SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
MARK
ONE
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934 for the Quarterly Period ended June 30, 2008; or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934 for the transition period from ________
to ________
COMMISSION
FILE NUMBER: 0-11772
SPO
MEDICAL INC.
(Exact
name of registrant specified in its charter)
Delaware
|
25-1411971
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Beit
Hapa’amon, Suite 209, 20 Hata’as Street, Kfar Saba, Israel
(Address
of principal executive offices, including zip code)
972
9 764-3570
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a Smaller reporting company.
See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not
check if a smaller reporting company) smaller reporting company
x
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No x
.
As
of
August 14, 2008, SPO Medical Inc. had outstanding 23,680,128 shares of common
stock, par value $0.01 per share.
INDEX
PAGE
|
PAGE
|
|
|
PART
I — FINANCIAL INFORMATION
|
|
|
|
Forward
Looking Statements
|
(ii )
|
|
|
Item
1 - Financial Statements
|
|
|
|
Unaudited
Consolidated Balance Sheet June 30, 2008
|
1
|
|
|
Unaudited
Consolidated Statements of Operations for the six and three months
ended
June 30, 2008 and 2007
|
2
|
|
|
Unaudited
Statements of Changes in Stockholders' Equity
|
3
|
|
|
Unaudited
Consolidated Statements of Cash Flows for the six and three months
ended
June 30, 2008 and 2007
|
4
|
|
|
Notes
to Consolidated Financial Statements
|
5
|
|
|
Item
2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
8
|
|
|
Item
4(T) - Controls and Procedures
|
11
|
|
|
PART
II — OTHER INFORMATION
|
|
|
|
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds
|
11
|
|
|
Item
3 - Defaults upon Senior Securities
|
12
|
|
|
Item
6 - Exhibits
|
12
|
|
|
SIGNATURES
|
13
|
FORWARD
LOOKING STATEMENTS
The
following discussion and explanations should be read in conjunction with the
financial statements and related notes contained elsewhere in this quarterly
report on Form 10-Q. Certain statements made in this discussion are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified
by
terminology such as "may", "will", "should", "expects", "intends",
"anticipates", "believes", "estimates", "predicts", or "continue" or the
negative of these terms or other comparable terminology and include, without
limitation, statements below regarding: the Company's intended business plans;
expectations as to product performance; intentions to acquire or develop other
technologies; and belief as to the sufficiency of cash reserves. Because
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. Although the Company
believes that expectations reflected in the forward-looking statements are
reasonable, it cannot guarantee future results, performance or achievements.
Moreover, neither the Company nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements. The Company
is under no duty to update any forward-looking statements after the date of
this
report to conform such statements to actual results.
SPO
MEDICAL INC.
|
AND
ITS SUBSIDIARY
|
CONDENSED
INTERIM CONSOLIDATED BALANCE SHEET
|
U.S.
dollars in thousands
|
|
|
|
June 30,
2008
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
773
|
|
Trade
receivables
|
|
|
972
|
|
Other
accounts receivable and prepaid expenses
|
|
|
110
|
|
Inventories
|
|
|
1,057
|
|
|
|
|
2,912
|
|
LONG-TERM
INVESTMENTS
|
|
|
|
|
Deposits
|
|
|
15
|
|
Severance
pay fund
|
|
|
420
|
|
|
|
|
435
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
174
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,521
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Short-term
loans
|
|
$
|
1,134
|
|
Trade
payables
|
|
|
577
|
|
Employees
and payroll accruals
|
|
|
333
|
|
Other
payables and accrued expenses
|
|
|
759
|
|
|
|
|
2,803
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
|
Accrued
severance pay
|
|
|
523
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Stock
capital
|
|
|
236
|
|
Additional
paid-in capital
|
|
|
13,685
|
|
Accumulated
deficit
|
|
|
(13,726
|
)
|
|
|
|
195
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,521
|
|
The
accompanying notes to these financial statements are an integral part
thereof.
SPO
MEDICAL INC.
AND
ITS SUBSIDIARY
|
CONDENSED
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
|
U.S.
dollars in thousands except share
data
|
|
|
Six months ended
June 30,
|
|
Three months ended
June
30,
|
|
|
|
Unaudited
|
|
Unaudited
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,168
|
|
$
|
2,766
|
|
$
|
1,089
|
|
$
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
|
1,187
|
|
|
1,265
|
|
|
595
|
|
|
706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
981
|
|
|
1,501
|
|
|
494
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
723
|
|
|
543
|
|
|
293
|
|
|
267
|
|
Selling
and marketing
|
|
|
324
|
|
|
390
|
|
|
181
|
|
|
225
|
|
General
and administrative
|
|
|
756
|
|
|
592
|
|
|
454
|
|
|
345
|
|
Total
operating expenses
|
|
|
1,803
|
|
|
1,525
|
|
|
928
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
822
|
|
|
24
|
|
|
434
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
expenses, net
|
|
|
251
|
|
|
439
|
|
|
138
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the period
|
|
$
|
1,073
|
|
$
|
463
|
|
$
|
572
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per ordinary share
|
|
$
|
(0.05
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
used in computation of basic and
diluted loss per share
|
|
|
23,085,616
|
|
|
20,208,833
|
|
|
23,790,236
|
|
|
20,228,833
|
|
The
accompanying notes to these financial statements are an integral part
thereof.
SPO
MEDICAL INC.
AND
ITS SUBSIDIARY
|
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
U.S.
dollars in thousands
|
|
|
Stock
capital
|
|
Additional
paid-in
capital
|
|
Deferred
compensation
|
|
Accumulated
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2006
|
|
$
|
170
|
|
$
|
4,833
|
|
$
|
(227
|
)
|
$
|
(6,086
|
)
|
$
|
(1,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation reclassified due to FAS 123R implementation for the
first
time
|
|
|
|
|
|
(227
|
)
|
|
227
|
|
|
|
|
|
—
|
|
Warrants
issued in connection with loans
|
|
|
|
|
|
530
|
|
|
|
|
|
|
|
|
530
|
|
Amortization
of deferred stock-based compensation related to options granted
to
consultants
|
|
|
|
|
|
893
|
|
|
|
|
|
|
|
|
893
|
|
Exercise
of warrants by external consultant
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Benefit
resulting from changes to warrant terms
|
|
|
|
|
|
2,534
|
|
|
|
|
|
|
|
|
2,534
|
|
Exercise
of convertible notes
|
|
|
9
|
|
|
560
|
|
|
|
|
|
|
|
|
569
|
|
Amortization
of deferred stock-based compensation related to options granted
to
employees and directors
|
|
|
|
|
|
260
|
|
|
|
|
|
|
|
|
260
|
|
Issuance
of stock capital
|
|
|
9
|
|
|
571
|
|
|
|
|
|
|
|
|
580
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
(4,963
|
)
|
|
(4,963
|
)
|
Balance
as of December 31, 2006
|
|
$
|
193
|
|
$
|
9,954
|
|
$
|
—
|
|
$
|
(11,049
|
)
|
$
|
(902
|
)
|
Issuance
of stock capital, net
|
|
|
14
|
|
|
1,169
|
|
|
|
|
|
|
|
|
1,183
|
|
Exercise
of stock options
|
|
|
2
|
|
|
8
|
|
|
|
|
|
|
|
|
10
|
|
Warrants
issued in connection with credit line
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
19
|
|
Benefit
resulting from changes to warrant terms
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
41
|
|
Issuance
of ordinary shares upon exercise of warrants and conversion of
loans
|
|
|
6
|
|
|
510
|
|
|
|
|
|
|
|
|
516
|
|
Amortization
of deferred stock-based compensation related to options granted
to
employees
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
110
|
|
Amortization
of deferred Stock-based compensation related to options granted
to
directors
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
58
|
|
Amortization
of deferred stock-based compensation related to options granted
to
consultants
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
35
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
(1,604
|
)
|
|
(1,604
|
)
|
Balance
as of December 31, 2007
|
|
$
|
215
|
|
$
|
11,904
|
|
$
|
—
|
|
$
|
(12,653
|
)
|
$
|
(534
|
)
|
Issuance
of ordinary stock upon conversion of loans and accrued
interest
|
|
|
8
|
|
|
453
|
|
|
|
|
|
|
|
|
461
|
|
Issuance
of stock capital, net
|
|
|
8
|
|
|
549
|
|
|
|
|
|
|
|
|
557
|
|
Issuance
of ordinary stock to service providers
|
|
|
1
|
|
|
79
|
|
|
|
|
|
|
|
|
80
|
|
Issuance
of ordinary stock on cancellation of distribution
agreement
|
|
|
4
|
|
|
481
|
|
|
|
|
|
|
|
|
485
|
|
Benefit
on issuance of warrants in connection with conversion of loans
and accrued
interest
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
105
|
|
Amortization
of deferred stock-based compensation related to options granted
to
employees
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
114
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
(1,073
|
)
|
|
(1,073
|
)
|
Balance
as of June 30, 2008, (Unaudited)
|
|
$
|
236
|
|
$
|
13,685
|
|
$
|
—
|
|
$
|
(13,726
|
)
|
$
|
195
|
|
The
accompanying notes to these financial statements are an integral part
thereof.
SPO
MEDICAL INC.
AND
ITS SUBSIDIARY
|
CONDENSED
INTERIM STATEMENTS OF CASH FLOWS
|
U.S.
dollars in thousands
|
|
|
Six
months ended
June
30,
|
|
Three
months ended
June
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the period
|
|
$
|
(1,073
|
)
|
$
|
(463
|
)
|
$
|
(572
|
)
|
$
|
(232
|
)
|
Adjustments
to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
21
|
|
|
13
|
|
|
10
|
|
|
6
|
|
Stock-based
compensation expenses
|
|
|
114
|
|
|
139
|
|
|
93
|
|
|
88
|
|
Amortization
of loan discounts, net
|
|
|
49
|
|
|
333
|
|
|
—
|
|
|
161
|
|
Grant
of ordinary stock to service providers
|
|
|
80
|
|
|
|
|
|
80
|
|
|
|
|
Benefit
resulting from conversion of loans
|
|
|
105
|
|
|
—
|
|
|
105
|
|
|
—
|
|
Increase
(decrease) in accrued severance pay, net
|
|
|
(30
|
)
|
|
7
|
|
|
(14
|
)
|
|
5
|
|
Increase
in accrued interest payable on loans
|
|
|
54
|
|
|
83
|
|
|
22
|
|
|
41
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in trade receivables
|
|
|
(89
|
)
|
|
(182
|
)
|
|
(90
|
)
|
|
(267
|
)
|
Decrease
(increase) in other receivables
|
|
|
10
|
|
|
(45
|
)
|
|
261
|
|
|
(25
|
)
|
Decrease
(Increase) in inventories
|
|
|
24
|
|
|
(235
|
)
|
|
74
|
|
|
(40
|
)
|
Increase
(decrease) in trade payable
|
|
|
1
|
|
|
169
|
|
|
11
|
|
|
54
|
|
Increase
in other payables and accrued expenses
|
|
|
48
|
|
|
235
|
|
|
(15
|
)
|
|
135
|
|
Net
cash provided by (used in) operating activities
|
|
|
(686
|
)
|
|
54
|
|
|
(35
|
)
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in short term investments
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Purchase
of property and equipment
|
|
|
(18
|
)
|
|
(24
|
)
|
|
(5
|
)
|
|
(11
|
)
|
Net
cash used in investing activities
|
|
|
(18
|
)
|
|
(26
|
)
|
|
(5
|
)
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock capital
|
|
|
557
|
|
|
—
|
|
|
334
|
|
|
—
|
|
Exercise
of stock options
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Repayment
of short-term loans
|
|
|
(322
|
)
|
|
(41
|
)
|
|
(322
|
)
|
|
—
|
|
Net
cash provided by (used in) financing activities
|
|
|
235
|
|
|
(31
|
)
|
|
12
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents
|
|
|
(469
|
)
|
|
(3
|
)
|
|
(28
|
)
|
|
(75
|
)
|
Cash
and cash equivalents at the beginning of the period
|
|
|
1,242
|
|
|
836
|
|
|
801
|
|
|
908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
773
|
|
$
|
833
|
|
$
|
773
|
|
$
|
833
|
|
Non
cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of ordinary stock upon conversion of loans and accrued
interest
|
|
$
|
461
|
|
$
|
—
|
|
$
|
461
|
|
$
|
—
|
|
Issuance
of ordinary stock to service providers
|
|
$
|
80
|
|
$
|
—
|
|
$
|
80
|
|
$
|
— |
|
Issuance
of ordinary stock on settlement of distribution agreement
|
|
$
|
485
|
|
$
|
—
|
|
$
|
485
|
|
$
|
— |
|
The
accompanying notes to these financial statements are an integral part
thereof.
SPO
MEDICAL INC
AND
ITS SUBSIDIARY
|
|
U.S.
dollars in thousands (except share
data)
|
SPO
Medical Inc. (hereinafter referred to as "SPO" or the "Company") is engaged
in
the design, development and marketing of non-invasive pulse oximetry
technologies to measure blood oxygen saturation and heart rate. The applications
are marketed, in the following sectors; homecare, professional medical care,
sports, safety and search & rescue.
SPO
was
originally incorporated under the laws of the State of Delaware in September
1981 under the name "Applied DNA Systems, Inc." On November 16, 1994, the
Company changed its name to "Nu-Tech Bio-Med, Inc." On December 23, 1998, the
Company changed its name to "United Diagnostic, Inc." Effective April 21, 2005,
the Company acquired (the "Acquisition Transaction") 100% of the outstanding
capital stock of SPO Medical Equipment Ltd., a company incorporated under the
laws of the State of Israel ("SPO Ltd."), pursuant to a Capital Stock Exchange
Agreement dated as of February 28, 2005 between the Company, SPO Ltd. and the
shareholders of SPO Ltd., as amended and restated on April 21, 2005 (the
"Exchange Agreement"). In exchange for the outstanding capital stock of SPO
Ltd., the Company issued to the former shareholders of SPO Ltd. a total of
5,769,106 shares of the Company's common stock, par value $0.01 per share
("Common Stock"), representing approximately 90% of the Common Stock then issued
and outstanding after giving effect to the Acquisition Transaction. As a result
of the Acquisition Transaction, SPO Ltd. became a wholly owned subsidiary of
the
Company as of April 21, 2005 and, subsequent to the Acquisition Transaction,
the
Company changed its name to "SPO Medical Inc." Upon consummation of the
Acquisition Transaction, the Company effectuated a forward subdivision of the
Company's Common Stock issued and outstanding on a 2.65285:1
basis.
The
merger between UNDI and the SPO Ltd was accounted for as a reverse merger.
As
the shareholders of SPO Ltd received the largest ownership interest in the
Company, SPO Ltd was determined to be the "accounting acquirer" in the reverse
acquisition. As a result, the historical financial statements of the Company
were replaced with the historical financial statements of SPO Ltd.
The
Company and its subsidiary, SPO Ltd., are collectively referred to as the
"Company".
NOTE 2 -
|
Basis of
Presentation
|
The
accompanying un-audited condensed consolidated interim financial statements
have
been prepared in accordance with accounting principles generally accepted in
the
United States of America for interim financial information and with Rule 10-01
of Regulation S-X. These financial statements reflect all adjustments,
consisting of normal recurring adjustments and accruals, which are, in the
opinion of management, necessary for a fair presentation of the financial
position of the Company as of June 30, 2008 and the results of operations and
cash flows for the interim periods indicated in conformity with generally
accepted accounting principles applicable to interim periods. Accordingly,
certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Operating results for the six and
three months ended June 30, 2008, are not necessarily indicative of the results
that may be expected for the year ended December 31, 2008. These unaudited
financial statements should be read in conjunction with the audited financial
statements and footnotes thereto included in the Company’s Annual Report on Form
10-KSB for the year ended December 31, 2007, as filed with the Securities and
Exchange Commission.
SPO
MEDICAL INC
AND
ITS SUBSIDIARY
|
NOTES
TO FINANCIAL STATEMENTS
|
U.S.
dollars in thousands (except share
data)
|
As
reflected in the accompanying financial statements, the Company’s operations for
the six and three months ended June 30, 2008, resulted in a net loss of $1,073
and $572, respectively, and the Company’s balance sheet reflects a net
stockholders’ equity of $195. The Company’s ability to continue operating as a
“going concern” is dependent on its ability to raise additional working capital.
Management’s plans in this regard include raising additional cash from current
and potential stockholders and increasing the marketing of its current and
new
products.
NOTE 4 -
|
Financial Expenses
|
FINANCIAL
EXPENSES, NET . Financial expenses, net, for the six and three months ended
June
30, 2008 were $251 and $138. Financial expenses, net, for the corresponding
periods in 2007 were $439 and $ 199. The principal expenses comprising the
financial expenses during the six month period ended June 30, 2008 were:- (i)
non cash amortization of loan discounts - $49 (ii) one time non cash expenses
relating to the issue of warrants for the conversion to equity of certain loan
notes and accrued interest thereon - $105 and (iii) interest in respect of
debt
instruments issued by the Company between April 2005 and October 2006 - $54
NOTE 5 -
|
Stockholders Equity
|
|
|
On
March 31, 2008, the Company received from an investor gross proceeds
of
$250 on account for the purchase of Common Stock. The net proceeds
from
this financing were $223 after payment of a cash fee to the placement
agent and other related expenses. In connection therewith, on May
22, 2008
the Company issued to such investor 312,500 shares of its Common
Stock and
a warrant, exercisable through the third anniversary of issuance,
to
purchase an additional 156,250 shares of its Common Stock at a per
share
exercise price of $0.80.
|
|
|
On
March 11, 2008 the Company issued to a service provider 75,000 restricted
shares in consideration of services rendered. The service provider
is
entitled to an additional 75,000 shares of Common Stock upon the
occurrence of certain specified events. In connection therewith, on
June 23, 2008 the Company issued to the service provider an additional
9,375 restricted shares in respect of this commitment.
On April
11, 2008 the Company issued to three designees of a service provider
100,000 restricted shares of Common Stock in consideration for investor
relations services rendered. Subject to certain events being achieved
by
the service provider, the Company originally committed to issue up
to an
additional 300,000 restricted shares of Common Stock. On July 7,
2008, the
Company signed an amendment to the agreement with this service provider
reducing the additional commitment to 100,000 additional restricted
shares
and, in connection therewith, on July 23, 2008, the Company issued
to two
designees an aggregate of 50,000 restricted shares.
On
April 14, 2008, the Company issued to its Chief Financial Officer
under
its 2005 Equity Incentive Plan options to purchase up to 100,000
shares of
Common Stock at a per share exercise price of $0.78
On
April 16, 2008, the Company entered in to a settlement agreement
with an
entity that had originally been retained by the Company to distribute
one
of the Company’s then contemplated future products. Pursuant to such
agreement, the Company received advance payments in the amount of
$485 in
several installments between June 2006 and January 2007. In respect
of the
full settlement of this outstanding amount, on May 15, 2008, the
Company
issued to such entity 400,000 restricted shares of the Company’s Common
Stock.
On
May 13, 2008, the Company received from an investor gross proceeds
of $190
for the purchase of Common Stock. The net proceeds from this financing
were $172 after payment of a cash fee to a placement agent and other
related expenses. In connection therewith. On July 7, 2008 the Company
issued to such investor 237,500 shares of its Common Stock and a
warrant,
exercisable through the third anniversary of issuance, to purchase
an
additional 118,750 shares of its Common Stock at a per share exercise
price of $0.80.
On
May 22, 2008 the Company received from certain investors gross proceeds
of
$175 on account for stock capital. The net proceeds from this financing
were $161 after cash fee paid to the placement agent and other related
expenses. In connection therewith. On July 7, 2008 the Company issued
to
such investors an aggregate of 218,750 shares of its Common Stock
and a
warrant, exercisable through the third anniversary of issuance, to
purchase an additional 109,375 shares of its Common Stock at a per
share
exercise price of $0.80.
|
|
|
In
respect of all the gross amounts raised in the six month period
ended June
30, 2008, the Company will issue to the finders 61,500 warrants
under the
same terms as the warrants issued to the investors.
|
|
|
|
|
|
In
March 2008, the Company offered to the holders of the April 2005
Notes to
apply the amounts payable to them on the April 2005 Notes to the
exercise
price of the warrants issued in connection with the issuance of
these
notes (collectively, the “April 2005 Warrants”), thereby exercising these
warrants, and to convert into Common Stock the accrued interest
on the
2005 Notes at a per share conversion price of $0.60. Note holders
that
accepted this offer were issued new warrants for such number of
shares of
Common Stock equal to 25% of the number shares issued to them upon
exercise of their existing warrants and conversion of the interest
accrued
on the note. The new warrants are exercisable over three years
at an
exercise price of $0.60. The Company issued an aggregate of 766,815
shares
of Common Stock to seven holders of the April 2005 Notes upon such
holders’ agreement to (i) apply the aggregate principal amount of $389
payable to them in respect thereof to the exercise of the April
2005
Warrants previously issued to them and (ii) convert the interest
accrued
of $71 with respect to the 2005 Notes into shares of Common Stock.
The
warrants were exercised in accordance with their terms and the
interest
was converted, in each case at a per share price of $0.60. In addition,
these holders were issued warrants, exercisable over three years
from the
date of issuance, to purchase up to 191,707 shares of Common Stock
at a
per share exercise price of $0.60. Warrants for an additional 50,000
shares of Common Stock will be issued to three other holders of
the April
2005 Note after such holders agreed to extend the maturity date
of their
notes through March 26, 2010. The exercise period of the new warrants
for
the extending note holders will be co-terminus with their existing
April
2005 Warrants (September 2010) and such warrants will be exercisable
at a
per share exercise price of $0.60. The interest accrued through
March 26,
2008, the original maturity date, with respect to notes in the
aggregate
amount of $40 will be paid to the extending holders of which $15
has been
paid as of June 30, 2008. In the quarter ended June 30, 2008, the
Company
repaid certain holders of the April 2005 Notes principal of $250
and the
interest accrued thereon. On July 28, 2008 a holder of $50 in principal
amount agreed to convert the principal and accrued interest under
the
terms offered in March 2008 by the Company. Accordingly, the Company
will
issue to such holder 99,713 shares of Common Stock and 24,929 new
warrants
exercisable over three years at an exercise price of
$0.60.
|
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS
AND THE NOTES RELATED TO THOSE STATEMENTS. SOME OF OUR DISCUSSION IS
FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING
RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER
TO
THE RISK FACTORS SECTION OF THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2007.
OVERVIEW
SPO
Medical Inc. is engaged in the design, development and marketing of non-invasive
pulse oximetry technologies to measure blood oxygen saturation and heart rate.
We have developed and patented proprietary technology that enables the
measurement of heart rate and oxygen saturation levels in the blood which is
known as Reflectance Pulse Oximetry (RPO). Using RPO, a sensor can be positioned
on various body parts, hence minimizing problems from motion artifacts and
poor
perfusion. The unique design features contribute to substantially lower power
requirements and enhances wireless, stand-alone configurations facilitating
expanded commercial possibilities.
We
hold
four patents issued by the United States Patent and Trademark Office ("USPTO")
covering various aspects of our unique RPO based technology. As further
discussed below, our technologies are currently applied to products that are
designed for use by the, homecare, professional medical care, sports, safety
and
search and rescue.
We
were
originally organized under the laws of the State of Delaware in September 1981
under the name "Applied DNA Systems, Inc." On November 16, 1994, we changed
our
name to "Nu-Tech Bio-Med, Inc." On December 23, 1998, we changed our name to
"United Diagnostic, Inc." Effective April 21, 2005, we acquired 100% of the
outstanding capital stock of SPO Ltd. pursuant to a Capital Stock Exchange
Agreement dated as of February 28, 2005 among the Company, SPO Ltd. and the
shareholders of SPO Ltd., as amended and restated on April 21, 2005 pursuant
to
which we issued to the former shareholders of SPO Ltd. a total of 5,769,106
shares of the Company's Common Stock representing approximately 90% of the
Common Stock then issued and outstanding.
We
currently have five commercial products utilizing our unique oximtery
technology. These are the (i) PulseOx 5500TM — a stand-alone commercial RPO
spot check monitor for SpO2 and heart rate, (ii) Check MateTM— which addresses
the sports and aviation market’s demand for a lightweight, inexpensive monitor
for measuring SpO2 and heart rate during high-altitude activities, the PulseOx
7500TM —a monitor for extended monitoring of SpO2 and heart rate by means of RPO
(the monitor is being initially marketed for pre screening of sleep apnea
sufferers), (iv) PulseOX 6000 TM, a professional stand-alone commercial RPO
spot
check monitor for SpO2 and heart rate and (v) the PulseOX 6100 TM, a
professional stand-alone hand held commercial RPO spot check monitor for SpO2
and heart rate. We currently have in various stages of development other devices
utilizing our oximetry technology, including the Baby Movement Monitor — a
monitor being designed specifically for the use with infants and a Sports Watch
- a sports watch for sports enthusiast to monitor their wellness whilst training
or engaging in sport activities. Our mission is to build a profitable business
that develops and commercializes medical biosensor products that improve
people's lives and increases stockholder value. We intend to leverage our core
technologies to develop new, innovative product applications.
As
of
August 14 2008, we had 22 employees working on a full time basis.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations
are
based upon our unaudited consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these financial statements requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to revenue recognition, bad debts, investments, intangible assets
and income taxes. Our estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
We
have
identified the accounting policies below as critical to our business operations
and the understanding of our results of operations.
REVENUE
RECOGNITION
We
generate revenues principally from sales of our products. Revenues from the
sale
of products are recognized when delivery has occurred, persuasive evidence
of an
arrangement exists, the vendor's fee is fixed or determinable, no further
obligation exists and collection is probable and there are no remaining
significant obligations. Delivery is deemed to have occurred upon shipment
of
products from any of our distribution centers.
Inventories
are stated at the lower of cost or market value. Cost is determined as follows:
Raw materials, components and finished products are valued using the first
in
first out (FIFO) basis. Work-in-process - is valued on the basis of cost or
market value of the raw materials components plus the related manufacturing
costs.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RESULTS
OF OPERATIONS
COMPARISON
OF THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 AND THE SIX AND THREE MONTHS
ENDED JUNE 30, 2007
REVENUES
.
Revenues
are from our commercialized pulse oximetry product line primarily the PulseOx
5500, Check Mate designed for the medical, homecare and sports markets, and
also
our professional products the PulseOx 7500 and the recently introduced PulseOx
6000 and PulseOx 6100 designed for the professional medical markets. Revenues
for the six and three months ended June 30, 2008 were $2,168,000 and $1,089,000
respectively. Revenues for the corresponding periods in 2007 were $2,766,000
and
$ 1,510,000 respectively. The
reduction in revenues for the 2008 periods is primarily attributable
to the combined effect of a decrease in the volume of unit sales
of one of our product lines together with a reduction of the per unit
price.
COSTS
OF
REVENUES. Costs of revenues for the six and three months ended June 30, 2008
were $1,187,000 and $595,000, respectively. Costs of revenues for the
corresponding periods in 2007 were $1,265,000 and $706,000, respectively. Costs
of revenues include all costs related to manufacturing and selling products
and
services and consist primarily of direct material costs and salaries and related
expenses for personnel. The relative percentage increase in cost of revenues
during the 2008 period is attributable to initial set up costs of the production
of the two new product manufacturing lines.
RESEARCH
AND DEVELOPMENT EXPENSES. Research and development expenses consist primarily
of
expenses incurred in the design, development and testing of our products. These
expenses consist primarily of salaries and related expenses for personnel,
contract design and testing services, supplies used and consulting and license
fees paid to third parties. Research and development expenses for the six and
three months ended June 30, 2008 were $723,000 and $293,000, respectively.
Research and development expenses for the corresponding periods in 2007 were
$543,000 and $267,000, respectively. The increase in research and development
expenses during 2008 is primarily attributable to increased employee and related
compensation costs resulting from the devaluation of the United States Dollar
(our primary reporting currency) against the New Israeli Shekel (in which our
employee expenses are denominated) as well as the increased investment in the
development of new products.
SELLING
AND MARKETING EXPENSES. Selling and marketing expenses consist primarily of
costs relating to compensation attributable to employees engaged in sales and
marketing activities, promotion, sales support, travel and related expenses.
Selling and marketing expenses for the six and three months ended June 30,
2008
were $324,000 and $181,000, respectively. Selling and marketing expenses for
the
corresponding periods in 2007 were $390,000 and $ 225,000, respectively. The
decrease in selling and marketing expenses during 2008 is primarily attributable
to closure of our California office during 2007.
GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses primarily
consist of salaries and other related costs for personnel in executive and
other
administrative functions. Other significant costs include professional fees
for
legal and accounting services. General and administrative expenses for the
six
and three months ended June 30, 2008 were $756,000 and $ 454,000, respectively.
General and administrative costs for the corresponding periods in 2007 were
$592,000 and $345,000, respectively. The increase in general and administrative
expenses during 2008 is primarily attributable to increased employee and related
non cash and cash compensation costs and non cash and cash expenses relating
to
investor relations activities of the Company in 2008.
FINANCIAL
EXPENSES, NET . Financial expenses, net, for the six and three months ended
June
30, 2008 were $251,000 and $138,000, respectively. Financial expenses, net,
for
the corresponding periods in 2007 were $439,000 and $199,000, respectively.
The decrease in financial expenses is primarily attributable to the decrease
of
the non-cash expenses in respect of amortization of loan discounts. The
principal expenses comprising the financial expenses during the six month period
in 2008 period are interest accrued, non cash amortization costs and one time
costs relating to the issue of additional warrants in respect of debt
instruments issued by us between April 2005 and October 2006.
LIQUIDITY
AND CAPITAL RESOURCES
As
at
June 30, 2008, we had cash and cash equivalents of approximately $773,000
compared to $1,242,000 at December 31, 2007.
We
generated net negative cash flows from operating activities of approximately
$469,000 during the six months ended June 30, 2008 compared to $28,000 for
the
six months ended June 30, 2007.
In
December 2005 we completed the private placement to certain accredited investors
that we commenced in April 2005 for the issuance of up to $1,544,000 of units
of
our securities, with each unit comprised of (i) our 18 month 6% promissory
note
(collectively, the "April 2005 Notes") and (ii) three year warrants to purchase
up to such number of shares of our Common Stock as are determined by the
principal amount of the Note purchased by such investor divided by $ 0.85
(collectively the "April 2005 Warrants"). In September 2006, we offered to
the
holders of the April 2005 Notes to revise certain of the terms of the original
offering in order to facilitate an extension to the scheduled maturity date
of
the Note, (hereinafter the "Amendment"). The Amendment provides that (a) the
maturity date of the April 2005 Notes is to be extended to March 26, 2008,
(b)
the exercise period of the April 2005 Warrants is to be extended from three
to
five years with an expiration date of September 26, 2010 and the per share
exercise price was adjusted to $0.60 and (c) the interest rate on the amounts
outstanding under the April 2005 Notes was increased to 8% per annum, effective
July 12, 2006. The Amendment also provides that if we subsequently issue shares
of our Common Stock at an effective per share exercise price less than that
of
the adjusted per share exercise price of the April 2005 Warrants during the
adjusted exercise period, then the exercise price thereof is to be reduced
to
such lower exercise price; provided, that, this protection will not apply to
certain of our equity or debt issuances (i) from approved stock option plans
to
employees, directors and other service providers, (ii) upon exercise of options
and warrants outstanding as of September 27, 2006 and (iii) to our consultants
that an unaffiliated third party would deem to be commercially reasonable and
fair. In addition, the Amendment also provides that, subject to certain
qualifications, our obligation to file a registration statement under the
Securities Act of 1933, as amended, relating to the resale of our Common Stock
underlying the April 2005 Warrants is extended to April 15, 2007. The Amendment
became effective as of September 30, 2006. As of December 31, 2007, holders
of
Notes in the principal amount $1,439,000 have signed the Amendment, the holder
of a note in the principal amount of $50,000 has been repaid, and the holders
of
notes in the principal amount $125,000 have since exercised their warrants
and
converted the accrued interest on the note. All of these notes, including the
notes held by the holders who agreed to the extension of the maturity date,
matured on March 26, 2008.
In
March
2008, we offered to the holders of the April 2005 Notes to apply the amounts
payable to them on the April 2005 Notes to the exercise price of the April
2005
Warrants, thereby exercising these warrants, and to convert into our Common
Stock the accrued interest on the 2005 Notes at a per share conversion price
of
$0.60. Note holders who accept this offer would be issued new warrants for
such
number of shares of Common Stock equal to 25% of the number shares issued to
them upon exercise of their existing warrants and conversion of the interest
accrued on the note. The new warrants will be exercisable over three years
at an
exercise price of $0.60. As of August 14, 2008, the holders of approximately
$439,000 in principal amount have agreed to apply the principal amount owed
to
them to the exercise price of the April 2005 Warrants. Accordingly,
approximately $460,000 in amounts owed under the 2005 Notes have been converted
into equity and, accordingly, an aggregate of 766,815 shares of our Common
Stock
have been issued upon exercise of the April 2005 Warrants and conversion of
the
interest owing on the April 2005 Notes and a further 99,713 shares of common
stock are to be issued. Under the terms of the offer, new warrants for 191,707
share of our Common stock have been issued to these April 2005 Note holders
and
a further 24,929 warrants are to be issued. These warrants are exercisable
over
three years from the date of issuance. Three note holders of the principal
amount of $200,000 have agreed to extend their loan for a further 24 months
and
we agreed to pay to them the interest accrued through the original maturity
date
of March 26, 2008 in the aggregate amount of $40,000. Under the terms of the
agreement with the extending note holders, we will issue to the extending
holders new warrants for an aggregate of 50,000 shares of our Common stock,
which warrants are exercisable for three years from issuance and contain the
same operative terms, including exercise price, as the warrants that were
originally issued in connection with the issuance of the April 2005 Notes.
We
have been informed by the holders of $300,000 in principal amount of their
election to not accept our offer, of which $250,000 of principal and the accrued
interest thereon has been repaid as of the date of the filing of this quarterly
report. We continue to hold discussions with the holders of $430,000 in
principal amount of the April 2005 Notes in an attempt to resolve this matter;
until such time as any resolution is reached (if ever) with these holders,
we
remain in default under the 2005 Notes with respect to these amounts.
In
July
2006, we commenced a private placement of units of our securities, with each
unit comprised of (i) our 8% month promissory note due 12 months from the date
of issuance and (ii) warrants as described below, pursuant to which we raised
$550,000 (the maximum amount that could be raised from this offering). Under
the
terms of the offering, the principal and accrued interest is due in one balloon
payment at the end of the twelve month period. Each purchaser of the notes
received warrants, exercisable over a period of two years from the date of
issuance, to purchase 16,250 shares of Common Stock for each $25,000 of
principal loaned, at a per share exercise price equal to the lower of $1.50
or
35% less than any the offering price at an initial public offering of the
Company's Common Stock during the warrant exercise period. During the quarter
ended September 30, 2007, we offered to the holders of the notes to convert
the
principal and accrued interest into shares of the Company’s Common Stock at a
per share conversion price of $0.90. As of August 14, 2008, the holders of
$238,000 of the principal amount agreed to convert the principal and accrued
interest thereon into shares of our Common Stock. We repaid to a note holder
the
principal amount of $75,000 and the accrued interest thereon. We have not made
the scheduled payment on the principal amount of $237,000 that remain due and
owing under the notes that have not been converted and, accordingly, under
the
terms of such notes, we are in default. We are in discussions with these note
holders in an attempt to resolve this matter
Our
recent financings are discussed below.
In
March
2008, we received from an investor gross proceeds of $250,000 and, in connection
therewith, in May 2008 we issued to such investor 312,500 shares of our Common
Stock and warrants, exercisable through the third anniversary of issuance,
to
purchase an additional 156,250 shares of Common Stock at a per share exercise
price of $0.80. The net proceeds from this financing were $223,000 after cash
fee paid to the placement agent and other related expenses.
In
May
2008, the Company received from certain investors gross proceeds of $365,000
in
consideration for the purchase of our Common Stock. The net proceeds from this
financing were $333,000 after cash fees paid to the placement agent and other
related expenses. In connection therewith, in June 2008 the Company issued
to
such investors an aggregate of 456,250 shares of its Common Stock and a warrant,
exercisable through the third anniversary of issuance, to purchase an additional
228,125 shares of its Common Stock at a per share exercise price of $0.80.
ITEM
4. CONTROLS AND PROCEDURES (T)
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-14(c).
As
of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective.
CHANGES
IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the quarter ended June
30,
2008, there have been no changes in our internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect, these controls.
PART
II - OTHER INFORMATION
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
The
following paragraph sets forth certain information with respect to all
securities sold by us during the three months ended June 30, 2008 without
registration under the Securities Act.
|
|
On
April 11, 2008 we issued to three designees of a service provider
100,000
restricted shares of shares of Common Stock in consideration of services
rendered by such service provider.
|
|
|
On
March 31, 2008, we received from an investor gross proceeds of $250,000
on
account for stock capital and, in connection therewith, in May 2008
we
issued to such investor 312,500 shares of our Common Stock and a
warrant,
exercisable through the third anniversary of issuance, to purchase
an
additional 156,250 shares of our Common Stock at a per share exercise
price of $0.80.
|
|
|
On
May 15,, 2008, the Company issued 400,000 shares of its Common Stock
in
settlement of certain outstanding issues with a former distributor
of the
Company’s products.
On
June 23, 2008, the Company issued to a service provider an additional
9,375 restricted shares of Common Stock in consideration for services
rendered.
In
May 2008, the Company received from investors, gross proceeds of
$365,000
for stock capital. The net proceeds from this financing were $333,000
after cash fees paid to the placement agent and other related expenses.
In
connection therewith, On July
7, 2008 the Company issued to such investors an aggregate of 456,250
shares of its Common Stock and warrants, exercisable through the
third
anniversary of issuance, to purchase an additional 228,125 shares
of its
Common Stock at a per share exercise price of
$0.80.
|
All
of
the securities issued in the transactions described above were issued without
registration under the Securities Act in reliance upon the exemptions provided
in Section 4(2) of the Securities Act or Regulation S under such Securities
Act.
Except with respect to securities sold under Regulation S, the recipients of
securities in each such transaction acquired the securities for investment
only
and not with a view to or for sale in connection with any distribution thereof.
Appropriate legends were affixed to the share certificates issued in all of
the
above transactions. Each of the recipients represented that they were
“accredited investors” within the meaning of Rule 501(a) of Regulation D under
the Securities Act, or had such knowledge and experience in financial and
business matters as to be able to evaluate the merits and risks of an investment
in its common stock. All recipients had adequate access, through their
relationships with the Company and its officers and directors, to information
about the Company. None of the transactions described above involved general
solicitation or advertising.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
We
disclosed in the Quarterly Report for the three months ended March 31,
2008, that we had not repaid principal and accrued interest that became due
as of such date in the aggregate amount of $1,895,000 and that as of August
14, 2008, we settled with the holders of certain of these amounts and of such
date, $1,073,000 remained due and outstanding.
10.1
|
Mutual
Release and Waiver dated as of April 16, 2008 between SPO Medical
Inc. and
Active Health Care Inc.
|
|
|
31.1
|
Rule
13a - 14(a) Certification of Principal Executive
Officer
|
|
|
31.2
|
Rule
13a - 14(a) Certification of Principal Financial
Officer
|
|
|
32.1
|
Section
1350 Certification of Principal Executive Officer
|
|
|
|
Section
1350 Certification of Principal Financial
Officer
|
SIGNATURES
Pursuant to
the requirements of the Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
DATE:
August 14, 2008
|
SPO
MEDICAL INC.
|
|
|
|
|
|
/s/
MICHAEL BRAUNOLD
|
|
|
MICHAEL
BRAUNOLD
|
|
|
PRESIDENT AND CHIEF EXECUTIVE OFFICER
|
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
|
|
|
|
|
|
DATE:
August 14, 2008
|
|
|
|
|
|
|
BY
|
/s/
JEFF FEUER
|
|
|
JEFF
FEUER,
|
|
|
CHIEF
FINANCIAL OFFICER
|
|
|
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
|