Form F-1/A G Medical Innovations
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As filed with the Securities and Exchange Commission on October 28, 2020
Registration No. 333-249182
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
G MEDICAL INNOVATIONS HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
|Cayman Islands||3841||Not Applicable|
|(State or other jurisdiction of
incorporation or organization)
|(Primary Standard Industrial
Classification Code Number)
|G Medical Innovations Ltd.||G Medical Innovations USA Inc.|
|5 Oppenheimer St.||1500 S Lake Side|
|Rehovot 7670105, Israel||Bannockburn, IL 60015|
|Tel: +972.544.33.8822||Tel: 800.595.2898|
|(Address, including zip code, and telephone number, including||(Name, address, including zip code, and telephone|
|area code, of registrant’s principal executive offices)||number, including area code, of agent for service)|
|Oded Har-Even, Esq.||Richard I. Anslow, Esq.|
|David A. Huberman, Esq.||Lawrence A. Rosenbloom, Esq.|
|Sullivan & Worcester LLP||Ellenoff Grossman & Schole LLP|
|1633 Broadway||1345 Avenue of the Americas|
|New York, NY 10019||New York, NY 10105|
|Tel: 212.660.3000||Tel: 212.370.1300|
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
CALCULATION OF REGISTRATION FEE
|Title of each class of securities to be registered||Proposed
|Ordinary shares, par value $0.018 per share||$||34,500,000||$||4,478.10|
|Representative’s warrants to purchase ordinary shares (4)||--||--|
|Ordinary shares underlying issuable upon exercise of Representative’s warrants (5)||2,415,000||313.47|
|Total Registration Fee||$||36,915,000||$||4,791.57|
|(1)||Pursuant to Rule 416 under the Securities Act of 1933, as amended (or the Securities Act) the ordinary shares (or Ordinary Shares) registered hereby also include an indeterminate number of additional Ordinary Shares as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.|
|(2)||Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. Includes the offering price of Ordinary Shares that the Underwriters have the option to purchase to cover over-allotments, if any.|
|(3)||Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.|
|(4)||In accordance with Rule 457(g) under the Securities Act, because the Ordinary Shares of the Registrant underlying the warrants are registered hereby, no separate registration fee is required with respect to the warrants registered hereby.|
|(5)||As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the representative’s warrants is equal to $2,415,000 (which is 7% of $34,500,000).|
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 28, 2020
5,000,000 Ordinary Shares
G Medical Innovations Holdings Ltd.
This is the initial public offering in the United States of G Medical Innovations Holdings Ltd., a Cayman Islands exempted company. We are offering 5,000,000 ordinary shares, par value $0.018 per share (which we refer to herein as the Ordinary Shares). We anticipate that the initial public offering price will be between $5.00 and $7.00. We are offering all of the Ordinary Shares offered by this prospectus.
Until recently, our Ordinary Shares traded on the Australian Securities Exchange operated by ASX Ltd. (or ASX), under the symbol “GMV.” On October 22, 2020, our Ordinary Shares were voluntarily delisted from the ASX. We have been approved to list the Ordinary Shares on the Nasdaq Global Market under the symbol “GMVD”, subject to notice of issuance. No assurance can be given that an active trading market for our Ordinary Shares will develop.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (or the JOBS Act) and are subject to reduced public company reporting requirements.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 12.
Neither the Securities and Exchange Commission (or the SEC) nor the Australian Securities and Investments Commission, nor any state or other foreign securities commission has approved nor disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
|Per Ordinary Share||Total|
|Public offering price||$||$|
|Underwriting discounts and commissions (1)||$||$|
|Proceeds to us (before expenses) (2)||$||$|
|(1)||We have agreed to reimburse the underwriters for certain expenses and the underwriters will receive compensation in addition to underwriting discounts and commissions. See the section titled “Underwriting” beginning on page 131 of this prospectus for additional disclosure regarding underwriter compensation and offering expenses.|
|(2)||Does not include proceeds from the exercise of the warrants in cash, if any.|
We have granted the representative of the underwriters an option to purchase from us, at the public offering price, up to additional 750,000 Ordinary Shares, less the underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any. If the representative of the underwriters exercises the option in full, the total underwriting discounts and commissions and management fees payable will be $235,000, and the total proceeds to us, before expenses, will be $32,165,000.
The underwriters expect to deliver the Ordinary Shares on or about , 2020.
|Boustead Securities, LLC||Fosun Hani|
The date of this prospectus is , 2020
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are offering to sell the Ordinary Shares, and seeking offers to buy the Ordinary Shares, only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Ordinary Shares.
For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
In this prospectus, “we,” “us,” “our,” the “Company” and “G Medical Innovations Holdings” refer to G Medical Innovations Holdings Ltd., a Cayman Islands exempted company, and its subsidiaries: G Medical Innovations Ltd., an Israeli corporation, G Medical Innovations USA Inc., a Delaware corporation, G Medical Innovations MK Ltd., a Macedonian corporation, G Medical Innovations Asia Limited, a Hong Kong corporation (or G Medical Asia), G Medical Diagnostic Services, Inc., a Texas corporation, Telerhythmics, LLC (or Telerhythmics), a company formed under the laws of the state of Tennessee, G Medical Mobile Health Solutions, Inc., an Illinois corporation, G Medical Innovations UK Ltd., a UK corporation, all of which are wholly-owned subsidiaries and Guangzhou Yimei Innovative Medical Science and Technology Co., Ltd. (or G Medical China), the 70%-owned subsidiary of G Medical Innovations Asia Limited.
Our reporting currency and functional currency is the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus to “dollars” or “$” mean U.S. dollars, and references to “A$” are to Australian dollars. Unless derived from our consolidated financial statements or otherwise indicated, U.S. dollar translations of A$ amounts presented in this prospectus are translated using the rate of A$1.38 to $1.00, based on the exchange rates certified for customs purposes by the Federal Reserve Bank of New York on October 9, 2020.
This prospectus includes statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the information. Although we believe that these sources are reliable, we have not independently verified the information contained in such publications.
We report under International Financial Reporting Standards (or IFRS), as issued by the International Accounting Standards Board (or the IASB). None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
On September 29, 2020, we gave public notice of an extraordinary general shareholders meeting to approve a one-for-18 consolidation (hereinafter refer to as a reverse stock split) of our Ordinary Shares pursuant to which holders of our Ordinary Shares will receive one share Ordinary Share for every 18 Ordinary Shares held, and to further increase our authorized share capital so that our resulting authorized share capital would be $180,000,000 divided into 10,000,000,000 Shares of a par value of $0.018 each, as well as certain other matters including the adoption of new Amended and Restated Memorandum and Articles of Association. We expect the reverse stock split and the amendments to our authorized share capital to be effective on October 29, 2020 (which is the date of the above referenced extraordinary general shareholders meeting). Unless the context expressly dictates otherwise, (i) all references to share and per share amounts referred to herein reflect the reverse stock split and change in authorized share capital; and (ii) all references to our memorandum and articles of association reflect the proposed adoption of our new Amended and Restated Memorandum and Articles of Association.
An investment in the Ordinary Shares involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including the consolidated financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in the Ordinary Shares. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If any of these risks actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of the Ordinary Shares to decline, and you may lose all or part of your investment.
Risks Related to Our Financial Condition and Capital Requirements
We have a limited operating history on which to assess the prospects for our business, have generated little revenue from sales of our products, and have incurred losses since inception. We anticipate that we will continue to incur significant losses until we are able to successfully commercialize our products and services globally.
Since inception, we have devoted substantially all of our financial resources to develop our products and their related services. We have financed our operations primarily through the issuance of equity securities. We have generated little revenue from the sale of our products to date and have incurred significant losses. The amount of our future net losses will depend, in part, on on-going development of our products and their related services, the rate of our future expenditures and our ability to obtain funding through the issuance of our securities, strategic collaborations or grants. We expect to continue to incur significant losses until we are able to successfully commercialize our products and services globally. We anticipate that our expenses will increase substantially if and as we:
continue the development of our products and services;
establish a sales, marketing and distribution infrastructure to commercialize our products and services;
seek to identify, assess, acquire, license and/or develop other products and services and subsequent generations of our current products and services;
seek to maintain, protect and expand our intellectual property portfolio;
seek to attract and retain skilled personnel; and
|●||continue to support our operations as a public company, our product development and planned future commercialization efforts.|
Our ability to generate future revenue from product and service sales depends heavily on our success in many areas, including but not limited to:
addressing any competing technological and market developments;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
establishing and maintaining resale and distribution relationships with third-parties that can provide adequate (in amount and quality) infrastructure to support market demand for our products;
launching and commercializing current and future products and services, either directly or with a collaborator or distributor; and
|●||maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how.|
We have incurred significant losses since inception. As such, you cannot rely upon our historical operating performance to make an investment decision regarding our company.
Since our inception, we have engaged primarily in research and development activities, and the acquisitions of two companies in the United States. We have financed our operations primarily through the issuance of equity securities and loans, have incurred losses in the last three years including net losses of $15.5 million in 2019 and $16.9 million in 2018. Our accumulated deficit as of June 30, 2020 was $68.24 million. We do not know whether or when we will become profitable. Our ability to generate revenue and achieve profitability depends upon our ability to accelerate the commercialization of our products and service offerings in line with the demand from new partnerships and our aggressive business strategy. We may be unable to achieve any or all of these goals.
Even if this offering is successful, we expect that we will need to raise substantial additional funding before we can expect to become profitable from sales of our products and services. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
As of June 30, 2020, we had $0.54 million in cash and cash equivalents and an accumulated deficit of $68.24 million. Prior to the completion of this offering, based upon our currently expected level of operating expenditures, and taking into consideration the funding we received in August 2020, we expect that our current existing cash and cash equivalents will be sufficient to fund our current operations until the end of November 2020, without using the net proceeds from this offering and/or the net proceeds from the exercise of existing warrants. Even if this offering is completed, we expect that we will require substantial additional capital to commercialize our products. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned.
We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Ordinary Shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Raising additional capital would cause dilution to holders of our equity securities, and may affect the rights of existing holders of equity securities.
We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the issuance of equity (such as this offering) or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of the Ordinary Shares.
Substantially all of our assets are subject to security interests under a convertible securities agreement (or the Convertible Securities Agreement) and a general security agreement (or the General Security Agreement) and in connection with out indebtedness to with Bank Mizrahi Tefahot, and we are in breach on our obligations under either one of these agreements, and may suffer materially adverse consequences, including foreclosure on our assets.
As of the date hereof, substantially all of our assets, and assets of our Israeli subsidiary, were pledged as collateral under our Convertible Securities Agreement, as amended, and the General Security Agreement with certain other purchasers (who we collectively refer to as the Convertible Securities Holders) and under our loan agreements with Bank Mizrahi Tefahot. As of the date of this prospectus, we have not yet repaid the entire approximately $0.7 million payment due to the Convertible Securities Holders. Currently, we are negotiating in good faith with the Convertible Securities Holders to modify the requirements. However, we cannot be sure that we will be able to come to an amicable resolution. If we fail to reach a resolution, the Convertible Securities Holders (as the collateral agent under the collateral agency agreement date October 29, 2018 (or the Collateral Agency Agreement)) and/or Bank Mizrahi Tefahot will have the right to foreclose upon and sell, or otherwise transfer the collateral subject to its security interests. If the Convertible Securities Holders or Bank Mizrahi Tefahot exercise their right to sell the assets pledged under their respective agreement, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the either agreement. Such deleveraging of our company could significantly impair our ability to effectively operate our business and may otherwise have a material adverse effect on our financial condition, results of operations and cash flows. Further, in such a circumstance, we could be forced to curtail or cease our business activities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Arrangements.”
We may default under, or may be unable to obtain forgiveness of, our April 2020 loan from Bank of America pursuant to the Paycheck Protection Program, which could diminish our cash resources.
In April 2020, we entered into a loan agreement (or the PPP Loan) with Bank of America, NA pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the Cares Act). The PPP Loan provides us with $873,487 and requires no collateral or personal guarantees. We are planning to apply for forgiveness of the loan balance pursuant to the terms of the Cares Act. In case we fail to comply with the terms of forgiveness under the Cares Act, fail to apply for loan forgiveness, or if otherwise the U.S. Small Business Administration does not confirm or only partially confirms forgiveness of the unpaid principal balance of PPP Loan, we will have to pay back the unforgiven principal balance of the loan plus interest accrued thereon at a 1% over a two year period from the date of the funding of the loan. As of October 18, 2020, we have used all of the $873,487, extended to us under the PPP Loan. We cannot assure you that we will obtain forgiveness of the PPP Loan in whole or in part, and any required payment of the PPP Loan would diminish our cash resources.
In addition, the PPP Loan contains customary events of default relating to, among other things, payment defaults or breaches of the terms of the loan, bankruptcy, making materially false and misleading representations to the U.S. Small Business Administration or the Bank of America, and material adverse changes in our financial condition or business operations. The occurrence of an event of default may require immediate repayment of all amounts outstanding under the PPP Loan, collection of all amounts owing from us, or filing suit and obtaining judgment against us.
Our consolidated financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.
Our audited consolidated financial statements for the period ended December 31, 2019, contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We incurred a net loss of $15.5 million for the year ended December 31, 2019, and $4.9 million as of June 30, 2020. These events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The consolidated financial statements for 2019 and for June 30, 2020 do not include any adjustments that might result from the outcome of this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as a going concern.
Risks Related to Our Business and Industry
We may not succeed in completing the development and commercialization of our products and services and generating significant revenues.
Since commencing our operations, we have focused on the research and development and limited clinical trials of our products and services. Some of our products are not approved for commercialization and have never generated any revenues. Our ability to generate revenues and achieve profitability depends on our ability to successfully complete the development of these products and services, obtain regulatory approvals and generate significant revenues. The future success of our business cannot be determined at this time, and we do not anticipate generating revenues from some of our products and services for the foreseeable future. In addition, we have limited experience in commercializing our products and services and we may face several challenges with respect to our commercialization efforts, including, among others, that:
we may not have adequate financial or other resources to complete the development of our products or services associated with a given product;
we may not be able to manufacture our products in commercial quantities, at an adequate quality or at an acceptable cost;
we may not be able to establish adequate sales, marketing and distribution channels;
healthcare professionals and patients may not accept our products or fully utilize our products’ services;
we may not be aware of possible complications from the continued use of our products or services since we have limited clinical experience with respect to the actual use of our products and services;
technological breakthroughs in the mobile and e-health solutions and services may reduce the demand for our products;
changes in the market for mobile and e-health solutions and services, new alliances between existing market participants and the entrance of new market participants may interfere with our market penetration efforts;
third-party payors may not agree to reimburse patients for any or all of the purchase price of our products, which may adversely affect patients’ willingness to purchase our products;
uncertainty as to market demand may result in inefficient pricing of our products and services;
we may face third-party claims of intellectual property infringement; and
|●||we may fail to obtain or maintain regulatory approvals for our products or services in our target markets or may face adverse regulatory or legal actions relating to our products or services even if regulatory approval is obtained.|
If we are unable to meet any one or more of these challenges successfully, our ability to effectively commercialize our products and services could be limited, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Our success depends upon market acceptance of our products and services, our ability to develop and commercialize new products and services and generate revenues and our ability to identify new markets for our technology.
We have developed, and are engaged in the development of, mobile and e-health solutions and services using our suite of devices and software solutions. Our success will depend on the acceptance of our products and services in the healthcare market. We are faced with the risk that the marketplace will not be receptive to our products and services over competing products and that we will be unable to compete effectively. Factors that could affect our ability to successfully commercialize our current and any potential future products and services include:
the challenges of developing (or acquiring externally-developed) technology solutions that are adequate and competitive in meeting the requirements of next-generation design challenges; and
|●||the dependence upon physicians’ acceptance of our products and their willingness to prescribe our product to their patients for the sale of our products and provision of our services.|
We cannot assure that our current products or any future products, and services, will gain broad market acceptance. If the market for our current products in development fails to develop or develops more slowly than expected, or if any of the services and standards supported by us do not achieve or sustain market acceptance, our business and operating results would be materially and adversely affected.
Medical device development is costly and involves continual technological change which may render our current or future products obsolete.
The market for monitoring services and products is characterized by rapid technological change, medical advances, changing consumer requirements, short device lifecycles and evolving industry standards. Any one of these factors could reduce the demand for our services and devices or require substantial resources and expenditures for research, design and development to avoid technological or market obsolescence.
Our success will depend on our ability to enhance our current technology, services and systems and develop or acquire and market new technologies to keep pace with technological developments and evolving industry standards, while responding to changes in customer needs. A failure to adequately develop or acquire device enhancements or new devices that will address changing technologies and customer requirements adequately, or to introduce such devices on a timely basis, may have a material adverse effect on our business, financial condition and results of operations.
We might have insufficient financial resources to improve existing devices, advance technologies and develop new devices at competitive prices. Technological advances by one or more competitors or future entrants into the field may result in our present services or devices becoming non-competitive or obsolete, which may decrease revenues and profits and adversely affect our business and results of operations.
We will encounter significant competition across our product lines and in each market in which we will sell our products and services from various companies, some of which may have greater financial and marketing resources than we do. Our primary competitors include Biotelemetry, Inc., iRhythm Technologies, Preventice Solutions, Inc. and other arrhythmia service providers, as well as a wide range of medical device companies that sell a single or limited number of competitive products and services or participate in only a specific market segment.
We will be dependent upon success in our customer acquisition strategy.
Our business will be dependent upon success in our customer acquisition strategy. If we fail to maintain a high quality of service or a high quality of device technology, we may fail to retain existing users or add new users. If users decrease their level of engagement, our revenue, financial results and business may be significantly harmed. Our future success depends upon building a commercial operation in the United States, United Kingdom and China, as well as entering additional markets to commercialize our products and services. We believe that our expanded growth will depend on the further development, regulatory approval and commercialization of our products and services, which we anticipate that can be used by nearly all targeted individuals. If we fail to expand the use of our product and services in a timely manner, we may not be able to expand our markets or to grow our revenue, and our business may be adversely impacted. The size of our user base and our users’ level of engagement are critical to our success. Our financial performance will be significantly determined by our success in adding, retaining and engaging active users. If people do not perceive our products or services to be useful, reliable and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement. A decrease in user retention, growth or engagement could render less attractive to developers, which may have a material and adverse impact on our revenue, business, financial condition and results of operations.
Any number of factors could negatively affect user retention, growth and engagement, including:
users increasingly engaging with competing products;
users not actively using the services associated with each of our respective services;
failure to introduce new and improved products and services;
inability to successfully balance efforts to provide a compelling user experience with the decisions made with respect to the added value services provided;
inability to continue to develop products for mobile devices that users find engaging, that work with a variety of mobile operating systems and networks and that achieve a high level of market acceptance;
changes in user sentiment about the quality or usefulness of our products and services or concerns related to privacy and sharing, safety, security or other factors;
inability to manage and priorities information to ensure users are presented with content that is interesting, useful and relevant to them;
adverse changes in our products that are mandated by legislation or regulatory agencies, both in the United States and across the globe; or
|●||technical or other problems preventing us from delivering products or services in a rapid and reliable manner or otherwise affecting the user experience.|
If we are unable to successfully integrate acquired companies and technology, we may not realize the benefits anticipated and our future growth may be adversely affected.
We have grown through acquisitions of companies and technology, including our acquisitions of CardioStaff, in November 2017 and Telerhythmics in November 2018. Acquisitions bring risks associated with our assumption of the liabilities of an acquired company, which may be liabilities that we were or are unaware of at the time of the acquisition, potential write-offs of acquired assets and potential loss of the acquired company’s key employees or customers. Physician, patient and customer satisfaction or performance problems with an acquired business, technology, service or device could also have a material adverse effect on our reputation. Additionally, potential disputes with the seller of an acquired business or its employees, suppliers or customers could adversely affect our business, operating results and financial condition. If we fail to properly evaluate and execute acquisitions, our business may be disrupted and our operating results and prospects may be harmed.
Furthermore, integrating acquired companies or new technologies into our business may prove more difficult than we anticipate. We may encounter difficulties in successfully integrating our operations, technologies, services and personnel with that of the acquired company, and our financial and management resources may be diverted from our existing operations. Offices in multiple states create a strain on our ability to effectively manage our operations and key personnel. If we elect to consolidate our facilities, we may lose key personnel unwilling to relocate to the consolidated facility, may have difficulty hiring appropriate personnel at the consolidated facility and may have difficulty providing continuity of service through the consolidation.
We are dependent upon third-party manufacturers and suppliers making us vulnerable to supply shortages and problems and price fluctuations, which could harm our business.
While we manufacture our products in our in-house laboratories, we rely on third parties to supply us with the raw materials that we use to manufacture our products. We do not own or operate manufacturing facilities for clinical or commercial production of product lines other than our current products and we lack the resources and the capability to manufacture our other products on a commercial scale. Therefore, we rely on a limited number of suppliers who provide us with these raw materials and manufacture and assemble certain components of our products. Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on these third-party suppliers also subjects us to other risks that could harm our business, including:
we are not a major customer of many of our suppliers, and these suppliers may therefore give other customers’ needs higher priority than ours;
third parties may threaten or enforce their intellectual property rights against our suppliers, which may cause disruptions or delays in shipment, or may force our suppliers to cease conducting business with us;
we may not be able to obtain an adequate supply in a timely manner or on commercially reasonable terms;
our suppliers, especially new suppliers, may make errors in manufacturing that could negatively affect the efficacy or safety of our products or cause delays in shipment;
we may have difficulty locating and qualifying alternative suppliers;
switching components or suppliers may require product redesign and possibly submission to the U.S. FDA, EEA Notified Bodies, and the NMPA or other similar foreign regulatory agencies, which could significantly impede or delay our commercial activities;
one or more of our sole or single-source suppliers may be unwilling or unable to supply components of our products;
the occurrence of a fire, natural disaster or other catastrophe impacting one or more of our suppliers may affect their ability to deliver products to us in a timely manner; and
|●||our suppliers may encounter financial or other business hardships unrelated to our demand, which could inhibit their ability to fulfill our orders and meet our requirements.|
We may not be able to quickly establish additional or alternative suppliers if necessary, in part because we may need to undertake additional activities to establish such suppliers as required by the regulatory approval process. Any interruption or delay in obtaining products from our third-party suppliers, or our inability to obtain products from qualified alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to switch to competing products. Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we do not have alternate suppliers currently available.
We have limited manufacturing history on which to assess the prospects for our business, and we anticipate that we will incur significant losses once we initiate our in-house manufacturing until we are able to successfully commercialize our products globally.
We anticipate that our expenses will increase substantially as we initiate manufacturing in our facilities. If our manufacturing operation is unreliable or unavailable, we may not be able to move forward with our intended business operations and our entire business plan could fail. There is no assurance that our manufacturing operation will be able to meet commercialized scale production requirements in a timely manner or in accordance with applicable standards.
We have no timely ability to replace our current manufacturing capabilities.
If our manufacturing facility in Israel (or if our own facility in China, if and when we begin to utilize it) suffers any type of prolonged interruption, whether caused by regulator action, equipment failure, critical facility services (such as water purification, clean steam generation or building management and monitoring system), fire, natural disaster or any other event that causes the cessation of manufacturing activities, we would be exposed to long-term loss of sales and profits. There are limited facilities which are capable of contract manufacturing some of our products and product candidates. Replacement of our current manufacturing capabilities will have a material adverse effect on our business and financial condition.
We are dependent upon third-party service providers for the provision of certain services that we provide. If there are interruptions or delays in the services provided by these third-parties could impair the delivery of certain services and utility of our products, which could adversely affect the penetration of our products and service, our business, operating results and reputation.
The success of certain services that we provide are dependent upon third-party service providers. For instance, we are dependent upon third-party service providers to provide analysis of medical results. If we fail to maintain these relationships, we would be forced to seek alternative providers to provide such analyses, which we may not find available on commercially reasonable terms, or at all.
As we expand our commercial activities, an increased burden will be placed upon the quality of medical results analyses. Interruptions or delays, for any length of time, could have a material adverse effect on our business and operating results. Frequent or persistent interruptions in our ability to provide quality and timely analyses could cause permanent harm to our reputation and could cause current or potential users of our products and services, or prescribing physicians, to believe that our systems are unreliable, leading them to switch to our competitors. Such interruptions could result in liability claims and litigation against us for damages or injuries resulting from the disruption in service.
We expect to be exposed to fluctuations in currency exchange rates, which could adversely affect our results of operations.
We incur expenses in U.S. dollars, Australian dollars, NIS, Pounds Sterling, Chinese yuan (RMB), Macedonian denars, and Euros, but our financial statements are denominated in U.S. dollars. Accordingly, we face exposure to adverse movements in currency exchange rates. Our foreign operations will be exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. dollars upon consolidation. Specifically, the U.S. dollar cost of our operations in Israel and China is influenced by any movements in the currency exchange rate of the NIS. Such movements in the currency exchange rate may have a negative effect on our financial results. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from our or the capital market’s expectations.
Non-U.S. governments often impose strict price controls, which may adversely affect our future profitability.
We intend to seek approval to market products and their associated services in both the United States and in non-U.S. jurisdictions. Accordingly, we are subject to rules and regulations in those jurisdictions relating to our products and services. In some countries, particularly countries of the European Union (or the EU) and those of the EEA and China, each of which has developed its own rules and regulations, pricing may be subject to governmental control under certain circumstances. In these countries, pricing negotiations with governmental agencies can take considerable time after the receipt of marketing approval for a medical device candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We are dependent on our employees, including notably our Chief Executive Officer, the loss of whom could have an adverse effect on our company.
As of October 18, 2020, we have approximately 73 full-time employees and one dedicated consultant. Our future performance depends to a large extent on the continued services of members of our current management including, in particular, Dr. Yacov Geva, our Chief Executive Officer. Any of our employees and consultants may leave our company at any time, subject to certain notice periods. The loss of the services of any of our executive officers or any key employees or consultants would adversely affect our ability to execute our business plan and harm our operating results.
If we are not able to attract and retain highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.
We believe that our management team must be able to act decisively to apply and adapt our business model in the rapidly changing markets in which we will compete. In addition, we will rely upon technical and scientific employees or third-party contractors to effectively establish, manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract and retain highly skilled managerial, sales, scientific and technical personnel. In order to do so, we may need to pay higher compensation or fees to our employees or consultants than we currently expect and such higher compensation payments would have a negative effect on our operating results. Competition for experienced, high-quality personnel is intense and we cannot assure that we will be able to recruit and retain such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability to develop new products and services and manage our business effectively.
We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.
As our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional managerial, operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the medical device industry is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.
Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional medical device products. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize medical device products and services and compete effectively will depend, in part, on our ability to effectively manage any future growth.
We will incur significant increased costs as a result of the listing of our securities for trading on Nasdaq. By becoming a public company in the United States and remaining a public company in Australia, our management will be required to devote substantial time to new compliance initiatives as well as compliance with ongoing U.S. and Australian requirements.
Upon the listing of securities on Nasdaq, we will become a publicly traded company in the United States. As a public company in the United States, we will incur additional significant accounting, legal and other expenses that we did not incur before the offering. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC and Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC and Nasdaq, for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers.
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Cayman Islands.
Other than our headquarters and other operations which are located in the Cayman Islands (as further described below), we currently have significant international operations, and our business strategy incorporates additional significant international expansion, particularly in anticipated expansion of regulatory approvals of our products. Doing business internationally involves a number of risks, including but not limited to:
multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;
failure by us to obtain regulatory approvals for the use of our products and services in various countries;
additional potentially relevant third-party patent rights;
complexities and difficulties in obtaining protection and enforcing our intellectual property;
difficulties in staffing and managing foreign operations;
complexities associated with managing multiple regulatory, governmental and reimbursement regimes;
limits in our ability to penetrate international markets;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;
an outbreak of a contagious disease, such as the novel coronavirus pandemic of 2020, which may cause us, third party vendors and manufacturers and/or customers to temporarily suspend our or their respective operations in the affected city or country;
certain expenses including, among others, expenses for travel, translation and insurance; and
|●||regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions or its anti-bribery provisions.|
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Our business and operations may be adversely affected by COVID-19 or other similar outbreaks.
In December 2019, a novel coronavirus outbreak and related disease (known as COVID-19) was identified in Wuhan, China. This virus has spread globally to over 200 countries, including the United States and Israel. Any outbreak of contagious diseases, or other adverse public health developments, could have a material adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel, pursue collaborations and other business transactions, oversee the activities of our third-party manufacturers and suppliers, make shipments of materials, as well as be impacted by the temporary closure of the facilities of suppliers. Any disruption of suppliers or access to patients would likely impact our progress and rates as well as our ability to access capital through the financial markets. In particular, the COVID-19 outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that COVID-19 or any other epidemic harms the global economy generally. We experienced a decline in sales during the second quarter of 2020, as individuals, as well as hospitals and other medical providers, defer elective procedures and in-person visits in response to COVID-19. It is unclear whether this reduction in sales is temporary and whether such sales may be recoverable in the future. If our sales continue to decline, or if such lost sales are not recoverable in the future, our business and results of operations will be significantly adversely affected. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or patients, or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we and certain of our third-party service providers, collect, process, and store sensitive data, including intellectual property, personal and medical information about our patients and our proprietary business information. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools and domestically available monitoring to provide security for processing, transmitting and storing this sensitive data.
In the event that patients authorize or enable us to sell their personal data to third-parties and/or access their data on our systems, we cannot ensure the complete integrity or security of such data in our systems as we would not control that access. Third-parties may also attempt to fraudulently induce our employees, patients or physicians who use our technology, into disclosing sensitive information. Third-parties may also otherwise compromise our security measures in order to gain unauthorized access to the information we store. This could result in significant legal and financial exposure, a loss in confidence in the security of our services, interruptions or malfunctions in our services, and, ultimately, harm to our future business prospects and revenue.
A security breach or privacy violation that leads to disclosure or modification of, or prevents access to, patient information, including protected health information, could harm our reputation, compel us to comply with disparate state breach notification laws, require us to verify the correctness of database contents and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures in a timely manner, the market perception of the effectiveness of our security measures could be harmed, our operations could be disrupted, our brand could be adversely affected, demand for our products and services may decrease, we may be unable to provide the our service, we may lose sales and customers, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive patient data. We may be required to expend significant capital and financial resources to invest in security measures, protect against such threats or to alleviate problems caused by breaches in security. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm. Although we have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, and we monitor our systems on an ongoing basis for any current or potential threats, we can give no assurances that these measures and efforts will prevent all intrusions, interruptions, or breakdowns.
Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched, we may be unable to anticipate these techniques or to implement adequate preventive measures.
With respect to medical information, we follow HIPAA guidelines and, among others, separate personal information from medical information, and further employ additional encryption tools to protect the privacy of our patients and medical data. However, hackers may attempt to penetrate our computer systems, and, if successful, misappropriate personal or confidential business information. In addition, an associate, contractor or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such information, and may purposefully or inadvertently cause a breach involving such information. While we continue to implement additional protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and the techniques used in such attacks change rapidly.
Also, our information technology networks and infrastructure may still be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Any such compromise could disrupt our operations, damage our reputation and subject us to additional costs and liabilities, any of which could adversely affect our business.
Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to or acquisition of our user data, we may also have obligations to notify users about the incident and we may need to provide some form of remedy for the individuals affected by the incident. A growing number of legislative and regulatory bodies have adopted consumer notification requirements in the event of unauthorized access to or acquisition of certain types of personal data. Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises user data. In addition, the interpretation and application of consumer, health-related and data protection laws, rules and regulations in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. It is possible that these laws, rules and regulations may be interpreted and applied in a manner that is inconsistent with our practices or those of our distributors and partners. If we or these third parties are found to have violated such laws, rules or regulations, it could result in government-imposed fines, orders requiring that we or these third parties change our or their practices, or criminal charges, which could adversely affect our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices, systems and compliance procedures in a manner adverse to our business.
We face intense competition in the market, and as a result we may be unable to effectively compete in our industry.
With respect to our products and monitoring services we compete directly and primarily with arrhythmia monitoring providers such as Biotelemetry, Inc., iRhythm Technologies, Preventice Solutions, Inc., and other smaller companies. These companies hold significant market share in the United States. Their dominant market position and significant control over the market could significantly limit our ability to introduce or effectively market and generate sales of our products and service offerings. We will also compete with numerous second-tier and third-tier competitors and may in the future face further competition from smartwatch makers such as Apple and Samsung, and app developers using the smartwatch platforms for products that will compete with our current and future products.
Many of our competitors have long histories and strong reputations within the industry. They have significantly greater brand recognition, financial and human resources than we do. They also have more experience and capabilities in researching and developing testing devices, obtaining and maintaining regulatory clearances and other requirements, manufacturing and marketing those products than we do. There is a significant risk that we may be unable to overcome the advantages held by our competition, and our inability to do so could lead to the failure of our business and the loss of your investment.
Competition in the electronic health devices and more specifically mobile health devices markets is extremely intense, which can lead to, among other things, price reductions, longer selling cycles, lower product margins, loss of market share and additional working capital requirements. To succeed, we must, among other critical matters, gain consumer acceptance for our minimally invasive solutions as compared to other solutions currently available in the market, and potential future devices incorporating our principal technology and offer better strategic concepts, technical solutions, prices and response time, or a combination of these factors, than those of other competitors. If our competitors offer significant discounts on certain products or services, we may need to lower our prices or offer other favorable terms in order to compete successfully. Moreover, any broad-based changes to our prices and pricing policies could make it difficult to generate revenues or cause our revenues to decline. Moreover, if our competitors develop and commercialize products and services that are more effective or desirable than products and services that we may develop, we may not convince our customers to use our products and services. Any such changes would likely reduce our commercial opportunity and revenue potential and could materially adversely impact our operating results.
If third-party payors do not provide adequate coverage and reimbursement for the use of our products and services, our revenue will be negatively impacted.
We will be highly dependent on reimbursement by third parties in relation to our revenue streams. Such reimbursement may vary based on the particular service or device used in providing services and is based on the identity of the third-party. Our ability to maintain a leading position in the monitoring market depends on our relationships with private third parties.
We expect to engage with private third parties to allow us to receive reimbursement from insurance companies for monitoring fees. The loss of a significant number of private third-party contracts may have an adverse effect on our revenues that derives from monitoring services, which could have an adverse effect on our business, financial condition and results of operations.
Over the past few years, reimbursement rates from certain third parties have declined, in some cases significantly. There can be no assurance that this trend will not continue or apply on more third parties. In addition, there is no assurance that third parties’ reimbursement will continue to cover our monitoring services at all, or, if covered, will reimburse us at commercially viable rates.
In addition, private third parties may not reimburse any new services offered by us or reimburse those new services at commercially viable rates. The failure to receive reimbursement at adequate levels for our existing or future services may adversely affect demand for those services, our products, our revenues and expected growth. This could have an adverse effect on our business, financial condition and results of operations.
Risks Related to Product Development and Regulatory Approval
The regulatory clearance process which we must navigate is expensive, time-consuming, and uncertain and may prevent us from obtaining clearance for the commercialization of our current products and services in additional jurisdictions, or any future product.
We are not permitted to market our products and their associated services until we receive regulatory clearance. For example, we have applied for NMPA clearance for our Prizma device in China, but we may not commence marketing or sales activity until such time that we receive NMPA clearance.
The research, design, testing, manufacturing, labelling, selling, marketing and distribution of medical devices, such as our products and product candidates, are subject to extensive regulation by the U.S. FDA and similar foreign regulatory agencies, with regulations that differ from country to country. There can be no assurance that, even after such time and expenditures, we will be able to obtain necessary regulatory clearances or approvals for our products and product candidates. In addition, during the regulatory process, other companies may develop other technologies with the same intended use as our products.
We are also subject to numerous post-marketing regulatory requirements, which include labelling regulations and medical device reporting regulations, which may require us to report to different regulatory agencies if our device causes or contributes to a death or serious injury, or malfunctions in a way that would likely cause or contribute to a death or serious injury. In addition, these regulatory requirements may change in the future in a way that adversely affects us. If we fail to comply with present or future regulatory requirements that are applicable to us, we may be subject to enforcement action by regulatory agencies, which may include, among others, any of the following sanctions:
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
customer notification, or orders for repair, replacement or refunds;
voluntary or mandatory recall or seizure of our current or future products;
imposing operating restrictions, suspension or shutdown of production;
refusing our requests for 510(k) and CE clearances or pre-market approval of new products, new intended uses or modifications to existing products or future products;
rescinding 510(k) and CE clearances or suspending or withdrawing pre-market approvals that have already been granted; and
The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.
Changes in the regulatory environment may constrain or require us to restructure our operations, which may delay or prevent us from marketing our products and services and as a result harming our revenue and operating results.
Healthcare laws and regulations and review procedures change frequently and may change significantly in the future. We may not be able to adapt our operations to address every new regulation, and new regulations may adversely affect our business. For instance, although our Chinese subsidiary was granted acceptance to the “Green Channel” expedited Guangdong Provincial NMPA regulatory approval process for the Prizma device, if the process becomes more onerous, costly or time-consuming, we will need to re-evaluate our Chinese commercialization strategy and may need to invest more of our limited resources before even entering the Chinese market with our products. Our products and product candidates are also subject to the European Union Medical Device Regulations. We cannot assure you that a review of our business by courts or regulatory agencies would not result in a determination that adversely affects our revenue and operating results, or that the healthcare regulatory environment review procedures of the U.S. FDA, NMPA and EEA Notified Bodies, among other similar foreign regulatory agencies, will not change in a way delays or prevents us from marketing our products and services and as a result harming our revenue and operating results.
In addition, there is risk that the U.S. Congress may implement changes in laws and regulations governing healthcare service providers, including measures to control costs, or reductions in reimbursement levels, which may adversely affect our business and results of operations.
Government payors, such as CMS as well as insurers, have increased their efforts to control the cost, utilization and delivery of healthcare services. From time to time, the U.S. Congress has considered and implemented changes in the CMS fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement by CMS for services or changes in policy regarding coverage of tests or other requirements for payment, such as prior authorization or a physician or qualified practitioner’s signature on test requisitions, may be implemented from time to time. Reductions in the reimbursement rates and changes in payment policies of other third-party payors may occur as well. Similar changes in the past have resulted in reduced payments as well as added costs and have added more complex regulatory and administrative requirements. Further changes in federal, state, local and third-party payor regulations or policies in the United States or our primary foreign markets may have a material adverse impact on our business. Actions by the U.S.FDA, CMS, and similar foreign regulatory agencies regulating insurance or changes in other laws, regulations, or policies may also have a material adverse effect on our business.
If we, our affiliates, manufacturers or suppliers fail to comply with the U.S. FDA’s Quality System Regulation (or QSR), or any applicable state or foreign equivalent, our operations could be interrupted and our operating results could suffer.
We, our affiliates, manufacturers and suppliers must, unless specifically exempt by regulation, follow the QSR and, to the extent required, the equivalent regulation enacted in other foreign jurisdictions, such as the EU (and if necessary, the regulations of its member states) and China, regarding the manufacturing process. If we, our affiliates, our manufacturers or suppliers are found to be in significant non-compliance or fail to take satisfactory corrective action in response to adverse QSR inspectional findings, or to findings of similar foreign regulatory agencies, the U.S. FDA and these other similar foreign regulatory agencies could take enforcement actions against us, our affiliates, manufacturers and suppliers which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. Accordingly, our operating results could suffer.
Product and services liability suits, whether or not meritorious, could be brought against us. These suits could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.
If any of our current or future products and services that we make or sell (including items that we source from third-parties) are defectively designed or manufactured contain defective components, are misused, have safety or quality issues, have inadequate operating guidelines, or if someone claims any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our devices or their services or failing to adhere to the operating guidelines could cause significant harm to patients, including death. The foregoing events could lead to recalls or safety alerts, result in the removal of a product or service from the market and result in product liability or similar claims being brought against us.
Any product liability claims brought against us could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. While we maintain product liability insurance, we may not have sufficient insurance coverage for all future claims. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and could reduce revenue. Product and services liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results of operations.
Broad-based domestic and international government initiatives to reduce spending, particularly those related to healthcare costs, may reduce reimbursement rates for medical procedures, which will reduce the cost-effectiveness of our products and services.
Healthcare reforms, changes in healthcare policies and changes to third-party coverage and reimbursements, including legislation enacted reforming the U.S. healthcare system, and any future changes to such legislation, may affect demand for our products and services and may have a material adverse effect on our financial condition and results of operations. There can be no assurance that current levels of reimbursement will not be decreased in the future, or that future legislation, regulation, or reimbursement policies of third-parties will not adversely affect the demand for our products and services or our ability to sell products and provide services on a profitable basis. The adoption of significant changes to the healthcare system in the United States, Europe, the EEA or other jurisdictions in which we may market our products and services, could limit the prices we are able to charge for our products and services or the amounts of reimbursement available for our products and services, could limit the acceptance and availability of our products and services, reduce medical procedure volumes and increase operational and other costs. President Trump has stated that he intends to “repeal and replace” the Affordable Care Act, and Congress has taken initial steps to repeal the law. In December 2017, Congress passed and the President signed into law tax reform legislation that made significant changes to the Affordable Care Act including the repeal of the “individual mandate” that was in place to strongly encourage broad participation in the health insurance markets. Given these changes and other statements of political leaders, we cannot predict the ultimate impact on the Affordable Care Act and the subsequent effect on our business at this time. While we are unable to predict what changes may ultimately be enacted, to the extent that future changes affect how our products and services are paid for and reimbursed by government and private payers our business could be adversely impacted.
We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or internationally, or the effect that any future legislation or regulation will have on us. The expansion of government’s role in any country’s healthcare industry may result in decreased profits to us, lower reimbursements by third-parties for procedures in which our products and services are used, and reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations.
We are or may be subject to federal, state and foreign healthcare fraud and abuse laws and regulations.
Many federal, state and foreign healthcare laws and regulations apply to medical devices. We are or may be subject to certain federal and state regulations, including the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, offering, receiving, or paying any remuneration, directly or indirectly, in cash or in kind, to induce or reward purchasing, ordering or arranging for or recommending the purchase or order of any item or service for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid; HIPAA which imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for, healthcare benefits, items or services; the federal Civil Monetary Penalties Law, which authorizes the imposition of substantial civil monetary penalties against an entity that engages in activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program; (3) violations of the federal Anti-Kickback Statute; or (4) failing to report and return a known overpayment; the federal False Statements Statute, which prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry, in connection with the delivery of or payment for healthcare benefits, items, or services; the federal civil False Claims Act (or FCA) which prohibits, among other things, knowingly presenting, or causing to be presented claims for payment of government funds that are false or fraudulent, or knowingly making, using or causing to be made or used a false record or statement material to such a false or fraudulent claim, or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government; and other federal and state false claims laws. The FCA prohibits anyone from knowingly presenting, conspiring to present, making a false statement in order to present, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including medical devices, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. This law also prohibits anyone from knowingly underpaying an obligation owed to a federal program. Increasingly, U.S. federal agencies are requiring nonmonetary remedial measures, such as corporate integrity agreements in FCA settlements. The U.S. Department of Justice announced in 2016 its intent to follow the “Yates Memo,” taking a far more aggressive approach in pursuing individuals as FCA defendants in addition to the corporations.
The majority of states also have statutes similar to the federal anti-kickback law and false claims laws that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, that apply regardless of whether the payer is a government entity or a private commercial entity. The Federal Open Payments, or Physician Payments Sunshine Act, program requires manufacturers of products for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program, to track and report annually to the federal government (for disclosure to the public) certain payments and other transfers of value made to physicians and teaching hospitals as well as disclosure of payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations. Our failure to appropriately track and report payments to the government could result in civil fines and penalties, which could adversely affect the results of our operations. In addition, several U.S. states and localities have enacted legislation requiring medical device companies to establish marketing compliance programs, file periodic reports with the state, and/or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. Other state laws prohibit certain marketing-related activities including the provision of gifts, meals or other items to certain healthcare providers. Many of these laws and regulations contain ambiguous requirements that government officials have not yet clarified. Given the lack of clarity in the laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations.
The medical device industry has been under heightened scrutiny as the subject of government investigations and enforcement actions involving manufacturers who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business, including arrangements with physician consultants. If our operations or arrangements are found to be in violation of such governmental regulations, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment of our operations. All of these penalties could adversely affect our ability to operate our business and our financial results.
The operation of our monitoring centers is subject to rules and regulations governing IDTFs and state licensure requirements; failure to comply with these rules could prevent us from receiving reimbursement from Medicare and some commercial payors.
We operate two monitoring centers in the United States that receive and analyze the data obtained from our patient monitors and generate preliminary reports that are delivered to physicians. To receive reimbursement from Medicare and some commercial payors, our monitoring centers must be certified as IDTFs. As a certified IDTF, we must adhere to strict regulations governing how our monitoring centers operate, and how our technicians are trained and certified on analyzing the data received from our monitors. These rules and regulations are subject to change, and vary from location to location. Changes may require modifications at our monitoring centers, which could increase our costs significantly. If we fail to maintain IDTF certification, our services may no longer be reimbursed by Medicare and some commercial payors, which could have a material adverse impact on our business.
Audits or denials of our claims by government agencies and private payors could reduce our revenue and have an adverse effect on our results of operations.
Our business operations submit claims on behalf of patients to, and receive payments from, Medicare, Medicaid and other third-party payors. We must submit reimbursement claims under appropriate codes and maintain certain documentation to support our claims. Medicare contractors and Medicaid agencies periodically conduct reviews and other audits of claims and are under increasing pressure to more closely scrutinize health care claims and supporting documentation. Such reviews and similar audits of our claims could result in material delays in payment, as well as material recoupments or denials, which would reduce our net sales and profitability, or may result in our exclusion from participation in the Medicare or Medicaid programs. We are also subject to similar review and audits from private payors, which may result in material delays in payment and material recoupments and denials. In addition, state agencies may conduct investigations or submit requests for information relating to claims data submitted to private payors.
Losing a payor would impact our sales and adversely affect our business and operating results.
Our largest payor, Medicare, accounted for approximately 30% of our monitoring service revenue for the year ended December 31, 2019 and the six months ended June 30, 2020. The next largest payor accounted for approximately 20% of total revenue. Our contracts with commercial payors may allow either party to terminate the agreement by providing between 60 and 120 days’ prior written notice to the other party at any time following the end of the initial term of the contract. Commercial payors may choose to terminate or not renew their contracts with us for any reason and, in some instances, can change the reimbursement rates they agree to pay. A commercial payor who terminates or does not renew their contract with us may, or may not, alter their coverage of our services. In the event any of our key commercial payors terminate their agreements with us, elect not to renew or enter into new agreements with us upon expiration of their current agreements, or do not renew or establish new agreements on terms as favorable as are currently contracted, our business, operating results and prospects would be adversely affected.
If we are found to have violated laws protecting the confidentiality and privacy 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.
As part of our clinical trials and the use of our products, we may have access to medical data of patients. There are a number of federal and state laws protecting the confidentiality and privacy 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 promulgated patient privacy and security rules under the HIPAA. These privacy and security 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. We may face difficulties in holding such information in compliance with applicable law. If we are found to be in violation of the privacy and security rules under HIPAA, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain effective patent rights for our products and services, we may not be able to compete effectively in our markets. If we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us.
We have applied for various patents, in different territories. Three patents already granted, two in China and one in the U.S. We presently have seventeen patent applications which are still pending. In addition to the protection afforded by any patents that may be granted, historically, we have relied on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes that are not easily known, knowable or easily ascertainable, and for which patent infringement is difficult to monitor and enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data, trade secrets and intellectual property by maintaining physical security of our premises and physical and electronic security of our information technology systems. Agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets and intellectual property may otherwise become known or be independently discovered by competitors.
Also, there is a risk that the patent applications that were submitted by us with regards to our technologies will not be granted. In the event of failure to obtain granted patents, our developments will not be proprietary, subject to publication, which might allow other entities to manufacture our products or develop our methods of use as services and compete with our products, technologies, and/or services, which could leave us at a competitive disadvantage.
Further, there is no assurance that all potentially relevant prior art relating to our patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our products or services, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patent applications and any future patents may not adequately protect our products or services and provide patent exclusivity for our new products or services, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If we cannot obtain and maintain effective patent rights for our products and services, we may not be able to compete effectively, and our business and results of operations would be harmed.
We cannot provide any assurances that our trade secrets and other confidential proprietary information will not be disclosed in violation of our confidentiality agreements or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Also, misappropriation or unauthorized and unavoidable disclosure of our trade secrets and intellectual property could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets and intellectual property are deemed inadequate, we may have insufficient recourse against third parties for misappropriating any trade secret.
Intellectual property rights of third parties could adversely affect our ability to commercialize our products and services, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.
It is inherently difficult to conclusively assess our freedom to operate without infringing on third-party rights. Our competitive position may be adversely affected if existing patents or patents resulting from patent applications issued to third parties or other third-party intellectual property rights are held to cover our products or services or elements thereof, or our manufacturing or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products or services or our product candidates (and any relevant services) unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may also be pending patent applications that if they result in issued patents, could be alleged to be infringed by our new products or services. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our new products or services or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.
It is also possible that we have failed to identify relevant third-party patents or applications. For example, U.S. patent applications filed before November 29, 2000 and certain U.S. patent applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our new products or services could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our services, our new products or the use of our new products. Third-party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our new products or services. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our new products or services that are held to be infringing. We might, if possible, also be forced to redesign our new products so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing new products and services. As our industries expand and more patents are issued, the risk increases that our products and services may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, designs or methods of manufacture related to the use or manufacture of our products or services. There may be currently pending patent applications or continued patent applications that may later result in issued patents that our products or services may infringe. In addition, third parties may obtain patents or services in the future and claim that use of our technologies infringes upon these patents.
If any third-party patents were held by a court of competent jurisdiction to cover aspects of our processes for designs, or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtain a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our products or services. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or services, or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of any patents that may issue from our patent applications, or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we were the first to file the invention claimed in our owned and licensed patent or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming all other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention without undue delay in filing, is entitled to the patent, while generally outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (or the Leahy-Smith Act) enacted on September 16, 2011, the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business and financial condition.
We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our intellectual property. If we were to initiate legal proceedings against a third-party to enforce a patent covering one of our new products or services, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office (or the USPTO) or made a misleading statement, during prosecution. Under the Leahy-Smith Act, the validity of U.S. patents may also be challenged in post-grant proceedings before the USPTO. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Derivation proceedings initiated by third parties or brought by us may be necessary to determine the priority of inventions and/or their scope with respect to our patent or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our new products or services to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of the Ordinary Shares.
We may be subject to claims challenging the inventorship of our intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in, or right to compensation, with respect to our current patent and patent applications, future patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our products or services. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on products and services, as well as monitoring their infringement in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products or services and may also export otherwise infringing products or services to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products or services may compete with our products or services. Future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, which could make it difficult for us to stop the marketing of competing products or services in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our future 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 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 monitor and enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks Related to this Offering and the Ownership of the Ordinary Shares
Future sales of our Ordinary Shares could reduce the market price of our Ordinary Shares.
Substantial sales of our Ordinary Shares on the Nasdaq Global Market, including following this offering, may cause the market price of our Ordinary Shares to decline. Sales by us or our security holders of substantial amounts of our Ordinary Shares, or the perception that these sales may occur in the future, could cause a reduction in the market price of our Ordinary Shares.
The issuance of any additional Ordinary Shares or any securities that are exercisable for or convertible into Ordinary Shares, may have an adverse effect on the market price of our Ordinary Shares and will have a dilutive effect on our existing shareholders and holders of Ordinary Shares.
The market price of our Ordinary Shares may be highly volatile, and you could lose all or part of your investment.
The market price of our Ordinary Shares is likely to be volatile. This volatility may prevent you from being able to sell your Ordinary Shares at or above the price you paid for your securities. Our share price could be subject to wide fluctuations in response to a variety of factors, which include:
|●||whether we achieve our anticipated corporate objectives;|
|●||actual or anticipated fluctuations in our quarterly or annual operating results;|
|●||changes in our financial or operational estimates or projections;|
|●||our ability to implement our operational plans;|
|●||termination of the lock-up agreement or other restrictions on the ability of our stockholders to sell shares after this offering;|
|●||changes in the economic performance or market valuations of companies similar to ours; and|
|●||general economic or political conditions in the United States or elsewhere.|
In addition, the stock market in general, and the stock of publicly-traded medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our Ordinary Shares, regardless of our actual operating performance, and we have little or no control over these factors.
Our principal shareholders, officers and directors currently beneficially own approximately 55.4% of our Ordinary Shares. They will therefore be able to exert significant control over matters submitted to our shareholders for approval.
As of the date of this prospectus, our principal shareholders, officers and directors beneficially own approximately 55.4% of our Ordinary Shares. This significant concentration of share ownership may adversely affect the trading price for our Ordinary Shares because investors often perceive disadvantages in owning shares in companies with controlling shareholders. As a result, these shareholders, if they acted together, could significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of other shareholders.
In addition, our Amended and Restated Memorandum and Articles of Association to be in effect upon the consummation of this offering include a provision pursuant to which all of the holders of our outstanding shares immediately prior to this offering shall be restricted from transferring or otherwise disposing of any Ordinary Shares for a period of three months after the consummation of this offering (or the Three Month Lock-Up). The Three Month Lock-Up does not apply to any new shares issued in this offering or thereafter. Pursuant to the underwriting agreement for this offering, we have further undertaken to convene and hold a general meeting of our shareholders (to be held within 75 days after this offering) where we will ask our shareholders to amend our Amended and Restated Memorandum and Articles of Association to extend the Three Month Lock-Up to a period of six months after the consummation of this offering. Certain members of our management and board of directors, including our Chief Executive Officer, who hold a total of 30,316,900 Ordinary Shares, have agreed to vote in favor of this amendment.
If you purchase the Ordinary Shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The offering price of the Ordinary Shares is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore, if you purchase Ordinary Shares in this offering, you will pay a price per Ordinary Share that substantially exceeds our net tangible book value per Ordinary Share after this offering. To the extent outstanding options or warrants are exercised, you will incur further dilution. Based on an assumed offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $5.9995 per Ordinary Share, representing the difference between our pro forma net tangible book value per Ordinary Share after giving effect to this offering and the offering price. See “Dilution” for further information.
Certain agreements that we entered into with the Convertible Securities Holders contain, and future debt agreements may contain, restrictions that may limit our flexibility in operating our business.
The Convertible Securities Agreement and General Security Agreement contain, and documents governing our future indebtedness may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters. These restrictive covenants include restrictions on, among others, our ability to:
dispose of assets unless such disposal is in the ordinary course of business for fair market value, and where the value of the assets subject to the disposal is greater than A$1,000,000 (approximately $720,000), if required by the Convertible Securities Holders, we must use at least 50% of the net proceeds to repay the Convertible Securities Holders;
reduce or consolidate our issued share capital, or reduce any uncalled liability in respect thereof, other than for limited matters, as permitted under Australian law, or if required for the listing of our Ordinary Shares on Nasdaq;
subject to certain terms, issue or agree to issue securities that have a variable interest rate or are convertible into, exchangeable for, or include the right to receive Ordinary Shares or other securities;
conduct an initial public offering of our Ordinary Shares on the Nasdaq at an offering price per share lower than A$3.60 (approximately $2.60);
change the nature of our business or re-incorporate in a different jurisdiction;
grant any security interest over any of our (including our subsidiaries) assets; or
|●||make an application under the Corporations Act 2001 (or the Corporations Act) to bring about proceedings with our creditors in the courts of Australia.|
Our ability to comply with these and other provisions of the existing debt agreements is dependent on our future performance, which will be subject to many factors, some of which are beyond our control. The breach of any negative covenants could result in an event of default under the Transaction Documents, which, if not cured or waived, could result in an event of default, thereby leading to an increase in the face value of the Convertible Securities by 10% and, if declared, making all amounts payable by us under the Transaction Documents to immediately be due and payable to the Convertible Securities Holders. In addition, if an event of default occurs under the Transaction Documents, interest shall be payable on the Convertible Securities at a rate of 3% per annum, accrued daily and compounded monthly from the date of default.
We do not know whether a market for the Ordinary Shares will be sustained or what the trading price of the Ordinary Shares will be and as a result it may be difficult for you to sell your Ordinary Shares.
Although we intend to list the Ordinary Shares on the Nasdaq Global Market, an active trading market for the Ordinary Shares may not be sustained. It may be difficult for you to sell your Ordinary Shares without depressing the market price for the Ordinary Shares or at all. As a result of these and other factors, you may not be able to sell your Ordinary Shares at or above the offering price or at all. Further, an inactive market may also impair our ability to raise capital by selling Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies, products, or services by using our equity securities as consideration.
We have never paid cash dividends on our share capital, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never declared or paid cash dividends, and we do not anticipate paying cash dividends in the foreseeable future. Therefore, you should not rely on an investment in Ordinary Shares as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.
Management will have broad discretion as to the use of the proceeds from this offering.
Our management will have broad discretion in the allocation of the net proceeds and could use them for purposes other than those contemplated at the time of this offering and as described in the section titled “Use of Proceeds.” Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds.
The JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of the Ordinary Shares.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:
the provisions of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;
Section 107 of the JOBS Act, which provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. As a result of this adoption, our financial statements may not be comparable to companies that comply with the public company effective date;
any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements; and
|●||our ability to furnish two rather than three years of income statements and statements of cash flows in various required filings.|
We intend to take advantage of these exemptions until we are no longer an “emerging growth company.” We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
We cannot predict if investors will find the Ordinary Shares less attractive because we may rely on these exemptions. If some investors find the Ordinary Shares less attractive as a result, there may be a less active trading market for the Ordinary Shares, and our market prices may be more volatile and may decline.
As a “foreign private issuer” we are subject to less stringent disclosure requirements than domestic registrants and are permitted, and may in the future elect to follow certain home country corporate governance practices instead of otherwise applicable SEC and Nasdaq requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. registrants.
As a foreign private issuer and emerging growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
We will follow Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, Cayman Islands laws and regulations applicable to Cayman Islands companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic registrants that are non-accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Cayman Islands laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. registrant.
These exemptions and leniencies will reduce the frequency and scope of information and protections to which you are entitled as an investor.
The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2021. In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic registrant may be significantly higher.
We may be a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes in the current taxable year or may become one in any subsequent taxable year. There generally would be negative tax consequences for U.S. taxpayers that are holders of the Ordinary Shares if we are or were to become a PFIC.
Based on the projected composition of our income and valuation of our assets, we do not expect to be a PFIC for 2019, and we do not expect to become a PFIC in the future, although there can be no assurance in this regard. The determination of whether we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. We will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of our gross income is “passive income” or (2) on average at least 50% of our assets by value produce passive income or are held for the production of passive income. 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 a public 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 tests for determining PFIC status are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. In addition, our PFIC status may depend in part on the market value of the Ordinary Shares. Accordingly, there can be no assurance that we currently are not or will not become a PFIC in the future. If we are a PFIC in any taxable year during which a U.S. taxpayer holds the Ordinary Shares, such U.S. taxpayer would be subject to certain adverse U.S. federal income tax rules. In particular, if the U.S. taxpayer did not make an election to treat us as a “qualified electing fund” (or QEF) or make a “mark-to-market” election, then “excess distributions” to the U.S. taxpayer, and any gain realized on the sale or other disposition of the Ordinary Shares by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the Ordinary Shares; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the U.S. Internal Revenue Service (or the IRS) determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. taxpayer to make a timely QEF or mark-to-market election. U.S. taxpayers that have held the Ordinary Shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. taxpayer who made a timely QEF or mark-to-market election. A U.S. taxpayer can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. We do not intend to notify U.S. taxpayers that hold the Ordinary Shares if we believe we will be treated as a PFIC for any taxable year in order to enable U.S. taxpayers to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. taxpayers annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC. U.S. taxpayers that hold the Ordinary Shares are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to the Ordinary Shares in the event that we are a PFIC. See “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies” for additional information.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could seriously hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or the Ordinary Shares, our share price and trading volume could decline.
The trading market for the Ordinary Shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding the Ordinary Shares, or provide more favorable relative recommendations about our competitors, the price of our Ordinary Shares would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our Ordinary Shares or trading volume to decline.
Risks Related to Cayman Law and Our Incorporation in the Cayman Islands
We are a Cayman Islands exempted company with limited liability. The rights of our shareholders may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.
We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Amended and Restated Memorandum and Articles of Association and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, the board of directors of a solvent Cayman Islands exempted company is required to consider that company’s interests, and the interests of its shareholders as a whole, which may differ from the interests of one or more of its individual shareholders. See “Description of Share Capital and Governing Documents— Material Differences in Corporate Law.”
Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.
Our corporate affairs are governed by our Amended and Restated Memorandum and Articles of Association, by the Companies Law (as amended) of the Cayman Islands (or the Cayman Islands Companies Law) and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly defined as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less formal nature of Cayman Islands law in this area.
While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court-sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a merger or consolidation of a company. This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands (or the Grand Court) for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.
Shareholders of Cayman Islands exempted companies (such as ours) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Under Cayman Islands’ law, a minority shareholder may bring a derivative action against the board of directors only in very limited circumstances, or seek to wind up the company on the just and equitable ground. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.
Under Cayman Islands statutory law, a transferee to a scheme or contract involving the transfer of shares in a Cayman Islands company, which has been approved by holders of not less than 90% in value of the shares affected, has the power to compulsorily acquire the shares of any dissenting shareholders. An objection to such acquisition can be made to the Grand Court by any dissenting shareholder but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion. A Cayman Islands company may also propose a compromise or arrangement with its shareholders or any class of them. If a majority in number, representing at least 75% in value, of shareholders agrees to the compromise or arrangement then, subject to Grand Court approval of the same, it is binding on all of the shareholders. A shareholder may appear at the Grand Court hearing by which the company seeks the Grand Court’s approval of the compromise or arrangement to oppose it.
United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in judgments obtained in U.S. courts based on the civil liability provisions of U.S. federal securities laws against us and our officers and directors who are not resident in the United States.
Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters, and is not impeachable under Cayman Islands law for fraud, being in breach of public policy of the Cayman Islands or being contrary to natural justice. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.
Risks Related to Conducting Business in China
Our principal manufacturing facility is located in China, and we plan to operate in the Chinese market, each of which subjects us to the following and similar risks:
Changes in the Chinese government’s macroeconomic policies or its public policy could have a negative effect on our business and results of operations.
The Chinese government has implemented various measures to control the rate of economic growth in China. Some of these measures may have a negative effect on us over the short or long term. Previously, to cope with high inflation and financial imbalances, the Chinese government sharply tightened monetary policy and, in addition, enacted a series of social programs and anti-inflationary measures. These measures have, in conjunction, increased the costs on the financial and manufacturing sectors, destabilized the real estate sector and significantly slowed down the rate of economic growth in China. The Chinese government may be forced to engage in further macroeconomic policy shifts in order to limit instability and/or damage to certain business models or markets, or engage other, new practices in order to re-stimulate the rate of economic growth in China. The Chinese government’s continued attempts at managing the Chinese economy through a variety of macroeconomic policies, even if effected properly, or new practices, which the Chinese government does not have experience with, may further slow China’s economy growth and/or cause great social unrest, all of which would have a negative effect on our business and results of operations.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.
China has recently only permitted provincial and local economic autonomy and private economic activities. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its economic policies and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure compliance with such regulations or interpretations.
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest of any interest we hold in Chinese properties or joint ventures.
Uncertainties with respect to the Chinese legal system could adversely affect us.
The Chinese legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Since these laws and regulations are relatively new and the Chinese legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws, regulations and rules involves uncertainties.
In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.
Chinese regulation of loans to and direct investment in Chinese entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans to or make additional capital contributions to our Chinese subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Risks Related to Our Operations in Israel
We maintain material operations in Israel, which subjects us to the following and similar risks:
It may be difficult to enforce a judgment of a U.S. court against us and our officers and directors and the Israeli experts named in this prospectus in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these experts.
The vast majority of our executive officers and directors and the Israeli experts named in this prospectus are located in Israel. All of our assets and most of the assets of these persons are located in Israel. Therefore, a judgment obtained against us, or any of these persons, 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 necessarily be enforced by an Israeli court. It also may be difficult to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws 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 not be able to collect any damages awarded by either a U.S. or foreign court. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.
Potential political, economic and military instability in the State of Israel, where our management team and our research and development facilities are located, may adversely affect our results of operations.
Our operating subsidiary, along with our management team and our research and development facilities are located in Israel. In addition, the vast majority of our officers and directors 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 neighboring Arab countries, the Hamas militant group and the Hezbollah. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. Ongoing and revived hostilities or other Israeli political or economic factors, such as, an interruption of operations at the Tel Aviv airport, could prevent or delay our regular operation, product development and delivery of products. If continued or resumed, these hostilities may negatively affect business conditions in Israel in general and our business in particular. In the event that hostilities disrupt the ongoing operation of our facilities and our operations may be materially adversely affected.
In addition, since 2010 political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns regarding security in the region and the potential for armed conflict. In Syria, a country bordering Israel, a civil war is taking place. In addition, it is widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. Additionally, the Islamic State of Iraq and Levant, a violent jihadist group, is involved in hostilities in Iraq and Syria. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy in general and us in particular. Any potential future conflict could also include missile strikes against parts of Israel, including our offices and facilities. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and certain other countries. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. Several countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. Similarly, Israeli companies are limited in conducting business with entities from several countries. For instance, the Israeli legislature passed a law forbidding any investments in entities that transact business with Iran. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Our employees and consultants in Israel, including members of our senior management, may be obligated to perform one month, and in some cases longer periods, of military reserve duty until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves) and, in the event of a military conflict or emergency circumstances, may be called to immediate and unlimited active duty. In the event of severe unrest or other conflict, individuals could be required to serve in the military for extended periods of time. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our officers, directors, employees and consultants related to military service. Such disruption could materially adversely affect our business and operations. Additionally, the absence of a significant number of the employees of our Israeli suppliers and contractors related to military service or the absence for extended periods of one or more of their key employees for military service may disrupt their operations.
Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations and product development.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial conditions or the expansion of our business. Similarly, Israeli corporations are limited in conducting business with entities from several countries.
We may be required to pay monetary remuneration to our Israeli employees for their inventions, even if the rights to such inventions have been duly assigned to us.
We enter into agreements with our Israeli employees pursuant to which such individuals agree that any inventions created in the scope of their employment are assigned to us or owned exclusively by us, depending on the jurisdiction, without the employee retaining any rights. A significant portion of our intellectual property has been developed by our Israeli employees during the course of their employment for us. Under the Israeli Patent Law, 5727-1967 (or the Patent Law) inventions conceived by an employee during the scope of his or her employment with a company, and as a consequence of such employment, are regarded as “service inventions,” which belong to the employer by default, absent a specific agreement between the employee and employer giving the employee ownership rights. The Patent Law also provides that if there is no agreement between an employer and an employee, regarding the remuneration for the service inventions, even if the ownership rights were assigned to the employer, the Israeli Compensation and Royalties Committee (or the Committee), a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for these inventions. The Committee has not yet determined the method for calculating this Committee-enforced remuneration. While it has been held that an employee may waive his or her rights to remuneration, and that a waiver of such rights may be concluded like any other agreement, in writing, orally or by conduct, pending litigation in the Israeli labor court is questioning whether such waiver under an employment agreement is enforceable. Although our Israeli employees have agreed that any rights related to their inventions are owned exclusively by us, we may face claims demanding remuneration in consideration for employees’ service inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could negatively affect our business.
Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.
Forward-looking statements include, but are not limited to, statements about:
|●||Our expectation regarding the sufficiency of our existing cash and cash equivalents to fund our current operations;|
|●||our ability and plans to manufacture, market and sell our products and services;|
|●||the commercial launch and future sales of our existing products or services or any other future potential product candidates or services;|
|●||our plan to further expand by targeting healthcare providers who can benefit from our comprehensive service offerings;|
|●||our intention to drive multiple recurring revenue streams, across consumer and professional healthcare verticals and in geographical territories;|
|●||our expectations regarding future growth;|
|●||our planned level of capital expenditures;|
|●||our plans to continue to invest in research and development to develop technology for both existing and new products;|
|●||our anticipation that we will penetrate a higher number of distribution channels and markets with a relatively low overhead;|
|●||our anticipation that the monitoring services will continue to grow thereby increasing monthly recurring revenues payable to us;|
|●||anticipated actions of the U.S. FDA, state regulators, if any, or other similar foreign regulatory agencies, including approval to conduct clinical trials, the timing and scope of those trials and the prospects for regulatory approval or clearance of, or other regulatory action with respect to our products or services;|
|●||our ability to launch and penetrate markets in new locations, including taking steps to expand our activities;|
|●||our ability to retain key executive members;|
|●||our ability to internally develop new inventions and intellectual property;|
|●||interpretations of current laws and the passages of future laws;|
|●||acceptance of our business model by investors; and|
|●||our expectations regarding the use of proceeds from this offering.|
These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.
Until recently, our Ordinary Shares traded on the ASX under the symbol “GMV.” On October 22, 2020, our Ordinary Shares were voluntarily delisted from the ASX. In connection with this offering, we have been approved to list the Ordinary Shares on the Nasdaq Global Market under the symbol “GMVD”, subject to notice of issuance. All of the Ordinary Shares, including those to be offered pursuant to this prospectus, have the same rights and privileges. 3,722,222 Ordinary Shares issuable pursuant to performance rights will vest automatically upon the consummation of this offering, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus. See “Description of Share Capital and Governing Documents.”
We expect to receive approximately $26.85 million in net proceeds from the sale of 5,000,000 Ordinary Shares offered by us in this offering (approximately $31.35 million if the underwriters exercise their over-allotment option in full), based upon an assumed public offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
A $1.00 increase or decrease in the assumed public offering price of $6.00 per Ordinary Share would increase or decrease the proceeds from this offering by approximately $5 million, assuming that the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase or decrease of 1,000,000 Ordinary Shares offered would increase or decrease our proceeds by approximately $6 million, assuming the assumed public offering price remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We currently expect to use the net proceeds from this offering for the following purposes:
approximately $12 million to scale up our sales force and marketing initiatives;
approximately $1 million to complete the development of our Wireless Vital Signs Monitoring System;
approximately $2 million to continue the development of our products and next generation products, including clinical trials and other regulatory approval processes; and
|●||the remainder for working capital and general corporate purposes and possible future acquisitions.|
In addition, our board of directors has approved a one-time cash bonus of $240,000 to be paid to Dr. Yacov Geva, our Chief Executive Officer, subject to the consummation of this offering.
Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our global marketing and sales efforts, the development efforts and the overall economic environment. Therefore, our management will retain broad discretion over the use of the proceeds from this offering. We may ultimately use the proceeds for different purposes than what we currently intend. Pending any ultimate use of any portion of the proceeds from this offering, if the anticipated proceeds will not be sufficient to fund all the proposed purposes, our management will determine the order of priority for using the proceeds, as well as the amount and sources of other funds needed.
Pending our use of the net proceeds from this offering, we may invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.
We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects and any other factors deemed relevant by our board of directors.
Under the Cayman Islands Companies Law and our Amended and Restated Memorandum and Articles of Association, a Cayman Islands company may pay a dividend out of its realized or unrealized profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Amended and Restated Memorandum and Articles of Association, dividends can be declared and paid out of funds lawfully available to us. Dividends may be declared and paid in cash or in kind (including paid up share capital or securities in another corporate body). Dividends, if any, would be paid in proportion to the number of Ordinary Shares a shareholder holds. Any dividend unclaimed after a period of three years from the date the dividend became due for payment shall be forfeited and shall revert to us. For further information, see “Taxation—Cayman Islands Taxation.”
The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2020:
on an actual basis;
on a pro forma basis to give effect to the issuance of: (i) 6,888,145 Ordinary Shares issued during July 2020 through October 2020 to our directors, officers, employees and consultants in consideration of services rendered; (ii) 2,614,474 Ordinary Shares issued upon the conversion of $1.95 million outstanding loan from Dr. Yacov Geva to us in July 2020; (iii) 5,555,556 Ordinary Shares issued in private placements for aggregate net proceeds of A$4,672,750 (approximately $3,353,377) in August 2020; (iv) 905,556 Ordinary Shares to Acuity in August 2020 as collateral shares under the Controlled Placement Agreement and cancelation of 2,222,222 due to the termination of the agreement; (v) 27,778 Class D performance rights vested and converted into Ordinary Shares in July 2020; (vi) 123,784 Ordinary Shares as convertible note payment and (vii) 3,722,222 Ordinary Shares issuable will vest automatically upon the consummation of this offering, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; (viii) warrants to purchase up to 3,163,809 Ordinary Shares issuable to GRS, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and (ix) 246,826 Ordinary Shares issued upon the conversion of $1,187,000 of outstanding debt associated with our November 2017 CardioStaff acquisition, calculated based upon an assumed public offering price of $6.00 per Ordinary Share which is the midpoint of the price range set forth on the cover page of this prospectus.
|●||on a pro forma as adjusted basis to give effect to the sale of Ordinary Shares in this offering, at an assumed public offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses, as if the sale of the Ordinary Share had occurred on June 30, 2020.|
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
You should read this table in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
|As of June 30, 2020|
|U.S. dollars in thousands||Actual *||Pro Forma *|| Pro
Adjusted (1) *
|Cash and cash equivalents||543||3,914||30,764|
|Long term debt||2,106||2,243||2,243|
|Shareholders’ equity (deficit):|
|Other reserve and translation fund||1,502||1,502||1,502|
|Non- controlling interest||3,420||3,420||3,420|
|Total shareholders’ equity (deficit)||(3,353||)||2,626||29,476|
The number of Ordinary Shares purchased from us by existing shareholders is based on 54,771,648 Ordinary Shares issued and outstanding as of October 18, 2020, and excludes the following as of such date:
|●||6,196,208 Ordinary Shares issuable upon the exercise of warrants outstanding as of such date, at exercise prices ranging from A$0.77 (approximately $0.56) to A$9.36 (approximately $6.77), all of which vested as of such date;|
|●||122,127 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our Global Plan, outstanding as of such date, at a weighted average exercise price of $3.56, of which 83,905 were vested as of such date; and|
|●||5,428,369 Ordinary Shares reserved for future issuance under our Global Plan.|
|(1)||A $1.00 increase or decrease in the assumed public offering price of $6.00 per Ordinary Share would increase or decrease the amount of each of cash and cash equivalents and total stockholders’ equity by approximately $5 million, assuming that the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A 1,000,000 Ordinary Share increase or decrease in the number of Ordinary Shares offered by us would increase or decrease each of cash and cash equivalents and total shareholders’ equity by approximately $6 million after deducting estimated underwriting discounts and commissions and any estimated offering expenses payable by us.|
If you invest in our Ordinary Shares, your interest will be diluted immediately to the extent of the difference between the public offering price per Ordinary Share you will pay in this offering and the pro forma net tangible book value per Ordinary Share after this offering. On June 30, 2020, we had a negative net tangible book value of $6.2 million, corresponding to a net tangible book value of $(0.169) per Ordinary Share. Net tangible book value per share or per Ordinary Share represents the amount of our total tangible assets less our total liabilities, divided by 36,909,531, the total number of Ordinary Shares issued and outstanding on June 30, 2020.
Our pro forma net tangible book value as of June 30, 2020 was $(0.27) million, representing approximately $(0.000004) per Ordinary Share. Pro forma net tangible book value per Ordinary Share represents the amount of our total tangible assets less our total liabilities, divided by 54,771,648, the total number of Ordinary Shares outstanding at June 30, 2020, after giving effect to the issuance of: (i) 6,888,145 Ordinary Shares issued during July 2020 through October 2020 to our directors, officers, employees and consultants in consideration of services rendered; (ii) 2,614,474 Ordinary Shares issued upon the conversion of $1.95 million outstanding loan from Dr. Yacov Geva to us in July 2020; (iii) 5,555,556 Ordinary Shares issued in private placements for aggregate net proceeds of A$4,672,750 (approximately $3,353,377) in August 2020; (iv) 905,556 Ordinary Shares to Acuity in August 2020 as collateral shares under the Controlled Placement Agreement and cancelation of 2,222,222 due to the termination of the agreement; (v) 27,778 Class D performance rights vested and converted into Ordinary Shares in July 2020; (vi) 123,784 Ordinary Shares as convertible note payment and (vii) 3,722,222 Ordinary Shares issuable will vest automatically upon the consummation of this offering, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; (viii) warrants to purchase up to 3,163,809 Ordinary Shares issuable to GRS, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and (ix) 246,826 Ordinary Shares issued upon the conversion of $1,187,000 of outstanding debt associated with our November 2017 CardioStaff acquisition, calculated based upon an assumed public offering price of $6.00 per Ordinary Share which is the midpoint of the price range set forth on the cover page of this prospectus.
After giving effect to the sale of the Ordinary Shares offered by us in this offering, assuming no exercise of the underwriter’s option to purchase additional Ordinary Shares and after deducting the estimated underwriting discounts and commissions and management fees and estimated offering expenses payable by us, our pro forma net tangible book value estimated at June 30, 2020 would have been approximately $26.6 million, representing $0.0005 per Ordinary Share. At the assumed public offering price for this offering of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, this represents an immediate increase in historical net tangible book value of $0.000504 per Ordinary Share to existing shareholders and an immediate dilution in net tangible book value of $5.9995 per Ordinary Share to purchasers of Ordinary Shares in this offering. Dilution for this purpose represents the difference between the price per Ordinary Share paid by these purchasers and pro forma net tangible book value per Ordinary Share immediately after the completion of this offering.
The following table illustrates this dilution of $5.9995 per Ordinary Share to purchasers of Ordinary Shares in this offering:
|Assumed public offering price per Ordinary Share||$||6.00|
|Pro Forma net tangible book value per Ordinary Share as of June 30, 2020||$||(0.000004||)|
|Increase in pro forma net tangible book value per Ordinary Share attributable to new investors||$||0.000504|
|Pro forma as adjusted net tangible book value per Ordinary Share after this offering||$||0.0005|
|Dilution per Ordinary Share to new investors||$||5.9995|
|Percentage of dilution in net tangible book value per Ordinary Share for new investors||99.99||%|
The dilution information set forth in the table above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
A $1.00 increase or decrease in the assumed initial public offering price of $6.00 per Ordinary Share would increase or decrease our pro forma net tangible book value per Ordinary Share after this offering by $0.0001 thousand and the dilution per Ordinary Share to new investors by $0.9999, assuming the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of Ordinary Shares we are offering.
An increase or decrease of 1,000,000 Ordinary Shares in the number of Ordinary Shares offered by us would increase or decrease our pro forma net tangible book value after this offering by approximately $6 million and the increase or decrease pro forma net tangible book value per Ordinary Share after this offering by $0.00011 per Ordinary Share and would increase or decrease the dilution per Ordinary Share to new investors by $0.0001, after deducting estimated underwriting discounts and estimated offering expenses payable by us.
The following table summarizes, on a pro forma basis as of June 30, 2020, the differences between the number of Ordinary Shares acquired from us, the total amount paid and the average price per Ordinary Share paid by the existing holders of our Ordinary Shares and by investors in this offering and based upon an assumed public offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus.
|Shares||Total Consideration *|| Average
|*||Total Consideration refers to all amounts we received in cash.|
The number of Ordinary Shares purchased from us by existing shareholders is based on 54,771,648 Ordinary Shares issued and outstanding as of October 18, 2020, and excludes the following as of such date:
|●||6,196,208 Ordinary Shares issuable upon the exercise of warrants outstanding as of such date, at exercise prices ranging from A$0.77 (approximately $0.56) to A$9.36 (approximately $6.77), all of which vested as of such date;|
|●||122,127 Ordinary Shares issuable upon the exercise of options to directors, employees and consultants under our Global Plan, outstanding as of such date, at a weighted average exercise price of $3.56, of which 83,905 were vested as of such date; and|
|●||5,428,369 Ordinary Shares reserved for future issuance under our Global Plan.|
If all of such issued and outstanding options and warrants had been exercised as of October 18, 2020, the number of Ordinary Shares held by existing shareholders would increase to 61,089,983, or 92% of the total number of Ordinary Shares issued and outstanding after this offering, and the average price per Ordinary Share paid by the existing shareholders would be $0.88.
If the underwriters exercise their option to purchase additional Ordinary Shares in full in this offering, the number of Ordinary Shares held by new investors will increase to 5,750,000, or 10% of the total number of Ordinary Shares issued and outstanding after this offering and the percentage of Ordinary Shares held by existing shareholders will decrease to 90% of the total Ordinary Shares issued and outstanding.
The following table summarizes our financial data. We have derived the following statements of operations data for the years ended December 31, 2019 and 2018, and the balance sheet data as of December 31, 2019 and 2018, from our audited consolidated financial included elsewhere in this prospectus. We have derived the following statements of operations data for the six months ended June 30, 2019 and 2020, and the balance sheet data as of June 30, 2020, from our unaudited interim condensed financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
Our consolidated financial statements included in this prospectus were prepared in accordance with IFRS, as issued by the IASB.
|U.S. dollars in thousands, except share and per share data||2019||2018||2020||2019|
|Cost of revenues|
|Cost of services||4,702||2,895||2,214||2,592|
|Cost of sales of products||1,047||99||320||85|
|Total cost of revenues||5,749||2,994||2,534||2,677|
|Gross loss (profit)||223||(68||)||524||(231||)|
|Research and development expenses||2,552||4,145||699||1,274|
|Selling, general and administrative expenses||10,004||13,107||3,411||5,708|
|Total operating expenses||12,556||17,252||4,110||6,982|
|Finance expenses, net||3,587||136||356||1,116|
|Loss before taxes on income||16,366||17,320||4,990||7,867|
|Income tax expense (benefit)||(857||)||(345||)||(9||)||(709||)|
|Loss for the year||15,509||16,975||4,981||7,158|
|Foreign currency translation differences||3||(1||)||-||-|
|Other comprehensive income (loss)||3||(1||)||-||-|
|Net comprehensive loss||15,506||16,976||4,981||7,158|
|Net comprehensive loss for the period attributable to:|
|G Medical Innovations Holdings Ltd. Shareholders||15,010||16,263||4,900||6,839|
|Basic and diluted loss per Ordinary Share||$||(0.04||)||$||(0.05||)||$||(0.009||)||$||(0.019||)|
|Pro Forma basic and diluted loss per Ordinary Share (1)||$||(0.72||)||$||(0.9||)||$||(0.162||)||$||(0.342||)|
|(1)||Presented on a pro forma basis to give effect to a one-for-18 reverse stock split of our Ordinary Shares, which is expected to be effected on October 29, 2020.|
|As of June 30, 2020|
|U.S. dollars in thousands||Actual *|| Pro|
Forma (1) *
Adjusted (2) *
|Consolidated Balance Sheet Data:|
|Cash and cash equivalents||543||3,914||30,764|
|Total long term debt||2,106||2,243||2,243|
|Total shareholders’ equity (deficit)||(3,353||)||2,626||29,476|
The pro forma data gives effect to the issuance of: (i) 6,888,145 Ordinary Shares issued during July 2020 through October 2020 to our directors, officers, employees and consultants in consideration of services rendered; (ii) 2,614,474 Ordinary Shares issued upon the conversion of $1.95 million outstanding loan from Dr. Yacov Geva to us in July 2020; (iii) 5,555,556 Ordinary Shares issued in private placements for aggregate net proceeds of A$4,672,750 (approximately $3,353,377) in August 2020; (iv) 905,556 Ordinary Shares to Acuity in August 2020 as collateral shares under the Controlled Placement Agreement and cancelation of 2,222,222 due to the termination of the agreement; (v) 27,778 Class D performance rights vested and converted into Ordinary Shares in July 2020; (vi) 123,784 Ordinary Shares as convertible note payment and (vii) 3,722,222 Ordinary Shares issuable will vest automatically upon the consummation of this offering, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; (viii) warrants to purchase up to 3,163,809 Ordinary Shares issuable to GRS, assuming an offering price of $6.00, which is the midpoint of the price range set forth on the cover page of this prospectus; and (ix) 246,826 Ordinary Shares issued upon the conversion of $1,187,000 of outstanding debt associated with our November 2017 CardioStaff acquisition, calculated based upon an assumed public offering price of $6.00 per Ordinary Share which is the midpoint of the price range set forth on the cover page of this prospectus.
|(2)||The pro forma as adjusted data give effect to the issuance of Ordinary Shares in this offering, at an assumed public offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses, as if the sale of the Ordinary Share had occurred on June 30, 2020.|
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” and under “Risk Factors” elsewhere in this prospectus.
We are an early commercial stage healthcare company engaged in the development of next generation mHealth and telemedicine solutions and monitoring service platforms. We believe we are at the forefront of the digital health revolution in developing the next generation mobile technologies and services that are designed to empower consumers, patients and providers to better monitor, manage and improve clinical and personal health outcomes, especially for those who suffer from CVD, pulmonary disease and diabetes. Using our proprietary suite of devices, software solutions, algorithms and monitoring services, we intend to drive recurring revenue streams in two vertical markets, with a focus on markets in the United States and China as well as other markets: B2B: professional healthcare markets (including hospitals, clinics and senior care facilities); and B2B2C and B2C: consumer healthcare markets.
Components of Operating Results
Revenues and Cost of Revenues
Our total revenue consists of services and sale of products and our cost of revenues consists of cost of services and cost of products. Currently, vast majority of our business activity is in the USA. As such, most of our revenues are from services and Current Procedural Terminology (or CPT) reimbursements from our medical call centers (IDTF). Those includes revenues from our cardiac monitoring services as MCT, CEM, Extended Holters and Holters services.
The following table discloses the breakdown of revenues and costs of revenues:
|U.S. dollars in thousands, except share and per share data||2019||2018||2020||2019|
|Cost of revenues|
|Cost of services||4,702||2,895||2,214||2,592|
|Cost of sales of products||1,047||99||320||85|
|Total cost of revenues||5,749||2,994||2,534||2,677|
|Gross loss (profit)||223||(68||)||524||(231||)|
Our current operating expenses consist of two components — research and development expenses, and selling, general and administrative expenses.
Research and Development Expenses, net
Our research and development expenses consist primarily of salaries and related personnel expenses, subcontractor’s expenses and other related research and development expenses.
The following table discloses the breakdown of research and development expenses:
|U.S. dollars in thousands||2019||2018||2020||2019|
|Payroll and related expenses||1,395||2,518||448||792|
|Share based compensation||441||205||83||35|
|Subcontractors and materials||338||1,037||48||250|
Although we invested less in research and development in 2019 and in the first half of 2020, we expect that our research and development expenses will increase as we continue to develop our products and services and recruit additional research and development employees.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and related expenses, share based compensation, professional service fees for accounting, legal and bookkeeping, facilities, travel expenses and other general and administrative expenses.
The following table discloses the breakdown of general and administrative expenses:
|Six Months Ended|
|U.S. dollars in thousands||2019||2018||2020||2019|
|Payroll and related expenses||2,947||5,536||1,487||1,803|
|Share based compensation||1,006||6||395||411|
|Rent and office maintenance||379||878||145||140|
|Depreciation, amortization and other||3,070||3,222||565||2,048|
Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019
In the following comparison of results of operations, dollar values have been rounded to the nearest thousand, and therefore such values should be read as approximated.
Results of Operations
|U.S. dollars in thousands||2020||2019|
|Cost of revenues|
|Cost of services||2,214||2,592|
|Cost of sales of products||320||85|
|Total cost of revenues||2,534||2,677|
|Gross loss (profit)||524||(231||)|
|Research and development expenses||699||1,274|
|Selling, general and administrative expenses||3,411||5,708|
|Financial expenses, net||356||1,116|
|Loss before taxes on income||4,990||7,867|
|Income tax expense (benefit)||(9||)||(709||)|
|Other comprehensive income (loss)||-||-|
|Net comprehensive loss||4,981||7,158|
Revenues and Cost of Revenues
Our total revenues for the six months ended June 30, 2020 amounted to $2,010,000, which consists primarily of services (approximately 98.5% of total revenues), representing a decrease of $898,000 or 30.9%, compared to $2,908,000 for the six months ended June 30,2019. The decrease was mainly influenced by the effect of the corona virus in 2020.
Our cost of revenues for the six months ended June 30, 2020 amounted to $2,534,000, which consists primarily of cost of services (87.3% of cost of revenues), representing a decrease of $143,000, or 5%, compared to $2,677,000 for the six months ended June 30,2019. The decrease of cost of revenues was mainly related to decrease in salaries and related expenses in the amount of $518,000, and an increase of $174,000 related to depreciation expenses and write off inventory in the amount of $261,000.
Research and Development Expenses
Our research and development expenses for the six months ended June 30, 2020 amounted to $699,000, representing a decrease of $575,000, or 45.1%, compared to $1,274,000, for the six months ended June 30, 2019. The decrease was primarily attributable to our decision to streamline our operational activities, resulting in a decrease of $297,000 in salaries and related expenses, reflecting a decrease in the number of research and development employees and a decrease related to subcontractors in the amount of $264,000.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the six months ended June 30, 2020 amounted to $3,411,000, representing a decrease of $2,297,000, or 40.2%, compared to $5,708,000 for the six months ended June 30, 2019. The decrease was primarily attributable to our decision to implement operational efficiencies. The main decrease was of $316,000 in salaries and $790,000 related to depreciation and amortization expenses.
As a result of the foregoing, our operating loss for the six months ended June 30, 2020 amounted to $4,634,000, compared to an operating loss of $6,751,000, for the six months ended June 30,2019, a decrease of $2,117,000, or 31.3%. The decrease was primarily attributable to our decision to implement operational efficiencies. The main decrease was of $1,178,000 in salaries and related expenses, $359,000 related to subcontractors and advisors and $616,000 related to depreciation and amortization expenses in our operating expenses.
Financial Expense and Income
Financial expense and income consist of interest, bank fees, revaluation of the derivative liability and exchange rate differences.
We recognized net financial expenses for the six months ended June 30, 2020 of $356,000, compared to net financial expenses of $1,116,000 for the six months ended June 30, 2019. The decrease was primarily attributable to a decrease of $ 272,000 related to early redemption of the Convertible Securities, $313,000 related to adjusting derivative liability and $198,000 attributed to decrease of interest on loans received from our controlling shareholder, a decrease in the amount of the loans, mainly as a result of the conversion of loans into shares in 2020.
Total Comprehensive Loss
As a result of the foregoing, our total comprehensive loss for the six months ended June 30, 2020 was $4,981,000, compared to $7,158,000 for the six months ended June 30, 2019, a decrease of $2,177,000, or 30.4%.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
In the following comparison of results of operations, dollar values have been rounded to the nearest thousand, and therefore such values should be read as approximated.
Results of Operations
|U.S. dollars in thousands||2019||2018|
|Cost of revenues|
|Cost of services||4,702||2,895|
|Cost of sales of products||1,047||99|
|Total cost of revenues||5,749||2,994|
|Gross loss (profit)||223||(68||)|
|Research and development expenses||2,552||4,145|
|Selling, general and administrative expenses||10,004||13,107|
|Financial expenses, net||3,587||136|
|Loss before taxes on income||16,366||17,320|
|Income tax expense (benefit)||(857||)||(345||)|
|Other comprehensive income (loss)||3||(1||)|
|Net comprehensive loss||15,506||16,976|
Revenues and Cost of Revenues
Our total revenues for the year ended December 31, 2019 amounted to $5,526,000 consists primarily of services (approximately 99.8% of total revenues), representing an increase of $2,464,000 or 80.4%, compared to $3,062,000 for the year ended December 31, 2018. The increase was mainly due to the acquisition of Telerhythmics at the end of 2018, which mainly affected sales of services in 2019. Acquiring Telerhythmics opened for the company more practices to work with, increased the number of payors contracts that provided extra revenue source and a larger base of customers.
Our cost of revenues for the year ended December 31, 2019 amounted to $5,749,000, consists primarily of cost of services (81.7% of cost of revenues), representing an increase of $2,755,000, or 92%, compared to $2,994,000 for the year ended December 31, 2018. The increase of cost of revenues was mainly related to our acquisition of Telerhythmics, an increase in our activity and to a lesser extent, to a write off inventory in the amount of approximately $905,000.
Healthcare reforms, changes in healthcare policies and changes to third-party coverage and reimbursements, including legislation enacted reforming the U.S. and foreign healthcare system, and any future changes to such legislation, may affect demand for our products and services and may have a material adverse effect on our revenues from the sale of our products and services. Government payors, as well as insurers, have increased their efforts to control the cost, utilization and delivery of healthcare services. Over the past few years, reimbursement rates from certain third parties have declined, in some cases significantly. If third-party payors do not provide adequate coverage and reimbursement for the use of our products and services, our revenue will be negatively impacted.
In the event that our products, such as our Prizma device, receive additional regulatory approvals, for example from the NMPA in China, we expect that our revenues will increase from the sale of our products. In addition, we are scaling up our efforts to sell our products and services. We cannot be sure that our products will obtain such regulatory approvals and increase in sales will increase the cost of our revenues.
Research and Development Expenses
Our research and development expenses for the year ended December 31, 2019 amounted to $2,552,000, representing a decrease of $1,593,000, or 38.4%, compared to $4,145,000 for the year ended December 31, 2018. The decrease was primarily attributable to our decision to streamline our operational activities, the main decrease was of $1,100,000 in salaries and related expenses, reflecting a decrease in the number of research and development employees.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the year ended December 31, 2019 amounted to $10,004,000, representing a decrease of $3,103,000, or 23.6%, compared to $13,107,000 for the year ended December 31, 2018. The decrease was primarily attributable to our decision to implement operational efficiencies. The main decrease was of $2,600,000 in salaries.
Our selling expenses will likely increase as we scale up our efforts to sell our products and services in the future (after we obtain the necessary regulatory approvals to conduct such operations). In addition, as a result of our successful listing of our Ordinary Shares on the Nasdaq Global Market, our general and administrative expenses to maintain regulatory demands as a public company, is likely to be more expensive.
As a result of the foregoing, our operating loss for the year ended December 31, 2019 amounted to $12,779,000, compared to an operating loss of $17,184,000 for the year ended December 31, 2018, a decrease of $4,405,000, or 25.6%. The decrease was primarily attributable to our decision to implement operational efficiencies such as reduction in head count and salary adjustments, implementing sophisticated software which reduced the time to analyze ECG reports, etc. The main decrease was of $3,700,000 in salaries and related expenses in our operating expenses.
Financial Expense and Income
Financial expense and income consist of interest, bank fees, revaluation of the derivative liability and exchange rate differences.
We recognized net financial expenses for the year ended December 31, 2019 of $3,587,000, compared to net financial expenses of $136,000 for the year ended December 31, 2018. The increase was primarily attributable to early redemption of the Convertible Securities and accrued interest on loans received from our controlling shareholder.
Total Comprehensive Loss
As a result of the foregoing, our total comprehensive loss for the year ended December 31, 2019 was $15,506,000, compared to $16,976,000 for the year ended December 31, 2018, a decrease of $1,470,000, or 8.6%.
Impact of COVID-19
The global spread of COVID-19 led many countries, including the United States, Israel and China (where we maintain material operations), to impose stringent limitations on movement, gatherings, transit of passengers and goods and to close the borders between countries. The responses of governments have notably impacted many economies as well as capital markets worldwide.
From March 17, 2020 until April 30, 2020, our Israeli subsidiary operated in a limited capacity, while the majority of our office personnel were on leave of absence, and only the finance and research development departments continued operating. Until May 25, 2019, office and management personnel of G Medical China were working remotely. As of the day of this prospectus, office and management personnel of our subsidiaries in the United States are working partly remotely.
We experienced a decline in sales during the month of March 2020 with a slow decline, when our revenues constituted $275,000, and a full impact of COVID-19 by April 2020, when our revenues dropped to $195,000, which represents our lowest revenue in any month during 2020. During the months May and June 2020, however, we experienced a strong increase in sales, as evidenced by our respective revenues of $279,000 and $561,000. It is unclear whether the reduction in sales we experienced in March and April 2020 or the increase in sales we experienced in May and June 2020 was temporary. It is also currently unclear the extent to which COVID-19 may impact our business and financial results going forward, as the impact will depend on future developments with the pandemic which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions by governments around the world to contain COVID-19 or treat its impact, among others.
Critical Accounting Policies and Estimates
We describe our significant accounting policies more fully in Note 2 to our consolidated financial statements included elsewhere in this prospectus. We believe that the accounting policy described in Note 2 is critical in order to fully understand and evaluate our financial condition and results of operations.
We prepare our financial statements in accordance with IFRS. At the time of the preparation of the financial statements, our management is required to use estimates, evaluations and assumptions which affect the application of the accounting policy and the amounts reported for assets, obligations, income and expenses. Any estimates and assumptions are continually reviewed. The changes to the accounting estimates are credited during the period in which the change to the estimate is made.
The consolidated entity has a share-based remuneration scheme for employees and other service providers. The fair value of options is estimated by using the Monte-Carlo simulation, which was derived to model the value of our equity over time. The simulation model was designed to take into account the unique terms and conditions of the three classes of performance rights and options, as well as our capital structure and the volatility of our assets, on the date of grant, based on certain assumptions.
Those conditions are described in the share-based compensation Note 14 to our consolidated financial statements included elsewhere in this prospectus. The fair value of the equity settled options granted is charged to statement of comprehensive income over the vesting period of each tranche and the credit is taken to equity, based on the consolidated entity’s estimate of shares that will eventually vest.
Liquidity and Capital Resources
Since our inception through December 31, 2019, we have funded our operations principally from the issuance of Ordinary Shares, options, convertible securities and loans. As of December 31, 2018, we had $2,634,000 in cash and cash equivalents. As of December 31, 2019, we had no cash and cash equivalents.
The table below presents our cash flows for the periods indicated:
|U.S. dollars in thousands||2019||2018|
|Net increase (decrease) in cash and cash equivalents||(2,622||)||(11,462||)|
Cash Flows Used in Operating Activities
Net cash used in operating activities was $6,297,000, during the year ended December 31, 2019, compared to net cash used in operating activities of $15,456,000 during the year ended December 31, 2018, primarily reflected the increase in noncash expenses of $1,351,000 in share based compensation, amount of $2,651,000 in change in fair value of convertible loan securities and amount of $2,101,000 in inventories.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $429,000 during the year ended December 31, 2019, compared to net cash used in investing activities of $4,856,000 during the year ended December 31, 2018, primarily reflected the purchase of equipment and the investment in for our operations in the United States in 2018.
Cash Flows Provided by Financing Activities
Net cash provided by financing activities was $4,104,000 for the year ended December 31, 2019, compared to net cash provided by financing activities of $8,850,000 for the year ended December 31, 2018, primarily reflected the cash from issuing convertible securities in the amount of approximately $4,000,000 in 2018.
As of December 31, 2019, our credit arrangements include loans received from Bank Mizrahi Tefahot in Israel, from Dr. Yacov Geva, who is our controlling shareholder Chief Executive Officer and President, and other private lenders (in connection with our acquisition of CardioStaff), and issuance of certain Convertible Securities.
During the years 2015 through December 2019, we received several loans from Bank Mizrahi Tefahot in Israel. As of December 31, 2019, the total amount of these loans is $1,177,000 (including accrued interest). The loans are denominated in U.S. dollars and NIS and bear interest rates of Libor plus 2.25%-3.5% per annum, and have to be repaid over four years. To secure the loans from Bank Mizrahi Tefahot, Dr. Geva provided a personal guarantee for the repayment of a portion of the loans, and all of the assets and rights of our Israeli subsidiary were pledged as a floating charge to Bank Mizrahi Tefahot, as well as restricted cash of $620,000 to Bank Mizrahi Tefahot. On February 25, 2019, we entered into a loan agreement with Bank Mizrahi Tefahot, which amended and replaced the previous loan agreements, denominated in U.S. dollars, which amounted to $917,000 as of June 30, 2020. The agreement on February 25, 2019 did not replace two loans, denominated in NIS, which together amounted to $75,000 as of June 30, 2020. The loans from Bank Mizrahi Tefahot do not provide for any additional borrowing.
On December 19, 2016, we signed a loan agreement (or the 2016 Credit Line) to receive a short-term loan providing a line of credit of up to $600 from Dr. Yacov Geva, our controlling shareholder, Chief Executive Officer and President, and a member of our board of directors. The 2016 Credit Line bears an interest at the rate of Libor plus 3% per year and was to be repaid in two equal installments on June 1, 2017 and September 1, 2017. In February 2017, we signed an amendment to the 2016 Credit Line, according to which, the loan would be repaid in two equal installments, three and six months, respectively, following the commencement of sales of our products.
In addition, in May 2018 we entered into an additional loan agreement with Dr. Yacov Geva to provide us with a loan of up to $3,000,000, which was amended in its entirety, effective as of October 2018, such that the aggregate amount available to us is $10,000,000 (or the 2018 Credit Line). The 2018 Credit Line is unsecured, and bears multiple fixed interest rates, calculated on a linear basis from the disbursement date of each installment of the principal amounts: (i) 10% per annum for all amounts drawn until October 1, 2018 and (ii) 12% per annum for all amounts drawn as of October 1, 2018. Pursuant to the terms of the 2018 Credit Line, Dr. Yacov Geva extended the repayment date for the aggregate loan amount borrowed under the 2018 Credit Line from April 30, 2019 to December 31, 2019 (or the Repayment Extension). In May 2019, we and Dr. Geva amended the terms of the 2018 Credit Line, whereby the Repayment Extension was further extended until April 30, 2020 (or the Repayment Date). In October 2018, we and Dr. Geva amended the terms of the 2018 Credit Line, whereby the Repayment Extension was further extended until December 31, 2020. As a result of the Repayment Extension, all drawn loan amounts shall bear interest at a fixed rate of 15%, calculated as of April 30, 2019, until the Repayment Date.
As of December 31, 2019, the amount outstanding under the 2018 Credit Line was 6.78 million. On March 13, 2020, our shareholders approved the conversion of an additional amount of $5 million of the amount outstanding under the 2018 Credit Line into 5,185,517 Ordinary Shares. In July 2020, an additional amount of $1.95 million of the amount outstanding under the 2018 Credit Line was converted into 2,614,474 Ordinary Shares and the remaining outstanding amount was paid in cash. See “Related Party Transactions—Shareholder Loans.” The 2016 Credit Line and the 2018 Credit Line do not provide for any additional borrowing.
Upon the closing of our acquisition of CardioStaff at the end of 2017, additional long-term loans were added to our balance sheet. As of June 30, 2020, the total outstanding amount of these loans was $1,187,000 and included mainly loans from private people/institutions and bear interest of 4%-12% per annum. On October 22, 2020, our board of directors approved the issuance of 246,826 Ordinary Shares, upon the closing of this offering, calculated based upon an agreed to discount to the assumed public offering price of $6.00 per Ordinary Share, which is the midpoint of the price range set forth on the cover page of this prospectus, to the lenders as payment in full of these loans.
In October and November 2018, we issued 4,050,000 Convertible Securities, with a face value of $1.10 per Convertible Security, for an aggregate amount of $4,050,000 convertible into 1,046,586 Ordinary Shares. Each Convertible Security is convertible into such number of Ordinary Shares equal to the product of the number of Convertible Securities converted and the face value, as amended, per Convertible Security divided by the exchange rate of $0.7034 and divided by the Fixed Conversion Price of A$6.05 (approximately $4.257) per share, unit or other derivative or equity security. The Convertible Securities mature 18 months after the issuance date. We have entered into several amendments of the Convertible Securities Agreement with MEFI & L.P (or MEF), under which the face value of the Convertible Securities issued to MEF was increased as follows: (i) in March 2019, the face value of those Convertible Securities issued to MEF was increased to $1.133, retroactively as of the February 2019, (ii) in August 2019, the face value of those Convertible Securities issued to MEF was increased to $1.189, and (iii) in November 2019, the face value of those Convertible Securities issued to MEF was increased to $1.296.
During February and March 2019, we issued 120,474 Ordinary Shares upon the conversion of certain Convertible Securities.
In February 2020 we entered into a deed of termination, settlement and release (or the Deed of Termination) with MEF pursuant to which we agreed to pay MEF a settlement amount and issue to MEF Ordinary Shares, in full and final settlement of all amounts owing and all claims arising in connection with the Convertible Securities Agreement. Under the terms of the Deed of Termination, we will issue the Ordinary Shares within five business days of execution and pay the Settlement Amount by March 31, 2020 (or the Final Payment Date). Pursuant to the Deed of Termination, Dr. Geva will guarantee the Settlement Amount to MEF.
In April 2020, we entered into a deed of variation (or the Deed of Variation) and a second deed of variation (or the Second Deed of Variation) with MEF pursuant to which the Final Payment Date was extended to May 1, 2020.
In accordance with the terms of the Deed of Termination as amended by the Deed of Variation and the Second Deed of Variation, we have issued Ordinary Shares equivalent to $326,500 and repaid MEF an amount of $2,934,165 in full and final settlement of our outstanding debt to MEF.
On September 2018, we entered into the Controlled Placement Agreement with Acuity, which provided us with up to A$10,000,000 (approximately $7,200,000) of standby equity over a period of 28 months. Pursuant to the Controlled Placement Agreement, we issued to Acuity an option to require us to issue and allot, subject to our prior notice, Ordinary Shares at an exercise price per Ordinary Share equal to the greater of (i) 90% of the VWAP of our Ordinary Shares traded by Acuity on ASX during a valuation period and (ii) a floor price for such valuation period, to be determined by us from time to time. Subject to the terms of the Controlled Placement Agreement, we may, at any time, terminate the Controlled Placement Agreement, following which Acuity may not require us to issue or allot any additional Ordinary Shares. As part of the agreement with Acuity, we issued to Acuity 944,445 Ordinary Shares to be held in collateral for no consideration. On April 24, 2019, our shareholders approved the issuance of the 944,445 Ordinary Shares to Acuity. On April 9, 2020, we increased the standby equity to A$15,000,000 (approximately $9,300,000) and issued to Acuity additional 555,556 Ordinary Shares to be held in collateral for no consideration. On August 13, 2020, we increased the standby equity by an additional 905,556 Ordinary Shares to be held in collateral for no consideration. Upon the termination of the Controlled Placement Agreement, we may buy back all collateral shares for no consideration.
In the aggregate, Acuity exercised its option to purchase 1,127,778 Ordinary Shares, for aggregate net proceeds of A$2,075,000 (approximately $1,347,500). On September 29, 2020, we gave notice of an extraordinary general shareholders meeting (to be held on October 29, 2020) in connection with the termination of the Controlled Placement Agreement with Acuity to approve the paying up to the par value of those shares and to approve the subsequent repurchase for nil consideration and cancellation of 2,222,222 Ordinary Shares previously issued to Acuity.
In November 2019, we entered into the Capital Commitment Agreement, with GEM and GEM Yield Bahamas Ltd. The Capital Commitment Agreement secures a capital commitment of up to A$30,000,000 over a three-year period from GEM. As of the date of this prospectus, we have drawn down A$1,283,165. Subject to the terms of the Capital Commitment Agreement, we may choose to, on one or more occasions within the three-year period, and subject to conditions precedent, draw down on the facility by giving GEM a 15 trading days’ notice to subscribe for fully paid Ordinary Shares. The number of shares which we may draw down under a notice is capped at 1,000% of the average daily number of our shares traded on ASX during the 15 trading days prior to that draw down notice, subject to adjustments. If we issue a draw down notice, the subscription price of the shares to be issued to GEM (or its nominees) will be 90% of the higher of the average closing bid price of our Ordinary Shares as quoted by ASX over the pricing period, being the 15 consecutive trading days after we give the draw down notice to GEM (subject to certain adjustments), or a fixed floor price nominated by us in its draw down notice. In addition, we issued to GEM options to purchase 1,388,889 Ordinary Share at an exercise price of A$4.77 per share, on or before November 29, 2024. As of October 18, 2020, we drew down a total of A$1,283,143 and issued 1,014,127 Ordinary Share to GEM in consideration for their services.
In April 2020, we entered into a loan agreement (or the PPP Loan) with Bank of America, NA pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the Cares Act). The PPP Loan provides us with $873,487 and requires no collateral or personal guarantees. We are planning to apply for forgiveness of the loan balance pursuant to the terms of the Cares Act. In case we fail to comply with the terms of forgiveness under the Cares Act, fail to apply for loan forgiveness, or if otherwise the U.S. Small Business Administration does not confirm or only partially confirms forgiveness of the unpaid principal balance of PPP Loan, we will have to pay back the unforgiven principal balance of the loan plus interest accrued thereon at a 1% over a two year period from the date of the funding of the loan. As of October 18, 2020, we have used all of the $873,487, extended to us under the PPP Loan, for business-related purposes, such as to retain workers and maintain payroll, make lease and utility payments.
On September 27, 2020, ASX resolved to remove our company from the Official List of ASX following the approval by our shareholders of such voluntary delisting on September 21, 2020 in accordance with ASX Listing Rule 17.11. On October 22, 2020, our Ordinary Shares were delisted from the ASX.
In August 2020, we secured firm commitments from institutional and professional investors to raise A$5,000,000 through the issue of 5,555,556 fully paid Ordinary Shares in our company at an issue price of A$0.9 per Ordinary Share (or the Placement). We engaged MST Financial as sole lead manager and bookrunner to the Placement. On August 13, 2020, we issued the 5,555,556 fully paid Ordinary Shares to the investors pursuant to the Placement.
We have funded our operations to date primarily from the issuance of Ordinary Shares, options, convertible securities and loans. We have incurred losses and generated negative cash flows from operations since inception in 2014. Since our company’s inception, we have not generated significant revenue from the sale of products. Most of our revenues are currently generated in the United States from monitoring services provided by G Medical Diagnostic (Formerly CardioStaff) and Telerhythmics.
As of June 30, 2020, we had $543,000 in cash and cash equivalents. We expect that our existing cash and cash equivalents will not be sufficient to fund our current operations without raising additional funds, including from the Capital Commitment Agreement with GEM and GEM Yield Bahamas Ltd, or using the net proceeds from this offering and/or the net proceeds from the exercise of existing warrants. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including:
the progress and costs of our research and development activities;
the costs of manufacturing our products and services;
the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally; and
|●||the magnitude of our general and administrative expenses.|
Until we can generate significant recurring revenues and profit, we expect to satisfy our future cash needs through debt or equity financings. We cannot be certain that additional funding will be available to us when needed, on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products and services. This may raise substantial doubts about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements.
We do not believe that our off-balance sheet arrangements and commitments have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
The following table summarizes our contractual obligations as of December 31, 2019:
|1-3 years||3-5 years||More than|
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our current investment policy is to invest available cash in bank deposits with banks that have a credit rating of at least A-minus. Accordingly, some of our cash and cash equivalents is held in deposits that bear interest. Given the current low rates of interest we receive, we will not be adversely affected if such rates are reduced. Our market risk exposure is primarily a result of U.S. dollar/NIS and U.S. dollar/RMB exchange rates, which is discussed in detail in the following paragraph.
Impact of Inflation and Currency Fluctuations
Our functional and reporting currency is the U.S. dollar. We incur some of our expenses in other currencies. As a result, we are exposed to the risk that the rate of inflation in countries in which we are active other than the United States will exceed the rate of devaluation of such countries’ currencies in relation to the dollar or that the timing of any such devaluation will lag behind inflation in such countries. To date, we have been affected by changes in the rate of inflation or the exchange rates of other countries’ currencies compared to the dollar, and we cannot assure you that we will not be adversely affected in the future.
The annual rate of inflation in Israel was 0.6% in 2019 and 0.8% in 2018. The NIS revaluated against the U.S. dollar by approximately 7.8% in 2019 and 8.1% in 2018.
The annual rate of inflation in China was 2.9% in 2019 and 2.1% in 2018. The RMB revaluated against the U.S. dollar by approximately 1.6% in 2019 and 5.7% in 2018.
The annual rate of inflation in Australia was 1.9% in 2019 and 1.26% in 2018. The AUD revaluated against the U.S. dollar by approximately 0.6% in 2019 and 10.9% in 2018.
We are an early commercial stage healthcare company engaged in the development of next generation mHealth and telemedicine solutions and monitoring service platforms. Our solutions and services can empower consumers, patients and providers to better monitor, manage and improve clinical and personal health outcomes, especially for those who suffer from cardiovascular disease (or CVD), pulmonary disease and diabetes. Using our proprietary and patented suite of devices, software solutions, algorithms and monitoring services, we intend to drive recurring revenue streams in two vertical markets:
|●||Business to business (or B2B): professional healthcare markets (including hospitals, clinics and senior care facilities); and|
|●||Business to business to customer (or B2B2C) and business to customer (B2C): consumer healthcare market.|
Our current product lines consist of our Prizma medical device (or Prizma), a clinical grade device that can transform almost any smartphone into a medical monitoring device enabling both healthcare providers and individuals to monitor, manage and share a wide range of vital signs and biometric indicators, our Extended Holter Patch System, a multi-channel patient-worn biosensor that captures electrocardiography (or ECG) data continuously, including our QT Syndrome Prolongation Detection Capabilities Patch. In addition, we are developing our Wireless Vital Signs Monitoring System (or VSMS), which will provide full, continuous and real time monitoring of a wide range of vital signs and biometrics. Our monitoring services include provision of Independent Diagnostic Testing Facility (or IDTF) monitoring services and private monitoring services.
The impact of mobile devices on consumer behavior is growing rapidly and in recent years, patients have become increasingly active in managing their healthcare and are demanding both more tailored products and self-sufficient consumer experiences. We believe that the growing aging population together with rising incidences of chronic diseases such as CVD, cancer, heart ailments and diabetes, will drive market demand for our products.
In addition, recent developments, including the spread of novel coronavirus pandemic and related respiratory disease (or COVID-19), led to a breaking of the barrier associated with the use of telemedicine solutions and made telemedicine an essential instrument for patients and healthcare providers. While prior to COVID-19 patients and healthcare providers often preferred in-person meetings and expressed hesitation to use telemedicine as a substitute, the situation created following the spread of COVID-19, has demonstrated that telemedicine enables safe, efficient and cost-effective treatment and monitoring.
Our management team is led by individuals with over 30 years of combined experience in developing mobile embedded medical sensors, and with over 48 medical devices approved by the U.S. Food and Drug Administration (or the U.S. FDA), including devices approved when the members of our management team were employed at other companies. Our management has proven their ability to execute our go-to-market strategy as described below, with over 25 years of medical device development and commercialization experience in the United States, China, parts of Europe, Australia, South Africa, Japan, the Asia Pacific region and Brazil.
We have experienced a significant increase in revenue and profitability in short period of time. For the years ended December 31, 2017, 2018 and 2019, our total revenues were $109,000, $3,062,000 and $5,526,000, respectively, growing at a compounded annual growth rate (or CAGR) of 612% from 2017 to 2019. For the six months ended June 2019 and 2020, our total revenues were $2,908,000 and $2,010,000, respectively. Our plan is for such growth in revenue to continue (although no assurances can be given regarding our actual revenue growth rate in the future). We narrowed down our net losses from $27,247,000 in 2017 to $15,509,000 in 2019, and from $7,158,000 for the six months ended June 30, 2019 to $4,981,000 for the six months ended June 30, 2020; improved our gross margin in the service business which grew from a loss of 5.5% in 2017 to profit of 14.7% in 2019, whereas during this period we generated little revenue from our products business; and net cash used in operating activities from $8,289,000 in 2017 to $6,297,000 in 2019, and from $4,395,000 for the six months ended June 30, 2019 to $2,493,000 for the six months ended June 30, 2020.
Our product platforms are positioned to reduce inefficiencies in healthcare delivery, improve access, reduce costs, increase quality of care and make healthcare more personalized and precise. We believe that early detection and diagnosis, as well as accessibility for all patients and providers, will positively impact the direction and cost of healthcare today.
Our current product lines consist of our Prizma device, our Extended Holter Patch System and our QT Patch. In addition, we are developing our VSMS.
Prizma Medical Device
The innovative Prizma is a “plug-and-play” medical device that measures vital signs with electronic medical records functionality and clinical grade reporting standards. Our Prizma can transform almost any smartphone into a medical monitoring device using wireless Bluetooth connection. Prizma presents a comprehensive health profile of the user, measuring a wide range of vital signs and biometrics including ECG, oxygen saturation, temperature, heart rate and stress levels. Blood pressure, body weight and blood glucose measurements may be manually entered and tracked on the Prizma app. All of the measurements are saved and tracked on the Prizma app and on the cloud portal. Users may generate reports and share with third-parties (i.e., medical providers, family members).
The Prizma device has been designed as an invaluable tool to help manage an individuals’ health and wellness, and allow healthcare providers to analyze the collected data in order to make better treatment decisions for conditions such as diabetes and heart disease, and vital signs functions for users with a range of health management needs. The Prizma app is available for download on the Apple Store and on Google Play. Prizma is powered by an independent battery, and activated by the user when needed, making usage and transport efficient and comfortable. The user simply places his or her index fingers on sensors embedded on the Prizma device, and the software seamlessly analyzes the data using various measurement methods and algorithms. Prizma can be used on almost any mobile phone, allowing us to quickly adapt the application to new smartphones.
Along with our Prizma device, we offer a remote patient monitoring service (or RPM) for chronic patients. The Prizma device can record various vital signs as frequently as needed on the go and such recordings are being analyzed and presented on a monthly report for physicians to keep track of their patients’ vitals. This service can be provided as a monthly recurring service as long as prescribed by the physician. Prizma is reimbursed monthly per patient under CPT code 99453, 99454, 99457 and additional codes, at a global rate of approximately $123 per month.
The Prizma device is available in several models:
|Standalone Universal||Standalone Curve||iPhone Case||Folder Case|
The Prizma platform provides clients with a one-stop, multi-function and multi-account platform providing secure access to a private cloud healthcare solution powered from a remote cloud infrastructure. The portal syncs all Prizma device measurements to the doctor’s dashboard automatically and notifies of any abnormalities. Patient reports can be generated and downloaded to integrate seamlessly within the physician’s Electronic Health Record. Prizma is compatible with iOS 11.0 or above, Android 6.0 or above and Smartphone Bluetooth BT SIG 4.2.
This Prizma platform allows our customers to enter and see all their medical information in a single platform. The information is stored on the platform and is also accessible to physicians. In addition, the system allows users to see and print reports with personal medical information and share such reports with third parties. This makes each interaction and use easy and simple.
Our Prizma device addresses the monitoring needs of many individuals, including those suffering from a wide range of diseases:
Prizma Next Generation
In addition, we are developing smart algorithms to measure mechanical respiratory function, which we believe is essential for patients suffering from asthma and chronic obstructive pulmonary disease. We are also developing AI (Artificial Intelligence) in order to improve our arrhythmia detection algorithm. We estimate that the first version of the AI we are currently developing will be implemented within the next 18 months, subject to U.S. FDA approvals.
In the future, we envision additional applications for our 3rd generation Prizma device, including blood chemistry tests:
|●||Glucose level measurement|
|●||Cholesterol, triglyceride, total cholesterol level|
|●||Hemoglobin level (A1C)|
|●||Uric acid level|
In August 2017, we received 510(k) clearance (under prescription) for our Prizma device from the U.S. FDA, and in September 2017 we received CE mark. These clearances were followed by approval received in November 2017 from the Therapeutic Goods Administration (or the TGA). In March 2020, we received registration with the Italian Health Ministry’s database of medical products. In April 2020, the U.S. FDA granted us OTC authorization based on an Emergency Use Authorization (or EUA) policy which will remain in force during the public health emergency related to COVID-19. This authorization will allow us to sell the Prizma device directly to consumers without a physician’s prescription. In April 2020, we received Taiwan FDA approval for our Prizma device. We are also preparing our application to the Chinese National Medical Products Administration (or NMPA) for our Prizma device.
Despite the fact that regulatory clearances and approvals were received in 2017, since the Prizma device is a novel and innovative product, and due to first to market penetration, the market acceptance of the product was slow. In addition, the Current Procedural Terminology (or CPT) codes covering Prizma RPM were only approved by the Centers for Medicare & Medicaid Services (or CMS) in November 2019. We intend to continue our market education efforts for our Prizma device and other products, in order to enhance market acceptance.
Extended Holter Patch System
Our Extended Holter Patch System is a multi-channel patient-worn biosensor that captures ECG data continuously for up to 14 days. We believe that multi-channel ECGs can deliver higher predictive values with more actionable data, which enables a more accurate diagnosis. In addition, the Extended Holter Patch System allows patients to capture any symptomatic event by tapping a button on the recorder and documenting their activity and symptom in the patient diary. This correlates the ECG activity and provides physicians with more contextual data to make a diagnosis. Following the monitoring session, the device is returned to us and the data is uploaded to our secure cloud for analysis. A concise clinical report of preliminary findings is generated by certified cardiac technicians, validated through a quality assurance (or QA) process, and made available to the physicians on our secure physician portal.
The modular and easy-to-use patch solution utilizes a body worn sensor, a removable recorder, a secure cloud platform and a clinical reporting system. The patch has a very soft fabric format, and its water-resistant technology allows showering without removing the patch. These attributes encourage patients to wear the sensor all day long, resulting in more meaningful data, enabling more accurate diagnosis and timely treatment decisions. Clinical studies have demonstrated that wearable patch technologies can improve a physician’s ability to more accurately detect arrhythmia, allowing them to change the course of treatment. In November 2017, we received the CE mark for our Extended Holter Patch System, and in May 2020 we received TGA approval.
Our Patch recorder provides up to six channels of ECG and can be used for up to 14 days of ECG monitoring. The Patch records and transmits the ECG data to a smartphone which acts as a gateway to our call center. The frequency of transmissions can be set by the healthcare provider while the default setting of the device is to record and transmit 10 minutes of ECG data every hour. The data is saved and wirelessly transmitted by the user’s smartphone to our diagnostics call center for QT Syndrome Prolongation Detection capabilities analysis. The call center in turn sends the report to the prescribing physician at the hospital.
In May 2020, the U.S. FDA approved under EUA the use of our Patch in order to detect QT syndrome prolongation in a hospital setting for remote monitoring of the QT interval prolongation of an ECG. The EUA policy will remain in force during the public health emergency related to COVID-19.
Wireless Vital Signs Monitoring System (in development)
We intend to use our proprietary diagnostic sensor technology to further develop a full monitoring and diagnostic ecosystem, which we refer to as our VSMS. The VSMS is a simple, easy to use, low cost and affordable solution which is designed to provide continuous real time monitoring of a wide range of vital signs and biometrics for patient in pre-hospitalization condition, during hospitalization or after their discharge. Subject to financing, we are aiming to finalize the initial prototype of the VSMS by the end of 2021. We are in the final stage of algorithm development, to be followed by development of the embedded software. At the same time, we are working on the development of a backend system for the hospital segment as well as for our monitoring call center.
The system is designed to comprise four main elements: (i) a six lead ECG patch utilizing an arrhythmia detection algorithm, body positioning algorithm, internal memory and wireless communication to communicate with the smartphone gateway and transmit data to the call center; (ii) a smartwatch (which we believe is clinical grade) which integrates an optical sensor known as a photoplethysmography sensor for oxygen saturation, heart rate, respiration and blood pressure measurement; (iii) a small wireless thermometer sensor to monitor body temperature; and (iv) a central “Hub”, a cloud-based, user-friendly analytics platform which is available on smartphones, tablets and personal computers. The six lead ECG patch is based on our Extended Holter Patch System, but will require further development and internal clinical trials to integrate the patch with our VSMS, and we expect that these trials will be completed by the end of 2020. The smartwatch element of the product is under development and we targeting to have the smartwatch complete by the end of the second quarter of 2021. We will be using an original equipment manufacturer smartwatch in order to develop the proprietary software and embedded parts of the software. For the wireless thermometer sensor, we will use a third party with our embedded communication software. We are targeting to have this element of the product completed by the end of the first quarter of 2021.
The Hub is being designed to perform the following functions:
|●||receives, displays and stores data from multiple patients;|
|●||analyses data using multiple algorithms to detect vital signs abnormalities and alerts in real time in the case of a threshold breach. Alternatively, in case of continuous transmission of data, algorithms are activated on the Hub and not on the sensors to optimize power consumption; and|
|●||generates reports from the raw data for user and healthcare professionals.|
We are targeting to complete the development of the Hub by the end of 2021. Once all elements of the VSMS are complete, we intend to pursue regulatory approvals, including with the U.S. FDA and the CE mark. We expect that the proceeds from this offering will provide us with sufficient capital to complete the development of our VSMS. See “Use of Proceeds” for additional information.
The VSMS platform was designed to reduce inefficiency in healthcare delivery, simplify the monitoring processes of patients, improve the quality of patients’ care, make healthcare more personalized, reduce costs and increase availability of patients’ monitoring in and outside hospitals. We believe that such features will positively impact the direction and cost of future healthcare.
The key advantages of the VSMS include:
|●||fully wireless body-worn sensors;|
|●||central database and backend system with an intuitive dashboard;|
|●||sophisticated proprietary algorithms for ultimate precision and accuracy;|
|●||real time, automated monitoring of patients’ vital signs and biometric parameters;|
|●||saving of the raw data for further analysis by healthcare providers;|
|●||different operation modes:|
|-||event mode (initiate by the patient)|
|-||auto detect / auto send mode|
|-||continuous mode (streaming of data)|
|-||pre-defined transmission mode|
|●||monitors patients from any location using either WCDMA or Wi-Fi connectivity; and|
|●||trend analysis and periodic reports for ongoing health monitoring and care.|
Potential customers of the VSMS are hospitals and health care providers, nursing home and assisting living residences, nursing agencies for home visiting and post discharge patients.
Our Monitoring Services
Our monitoring services in the United States focus on two main verticals:
|●||IDTF Monitoring Services (B2B): CPT based services; and|
|●||Private Monitoring Services (B2B, B2C and B2B2C): services provided by a different entity, independent to the IDTF|
Independent Diagnostic Testing Facility (IDTF) Monitoring Services
Our provision of IDTF monitoring services is comprised of arrhythmia monitoring services for patients (including MCT, extended Holter and CEM), and use our Prizma device’s RPM of vital signs on a daily basis and generating reports that allow physicians to track their patients’ health condition.
The graphic below represents the workflow being done by our medical monitoring service centers, from the moment a single patient is enrolled in the service until a summery medical report is delivered to the prescribing physician.
An IDTF can sell services as a provider to physicians, hospitals and patients. All services are provided according to physician’s prescription done through the enrollment form on our proprietary website. After receiving an enrollment form, we will verify that the patient has an insurance coverage for the service requested by the physician and then will provide the patient, directly or through a physician, with the monitoring device. The patient will wear the monitoring device during the total service monitoring time, and we will monitor and support the patient and send medical notifications to the patient’s physician, according to the type of service provided. Once service is completed, we will send the physician an end-of-session report with a summary of all relevant information detected during the service period. We will also send the bill out to the relevant insurance company and collect the money according to the specific CPT code and monitoring services that were provided.
Under the IDTF umbrella, we offer four types of services for remote cardiac monitoring:
|●||MCT: a 24/7 remote cardiac monitoring and transmission in near-real time of specific arrhythmias recognized by the algorithm. This service can be provided to patients for up to 30 days and is reimbursed for up to twice a year per patient. The reimbursement under CPT code 93229 will range from $550 to $1,000 depending on the insurance company, locality, and coverage.|
|●||Extended Holter (AECG): cardiac monitoring 24/7 for up to 14 days. Analysis is done off-line when the device is returned to the call center. This service is reimbursed multiple times a year per patient. Reimbursement under Temporary CPT code 0297T will range from $200 to $350 depending on the insurance company, locality and coverage.|
|●||Cardiac Event Monitor (CEM): cardiac monitoring and recording only when the patient has an arrhythmia. This service is available for up to 30 days and reimbursed per patient multiple times a year. Reimbursement under CPT code 93271 will range from $150 to $250 depending on the insurance company, locality and coverage.|
|●||24/48 Hours Holter Monitoring: cardiac monitoring for up to 24-48 hours only. This service can be provided per patient, multiple times per year. Reimbursement under CPT code 93226 will range from $38 to $55 depending on the insurance company, locality and coverage.|
We entered the U.S. arrhythmia monitoring services industry through our December 2017 acquisition of CardioStaff, an IDTF based in Austin, Texas. The IDTF provides physicians and hospitals with 24/7 remote cardiac monitoring services which utilize our Holter, extended Holter, MCT and event monitoring devices. CardioStaff was rebranded as GMedDx and is expected to serve as a platform for introducing our innovative suite of clinical-grade products into outpatient settings, physician practices, hospitals and senior care facilities in the United States.
In November 2018, we acquired a second IDTF, Telerhythmics, based in Memphis, Tennessee. Telerhythmics operates mainly across the Southeastern United States, and provides hospitals and physicians with cardiac monitoring services including MCT, Holter and event monitoring. In addition to its traditional activities, Telerhythmics will utilize the Prizma device for RPM services.
Telerhythmics and GMedDx have entered into approximately 140 commercial payor agreements across local, regional and national markets as well as an agreement with CMS, which provides health coverage to more than 100 million people.
In May 2019, GMedDx entered into PPAs with Prime Health Services, Inc and Ancillary Care Services, Inc. The PPAs have further and significantly increased our footprint in the healthcare delivery system of cardiac monitoring and provide more exposure to our future patient base and third-party payer populations.
We have adopted a three-phase approach for the deployment of our IDTF platform which includes evaluation, implementation and treatment phases. Ten university hospitals in the United States are now in the treatment phase, another seven hospitals are near completion of the implementation phase and we are witnessing an increase in patient enrolment that we expect to continue. We receive approximately between $175 to $750 in reimbursement per patient monitored depending on specific modality.
Private Monitoring Services
In addition to IDTF monitoring services, we will provide private monitoring services, utilizing our Prizma device. Under the private service umbrella, we offer three main lines of services:
|●||Prizma OTC: sales of the Prizma device to consumers with a user portal service which will allow them to save their medical tests and create their own medical information reports and share such reports remotely or when visiting their physicians.|
|●||Prizma Concierge Medicine Services: a 24/7 call center service that allows subscribers to speak directly with a physician regarding the collected data.|
|●||Prizma Care Facility/Nursing Home Services: a 24/7 service that assists care facilities and nursing homes to track diagnostic information for patients and residents.|
The following is a depiction of the ecosystem in which our products and services are intended to play a role:
We anticipate that our next generation mobile technologies will empower both users and businesses to better utilize their business processes by merging them into a coherent ecosystem. We plan to provide users (individuals or families) products and services, and collect valuable data and monetary inflows at the same time. We also plan to serve businesses (including hospitals, pharmacies, elderly care institutions, research institutions, etc.) by establishing a direct linkage using mobile technology to maximize the value of user data, which is more than ever needed by businesses.
Telemedicine and Mobile Health Market Opportunity
According to the Organization for Economic Co-operation and Development (or OECD), healthcare spending as a percentage of gross domestic product (or GDP) is increasing. In 2018, health spending in the United States as compared to all OECD countries was the highest at 16.9% of GDP. In the European Union (or the EU), health spending was 10% of GDP and in the OECD, it was 8.8%. As patients become more demanding and providers’ constraints more challenging, cost-effective health solutions and access become a top priority.
Telemedicine provides potential answers to major healthcare challenges, including improved productivity and efficiency, and better utilization of centralized assets and scarce talent resources. A recent report by the OECD states that several elements must be in place to ensure the widespread delivery of teleconsultations and other telemedicine applications:
|●||a clearly defined regulatory environment;|
|●||treatment of health data;|
|●||policies governing the establishment and use of telemedicine services; and|
|●||national and regional strategies that address telemedicine.|
Recent developments in the COVID-19 pandemic enabled the breaking of some of the barriers associated with the use of telemedicine technologies, and we believe that telemedicine is recognized as an essential instrument in healthcare by patients and healthcare providers and it is now widely believed that there will be a significant increase in the use of telemedicine services. While prior to COVID-19, patients and healthcare providers often preferred in-person meetings and expressed hesitation to the use of telemedicine as a substitute, the situation created following the spread of COVID-19, has demonstrated that telemedicine enables safe, efficient and cost-effective treatment and monitoring. Telemedicine services have the potential to facilitate medical care for both confirmed COVID-19 patients and non-COVID-19 patients, while protecting patients and healthcare providers. According to a consumer survey from McKinsey & Company from April 2020, consumer adoption of telehealth products has skyrocketed in light of COVID-19, from 11% of U.S. consumers using telehealth in 2019 to 46% of consumers using telehealth after April 2020. In addition, it is estimated that approximately $250 billion, which represents approximately 20% of all Medicare, Medicaid, and Commercial outpatient, office, and home health spend, could potentially be virtualized.
Even before COVID-19, mHealth was a fast-growing market, and data suggests this trend is going to continue. The World Health Organization (or WHO) defines mHealth as “medical and public health practice supported by mobile devices such as mobile phones, patient monitoring devices, personal digital assistants, and other wireless devices.” According to a report published by research2guidnace, mHealth is projected to have the highest positive impact on reducing costs associated with:
|●||readmission in hospitals and duration of stay;|
|●||patients’ non-adherence to treatments;|
|●||doctor visits and consultation costs;|
|●||redundant examination and medical trial costs;|
|●||labor costs; and|
|●||investment in technologies.|
With the growing penetration of smartphones and internet connectivity, the adoption of mHealth technologies by physicians and patients has increased considerably. According to research by Grand View Research, the global mHealth market size was valued at $40.7 billion in 2019 and is estimated to reach $316.8 billion by 2027, growing at a CAGR of 29.2% over the forecast period from 2020 to 2027, and the remote patient monitoring system market size was valued at $1.28 billion in 2019 and is estimated to reach $2.41 billion by 2024, growing at a CAGR of 13.4%.
According to a report published by Grand View Research in March 2019, the IoT healthcare market (meaning the market for interrelated computing devices and mechanical and digital machines targeting healthcare such as our products) is projected to reach $158 billion by 2022. We believe that a rising adoption of wearable technology and a growing geriatric population coupled with the rising prevalence of chronic conditions are among the key factors driving the market expansion.
With the growing penetration of smartphones and internet connectivity, the adoption of mHealth technologies by physicians and patients has increased considerably. This specially holds true for mobile healthcare apps, including fitness and medical apps, with fitness and wellness holding a significant share of the total mHealth apps market. Moreover, the healthcare industry exhibits a high growth potential for the IT industry due to supportive government initiatives across all regions.
According to a March 2020 report from MarketsandMarkets, the global telehealth market is projected to reach $55.6 billion by 2025, which is a significant increase from $25.4 billion in 2020. The growth is projected at a CAGR of 16.9% during the forecast period. According to the report, North America dominates the telehealth market by region, due to factors such as the rising prevalence of chronic conditions, the need to reduce healthcare expenditure, increasing overall and geriatric population. However, the Asia Pacific market is expected to grow at the highest rate during the forecast period, owing to the prevalence of chronic diseases and the overcrowding of hospitals.
According to a May 2020 report from McKinsey & Company, in order to realize the full potential of telehealth, the market requires, among others, increased access to remote monitoring devices for specific clinical conditions (glucose monitoring for diabetes; heartbeat and blood pressure monitors for cardiovascular conditions). Also, providers may be required to integrate these types of devices into care plans. Payers may need to offer reimbursement, and solutions may need to enable integrated access between, for example, primary care physicians, care managers, and at-home caregivers. These services could also require the deployment of supportive patient engagement tools (for example, digital coaching, care plan navigation tools), tailored to patients’ needs and integrated with communication channels to providers, care managers, and others involved in their care.
According to the Deloitte 2020 Survey of US Health Care Consumers, which surveyed 4,522 consumers between February 24 and March 14, 2020, and the Health Care Consumer Response to COVID-19 Survey (together, the Deloitte Surveys), which surveyed 1,510 consumers about their health, experiences, and behavior in mid-April to early May 2020, the percentage of consumers using virtual visits increased from 19% at the beginning of 2020 to 28% in April 2020. Moreover, the data shows an increase in consumer willingness to share data in every scenario measured in the graph below.
In addition, the Deloitte surveys reveal that about a third to half of consumers are comfortable using at-home diagnostics for various reasons, as demonstrated in the graph below. Younger generations are more comfortable across the board. The largest gaps in comfort levels by generation are for genetic tests (24% of seniors as opposed to 47% of Gen Z and millennials) and at-home blood tests to track overall health (28% of seniors as opposed to 47/48% of Gen Z and millennials).
A study conducted by the Society for Cardiovascular Angiography & Intervention, that surveyed 1,068 responses from a nationally representative sample over age 30, found that more than 50% of Americans are avoiding care for medical emergencies such as heart attack, due to the fear of contracting COVID-19. Health systems, independent practices and others telehealth providers are reporting 50 to 175 times more telehealth visits compared to the number of telehealth visits pre-COVID-19. In addition, 57% of health providers view telehealth more favorably than they did before COVID-19 and 64% are more comfortable using it.
CMS have recently expanded access to Medicare telemedicine services on a temporary and emergency basis under the 1135 waiver authority and Coronavirus Preparedness and Response Supplemental Appropriations Act (Phase 1), so that beneficiaries can receive a wider range of services from their physicians without the need to attend a healthcare facility. Under the COVID-19 new guidelines, beginning March 6, 2020 and for the duration of the COVID-19 public health emergency, Medicare is able to pay for office, hospital, and other visits furnished via telemedicine across the country, including in patients’ homes.
In addition, in November 2018, CMS finalized changes to the 2019 Physician Fee Schedule and the Quality Payment Program and will now pay providers for communication technology-based services. Through the rule, CMS is also expanding the number of Medicare-covered telemedicine services to include “prolonged preventive service(s)”. CMS will pay physicians for their time when they check in with Medicare beneficiaries via telephone or another telecommunications device. Physicians will also be paid for the time it takes to review a video or image sent by a patient to assess whether a visit is needed.
According to a March 2020 report from Statista and data from the Organization for Economic Co-operation and Development, China is facing a significant shortage of physicians with two doctors for every 1,000 people, compared to 2.6 doctors per 1,000 people in the United States and 3.7 per 1,000 people in Australia. Accordingly, the Chinese government has made healthcare a priority.
In addition, in China the distribution of superior medical resources is extremely uneven. More than 70% of the third-level grade-A hospitals are located in the eastern region, making the potential demand for telemedicine in the central and western regions disproportionately much larger.
Data source: chyxx.com – The proportion of third-level grade-A hospitals in the three regions in 2018
According to the China Power Project, China’s population is growing old at a faster rate than almost all other countries, due to increased life expectancy and decreased birth rate as a result of China’s 36-year one-child policy. In 2017, in China, the proportion of Chinese citizens above 60 years old obtained 17.3 percent, approximately above 241 million. It is expected that China’s 65-year-old population will reach 487 million, or nearly 35 percent in 2050. China’s looming demographic shift presents considerable social and economic challenges. According to China Briefing, the changing of demographics in China have led to a population where chronic disease is more prevalent than in the past. As a result, there is a higher demand for disease management and ongoing monitoring.
In addition, a draft of China’s Law on the Promotion of Basic Medical and Health Care approved by the National People’s Congress became effective in June 2020. The draft law contemplates the promotion of telemedicine services, which has been expedited by the COVID-19 outbreak. In 2016, the government launched Healthy China 2030. There is currently a government mandate that prioritizes healthcare which AI and digital health will help to fill the gap, with telemedicine making it possible to increase the number of people receiving real time consultation.
Both local and foreign companies are investing in the development of specialized and differentiated private hospitals, along with innovative aged care. According to Research and Markets, China, the world second largest economy, is forecast to reach an estimated mHealth market size of $25.6 billion in 2027, representing a CAGR of 22.1% from 2020 through 2027.
mHealth is being driven by increase in aging population over the age of 60 and a lack of access to quality healthcare-services and limited resources that hinder a physicians’ ability to provide sufficient time beyond treatment and diagnosis.
mHealth can also be used in more rural parts of China to help resolve accessibility challenges. The current policy environment in China is playing an important role in promoting industry development and facilitating medical treatment through combining Internet technology with China’s health industry. Internet hospitals have become a service platform that integrates online appointments, consultations, prescribing and delivering medicine, and online and offline diagnosis and treatment with the help of Internet technology. Integrating physical hospitals into the platform provides strong support for Internet hospitals in conducting consultations, follow-up visits, and chronic disease management on the Internet. Remote monitoring and other mHealth solutions break through space limitations of physical hospitals but also work synergistically with physical hospitals, so people in remote areas can also have access to high-quality medical treatment.
The graphics below show data regarding mHealth practices in China over the last several years:
Source: Everbright Securities Research Institute – Internet Medical Insurance Payment Policies Across the Country 2016-2020
Source: Minsheng Securities – Changes in the Number of Internet Hospitals
Source: MobTech, Minsheng Securities – Proportion of Users of Internet Medical APP in April 2019
Well-established telemedicine services are already provided in healthcare systems across Europe including in the UK, France, Sweden and Portugal. In other countries, including Germany, Spain, Poland and Belgium, many telemedicine services platforms have launched recently.
Source: Health Advances analysis, CBCN, The New York Times, TechCrunch, Sanita Digitale
COVID-19 caused a surge in demand for teleconsultations in Europe amid the lockdowns on movement and travel, the limit on accessing medical services, and hospitals operating over-capacity. For example, in France, teleconsultation services increased more than 10-fold in one week during the pandemic. Many emergency measures were put in place by governments to help individuals access virtual medical services. These include the removal of needing to know a patient before teleconsultation, reimbursing all teleconsultations, the ability for healthcare providers to use whatever technical means to conduct teleconsultations, and telemonitoring of COVID-19 patients by nurses, which is also 100% reimbursed. Post COVID-19, it is expected that those countries with established telemedicine ecosystems will continue strong adoption on a permanent basis.
Monitoring Services Market Opportunity
According to CMS, two-thirds of Medicare beneficiaries have two or more chronic conditions. Such conditions often require continuous medical monitoring. In addition, an estimated 5.86 million ambulatory ECG diagnostic tests were prescribed by physicians in the United States in 2020, which represents a $2.21 billion market opportunity. With an estimated 13% CAGR (from 2015 to 2025), this represents a very healthy market for our arrhythmia monitoring technologies and service platform. Although there is little data outside of the United States, we believe additional markets exist due to an ageing global population, unhealthy lifestyles and prevalence of Atrial fibrillation. Clinical research has also shown that traditional ambulatory cardiac monitoring tools, such as Holter and event monitors, do not collect the required amount of data for making a definitive diagnosis, as these older devices may have too short of a monitoring time, may not continuously collect ECG data, or patients will not wear the device (low patient compliance). Hospitals and physicians are also outsourcing more of their ambulatory ECG monitoring needs, in order to minimize costs and workflow burden. As shown in the chart below published by Research and Markets, the global MCT market is expected to grow at a CAGR of 11.3% during the forecast period from 2020 to 2026.
Our innovative technologies and proprietary software and algorithms have the ability to improve patient compliance, provides continuous monitoring and multiple channels of ECG, which ensures higher diagnostic yields that can deliver better clinical outcomes.
Integrated Delivery Networks
Third-party research estimates that the global healthcare big data analytics market was worth $19.6 billion in 2018 and is projected to reach a value of $47.7 billion by 2024, registering a CAGR of around 16% from 2019 to 2024. This data will be augmented by patient-generated health data (or PGHD), which is data primarily captured and recorded by the patient themselves, allowing them greater ownership over their own health. Integrating PGHD into electronic health records will help providers understand the patient experience, increase efficiency and productivity of clinical trials, improve the prediction of addressable treatment toxicities, and ultimately improve quality of care and clinical outcomes. The United States could reach a “critical mass” of physicians using PGHD from devices such as wearables by 2020, according to new research released by the Consumer Technology Association. Additionally, insurers are offering free remote monitors/wearables and cash incentives to subscribers who meet certain health goals.
Concierge medicine can be defined as a B2B2C model. Currently, about 12,000 physicians in the United States offer concierge healthcare services. This niche market is growing due in part to organizations that recruit physicians to manage concierge practices. Concierge physicians have fewer patients, offer same-day appointments and longer office visits, and participate in email and phone communication. Studies have found that patients with concierge medicine physicians are more satisfied and have fewer visits to ERs and specialists, thus resulting fewer hospitalizations, fewer emergency department visits, and better control of hypertension and diabetes. A study published in The American Journal of Managed Care, found a 79% reduction in hospital admissions for Medicare patients in concierge medicine affiliated practices, compared with those in traditional practices.
Direct Primary Care
Direct primary care (or DPC) can also be defined as a B2C model. DPC practices have a direct financial relationship with patients and provide comprehensive care and preventive services. This is a mass-market variant of concierge medicine, with the biggest difference being that the DPC model charges a flat rate fee that often includes most or all physician services. The monthly fee typically includes basic checkups, same-day or next-day appointments, and the ability to obtain medications and lab tests at or near wholesale prices. The DPC model does not rely on insurance co-pays, deductibles or co-insurance fees. All DPC providers recommended patients have some form of insurance, or take part in a healthcare sharing plan that functions like insurance, as a patient is not protected financially if they have a health issue outside the scope of primary care.
Our strategic objective is to participate in the large and growing worldwide mHealth marketplace by developing and commercializing innovative next generation telemedicine solutions and monitoring service platforms. Using our proprietary and patented suite of devices and software solutions, we are implementing a go-to-market strategy aimed at establishing and growing multiple recurring revenue streams across consumer and professional healthcare verticals, and in a variety of geographical territories.
Our current strategic commercial activities are focused on:
|●||investing in cardiac monitoring service centers in the United States;|
|●||commercializing the Prizma device and Patch Extended Holter Patch System monitoring solution in the United States, China and other markets;|
|●||completing the development of our VSMS; and|
|●||cultivating various channels of distribution. Such channels include hospitals, insurance companies, chronic care management companies, concierge medicine groups, Telcos, specialized mobile virtual network operators (or MVNOs) distribution houses, original design manufacturer (or ODM) handsets and wireless design centers.|
Hospitals, Clinics and Physician Practices. Our cardiac monitoring services are marketed to healthcare institutions, hospitals, clinics and physician practices. We employ highly educated sales professionals in the United States and United Kingdom who regularly call on these stakeholders and educate them on the clinical value of multi-lead ECG monitoring solutions. We believe our comprehensive range of technologies appeals to many healthcare providers, as they can order the right device for each patient.
We will lease the Vital Signs System to hospitals on a per day fee model. The device can then be prescribed by a physician for monitoring patients in the hospital, and in pre-admission and post discharge programs. Once a patient is discharged, we anticipate that patients may continue monitoring services by using the Prizma device.
|●||Insurance Companies. We propose to sell the Prizma device and lease the monitoring center diagnostic services on a monthly fee per patient. Healthcare insurers typically have high-acuity patients who would benefit from participation in chronic care management programs.|
|●||Chronic Care Management. We propose to sell the Prizma device and lease customized back end analytics platforms to these companies who manage high-acuity patients of healthcare insurers, homecare agencies, nursing homes, and skilled nursing facilities (SNFs).|
|●||Concierge medicine. We will explore purchase and lease programs of the Prizma solution to concierge medicine practices. This model may resemble those provided to healthcare insurers or chronic care management companies.|
Telcos. In addition to selling our Prizma device directly to end users, we intend to sell the Prizma device, or license the Prizma technology directly for use with Telcos’ smart-phone product offerings. The result will be an integrated version of the Telco’s product offerings that will integrate our technology, and will be a full mHealth ecosystem solution that combines automatic alerts, analysis, human interaction, data sharing and self-sufficient use, which is independent from physician’s response.
In addition, cloud monitoring services from the Prizma device are anticipated to be offered based on a two tier program: monitoring over the cloud by sending the data and receiving automatic feedback; and monitoring with access to a professional clinical call center that can provide real time feedback to the customer and ability to triage with a healthcare professional.
|●||Mobile Virtual Network Operators. Our approach for MVNOs is to derive revenue on a two-tiered basis: business to customer by selling hardware directly to customers and providing cloud monitoring services; and business to business by selling hardware directly to mass merchants and national chains and providing cloud monitoring services, such that we utilize the big merchants as distributers by promoting the devices to the end customers.|
|●||ODM Design Centers. We aim to be in a position to work with design houses to integrate the Prizma technology within the ODM’s smartphone models. We anticipate that this approach will allow us to penetrate a higher number of distribution channels and markets with a relatively low overhead. As hardware sales grow, we anticipate that the monitoring services will continue to grow thereby increasing monthly recurring revenues payable to us.|
|●||Big Data. Our services will result in the creation of a huge data base of anonymized information with tremendous potential value. The information will be very valuable to government health departments, insurance companies, pharmaceutical companies, contract research organizations and universities. To secure the anonymized information, we implement two layers of security measures: separating patient information from medical information and utilizing encryption tools. The information provided will help to understand better and dissect the territories on different medical health levels and direct budgets to real need. For insurance companies the data will help reducing unnecessary cost and noncompliance by patients. Our business model will be based on licensing agreements with the above referenced entities. Each license will be granted pursuant to a license agreement between us and the relevant entity, which will define the scope of the requested data and the amount of the license subscription fee.|
Implementation of Our Strategy in the United States
Our monitoring center strategy is to be the go-to provider of innovative cardiac monitoring services in the United States. We plan to further expand by targeting all healthcare providers who can benefit from our comprehensive service offerings, which include our Extended Holter Patch System, MCT, event and traditional Holter devices. Our customers demand a wider range of offerings as one device type does not fit all needs.
To penetrate this market and drive growth, we plan to:
|●||educate stakeholders in the healthcare environment on the benefits of multi-lead technologies that deliver more comprehensive clinical results and high-patient compliance;|
|●||provide in-house clinical evidence of diagnostic results generated from our service platform;|
|●||contract with more commercial payors in order to increase patient access. We currently have contracts with CMS, some Blue Cross Blue Shield entities, a key veterans affairs medical center, and other commercial payors across the country;|
|●||offer our clinical expertise and patient-centric services 24/7;|
|●||expand our sales force to drive growth in targeted territories; and|
|●||utilize our platform to introduce innovative solutions such as the Prizma device, Extended Holter Patch System and VSMS.|
In addition to the 2017 acquisition of CardioStaff, in November 2018 we executed on our acquisition strategy with the purchase of Tennessee-based Telerhythmics, in the amount of $1.95 million. Founded in 1996, Telerhythmics provides on-site and remote arrhythmia-monitoring services to doctors and physicians. These services include MCT, event and Holter monitoring. The acquisition brings additional payer contracts, clinical and logistical scalability, access to additional monitoring technologies and an existing platform for launching our proprietary technologies into the important digital health space. We are working on a smooth integration and will disclose these plans in the coming months. For the foreseeable future, Telerhythmics, a wholly-owned subsidiary of G Medical Innovations USA Inc., will run operations in a separate facility, but with synergistic opportunities that will help us achieve higher profitability.
In April 2020, we entered into a distribution agreement with LiveCare Corp. (or LiveCare), a US-based remote patient solutions company. Pursuant to the agreement, LiveCare will promote the sale of and distribute our Prizma device in the United States. As part of the agreement, we will work with LiveCare to integrate the Prizma device into LiveCare’s Link+ platform, which will be offered directly to consumers. The Link+ platform is a 4G smart home gateway that integrates an array of medical devices into a patient’s home using a simple, touch-free syncing process. The agreement is for an initial period of three years, unless notice of termination is provided by either party, and will automatically renew for successive one year terms thereafter, unless either party provides notice of its intent not to renew the agreement at least 30 days prior to the applicable anniversary date. There are no minimum sales commitments under the agreement.
In April 2020, we entered into a distribution agreement with All County Health Care Inc. (or All County), a Medicare certified home health company specializes in the provision of quality home-based healthcare services. Under the agreement, All County will distribute our Prizma in the United States and will offer customers certain additional Prizma related services. The agreement does not provide for a term. In addition, there are no minimum sales commitments under the agreement.
GRS Marketing Services Agreement
On September 30, 2020, we entered into a Media and Marketing Service Agreement (which we refer to as the GRS Agreement) with GRS, an affiliate of Guthy-Renker, LLC. Guthy-Renker is one of the largest and most respected direct marketing companies in the world. Since 1988, Guthy-Renker has discovered and developed dozens of consumer products in the beauty, skincare, and wellness categories.
Pursuant to the GRS Agreement, GRS will, for a three year term, exclusively oversee all television production, radio creative and social media for our company in the United States, including our Prizma mobile medical monitor and other consumer products and services. GRS will manage all television advertising, social and radio media buying, based on approved monthly budgets.
In consideration of GRS’ marketing advisory and creative services, we shall pay to GRS a low five digit monthly retainer, a low single digit percentage gross sales commission on all of our U.S. sales of consumer products and services, but excluding IDTF revenue. We have also agreed to issue the GRS Warrant to GRS as part of the GRS Agreement.
Under the GRS Agreement, if we terminate the GRS Agreement within twelve months from signing a definitive agreement, then we will be restricted from using or buying any television, radio, digital or social media advertising in the United States for twelve months following the date of termination. Such restriction will not apply if we choose to accelerate the vesting of the GRS Warrant. In addition, such restriction will not apply if we and GRS fulfill their respective obligations under the GRS Agreement through the end of the three year term.
Implementation of Our Strategy in China
Since May 2018, we have been in contact with Dongtai City Internet Hospital (or the Dongtai Hospital) on several occasions. The Dongtai Hospital provides patients with various remote health services including online medical consultation, health monitoring, extension of prescriptions and more. The Dongtai Hospital has purchased 100 Prizma devices to be used as part of a pilot for their Citizen Health System Program which is aimed at connecting the clinics located in villages, district hospitals and the City Third Grade Class-A hospital together through the internet.
The Prizma devices purchased by the Dongtai Hospital will be used by nursing homes, allowing the collection of residents’ vital signs data without having them to visit a medical institution, and storing the data in the database system. The sharing of data will enable efficiency in monitoring and treatment, and will allow doctors from the lower level hospitals to consult with doctors form the higher-level hospitals at any time.
During the outbreak of COVID-19, we received positive feedback from the Dongtai Hospital team that indicated that our Prizma device provides an efficient solution for their need to monitor patients’ body temperature and blood oxygen remotely. Commercialization of the project is on hold until NMPA approval is granted.
In addition, during the last year and a half we have been in contact with potential distributors in Hangzhou and Shanghai for our Prizma device.
We obtained ISO 13485 certification, U.S. FDA and NMPA regulatory clearances/approvals for our production facility in Guangzhou, China. In October 2018, we successfully completed an independent audit process conducted by Standard Global Services and received ISO 13485 certification, which is an internationally-accepted quality management system standard that demonstrates compliance to laws and regulations of the medical device industry. We completed U.S. FDA registration and listing in early December 2018. We have met NMPA requirements for the facility and are now preparing the clinical trial results for submitting to NMPA approval for the Prizma product itself.
We have commenced the process of penetrating the Chinese market. To this end, we are:
undergoing clinical trials in a few hospitals in Guangzhou for our Prizma products;
negotiating commercial agreements with Chinese companies to provide diagnostic services;
carrying out marketing activities in China, such as exhibiting at the China International Import Expo in Shanghai; and
|●||starting NMPA approval process for the Extended Holter Patch System.|
Implementation of Our Strategy in Europe and Asia Pacific
We have expanded our footprint to the United Kingdom, and began our operations at G Medical Innovations UK, Ltd. (G Medical UK) during 2019. G Medical UK plans to offer our cardiac monitoring service platform and Prizma solution to a wide range of healthcare providers, homecare agencies and other institutions throughout the country. As of today, G Medical UK has no significant sales.
Driven by the need for accessible healthcare, the Asia Pacific market is expected to be an attractive growth market. Low penetration of medical practitioners and growing rural population in the Asia Pacific region are expected to open avenues for revenue generation.
We have relationships with Telcos and fulfilment houses throughout Europe and Asia. As various milestones are met and as business increases, we will aim to cultivate markets globally in an efficient and economically viable manner. The fulfilment houses that we are in discussions with are companies which are also entrenched in servicing logistics programs of major mass merchants in each country in which they are located.
We believe that our models could be easily adapted to most of the European markets, even when taking into account the fact that in Europe, there is a preponderance of public health service. For instance, in Italy, public healthcare expenditure exceeded 115 billion Euros as of 2018, while private expenditure on healthcare grew steadily in recent years, reaching nearly 40 billion euros. We have identified Italy as a strong potential market for our products since we believe that the telemedicine market in general, and the mobile health market in particular, are very small compared to their potential.
Our strategy is to distribute our products in Italy through two vertical lines:
|●||E-commerce B2C: we will offer our Prizma system directly through e-commerce platforms, including Mediwebnet or Amazon. We plan to promote the Prizma device using social media platforms. In addition, we will offer two models of use for our Prizma device in Italy:|
|-||Personal Use Model – the patient will only have access to the user portal, without access to any call center services; and|
|-||Call Center Model – in addition to access to the use portal, the patient will register to Mediwebnet’s medical call center. In this model, the users’ data will be automatically available to the physician at the call center.|
|●||B2B Market: we are promoting the Prizma system to all those clinics and facilities interested in managing their own mobile health service by integrating the Prizma user portal data into their health management system, using the application programming interface provided by us, such as insurance companies, companies, which offer it as a benefit for their managers and employees, public and private healthcare facilities, telemedicine service centers and mobile phone operators. We plan to sell our Prizma device and charge a monthly fee for the use of the user portal.|
In May 2020, we entered into a non-exclusive distribution agreement for a term of twelve months with Meditel srl, or Meditel, a provider of telemedicine services through web based call centers in Italy, to promote and sell our Prizma device and our Extended Holter Patch System in Italy. Under the agreement, Meditel will promote, sell and distribute our Prizma device and our Extended Holter Patch System in Italy. In addition, the agreement provides that the parties will explore ways to implement our Prizma and Extended Holter Patch System and our monitoring capabilities into Meditel’s existing telemedicine services.
Implementation of Our Strategy in Australia
In Australia, we have been granted Australian regulatory approval by the TGA for our Extended Holter Patch and our Prizma device. The granting of these certifications confirms that both our Extended Holter Patch and Prizma device complies with all relevant Australian medical and safety requirements as a Class IIa medical device, and has allowed us to commence commercial distribution in the territory.
We have commenced commercial distribution of our Extended Holter Patch System and our Prizma device in Australia. Our current collaborations include agreements with:
|●||HomeStay Care Limited (HSC). In April 2020, we have entered into distribution agreement with HomeStay Care Limited. (or HomeStay), a connected health and smart home solutions provider with a term of one year and automatic renewal for another year. The agreement provides for the distribution of our Prizma G2 with User portal on a non-exclusive basis to end-consumers and entities in Australia and New Zealand. Pursuant to the agreement, the initial order consists of 20 units of Prizma G2, thereafter the units may be ordered by us as required. The distributor price per one unit is $150 and retailer price is $249. The agreement fixes Prizma Portal fee at no less than $9 per month, out of which 30% is payable to the distributor. Our partnership has completed the integration of our Prizma device into HomeStay’s IoT platform. Integration will provide remote vital signs monitoring capabilities to HomeStay’s uVue telehealth platform (or uVue) and a 24-hour monitoring response to users in Australia and New Zealand. The Prizma device will be made available primarily using the uVue as the communication delivery system and is currently being deployed into Australian Aged-care and nursing home facilities within the HomeStay network.|
|●||Royal Australian College of General Practitioners. We have a sponsorship agreement with Royal Australian College of General Practitioners (or RACGP) for our Prizma medical device, telehealth app and patient and physician portals. RACGP is Australia’s largest professional general practice organisation and represents urban and rural general practitioners, representing more than 40,000 members.|
We have made significant investments in the development of our patent portfolio to protect our technologies and programs, and we intend to continue to do so. Our intellectual property portfolio consists of seventeen patent applications and three granted patents, which have either the PCT pending status or have entered national stage and are under examination by national authorities.
|Filing Date||Application No.||Title||Country||Product||Type of patent protection||Application Expiry date|
|03/31/2016||15/026,258||Systems and methods for vital signs monitoring with ear piece||United States||VSMS||Utility patent||03/30/2036|
|05/16/2016||16832414.3||Device system and method for noninvasively monitoring physiological parameters||European Patent Office||VSMS, Prizma||Utility patent||05/15/2036|
|06/28/2017||201680004569.2-0||Systems and methods for vital signs monitoring with ear piece||China||VSMS||Utility patent||06/27/2037|
|07/25/2017||10-2017-7023630||Systems and methods for vital signs monitoring with ear piece||Republic of Korea||VSMS||Utility patent||07/24/2037|
|08/08/2017||201680009360.5-0||Device system and method for noninvasively monitoring physiological parameters||China||VSMS, Prizma||Utility patent||08/07/2037|
|10/24/2017||201780080888.6-0||Remote monitoring of a person and an automatic distribution of prescription drugs||China||General patent which can help in future developments and business cases||Utility patent||10/23/2037|
|01/30/2018||201790000342-0||Jacket for Medical Module||China||Prizma||Utility patent||01/29/2028|
|01/05/2019||PCT/IB2019/053561||Robust medical device and method||WIPO-PCT||Prizma||Utility patent||20 years from submitting in specific countries|
|01/30/2018||201820157683.5-0||Health monitoring device that includes a compact oximeter||China||Prizma||Utility patent||01/29/2028|
|03/02/2018||10-2018-7006193||Device system and method for noninvasively monitoring physiological parameters||Republic of Korea||VSMS, Prizma||Utility patent||03/01/2038|
|02/14/2019||16/325,391||Jacket for medical module||United States||Prizma||Utility patent||02/13/2039|
|03/24/2019||16/362,662||Methods and systems for vital signs monitoring with ear piece||United States||VSMS||Utility patent||03/23/2039|
|04/12/2019||17843061.7||Jacket for Medical Module||European Patent Office||Prizma||Utility patent||04/11/2039|
|04/23/2019||16/344,022||Remote monitoring of a person and an automatic distribution of prescription drugs||United States||General patent which can help in future developments and business cases||Utility patent||04/22/2039|
|04/24/2019||2019522280||Remote monitoring of a person and an automatic distribution of prescription drugs||Japan||General patent which can help in future developments and business cases||Utility patent||04/23/2039|
|08/07/2019||16/484,125||Methods and systems for vital signs monitoring with ear piece||United States||VSMS||Utility patent||08/06/2039|
|09/28/2019||16/586,934||Method, Device and System for Non-Invasively Monitoring Physiological Parameters||United States||VSMS, Prizma||Utility patent||09/27/2039|
|03/24/2020||16/650,010 (1)||Method and system for obtaining physical condition that lead to a defibrillator countershock||United States||VSMS||Utility patent||03/23/2039|
|05/13/2020||16/763,581||Health monitoring device that includes a compact oximeter||United States||Prizma||Utility patent||05/12/2040|
|06/08/2020 ||PCT/IB2020/057422 ||Coating electrodes of medical devices||WIPO-PCT||Prizma||Utility patent||20 years from submitting in specific countries|
|(1)||Our company has partial interest in this application.|
Other Intellectual Property
On August 4, 2016, our subsidiary, G Medical Israel, and Mennen Medical Ltd. (or Mennen) (a company incorporated in Israel), entered into a software licensing agreement pursuant to which we were granted a worldwide, perpetual, irrevocable (other than in case of breach), royalty-free, non-exclusive license to use the arrhythmia software and high risk detection application (including all existing preprocessing) and respiration module manufactured and developed by Mennen (including subject to certain conditions, any updates, upgrades, modification and customizations, if requested by us, which shall be priced separately) and to incorporate and integrate the arrhythmia software and high risk detection application with our ECG wireless devices. Pursuant to the terms of the software licensing agreement, Mennen was paid $110,000.
Other Intellectual Property Protection
We also rely on trade secrets, know-how, and continuing innovation to develop and maintain our competitive position. We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology.
Our success depends, in part, on an intellectual property portfolio that supports future revenue streams and erects barriers to our competitors. We are maintaining and building our patent portfolio through filing new patent applications, prosecuting existing applications, and licensing and acquiring new patents and patent applications.
Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated. Intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive one. For more information, see “Risk Factors—Risks Related to our Intellectual Property.”
Competition and Competitive Advantages
The monitoring services industry is very competitive and characterized by rapidly advancing technologies with a strong emphasis on proprietary products and software. We recognize that our competitive success will depend upon constant investments in innovative, pioneering technological solutions. We believe that many of our competitors only offer one narrow scope of capabilities and are not perceived as convenient for all monitoring scenarios, or have not received regulatory approvals for product enhancements. We believe that our competitive advantages include:
|●||Strong research and development capabilities: our management team has over 30 years of combined experience in developing mobile embedded medical sensors and software;|
|●||Existing regulatory approvals: currently, we have the CE mark for our Prizma device and Extended Holter Patch System, U.S. FDA clearance for our Prizma device, and OTC authorization for our Prizma device and Extended Holter Patch System based on an EUA policy (QT syndrome prolongation in hospitals). We have also been granted Australian regulatory approval by the TGA for our Prizma device and Extended Holter Patch System. We received registration with the Italian Health Ministry’s database of medical products and were granted our Permit License by the Taiwan FDA for our Prizma device. We are also preparing our application to the Chinese NMPA for our Prizma device;|
|●||Go-to-market strategy: our management has proven their ability to execute our go-to-market strategy as described below, with over 25 years of medical device development and commercialization experience in the United States, China, parts of Europe, Australia, South Africa, Japan, the Asia Pacific region and Brazil;|
|●||A one-stop multi-function and multi-account platform: with extensive experience in developing mobile embedded medical sensors, we offer multi-function devices with quick upgrades, more add-ins and multi-accounts for all family members;|
|●||An extensive ecosystem with greatest data monetization potential: we provide companies with medical grade solutions, efficient healthcare delivery and potential for collaboration, and enable consumers to access real-time monitoring, accurate medical data and a resource sharing platform.|
United States Competitive Review
Our arrhythmia monitoring service primary competitors in the U.S. include BioTelemetry, Inc. (Nasdaq: BEAT), iRhythm Technologies, Inc. (Nasdaq: IRTC), and Preventice Solutions, Inc. (formerly eCardio Diagnostics, LLC). These companies have either developed or acquired patch-based mobile cardiac monitors. iRhythm Technologies became a public company in late 2016 with their proprietary ZIO patch, a single lead ECG wearable that is worn for up to 14 days. BioTelemetry, the largest IDTF operator in the US, offers a range of proprietary technologies, including a patch-based MCT monitor. Preventice Solutions (formerly eCardio Diagnostics, LLC), offers a range of services similar to BioTelemetry. Several small start-ups are also trying to compete in the cardiac monitoring space, either with an MCT device or a patch-based service.
Other competitors are companies that sell standard Holter monitors and analysis systems including GE Healthcare, Philips Healthcare, Mortara Instrument, Inc., and Welch Allyn Holdings, Inc. (now part of Hill-Rom Holdings, Inc.).
We believe that the principal competitive strength of our arrhythmia monitoring service derives from the combination of several factors including: a range of monitoring modalities to meet a variety of patients’ needs; multi-lead ECG configurations that provide greater diagnostic yields; quality of our clinical staff to accurately detect and identify arrhythmias; clear and comprehensive reports for physician interpretation; contracted rates with third-party payors; government reimbursement for our products and services; experience, knowledge and availability of our account representatives and customer support services; flexible workflow protocols to address account methodologies; and our relationships with physicians, hospitals, insurers, and other third-party payors.
Our competitors in the mHealth space include, among others, AliveCor (ECG only), Qardia (more geared to fitness) and Tytocare (home care device with various attachments for examining ears, throat, heart, lungs, abdomen, skin, and capturing heart rate and temperature data).
In the mHealth space, we believe that our Prizma clinical grade solution has several differentiators that elevate its market position and our competitive advantage, including multiple measurements on one application (ECG, temperature, Sp02, stress analysis, etc.) and an easy to use platform which provides more value to a greater range of markets (consumer, medical clinics, chronic care).
China Competition Review
The graphic below represents the primary companies and their respective products that compete, or have the potential to compete, with our products and services in the Chinese market:
|Products of Company A||Body temperature, blood pressure and glucose level measurement||New models of blood pressure monitors completed clinical trials||Various product types|
|Products of Company B||24 hours of continuous accurate temperature measurement and high temperature alarm; Accurate monitoring of blood oxygen, heartbeat, blood circulation; Intelligent management of blood pressure||One product is in registration application for Certificate for Medical Device; another product obtained the Medical Device Registration Certificate||Various product types|
|Products of Company C||Multiple diabetes indicators such as glucose level, blood lipids, glycated hemoglobin, uric acid, etc.||One product received valid Medical Device Registration Certificate; another product is applying for Medical Device Registration Certificate||Single product line for diabetes monitoring and related chronic disease detection|
|Products of Company D||Changes in blood oxygen and body temperature monitoring, blood pressure measurement, sleep improvement||In the type examination stage||Various devices with different functions|
|Products of Company E||Blood pressure measurement, heart rate monitoring||Have obtained the second-class Medical Device Registration Certificate||Limited tests|
|Product of Company F||
Heart rate measurement;
Designed for users to track daily activities including distance, calories burned, sleep quality, steps, and time
|No regulatory approvals||Not for clinical use|
In China, we believe that our competitive advantage lies in our technology, products and services which offer health care providers and patients an all-inclusive solution for remote health monitoring, as opposed to only one narrow scope of capabilities. Thus, we believe that due to our strong technology and our experience and know-how in monitoring patients remotely, G Medical China is well positioned to gain a significant market share in China.
We received ISO 13485 certification for our assembly facility in Guangzhou, China, which consists of 7,500 square feet. When fully operational, the facility will be operating in two shifts of eight hours per shift. Presently, we use contract manufacturers in Israel to meet our manufacturing requirements.
Our Prizma device and Extended Holter Patch will be produced by a third party in China. All components will be ordered by the manufacturer and a semi-final product will be shipped to G Medical China for final assembly, which includes quality control and QA processes and shipping of the products to end customers.
The principal markets that we have targeted for our medical devices are the United States, the EU, Australia, New Zealand and China. The following is an overview of the regulatory regimes in these jurisdictions.
General Overview of United States Medical Device Regulation
Under Section 201(h) of the Federal Food, Drug, and Cosmetic Act (or the FDC Act), a medical device is an article, which, among other things, is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment or prevention of disease, in man or other animals.
Medical devices sold in the United States are subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical trial may need to be conducted before a device receives clearance for commercial distribution.
Our current devices are classified as medical devices and are subject to regulation by numerous agencies and legislative bodies, including the U.S. FDA, and its foreign counterparts.
U.S. FDA regulations govern product design and development, pre-clinical and clinical testing, manufacturing, labeling, storage, pre-market clearance or approval, advertising and promotion, sales, distribution, device recalls and other similar matters.
Specifically, the U.S. FDA classifies medical devices into one of three classes:
|●||Class I devices are relatively simple and can be manufactured and distributed in the United States with general controls;|
|●||Class II devices are more complex and require greater scrutiny, with most Class II devices requiring regulatory clearance by the U.S. FDA before being distributed in the United States; or|
|●||Class III devices are new and frequently help sustain life or are high-risk devices and usually approved through pre-market approval (or PMA).|
Summary of the Medical Device Distribution Process in the United States
Unless an exemption applies, medical devices commercially distributed in the United States require a 510(k) clearance, or a 510(k)+ “de-novo” clearance, or PMA from the U.S. FDA. Our current devices fall into the classification of a Class II device.
510(k) Clearance Process. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use or indications for use, requires a new 510(k) clearance or could even require a premarket application approval. The U.S. FDA requires each manufacturer to assess whether the proposed changes to the medical device are substantial or not; if the change is not substantial, then the manufacturer can issue an internal Letter to File (also called Memo to File) exempting the device from a new 510(k) clearance or a supplement submission, however the U.S. FDA has the right to review any such assessment. If the U.S. FDA disagrees with the determination, then the agency may retroactively require the manufacturer to seek 510(k) clearance. The U.S. FDA can also require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or premarket application approval is obtained.
De Novo Classification. If the U.S. FDA denies 510(k) clearance of a device because it is novel and because an adequate predicate device does not exist (resulting in a determination of non- substantial equivalence), then the “de novo classification” procedure can be invoked based upon reasonable assurance that the device is safe and effective for its intended use. This procedure approximates the level of scrutiny in the 510(k) process but may add several months to the clearance process. If the U.S. FDA approves the “de novo” request, then the device is permitted to enter commercial distribution in the same manner as if 510(k) clearance had been granted.
PMA Process. After the U.S. FDA approves a Class III medical device via the PMA route, a new premarket application or premarket application supplement is required in the event of a modification to the device, its labeling or its manufacturing process. The premarket application approval pathway is much more costly, lengthy and uncertain; it generally takes from one to three years or longer.
Coronavirus Disease 2019 (COVID-19) Emergency Use Authorizations for Medical Devices
On February 4, 2020, the U.S. Secretary of the Department of Health and Human Services (HHS) determined, pursuant to section 564 of the FDC, that there was a significant potential for a public health emergency that has a significant potential to affect national security or the health and security of United States citizens living abroad and that involves COVID-19. The virus is now named SARS-CoV-2, which causes the illness COVID-19. Based on the EUA policy, which will remain in force during the public health emergency related to COVID-19, the U.S. FDA granted us OTC authorization for our Prizma device and Extended Holter Patch.
General Overview of European and Non-European Medical Device Regulation
Regulatory approval and sales of medical devices outside the United States are subject to foreign regulatory requirements that may vary widely from country to country. These laws and regulations range from simple product registration requirements in some countries to complex clearance and production controls in others. As a result, the processes and time periods required to obtain foreign marketing clearance may be longer or shorter than those necessary to obtain U.S. FDA clearance.
Commercialization of medical devices in Europe is regulated by the EU. The EU presently requires that all medical products bear the CE mark, an international symbol of adherence to quality assurance standards and demonstrated clinical effectiveness. Compliance with the Medical Device Directive (or MDD), or the Active Implantable Medical Device Directive, or the In Vitro Diagnostic Medical Device Directive, as audited by an EEA Notified Body and certified by a recognized European Competent Authority, permits the manufacturer to affix the CE mark on its products. If the medical device is classified as a Class I device per the MDD, and is not provided sterile, then the manufacturer can affix the CE mark to its Class I devices by means of a self-declaration only, without the need for approval by the EEA Notified Body.
On October 1, 2016, we obtained ISO 13485 certification for our quality management system. In addition, in September 2017 we received CE mark certification for our Prizma device, and in November 2017 we received CE mark certification for the Extended Holter Patch System. CE certification allows the devices to be marketed and sold in all the member states of the EEA as well as in certain other countries worldwide.
In addition, in November 2017, we obtained regulatory clearance (TGA) to market the Prizma device in Australia. In April 2020, we received Taiwan FDA approval to market the Prizma device.
To the extent that in the future we seek to market our products outside of countries in the EEC, we may be required to comply with the applicable regulatory requirements in each such country. Such regulatory requirements vary by country and may be tedious. As a result, no assurance can be given that we will be able to satisfy the regulatory requirements to market or sell our products in any such country.
Registration of Medical Devices in China
Registration of medical devices in China is handled and approved by the NMPA. In order to apply for NMPA registration for a medical device, a non-Chinese manufacturer is required to appoint a local Chinese agent who will coordinate the NMPA device registration and assist in determining the classification of the medical device in China, using NMPA Order No. 15 and the NMPA’s classification database. Class II and III device manufacturers should also identify predicates and determine the clinical data requirements for their device and how to satisfy them. Our products fall under Class II (non-invasive) devices.
Registration in China may be a longer process than registration in other countries, as the NMPA does usually not recognize a clinical trial or device testing performed outside of China. As a result, a clinical trial and/or device testing is usually required to be performed or repeated in China. In addition, currently all regulatory documentation needs to be submitted in Chinese.
In February 2018, our subsidiary Guangzhou Yimei Innovative Medical Science and Technology Co., Ltd. was granted acceptance to the Green Channel expedited Guangdong Provincial NMPA regulatory approval process for the Prizma medial smartphone case. The special review and approval procedures for innovative medical devices ensures the safety and effectiveness of products and services for the Chinese market.
Clinical Studies in the United States
Even when a clinical study has an approved Investigational Device Exemption from the U.S. FDA under significant risk determination, and has been approved by an Institutional Review Board under non-significant risk determination and/or has been approved by a local or regional Ethics Committee, the study is subject to factors beyond a manufacturer’s control, including, but not limited to the fact that the institutional review board at a given clinical site might not approve the study, might decline to renew approval (required annually), or might suspend or terminate the study before the study has been completed. There is no assurance that a clinical study at any given site will progress as anticipated; the interim results of a study may not be satisfactory leading the sponsor or others to terminate the study, there may be an insufficient number of patients who qualify for the study or who agree to participate in the study, or the investigator at the site may have priorities other than the study. Also, there can be no assurance that the clinical study will provide sufficient evidence to assure the U.S. FDA that the product is safe, effective and performs as intended as a prerequisite for granting market clearance.
Even if the U.S. FDA or other similar non-U.S. regulatory agencies clears or approves a medical device for use, the regulatory agency may limit the intended uses of the device in such a way that manufacturing and distributing the device may not be commercially feasible. After clearance or approval to market is given, the U.S. FDA and similar foreign regulatory agencies, upon the occurrence of certain events, are authorized under various circumstances to withdraw the clearance or approval or require changes to a device, its manufacturing process or its labeling or additional proof that regulatory requirements have been met.
In the United States, a manufacturer of a device approved through the premarket approval application process is not permitted to make changes to the device which affects its safety or effectiveness without first submitting a supplement application to its premarket approval application and obtaining U.S. FDA clearance for that supplement. In some instances, the U.S. FDA may require a clinical trial to support a supplement application.
A manufacturer of a device cleared through a 510(k) submission or a 510(k)+ “de-novo” submission must submit another premarket notification if it intends to make a change or modification in the device that could significantly affect the safety or effectiveness of the device, such as a significant change or modification in design, material, chemical composition, energy source or manufacturing process.
Any change in the intended uses of a premarket approval application device or a 510(k) device requires an approval supplement or cleared premarket notification. Exported devices are subject to the regulatory requirements of each country to which the device is exported, as well as certain U.S. FDA export requirements.
Mobile Medical Applications Guidance in the United States
On February 9, 2015, the U.S. FDA issued final guidance for developers of mobile medical applications, or apps, which are software programs that run on mobile communication devices and perform the same functions as traditional medical devices. The guidance outlines the U.S. FDA’s tailored approach to mobile apps. The U.S. FDA plans to exercise enforcement discretion (meaning it may choose not to enforce all requirements under the FDC Act) for the majority of mobile apps, as they pose minimal risk to consumers. The U.S. FDA currently plans to focus its regulatory oversight on a subset of mobile medical apps that present a greater risk to patients if they do not work as intended, such as mobile medical apps that:
are intended to be used as an accessory to a regulated medical device – for example, an application that allows a health care professional to make a specific diagnosis by viewing a medical image from a picture archiving and communication system on a smart mobile device or a mobile tablet; or
|●||transform a mobile platform into a regulated medical device – for example, an application that turns a smart mobile device into an ECG machine to detect abnormal heart rhythms or determine if a patient is experiencing a heart attack.|
While some features of the Prizma device are classified by the U.S. FDA as medical functions and require regulatory clearance by the U.S. FDA, other features may be classified as wellness functions following the guidelines set out in U.S. FDA Guidance document, “Multiple Function Products,” dated April 27, 2018 (draft guidance at this stage).
Ongoing Regulation by the U.S. FDA
Even after a device receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
establishment registration and device listing;
quality system regulation, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all phases of the product life-cycle;
labeling regulations and U.S. FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses, and other requirements related to promotional activities;
medical device reporting regulations, which require that manufacturers report to the U.S. FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;
corrections and removals reporting regulations, which require that manufacturers report to the U.S. FDA field corrections and product recalls or removals if undertaken to reduce a health risk posed by the device or to remedy a violation of the FDC Act that may present a health risk; and
|●||post-market surveillance regulations, which apply when necessary to protect the health of the general public or to provide additional safety and effectiveness data for the device.|
Failure to comply with applicable regulatory requirements can result in enforcement action by the U.S. FDA, which may include any of the following sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, operating restrictions, partial suspension or total shutdown of production, refusing our request for 510(k) clearance or PMA approval of new products, rescinding previously granted 510(k) clearances or withdrawing previously granted PMA approvals.
We may be subject to announced and unannounced inspections by the U.S. FDA, and these inspections may include the manufacturing facilities of our subcontractors. If, as a result of these inspections, the U.S. FDA determines that our or our subcontractors’ equipment, facilities, laboratories or processes do not comply with applicable U.S. FDA regulations and conditions of product clearance, the U.S. FDA may seek civil, criminal or administrative sanctions and/or remedies against us, including the suspension of our manufacturing and selling operations.
Ongoing Regulation by International Regulators
International sales of medical devices are subject to foreign government regulations, which may vary substantially from country to country.
In order to maintain the right to affix the CE mark to market medical devices in the EEA, the notified body needs to perform an annual surveillance audit of a company’s premises and, if needed, also of the premises of critical subcontractors of the manufacturer.
Additionally, the EU Directives dictate the following requirements:
vigilance system, which requires the manufacturer to immediately notify the relevant competent authority when a company product has been involved in an incident that (i) led to death, a serious injury, or serious deterioration in the state of health of a patient, user or other, third-party; or (ii) may have led to death, serious injury or serious deterioration in the state of health of a patient, user or other, third-party; and
|●||post-market surveillance including a documented procedure to review experience gained from medical devices on the market and to implement any necessary corrective action that would be commensurate with the nature and risks involved with the given product.|
Failure to comply with applicable regulatory requirements can result in enforcement action by the regulatory agency, which may include any of the following sanctions: fines, injunctions, civil or criminal penalties, recall or seizure of our current or future products, shutting down all or certain of our services, operating restrictions, partial suspension or total shutdown of production, refusing our request for renewing clearance and/or registration of our products or granting clearance/registration for new products.
State Licensure Requirements
Several U.S. states require that Durable Medical Equipment (or DME) providers should be licensed in order to sell products to patients in that state. Certain of these states require that DME providers maintain an in-state location. If these rules are determined to be applicable to us and if we were found to be noncompliant, we could lose our licensure in that state, which could prohibit us from selling our current or future products to patients in that state.
Federal Anti-Kickback and Self-Referral Laws
The U.S. Federal Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce the:
referral of a person;
furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs; or
|●||purchase, lease, or order of, or the arrangement or recommendation of the purchasing, leasing, or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs.|
To the extent we are required to comply with these regulations, it is possible that regulatory agencies could allege that we have not complied, which could subject us to certain sanctions. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare, Medicaid or other governmental programs, restrictions on our ability to operate in certain jurisdictions, as well as civil and criminal penalties, any of which could have an adverse effect on our business and results of operations.
Federal law also includes a provision commonly known as the “Stark Law,” which prohibits a physician from referring Medicare or Medicaid patients to an entity providing “designated health services,” including a company that furnishes durable medical equipment, in which the physician has an ownership or investment interest or with which the physician has entered into a compensation arrangement. Violation of the Stark Law could result in denial of payment, disgorgement of reimbursements received under a noncompliant arrangement, civil penalties, and exclusion from Medicare, Medicaid or other governmental programs.
Federal False Claims Act (or the FCA)
The FCA provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. In addition, amendments in 1986 to the FCA have made it easier for private parties to bring “qui tam” whistleblower lawsuits against companies. Penalties include civil penalties ranging from $11,463 to $22,927 for each false claim, subject to yearly inflation adjustment, plus three times the amount of damages that the federal government sustained because of the act of that person.
Civil Monetary Penalties Law