
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operating restrictions or partial suspension or total shutdown of production;
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recalls, withdrawals, or administrative detention or seizure of our products;
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refusing or delaying requests for approval of pre-market approval applications relating to new products or modified products;
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withdrawing a PMA approval;
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refusing to provide Certificates for Foreign Government;
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refusing to grant export approval for our products; or
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pursuing criminal prosecution.
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Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands and could have a material adverse effect on our
reputation, business, results of operations, and financial condition. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.
We are subject to various laws and regulations, including “fraud and abuse” laws and anti-bribery laws, which, if violated, could subject us to substantial
penalties.
Medical device companies such as ours have faced lawsuits and investigations pertaining to alleged violations of numerous statutes and regulations, including anti-corruption laws and health care
“fraud and abuse” laws, such as the federal False Claims Act, the federal Anti-Kickback Statute, and the U.S. Foreign Corrupt Practices Act, or the FCPA. See “Business-Government Regulation” above.
U.S. federal and state laws, including the federal Physician Payments Sunshine Act, or the Sunshine Act, and the implementation of Open Payments regulations under the Sunshine Act,
require medical device companies to disclose certain payments or other transfers of value made to healthcare providers and teaching hospitals or funds spent on marketing and promotion of medical device products. It is widely believed that public
reporting under the Sunshine Act and implementing Open Payments regulations results in increased scrutiny of the financial relationships between industry, physicians and teaching hospitals. Further, some state laws require medical device companies to
report information related to payments to physicians and other health care providers or marketing expenditures. These anti-kickback, anti-bribery, public reporting and aggregate spending laws affect our sales, marketing and other promotional
activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, rehabilitation centers, physicians or other potential purchasers or users of ReWalk or ReStore. They also impose additional
administrative and compliance burdens on us. In particular, these laws influence, among other things, how we structure our sales offerings, including discount practices, customer support, education and training programs and physician consulting and
other service arrangements, including those with marketers and sales agents. We may face significant costs in attempting to comply with these laws and regulations. If we are found to be in violation of any of these requirements or any actions or
investigations are instituted against us, those actions could be costly to defend and could have a significant impact on our business, including the imposition of significant criminal and civil fines and penalties, exclusion from federal healthcare
programs or other sanctions, and damage to our reputation or business.
The FCPA applies to companies, including ours, with a class of securities registered under the Exchange Act. The FCPA and other anti-bribery laws to which various aspects of our operations may be subject generally prohibit companies
and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. In various jurisdictions, our operations require that we and third parties acting on our behalf routinely interact with
government officials, including medical personnel who may be considered government officials for purposes of these laws because they are employees of state-owned or controlled facilities. Other anti-bribery laws to which various aspects of our
operations may be subject, including the United Kingdom Bribery Act, also prohibit improper payments to private parties and prohibit receipt of improper payments. Our policies prohibit our employees from making or receiving corrupt payments,
including, among other things, to require compliance by third parties engaged to act on our behalf. Our policies mandate compliance with these anti-bribery laws; however, we operate in many parts of the world that have experienced governmental
and/or private corruption to some degree. As a result, the existence and implementation of a robust anti-corruption program cannot eliminate all risk that unauthorized reckless or criminal acts have been or will be committed by our employees or
agents. Violations of these laws, or allegations of such violations, could disrupt our business and harm our financial condition, results of operations, cash flows and reputation.
If we are found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which
could increase our liabilities and harm our reputation or our business.
There are a number of federal, state and foreign laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and
disclosure of that protected information. In particular, the U.S. Department of Health and Human Services, or HHS, promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. These privacy rules
protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to accomplish the intended purpose. Additionally, the E.U. General Data Protection Regulation (the “GDPR”), which took effect in 2018, imposes more stringent data protection requirements and will
provide for greater penalties for noncompliance. Thus with respect to our operations in Europe, the GDPR may increase our responsibility and liability in relation to personal data that we process and we may be required to put in place additional
mechanisms ensuring compliance with the GDPR. This may be onerous and adversely affect our business, financial condition, results of operations and prospects. Additionally, if we or any of our service providers are found to be in violation of the
promulgated patient privacy rules under HIPAA or, once enforced, the GDPR, we could be subject to civil or criminal penalties, which could be substantial and could increase our liabilities, harm our reputation and have a material adverse effect on
our business, financial condition and operating results.
In addition, a number of U.S. states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and
protection of sensitive personal information, such as social security numbers, financial information and other personal information. For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to
individual victims, and at times regulators, if a company has experienced the unauthorized access or acquisition of sensitive personal data. Other state laws include the California Consumer Privacy Act (“CCPA”) which, among other things, contains new
obligations for businesses that collect personal information about California residents and affords those individuals new rights relating to their personal information that may affect our ability to use personal information or share it with our
business partners. Meanwhile, other states have considered privacy laws like the CCPA. We will continue to monitor and assess the impact of state law developments, which may impose substantial penalties for violations, impose significant costs for
investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.
The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change and may require substantial costs to monitor and implement compliance with any
additional requirements. Failure to comply with U.S. or international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation, and/or
adverse publicity and could negatively affect our operating results and business.
Compliance with various regulations, including those related to our status as a U.S. public company and the manufacturing,
labeling and marketing of our products, may result in heightened general and administrative expenses and costs, divert management’s attention from revenue-generating activities and pose challenges for our management team, which has limited time,
personnel and finances to devote to regulatory compliance.
As a U.S. public company, we are subject to various regulatory and reporting requirements, including those imposed by the SEC, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the listing requirements of the Nasdaq Capital Market and other applicable securities rules and regulations. Additionally, our medical products and
manufacturing operations are regulated by the FDA, the European Union and other governmental authorities both inside and outside of the United States. Compliance with the rules and regulations applicable to us as a publicly traded company in the United
States and medical device manufacturer has greatly increased, and may continue to increase, our legal, general and administrative and financial compliance costs and has made, and may continue to make, some activities more difficult, time-consuming or
costly. Additionally, these regulatory requirements have diverted, and may continue to divert, management’s attention from revenue-generating activities and may increase demands on management’s already-limited resources.
Our management team consists of few employees, as the majority of our employees are engaged in sales and marketing and research and development activities. For more information, see “Part I, Item
1. Business—Employees” above. In light of such constraints on its time, personnel and finances, our management may not be able to implement programs and policies in an effective and timely manner to respond adequately to the heightened legal,
regulatory and reporting requirements applicable to us. In the past, for example, we have not always been able to respond on a timely basis to requests from regulators, although we have not to date experienced any long-term material adverse
consequences as a result. For more information, see “—Risks Related to Government Regulation—While we addressed the observations that FDA cited in a 2015 warning letter related to our mandatory post-market surveillance study and initiated the
study, we are currently experiencing enrollment issues that make our study progress inadequate. Going forward, if we cannot meet certain FDA requirements and enrollment criteria for the study or otherwise satisfy FDA requests promptly, or if our
study produces unfavorable results, we could receive additional FDA warnings, which could materially and adversely affect our commercial success” above. Similar deficiencies, weaknesses, or lack of compliance with public company, medical device
and other regulations could harm our reputation in the capital markets or for quality and safety, negatively affect our ability to maintain our public company status and to develop, commercialize or continue selling our products on a timely and
effective basis, and cause us to incur sanctions, including fines, injunctions, and penalties.
In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation, including by competitors and
other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve
them, could divert the resources of our management and harm our business and operating results.
Risks Related to Our Intellectual Property and Information Technology
We depend on computer and telecommunications systems we do not own or control and failures in our systems or a cybersecurity attack or breach of our IT systems
or technology could significantly disrupt our business operations or result in sensitive customer information being compromised which would negatively materially affect our reputation and/or results of operations.
We have entered into agreements with third parties for hardware, software, telecommunications, and other information technology services in connection with the operation of our
business. It is possible we or a third party that we rely on could incur interruptions from a loss of communications, hardware or software failures, a cybersecurity attack or a breach of our IT systems or technology, computer viruses or malware. We
believe that we have positive relations with our vendors and maintain adequate anti-virus and malware software and controls; however, any interruptions to our arrangements with third parties, to our computing and communications infrastructure, or
to our information systems or any of those operated by a third party that we rely on could significantly disrupt our business operations.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee
malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of
hackers and cyberattacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and to fraudulently induce employees, customers, or others to
disclosure information or unwittingly provide access to systems or data. A cyberattack of our systems or networks that impairs our information technology systems could disrupt our business operations and result in loss of service to customers,
including technical support for our ReWalk devices. While we have certain cybersecurity safeguards in place designed to protect and preserve the integrity of our information technology systems, we have experienced and expect to continue to
experience actual or attempted cyberattacks of our IT systems or networks. However, none of these actual or attempted cyberattacks has had a material effect on our operations or financial condition.
Additionally, we have access to sensitive customer information in the ordinary course of business. If a significant data breach occurred, our reputation may be adversely affected,
customer confidence may be diminished, or we may be subject to legal claims, any of which may contribute to the loss of customers and have a material adverse effect on us. For more information, see “—Risks Related to Government Regulation—If we are
found to have violated laws protecting the confidentiality of patient health information, we could be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business.” above.
Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to or incorporated into our products.
Our success depends in part on our ability to obtain and maintain protection for the intellectual property relating to or incorporated into our products. We seek to protect our intellectual
property through a combination of patents, trademarks, confidentiality, and assignment agreements with our employees and certain of our contractors, and confidentiality agreements with certain of our consultants, scientific advisors, and other
vendors and contractors. In addition, we rely on trade secret law to protect our proprietary software and product candidates/products in development. For more information, see Business—Intellectual Property.
The patent position of robotic and exoskeleton inventions can be highly uncertain and involves many new and evolving complex legal, factual, and technical issues. Patent laws and interpretations of
those laws are subject to change and any such changes may diminish the value of our patents or narrow the scope of our right to exclude others. In addition, we may fail to apply for or be unable to obtain patents necessary to protect our
technology or products from competition or fail to enforce our patents due to lack of information about the exact use of technology or processes by third parties. Also, we cannot be sure that any patents will be granted in a timely manner or at
all with respect to any of our patent pending applications or that any patents that are granted will be adequate to exclude others for any significant period of time or at all. Given the foregoing and in order to continue reducing operational
expenses in the future, we may invest fewer resources in filing and prosecuting new patents and on maintaining and enforcing various patents, especially in regions where we currently do not focus our market growth strategy.
Litigation to establish or challenge the validity of patents, or to defend against or assert against others infringement, unauthorized use, enforceability, or invalidity, can be lengthy and expensive
and may result in our patents being invalidated or interpreted narrowly and restricting our ability to be granted new patents related to our pending patent applications. Even if we prevail, litigation may be time consuming, force us to incur
significant costs, and could divert management’s attention from managing our business while any damages or other remedies awarded to us may not be valuable. In addition, U.S. patents and patent applications may be subject to interference proceedings,
and U.S. patents may be subject to re-examination and review proceedings in the U.S. Patent and Trademark Office. Foreign patents may also be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these
proceedings may be expensive and could result in the loss of a patent or denial of a patent application, or the loss or reduction in the scope of one or more of the claims of a patent or patent application.
In addition, we seek to protect our trade secrets, know-how, and confidential information that is not patentable by entering into confidentiality and assignment agreements with our
employees and certain of our contractors and confidentiality agreements with certain of our consultants, scientific advisors, and other vendors and contractors. However, we may fail to enter into the necessary agreements, and even if entered into,
these agreements may be breached or otherwise fail to prevent disclosure, third-party infringement, or misappropriation of our proprietary information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized
disclosure or use of proprietary information. Enforcing a claim that a third party illegally obtained or is using our trade secrets without authorization may be expensive and time consuming, and the outcome is unpredictable. Some of our employees or
consultants may own certain technology which they license to us for a set term. If these technologies are material to our business after the term of the license, our inability to use them could adversely affect our business and profitability.
We also have taken precautions to initiate reasonable safeguards to protect our information technology systems. However, these measures may not be adequate to safeguard our
proprietary information, which could lead to the loss or impairment thereof or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. In addition, unauthorized parties may attempt to
copy or reverse engineer certain aspects of our products that we consider proprietary or our proprietary information may otherwise become known or may be independently developed by our competitors or other third parties. If other parties are able to
use our proprietary technology or information, our ability to compete in the market could be harmed. Further, unauthorized use of our intellectual property may have occurred, or may occur in the future, without our knowledge.
If we are unable to obtain or maintain adequate protection for intellectual property, or if any protection is reduced or eliminated, competitors may be able to use our
technologies, resulting in harm to our competitive position.
Our patents and proprietary technology and processes may not provide us with a competitive advantage.
Robotics and exoskeleton technologies have been developing rapidly in recent years. We are aware of several other companies developing competing exoskeleton devices for individuals
with limited mobility and we expect the level of competition and the pace of development in our industry to increase. For more information, see “Part I, Item 1. Business—Competition” above. While we believe our tilt-sensor technology provides a more
natural and superior method of exoskeleton activation, which creates a better user experience, as well as that our licensed technology used in our ReStore device is unique and provides better results when compared to other products, a variety of
other activation and control methods exist for exoskeletons, several of which are being developed by our competitors, or may be developed in the future. As a result, our patent portfolio and proprietary technology and processes may not provide us
with a significant advantage over our competitors, and competitors may be able to design and sell alternative products that are equal to or superior to our products without infringing on our patents. In addition, upon the expiration of our current
patents, we may be unable to adequately develop new technologies and obtain future patent protection to preserve our competitive advantage. If we are unable to maintain a competitive advantage, our business and results of operations may be materially
adversely affected.
Even in instances where others are found to infringe on our patents, many countries have laws under which a patent owner may be compelled to grant licenses for the use of the
patented technology to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, a patent owner may have limited remedies, which
could diminish the value of a patent in those countries. Further, the laws of some countries do not protect intellectual property rights to the same extent as the laws of the United States, particularly in the field of medical products, and effective
enforcement in those countries may not be available. The ability of others to market comparable products could adversely affect our business.
We are not able to protect our intellectual property rights in all countries.
Filing, prosecuting, maintaining, and defending patents on each of our products in all countries throughout the world would be prohibitively expensive, and thus our intellectual property rights outside
the United States are limited. In addition, the laws of some foreign countries, especially developing countries, such as China, do not protect intellectual property rights to the same extent as federal and state laws in the United States. Also, it
may not be possible to effectively enforce intellectual property rights in some countries at all or to the same extent as in the United States and other countries. Consequently, we are unable to prevent third parties from using our inventions in all
countries, or from selling or importing products made using our inventions in the jurisdictions in which we do not have (or are unable to effectively enforce) patent protection. Competitors may use our technologies in jurisdictions where we have not
obtained patent protection to develop, market or otherwise commercialize their own products, and we may be unable to prevent those competitors from importing those infringing products into territories where we have patent protection, but enforcement
may not be as strong as in the United States. These products may compete with our products and our patents and other intellectual property rights may not be effective or sufficient to prevent them from competing in those jurisdictions. Moreover,
strategic partners, competitors, or others in the chain of commerce may raise legal challenges against our intellectual property rights or may infringe upon our intellectual property rights, including through means that may be difficult to prevent or
detect.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Proceedings to enforce our patent rights in the United States or
foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not
issuing, and could provoke third parties to assert patent infringement or other claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights in the United States and around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license from third
parties.
We may be subject to patent infringement claims, which could result in substantial costs and liability and prevent us from commercializing our current and future
products.
The medical device industry is characterized by competing intellectual property and a substantial amount of litigation over patent rights. In particular, our competitors in both the
United States and abroad, many of which have substantially greater resources and have made substantial investments in competing technologies, have been issued patents and filed patent applications with respect to their products and processes and may
apply for other patents in the future. The large number of patents, the rapid rate of new patent issuances, and the complexities of the technology involved increase the risk of patent litigation.
Determining whether a product infringes a patent involves complex legal and factual issues and the outcome of patent litigation is often uncertain. Even though we have conducted research of issued
patents, no assurance can be given that patents containing claims covering our products, technology or methods do not exist, have not been filed or could not be filed or issued. In addition, because patent applications can take years to issue and
because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware, and which may result in issued patents that our current or future products infringe. Also, because the claims
of published patent applications can change between publication and patent grant, published applications that initially do not appear to be problematic may issue with claims that potentially cover our products, technology, or methods.
Infringement actions and other intellectual property claims brought against us, whether with or without merit, may cause us to incur substantial costs and could place a significant
strain on our financial resources, divert the attention of management, and harm our reputation. We cannot be certain that we will successfully defend against any allegations of infringement. If we are found to infringe another party’s patents, we could
be required to pay damages. We could also be prevented from selling our infringing products, unless we can obtain a license to use the technology covered by such patents or can redesign our products so that they do not infringe. A license may be
available on commercially reasonable terms or none at all, and we may not be able to redesign our products to avoid infringement. Further, any modification to our products could require us to conduct clinical trials and revise our filings with the FDA
and other regulatory bodies, which would be time consuming and expensive. In these circumstances, we may not be able to sell our products at competitive prices or at all, and our business and operating results could be harmed.
We rely on trademark protection to distinguish our products from the products of our competitors.
We rely on trademark protection to distinguish our products from the products of our competitors. We have registered the trademark “ReWalk” in Israel and in the United States. The
trademark “Restore” is already registered in Europe and allowed in the United States. In jurisdictions where we have not registered our trademark and are using it, and as permitted by applicable local law, we rely on common law trademark protection.
Third parties may oppose our trademark applications, or otherwise challenge our use of the trademarks, and may be able to use our trademarks in jurisdictions where they are not registered or otherwise protected by law. If our trademarks are
successfully challenged or if a third party is using confusingly similar or identical trademarks in particular jurisdictions before we do, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require
us to devote additional resources to marketing new brands. If others are able to use our trademarks, our ability to distinguish our products may be impaired, which could adversely affect our business. Further, we cannot assure you that competitors
will not infringe upon our trademarks, or that we will have adequate resources to enforce our trademarks.
We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors, and we may hire employees in the future that are
so employed. We could in the future be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. If we fail in defending against such
claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. If any of these
technologies or features that are important to our products, this could prevent us from selling those products and could have a material adverse effect on our business. Even if we are successful in defending against these claims, such litigation could
result in substantial costs and divert the attention of management.
Risks Related to an Investment in Our Ordinary Shares
Sales of a substantial number of ordinary shares by us or our large shareholders, certain of whom may have registration rights, or dilutive exercises of a
substantial number of warrants by our warrant-holders could adversely affect the value of our ordinary shares.
Sales by us or our shareholders of a substantial number of ordinary shares in the public market, or the perception that these sales might occur, could cause the value of our
ordinary shares to decline or could impair our ability to raise capital through a future sale of our equity securities. Additionally, dilutive exercises of a substantial number of warrants by our warrant-holders, or the perception that such exercises
may occur, could put downward price on the market price of our ordinary shares.
As of February 16, 2021, 5,752,726 ordinary shares were issuable pursuant to the exercise of warrants, with exercise prices ranging from $1.25 to $118.75 per warrant, issued in private and registered
offerings of ordinary shares and warrants in November 2016, November 2018, February 2019, April 2019, June 2019, February 2020, July 2020 and December 2020. We have registered with the SEC all of these warrants and/or the resale of the shares
issuable upon their exercise. There were also 6,679 ordinary shares issuable pursuant to the exercise of warrants granted to Kreos Capital V (Expert Fund) Limited (“Kreos”), in connection with the December 30, 2015 signed loan agreement (the “Loan
Agreement”) in January and December 2016, with an exercise price that is now set to $7.50 per warrant. For more information, see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Loan Agreement with Kreos and Related Warrant to Purchase Ordinary Shares” and “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Equity Raises”, in
each case below.
All shares sold pursuant to an offering covered by a registration statement would be freely transferable. With respect to the outstanding warrants, there may be certain restrictions on the holders to
sell the underlying ordinary shares to the extent they are restricted securities, held by “affiliates” or would exceed certain ownership thresholds. Certain of our largest shareholders, may also have limitations under Rule 144 under the Securities
Act on the resale of certain ordinary shares they hold unless they are registered for resale under the Securities Act. Despite these limitations and the liquidity we may gain from cash exercises of outstanding warrants, if we, our existing
shareholders, or their affiliates sell a substantial number of the above-mentioned ordinary shares in the public market, the market price of our ordinary shares could decrease significantly. Shareholders may also incur substantial dilution if
holders of our warrants exercise their warrants to purchase ordinary shares, which could lower the market price of our ordinary shares. Any such decrease could impair the value of your investment in us.
Future grants of ordinary shares under our equity incentive plans to our employees, non-employee directors and consultants, or sales by these individuals in the
public market, could result in substantial dilution, thus decreasing the value of your investment in our ordinary shares, and certain grants may also require shareholder approval.
We have historically used, and continue to use, our ordinary shares as a means of both rewarding our employees, non-employee directors, and consultants and aligning their interests with those of
our shareholders. As of December 31, 2020, 1,925,237 ordinary shares remained available for issuance to our and our affiliates’ respective employees, non-employee directors, and consultants under our equity incentive plans, including 1,320,917
ordinary shares subject to outstanding awards (consisting of outstanding options to purchase 69,606 ordinary shares and 1,251,311 ordinary shares underlying unvested RSUs. For more information, see Note 8c to our consolidated financial statements
for the year ended December 31, 2020 below.
Additionally, to the extent registered on a Form S-8, ordinary shares granted or issued under our equity incentive plans will, subject to vesting provisions, lock-up restrictions, and Rule 144
volume limitations applicable to our “affiliates,” be available for sale in the open market immediately upon registration. Sales of a substantial number of the above-mentioned ordinary shares in the public market could result in a significant
decrease in the market price of our ordinary shares and have a material adverse effect on an investment in our ordinary shares.
If we do not meet the expectations of equity research analysts, if any, if the sole remaining equity analyst following our business does not continue to
publish research or reports about our business or if the analyst issues unfavorable commentary or downgrade our ordinary shares, the price of our ordinary shares could decline. Additionally, we may fail to meet publicly announced financial guidance
or other expectations about our business, which would cause our ordinary shares to decline in value.
There is currently one equity analyst publishing research reports about our business. If our results of operations are below the estimates or expectations of our sole analyst and
investors, our share price could decline. Moreover, the price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if analysts issue other unfavorable commentary or stop publishing research or
reports about us or our business (as has occurred over time, with a decrease in the number of analysts following us from five in 2014 to one in 2020).
From time to time, we have also faced difficulty accurately projecting our earnings and have missed certain of our publicly announced guidance. If our financial results for a
particular period do not meet our guidance or if we reduce our guidance for future periods, the market price of our ordinary shares may decline.
We are a “smaller reporting company” and we cannot be certain whether the reduced requirements applicable to smaller reporting companies will make our ordinary
shares less attractive to investors.
We are a “smaller reporting company” under the rules of the Securities Act and the Exchange Act. As a result, we may choose to take advantage of certain scaled disclosure
requirements available specifically to smaller reporting companies. For example, we are not required to provide market risk disclosures, a contractual obligations table in our management’s discussion and analysis of our financial condition and
results of operations or selected financial data in our annual report. Additionally, as long as we continue to be a smaller reporting company, we may continue to use reduced compensation disclosure obligations, and, provided we are also a
“non-accelerated filer,” we will not be obligated to follow the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will remain both (i) a smaller reporting company and “non-accelerated filer” until the last day of the
fiscal year in which we have at least $100 million in revenue and at least $700 million in aggregate market value of ordinary shares held by non-affiliated persons and entities (known as “public float”), or, alternatively, if our revenues exceed $100
million, (ii) a smaller reporting company until the last day of the fiscal year in which our public float was at least $250.0 million and a “non-accelerated filer” until the last day of the fiscal year in which our public float was at least $75.0
million (in each case, with respect to public float, as measured as of the last business day of the second quarter of such fiscal year).
We cannot predict or otherwise determine if investors will find our securities less attractive as a result of our reliance on exemptions as a smaller reporting company and/or
“non-accelerated filer.” If some investors find our securities less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may be more volatile.
We are subject to ongoing costs and risks associated with determining whether our existing internal controls over financial reporting systems are compliant with
Section 404 of the Sarbanes-Oxley Act, and if we fail to achieve and maintain adequate internal controls it could have a material adverse effect on our stated results of operations and harm our reputation.
We are required to comply with the internal control, evaluation, and certification requirements of Section 404 of the Sarbanes-Oxley Act and the Public Company Accounting Oversight
Board. Once we no longer qualify as a “smaller reporting company” and “non-accelerated filer,” our independent registered public accounting firm will need to attest to the effectiveness of our internal control over financial reporting under Section
404.
The process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404 and whether there are any material weaknesses or
significant deficiencies in our existing internal controls requires the investment of substantial time and resources, including by our Chief Financial Officer and other members of our senior management. This determination and any remedial actions
required could divert internal resources and take a significant amount of time and effort to complete and could result in us incurring additional costs that we did not anticipate, including the hiring of outside consultants. We could experience
higher than anticipated operating expenses and higher independent auditor fees during and after the implementation of these changes.
Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable
to implement any of the required changes to our internal control over financial reporting effectively or efficiently or are required to do so earlier than anticipated, it could adversely affect our operations, financial reporting and/or results
of operations and could result in an adverse opinion on internal controls from our management and our independent auditors. Further, if our internal control over financial reporting is not effective, the reliability of our financial statements
may be questioned, and our share price may suffer.
U.S. holders of our ordinary shares may suffer adverse U.S. tax consequences if we are characterized as a passive foreign investment company, or a PFIC, under Section 1297(a) of the Code.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets (which may be determined in part by the market
value of our ordinary shares, which is subject to change) are held for the production of, or produce passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Passive income
for this purpose generally includes, among other things, certain dividends, interest, royalties, rents, and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive
income also includes amounts derived by reason of the temporary investment of funds, including those raised in an offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each
corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
The determination of whether we are a PFIC will depend on the nature and composition of our income and the nature, composition, and value of our assets from time to time. The 50% passive
asset test described above is generally based on the fair market value of each asset, with the value of goodwill and going concern value determined in large part by reference to the market value of our ordinary shares, which may be
volatile. If we are characterized as a “controlled foreign corporation,” or a “CFC”, under Section 957(a) of the Code and not considered publicly traded throughout the relevant taxable year, however, the passive asset test may be applied
based on the adjusted tax bases of our assets instead of the fair market value of each asset (as described above). Under recently released final Treasury Regulations, however, if we are treated as publicly traded for at least 20 trading
days during the relevant taxable year, our assets would generally be required to be measured at their fair market value, even if we are a CFC.
Based on our gross income and assets, the market price of our ordinary shares, and the nature of our business, we believe that we may have been a PFIC for the taxable year ended December 31,
2020. However, this determination is subject to uncertainty. In addition, there is a significant risk that we may be a PFIC for future taxable years, unless the market price of our ordinary shares increases, or we reduce the amount of cash
and other passive assets we hold relative to the amount of non-passive assets we hold. Accordingly, no assurances can be made regarding our PFIC status in one or more subsequent years, and our U.S. counsel expresses no opinion with respect to
our PFIC status in the taxable year ended December 31, 2020, and also expresses no opinion with respect to our predictions or past determinations regarding our PFIC status in the past or in the future.
If we are characterized as a PFIC, U.S. holders of our ordinary shares may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares
treated as ordinary income, rather than capital gain, the loss of the preferential tax rate applicable to dividends received on our ordinary shares by individuals who are U.S. holders and having interest charges apply to distributions by us and to
the proceeds of sales of our ordinary shares. In addition, special information reporting may be required. Certain elections exist that may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment (such as
mark-to-market treatment or being able to make a qualified electing fund election). However, we do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC.
Additionally, if we are characterized as a PFIC, for any taxable year during which a U.S. Holder holds ordinary shares, we generally will
continue to be treated as a PFIC with respect to such U.S. holder for all succeeding years during which such U.S. holder holds ordinary shares unless we cease to be a PFIC and such U.S. holder makes a “deemed sale” election with respect to such
ordinary shares. If such election is made, such U.S. holder will be deemed to have sold such ordinary shares held by such U.S. holder at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from
such deemed sale would be treated as described above.
The price of our ordinary shares may be volatile, and you may lose all or part of your investment.
Our ordinary shares were first publicly offered in our initial public offering in September 2014, at a price of $300.00 per share, and our ordinary shares have subsequently traded as high as
$1,092.75 per share and as low as $0.41 per share through February 16, 2021. All prices have been adjusted to reflect our 25-to-1 reverse stock split, which we effected in 2019. The market price of our ordinary shares could be highly volatile and
may fluctuate substantially as a result of many factors. Moreover, while there is no established public trading market for the warrants offered in our follow-on public offerings, and we do not expect one to develop, our ordinary shares will be
issuable pursuant to exercise of these warrants. Because the warrants are exercisable into our ordinary shares, volatility, or a reduction in the market price of our ordinary shares could have an adverse effect on the trading price of the warrants.
Factors which may cause fluctuations in the price of our ordinary shares include, but are not limited to:
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actual or anticipated fluctuations in our growth rate or results of operations or those of our competitors;
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customer acceptance of our products;
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announcements by us or our competitors of new products or services, commercial relationships, acquisitions, or expansion plans;
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announcements by us or our competitors of other material developments;
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our involvement in litigation;
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changes in government regulation applicable to us and our products;
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sales, or the anticipation of sales, of our ordinary shares, warrants and debt securities by us, or sales of our ordinary shares by our insiders or other shareholders, including upon expiration of contractual lock-up agreements;
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developments with respect to intellectual property rights;
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competition from existing or new technologies and products;
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changes in key personnel;
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the trading volume of our ordinary shares;
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changes in the estimation of the future size and growth rate of our markets;
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changes in our quarterly or annual forecasts with respect to operating results and financial conditions; and
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general economic and market conditions.
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In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our
operating performance. Technical factors in the public trading market for our ordinary shares may produce price movements that may or may not comport with macro, industry or Company-specific fundamentals, including, without limitation, the sentiment
of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our ordinary shares
and any related hedging or other technical trading factors. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company, as was the case
for ReWalk in a securities class action dismissed in full in November 2020. If we become involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.
Risks Related to Our Incorporation and Location in Israel
Our technology development and quality headquarters and the manufacturing facility for our products are located in Israel and, therefore, our results may be
adversely affected by economic restrictions imposed on, and political and military instability in, Israel.
Our technology development and quality headquarters, which houses substantially all of our research and development and our core research and development team, including engineers, machinists,
and quality and regulatory personnel, as well as the facility of our contract manufacturer, Sanmina, are located in Israel. Many of our employees, directors and officers are residents of Israel. Accordingly, political, economic, and military
conditions in Israel and the surrounding region may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist
militia and political group in the Gaza Strip), Hezbollah (an Islamist militia and political group in Lebanon) and other armed groups. Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between
Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations and could make it more difficult for us to raise capital. In particular, an interruption of operations at the
Tel Aviv airport related to the conflict in the Gaza Strip or otherwise could prevent or delay shipments of our components or products. Although we maintain inventory in the United States and Germany, an extended interruption could materially
and adversely affect our business, financial condition, and results of operations.
Recent political uprisings, social unrest, and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability
of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and has raised concerns regarding security in the region and the potential for armed conflict. Our
commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Any losses or damages incurred by us could have a material adverse effect on our business. In addition,
Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons. Iran is also believed to have a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian government, Hamas in
Gaza and Hezbollah in Lebanon. Any armed conflicts, terrorist activities or political instability in the region could materially and adversely affect our business, financial condition, and results of operations.
Our operations and the operations of our contract manufacturer, Sanmina, may be disrupted as a result of the obligation of Israeli citizens to perform military
service.
Many Israeli citizens are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations)
and, in the event of a military conflict, may be called to active duty. In response to terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be additional military reserve duty
call-ups in the future in connection with this conflict or otherwise. Some of our executive officers and employees, as well as those of Sanmina, the manufacturer of all of our products, are required to perform annual military reserve duty in
Israel and may be called to active duty at any time under emergency circumstances. Although these call-ups have not had a material impact on our operations or on Sanmina’s ability to manufacture our products, our operations and the operations of
Sanmina could be disrupted by such call-ups.
Our sales may be adversely affected by boycotts of Israel.
Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business
with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli government
policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.
The tax benefits that are available to us require us to continue to meet various conditions and may be terminated or reduced in the future, which could increase
our costs and taxes.
Some of our operations in Israel, referred to as “Beneficiary Enterprises,” carry certain tax benefits under the Israeli Law for the Encouragement of Capital Investments, 5719-1959, or the
Investment Law. Substantially all of our future income before taxes can be attributed to these programs. If we do not meet the requirements for maintaining these benefits or if our assumptions regarding the key elements affecting our tax rates
are rejected by the tax authorities, they may be reduced or cancelled, and the relevant operations would be subject to Israeli corporate tax at the standard rate. In addition to being subject to the standard corporate tax rate, we could be
required to refund any tax benefits that we may receive in the future, plus interest and penalties thereon. Even if we continue to meet the relevant requirements, the tax benefits that our current “Beneficiary Enterprises” receive may not be
continued in the future at their current levels or at all. If these tax benefits were reduced or eliminated, the amount of taxes that we pay would likely increase, as all of our Israeli operations would consequently be subject to corporate tax at
the standard rate, which could adversely affect our results of operations. Additionally, if we increase our activities outside of Israel, for example, by way of acquisitions, our increased activities may not be eligible for inclusion in Israeli
tax benefit programs. For a discussion of our current tax obligations, see “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We have received Israeli government grants for certain of our research and development activities and we may receive additional grants in the future. The terms of
those grants restrict our ability to manufacture products or transfer technologies outside of Israel, and we may be required to pay penalties in such cases or upon the sale of our company.
From our inception through December 31, 2020, we received a total of $1.97 million from the Israel Innovation Authority, or the IIA. We may in the future apply to receive additional grants from the
IIA to support our research and development activities. With respect to such grants, we are committed to paying royalties at a rate of 3.0% on sales proceeds up to the total amount of grants received, linked to the dollar, and bearing interest at
an annual rate of LIBOR applicable to dollar deposits. Even after payment in full of these amounts, we will still be required to comply with the requirements of the Israeli Encouragement of Industrial Research, Development and Technological
Innovation Law, 1984, or the R&D Law, and related regulations, with respect to those past grants. When a company develops know-how, technology or products using IIA grants, the terms of these grants and the R&D Law restrict the transfer
outside of Israel of such know-how, and of the manufacturing or manufacturing rights of such products, technologies, or know-how, without the prior approval of the IIA. Therefore, if aspects of our technologies are deemed to have been developed
with IIA funding, the discretionary approval of an IIA committee would be required for any transfer to third parties outside of Israel of know-how or manufacturing or manufacturing rights related to those aspects of such technologies.
Furthermore, the IIA may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel or may not grant such approvals at all.
Furthermore, the consideration available to our shareholders in a future transaction involving the transfer outside of Israel of technology or know-how developed with IIA funding
(such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the IIA.
In addition to the above, any non-Israeli citizen, resident or entity that, among other things, (i) becomes a holder of 5% or more of our share capital or voting rights, (ii) is
entitled to appoint one or more of our directors or our chief executive officer or (iii) serves as one of our directors or as our chief executive officer (including holders of 25% or more of the voting power, equity or the right to nominate directors
in such direct holder, if applicable) is required to notify the IIA and undertake to comply with the rules and regulations applicable to the grant programs of the IIA, including the restrictions on transfer described above. Such notification will be
required in connection with the investment being made by an investor.
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 employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the
Patent Law, and recent decisions by the Israeli Supreme Court and the Israeli Compensation and Royalties Committee, a body constituted under the Patent Law, employees may be entitled to remuneration for intellectual property that they develop for us
unless they explicitly waive any such rights, although the validity of any such waivers remains open to judicial review. Although we enter into agreements with our employees pursuant to which they agree that any inventions created in the scope of
their employment or engagement are owned exclusively by us, we may face claims demanding remuneration. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and former employees, or be forced
to litigate such claims, which could negatively affect our business.
Provisions of Israeli law and our Articles of Association may delay, prevent, or otherwise impede a merger with, or an acquisition of, us, even when the terms of such a
transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or
significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive
responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless at least 98% of the
company’s outstanding shares are tendered. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer (unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not
seek appraisal rights), may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition. Israeli law also requires a “special tender offer” in certain cases
where a shareholder crosses the 25% or 45% holding threshold, and it imposes procedural and special voting requirements for the approval of a merger in certain cases.
Our Articles of Association provide that our directors (other than external directors, a requirement of Israeli corporate law from which we have opted out in accordance with an exemption for which
we are currently eligible) are elected on a staggered basis, such that a potential acquirer cannot readily replace our entire board of directors at a single annual general shareholder meeting. This could prevent a potential acquirer from
receiving board approval for an acquisition proposal that our board of directors opposes.
Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel
exempting such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers involving an exchange of shares, Israeli tax law allows for tax
deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares
of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the
shares has occurred. These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
We recently amended our articles of association to increase our authorized share capital. There are certain risks associated with this increase.
In late March 2019, following the receipt of shareholder approval, we filed the Third Amended and Restated Articles of Association of the Company with the Registrar of Companies of the State of Israel
to reflect a 1-for-25 reverse share split increase and to increase the Company’s authorized share capital after the effect of the reverse share split. As a result, the Company is now authorized to issue 60,000,000 ordinary shares, of which 33,445,454
ordinary shares were outstanding as of February 16, 2021. The objective of the increase in authorized share capital was to maintain our flexibility following the reverse share split to conduct future issuances of our ordinary shares, in the ordinary
course from time to time, to fund our operations, consistent with our historical practice of raising financing through equity and debt issuances.
Although the purpose of the increase in authorized share capital was to preserve our capital-raising position, these additional shares may also be issued in the future for other
purposes, such as compensation, giving rise to further opportunities for dilution. Future issuances of ordinary shares will dilute the voting power and ownership of our existing shareholders, and, depending on the amount of consideration received in
connection with the issuance, could also reduce shareholders’ equity on a per-share basis. Due to the increase in authorized capital, the dilution to the ownership interest of our existing shareholders may be greater than would occur had the increase
not been effected.
The newly available authorized shares resulting from the reverse share split may have the potential to limit the opportunity for our shareholders to dispose of their ordinary shares at a premium.
We currently do not have any acquisitions or other major transactions planned that would require us to increase our authorized share capital, and our board does not intend to use the increase of the newly authorized reserve as an anti-takeover
device. However, the authorized shares could, in theory, also be used to resist or frustrate a third-party transaction that is favored by a majority of the independent shareholders (for example, by permitting issuances that would dilute the share
ownership of a person seeking to effect a change in the composition of the board or management of the Company or contemplating a tender offer or other transaction for the combination of the Company with another company).
It may be difficult to enforce a judgment of a U.S. court against us, our officers, and directors, to assert U.S. securities laws claims in Israel or to serve process on our
officers and directors.
We are incorporated in Israel. Although the majority of our directors and executive officers reside within the United States and most of the assets of these persons are also likely
located within the United States, some of our directors and executive officers reside and may have the majority of their assets outside the United States. Additionally, most of our assets are located outside of the United States. Therefore, a
judgment obtained against us, or those of our directors and executive officers residing outside of the United States, including a judgment based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the
United States and may not be enforced by an Israeli court. It also may be difficult for you to effect service of process in the United States on those directors and executive officers residing outside of the United States or to assert U.S. securities
law claims in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition,
even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses,
which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with
enforcing a judgment against us in Israel, you may be able to collect only limited, or may be unable to collect any, damages awarded by either a U.S. or foreign court.
Your rights and responsibilities as a shareholder will be governed by Israeli law which differs in some material respects from the rights and responsibilities
of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary shares are governed by our Articles of Association and by Israeli law. These rights and responsibilities differ in
some material respects from the rights and responsibilities of shareholders in U.S.-based corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and
performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting of shareholders on matters such as amendments to a company’s
articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the
outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of this
duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities.
In recent years, certain Israeli issuers listed on United States exchanges have been faced with governance-related demands from activist shareholders, unsolicited tender offers and
proxy contests. Responding to these types of actions by activist shareholders could be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability
to execute our strategic plan. In addition, a proxy contest for the election of directors at our annual meeting would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management
and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.
General Risks
Exchange rate fluctuations between the U.S. dollar, the Euro and the NIS may negatively affect our earnings.
The U.S. dollar is our functional and reporting currency. Since 2015, most of our expenses were denominated in U.S. dollars and the remaining expenses were denominated in NIS and
euros. Until 2018, most of our revenues were denominated in U.S. dollars and the remainder of our revenues was denominated in euros and British pound, whereas in the last two years our euro revenues are higher than our U.S dollar revenues. Accordingly,
any appreciation of the NIS or Euro relative to the U.S. dollar would adversely impact our net loss or net income, if any. For example, we are exposed to the risks that the shekel may appreciate relative to the dollar, or, if the shekel instead
devalues relative to the dollar, that the inflation rate in Israel may exceed such rate of devaluation of the shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the dollar cost of our operations in
Israel would increase and our dollar-denominated results of operations would be adversely affected.
We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the shekel against the dollar. For example, while the shekel appreciated
against the dollar at a rate of approximately 7% during the fiscal year 2020 and 8% during the fiscal year of 2019, the rate of devaluation of the shekel against the dollar was approximately 7% in 2017. This had the effect of increasing the dollar cost
of our operations in Israel. If the dollar cost of our operations in Israel increases once again, our dollar-measured results of operations will be adversely affected. Our operations also could be adversely affected if we are unable to effectively
hedge against currency fluctuations in the future.
We have in the past engaged in limited hedging activities, and we may enter into other hedging arrangements with financial institutions from time to time. Any hedging strategies that
we may implement in the future to mitigate currency risks, such as forward contracts, options and foreign exchange swaps related to transaction exposures may not eliminate our exposure to foreign exchange fluctuations. For further information, see
“Part I, Item 1A. Risk Factors—The economic effects of ‘Brexit’ may affect relationships with existing and future customers and could have an adverse impact on our business and operating results.”
We are subject to certain regulatory regimes that may affect the way that we conduct business internationally, and our failure to comply with applicable laws
and regulations could materially adversely affect our reputation and result in penalties and increased costs.
We are subject to a complex system of laws and regulations related to international trade, including economic sanctions and export control laws and regulations. We also depend on our
distributors and agents for compliance and adherence to local laws and regulations in the markets in which they operate. Significant political or regulatory developments in the jurisdictions in which we sell our products, such as those
stemming from the presidential administration in the United States or the U.K.’s exit from the E.U. (known as “Brexit”), are difficult to predict and may have a material adverse effect on us. For example, in the United States, the Trump
administration imposed tariffs on imports from China, Mexico, Canada, and other countries, and expressed support for greater restrictions on free trade and increase tariffs on goods imported into the United States. Changes in U.S.
political, regulatory, and economic conditions or in its policies governing international trade and foreign manufacturing and investment in the United States could adversely affect our sales in the United States.
We are also subject to the U.S. Foreign Corrupt Practices Act and may be subject to similar worldwide anti-bribery laws that generally prohibit companies and their intermediaries
from making improper payments to government officials for the purpose of obtaining or retaining business. Despite our compliance and training programs, we cannot be certain that our procedures will be sufficient to ensure consistent compliance with
all applicable international trade and anti-corruption laws, or that our employees or channel partners will strictly follow all policies and requirements to which we subject them. Any alleged or actual violations of these laws may subject us to
government scrutiny, investigation, debarment, and civil and criminal penalties, which may have an adverse effect on our results of operations, financial condition and reputation.
Our operations may be adversely impacted by the U.K.’s recent exit from the European Union.
The U.K.’s June 2016 referendum, in which voters approved an exit from the European Union (commonly referred to as “Brexit”), and subsequent
negotiations related to Brexit have caused and may continue to cause volatility in the global stock markets, currency exchange rate fluctuations and global economic uncertainty, which could adversely affect our ability to transact business in
the U.K. and in countries in the EU. On January 31, 2020, the U.K. formally ceased to be part of the EU. Although the U.K. has passed legislation regarding the immediate impact of the U.K.’s withdrawal from the EU, it is still unclear what
terms, if any, may be agreed within the U.K. and between the U.K. and other countries on many aspects of fiscal policy, cross-border trade, and international relations, both in the final outcome and for any transitional period. Because this
is an unprecedented event, it is also unclear what long-term economic, financial, trade and legal implications the withdrawal of the U.K. from the EU would have and how such withdrawal would affect our customers and our operations in the U.K.
and Europe. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations.
As a result of Brexit, the global markets and currencies have been adversely impacted, including a decline in the value of the British pound as compared to the U.S. dollar. A potential devaluation
of the local currencies of our international buyers relative to the U.S. dollar may impair the purchasing power of our international buyers and could cause international buyers to decrease their participation in our marketplaces or use of our
products. Further, volatility in exchange rates resulting from Brexit is expected to continue in the short term as the U.K. negotiates its exit from the E.U. We translate sales and other results of our activities in the U.K. denominated in
British pounds into U.S. dollars for our financial statements. During periods of a strengthening dollar, our reported international sales and earnings could be reduced because foreign currencies may translate into fewer U.S. dollars. Finally,
Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, and those laws and regulations may be cumbersome, difficult, or costly in terms of
compliance. In addition, Brexit may lead other E.U. member countries to consider referendums regarding their E.U. membership. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating
results and cash flows.
Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or the
uncertainty surrounding their potential effects, could adversely affect our results of operations and share price.
The U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) made significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “IRC”). Such changes include a reduction in
the corporate tax rate from a top marginal rate of 35% to a flat rate of 21% and limitations on certain corporate deductions and credits, among other changes. In addition, the TCJA requires complex computations to be performed that were not
previously required in U.S. tax law, significant judgments to be made in interpretation of the provisions of the TCJA and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly
produced.
While to date we believe the effect of the TCJA in our Consolidated Financial Statements the application of accounting guidance for various items, and the ultimate impact of the TCJA
on our business are not material, the final impacts of the TCJA could be materially different from our analysis. For example, adverse changes in the underlying profitability and financial outlook of our operations or changes in tax law could lead to
changes in our valuation allowances against deferred tax assets on our consolidated balance sheets, which could materially affect our results of operations. The U.S. Treasury Department, the Internal Revenue Service (the “IRS”), and other
standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from our interpretation which may materially affect our results of operations. In addition, the Biden
presidential administration may implement further changes to U.S. tax policy, including an increase in the U.S. corporate income tax rate. If any or all of these (or similar) proposals are ultimately enacted into law, in whole or in part, they could
have a negative impact to the Company’s effective tax rate.
Finally, foreign governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially affect our financial position and
results of operations. The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a materially adverse effect on the
price of our ordinary shares.
We may seek to grow our business through acquisitions of complementary products or technologies, and the failure to manage acquisitions, or the failure to integrate them with
our existing business, could have a material adverse effect on our business, financial condition, and operating results.
From time to time, we may consider opportunities to acquire or license other products or technologies that may enhance our product platform or technology, expand the breadth of our
markets or customer base, or advance our business strategies. Potential acquisitions involve numerous risks, including:
|
●
|
problems assimilating the acquired products or technologies;
|
|
●
|
issues maintaining uniform standards, procedures, controls and policies;
|
|
●
|
unanticipated costs associated with acquisitions;
|
|
●
|
diversion of management’s attention from our existing business;
|
|
●
|
risks associated with entering new markets in which we have limited or no experience; and
|
|
●
|
increased legal and accounting costs relating to the acquisitions or compliance with regulatory matters.
|
We have no current commitments with respect to any acquisition or licensing. We do not know if we will be able to identify such acquisitions or licensing we deem suitable, whether we will be able
to successfully complete any such transactions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or technologies. Our potential inability to integrate any acquired products or technologies
effectively may adversely affect our business, operating results, and financial condition.
If there are significant disruptions in our information technology systems, our business, financial condition and operating results could be adversely affected.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage sales and marketing data,
accounting and financial functions, inventory management, product development tasks, research and development data, customer service and technical support functions. Our information technology systems are vulnerable to damage or interruption from
earthquakes, fires, floods and other natural disasters, terrorist attacks, attacks by computer viruses or hackers, power losses, and computer system or data network failures. In addition, our data management application is hosted by a third-party
service provider whose security and information technology systems are subject to similar risks, and our products’ systems contain software which could be subject to computer virus or hacker attacks or other failures.
The failure of our or our service providers’ information technology systems or our products’ software to perform as we anticipate or our failure to effectively implement new information technology
systems could disrupt our entire operation or adversely affect our software products and could result in decreased sales, increased overhead costs, and product shortages, all of which could have a material adverse effect on our reputation,
business, financial condition, and operating results.
If we fail to properly manage our anticipated growth, our business could suffer.
Our growth and product expansion has placed, and we expect that it will continue to place, a significant strain on our management team and on our financial resources. Failure to
manage our growth effectively could cause us to misallocate management or financial resources, and result in losses or weaknesses in our infrastructure, which could materially adversely affect our business. Additionally, our anticipated growth will
increase the demands placed on our suppliers, resulting in an increased need for us to manage our suppliers and monitor for quality assurance. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve
our business objectives.
We depend on the knowledge and skills of our senior management.
We have benefited substantially from the leadership and performance of our senior management. For example, we depend on our Chief Executive Officer’s experience successfully scaling an early-stage
medical device company, as well as the experience of other members of management. Our success will depend on our ability to retain our current management. Competition for senior management in our industry is intense and we cannot guarantee that
we will be able to retain our personnel. Additionally, we do not carry key man insurance on any of our current executive officers. The loss of the services of certain members of our senior management could prevent or delay the implementation and
completion of our strategic objectives or divert management’s attention to seeking qualified replacements.
Shutdowns of the U.S. federal government could materially impair our business and financial condition.
Development of our product candidates and/or regulatory approval may be delayed for reasons beyond our control. For example, over the last several years the U.S. government has shut down several
times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC, and other government employees and stop critical activities. If a prolonged government shutdown or budget sequestration occurs, it could
significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could
impact our ability to access the public markets, such as through the declaration of effectiveness of registration statements and obtain necessary capital in order to properly capitalize and continue our operations.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR in the future may adversely affect the value of any outstanding debt
instruments.
LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on
loans globally. We typically use LIBOR as a reference rate in our term loans such that the interest due to our creditors pursuant to a term loan extended to us is calculated using LIBOR. Most of our term loan agreements contain a stated minimum value
for LIBOR.
In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time
whether or not LIBOR will cease to exist, or if new methods of calculating LIBOR will be established such that it continues to exist after 2021 or if replacement conventions will be developed. The U.S. Federal Reserve, in conjunction with the
Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities
(“SOFR”). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that
SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As
such, the future of LIBOR at this time is uncertain. At this time, due to a lack of consensus existing as to what rate or rates may become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on our liquidity.
However, if LIBOR ceases to exist, we may need to renegotiate our credit agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. Additionally, these changes may have an
adverse impact on the value of or interest earned on any LIBOR-based marketable securities, loans, and derivatives that are included in our financial assets and liabilities.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
REWALK ROBOTICS LTD.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rewalk Robotics Ltd. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “Consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.
generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates
to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the account or disclosure to which they relate.
|
Revenue recognition
|
|
|
Description of the Matter
|
As described in Note 2 to the consolidated financial statements, the Company generates revenues from sales of products. Revenue is recognized
when obligations under the terms of a contract with the Company customer are satisfied. Revenue is measured as the amount of consideration to which the Company expects to be entitled in exchange for transferring products or providing
services. In addition, the Company provides a service type warranty which is accounted for as a separate performance obligation. Revenue is then recognized ratably over the life of the warranty.
Auditing the Company’s revenue recognition involves subjective assumptions used in determining the standalone selling price of distinct
performance obligations.
|
|
|
How We Addressed the Matter in Our Audit
|
Our audit procedures included, among others, reading the executed contract and purchase order to understand the contract, identify the performance obligations and evaluate management’s identification of the
distinct performance obligations for a sample of contracts. To test the management’s determination of standalone selling prices for each performance obligation, our audit procedures included, among others, evaluating the methodology
applied and testing the calculations as well as the completeness and accuracy of the underlying data and assumptions used by the Company in its estimates. We also evaluated the Company’s disclosures included in notes to the consolidated
financial statements.
|
/s/ KOST FORER GABBAY & KASIERER
|
A Member of Ernst & Young Global
|
|
We have served as the Company’s auditor since 2014.
|
|
Haifa, Israel
|
February 18, 2021
|
REWALK ROBOTICS LTD. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
U.S. dollars in thousands
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,350
|
|
|
$
|
16,253
|
|
Trade receivable, net
|
|
|
684
|
|
|
|
794
|
|
Prepaid expenses and other current assets
|
|
|
672
|
|
|
|
903
|
|
Inventories
|
|
|
3,542
|
|
|
|
3,123
|
|
Total current assets
|
|
|
25,248
|
|
|
|
21,073
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and other long term assets
|
|
|
1,033
|
|
|
|
1,061
|
|
Operating lease right-of-use assets
|
|
|
1,349
|
|
|
|
1,737
|
|
Property and equipment, net
|
|
|
437
|
|
|
|
501
|
|
Total long-term assets
|
|
|
2,819
|
|
|
|
3,299
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
28,067
|
|
|
$
|
24,372
|
|
The accompanying notes are an integral part of these consolidated financial statements.
REWALK ROBOTICS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Current maturities of long-term loan
|
|
$
|
—
|
|
|
$
|
5,438
|
|
Current maturities of operating leases liability
|
|
|
660
|
|
|
|
637
|
|
Trade payables
|
|
|
2,268
|
|
|
|
2,698
|
|
Employees and payroll accruals
|
|
|
867
|
|
|
|
670
|
|
Deferred revenues
|
|
|
441
|
|
|
|
323
|
|
Other current liabilities
|
|
|
432
|
|
|
|
402
|
|
Total current liabilities
|
|
|
4,668
|
|
|
|
10,168
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Long term loan, net of current maturities
|
|
|
—
|
|
|
|
1,527
|
|
Deferred revenues
|
|
|
667
|
|
|
|
521
|
|
Non-current operating leases liability
|
|
|
923
|
|
|
|
1,315
|
|
Other long-term liabilities
|
|
|
35
|
|
|
|
61
|
|
Total long-term liabilities
|
|
|
1,625
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,293
|
|
|
|
13,592
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
Ordinary share of NIS 0.25 par value-Authorized: 60,000,000 shares at December 31, 2020 and 2019; Issued and outstanding: 25,332,225 and 7,319,560 shares at December 31, 2020 and December 31,
2019, respectively
|
|
|
1,827
|
|
|
|
504
|
|
Additional paid-in capital
|
|
|
201,392
|
|
|
|
178,745
|
|
Accumulated deficit
|
|
|
(181,445
|
)
|
|
|
(168,469
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
21,774
|
|
|
|
10,780
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
28,067
|
|
|
$
|
24,372
|
|
The accompanying notes are an integral part of these consolidated financial statements.
REWALK ROBOTICS LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
4,393
|
|
|
$
|
4,873
|
|
|
$
|
6,545
|
|
Cost of revenues
|
|
|
2,204
|
|
|
|
2,147
|
|
|
|
3,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,189
|
|
|
|
2,726
|
|
|
|
2,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net
|
|
|
3,459
|
|
|
|
5,348
|
|
|
|
7,349
|
|
Sales and marketing
|
|
|
5,754
|
|
|
|
6,167
|
|
|
|
7,897
|
|
General and administrative
|
|
|
4,980
|
|
|
|
5,259
|
|
|
|
6,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
14,193
|
|
|
|
16,774
|
|
|
|
22,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(12,004
|
)
|
|
|
(14,048
|
)
|
|
|
(19,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses, net
|
|
|
921
|
|
|
|
1,496
|
|
|
|
2,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(12,925
|
)
|
|
|
(15,544
|
)
|
|
|
(21,680
|
)
|
Taxes on income (tax benefit)
|
|
|
51
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,976
|
)
|
|
$
|
(15,551
|
)
|
|
$
|
(21,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share, basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(14.72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing net loss per ordinary share, basic and diluted
|
|
|
15,764,980
|
|
|
|
5,763,317
|
|
|
|
1,472,499
|
|
The accompanying notes are an integral part of these consolidated financial statements.
REWALK ROBOTICS LTD. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
U.S. dollars in thousands (except share data)
|
|
Ordinary Share
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
Total
shareholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
equity
|
|
Balance as of December 31, 2017
|
|
|
1,200,146
|
|
|
|
84
|
|
|
|
134,843
|
|
|
|
(131,220
|
)
|
|
|
3,707
|
|
Cumulative effect to accumulated deficit from adoption of a new accounting standard
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
Share-based compensation to employees and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
2,766
|
|
|
|
—
|
|
|
|
2,766
|
|
Issuance of ordinary shares upon exercise of options to purchase ordinary shares and RSUs by employees and non-employees
|
|
|
17,181
|
|
|
|
*
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of ordinary shares in investing agreement, net of issuance expenses in an amount of $830 (1)
|
|
|
164,715
|
|
|
|
12
|
|
|
|
4,283
|
|
|
|
—
|
|
|
|
4,295
|
|
Issuance of ordinary shares in at-the-market offering, net of issuance expenses in the amount of $236 (1)
|
|
|
49,882
|
|
|
|
4
|
|
|
|
1,113
|
|
|
|
—
|
|
|
|
1,117
|
|
Issuance of ordinary shares, warrants and pre-funded warrants in follow-on public offering, net of issuance expenses in an amount of $1,505 (1)
|
|
|
728,019
|
|
|
|
49
|
|
|
|
11,528
|
|
|
|
—
|
|
|
|
11,577
|
|
Modification of warrants to purchase ordinary shares (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
Exercise of pre-funded warrants (1)
|
|
|
653,144
|
|
|
|
44
|
|
|
|
119
|
|
|
|
—
|
|
|
|
163
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,675
|
)
|
|
|
(21,675
|
)
|
Balance as of December 31, 2018
|
|
|
2,813,087
|
|
|
|
193
|
|
|
|
154,670
|
|
|
|
(152,918
|
)
|
|
|
1,945
|
|
Share-based compensation to employees and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
1,108
|
|
|
|
—
|
|
|
|
1,108
|
|
Issuance of ordinary shares upon exercise of options to purchase ordinary shares and RSUs by employees and non-employees
|
|
|
47,473
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Issuance of ordinary shares in a “best effort” offering, net of issuance expenses in the amount of $686 (1)
|
|
|
760,000
|
|
|
|
52
|
|
|
|
3,632
|
|
|
|
—
|
|
|
|
3,684
|
|
Exercise of pre-funded warrants and warrants (1)
|
|
|
584,087
|
|
|
|
40
|
|
|
|
1,461
|
|
|
|
—
|
|
|
|
1,501
|
|
Issuance of ordinary shares in a “Registered Direct” offering, net of issuance expenses in the amount of $ 1,125 (1)
|
|
|
1,650,248
|
|
|
|
115
|
|
|
|
8,010
|
|
|
|
—
|
|
|
|
8,125
|
|
Issuance of ordinary shares in a “Warrant exercise” agreement, net of issuance expenses in the amount of $ 1,019 (1)
|
|
|
1,464,665
|
|
|
|
102
|
|
|
|
9,864
|
|
|
|
—
|
|
|
|
9,966
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,551
|
)
|
|
|
(15,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
7,319,560
|
|
|
|
504
|
|
|
|
178,745
|
|
|
|
(168,469
|
)
|
|
|
10,780
|
|
Share-based compensation to employees and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
749
|
|
|
|
—
|
|
|
|
749
|
|
Issuance of ordinary shares upon exercise of options to purchase ordinary shares and RSUs by employees and non-employees
|
|
|
63,111
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
Issuance of ordinary shares in a “Best Efforts” offering, net of issuance expenses in the amount of $ 1,056 (1)
|
|
|
4,053,172
|
|
|
|
290
|
|
|
|
3,720
|
|
|
|
—
|
|
|
|
4,010
|
|
Exercise of pre-funded warrants and warrants (1)
|
|
|
3,378,328
|
|
|
|
244
|
|
|
|
3,979
|
|
|
|
—
|
|
|
|
4,223
|
|
Issuance of ordinary shares in a “registered direct” offering, net of issuance expenses in the amount of $ 1,019 (1)
|
|
|
4,938,278
|
|
|
|
357
|
|
|
|
7,624
|
|
|
|
—
|
|
|
|
7,981
|
|
Issuance of ordinary shares in a private placement, net of issuance expenses in the amount of $ 993 (1)
|
|
|
5,579,776
|
|
|
|
429
|
|
|
|
6,578
|
|
|
|
—
|
|
|
|
7,007
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,976
|
)
|
|
|
(12,976
|
)
|
Balance as of December 31, 2020
|
|
|
25,332,225
|
|
|
|
1,827
|
|
|
|
201,392
|
|
|
|
(181,445
|
)
|
|
|
21,774
|
|
*)
|
Represents an amount lower than $1.
|
The accompanying notes are an integral part of these consolidated financial statements.
REWALK ROBOTICS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,976
|
)
|
|
$
|
(15,551
|
)
|
|
$
|
(21,675
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
285
|
|
|
|
321
|
|
|
|
463
|
|
Share-based compensation to employees and non-employees
|
|
|
749
|
|
|
|
1,108
|
|
|
|
2,766
|
|
Deferred taxes
|
|
|
(44
|
)
|
|
|
(57
|
)
|
|
|
(107
|
)
|
Gain on PPP forgiveness
|
|
|
(392
|
)
|
|
|
—
|
|
|
|
—
|
|
Loss on inducement of debt (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
600
|
|
Financial expenses related to long term loan
|
|
|
—
|
|
|
|
—
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
110
|
|
|
|
(36
|
)
|
|
|
322
|
|
Prepaid expenses, operating lease right-of-use assets and other assets
|
|
|
166
|
|
|
|
64
|
|
|
|
734
|
|
Inventories
|
|
|
(469
|
)
|
|
|
(1,221
|
)
|
|
|
1,403
|
|
Trade payables
|
|
|
(506
|
)
|
|
|
370
|
|
|
|
492
|
|
Employees and payroll accruals
|
|
|
197
|
|
|
|
20
|
|
|
|
(222
|
)
|
Deferred revenues and advance from customers
|
|
|
264
|
|
|
|
176
|
|
|
|
283
|
|
Operating lease liabilities and other liabilities
|
|
|
27
|
|
|
|
(9
|
)
|
|
|
(57
|
)
|
Net cash used in operating activities
|
|
|
(12,589
|
)
|
|
|
(14,815
|
)
|
|
|
(14,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(73
|
)
|
|
|
(22
|
)
|
|
|
(13
|
)
|
Net cash used in investing activities
|
|
|
(73
|
)
|
|
|
(22
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term loan
|
|
|
(6,965
|
)
|
|
|
(1,722
|
)
|
|
|
(3,866
|
)
|
Proceeds from PPP loan (3)
|
|
|
392
|
|
|
|
—
|
|
|
|
|
|
Issuance of ordinary shares in investment agreement, net of issuance expenses in an amount of $830 (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,295
|
|
Issuance of ordinary shares in at-the-market offering, net of issuance expenses paid in the amount of $211 (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,142
|
|
Issuance of ordinary shares and exercise of pre-funded warrants into ordinary shares in follow-on offering, net of issuance
expenses in an amount of $1,505 and net of long-term loan conversion in the amount of $3,600 (1) (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,140
|
|
Issuance of ordinary shares in a “best effort” offering, net of issuance expenses in the amount of $ 686 (1)
|
|
|
—
|
|
|
|
3,684
|
|
|
|
—
|
|
Issuance of ordinary shares in a “registered direct” offering, net of issuance expenses in the amount of $ 1,035 (1)
|
|
|
—
|
|
|
|
8,125
|
|
|
|
—
|
|
Issuance of ordinary shares in a “best effort” offering, net of issuance expenses in the amount of $1,056 (1)
|
|
|
4,010
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of ordinary shares in a “registered direct” offering, net of issuance expenses in the amount of $977 (1)
|
|
|
8,023
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of ordinary shares in a “warrant exercise” agreement, net of issuance expenses in the amount of $1,019 (1)
|
|
|
—
|
|
|
|
9,966
|
|
|
|
—
|
|
Issuance of ordinary shares in a private placement, net of issuance expenses in the amount of $959 (1)
|
|
|
7,041
|
|
|
|
—
|
|
|
|
—
|
|
Exercise of pre-funded warrants and warrants (1)
|
|
|
4,223
|
|
|
|
1,429
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
16,724
|
|
|
|
21,482
|
|
|
|
9,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash, cash equivalents, and restricted cash
|
|
|
4,062
|
|
|
|
6,645
|
|
|
|
(5,076
|
)
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
16,992
|
|
|
|
10,347
|
|
|
|
15,423
|
|
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
21,054
|
|
|
$
|
16,992
|
|
|
$
|
10,347
|
|
The accompanying notes are an integral part of these consolidated financial statements.
REWALK ROBOTICS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash flow information
|
|
|
|
|
|
|
|
|
|
Expenses related to offerings not yet paid (1)
|
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Repayment of long-term loan by issuance of units and pre-funded units (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,000
|
|
At-the-market offering expenses not yet paid (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25
|
|
Classification of other current assets to property and equipment, net
|
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
236
|
|
Classification of inventory to other current assets
|
|
$
|
—
|
|
|
$
|
164
|
|
|
$
|
—
|
|
Classification of inventory to property and equipment
|
|
$
|
50
|
|
|
$
|
174
|
|
|
$
|
—
|
|
Cashless exercise of pre-funded warrants
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
—
|
|
Initial recognition of operating lease right-of-use assets
|
|
$
|
—
|
|
|
$
|
2,099
|
|
|
$
|
—
|
|
Initial recognition of operating lease liabilities
|
|
$
|
—
|
|
|
$
|
(2,249
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,350
|
|
|
$
|
16,253
|
|
|
$
|
9,546
|
|
Restricted cash included in other long term assets
|
|
$
|
704
|
|
|
$
|
739
|
|
|
$
|
801
|
|
Total Cash, cash equivalents, and restricted cash
|
|
$
|
21,054
|
|
|
$
|
16,992
|
|
|
$
|
10,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
13
|
|
|
$
|
21
|
|
|
$
|
25
|
|
Cash paid for interest
|
|
$
|
862
|
|
|
$
|
1,499
|
|
|
$
|
1,501
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
a.
|
ReWalk Robotics Ltd. (“RRL”, and together with its subsidiaries, the “Company”) was incorporated under the laws of the State of Israel on June 20, 2001 and commenced operations on the same date.
|
|
b.
|
RRL has two wholly owned subsidiaries: (i) ReWalk Robotics Inc. (“RRI”) incorporated under the laws of Delaware on February 15, 2012 and (ii) ReWalk Robotics GMBH. (“RRG”) (formerly Argo Medical Technologies GmbH) incorporated under the laws
of Germany on January 14, 2013.
|
|
c.
|
The Company is designing, developing, and commercializing robotic exoskeletons that allow individuals with mobility impairments or other medical conditions the ability to stand and walk once again. The Company has developed and is continuing
to commercialize the ReWalk, an exoskeleton designed for individuals with paraplegia that uses its patented tilt-sensor technology and an on-board computer and motion sensors to drive motorized legs that power movement. The ReWalk system
consists of a light wearable brace support suit which integrates motors at the joints, rechargeable batteries, an array of sensors and a computer-based control system to power knee and hip movement. Additionally, the Company developed and, in
June 2019, started to commercialize the ReStore following receipt of European Union CE mark and United States Food and Drug Administration (“FDA”). The ReStore is a powered, lightweight soft exo-suit intended for use in the rehabilitation of
individuals with lower limb disability due to stroke. The Company markets and sells its products directly to institutions and individuals and through third-party distributors. The Company sells its products directly primarily in Germany and the
United States, and primarily through distributors in other markets. In its direct markets, the Company has established relationships with rehabilitation centers and the spinal cord injury community, and in its indirect markets, the Company’s
distributors maintain these relationships. RRI markets and sells products mainly in the United States. RRG sell the Company’s products mainly in Germany and Europe.
|
During the second quarter of 2020, we have finalized two separate agreements to distribute additional product lines in the U.S. market.
The Company will be the exclusive distributor of the MediTouch Tutor movement biofeedback systems in the United States and will also have distribution rights for the MYOLYN MyoCycle FES cycles to U.S. rehabilitation clinics and personal sales through
the U.S. Department of Veterans Affairs (“VA”) hospitals. These new products will improve our product offering to clinics as well as patients within the VA as they both have similar clinician and patient profiles.
|
d.
|
The Company depends on one contract manufacturer, Sanmina. Reliance on this vendor makes the Company vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and
costs.
|
|
e.
|
The worldwide spread of COVID-19 has resulted in a global economic slowdown and is expected to continue to disrupt general business operations until the disease is contained. This has had a negative impact on the Company's sales and results
of operations during 2020, and the Company expects that it will continue to negatively affect its sales and results of operations, but the Company is currently unable to predict the scale and duration of that impact. As of the date of issuance
of these financial statements, the Company is not aware of any specific event or circumstance that would require an update of its accounting estimates or judgments or revision of the carrying value of its assets or liabilities. This
determination may change as new events occur and additional information is obtained. Actual results could differ from our estimates and judgments, and any such differences may be material to our financial statements.
|
|
f.
|
For the full year ended December 31 ,2020 the Company incurred a consolidated net loss of $13 million and has an accumulated deficit in the total amount of $181.4 million. The Company’s negative operating cash
flow for the full year ended December 31, 2020 was $12.6 million. Our cash and cash equivalent on December 31, 2020 totaled $20.3 million and in subsequent warrants exercise transactions the Company received a total of additional $13.2
million in the beginning of 2021. The Company has sufficient funds to support its operation for more than 12 months following the approval of its consolidated financial statements for the fiscal year ended December 31, 2020.
The Company expect to incur future net losses and our transition to profitability is dependent upon, among other things, the successful development and commercialization of the Company’s products and product
candidates, the achievement of a level of revenues adequate to support the cost structure. Until the Company achieve profitability or generate positive cash flows, it will continue to need to raise additional cash. The Company intend to
fund future operations through cash on hand, additional private and/or public offerings of debt or equity securities, cash exercises of outstanding warrants or a combination of the foregoing. In addition, the Company may seek additional
capital through arrangements with strategic partners or from other sources and will continue to address its cost structure. Notwithstanding, there can be no assurance that the Company will be able to raise additional funds or achieve or
sustain profitability or positive cash flows from operations.
|
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared according to United States generally accepted accounting principles (“U.S. GAAP”),
applied on a consistent basis, as follows:
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, and
assumptions. The Company’s management believes that the estimates, judgments, and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
On an ongoing basis, the Company’s management evaluates estimates, including those related to inventories, fair values of share-based awards and warrants, contingent liabilities, provision for warranty, allowance for doubtful account and sales return
reserve. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
|
b.
|
Financial Statements in U.S. Dollars:
|
Since 2015, most of the Company’s expenses were denominated in United States dollars (“dollars”) and the remaining expenses were denominated in New Israeli Shekel (“NIS”) and Euros.
Until 2018 most of the Company’s revenues were denominated in U.S. dollars and the remainder of our revenues was denominated in euros and British pound whereas in the last two years our Euro revenues are higher than the ones in dollars. however, the
selling prices are linked to the Company’s price list which is determined in dollars, the budget is managed in dollars, financing activities including loans and cash investments, are made in U.S. dollars and the Company’s management believes that the
dollar is the primary currency of the economic environment in which the Company and each of its subsidiaries operate. Thus, the dollar is the Company’s and its subsidiaries’ functional and reporting currency.
Accordingly, transactions denominated in currencies other than the functional currency are re-measured to the functional currency in accordance with Accounting Standards
Codification (“ASC”) No. 830, “Foreign Currency Matters” at the exchange rate at the date of the transaction or the average exchange rate in the relevant reporting period. At the end of each reporting period, financial assets and liabilities are
re-measured to the functional currency using exchange rates in effect at the balance sheet date. Non-financial assets and liabilities are re-measured at historical exchange rates. Gains and losses related to re-measurement are recorded as financial
income (expense) in the consolidated statements of operations as appropriate.
|
c.
|
Principles of Consolidation:
|
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, RRI and RRG. All intercompany transactions and balances have been eliminated upon consolidation.
Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, at the date acquired.
Inventories are stated at the lower of cost or market value. Inventory reserves are provided to cover risks arising from slow-moving items or technological obsolescence.
The Company periodically evaluates the quantities on hand relative to historical, current and projected sales volume. Based on this evaluation, an impairment charge is recorded when
required to write-down inventory to its market value.
Cost is determined as follows:
Finished products - on the basis of raw materials and manufacturing costs on an average basis.
Raw materials - The weighted average cost method.
The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors, including historical usage rates and forecasted sales according
to outstanding backlogs. Purchasing requirements and alternative usage are explored within these processes to mitigate inventory exposure. When recorded, the reserves are intended to reduce the carrying value of inventory to its net realizable value.
In the years ended December 31, 2020, 2019 and 2018, the Company wrote off inventory in the amount of $215 thousand, $64 thousand, and $562 thousand, respectively. The write off inventory were recorded in cost of revenue. If actual demand for the
Company’s products deteriorates, or market conditions are less favorable than those projected, additional inventory reserves may be required.
|
f.
|
Related parties transactions and balances:
|
The Company has a related party shareholder named Yaskawa Electric Corporation (“YEC”).
In September 2013, the Company entered into a share purchase agreement and a strategic alliance with YEC, pursuant to which YEC has agreed to distribute the Company’s products, in
addition to providing sales, marketing, service and training functions, in Japan, China (including Hong-Kong and Macau), Taiwan, South Korea, Singapore and Thailand.
As of December 31, 2020, and 2019, the related party receivable were 0% of trade receivable, net, in both years. Revenues from YEC during the years ended
December 31, 2020, 2019, and 2018 amounted to $0 thousand, $41 thousand, and $13, respectively.
|
g.
|
Property and Equipment:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at
the following annual rates:
|
%
|
Computer equipment
|
20-33 (mainly 33)
|
Office furniture and equipment
|
6 - 10 (mainly 10)
|
Machinery and laboratory equipment
|
15
|
Field service units
|
50
|
Leasehold improvements
|
Over the shorter of the lease
term or estimated useful life
|
|
h.
|
Impairment of Long-Lived Assets:
|
The Company’s long-lived assets are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” whenever events or changes in circumstances indicate that
the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets (or asset group) to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the years ended December 31, 2020,
2019 and 2018, no impairment losses have been recorded.
|
i.
|
Restricted cash and Other long-term assets:
|
Other long-term assets include long-term prepaid expenses and restricted cash deposits for offices and cars leasing based upon the term of the remaining restrictions.
The Company generates revenues from sales of products. The Company sells its products directly to end customers and through distributors. The Company sells its products to private
individuals (who finance the purchases by themselves, through fundraising or reimbursement coverage from insurance companies), rehabilitation facilities and distributors.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method for contracts that were not completed as of January 1, 2018. Under the modified
retrospective method, the Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. This adjustment did not have a material impact on the Company consolidated
financial statements. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company historic accounting under Revenue
Recognition (“Topic 605”).
The adoption of Topic 606 represents a change in accounting principle that will provide financial statement readers with enhanced
revenue recognition disclosures. In accordance with Topic 606, revenue is recognized when obligations under the terms of a contract with the Company customer are satisfied; generally this occurs with the transfer of control of the Company products or
services. Revenue is measured as the amount of consideration to which the Company expect to be entitled in exchange for transferring products or providing services. To achieve this core principle, the Company applies the following five steps:
1. Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be
transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract has commercial substance, and (iv) the Company determines
that collection of substantially all consideration for products or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s
ability and intention to pay, which is based on a variety of factors including the customer’s payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.
2. Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct,
whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the contract, whereby the transfer of the products or
services is separately identifiable from other promises in the contract.
3. Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. To the
extent the transaction price is variable, revenue is recognized at an amount equal the consideration to which the Company expects to be entitled. This estimate includes customer sales incentives which are accounted for as a reduction to revenue and
estimated using either the expected value method or the most likely amount method, depending on the nature of the program.
As a result of the Company’s adoption of this standard, the majority of the amounts that were historically classified as bad debt expense, primarily related to self-payers
customers, are now considered an implicit price concession in determining net revenue. Accordingly, the Company recognized uncollectible balances associated with self-payers customers as a reduction of the transaction price and therefore as a reduction
in net revenues when historically these amounts were classified as bad debt expense within general and administrative expenses.
Shipping and handling costs charged to customers are included in net sales. Determining the transaction price requires significant judgment, which is discussed by revenue category
in further detail below.
In practice, the Company does not offer extended payment terms beyond one year to customers.
4. Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple
performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a
performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately.
5. Recognize revenue when or as the Company satisfies a performance obligation
The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided.
For systems sold to rehabilitation facilities, the Company includes training and considers the elements in the arrangement to be a single performance obligation. In accordance
with ASC 606, the Company has concluded that the training is essential to the functionality of the Company’s systems. Therefore, the Company recognizes revenue for the system and training only after delivery in accordance with the agreement delivery
terms to the customer and after the training has been completed.
For sales of Personal systems to end users, and for sales of Personal or Rehabilitation systems to third party distributors, the Company does not provide training to the end
user as this training is completed by the Rehabilitation centers or by the distributor that have previously completed the ReWalk Training program. Therefore, the Company recognizes revenue in such sales upon delivery.
Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.
The Company generally does not grant a right of return for its products. There have been isolated cases in which the Company experienced a return of its products. Therefore, the
Company records reductions to revenue for expected future product returns based on the Company’s historical experience.
Disaggregation of Revenues (in thousands)
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Units placed
|
|
$
|
3,620
|
|
|
$
|
4,385
|
|
|
$
|
6,237
|
|
Spare parts and warranties
|
|
|
773
|
|
|
|
488
|
|
|
|
308
|
|
Total Revenues
|
|
$
|
4,393
|
|
|
$
|
4,873
|
|
|
$
|
6,545
|
|
Units placed
The Company currently offer five products: (1) ReWalk Personal, (2) ReWalk Rehabilitation, (3) ReStore, (4) MyoCycle and (5) MediTouch.
ReWalk Personal and ReWalk Rehabilitation are units for spinal cord injuries (“SCI Products”). SCI Products are currently designed for everyday use by paraplegic individuals at
home and in their communities, and are custom fitted for each user, as well as for use by paraplegia patients in the clinical rehabilitation environment, where they provide individuals access to valuable exercise and therapy. ReWalk Rehabilitation
current design is dated and will not be produced in the future.
ReStore is a powered, lightweight soft exo-suit intended for use in the rehabilitation of individuals with lower limb disability due to stroke in the clinical rehabilitation
environment.
MyoCycle which uses Functional Electrical Stimulation (“FES”) technology and MediTouch tutor movement biofeedback devices (“Distributed Products”). The Company markets the
Distributed Products in the United States for use at home or in clinic.
Units placed includes revenue from sales of SCI Products, ReStore and Distributed Products.
For units placed, the Company recognizes revenues when it transfers control and title has passed to the customer. Each unit placed is considered an independent, unbundled
performance obligation. The Company also offers a rent-to-purchase model in which the Company recognizes revenue ratably according to the agreed rental monthly fee.
Spare parts and warranties
Spare parts are sold to private individuals, rehabilitation facilities and distributors. Revenue is recognized when the Company satisfies a performance obligation by transferring
control over promised goods or services to the customer. Each part sold is considered an independent, unbundled performance obligation.
Warranties are classified as either assurance type or service type warranty. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the
product will function as intended for a limited period of time.
In the beginning of 2018, the Company updated its service policy for SCI Products to include a five- year warranty compared to a period of two years that were included in the past
for parts and services. The first two years are considered as assurance type warranty and the additional period is considered an extended service arrangement, which is a service type warranty. An assurance type warranty is not accounted for as separate
performance obligations under the revenue model. A service type warranty is either sold with a unit or separately for units for which the warranty has expired. Revenue is then recognized ratably over the life of the warranty.
The ReStore device is offered with a two-year warranty which is considered as assurance type warranty.
The Distributed Products are offered with assurance type warranty ranging between one year to ten years depending on the specific product and part.
Contract balances (in thousands)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Trade receivable, net (1)
|
|
$
|
684
|
|
|
$
|
794
|
|
Deferred revenues (1) (2)
|
|
$
|
1,108
|
|
|
$
|
844
|
|
(1)
|
Balance presented net of unrecognized revenues that were not yet collected.
|
(2)
|
$330 thousand of December 31, 2019 deferred revenues balance were recognized as revenues during the year ended December 31, 2020.
|
Typical timing of payment
Deferred revenue is comprised mainly of unearned revenue related to service type warranty but also includes other offerings for which the Company has been paid in advance and earns
revenue when the Company transfers control of the product or service.
The Company’s unfilled performance obligations as of December 31, 2020 and the estimated revenue expected to be recognized in the future related to the service type warranty
amounts to $1,108 thousand, which is fulfilled over one to five years.
|
k.
|
Accounting for Share-Based Compensation:
|
The Company accounts for share-based compensation in accordance with ASC No. 718, “Compensation-Stock Compensation” (“ASC No. 718”). ASC No. 718 requires companies to estimate the
fair value of equity-based payment awards on the date of grant using an Option-Pricing Model (“OPM”). The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the
Company’s consolidated statements of operations.
The Company recognizes compensation expenses for the value of its awards granted based on the straight-line method over the requisite service period of each of the awards.
Effective as of January 1, 2017, the Company adopted Accounting Standards Update 2016-09, “Compensation-Stock Compensation (Topic 718)” (“ASU 2016-09”) on a modified, retrospective
basis. ASU 2016-09 permits entities to make an accounting policy election related to how forfeitures will impact the recognition of compensation cost for stock-based compensation: to estimate the total number of awards for which the requisite service
period will not be rendered or to account for forfeitures as they occur. Upon adoption of ASU 2016-09, the Company elected to change its accounting policy to account for forfeitures as they occur. The change was applied on a modified, retrospective
basis with a cumulative-effect adjustment to retained earnings of $11 thousand (which increased the accumulated deficit) as of January 1, 2017.
ASU 2016-09 also eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an
increase in paid in capital. The implementation resulted with no cumulative-effect adjustment to retained earnings as of January 1, 2017.
Additionally, ASU 2016-09 addresses the presentation of excess tax benefits and employee taxes paid on the statement of cash flows. The Company is now required to present excess tax benefits as an
operating activity on the statement of cash flows rather than as a financing activity. The Company adopted this change prospectively.
In June 2018, the FASB issued ASU No. 2018-07 Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 was issued to
simplify several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, "Compensation – Stock Compensation", to include share-based payment transactions for acquiring goods and
services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.
As a result of ASU 2018-07, grants awarded to non-employees are accounted for under ASC 718. The Company adopted ASU 2018-07 as of January 1, 2019. The adoption did not have a material impact on the consolidated financial statements.
The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value method for its share-option awards. The option-pricing model requires a number
of assumptions, of which the most significant are the fair market value of the underlying ordinary share, expected share price volatility and the expected option term. Expected volatility was calculated based upon certain peer companies that the
Company considered to be comparable. The expected option term represents the period of time that options granted are expected to be outstanding. The expected option term is determined based on the simplified method in accordance with Staff Accounting
Bulletin No. 110, as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term.
The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable plans to pay dividends.
Following the IPO in September 2014, the fair value of ordinary shares is observable as they are publicly traded.
The fair value of Restricted Stock Units (RSUs) granted is determined based on the price of the Company’s ordinary shares on the date of
grant.
The fair value for options granted in 2019, 2018 is estimated at the date of grant using a Black-Scholes-Merton option pricing model with the following assumptions:
|
|
|
|
|
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
|
57.5
|
%
|
|
|
57% - 61
|
%
|
Risk-free rate
|
|
|
2.22
|
%
|
|
|
2.74% - 2.83
|
%
|
Dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected term (in years)
|
|
|
6.11
|
|
|
|
6.11
|
|
Share price
|
|
$
|
5.37
|
|
|
$
|
25.5 - $28.75
|
|
There were no options granted during the twelve months ended December 31, 2020.
The Company accounts for options granted to consultants and other service providers under ASC No. 718. The fair value of these options was estimated using a
Black-Scholes-Merton option-pricing model.
The non-cash compensation expenses related to employees and non- employees for the years ended December 31, 2020, 2019 and 2018 amounted to $749 thousand, $1,108 thousand, and $2,766 thousand, respectively.
|
l.
|
Warrants to Acquire Ordinary Shares:
|
During the twelve-month ended 31, 2020, and 2019, respectively, the Company issued warrants to acquire up to 11,389,555 and 2,522,284 ordinary shares. The Company assessed the warrants pursuant to ASC
480 "Distinguishing Liabilities from Equity" and ASC 815 "Derivatives and Hedging" and determine that the warrants should be accounted for as equity and not as a derivative liability. Refer to Note 8f for additional information.
|
m.
|
Research and Development Costs:
|
Research and development costs are charged to the consolidated statement of operations as incurred and are presented net of the amount of any grants the company receive for research
and development in the period in which the grant was received.
The Company accounts for income taxes in accordance with ASC No. 740, “Income Taxes” (“ASC No. 740”), using the liability method whereby deferred tax assets and liability account
balances are determined based on the differences between financial reporting and the tax basis for assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The
Company provides a valuation allowance, if necessary, to reduce deferred tax assets to the amounts that are more likely-than-not to be realized.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be
taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals
or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its
taxes on income. As of December 31, 2020, and 2019, the Company did not identify any significant uncertain tax positions.
The Company provided a two-year standard warranty for its products. In the beginning of 2018, we updated our service policy for new devices sold to include five-year warranties. The
Company determined that the first two years of warranty is an assurance-type warranty and records a provision for the estimated cost to repair or replace products under warranty at the time of sale. Factors that affect the Company’s warranty reserve
include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair.
|
|
US Dollars
in
thousands
|
|
Balance at December 31, 2019
|
|
$
|
227
|
|
Provision
|
|
|
125
|
|
Usage
|
|
|
(212
|
)
|
Balance at December 31, 2020
|
|
|
140
|
|
|
p.
|
Concentrations of Credit Risks:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables.
The Company’s cash and cash equivalents are deposited in major banks in Israel, the United States and Germany. Such deposits in the United States may be in excess of insured limits
and are not insured in other jurisdictions. The Company maintains cash and cash equivalents with diverse financial institutions and monitors the amount of credit exposure to each financial institution.
Concentration of credit risk with respect to trade receivable is primarily limited to a customer to which the Company makes substantial sales.
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Customer A
|
|
|
15
|
%
|
|
|
*
|
)
|
Customer B
|
|
|
15
|
%
|
|
|
*
|
)
|
Customer C
|
|
|
15
|
%
|
|
|
*
|
)
|
Customer D
|
|
|
14
|
%
|
|
|
*
|
)
|
Customer E
|
|
|
12
|
%
|
|
|
12
|
%
|
Customer F
|
|
|
11
|
%
|
|
|
*
|
)
|
Customer G
|
|
|
*
|
)
|
|
|
14
|
%
|
Customer H
|
|
|
*
|
)
|
|
|
13
|
%
|
Customer I
|
|
|
*
|
)
|
|
|
13
|
%
|
Customer J
|
|
|
*
|
)
|
|
|
12
|
%
|
Customer K
|
|
|
*
|
)
|
|
|
12
|
%
|
Customer L
|
|
|
*
|
)
|
|
|
12
|
%
|
The Company’s trade receivables are geographically diversified and derived primarily from sales to customers in various countries, mainly in the United States and Europe.
Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. The Company performs ongoing credit evaluations of its distributors based upon a specific review of
all significant outstanding invoices. The Company writes off receivables when they are deemed uncollectible and having exhausted all collection efforts. As of December 31, 2020, and 2019 trade receivables are presented net of $102 thousand and $31
thousand allowance for doubtful accounts, respectively, and net of sales return reserve of $0 thousand and $86 thousand, respectively.
|
q.
|
Accrued Severance Pay:
|
Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof. All of the
employees of the RRL elected to be included under section 14 of the Severance Pay Law, 1963 (“section 14”). According to this section, these employees are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name
with insurance companies. Payments in accordance with section 14 release the Company from any future severance payments (under the above Israeli Severance Pay Law) in respect of those employees; therefore, related assets and liabilities are not
presented in the balance sheet.
Total Company expenses related to severance pay amounted to $125 thousand, $156 thousand and $169 thousand for the years ended December 31, 2020, 2019 and 2018, respectively.
|
r.
|
Fair Value Measurements:
|
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as
well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable
inputs when determining fair value. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The
three-tiers are defined as follows:
|
●
|
Level 1. Observable inputs based on unadjusted quoted prices in active markets for identical assets or liabilities;
|
|
●
|
Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
|
|
●
|
Level 3. Unobservable inputs for which there is little or no market data requiring the Company to develop its own assumptions.
|
The carrying amounts of cash and cash equivalents, short term deposits, trade receivables and trade payables approximate their fair value due to the short-term maturity of such
instruments.
|
s.
|
Basic and Diluted Net Loss Per Share:
|
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of ordinary shares outstanding during the period.
Diluted net loss per share is computed by giving effect to all potential shares of ordinary shares, including stock options, convertible preferred share warrants, to the extent
dilutive, all in accordance with ASC No. 260, “Earning Per Share”.
The following table sets forth the computation of the Company’s basic and diluted net loss per ordinary share (in thousands, except share and per share data):
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(12,976
|
)
|
|
$
|
(15,551
|
)
|
|
$
|
(21,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shares
|
|
|
(12,976
|
)
|
|
|
(15,551
|
)
|
|
|
(21,675
|
)
|
Shares used in computing net loss per ordinary shares, basic and diluted
|
|
|
15,764,980
|
|
|
|
5,763,317
|
|
|
|
1,472,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per ordinary share, basic and diluted
|
|
$
|
(0.82
|
)
|
|
$
|
(2.70
|
)
|
|
$
|
(14.72
|
)
|
Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of ordinary shares and warrants outstanding would have been anti-dilutive.
|
t.
|
Contingent liabilities
|
The Company accounts for its contingent liabilities in accordance with ASC No. 450, “Contingencies”. A provision is recorded when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.
With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other
information and events pertaining to a particular matter.
See note 7e for further information.
Government grants received by the Company relating to categories of operating expenditures are credited to the consolidated statements of operations during the period in which the
expenditure to which they relate is charged. Royalty and non-royalty-bearing grants from the Israel Innovation Authority, or the IIA, (formerly known as the Israeli Office of the Chief Scientist), from the Israel-U.S. Binational Industrial Research and
Development Foundation (“BIRD”) and from the Israeli Fund for Promoting Overseas Marketing for funding certain approved research and development projects and sales and marketing activities are recognized at the time when the Company is entitled to such
grants, on the basis of the related costs incurred, and are included as a deduction from research and development or sales and marketing expenses (see Note 7c).
No royalty-bearing grants were recorded for the years ended December 31, 2020, and December 31, 2019, the Company received royalty-bearing grants in the amount of $198 thousand for
the year ended December 31, 2018, as part of the research and development expenses.
Total Company expenses related to royalties amounted to $46 thousand, $15 thousand for the years ended December 31, 2020, 2019, respectively, no royalty expenses were recorded for
the year ended December 31, 2018.
|
v.
|
New Accounting Pronouncements
|
Recently Implemented Accounting Pronouncements
In February 2016, the FASB issued Accounting Standard Update, or ASU, No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to
leasing arrangements. The Company adopted the standard effective January 1, 2019. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating
lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the
Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Prior to the Company’s adoption of ASU 2016-02, when its lease agreements contained rent payment relief and rent escalation clauses, the Company recorded a deferred rent asset or
liability equal to the difference between the rent expense and the future minimum lease payments due. Operating leases are recognized on the balance sheet as right-of-use assets, current maturities of operating leases and noncurrent operating lease
liabilities.
The Company used the modified retrospective transition method, under which the Company applied the standard as a cumulative effect adjustment to each lease that had commenced as of
the beginning of January 1, 2019 and did not apply the standard to comparative historical periods. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance, which among other things, allowed
the Company to carry forward the historical lease classification. The Company has elected, as of the adoption date, not to reassess whether expired or existing contracts contain leases under the new definition of a lease, not to reassess the lease
classification for expired or existing leases, and not to reassess whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis in the
statement of operations over the lease term. As a result, the Company no longer recognizes deferred rent on the balance sheet.
The Company has elected to apply the practical expedient and combine lease and non-lease components.
Upon adoption of this standard on January 1, 2019, the Company recorded right–of–use assets and corresponding lease liabilities of $2,099 thousand and $2,249 thousand,
respectively. As of December 31, 2020, the right–of–use assets and corresponding lease liabilities in the Company’s consolidated balance sheets were $1,349 thousand and $1,583 thousand, respectively. The adoption of this standard did not have a
material impact on the Company’s consolidated statements of operations or cash flows. See also note 7b - Lease commitment.
Recent Accounting Pronouncements Not Yet Adopted
|
i.
|
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
|
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for
certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for
convertible instruments with a cash conversion feature and a beneficial conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded
conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that
require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the
impact of convertible instruments on diluted earnings per share (EPS). ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on
either a fully retrospective or modified retrospective basis. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.
|
ii.
|
Financial Instruments
|
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment
model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. Topic 326 was adopted by the Company on January 1, 2020. The adoption did not have a
material impact on the Company’s consolidated financial statements.
NOTE 3:- PREPAID EXPENSES AND OTHER CURRENT ASSETS
The components of prepaid expenses and other current assets are as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Government institutions
|
|
$
|
87
|
|
|
$
|
175
|
|
Prepaid expenses
|
|
|
311
|
|
|
|
318
|
|
Advances to vendors
|
|
|
241
|
|
|
|
246
|
|
Other assets
|
|
|
33
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
672
|
|
|
$
|
903
|
|
NOTE 4:- INVENTORIES
The components of inventories are as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Finished products
|
|
$
|
2,764
|
|
|
$
|
2,394
|
|
Raw materials
|
|
|
778
|
|
|
|
729
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,542
|
|
|
$
|
3,123
|
|
NOTE 5:- PROPERTY AND EQUIPMENT, NET
The components of property and equipment, net are as follows (in thousands):
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cost:
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
725
|
|
|
$
|
723
|
|
Office furniture and equipment
|
|
|
298
|
|
|
|
293
|
|
Machinery and laboratory equipment
|
|
|
612
|
|
|
|
604
|
|
Field service units
|
|
|
1,626
|
|
|
|
1,420
|
|
Leasehold improvements
|
|
|
333
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,594
|
|
|
$
|
3,373
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accumulated depreciation
|
|
|
3,157
|
|
|
|
2,872
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
437
|
|
|
$
|
501
|
|
Depreciation expenses amounted to $285 thousand, $321 thousand, and $463 thousand for the years ended December 31, 2020, 2019 and 2018, respectively.
NOTE 6: - LOAN AGREEMENT WITH KREOS AND RELATED WARRANT TO PURCHASE ORDINARY SHARES
On December 30, 2015, the Company entered into the loan agreement (the “Loan Agreement”) with Kreos Capital V (Expert Fund) Limited (“Kreos”), pursuant to which Kreos extended a line
of credit to us in the amount of $20 million, with interest payable monthly in arrears on any amounts drawn down at a rate of 10.75% per year from the applicable drawdown date through the date on which all principal is repaid. As of June 30, 2017, the
Company raised more than $20 million in connection with the issuance of its share capital and, therefore, in accordance with the terms of the Loan Agreement, the repayment period was extended from 24 months to 36 months. The principal was also reduced
in connection with the issuance of the Kreos Convertible Note on June 9, 2017. Pursuant to the Loan Agreement, we granted Kreos a first priority security interest over all of our assets, including certain intellectual property and equity interests in
its subsidiaries, subject to certain permitted security interests.
Pursuant to the terms of the warrant, in connection with the $20.0 million drawdown under the Loan Agreement on January 4, 2016, we issued to Kreos the warrant to purchase up to 4,771 of our ordinary
shares at an exercise price of $241.0 per share, increased to 6,679 ordinary shares on December 28, 2016. Subject to the terms of the warrant, the warrant is exercisable, in whole or in part, at any time prior to the earlier of (i) December 30, 2025,
or (ii) immediately prior to the consummation of a merger, consolidation, or reorganization of us with or into, or the sale or license of all or substantially all our assets or shares to, any other entity or person, other than a wholly-owned subsidiary
of us, excluding any transaction in which our shareholders prior to the transaction will hold more than 50% of the voting and economic rights of the surviving entity after the transaction.
On June 9, 2017, the Company and Kreos entered into the First Amendment, under which $3.0 million of the outstanding principal under the Loan Agreement became subject to repayment pursuant to the senior
secured Kreos Convertible Note issued on June 9, 2017.
On November 20, 2018, the Company and Kreos entered into the Second Amendment of the Loan Agreement, in which the Company repaid Kreos the $3.6 million other related payments, including prepayment
costs and end of loan payments, terminating the Kreos Note, by issuing to Kreos 192,000 units and 288,000 pre-funded units as part of an underwritten public offering at the public offering prices, and the parties agreed to revise the principal and
the repayment schedule under the Kreos Loan. Additionally, Kreos and the Company entered into the Kreos Warrant Amendment, which amended the exercise price of the warrant to purchase 6,679 ordinary shares currently held by Kreos from $241.0 to $7.50.
On June 5, 2019 and June 6, 2019, the Company entered into warrant exercise agreements with certain institutional investors of warrants to purchase the Company’s ordinary shares,
pursuant to which, Kreos agreed to exercise in cash their November 2018 warrants at the existing exercise price of $7.50 per share. Under the exercise agreements, the Company also agreed to issue to Kreos new warrants to purchase up to 480,000 ordinary
shares at an exercise price of $7.50 per share and exercise period of five years.
On December 29, 2020, the Company repaid in full the remaining loan principal amount to Kreos including the end of loan payments, and by that discharged all of its obligations to
Kreos and as of December 31, 2020, the outstanding principal amount under the Kreos Loan Agreement was zero.
The Company recorded interest expense in the amount of $907 thousand during the fiscal year ended December 31, 2020.
NOTE 7:- COMMITMENTS AND CONTINGENT LIABILITIES
The Company has contractual obligations to purchase goods from its contract manufacturer as well as raw materials from different vendors. Purchase obligations do not include
contracts that may be canceled without penalty. As of December 31, 2020, non-cancelable outstanding obligations amounted to approximately $0.7 million.
|
b.
|
Operating lease commitment:
|
|
(i)
|
The Company operates from leased facilities in Israel, the United States and Germany. These leases expire between 2021 and 2023. A
portion of the Company’s facilities leases is generally subject to annual changes in the Consumer Price Index (CPI). The changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for
those payments was incurred.
|
|
(ii)
|
RRL and RRG lease cars for their employees under cancelable operating lease agreements expiring at various dates in between 2021 and
2023. A subset of the Company’s cars leases is considered variable. The variable lease payments for such cars leases are based on actual mileage incurred at the stated contractual rate. RRL and RRG have an option to be released from these
agreements, which may result in penalties in a maximum amount of approximately $26 thousand as of December 31, 2020.
|
The Company’s future lease payments for its facilities and cars, which are presented as current maturities of operating leases and non-current operating leases liabilities on the
Company’s consolidated balance sheets as of December 31, 2020 are as follows (in thousands):
2021
|
|
$
|
710
|
|
2022
|
|
|
676
|
|
2023
|
|
|
491
|
|
Total lease payments
|
|
|
1,877
|
|
Less: imputed interest
|
|
|
(294
|
)
|
Present value of future lease payments
|
|
|
1,583
|
|
Less: current maturities of operating leases
|
|
|
(660
|
)
|
Non-current operating leases
|
|
$
|
923
|
|
Weighted-average remaining lease term (in years)
|
|
|
2.69
|
|
Weighted-average discount rate
|
|
|
12.6
|
%
|
Total rent expenses for the years ended December 31, 2020, 2019 and 2018 were $764 thousand, $739 thousand, and $695 thousand, respectively.
The Company’s research and development efforts are financed, in part, through funding from the IIA and BIRD. Since the Company’s inception through December 31, 2020, the Company
received funding from the IIA and BIRD in the total amount of $1.97 million and $500 thousand, respectively. Out of the $1.97 million in funding from the IIA, a total amount of $1.57 million were royalty-bearing grants (as of December 31, 2020, the
Company paid royalties to the IIA in the total amount of $88 thousand), while a total amount of $400 thousand was received in consideration of 209 convertible preferred A shares, which converted after the Company’s initial public offering in September
2014 into ordinary shares in a conversion ratio of 1 to 1. The Company is obligated to pay royalties to the IIA, amounting to 3% of the sales of the products and other related revenues generated from such projects, up to 100% of the grants received.
The royalty payment obligations also bear interest at the LIBOR rate. The obligation to pay these royalties is contingent on actual sales of the applicable products and in the absence of such sales, no payment is required.
Additionally, the License Agreement requires the Company to pay Harvard royalties on net sales, See note 9 below for more information about the Collaboration Agreement and the
License Agreement.
Royalties expenses in cost of revenue were $46 thousand and $15 thousand for the years ended December 31, 2020, and 2019 respectively, no royalties’ expenses recorded for the year
ended December 31, 2018.
As of December 31, 2020, the contingent liability to the IIA amounted to $1.6 million. The Israeli Research and Development Law provides that know-how developed under an approved
research and development program may not be transferred to third parties without the approval of the IIA. Such approval is not required for the sale or export of any products resulting from such research or development. The IIA, under special
circumstances, may approve the transfer of IIA-funded know-how outside Israel, in the following cases:
(a) the grant recipient pays to the IIA a portion of the sale price paid in consideration for such IIA-funded know-how or in consideration for the sale of the grant recipient itself,
as the case may be, which portion will not exceed six times the amount of the grants received plus interest (or three times the amount of the grant received plus interest, in the event that the recipient of the know-how has committed to retain the
R&D activities of the grant recipient in Israel after the transfer); (b) the grant recipient receives know-how from a third party in exchange for its IIA-funded know-how; (c) such transfer of IIA-funded know-how arises in connection with certain
types of cooperation in research and development activities; or (d) If such transfer of know-how arises in connection with a liquidation by reason of insolvency or receivership of the grant recipient.
As part of the Company’s other long-term assets and restricted cash, an amount of $704 thousand has been pledged as security in respect of a guarantee granted
to a third party. Such deposit cannot be pledged to others or withdrawn without the consent of such third party.
As previously disclosed, between September 2016 and January 2017, eight putative class actions on behalf of alleged shareholders that purchased or acquired the Company’s ordinary shares pursuant and/or traceable to its
registration statement on Form F-1 (File No. 333-197344) used in connection with the Company’s initial public offering (the “IPO”) were commenced in the following courts: (i) the Superior Court of the State of California, County of San Mateo; (ii)
the Superior Court of the Commonwealth of Massachusetts, Suffolk County; (iii) the United States District Court for the Northern District of California; and (iv) the United States District Court for the District of Massachusetts. The actions
involved claims under various sections of the Securities Act and the Exchange Act against the Company, certain of its current and former directors and officers, the underwriters of the Company’s IPO and certain other defendants. The four actions
commenced in the Superior Court of the State of California, County of San Mateo were dismissed in January 2017 for lack of personal jurisdiction, and the action commenced in the United States District Court for the Northern District of California
was voluntarily dismissed in March 2017. Additionally, the two actions commenced in the Superior Court of the Commonwealth of Massachusetts, Suffolk County (he “Superior Court”), were consolidated in December 2017, and voluntarily dismissed with
prejudice in November 2018, after the District Court for the District of Massachusetts partially dismissed the related claims in that court and the parties in the Superior Court entered a stipulation of dismissal with prejudice.
The action commenced in the United States District Court for the District of Massachusetts (the “District Court”), alleging violations of Sections 11 and 15 of the Securities
Act and Sections 10(b) and 20(a) of the Exchange Act, was partially dismissed in August 2018. In particular, the District Court granted the motion to dismiss the claims under Sections 11 and 15 of the Securities Act, finding that the plaintiff failed
to plead a false or misleading statement in the IPO registration statement. In May 2019, the court subsequently denied the plaintiff’s motion to amend to pursue Exchange Act claims and the complaint was dismissed. Thereafter, the plaintiff timely
appealed to the United States Court of Appeals for the First Circuit, which subsequently affirmed the dismissal and the denial of the plaintiff’s motion to amend in August 2020. The plaintiff did not file a petition for certiorari for appeal of the
case to the Supreme Court of the United States by the deadline on November 24, 2020. Thus, as of December 31, 2020, all eight actions had been dismissed, with such judgments being final and non-appealable.
NOTE 8: - SHAREHOLDERS’ EQUITY
On March 27, 2019, the Company’s shareholders approved (i) a reverse share split within a range of 1:8 to 1:32, to be effective at the ratio and on a date to be determined by
the Board of Directors, and (ii) amendments to the Company’s Articles of Association authorizing an increase in the Company’s authorized share capital (and corresponding authorized number of ordinary shares, proportionally adjusting such number for
the reverse share split) by up to NIS 17.5 million. Following the shareholder approval, an authorized committee of the Board of Directors of the Company approved a one-for-twenty-five reverse share split of the Company’s ordinary shares, and the
Company filed the Third Amended and Restated Articles of Association of the Company with the Israeli Corporations Authority to effect the reverse share split and to increase the Company’s authorized share capital after the effect of the reverse share
split. The reverse share split became effective on April 1, 2019. Additionally, effective at the same time, the total number of ordinary shares the Company is authorized to issue changed from 250,000,000 shares to 60,000,000 shares, the par value per
share of the ordinary shares changed to NIS 0.25 and the authorized share capital of the Company changed from NIS 2,500,000 to NIS 15,000,000. All share and per share data included in these consolidated financial statements, for periods before
December 31, 2019, give retroactive effect to the reverse stock split.
Upon the effectiveness of the reverse share split, every twenty-five shares were automatically combined and converted into one ordinary share. Appropriate adjustments were also made
to all outstanding derivative securities of the Company, including all outstanding equity awards and warrants.
No fractional shares were issued in connection with the reverse share split. Instead, all fractional shares (including shares underlying outstanding equity awards and warrants) were
rounded down to the nearest whole number.
|
1.
|
At-the-market offering program:
|
On May 10, 2016, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Piper Jaffray & Co. (“Piper Jaffray”), as amended on May 9,
2019, pursuant to which it may offer and sell, from time to time, ordinary shares having an aggregate offering price of up to $25 million, through Piper Jaffray acting as its agent. Subject to the terms and conditions of the Equity Distribution
Agreement, Piper Jaffray will use its commercially reasonable efforts to sell on the Company’s behalf all of the ordinary shares requested to be sold by the Company, consistent with its normal trading and sales practices. Piper Jaffray may also act as
principal in the sale of ordinary shares under the Equity Distribution Agreement. Sales may be made under the Company’s shelf registration statement on Form S-3, which was declared effective by the SEC on May 9, 2016, or the Company’s shelf
registration statement on Form S-3, which was declared effective by the SEC on May 23, 2019 (the “Form S-3”), in what may be deemed “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the
“ATM Offering Program”). Sales may be made directly on or through the NASDAQ Capital Market, the existing trading market for the Company’s ordinary shares, to or through a market maker other than on an exchange or otherwise, in negotiated transactions
at market prices prevailing at the time of sale or at prices related to such prevailing market prices, and/or any other method permitted by law, including in privately negotiated transactions. Piper Jaffray is entitled to compensation at a fixed
commission rate of 3.0% of the gross sales price per share sold through it as agent under the Equity Distribution Agreement. Where Piper Jaffray acts as principal in the sale of ordinary shares under the Equity Distribution Agreement, such rate of
compensation will not apply, but in no event will the total compensation of Piper Jaffray, when combined with the reimbursement of Piper Jaffray for the out-of-pocket fees and disbursements of its legal counsel, exceed 8.0% of the gross proceeds
received from the sale of the ordinary shares. The Company is not required to sell any of its ordinary shares at any time.
From the inception of the ATM Offering Program in May 2016 until December 31, 2020, the Company had sold 302,092 ordinary shares under the ATM Offering Program for gross
proceeds of $15.7 million and net proceeds to the Company of $14.5 million (after commissions, fees, and expenses). Additionally, as of that date, the Company had paid Piper Jaffray compensation for the fixed commission rate of 3.0% in the aggregated
amount of $471 thousand and had incurred total expenses (including such commissions) of approximately $1.2 million in connection with the ATM Offering Program.
In November 2018, the Company entered into an underwriting agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”), in connection with the Company’s follow-on public
offering of 496,055 units, each consisting of one ordinary share and one common warrant to purchase one ordinary share with an exercise price of $7.5 per warrant. Each unit was sold to the public at a price of $7.50 per unit. On November 18, 2018, H.C.
Wainwright exercised in full its option to purchase 231,964 ordinary shares for $7.25 per share and/or common warrants to purchase up to an additional 231,964 ordinary shares for $0.25 per warrant.
Additionally, the Company issued and sold 1,050,372 pre-funded units at a price to the public of $7.25 per unit. Each unit containing one pre-funded warrant with an exercise
price of $0.25 per share and one warrant to purchase one ordinary share with an exercise price of $7.50 per warrant. The total gross proceeds received from the November 2018 follow-on public offering, before deducting commissions, discounts, and
expenses, were $13.1 million (including proceeds from the exercise of 90,691 pre-funded warrants at the closing of the offering). As of December 31, 2018, additional pre-funded warrants to purchase an aggregate 562,466 ordinary shares had been
exercised, for additional proceeds of $140,617. During the year ended December 31, 2019 additional 288,000 pre-funded warrants and 296,087 warrants to purchase an aggregate 584,087 ordinary shares had been exercised, for additional proceeds of $1.5
million. As compensation for their role in the offering, the Company also issued to the Underwriters warrants to purchase up to 106,680 ordinary shares, which became immediately exercisable starting on November 20, 2018 until November 15, 2023 at
$9.375 per share.
In February 2019, the Company entered into an exclusive placement agent agreement with H.C. Wainwright, on a reasonable best-efforts basis in connection with a public offering of
760,000 ordinary shares at a price of $5.75 per share.
The total gross proceeds received from the February 2019 follow-on public offering, before deducting commissions, discounts, and expenses, were $4.37 million. The Company also
issued to H.C Wainwright and/or its designees warrants to purchase up to 45,600 ordinary shares, which are immediately exercisable starting on February 25, 2019 until February 21, 2024 at $7.1875 per share.
In April 2019, the Company entered into securities purchase agreements with certain institutional purchasers whereby the Company issued 816,914 ordinary shares at $5.2025 per
ordinary share and warrants to purchase up to 408,457 ordinary shares with an exercise price of $5.14 per share, exercisable from April 5, 2019 until October 7, 2024, in a private placement that took place concurrently with the Company’s registered
direct offering of ordinary shares in April 2019. Additionally, the Company issued warrants to purchase up to 49,015 ordinary shares, with an exercise price of $6.503125 per share, exercisable from April 5, 2019 until April 3, 2024, to representatives
of H.C. Wainwright as compensation for its role as the placement agent in the Company’s April 2019 registered direct offering and concurrent private placement of warrants.
On June 5, 2019 and June 6, 2019, the Company entered into warrant exercise agreements with certain institutional investors whereby the Company issued warrants to purchase up to
1,464,665 ordinary shares with an exercise price of $7.50 per share, exercisable from June 5, 2019 or June 6, 2019 until June 5, 2024 or June 6, 2024, respectively. Additionally, the Company issued warrants to purchase up to 87,880 ordinary shares,
with an exercise price of $9.375 per share, exercisable from June 5, 2019 until June 5, 2024, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in the Company’s June 2019 warrant exercise agreement and
concurrent private placement of warrants.
On June 12, 2019, the Company entered into a purchase agreement with certain institutional investors for the issuance and sale of 833,334 ordinary shares, par value NIS 0.25 per
share at $6.00 per ordinary share and warrants to purchase up to 416,667 ordinary shares with an exercise price of $6.00 per share, exercisable from June 12, 2019 until December 12, 2024, in a private placement that took place concurrently with the
Company’s registered direct offering of ordinary shares in June 2019. Additionally, the Company issued warrants to purchase up to 50,000 ordinary shares, with an exercise price of $7.50 per share, exercisable from June 12, 2019 until June 10, 2024, to
certain representatives of H.C. Wainwright as compensation for its role as the placement agent in the Company’s June 2019 registered direct offering and concurrent private placement of warrants.
On February 10, 2020, the Company closed a “best efforts” public offering whereby the Company issued an aggregate of 5,600,000 of common units and pre-funded units at a public offering price of $1.25
per common unit and $1.249 per pre-funded unit. As part of the public offering, the Company entered into a securities purchase agreement with certain institutional purchasers. Each common unit consisted of one ordinary share, par value NIS 0.25 per
share, and one common warrant to purchase one ordinary share. Each of the 1,546,828 pre-funded unit consisted of one pre-funded warrant to purchase one ordinary share and one common warrant. Additionally, the Company issued warrants to purchase up to
336,000 ordinary shares, with an exercise price of $1.5625 per share, to representatives of H.C. Wainwright as compensation for its role as the placement agent in the Company’s February 2020 offering. During the three months ended March 31, 2020,
all pre-funded warrants to purchase ordinary shares were exercised.
As of December 31, 2020, a total of 1,831,500 common warrants to purchase ordinary shares were exercised.
On July 6,2020, the Company entered into a purchase agreement with certain institutional investors for the issuance and sale of (i) 4,938,278 ordinary shares, par value NIS 0.25 per
share, at a price of $1.8225 per ordinary share and (ii) warrants to purchase up to 2,469,139 ordinary shares with an exercise price of $1.76 per share, exercisable from July 6, 2020 until January 6, 2026. Additionally, the Company issued warrants to
purchase up to 296,297 ordinary shares, with an exercise price of $2.2781 per share, exercisable from July 6, 2020 until July 2, 2025, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in its July 2020
registered direct offering.
On December 3,2020, the Company entered into a purchase agreement with certain institutional investors for the issuance and sale of (i) 5,579,776 ordinary shares, par value NIS 0.25
per share, at a price of $1.4337 per ordinary share and (ii) warrants to purchase up to 4,184,832 ordinary shares with an exercise price of $1.34 per share, exercisable from December 8, 2020 until June 8, 2026. Additionally, the Company issued warrants
to purchase up to 334,787 ordinary shares, with an exercise price of $1.7922 per share, exercisable from December 8, 2020 until June 8, 2026, to certain representatives of H.C. Wainwright as compensation for its role as the placement agent in its
December 2020 registered direct offering.
On March 6, 2018, the Company entered into an investment agreement with Timwell Corporation Limited, a Hong Kong corporation (“Timwell”), as amended on May 15, 2018 (the “Investment
Agreement”), pursuant to which the Company agreed to issue to Timwell, in three different tranches, an aggregate of 640,000 ordinary shares in return for aggregate gross proceeds of $20 million. The closing of each tranche is subject to certain closing
conditions. The closing of the first tranche (the “First Tranche Closing”) took place on May 15, 2018, upon which Timwell received 160,000 ordinary shares for an aggregate purchase price of $5,000,000, and Timwell and the Company signed a registration
rights agreement in the form attached to the Investment Agreement. The net aggregate proceeds of the First Tranche Closing after deducting fees and other related expenses in the amount of approximately $705 thousands were approximately $4.3 million.
The remaining investment is to occur in two tranches, including $10 million for the issuance to Timwell of 320,000 ordinary shares (the “Second Tranche”) and $5 million for the issuance to Timwell of 160,000 ordinary shares (the “Third Tranch”). The
closing of the second and third tranches is subject to specified closing conditions, including, with respect to the second tranche, the signing of a license agreement and a supply agreement and the formation of the China JV (the “China JV”) based on
the JV Framework Agreement, and, with respect to the third tranche, the successful production of certain ReWalk products by the China JV. The second tranche closing was initially expected to occur by July 1, 2018 and the third tranche closing was
initially expected to occur by December 31, 2018 and no later than April 1, 2019.
In late March 2020, Timwell notified the Company that it would not invest the second and third tranches under the Investment Agreement. In response, in early April 2020, the
Company’s Board of Directors also removed Timwell’s designee, who was appointed pursuant to the Investment Agreement, from the Board of Directors, due to this breach pursuant to the terms of the Investment Agreement. As the Company continues to view
China as a market with key opportunities for products designed for stroke patients, the Company continues to evaluate potential relationships with other groups to penetrate the Chinese market.
In May 2018, the Company entered into a fee and release agreement with Canaccord Genuity LLC (“Canaccord Genuity”) requiring the Company to pay to Canaccord Genuity, in connection
with a settlement, in addition to certain cash amounts, (i) $125 thousand in ordinary shares of the Company after the First Tranche Closing of the Timwell transaction and (ii) $225 thousand in ordinary shares of the Company after the closing of the
Second Tranche of the Timwell transaction (or such lower amount if the Second Tranche Closing is less than $10.0 million). The price per share used for calculation of the number of ordinary shares issued by the Company to Canaccord Genuity is based on
the volume weighted average price of the Company’s ordinary shares as reported on the Nasdaq Capital Market for the five consecutive trading days prior to the date of issuance. The Company is also obligated to pay $100 thousand in cash following the
closing of the Third Tranche of $5.0 million (or such lower amount if the Third Tranche Closing is less than $5.0 million). Following the First Tranche Closing on May 15, 2018, the Company issued 4,715 ordinary shares to Canaccord Genuity.
On March 30, 2012, the Company’s board of directors adopted the ReWalk Robotics Ltd. 2012 Equity Incentive Plan.
On August 19, 2014, the Company’s board of directors adopted the ReWalk Robotics Ltd. 2014 Incentive Compensation Plan or the “Plan”. The Plan provides for the grant of stock
options, stock appreciation rights, restricted stock awards, restricted stock units, cash-based awards, other stock-based awards and dividend equivalents to the Company’s and its affiliates’ respective employees, non-employee directors and consultants.
Starting in 2014, the Company grants to directors and employees also Restricted Stock Units (“RSUs’’) under this Plan. An RSU award is an agreement to issue shares of the company’s
ordinary shares at the time the award is vested.
As of December 31, 2020, and 2019, the Company had reserved 604,320 and 12,409 shares of ordinary shares, respectively, available for issuance to employees, directors, officers, and
non-employees of the Company.
The options generally vest over four years, with certain options granted to non-employee directors during the fiscal year ended December 31, 2019, vesting over one year.
Any option that is forfeited or canceled before expiration becomes available for future grants under the Plan.
A summary of employee and non-employee shares options activity during the fiscal year ended 2020 is as follows:
|
|
Number
|
|
|
Average
exercise
price
|
|
|
Average
remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value (in
thousands)
|
|
Options outstanding at the beginning of the year
|
|
|
74,713
|
|
|
$
|
41.6
|
|
|
|
6.34
|
|
|
$
|
135
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(5,107
|
)
|
|
|
91.59
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at the end of the year
|
|
|
69,606
|
|
|
$
|
37.9
|
|
|
|
5.59
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at the end of the year
|
|
|
52,997
|
|
|
$
|
43.76
|
|
|
|
4.94
|
|
|
$
|
—
|
|
A summary of employee and non-employee RSUs activity during the fiscal year ended 2020 is as follows:
|
|
Number of
shares underlying
outstanding
RSUs
|
|
|
Weighted-
average
grant date
fair value
|
|
Unvested RSUs at the beginning of the year
|
|
|
62,378
|
|
|
|
44.61
|
|
Granted
|
|
|
1,266,185
|
|
|
|
1.44
|
|
Vested
|
|
|
(63,111
|
)
|
|
|
7.83
|
|
Forfeited
|
|
|
(14,141
|
)
|
|
|
6.05
|
|
|
|
|
|
|
|
|
|
|
Unvested RSUs at the end of the year
|
|
|
1,251,311
|
|
|
|
3.20
|
|
The weighted average grant date fair values of options granted during the fiscal year ended December 31, 2019, 2018 were $2.98, $15.25, respectively. The weighted average grant date
fair values of RSUs granted during the fiscal year ended December 31, 2020, 2019 and 2018, were $1.44, $4.67and $26.75, respectively.
The aggregate intrinsic value in the table above represents the total intrinsic value that would have been received by the option holders had all option holders, which hold options
with positive intrinsic value, exercised their options on the last date of the exercise period. During the years ended December 31, 2020 and December 31, 2019, no options were exercised. Total fair value of shares vested during the year ended
December 31, 2020, 2019 and 2018 were $676 thousand, $1,175 thousand, and $2,918 thousand, respectively. As of December 31, 2020, there were $2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements
granted under the 2014 Plan. This cost is expected to be recognized over a period of approximately 3.2 years.
The number of options and RSUs outstanding as of December 31, 2020 is set forth below, with options separated by range of exercise price:
Range of exercise price
|
|
Options and RSUs
Outstanding as of
December 31,
2020
|
|
|
Weighted
average
remaining
contractual
life (years) (1)
|
|
|
Options Exercisable as of December 31,
2020
|
|
|
Weighted
average
remaining
contractual
life (years) (1)
|
|
RSUs only
|
|
|
1,251,311
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
$5.37
|
|
|
12,425
|
|
|
|
8.24
|
|
|
|
5,435
|
|
|
|
8.24
|
|
$20.42- $33.75
|
|
|
36,292
|
|
|
|
5.26
|
|
|
|
27,598
|
|
|
|
4.60
|
|
$37.14-$38.75
|
|
|
9,992
|
|
|
|
2.99
|
|
|
|
9,992
|
|
|
|
2.99
|
|
$50-$52.5
|
|
|
8,231
|
|
|
|
6.43
|
|
|
|
7,306
|
|
|
|
6.44
|
|
$182.5-$524.25
|
|
|
2,666
|
|
|
|
4.84
|
|
|
|
2,666
|
|
|
|
4.84
|
|
|
|
|
1,320,917
|
|
|
|
5.59
|
|
|
|
52,997
|
|
|
|
4.94
|
|
(1)
|
Calculation of weighted average remaining contractual term does not include the RSUs that were granted, which have an indefinite contractual term.
|
|
d.
|
Equity compensation issued to consultants:
|
The Company granted 6,680 fully vested RSUs during the fiscal year ended December 31, 2019 to non-employee consultants. As of December 31, 2020, there are no outstanding options or
RSUs held by non-employee consultants.
|
e.
|
Share-based compensation expense for employees and non-employees:
|
The Company recognized non-cash share-based compensation expense in the consolidated statements of operations as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
|
$
|
8
|
|
|
$
|
13
|
|
|
$
|
16
|
|
Research and development, net
|
|
|
136
|
|
|
|
204
|
|
|
|
435
|
|
Sales and marketing, net
|
|
|
163
|
|
|
|
166
|
|
|
|
467
|
|
General and administrative
|
|
|
442
|
|
|
|
725
|
|
|
|
1,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
749
|
|
|
$
|
1,108
|
|
|
$
|
2,766
|
|
|
f.
|
Warrants to purchase ordinary shares:
|
The following table summarizes information about warrants outstanding and exercisable as of December 31, 2020:
Issuance date
|
|
Warrants
outstanding
|
|
|
Exercise price per warrant
|
|
|
Warrants outstanding and exercisable
|
|
Contractual
term
|
|
|
(number)
|
|
|
|
|
|
(number)
|
|
|
December 31, 2015 (1)
|
|
|
4,771
|
|
|
$
|
7.500
|
|
|
|
4,771
|
|
See footnote (1)
|
November 1, 2016 (2)
|
|
|
97,496
|
|
|
$
|
118.750
|
|
|
|
97,496
|
|
November 1, 2021
|
December 28, 2016 (3)
|
|
|
1,908
|
|
|
$
|
7.500
|
|
|
|
1,908
|
|
See footnote (1)
|
November 20, 2018 (4)
|
|
|
126,839
|
|
|
$
|
7.500
|
|
|
|
126,839
|
|
November 20, 2023
|
November 20, 2018 (5)
|
|
|
106,680
|
|
|
$
|
9.375
|
|
|
|
106,680
|
|
November 15, 2023
|
February 25, 2019 (6)
|
|
|
45,600
|
|
|
$
|
7.187
|
|
|
|
45,600
|
|
February 21, 2024
|
April 5, 2019 (7)
|
|
|
408,457
|
|
|
$
|
5.140
|
|
|
|
408,457
|
|
October 7, 2024
|
April 5, 2019 (8)
|
|
|
49,015
|
|
|
$
|
6.503
|
|
|
|
49,015
|
|
April 3, 2024
|
June 5, 2019 and June 6, 2019 (9)
|
|
|
1,464,665
|
|
|
$
|
7.500
|
|
|
|
1,464,665
|
|
June 5, 2024
|
June 5, 2019 (10)
|
|
|
87,880
|
|
|
$
|
9.375
|
|
|
|
87,880
|
|
June 5, 2024
|
June 12, 2019 (11)
|
|
|
416,667
|
|
|
$
|
6.000
|
|
|
|
416,667
|
|
December 12, 2024
|
June 10, 2019 (12)
|
|
|
50,000
|
|
|
$
|
7.500
|
|
|
|
50,000
|
|
June 10, 2024
|
February 10, 2020 (13)
|
|
|
3,768,500
|
|
|
$
|
1.250
|
|
|
|
4,343,500
|
|
February 10, 2025
|
February 10, 2020 (14)
|
|
|
336,000
|
|
|
$
|
1.5625
|
|
|
|
336,000
|
|
February 10, 2025
|
July 6, 2020 (15)
|
|
|
2,469,139
|
|
|
$
|
1.76
|
|
|
|
2,469,139
|
|
July 2, 2025
|
July 6, 2020 (16)
|
|
|
296,297
|
|
|
|
2.2781
|
|
|
|
296,297
|
|
July 2, 2025
|
December 3, 2020 (17)
|
|
|
4,184,832
|
|
|
|
1.34
|
|
|
|
4,184,832
|
|
June 8, 2026
|
December 3, 2020 (18)
|
|
|
334,787
|
|
|
|
1.7922
|
|
|
|
334,787
|
|
June 8, 2026
|
|
|
|
14,249,533
|
|
|
|
|
|
|
|
14,249,533
|
|
|
(1)
|
Represents warrants for ordinary shares issuable upon an exercise price of $7.5 per share, which were granted on December 31, 2015 to Kreos Capital V (Expert) Fund Limited, or Kreos, in
connection with a loan made by Kreos to us and are currently exercisable (in whole or in part) until the earlier of (i) December 30, 2025 or (ii) immediately prior to the consummation of a merger, consolidation, or reorganization of us with or
into, or the sale or license of all or substantially all the assets or shares of us to, any other entity or person, other than a wholly-owned subsidiary of us, excluding any transaction in which the Company’s shareholders prior to the
transaction will hold more than 50% of the voting and economic rights of the surviving entity after the transaction. None of these warrants had been exercised as of December 31, 2020.
|
|
(2)
|
Represents warrants issued as part of the Company’s follow-on offering in November 2016. At any time, the board of directors may reduce the exercise price of the warrants to any amount and for
any period of time it deems appropriate.
|
|
(3)
|
Represents common warrants that were issued as part of the $8.0 million drawdown under the Loan Agreement which occurred on December 28, 2016. See footnote 1 for exercisability terms.
|
|
(4)
|
Represents common warrants that were issued as part of the Company’s follow-on offering in November 2018. As of September 30, 2019, warrants to purchase an aggregate 1,651,537 ordinary shares
had been exercised.
|
|
(5)
|
Represents common warrants that were issued to the underwriters as compensation for their role in the Company’s follow-on offering in November 2018.
|
|
(6)
|
Represents warrants that were issued to the exclusive placement agent as compensation for its role in the Company’s follow-on offering in February 2019.
|
|
(7)
|
Represents warrants that were issued to certain institutional purchasers in a private placement in the Company’s registered direct offering of ordinary shares in April 2019.
|
|
(8)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s April 2019 registered direct offering.
|
|
(9)
|
Represents warrants that were issued to certain institutional investors in a warrant exercise agreement on June 5, 2019 and June 6, 2019, respectively.
|
|
(10)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s June 2019 warrant exercise agreement and concurrent private placement of warrants.
|
|
(11)
|
Represents warrants that were issued to certain institutional investors in a warrant exercise agreement in June 2019.
|
|
(12)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s June 2019 registered direct offering and concurrent private placement of warrants.
|
|
(13)
|
Represents warrants that were issued to certain institutional purchasers in a private placement in the Company’s best efforts offering of ordinary shares in February 2020.
|
|
(14)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s February 2020 best efforts offering.
|
|
(15)
|
Represents warrants that were issued to certain institutional purchasers in a private placement in our registered direct offering of ordinary shares in July 2020
|
|
(16)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s July 2020 registered direct offering.
|
|
(17)
|
Represents warrants that were issued to certain institutional purchasers in a private placement in our private placement offering of ordinary shares in December 2020
|
|
(18)
|
Represents warrants that were issued to the placement agent as compensation for its role in the Company’s December 2020 private placement.
|
NOTE 9:- RESEARCH COLLABORATION AGREEMENT AND LICENSE AGREEMENT
On May 16, 2016, the Company entered into a Research Collaboration Agreement (“Collaboration Agreement”) and an Exclusive License Agreement (“License Agreement”) with Harvard. The
Research Collaboration Agreement was amended on May 1, 2017 and April 1, 2018 (as amended, the “Collaboration Agreement”), and the Exclusive License Agreement was amended on April 1, 2018 (as amended, the “License Agreement”), to extend the term of the
Collaboration Agreement by one year to May 16, 2022 and reallocate the Company’s quarterly installment payments to Harvard through such date, and to make certain technical changes. On April 30, 2020, the Company and Harvard amended the Collaboration
Agreement, which included certain adjustments to the quarterly installments and extended the term an additional three quarters until February 2023.
Under the Collaboration Agreement, Harvard and the Company have agreed to collaborate on research regarding the development of lightweight “soft suit” exoskeleton system technologies
for lower limb disabilities, which are intended to treat stroke, multiple sclerosis, mobility limitations for the elderly and other medical applications. The Company has committed to pay in quarterly installments for the funding of this research,
subject to a minimum funding commitment under applicable circumstances. The Collaboration Agreement will expire on February 16, 2023.
Under the License Agreement, Harvard has granted the Company an exclusive, worldwide royalty-bearing license under certain patents of Harvard relating to lightweight “soft suit”
exoskeleton system technologies for lower limb disabilities, a royalty-free license under certain related know-how and the option to obtain a license under certain inventions conceived under the joint research collaboration.
The License Agreement requires the Company to pay Harvard an upfront fee, reimbursements for expenses that Harvard incurred in connection with the licensed patents, royalties on net
sales and several milestone payments contingent upon the achievement of certain product development and commercialization milestones. The Harvard License Agreement will continue in full force and effect until the expiration of the last-to-expire valid
claim of the licensed patents. As of December 31,2020, the Company achieved three of the milestones which represent all development milestones under the License Agreement. The Company continues to evaluate the likelihood that the other milestones will
be achieved on a quarterly basis.
The Company’s total payment obligation under the Collaboration Agreement and the Harvard License Agreement is $7.2 million, some of which is subject to a minimum funding commitment
under applicable circumstances as indicated above.
The Company has recorded expenses in the amount of $0.8 million, $1.6 million, and $0.9 million for the years ended December 31, 2020, 2019, and 2018, respectively, which are part of the total payment
obligation indicated above, as research and development expenses related to the Harvard License Agreement and to the Collaboration Agreement. No withholding tax was deducted from the Company’s payments to Harvard in respect of the Collaboration
Agreement and License Agreement since this is not taxable income in Israel in accordance with Section 170 of the Israel Income Tax Ordinance 1961-5721.
NOTE 10: - PAYCHECK PROTECTION PROGRAM LOAN
On April 21, 2020, RRI received an unsecured loan in the principal amount of $392 under the Paycheck Protection Program (the “PPP”)
administered by the U.S. Small Business Administration, or the SBA, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), or the PPP loan. The terms of the PPP Loan were subsequently revised in accordance with the
provisions of the Paycheck Protection Flexibility Act of 2020, or the PPP Flexibility Act, which was enacted on June 5, 2020. The PPP loan provides for an interest rate of 1.00% per year and matures two years after the date of initial disbursement,
with initial principal and interest payments coming due late in fiscal 2021. The PPP loan may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest
payments and interest payments on any other debt obligation that were incurred before February 15, 2020. Under the terms of the CARES Act and the PPP Flexibility Act, the Company may apply for and be granted forgiveness for all or a portion of loan
granted under the PPP loan, with such forgiveness to be determined, subject to limitations (including where employees of the Company have been terminated and not re-hired by a certain date), based on the use of the loan proceeds for payment of payroll
costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in regulations and guidelines adopted by the SBA.
On September 29, 2020, the Company applied for loan forgiveness and on November 6, 2020 the Company received confirmation of its PPP Note
forgiveness.
Forgiveness is booked as other income within the marketing and sales expenses because it was granted and used for payroll, rent, and utility costs related to sales efforts.
NOTE 11: - INCOME TAXES
The Company’s subsidiaries are separately taxed under the domestic tax laws of the jurisdiction of incorporation of each entity.
|
a.
|
Corporate tax rates in Israel:
|
Presented hereunder are the tax rates relevant to the Company in the years 2018-2020:
The Israeli statutory corporate tax rate and real capital gains were 23% in the years 2018-2020.
|
b.
|
Income (loss) before taxes on income is comprised as follows (in thousands):
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
(12,992
|
)
|
|
$
|
(15,599
|
)
|
|
$
|
(21,784
|
)
|
Foreign
|
|
|
67
|
|
|
|
55
|
|
|
|
104
|
|
|
|
$
|
(12,925
|
)
|
|
$
|
(15,544
|
)
|
|
$
|
(21,680
|
)
|
|
c.
|
Taxes on income are comprised as follows (in thousands):
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current
|
|
$
|
95
|
|
|
$
|
64
|
|
|
$
|
102
|
|
Deferred
|
|
|
(44
|
)
|
|
|
(57
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51
|
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Domestic
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign
|
|
|
51
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51
|
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
|
d.
|
Deferred income taxes (in thousands):
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company’s deferred tax assets as of December 31, 2020 and 2019 are derived from temporary differences.
In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that all or some portion of the deferred tax assets will not be
realized. Based on the Company’s history of losses, the Company established a full valuation allowance for RRL.
Undistributed earnings of certain subsidiaries as of December 31, 2020 were immaterial. The Company intends to reinvest these earnings indefinitely in the foreign subsidiaries. As a
result, the Company has not provided for any deferred income taxes.
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Carry forward tax losses
|
|
$
|
41,941
|
|
|
$
|
35,051
|
|
Research and development carry forward expenses-temporary differences
|
|
|
946
|
|
|
|
1,294
|
|
Accrual and reserves
|
|
|
341
|
|
|
|
290
|
|
|
|
|
390
|
|
|
|
433
|
|
Total deferred tax assets
|
|
|
43,618
|
|
|
|
37,068
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
(390
|
)
|
|
|
(433
|
)
|
Net deferred tax assets
|
|
|
|
|
|
|
36,635
|
|
Valuation allowance
|
|
|
(42,941
|
)
|
|
|
(36,392
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
287
|
|
|
$
|
243
|
|
The net changes in the total valuation allowance for each of the years ended December 31, 2020, 2019 and 2018, are comprised as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
(36,392
|
)
|
|
$
|
(29,655
|
)
|
|
$
|
(26,311
|
)
|
Changes due to amendments to tax laws and exchange rate differences
|
|
|
(2,929
|
)
|
|
|
(2,055
|
)
|
|
|
1,393
|
|
Adjustment previous year loss
|
|
|
—
|
|
|
|
(735
|
)
|
|
|
—
|
|
Additions during the year
|
|
|
(3,620
|
)
|
|
|
(3,947
|
)
|
|
|
(4,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(42,941
|
)
|
|
$
|
(36,392
|
)
|
|
$
|
(29,655
|
)
|
|
e.
|
Reconciliation of the theoretical tax expenses:
|
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company, and the actual tax expense
(benefit) as reported in the consolidated statements of operations is as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Loss before taxes, as reported in the consolidated statements of operations
|
|
$
|
(12,925
|
)
|
|
$
|
(15,544
|
)
|
|
$
|
(21,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
23.0
|
%
|
|
|
23.0
|
%
|
|
|
23.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theoretical tax benefits on the above amount at the Israeli statutory tax rate
|
|
$
|
(2,973
|
)
|
|
$
|
(3,575
|
)
|
|
$
|
(4,986
|
)
|
Income tax at rate other than the Israeli statutory tax rate
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
5
|
|
Non-deductible expenses including equity-based compensation expenses and other
|
|
|
185
|
|
|
|
255
|
|
|
|
631
|
|
Operating losses and other temporary differences for which valuation allowance was provided
|
|
|
3,620
|
|
|
|
3,947
|
|
|
|
4,737
|
|
Permanent differences
|
|
|
(706
|
)
|
|
|
(651
|
)
|
|
|
(427
|
)
|
Other
|
|
|
(78
|
)
|
|
|
32
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
$
|
51
|
|
|
$
|
7
|
|
|
$
|
(5
|
)
|
Taxable income of RRI was subject to tax at the rate of 21% in 2020, 2019 and 2018.
Taxable income of RRG was subject to tax at the rate of 30% in 2020, 2019, and 2018.
|
g.
|
Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the “Investment Law”):
|
Conditions for entitlement to the benefits:
Under the Investment Law, in 2012 the Company elected “Beneficiary Enterprise” status which provides certain benefits, including tax exemptions and reduced tax rates. Income not
eligible for Beneficiary Enterprise benefits is taxed at a regular rate.
Income derived from Beneficiary Enterprise from productive activity will be exempt from tax for ten years from the year in which the Company first has taxable income, providing that
12 years have not passed from the beginning of the year of election. In the event of a dividend distribution from income that is exempt from company tax, as aforementioned, the Company will be required to pay tax of 10%- 25% on that income.
In the event of distribution of dividends from the said tax-exempt income, the amount distributed will be subject to corporate tax at the rate ordinarily applicable to the
Beneficiary Enterprise’s income. Tax-exempt income generated under the Company’s “Beneficiary Enterprise” program will be subject to taxes upon dividend distribution or complete liquidation.
The entitlement to the above benefits is conditional upon the Company’s fulfilling the conditions stipulated by the Law and regulations published thereunder.
On December 29, 2010, the Knesset approved an additional amendment to the Law for the Encouragement of Capital Investments, 1959. According to the amendment, a reduced uniform
corporate tax rate for exporting industrial enterprises (over 25%) was established. The reduced tax rate will not be program dependent and will apply to the industrial enterprise’s entire income. The tax rates for industrial enterprises have been
reduced. In August 2013, the Israeli Knesset approved an amendment to the Investment Law, pursuant to which the rates for development area A will be 9% and for the rest of the country- 16% in 2014 and thereafter. The Amendment also prescribes that any
dividends distributed to individuals or foreign residents from a preferred enterprise’s earnings as above will be subject to taxes at a rate of 20% (subject to tax treaty benefits)
In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016 which includes Amendment 73 to the
Law for the Encouragement of Capital Investments (“the Amendment”) was published. According to the Amendment, a preferred enterprise located in development area A will be subject to a tax rate of 7.5% instead of 9% effective from January 1, 2017 (and
thereafter the tax rate applicable to preferred enterprises located in other areas remains at 16%).
The Company has examined the effect of the adoption of the Amendment on its financial statements, and as of the date of the publication of the financial statements, the Company
estimates that it will not apply the Amendment. The Company’s estimate may change in the future.
RRL has had final tax assessments up to and including the 2015 tax year.
Each RRI and RRG have not had a final tax assessment since its inception.
|
i.
|
Net operating carry-forward losses for tax purposes:
|
As of December 31, 2020, RRL has carry-forward losses amounting to approximately $182.4 million, which can be carried forward for an indefinite period, and RRI has
carry-forward losses amounting to approximately $291 thousands, which can be carried forward for a period of 20 years.
NOTE 12: - FINANCIAL EXPENSES, NET
The components of financial expenses, net were as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Foreign currency transactions and other
|
|
$
|
(9
|
)
|
|
$
|
(34
|
)
|
|
$
|
42
|
|
Financial expenses related to loan agreement with Kreos
|
|
|
907
|
|
|
|
1,499
|
|
|
|
2,398
|
|
Bank commissions
|
|
|
23
|
|
|
|
31
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
921
|
|
|
$
|
1,496
|
|
|
$
|
2,466
|
|
NOTE 13: - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER AND PRODUCT DATA
Summary information about geographic areas:
ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment and derives revenues from
selling systems and services (see Note 1 for a brief description of the Company’s business). The following is a summary of revenues within geographic areas (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenues based on customer’s location:
|
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
United States
|
|
|
1,746
|
|
|
|
2,003
|
|
|
|
3,558
|
|
Europe
|
|
|
2,631
|
|
|
|
2,832
|
|
|
|
2,807
|
|
Asia-Pacific
|
|
|
8
|
|
|
|
36
|
|
|
|
22
|
|
Latin America
|
|
|
6
|
|
|
|
—
|
|
|
|
58
|
|
Africa
|
|
|
2
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
4,393
|
|
|
$
|
4,873
|
|
|
$
|
6,545
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Long-lived assets by geographic region:
|
|
|
|
|
|
|
Israel
|
|
$
|
145
|
|
|
$
|
179
|
|
United States
|
|
|
249
|
|
|
|
244
|
|
Germany
|
|
|
43
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
437
|
|
|
$
|
501
|
|
(*)
|
Long-lived assets are comprised of property and equipment, net.
|
Major customer data as a percentage of total revenues:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Customer A
|
|
|
10.0
|
%
|
|
|
15.0
|
%
|
|
|
38.0
|
%
|
NOTE 14: - SUBSEQUENT EVENTS
Following December 31, 2020, a total of 9,372,954 outstanding warrants with exercise prices ranging from $1.25 to $1.79 were exercised, for total gross proceeds to us of approximately $13.2 million.
F - 42
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