x |
ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
for
the Fiscal Year ended December 31,
2006
|
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE ACT OF
1934
|
Delaware
|
11-3223672
|
(State
or Other Jurisdiction of Incorporation)
|
(IRS
Employer Identification No.)
|
1
|
||
12
|
||
12
|
||
12
|
||
12
|
||
13
|
||
17
|
||
17
|
||
17
|
||
18
|
||
18
|
||
20
|
||
23
|
||
24
|
||
24
|
||
26
|
||
·
|
Blood
pressure using reflectance oximetry
|
·
|
Billirubin
levels
|
·
|
Monitoring
glucose levels in blood
|
·
|
Hemoglobin
count in blood
|
* |
Establish
our brand in both the medical and consumer marketplaces. The initial
product launch PulseOx 5500TM was a demonstration of our strategy
to
establish our company within the most demanding part of the market
-
medical devices requiring FDA approval and requiring a doctor's
prescription. Thereafter, subject to regulatory approval consumer
applications using the technology will be marketed for direct purchase
at
appropriate outlets (e.g., retail drug chains, sports and fitness
establishments, distributors of safety and security
products).
|
* |
Partner
with highly qualified, focused companies, internationally. We intend
to
collaborate with leading medical device resellers capable of distributing
the products to the target market. For instance, we currently sell
the
PulseOx 5500(TM) through reputable, established medical device
distributors serving North American markets and the European, Asian
and
Latin American markets. Other medical products may be distributed
by these
and other distributors. We anticipate that our other consumer products,
such as the Check Mate(TM), will be distributed by companies with
access
to its target market which includes sports enthusiasts. Finally,
with
medical and consumer products developed jointly with other companies,
the
most appropriate distribution channels will be used for each product
and
application.
|
* |
Research
and Development. Our research and development strategy is to continually
improve and expand our product offerings by leveraging existing and
newly
developed proprietary technologies, as well as those of our collaborators,
into new product offerings. We intend to pursue a multi-disciplinary
approach to product design that includes substantial electrical,
mechanical, software and biomedical engineering efforts. We are currently
focusing research and development programs on expanding our current
product offering and investigations in to other non-invasive optical
techniques for blood analysis of other vital signs in blood. In addition,
we have established relationships with leading teaching hospitals
and
academic institutions for the purpose of clinically evaluating its
new
products. We have consulting arrangements with physicians and scientists
in the areas of research, product development and clinical
evaluation.
|
·
|
place
the company under observation and re-inspect the facilities; o issue
a
warning letter apprising of violating
conduct;
|
·
|
detain
or seize products;
|
·
|
mandate
a recall;
|
·
|
enjoin
future violations; and
|
·
|
assess
civil and criminal penalties against the company, its officers or
its
employees.
|
* |
be
found ineffective or cause harmful side
effects;
|
* |
fail
to receive necessary regulatory
approvals;
|
* |
be
precluded from commercialization by proprietary rights of third
parties;
|
* |
be
difficult to manufacture on a large scale;
or
|
* |
be
uneconomical or fail to achieve market
acceptance.
|
·
|
that
we, or any collaborative partner, will make timely filings with the
FDA;
|
·
|
that
the FDA will act favorably or quickly on these
submissions;
|
·
|
that
we will not be required to submit additional information or perform
additional clinical studies;
|
·
|
that
we would not be required to submit an application for pre-market
approval,
rather than a 510(k) pre-market notification submission as described
below; or
|
·
|
that
other significant difficulties and costs will not be encountered
to obtain
FDA clearance or approval.
|
LOW
|
HIGH
|
||||||
Year
Ended December 31, 2006
|
|||||||
First
Quarter
|
$
|
1.25
|
$
|
2.25
|
|||
Second
Quarter
|
$
|
1.5
|
$
|
2.5
|
|||
Third
Quarter
|
$
|
1.9
|
$
|
3
|
|||
Fourth
Quarter
|
$
|
1.5
|
$
|
2.5$
|
|||
Year
Ended December 31, 2005
|
|||||||
First
Quarter
|
$
|
—
|
—
|
||||
Second
Quarter
|
$
|
0.20
|
1.00
|
||||
Third
Quarter
|
$
|
0.65
|
1.00
|
||||
Fourth
Quarter
|
$
|
0.65
|
1.25
|
(1) |
SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments—an
Amendment of FASB Statements No. 133 and 140” - In February 2006, the
Financial Accounting Standards Board (the “FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 155, “Accounting for
Certain Hybrid Financial Instruments—an Amendment of FASB Statements
No. 133 and 140” ("SFAS 155") to simplify and make more consistent
the accounting for certain financial instruments. Namely, SFAS 155
amends
SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities” to permit fair value remeasurement for any hybrid financial
instrument with an embedded derivative that otherwise would require
bifurcation, provided that the whole instrument is accounted for
on a fair
value basis. SFAS 155 amends SFAS No. 140, “Accounting for the
Impairment or Disposal of Long-Lived Assets” to allow for a qualifying
special-purpose entity to hold a derivative financial instrument
that
relates to a beneficial interest other than another derivative financial
instrument.
|
(2) |
FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -
an Interpretation of FASB Statement No. 109” - In June 2006, the FASB
issued FASB Interpretation No. 48 (“FIN-48”), “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement
No. 109.” The interpretation clarifies the accounting for uncertainty
in income taxes recognized in an entity's financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.”
Specifically, FIN-48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement
of a tax
position taken or expected to be taken. The provisions of FIN-48
are
effective for financial statements for fiscal years beginning after
December 15, 2006. Accordingly, the Company will adopt FIN-48 as
of
January 1, 2007. The adoption of FIN-48 is not expected to have a
material
effect on the Company’s financial position or results of operations.
|
(3) |
SFAS
No. 157, “Fair Value Measurements” - In September 2006, the FASB
issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which
defines
fair value, establishes a framework for measuring fair value and
expands
disclosures about fair value measurements. SFAS 157 applies whenever
other
accounting standards require or permit assets or liabilities to be
measured at fair value. Accordingly, it does not expand the use of
fair
value in any new circumstances. Fair value under SFAS 157 is defined
as
the price that would be received to sell an asset or paid to transfer
a
liability in an orderly transaction between market participants at
the
measurement date. This Standard clarifies the principle that fair
value
should be based on the assumptions market participants would use
when
pricing an asset or liability. In support of this principle, SFAS
157
establishes a fair value hierarchy that prioritizes the information
used
to develop those assumptions. The fair value hierarchy gives the
highest
priority to quoted prices in active markets and the lowest priority
to
unobservable data, for example, a reporting entity's own data. Under
SFAS
157, fair value measurements would be separately disclosed by level
within
the fair value hierarchy. SFAS 157 is effective for fiscal years
beginning
after November 15, 2007. Accordingly, the Company is to adopt SFAS
157 on
January 1, 2008. The adoption of SFAS 157 is not expected to have
a
material effect on the Company’s financial position or results of
operations.
|
(4) |
Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements" - In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108, "Considering the Effects
of
Prior Year Misstatements When Quantifying Misstatements in Current
Year
Financial Statements" ("SAB 108"), which provides guidance on the
consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment
two
approaches are commonly used to evaluate the materiality of misstatements
or errors in financial statements: the roll-over, also known as the
current-period or income-statement approach, and the iron curtain,
also
known as the cumulative or balance-sheet approach. The roll-over
approach
quantifies a misstatement based on the amount of the error originating
in
the current-period income statement. This approach could allow balance
sheet items
to grow each year by immaterial amounts, until the cumulative error
becomes material. The iron curtain approach quantifies a misstatement
based on the effects of correcting the misstatement existing in the
balance sheet at the end of the current period. This approach does
not
consider the income statement effects of correcting prior year
misstatements in the current year to be errors.
|
NAME
|
AGE
|
POSITION
|
||
Michael
Braunold
|
47
|
President,
Chief Executive Officer and Director
|
||
Richard
H. Ryan
|
55
|
Chief
Operating Officer
|
||
Jeff
Feuer
|
42
|
Chief
Financial Officer
|
||
Israel
Sarussi
|
56
|
Chief
Technology Officer
|
||
Pauline
Dorfman
|
42
|
Director
(1)
|
||
Sidney
Braun
|
47
|
Director
(1)
|
||
(1)
|
Audit
Committee and Compensation Committee
Member.
|
Name
& Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)
(1)
|
All
Other
Compensation
($)
|
Total
($)
|
MICHAEL
BRAUNOLD
President
and Chief Executive Officer
|
2006
|
$165,041
|
—
|
—
|
$52,976
(2)
|
$218,017
|
ISRAEL
SARUSSI
Chief
Technology Officer
|
2006
|
$173,608
|
—
|
—
|
$48,201
(3)
|
$221,809
|
RICHARD
H. RYAN
Chief
Operating Officer
|
2006
|
152,885
|
—
|
$55,668
|
$12,444
(4)
|
$220,997
|
(1) |
Amounts
in this column reflect the expense recognized by us for accounting
purposes calculated in accordance with FASB Statement of Financial
Accounting Standards No. 123R (“FAS 123R”) with respect to employee stock
options issued under the Company's
2005 Incentive Plan in 2005. The
assumptions used to calculate the fair value of stock option grants
under
FAS 123R, were: expected holding period of 10 years, risk free interest
rate of 2.63%, no dividend yield and volatility of
100%.
|
(2) |
Reflects
payments made by us in connection with a leased automobile and related
benefits ($12,567) and contributions to insurance premiums paid under
Israeli law for pension, severance and further education funds
($40,409).
|
(3) |
Reflects
payments made by us in connection with a leased automobile and related
benefits ($14,486) and contributions to insurance premiums paid under
Israeli law for pension, severance and further education funds
($33,716).
|
(4) |
Reflects
payments made by us for health insurance contributions.
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercsied
Unearend Options (#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Michael
Braunold
|
250,000
(1)
|
—
|
—
|
$0.60
|
12/22/15
|
Israel
Sarusi
|
—
(2)
|
—
|
—
|
—
|
—
|
Richard
H. Ryan
|
150,000
(3)
|
50,000
|
—
|
$0.05
|
5/1/15
|
(1) |
Options
were issued under our 2005 Equity Incentive Plan on December 22,
2005 and
were fully vested upon issuance.
|
(2) |
Does
not include Warrants for 446,383, issued to Mr. Sarusi on April 21,
2005
in exchange for warrants in SPO Ltd held prior to Acquisition
Transaction..
|
(3) |
Options
were issued under our 2005 Equity Incentive Plan on May 1, 2005.
Options
for 150,000 shares had vested as of December 31, 2006. Options for
the
remaining 50,000 shares are scheduled to vest on May 1, 2007.
|
Fees
Earned
|
Option
|
|||||||||
or
paid
|
Awards($)
|
Total
|
||||||||
Sidney
Braun
|
$
|
15,000
|
35,535(1
|
)
|
$
|
50,535
|
||||
Pauline
Dorfman
|
$
|
15,000
|
35,535
(1
|
)
|
$
|
50,535
|
||||
(1) |
Amounts
in this column reflect the expense recognized by the Company for
accounting purposes calculated in accordance with FASB Statement
of
Financial Accounting Standards No. 123R (“FAS 123R”) with respect to
employee stock options issued under the Company's 2005 Incentive
Plan in
2005. For
information on the assumptions used to calculate the value of stock
option
grants under FAS 123R, see Note 13 of the Company’s financial statements
for the year ended December 31, 2006 included elsewhere in this report.
Options are discussed in further detail in the Outstanding Equity
Awards
at Fiscal Year End Table. The assumptions used to calculate the fair
value
of stock option grants under FAS 123R, were: expected holding period
of
3.5 years, risk free interest rate of 4.28%, no dividend yield and
volatility of 100%.
|
Common
Stock
Percentage
of
|
|||||||
Name
of Beneficial Owner (1)
|
Beneficially
Owned (2)
|
Common
Stock
|
|||||
Michael
Braunold
|
993,922
|
(3)
|
5.14
|
%
|
|||
Richard
H. Ryan
|
200,000
|
(4)
|
1.03
|
%
|
|||
Jeff
Feuer
|
120,000
|
(5)
|
*
|
||||
Israel
Sarussi
|
4,165,776
|
(6)
|
21.54
|
%
|
|||
Pauline
Dorfman
|
75,000
|
(7)
|
*
|
||||
Sidney
Braun
|
75,000
|
(7)
|
*
|
||||
All
officers and directors as a group (6 persons)
|
5,629,698
|
29.12
|
%
|
||||
* |
Less
than 1%
|
(1) |
Except
as otherwise indicated, the address of each beneficial owner is c/o
SPO
Medical Inc., 21860 Burbank Blvd., North Building, Suite 380, Woodland
Hills, CA 91367.
|
(2) |
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and generally includes voting or investment power
with
respect to the shares shown. Except where indicated by footnote and
subject to community property laws where applicable, the persons
named in
the table have sole voting and investment power with respect to all
shares
of voting securities shown as beneficially owned by
them.
|
(3) |
Includes
250,000 shares of our Common Stock that are issuable upon exercise
of
vested options issued under our 2005 Equity Incentive Plan (the "2005
Plan").
|
(4) |
Represents
shares issuable upon exercise of vested options under the Company's
2005
Plan.
|
(5) |
Represents
shares issuable upon exercise of options under the Company's 2005
Plan.
|
(6) |
Comprised
of 3,719,393 shares of the Company's Common Stock and 446,383 shares of
Common Stock issuable upon exercise of currently exercisable
warrants.
|
(7) |
Represents
shares issuable upon exercise of currently exercisable options under
the
Company's 2005 Non-Employee Directors Stock Option Plan (the "2005
Directors Plan").
|
NUMBER
OF
SECURITIES |
||||||||||
TO
BE ISSUED
UPON |
WEIGHTED-
AVERAGE |
NUMBER
OF
SECURITIES |
||||||||
EXERCISE
OF |
EXERCISE
PRICE
OF |
REMAINING
AVAILABLE FOR |
||||||||
OUTSTANDING
OPTIONS, |
OUTSTANDING
OPTIONS, |
FUTURE
ISSUANCE
UNDER |
||||||||
WARRANTS
OR RIGHTS |
WARRANTS
OR RIGHTS |
EQUITY
COMPENSATION PLANS
|
||||||||
Equity
compensation plans
approved
by security holders
|
1,260,000
|
$
|
0.44
|
890,000
|
||||||
Equity
compensation plans not
approved
by security holders
|
5,047,422
|
$
|
0.65
|
|||||||
Total
|
6,307,422
|
$
|
0.64
|
890,000
|
EXHIBIT NO. | EXHIBIT |
2.1 |
Restated
Capital Stock Exchange Agreement dated as of April 21, 2005 among
the
Company, SPO Ltd. and the SPO Ltd. shareholders specified therein.
(1)
|
3.1 |
Amended
and Restated Certificate of Incorporation of the Company.
(1)
|
3.2 |
Bylaws
of the Company (1)
|
3.3 |
Articles
of Association of SPO Medical Equipment
Ltd.
|
4.1 |
Form
of Promissory Note issued to certain investors.
(1)
|
4.2 |
Form
of Warrant Instrument issued to certain
investors.(1)
|
4.3 |
Form
of Promissory Note issued in connection with the Subscription Agreement
referred to in Item 10.1. (5)
|
4.4 |
Form
of Warrant issued in connection with the Agreement referred to in
Item
10.1 (5)
|
10.1 |
Form
of subscription Agreement with certain
investors.
|
10.2 |
Employment
Agreement effective as of May 18, 2005 between the Company and Michael
Braunold. (2)+
|
10.3 |
Employment
Agreement effective as of May 18, 2005 between SPO Ltd. and Michael
Braunold. (2)+
|
10.4 |
Employment
Agreement effective as of May 18, 2005 between the Company and Richard
Ryan. (2)+
|
10.5 |
Employment
Agreement effective as of July 14, 2005 between the Company and Jeffrey
Feuer. (3)
|
10.6 |
Employment
Agreement effective as of July 14, 2005 between SPO Ltd. and Jeffrey
Feuer. (3)
|
10.7 |
Company's
2005 Equity Incentive plan
|
10.8 |
Company's
2005 Non-Employee Directors Stock option
Plan
|
10.9 |
Stock
Purchase Agreement dated as of January 10, 2006 between SPO Medical
Inc.
and the investor specified therein.
(4)
|
10.10 |
Form
of Subscription Agreement between SPO Medical Inc. and certain Buyers
(5)
|
10.11 |
Form
of First Amendment to Subscription Agreement between SPO Medical
Inc. and
parties thereto. (5)
|
14.1 |
Code
of Conduct (6)
|
31.1 |
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2 |
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1 |
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32.2 |
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
(1) |
Incorporated
by reference to Current Report on Form 8-K filed April 27,
2005.
|
(2) |
Incorporated
by reference to the Company's Quarterly Report Form 10-QSB for the
quarter
ended June 30, 2005
|
(3) |
Incorporated
by reference to the Company's Quarterly Report Form 10-QSB for the
quarter
ended September 30, 2005
|
(4) |
Incorporated
by reference to the Company's Quarterly Report Form 10-QSB for
the quarter
ended March 31, 2006
|
(5) |
Incorporated
by reference to the Company's Quarterly Report Form 10-QSB
for the quarter
ended September 30,
2006
|
(6) |
Incorporated
by reference to the Company's Annual Report Form 10-KSB for the fiscal
year ended December 31, 2006
|
Fiscal
Year Ended
|
Fiscal
Year Ended
|
||||||
December
31, 2006
|
December
31, 2005
|
||||||
Audit
Fees
|
$
|
39,000
|
$
|
36,500
|
|||
Audit
Related Fees
|
$
|
—
|
—
|
||||
Tax
Fees
|
$
|
6,500
|
$
|
18,500
|
|||
All
Other Fees
|
$
|
—
|
—
|
||||
Total
|
$
|
45,500
|
$
|
55,000
|
DATE:
March 20, 2007
|
/s/
Michael Braunold
|
Michael
Braunold
|
|
Chief
Executive Officer and Director
|
|
DATE:
March 20, 2007
|
/s/
Jeff Feuer
|
Jeff
Feuer
|
|
Chief
Financial Officer
|
|
(Principal
financial and accounting officer)
|
SIGNATURE
|
TITLE
|
DATE
|
||
/s/
Sidney Braun
|
Chairman,
Director
|
March
20, 2007
|
||
Sidney
Braun
|
||||
/s/
Michael Braunold
|
President,
Chief Executive Officer
and Director
|
March
20, 2007
|
||
Michael
Braunold
|
||||
/s/
Pauline Dorfman
|
Director
|
March
20, 2007
|
||
Pauline
Dorfman
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheet
|
F-3
- F-4
|
Consolidated
Statements of Operations
|
F-5
|
Statements
of Changes in Stockholders' Deficiency
|
F-6
|
Consolidated
Statements of Cash Flows
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-8
|
December
31,
|
|||||||
Note
|
2006
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
836
|
|||||
Trade
receivables
|
568
|
||||||
Prepaid
expenses
|
202
|
||||||
Other
accounts receivable
|
48
|
||||||
Inventories
|
4
|
811
|
|||||
|
2,465
|
||||||
LONG
TERM INVESTMENTS
|
|||||||
Deposits
|
11
|
||||||
Severance
pay fund
|
209
|
||||||
|
220
|
||||||
PROPERTY
AND EQUIPMENT, NET
|
5
|
106
|
|||||
Total
net assets
|
$
|
2,791
|
|||||
December
31,
|
|||||||
Note
|
2006
|
||||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|||||||
Current
Liabilities
|
|||||||
Short-term
loans, net
|
6
|
$
|
710
|
||||
Trade
payables
|
488
|
||||||
Employees
and Payroll accruals
|
214
|
||||||
Deferred
revenues
|
9
|
395
|
|||||
Accrued
expenses and other liabilities
|
10
|
572
|
|||||
2,379
|
|||||||
Long-Term
Liabilities
|
|||||||
Long
term loans, net
|
6
|
983
|
|||||
Accrued
severance pay
|
11
|
331
|
|||||
1,314
|
|||||||
COMMITMENTS
AND CONTINGENT LIABILITIES
|
14
|
||||||
STOCKHOLDERS’
DEFICIENCY
|
|||||||
Stock
capital
|
15
|
||||||
Preferred
stock of $0.01 par value
Authorized
- 2,000,000 shares, issued and outstanding - none
|
|||||||
Common
stock $0.01 par value-
Authorized
- 50,000,000 shares, issued and outstanding - 19,335,525
shares
|
193
|
||||||
Additional
paid-in capital
|
9,954
|
||||||
Accumulated
deficit
|
(11,049
|
)
|
|||||
(902
|
)
|
||||||
Total
liabilities and stockholders’ deficiency
|
$
|
2,791
|
|||||
Year
ended
December
31
|
|||||||
2006
|
2005
|
||||||
Revenues
|
$
|
3,714
|
$
|
1,825
|
|||
Cost
of revenues
|
1,809
|
843
|
|||||
Gross
profit
|
1,905
|
982
|
|||||
Operating
expenses
|
|||||||
Research
and development
|
972
|
584
|
|||||
Selling
and marketing
|
671
|
786
|
|||||
General
and administrative
|
923
|
782
|
|||||
Merger
expenses
|
—
|
251
|
|||||
Total
operating expenses
|
2,566
|
2,403
|
|||||
Operating
loss
|
661
|
1,421
|
|||||
Financial
expenses, net
|
4,302
|
617
|
|||||
Net
Loss for the year
|
$
|
4,963
|
$
|
2,038
|
|||
Basic
and diluted loss per ordinary share
|
$
|
0.26
|
$
|
0.11
|
|||
Weighted
average number of shares outstanding used in computation of basic
and
diluted loss per share
|
19,069,380
|
17,882,715
|
|||||
Share
capital
|
Additional
paid-in
capital
|
Deferred
compensation
|
Accumulated
deficit
|
Total
|
||||||||||||
Balance
as of January 1, 2005
|
$
|
600
|
$
|
2,675
|
$
|
—
|
$
|
(4,048
|
)
|
$
|
(773
|
)
|
||||
Issuance
of ordinary shares upon conversion of loans
|
35
|
224
|
259
|
|||||||||||||
Warrants
issued in private placement
|
949
|
949
|
||||||||||||||
Warrants
issued in connection with loans
|
22
|
22
|
||||||||||||||
Deferred
stock-based compensation related to options granted to employees
and
consultants
|
762
|
(762
|
)
|
—
|
||||||||||||
Amortization
of deferred Stock-based compensation related to options granted to
employees
|
187
|
187
|
||||||||||||||
Amortization
of deferred Stock-based compensation related to options granted to
consultants
|
348
|
348
|
||||||||||||||
Reverse
merger transaction and forward split of issued share
capital
|
(465
|
)
|
201
|
(264
|
)
|
|||||||||||
Net
Loss
|
(2,038
|
)
|
(2,038
|
)
|
||||||||||||
Balance
as of December 31, 2005
|
170
|
4,833
|
(227
|
)
|
(6,086
|
)
|
(1,310
|
)
|
||||||||
Deferred
compensation reclassified due to FAS 123R implementation for the
first
time
|
(227
|
)
|
227
|
—
|
||||||||||||
Warrants
issued in connection with loans
|
530
|
530
|
||||||||||||||
Amortization
of deferred stock-based compensation related to options granted to
consultants
|
893
|
893
|
||||||||||||||
Exercise
of warrants by external consultant
|
5
|
5
|
||||||||||||||
Benefit
resulting from changes to warrant terms
|
2,534
|
2,534
|
||||||||||||||
Exercise
of convertible notes
|
9
|
560
|
569
|
|||||||||||||
Amortization
of deferred stock-based compensation related to options granted to
employees
|
189
|
189
|
||||||||||||||
Amortization
of deferred stock-based compensation related to options granted to
directors
|
71
|
71
|
||||||||||||||
Issuance
of ordinary shares
|
9
|
571
|
580
|
|||||||||||||
Net
Loss
|
(4,963
|
)
|
(4,963
|
)
|
||||||||||||
Balance
as of December 31, 2006
|
$
|
193
|
$
|
9,954
|
$
|
—
|
$
|
(11,049
|
)
|
$
|
(902
|
)
|
Year
ended
December
31,
|
|||||||
2006
|
2005
|
||||||
Cash
Flows from Operating Activities
|
|||||||
Net
Loss for the period
|
$ |
(4,963
|
)
|
$ |
(2,038
|
)
|
|
Adjustments
to reconcile loss to net cash used in operating
activities:
|
|||||||
Depreciation
|
24
|
8
|
|||||
Stock-based
compensation expenses
|
1,152
|
535
|
|||||
Amortization
of loan discounts
|
814
|
370
|
|||||
Increase
(decrease) in accrued severance pay, net
|
(7
|
)
|
93
|
||||
Increase
in accrued interest payable on loans
|
156
|
112
|
|||||
Loan
commission
|
20
|
—
|
|||||
Benefit
resulting from changes to warrant terms
|
2,534
|
—
|
|||||
Changes
in assets and liabilities:
|
|||||||
Increase
in trade receivables
|
(369
|
)
|
(46
|
)
|
|||
Increase
in prepaid expenses
|
(202
|
)
|
—
|
||||
Increase
in other receivables
|
(6
|
)
|
(4
|
)
|
|||
Increase
in inventories
|
(351
|
)
|
(460
|
)
|
|||
Increase
in accounts payable
|
263
|
75
|
|||||
Increase
in deferred revenues
|
395
|
—
|
|||||
Increase
in accrued expenses and other liabilities
|
97
|
146
|
|||||
Net
cash used in operating activities
|
(443
|
)
|
(1,209
|
)
|
|||
Cash
Flows from Investing Activities
|
|||||||
Decrease
(increase) in short-term investments
|
—
|
33
|
|||||
Increase
in long-term deposits
|
(1
|
)
|
(5
|
)
|
|||
Purchase
of property and equipment
|
(82
|
)
|
(34
|
)
|
|||
Net
cash used in investing activities
|
(83
|
)
|
(6
|
)
|
|||
Cash
Flows from Financing Activities
|
|||||||
Issuance
of stock capital
|
580
|
—
|
|||||
Exercise
of warrants by consultant
|
5
|
—
|
|||||
Receipt
of short-term loans
|
152
|
496
|
|||||
Proceeds
on issuance of exercisable warrants
|
528
|
—
|
|||||
Receipt
of long-term loans
|
—
|
1,018
|
|||||
Receipt
of convertible notes
|
—
|
300
|
|||||
Repayment
of short-term loans
|
(396
|
)
|
(115
|
)
|
|||
Net
cash provided by financing activities
|
869
|
1,699
|
|||||
Increase
(decrease) in cash and cash equivalents
|
343
|
484
|
|||||
Cash
and cash equivalents at the beginning of the year
|
493
|
9
|
|||||
Cash
and cash equivalents at the end of the period
|
$ |
836
|
$ |
493
|
|||
Non
cash transactions
|
|||||||
Conversion
of convertible notes
|
$ |
569
|
$ |
—
|
|||
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
a. |
Principles
of Consolidation
|
b.
|
Use
of estimates
|
c. |
Financial
statements in U.S. dollars
|
d. |
Cash
and Cash Equivalents
|
e. |
Property
and Equipment
|
Computer
and peripheral equipment
|
3
-
7 years
|
Office
furniture and equipment
|
7
-
15 years
|
Leasehold
improvement
|
Over
the term of the lease
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
f. |
Revenue
recognition
|
g. |
Inventory
|
h. |
Research
and development costs
|
i. |
Income
taxes
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
j. |
Fair
value of financial
instruments
|
k. |
Concentrations
of credit risk
|
l. |
Stock-based
compensation
|
Year
ended
December 31, |
||||
2006
|
||||
Cost
of revenues
|
$
|
13
|
||
Research
and development, net
|
176
|
|||
Selling
and marketing
|
99
|
|||
General
and administrative
|
122
|
|||
$
|
410
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
Year
ended
December
31,
|
||||
2005
|
||||
|
||||
Net
Loss, as reported
|
$
|
2,038
|
||
Deduct:
stock-based compensation determined under APB 25
|
193
|
|||
Add:
Stock-based compensation determined under SFAS123
|
599
|
|||
Pro-forma
net loss
|
$
|
2,444
|
||
Basic
and fully diluted Loss per share as reported
|
$
|
0.11
|
||
Basic
and fully diluted Loss per share proforma
|
$
|
0.14
|
m. |
Effects
of recently issued accounting
standards
|
(1) |
SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments—an
Amendment of FASB Statements No. 133 and 140” - In February 2006, the
FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial
Instruments—an Amendment of FASB Statements No. 133 and 140” ("SFAS
155") to simplify and make more consistent the accounting for certain
financial instruments. Namely, SFAS 155 amends SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” to permit
fair value remeasurement for any hybrid financial instrument with
an
embedded derivative that otherwise would require bifurcation, provided
that the whole instrument is accounted for on a fair value basis.
SFAS 155
amends SFAS No. 140, “Accounting for the Impairment or Disposal of
Long-Lived Assets” to allow for a qualifying special-purpose entity to
hold a derivative financial instrument that relates to a beneficial
interest other than another derivative financial instrument.
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
m. |
Effects
of recently issued accounting standards (Cont.)
|
(2) |
FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes -
an Interpretation of FASB Statement No. 109” - In June 2006, the FASB
issued FASB Interpretation No. 48 (“FIN-48”), “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement
No. 109.” The interpretation clarifies the accounting for uncertainty
in income taxes recognized in an entity's financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.”
Specifically, FIN-48 prescribes a recognition threshold and a measurement
attribute for the financial statement recognition and measurement
of a tax
position taken or expected to be
taken.
|
(3) |
SFAS
No. 157, “Fair Value Measurements” - In September 2006, the FASB
issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which
defines
fair value, establishes a framework for measuring fair value and
expands
disclosures about fair value measurements. SFAS 157 applies whenever
other
accounting standards require or permit assets or liabilities to be
measured at fair value. Accordingly, it does not expand the use of
fair
value in any new circumstances. Fair value under SFAS 157 is defined
as
the price that would be received to sell an asset or paid to transfer
a
liability in an orderly transaction between market participants at
the
measurement date. This Standard clarifies the principle that fair
value
should be based on the assumptions market participants would use
when
pricing an asset or liability. In support of this principle, SFAS
157
establishes a fair value hierarchy that prioritizes the information
used
to develop those assumptions. The fair value hierarchy gives the
highest
priority to quoted prices in active markets and the lowest priority
to
unobservable data, for example, a reporting entity's own data. Under
SFAS
157, fair value measurements would be separately disclosed by level
within
the fair value hierarchy. SFAS 157 is effective for fiscal years
beginning
after November 15, 2007. Accordingly, the Company is to adopt SFAS
157 on
January 1, 2008. The adoption of SFAS 157 is not expected to have
a
material effect on the Company’s financial position or results of
operations.
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
m. |
Effects
of recently issued accounting standards (Cont.)
|
(4) |
Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements" - In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108, "Considering the Effects
of
Prior Year Misstatements When Quantifying Misstatements in Current
Year
Financial Statements" ("SAB 108"), which provides guidance on the
consideration of the effects of prior year misstatements in quantifying
current year misstatements for the purpose of a materiality assessment
two
approaches are commonly used to evaluate the materiality of misstatements
or errors in financial statements: the roll-over, also known as the
current-period or income-statement approach, and the iron curtain,
also
known as the cumulative or balance-sheet approach. The roll-over
approach
quantifies a misstatement based on the amount of the error originating
in
the current-period income statement. This approach could allow balance
sheet items
to grow each year by immaterial amounts, until the cumulative error
becomes material. The iron curtain approach quantifies a misstatement
based on the effects of correcting the misstatement existing in the
balance sheet at the end of the current period. This approach does
not
consider the income statement effects of correcting prior year
misstatements in the current year to be errors.
|
(5) |
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS
No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value. The standard
requires
that unrealized gains and losses on items for which the fair value
option
has been elected be reported in earnings. SFAS No. 159 is effective
for the company beginning in the first quarter of fiscal year 2008,
although earlier adoption is permitted. The company is currently
evaluating the impact that SFAS No. 159 will have on its financial
statements.
|
n. |
Basic
and diluted net loss per
share:
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
o. |
Basic
and diluted net loss per share
(Cont.)
|
December
31,
|
||||
2006
|
||||
Raw
Materials
|
$ |
115
|
||
Work
In Process
|
210
|
|||
Finished
Goods
|
486
|
|||
$ |
811
|
December
31,
|
||||
2006
|
||||
Cost:
|
||||
Computer
and peripheral equipment
|
$ |
140
|
||
Leasehold
Improvement
|
16
|
|||
Office
furniture and equipment
|
22
|
|||
$ |
178
|
|||
Accumulated depreciation:
|
||||
Computer
and peripheral equipment
|
$ |
63
|
||
Leasehold
Improvement
|
1
|
|||
Office
furniture and equipment
|
8
|
|||
|
$ |
72
|
||
Property
and Equipment, net
|
$ |
106
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
a. |
In
December 2005 the Company completed a private placement to certain
accredited investors that it commenced in April 2005 for the
issuance of
up to $1,544 of units of its securities, with each unit comprised
of (i)
the Company's 18 month 6% promissory note (collectively, the
"April 2005
Notes") and (ii) three year warrants to purchase up to such number
of
shares of the Company's Common Stock as are determined by the
principal
amount of the Note purchased by such investor divided by $ 0.85
(collectively the "April 2005 Warrants").
|
b. |
On
February 1, 2006 the Company borrowed the principal amount of $150.
Interest accrued at an annual rate of prime plus 4% and was repayable
in
four equal installments every three calendar months (commencing June
30,
2006) through January 31, 2007. The Company issued to the holder
of this
indebtedness a three-year warrant to purchase up to 60,000 shares
of
Common Stock at a per share exercise price of $0.85. As of December
31,
2006, the Company repaid $119 representing principal and accrued
interest
then due. On January 31, 2007 the final installment of $48 including
accrued interest was repaid.
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
b. |
In
July 2006, the Company commenced a private placement of units of
securities, with each unit comprised of (i) the Company's 8% month
promissory note due 12 months from the date of issuance and (ii)
warrants
as described below. The principal and accrued interest are due in
one
balloon payment at the end of the twelve month period. Each purchaser
of
the note would receive warrants, exercisable over a period of two
years
from the date of issuance, to purchase16,250 shares of Common Stock
for
each $25 of principal loaned, at a per share exercise price equal
to the
lower of $1.50 or 35% less than any the offering price at an initial
public offering of the Company's Common Stock during the warrant
exercise
period. The Company raised a gross amount of $550, which is the maximum
amount that can be raised under the
offering.
|
a. |
On
September 6, 2005 the Company negotiated with a lender a loan in
the
principal amount of $100 plus a one time arrangement fee of $10.
This loan
was repaid in January 2006. The Company also issued to the holder
of the
debt a three-year warrant to purchase up to 25,000 shares of the
Company’s
Common Stock at a per share price of
$0.75.
|
b. |
In
August 2004 the Company negotiated with a lender the extension of
the
scheduled maturity date of indebtedness in the principal amount of
$140
that was originally scheduled to mature on October 12, 2005. The
maturity
date of $100 of the original principal amount of this indebtedness
was
extended to March 31, 2006. In consideration of the extension of
the
principal amount of $100, the Company paid to the lender a one-time
arrangement fee of $20 and issued to the holder of the debt a three-year
warrant to purchase up to 15,000 shares of the Company's Common Stock
at a
per share price of $0.75. On March 31, 2006 the principal amount
of $100
was repaid in full.
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
December
31,
|
||||
2006
|
||||
Accrued
expenses pre merger
|
$ |
263
|
||
Royalties
|
171
|
|||
Other
accrued expenses
|
138
|
|||
$ |
572
|
a. |
Equity
Incentive Plans
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
b. |
Stock
Options:
|
December
31, 2006
|
|||||||
Amount
of
Options
|
Weighed
Average Exercise Price
|
||||||
Outstanding
at the beginning of the year
|
1,020,000
|
$
|
0.44
|
||||
Granted
|
240,000
|
1.24
|
|||||
Forfeited
|
—
|
—
|
|||||
Outstanding
at the end of the year
|
1,260,000
|
0.59
|
|||||
Exercisable
at the end of the year
|
980,000
|
$
|
0.54
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
Weighted
|
||||||||||||||||
Options
|
Weighted
|
Options
|
average
|
|||||||||||||
outstanding
|
average
|
Weighted
|
exercisable
|
exercise
|
||||||||||||
as
of
|
remaining
|
average
|
as
of
|
price
of
|
||||||||||||
December
31
|
contractual
|
exercise
|
December
31
|
options
|
||||||||||||
Range
of exercise price
|
2006
|
life
(years)
|
price
|
2006
|
exercisable
|
|||||||||||
$0.5-$0.55
|
300,000
|
8.42
|
$
|
0.05
|
250,000
|
$
|
0.05
|
|||||||||
$0.60
|
750,000
|
8.74
|
$
|
0.60
|
630,000
|
$
|
0.60
|
|||||||||
$0.85
|
110,000
|
7.14
|
$
|
0.85
|
50,000
|
$
|
0.85
|
|||||||||
$1.85
|
100,000
|
9.81
|
$
|
1.85
|
50,000
|
$
|
1.85
|
|||||||||
1,260,000
|
8.61
|
$
|
1.24
|
980,000
|
$
|
0.54
|
c. |
Stock
warrants
|
Outstanding
|
Exercisable
|
|||||||||
as
of
|
as
of
|
|||||||||
December
|
Exercise
|
December
|
Exercisable
|
|||||||
Issuance
date
|
31,
2006
|
Price
|
31,
2006
|
through
|
||||||
May
2005
|
(1)
|
88,236
|
0.85
|
88,236
|
May
2008
|
|||||
June
2005
|
(1)
|
382,354
|
0.85
|
382,354
|
June
2008
|
|||||
July
2005
|
(1)
|
117,648
|
0.85
|
117,648
|
September
2008
|
|||||
September
2005
|
(2)
|
40,000
|
0.75
|
40,000
|
September
2008
|
|||||
September
2005
|
(1)
|
910,003
|
0.85
|
910,003
|
November
2008
|
|||||
November
2005
|
(3)
|
406,925
|
0.01
|
406,925
|
November
2008
|
|||||
November
2005
|
(1)
|
152,942
|
0.85
|
152,942
|
December
2008
|
|||||
December
2005
|
(1)
|
117,648
|
0.85
|
117,648
|
December
2008
|
|||||
February
2006
|
(2)
|
60,000
|
0.85
|
60,000
|
January
2009
|
|||||
February
2006
|
(4)
|
500,000
|
0.01
|
—
|
—
|
|||||
September
2006
|
(5)
|
83,333
|
0.36
|
83,333
|
August
2009
|
|||||
September
2006
|
(5)
|
57,500
|
0.60
|
57,500
|
September
2010
|
|||||
September
2006
|
(6)
|
Up
to 1,773,333
|
0.60
|
Up
to 1,773,333
|
September
2010
|
|||||
October
2006
|
(7)
|
357,500
|
1.50
or 35% less than IPO
|
357,500
|
October
2008
|
|||||
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
c. |
Stock
warrants
|
(1) |
Issued
to investors in the private placement in connection with the April
2005
Notes. According to the Company offer all of these warrants except
for 58,
823 shall be replaced to new warrants see (6) and Note
6a.
|
(2)
|
Warrants
issued to other lenders
|
(3)
|
Warrants
issued to service providers
|
(4)
|
Warrants
issued to service provider for consulting services relating to the
development of financial and strategic business relationships. Warrants
were exercisable through February 2010 and were exercised in full
on
February 22, 2006.
|
(5)
|
Warrants
issued to consultant for financial
services.
|
(6)
|
Warrants
issued according to the Amendment and replace the warrants issued
in
connection with the April 2005 Notes see Note 6a.
|
(7)
|
Issued
in connection with a private placement of units of securities see
Note
6b.
|
(8)
|
This
table does not include the 948,949 warrants related to the convertible
loan converted on September 30, 2006 see Note
8.
|
d. |
Dividends
|
a. |
Measurement
of taxable income under the Income Tax Law (Inflationary Adjustments),
1985:
|
b. |
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.
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
December
31,
|
||||
2006
|
||||
Tax
on net operating losses carryforward
|
$ |
1,037
|
||
Less
- valuation allowance
|
(1,037
|
)
|
||
|
$ | — |
c. |
The
Company has provided valuation allowances in respect of deferred
tax
assets resulting from tax loss carryforward and other temporary
differences. Management currently believes that since the Company
has a
history of losses it is more likely than not that the deferred tax
regarding the loss carryforward and other temporary differences will
not
be realized in the foreseeable
future
|
December
31,
|
||||
2006
|
||||
Israel
|
$ |
3,090
|
||
USA
|
827
|
|||
Total
|
$ |
3,917
|
NOTES
TO THE FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|