F-1 1 zk1313668.htm F-1 zk1313668.htm
As filed with the Securities and Exchange Commission on September 18, 2013
                                                                                                                                                     
Registration No. 333-


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Mazor Robotics Ltd.
(Exact name of registrant as specified in its charter)
                                                                                                                                                      
State of Israel
3841
Not Applicable
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)

Mazor Robotics Ltd.
7 HaEshel Street
Caesarea Industrial Park South
38900 Israel
Tel: +972-4-618-7101
(Address, including zip code, and telephone number,
 including area code, of registrant’s principal executive offices)
 
 
Mazor Robotics Inc.
2711 Centerville Rd., Suite 400,
Wilmington, New Castle, DE 19808
(Name, address, including zip code, and telephone
 number, including area code, of agent for service)
 
 
Copies to:
 
Oded Har-Even
Edwin L. Miller Jr.
Howard E. Berkenblit
Zysman, Aharoni, Gayer and Sullivan & Worcester LLP
1633 Broadway
New York, NY 10019
Tel: 212.660.5000
Barak Luchtenstein, Adv.
Yuval Beer, Adv.
CBLS Law Offices
5 Azrieli Center
Square Tower, 35th Floor
Tel Aviv 6702501, Israel
Tel: +972-3-7188700
Fax:  +972-3-7188701
Peter N. Handrinos, Esq.
Latham & Watkins LLP
John Hancock Tower, 20th Floor
200 Clarendon Street
Boston, MA 02116
Tel: (617) 948-6060
Dan Shamgar, Adv.
David S. Glatt, Adv.
Meitar Liquornik Geva
Leshem Tal
16 Abba Hillel Silver Rd.
Ramat Gan 5250608, Israel
Tel: +972-3-610-3100
 

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 of 1933, as amended (the “Securities Act”), check the following box.  o
 
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.  o
 
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.  o
 
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. o
 
 
 

 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of
Securities to be Registered
 
Proposed Maximum
Aggregate Offering Price(2)
   
Amount of
Registration Fee (3)
 
Ordinary Shares, par value NIS 0.01 per share (1)
 
$
46,000,000
   
$
6,274.40
 
___________________
 
(1) The Ordinary Shares will be represented by American Depositary Shares (“ADSs”), each of which currently represents two Ordinary Shares. A separate Registration Statement on Form F-6 (Registration No. 333-188511) has been filed for the registration of ADSs issuable upon deposit of the Ordinary Shares.
 
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
 
(3) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
 
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 preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion, dated September 18, 2013
 
PROSPECTUS
 

 
American Depositary Shares
 
 
Mazor Robotics Ltd.

Representing Ordinary Shares
 

 
We are offering               American Depositary Shares, or ADSs. Each ADS represents two of our ordinary shares, par value NIS 0.01, or Ordinary Shares.
 
The ADSs are quoted on the NASDAQ Capital Market, or NASDAQ, under the symbol “MZOR.” On            , 2013, the last reported trading price of the ADSs on NASDAQ was $     per ADS.
 
Our Ordinary Shares currently trade on the Tel Aviv Stock Exchange, or TASE, under the symbol “MZOR.”  On       , 2013, the last reported trading price of our Ordinary Shares on TASE was NIS       , or $         per share (based on the exchange rate reported by the Bank of Israel on such date).
 
As an “emerging growth company,” we are eligible for reduced public company reporting requirements.  See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
 
Investing in the ADSs involves risks.  See “Risk Factors” beginning on page 11 of this prospectus.
 
   
Per ADS
   
Total
 
Price to the public
 
$
     
$
   
Underwriting discounts and commissions(1)
 
$
     
$
   
Proceeds to us (before expenses)
 
$
     
$
   
 
_____________
(1)          We refer you to “Underwriting” beginning on page 129 of this prospectus for additional information regarding total underwriter compensation.
 
We have granted the underwriters the option to purchase up to            additional ADSs on the same terms and conditions set forth above if the underwriters sell more than              ADSs in this offering.
 
Neither the Securities and Exchange Commission, the Israel Securities Authority nor any state or other foreign securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
Barclays Capital Inc. expects to deliver the ADSs on or about                           , 2013.
 
 
 

 
                                                                                                                                                      
Barclays
_________________
 
Ladenburg Thalmann & Co. Inc.
JMP Securities
_________________
 

 
 

 
TABLE OF CONTENTS
 
4
  11
  39
  40
  41
  42
  43
  44
  45
  46
  48
  66
  86
  105
  109
  110
  114
  120
  129
  134
  134
  134
  134
  135
Financial Statements
  F - 1
                                       
  

                                                                                                                                                  
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. Neither we nor the underwriters have authorized anyone to provide you with information that is different. We are offering to sell the ADSs, and seeking offers to buy the ADSs, 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 ADSs.
 
For investors outside of the United States: Neither we nor any of the underwriters have taken any action to 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.
 

 
 
 
2

 
 
ABOUT THIS PROSPECTUS

In this prospectus, unless the context otherwise requires, references to:

 
·
“Mazor Robotics”, “Mazor,” the “Company”, the “registrant”, “us”, “we” and “our” refer to Mazor Robotics Ltd., an Israeli company, and, unless the context indicates otherwise, the Subsidiary;
  
·
 “Ordinary Shares”, “our shares” and similar expressions refer to our Ordinary Shares, par value NIS 0.01 per share;
  
·
“Dollars”, “U.S. dollars”, “U.S. $” and “$” are to the lawful currency of the United States;
  
·
“Shekels” and “NIS” are to New Israel Shekels, the lawful currency of the State of Israel;
 
·
“Companies Law” are to Israel’s Companies Law, 5759-1999, as amended;
  
·
“Exchange Act” are to the Securities Exchange Act of 1934, as amended;
 
·
“FDA” are to the United States Food and Drug Administration;
 
·
“IRS” are to the United States Internal Revenue Service;
  
·
“OCS” are to Israel's Office of the Chief Scientist of the Ministry of Industry, Trade and Labor;
 
·
“SEC” are to the United States Securities and Exchange Commission;
  
·
“Securities Act” are to the Securities Act of 1933, as amended;
 
·
“Subsidiary” are to Mazor Robotics, Inc., a Delaware corporation, and a wholly owned subsidiary of Mazor; and
 
·
“TASE” are to the Tel Aviv Stock Exchange.
 
MARKET AND INDUSTRY DATA
 
    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.

PRESENTATION OF FINANCIAL INFORMATION

We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”).  None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
 
 
3

 
 
PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in the ADSs. Before you decide to invest in the ADSs, you should read the entire prospectus carefully, including the information under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto appearing elsewhere in this prospectus. Unless derived from our financial statements or otherwise indicated, U.S. dollar translations of NIS amounts presented in this prospectus are translated using the rate of NIS3.618 to US$1.00, the exchange rate reported by the Bank of Israel on June 28, 2013.
 
Overview
 
We are a medical device company developing and marketing innovative surgical guidance systems and complementary products. Our expertise is in robotic, computerized and imaging-based systems, primarily in the field of spine surgery. Our Renaissance Surgical Guidance System, or Renaissance, enables surgeons to advance from freehand surgical procedures to accurate, state-of-the-art, precision guided procedures. Our FDA-cleared and CE-marked Renaissance system is used in multiple types of spine surgeries, whether open or minimally invasive, for a variety of clinical indications. Our Renaissance system and its predecessor have been used in over 5,000 spine surgeries, including fusion, correction of spinal deformities, biopsy collection, tumor excision and cement augmentations. Our Renaissance system has the ability to improve clinical outcomes for patients, provide a safer surgical environment for surgeons and operating room staff by reducing exposure to radiation, and deliver economic value to hospitals and payors.
 
The key elements of the Renaissance System include our RBT Device, a portable, computer-controlled Stewart platform that spatially positions and orients surgical tools, our Renaissance Work Station, a mobile workstation that houses our proprietary software, and multiple mounting platforms we have designed to serve as an interface between the patient and the RBT Device. Our Renaissance system enables spine surgeons to perform procedures with a higher degree of accuracy and precision. A pre-operative plan for each patient is developed by the surgeon using our proprietary software based on a standard three-dimensional, or 3D, computed tomography image. The surgeon performs the procedure using surgical tools attached to the RBT Device and is guided by the RBT Device to a precise location and trajectory along the spine in accordance with the pre-operative plan. At the beginning of the surgical procedure, an automatic 3D synchronization process independently registers the location of the system relative to the position of the patient’s spine and the pre-operative plan. Unlike conventional robotic surgery, where the robot performs the procedure guided by the surgeon, the Renaissance system guides the surgeon who performs the procedure in accordance with the pre-operative plan.
 
Renaissance and its predecessor have been used in over 5,000 spine surgeries at over 50 medical centers worldwide, and involving over 35,000 implants sourced from multiple manufacturers. Renaissance is FDA–cleared, CE–marked and has regulatory clearances in several other markets, including Russia, India and Australia. Mazor Robotics' products are active in nine countries, with nine distributors representing the Company in 16 countries.
 
Our total revenue grew from $0.6 million in 2008 to $12.2 million in 2012 and grew from $5.4 million in the first six months of 2012 to $11.2 million in the first six months of 2013.  We have sustained net losses in every fiscal year since our inception in 2000, including a net loss of $7.1 million for the year ended December 31, 2012, and a net loss of $15.0 million for the six months ended June 30, 2013. As of December 31, 2012, we had total shareholders’ equity of $12.8 million and cash and cash equivalents and short term investments of $17.0 million. As of June 30, 2013, we had total shareholders’ equity of $19.4 million and cash and cash equivalents and short term investment of approximately $18.3 million.  Our accumulated deficit as of June 30, 2013 was $67.0 million.  We anticipate that we will continue to incur substantial net losses for at least the next two years as we expand our sales and marketing capabilities in the spine and neurosurgery products market, continue our commercialization of our Renaissance system, expand its adoption and clinical implementation, and continue to develop the infrastructure required to sell and market our products globally.
 
In August 2007, we completed our initial public offering in Israel, and our Ordinary Shares have since been traded on the TASE, under the symbol “MZOR.”  In May 2013, ADSs representing our Ordinary Shares commenced trading on NASDAQ under the trading symbol “MZOR.”   Each ADS represents two of our Ordinary Shares.
 
The Limitations of Current Spine Procedures
 
Treatment alternatives for spine disorders range from non-operative conservative therapies to surgical interventions. Conservative therapies include bed rest, medication and physical therapy. Surgical treatments for spine disorders can be instrumented, which include the use of implants, or non-instrumented, which forego the use of any such implants. The most common instrumented treatment is spinal fusion, where two or more adjacent vertebrae are fused together with implants to restore disc height and provide stability.
 

 
4

 
 
 
Although minimally invasive techniques have been widely adopted in many fields of surgery, they have had limited adoption in spine surgery. We believe that the principal barriers to the adoption of minimally invasive techniques for spine surgery are:
     
 
·
restricted or even no line-of-sight at the anatomical site;
     
 
·
increased intraoperative use of X-ray radiation;
     
 
·
cumbersome handling of surgical instruments;
     
 
·
dependence on two-dimensional imaging for three-dimensional surroundings; and
     
 
·
limited operating space.
     
As a result, the majority of spine surgeries are performed freehand. According to a study published by the Orthopedic Research Network, only 13% of spine surgeries are performed in a minimally invasive manner. Although freehand surgery allows for direct visualization of the anatomy, open freehand surgeries may result in:
     
 
·
increased procedure-related blood loss, pain and scarring at the incision site;
     
 
·
increased likelihood of complications, such as infections;
     
 
·
slower recovery times and longer post-operative hospital stays; and
     
 
·
undesirable aesthetic outcomes.
     
The Mazor Robotics Solution
 
Our Renaissance system enables surgeons to advance from freehand surgical procedures to accurate, state-of-the-art, precision guided procedures. It has the ability to improve clinical outcomes for patients, provide a safer surgical environment for surgeons and operating room staff by reducing exposure to radiation, and deliver economic value to hospitals and payors. We believe our Renaissance system offers the following benefits to patients, surgeons and hospitals:
 
Reproducible Precision and Accuracy. The Renaissance system significantly increases the level of placement accuracy over freehand surgery. A 14-center study involving 635 patients published in Spine demonstrated 98.3% placement accuracy of the spinal implants guided with our Renaissance system. While the scientific literature on placement accuracy varies, by comparison a meta-analysis of 12,299 thoracolumbar screws, published in Spine, demonstrated 90.3% placement accuracy in freehand surgeries.
 
Use in a Variety of Procedures. While Renaissance is often used for conventional or routine spinal surgeries, the system is particularly advantageous in complex spinal procedures, such as the correction of scoliosis and other spinal deformities, long fusions and repeat/revision surgery. Precision and planning is of particular importance in complex procedures where accuracy and precision are a challenge for even the most experienced surgeons.
 
Reduced Exposure to Radiation. Spine surgeries, particularly minimally invasive surgeries, require the use of high levels of X-ray imaging, and exposes surgeons and patients to harmful radiation. The use of our Renaissance system significantly reduces the need for X-ray imaging during the surgery and provides for a safer overall surgical environment.
     
 
 
5

 
     
Ease of Use. Renaissance leverages and complements the surgical skills and techniques already familiar to the surgeon. This familiarity in approach combined with greater accuracy and precision accelerates the learning curve, making it usable by surgeons with a broad range of training and skills.
 
Reduced Costs. We believe the use of the Renaissance system results in shorter hospital stays due to faster recovery times, lower rates of complications and a higher level of patient satisfaction.
 
Clinical Differentiation. We believe the benefits mentioned above will help surgeons and hospitals differentiate themselves, attracting more patients to seek medical care from them, over competitors offering less innovative and precise alternatives.
 
Our Strategy
 
Our goal is to continue to drive sales of our Renaissance system and generate recurring revenues through sales of disposable products and service contracts by establishing our Renaissance system as the standard-of-care in the eyes of surgeons, patients and medical facilities. We believe that we can achieve this objective by working with hospitals to demonstrate the key benefits of our Renaissance system. Our strategy includes the following key elements:
     
 
·
Continue to commercialize our Renaissance system.
     
 
·
Drive utilization of our installed base of Renaissance systems.
     
 
·
Demonstrate the clinical and financial value proposition of our Renaissance system.
     
 
·
Invest in research and development.
     
 
 
6

 
 
 
 
Risks Associated with Our Business
 
Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in the ADSs. In particular, our risks include, but are not limited to, the following:
     
 
·
We are a small emerging growth company, and we have incurred significant losses since our inception.
     
 
·
We depend on the success of a limited portfolio of products for our revenue, which could impair our ability to achieve profitability.
     
 
·
Medical device development is costly and involves continual technological change, which may render our current or future products obsolete.
     
 
·
If we, or the other parties from whom we license intellectual property, are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.  If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.
     
 
 
7

 
 
 
 
Implications of Being an Emerging Growth Company
 
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
     
 
·
a requirement to have only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations disclosure; and
     
 
·
an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.
     
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of the ADSs held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus, although we may choose to do so in future filings and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.
 
The JOBS Act permits an "emerging growth company" like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.
 
Corporate History and Information
 
We are a public limited liability company and operate under the provisions of the Israeli Companies Law.
 
Our registered office and principal place of business are located at 7 HaEshel St., Caesarea Industrial Park South, 38900, Israel.  Our telephone number in Israel is +972 -4-618 7100.  Our website address is www.mazorrobotics.com.  The information contained on our website or available through our website is not incorporated by reference into and should not be considered a part of this prospectus, and the reference to our website in this prospectus is an inactive textual reference only.
 
Our wholly owned subsidiary, Mazor Robotics Inc. has been appointed as our agent in the United States, and its registered office is located at 2711 Centerville Rd., Suite 400, Wilmington, New Castle, Delaware 19808.
     
 
 
 
8

 
 
       
THE OFFERING
 
       
ADSs offered by us:                                                
 
             ADSs representing             Ordinary Shares
 
       
ADSs to be outstanding immediately after this offering:
 
             ADSs representing        Ordinary Shares
 
       
Ordinary shares to be outstanding immediately after this offering:
 
             Ordinary Shares (including ordinary shares represented by outstanding ADSs)
 
       
The ADSs:                                                
 
Each ADS represents two of our Ordinary Shares, par value NIS 0.01.  The ADSs may be evidenced by American Depositary Receipts, or ADRs.
The depositary will be the holder of the Ordinary Shares underlying the ADSs and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and owners and beneficial owners of ADSs from time to time.
To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.”  We also encourage you to read the deposit agreement, which is incorporated by reference as an exhibit to the registration statement that includes this prospectus.
 
       
Use of proceeds:                                                
 
We estimate that we will receive net proceeds, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, of approximately $             million, or approximately $      million if the underwriters exercise their over-allotment option to purchase additional ADSs from us in full, from the sale by us of ADSs in this offering, based on an assumed public offering price of $         per ADS, the last reported sale price of the ADSs on NASDAQ on               , 2013.
The principal purpose for this offering is to increase our capital resources that will support our continued growth and increase our and our Renaissance system’s awareness in the marketplace. We intend to use the net proceeds from this offering for our operations and for other general corporate purposes, including, but not limited to, working capital, intellectual property protection and enforcement, capital expenditures, investments, acquisitions or collaborations, research and development, and product development.
See “Use of Proceeds.”
 
       
Depositary:                                                
 
The Bank of New York Mellon.
 
       
Risk factors:                                                
 
See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
 
       
NASDAQ Capital Market symbol and Tel Aviv Stock Exchange symbol:
 
“MZOR”
 
       
The number of Ordinary Shares to be outstanding immediately after this offering as shown above assumes that all of the ADSs offered hereby are sold and is based on 31,721,513 Ordinary Shares outstanding as of June 30, 2013, but does not include the following:
 
     
 
·
As of June 30, 2013, an additional 3,544,828 of our Ordinary Shares issuable upon the exercise of outstanding options, of which 1,918,909 are vested and 1,625,919 are unvested, at a weighted average exercise price of $2.20 per ordinary share.
     
 
·
As of June 30, 2013, an additional 934,421 Ordinary Shares issuable upon the exercise of outstanding warrants, at $3.87 per ordinary share.
 
 
·
As of June 30, 2013, an additional 2,664,667 Ordinary Shares issuable upon the exercise of outstanding warrants, at $1.50 per ordinary share.
     
Except as otherwise noted, all information contained in this prospectus:
     
 
·
assumes no exercise by the underwriters of their option to purchase up to an  additional      ADSs in this offering;
     
 
·
assumes no exercise of outstanding options or warrants; and
     
 
·
assumes a public offering price of $              per ADS, the last reported sale price of the ADSs on NASDAQ on               , 2013.
     
 
 
9

 
             
SUMMARY FINANCIAL DATA
 
The summary consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements and notes thereto. The selected consolidated statement of operations data for the fiscal years ended December 31, 2012, 2011 and 2010, and the selected consolidated balance sheet data as of December 31, 2012 and 2011, have been derived from our audited consolidated financial statements and notes thereto included elsewhere in this prospectus. The selected consolidated statement of operations data for fiscal year ended on December 31, 2009, and the selected consolidated balance sheet data as of December 31, 2010 have been derived from other audited consolidated financial statements not included herein. The selected consolidated statement of operations data for year ended December 31, 2008, and the selected consolidated balance sheet data as of December 31, 2009 and 2008 have been derived from other unaudited consolidated financial statements not included herein. We derived the selected consolidated financial data as of and for the six months ended June 30, 2013 and June 30, 2012 from our unaudited consolidated financial statements included elsewhere in this prospectus.  The selected consolidated financial data should be read in conjunction with our consolidated financial statements, and are qualified entirely by reference to such consolidated financial statements, and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.  Our historical fiscal year and interim results are not necessarily indicative of results to be expected for future periods.  Additionally, and as explained in Note 2B to the December 31, 2012 consolidated financial statements, the Company determined that its functional currency had changed in September 2012 from NIS to U.S. dollars.
             
(in thousands except net loss per share data)
 
Years Ended December 31,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2010
   
2009
   
2008
   
2013
   
2012
 
Statements of Operations Data
                                         
Revenue
 
$
12,175
   
$
5,904
   
$
3,973
   
$
1,363
   
$
584
   
$
11,150
   
$
5,350
 
Cost of sales
 
$
2,893
   
$
1,879
   
$
961
   
$
473
   
$
438
   
$
2,216
   
$
1,340
 
Gross profit
   
9,282
     
4,025
     
3,012
     
890
     
146
     
8,934
     
4,010
 
Operating costs and expenses:
                                                       
Research and development, net
 
$
2,760
   
$
3,062
   
$
2,292
   
$
1,382
   
$
1,936
   
$
1,915
   
$
1,262
 
Selling and Marketing
 
$
8,887
   
$
6,990
   
$
4,592
   
$
2,461
   
$
2,615
   
$
7,121
   
$
4,134
 
General and administrative
 
$
1,845
   
$
1,639
   
$
1,424
   
$
1,184
   
$
1,456
   
$
1,235
   
$
899
 
Total operating costs and expenses
 
$
13,492
   
$
11,691
   
$
8,308
   
$
5,027
   
$
6,007
   
$
10,271
   
$
6,295
 
Loss from operations
 
$
(4,210
)
 
$
(7,666
)
 
$
(5,296
)
 
$
(4,137
)
 
$
(5,861
)
 
$
(1,337
)
 
$
(2,285
)
Net loss
 
$
(7,064
)
 
$
(7,782
)
 
$
(5,773
)
 
$
(4,340
)
 
$
(5,531
)
 
$
(14,969
)
 
$
(2,374
)
Net loss attributable to ordinary shareholders
 
$
(7,064
)
 
$
(7,782
)
 
$
(5,773
)
 
$
(4,340
)
 
$
(5,531
)
 
$
(14,969
)
 
$
(2,374
)
Net loss per share – basic and diluted attributable to ordinary shareholders
 
$
(0.29
)
 
$
(0.36
)
 
$
(0.29
)
 
$
(0.28
)
 
$
(0.39
)
 
$
(0.51
)
 
$
(0.11
)
Weighted average ordinary shares outstanding – basic and diluted
   
24,011
     
21,815
     
19,717
     
15,280
     
14,153
     
29,469
     
22,179
 
Pro forma net loss per share – basic and diluted attributable to ordinary shareholders (1)
                                                       
Pro forma weighted average ordinary shares outstanding – basic and diluted
                                                       
       
(in thousands)
As of June 30,
   
 
2013
   
 
Actual
 
As Adjusted (1)(2)
   
Balance Sheet Data:
             
Cash and cash equivalents
 
$
18,332
   
$
     
Short-term investments
 
$
16
   
$
     
Total assets
 
$
25,482
   
$
     
Total non-current liabilities
 
$
308
   
$
     
Accumulated deficit
 
$
(66,975
)
 
$
     
Total shareholders’ equity
 
$
19,355
   
$
     
                   
_____________________
                 
(1) 
Gives effect to the ADSs offered by us in this offering assuming this offering was consummated at the beginning of the referenced period.
 
     
(2) 
A $1.00 increase (decrease) in the assumed public offering price of $      per ADS would increase (decrease) the pro forma amount of each of cash and cash equivalents and total stockholders’ equity by approximately $     million, assuming that the number of ADSs 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             -ADS increase in the number of ADSs offered by us together with a concomitant $1.00 increase in the assumed public offering price of $            per share would increase each of cash and cash equivalents and total shareholders’ equity by approximately $            million after deducting estimated underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely, a             -ADS decrease in the number of ADSs offered by us together with a concomitant $1.00 decrease in the assumed public offering price of $            per share would decrease each of cash and cash equivalents and total shareholders’ equity by approximately $            million after deducting estimated underwriting discounts and commissions and any estimated offering expenses payable by us.
 
     
 
 
10

 
 
 
    You should carefully consider the risks described below, together with all of the other information contained herein. 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 occurs, our business and financial condition could suffer and the price of our shares could decline.
 
Risks Related to Our Business
 
We are a small emerging growth company, and we have incurred significant losses since our inception.
 
We are a small emerging growth company. The future success of our business depends on our ability to continue to develop and obtain regulatory clearances or approvals for innovative and commercially successful products in our field, which we may be unable to do in a timely manner, or at all. Our success and ability to generate revenue or be profitable also depends on our ability to establish our sales and marketing force, generate product sales and control costs, all of which we may be unable to do. Our limited operating history also limits your ability to make a comparative evaluation of us, our products and our prospects.
 
We have sustained net losses in every fiscal year since our inception in 2000, including a net loss of $7.1 million for the year ended December 31, 2012, and a net loss of $15.0 million for the six months ended June 30, 2013. As of December 31, 2012, we had total shareholders’ equity of $12.8 million and cash and cash equivalents and short term investment of approximately $17 million. As of June 30, 2013, we had total shareholders’ equity of $19.4 million and cash and cash equivalents and short term investment of approximately $18.3 million.    Our accumulated deficit as of June 30, 2013 was $67.0 million.  We anticipate that we will continue to incur substantial net losses for at least the next two years as we expand our sales and marketing capabilities in the spine and neurosurgery products market, continue our commercialization of Renaissance, expand its adoption and clinical implementation, and continue to develop the corporate infrastructure required to sell and market our products and invest in product development. Our losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Any failure to achieve and maintain profitability would continue to have an adverse effect on our shareholders’ equity and working capital and could result in a decline in our share price or cause us to cease operations.
 
We cannot assure investors that our existing cash and short-term investment balances will be sufficient to meet our future capital requirements.
 
We believe our existing cash, cash equivalents, short-term investment balances, and interest income we earn on these balances, if any, will be sufficient to meet our anticipated cash requirements through at least the next twelve months. To the extent our available cash, cash equivalents and short-term investment balances are insufficient to satisfy our operating requirements, we will either need to seek additional sources of funds, including selling additional equity or debt securities or entering into a credit facility, or to modify our current business plan. However, we may be unable to obtain additional financing. As a result, we may be required to reduce the scope of, or delay or eliminate, some or all of our current and planned research, development and commercialization activities. We also may have to reduce marketing, customer service or other resources devoted to our products. Any of these actions could materially harm our business and results of operations. Even if we are able to continue to finance our business, the sale of additional equity and debt securities may result in dilution to our current shareholders or may require us to grant a security interest in our assets. If we raise additional funds through the issuance of debt securities, these securities may have rights senior to those of our Ordinary Shares and could contain covenants that could restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, or at all.
 
We depend on the success of one product for our revenue, which could impair our ability to achieve profitability.
 
We expect to derive most of our revenue from sales of Renaissance, recurring sales of disposable products required to use Renaissance in each surgical procedure, and service plans that are sold with Renaissance. Our future growth and success is dependent on successfully increasing the commercialization of Renaissance.  If we are unable to achieve increased commercial adoption of Renaissance, obtain regulatory clearances or approvals for future products, or experience a decrease in the utilization of our product line or procedure volume, our revenue would be adversely affected and we would not become profitable. If adverse economic, industry or regulatory events or changes occur, we may have to write off inventory as obsolete, which could negatively impact our business and revenue.
 
 
11

 

If surgeons and hospitals do not broadly adopt the concept of computer assisted spine surgeries and do not perceive such technology and related products as valuable and having significant advantages over the current “freehand” standard-of-care procedures, patients will be less likely to accept or be offered surgery with Renaissance, and we will fail to meet our business objectives.
 
Surgeons’ and hospitals’ perceptions of our technology having significant advantages are likely to be based on a determination that, among other factors, our products are safe, reliable, cost-effective and represent acceptable methods of treatment. Even if we can prove the clinical value of Renaissance through continued clinical use, surgeons may elect not to use our current and future Renaissance solutions for any number of other reasons. For example, surgeons may continue to operate freehand simply because such surgeries are already widely accepted. In addition, surgeons may be slow to adopt our current and future Renaissance solutions because of the perceived liability risks arising from the use of new products. Surgeons may not accept our current and future Renaissance solutions if we fail to maintain an acceptable level of product reliability or if we encounter regulatory approval or compliance issues. Hospitals may not accept Renaissance because of the capital expense, which may represent a significant portion of a hospital’s capital budget. Renaissance may not be cost-efficient if hospitals are not able to perform a significant volume of procedures using it.
 
If our current and future Renaissance solutions fail to achieve increased market acceptance for any of these or other reasons or if we are not successful in enforcing the contractual commitment to purchase disposable products exclusively from us, we will not be able to generate the revenue necessary to develop a sustainable, profitable business.
 
Our clinical data is largely based on a predecessor product to Renaissance, which may make patients, surgeons and hospitals reluctant to accept or purchase Renaissance.
 
We believe that patients, surgeons and hospitals will only accept and/or purchase our products if they believe that Renaissance is a safe and effective procedure with advantages over competing products and conventional freehand procedures. To date, we have collected only limited clinical data with which to assess Renaissance’s clinical value.  From 2005 to date, over 5,000 SpineAssist (our predecessor to Renaissance) and Renaissance procedures have been performed. As Renaissance is based on the same core technology as SpineAssist, we believe that the performance is equivalent and the clinical results, such as accuracy studies of SpineAssist, are analogous to both systems.   Empirical performance experience and preliminary independent studies have verified this assumption.
 
If future publications of clinical studies indicate that surgery with Renaissance is a less safe or less effective procedure than freehand surgeries or other computer-assisted options, patients may choose not to undergo, and surgeons may choose not to use, Renaissance. Furthermore, unsatisfactory patient outcomes or patient injury could cause negative publicity for our products, particularly in the early phases of product introduction. The FDA could also rescind our marketing clearances if future results and experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects. See “Risk Factors – Risks Related to Regulatory Compliance.”
 
We depend on key employees, and if we fail to attract and retain employees with the expertise required for our business and to provide for the succession of senior management, we cannot grow or achieve profitability.
 
We are dependent on members of our senior management, in particular Ori Hadomi and Eliyahu Zehavi. Our future success will depend in part on our ability to retain our management and scientific teams, to identify, hire and retain additional qualified personnel with expertise in research and development and sales and marketing, and to effectively provide for the succession of senior management. Competition for qualified personnel in the medical device industry is intense and finding and retaining qualified personnel with experience in our industry is very difficult. We believe that there are only a limited number of individuals with the requisite skills to serve in many of our key positions, particularly in Israel, and we compete for key personnel with other medical equipment and software manufacturers and technology companies, as well as research institutions. It is often difficult to hire and retain these persons, and we may be unable to replace key persons if they leave or to fill new positions requiring key persons with appropriate experience. A significant portion of our compensation to our key employees is in the form of stock option grants. A prolonged depression in our stock price could make it difficult for us to retain our employees and recruit additional qualified personnel.
 
We do not maintain life insurance on any of our personnel. The loss of key employees, the failure of any key employee to perform or our inability to attract and retain skilled employees, as needed, or an inability to effectively plan for and implement a succession plan for key employees could harm our business.
 
Christopher Sells, who is our Vice President of Sales, United States, is named in an SEC civil proceeding relating to a restatement of the financial statements of Mr. Sells’ former employer, Hansen Medical.  Such proceeding may result in Mr. Sells being barred from serving as an officer or director of a public company.  Mr. Sells currently reports to Christopher Prentice, our Senior Vice President, America & Global Marketing, and is not currently an officer of the Company.  It is possible that there could be penalties against Mr. Sells that may lead to the termination of his employment by the Company.  A termination of the employment of Mr. Sells, if it were to occur, may have a material adverse effect on the Company’s sales.
 
 
12

 
Adverse changes in economic conditions and reduced spending on innovative medical technology may adversely impact our business.
 
The purchase of Renaissance is discretionary and requires our customers to make significant initial commitments of capital and other resources. In addition, purchase of Renaissance requires a commitment to purchase exclusively from us other products and services, including our single-use disposable components. Continuing weak economic conditions or a reduction in healthcare technology spending, even if economic conditions improve, could adversely impact our business, operating results and financial condition in a number of ways, including by causing longer sales cycles, lower prices for our products and services and reduced unit sales.
 
Current credit and financial market conditions could delay or prevent our customers from obtaining financing to purchase or lease system, which would adversely affect our business, financial condition and results of operations.
 
Due to the continued tightening of credit markets in the recent past and concerns regarding the availability of credit, both domestically and abroad, our customers and overseas distributors may be delayed in obtaining, or may not be able to obtain, necessary financing for their purchases or leases of Renaissance. These delays may in some instances lead to our customers or overseas distributors postponing the shipment and installation of previously ordered systems, cancelling their system orders, or cancelling their agreements with us. An increase in delays and order cancellations of this nature could adversely affect our product sales and revenues and, therefore, harm our business and results of operations.

Negative worldwide economic conditions and the long lead times required by certain suppliers could prevent us from accurately forecasting demand for our products, which could adversely affect our operating results.
 
The continued negative worldwide economic conditions and market instability makes it increasingly difficult for us, our customers, our overseas distributors and our suppliers to accurately forecast future product demand trends, which could cause us to order and/or produce excess products that can increase our inventory carrying costs and result in obsolete inventory. Alternatively, this forecasting difficulty could cause a shortage of products, or materials used in our products, that could result in an inability to satisfy demand for our products and a resulting material loss of potential revenue.
 
In addition, certain of our suppliers may require extensive advance notice of our requirements in order to produce products in the quantities we desire. This long lead time, which can be up to six months, may require us to place orders far in advance of the time when certain products will be offered for sale, thereby also making it difficult for us to accurately forecast demand for our products, exposing us to risks relating to shifts in consumer demand and trends and adversely affecting our operating results.
 
Because of the numerous risks and uncertainties associated with the development of medical devices, including future versions of Renaissance, we are unable to estimate the exact amounts of capital outlays and operating expenditures necessary to complete the development of our products and successfully deliver commercial products to the market.
 
Our f`uture capital requirements will depend on many factors, including but not limited to the following:
 
 
 
·
the revenue generated by sales of our current and future products;
 
 
 
·
our ability to manage our inventory;
 
 
 
·
the expenses we incur in selling and marketing our products and supporting our growth;
 
 
 
·
the costs and timing of regulatory clearance or approvals for new products or upgrades or changes to our current products;
 
 
 
 
·
the rate of progress, cost, and success or failure of on-going development activities;
 
 
 
·
the emergence of competing or complementary technological developments;
 
 
 
·
the costs of filing, prosecuting, defending and enforcing any patent or license claims and other intellectual property rights, or participating in litigation related activities;
 
 
 
·
the terms and timing of any collaborative, licensing, or other arrangements that we may establish;
 
 
 
·
the acquisition of businesses, products and technologies; and
 
 
 
·
general economic conditions and interest rates, including the continuing weak conditions.
 
 
13

 

Our reliance on third-party suppliers, including single source suppliers, for most of the components of Renaissance could harm our ability to meet demand for our products in a timely and cost effective manner.
 
We rely on third-party suppliers to manufacture and supply almost all of the components used in Renaissance, including a number of single source suppliers to provide us with many of the major components of Renaissance.  We currently do not have long-term contracts with most of our suppliers. As a result, some of our suppliers are not required to provide us with any guaranteed minimum production levels, and we cannot guarantee that we will be able to obtain sufficient quantities of key components in the future. In addition, our reliance on third-party suppliers involves a number of risks, including, among other things:
 
 
 
·
Our suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;
 
 
 
·
Suppliers may fail to comply with regulatory requirements, be subject to lengthy compliance, validation or qualification periods, or make errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in supplying of our products to our customers;
 
 
 
·
Newly identified suppliers may not qualify under the stringent regulatory standards to which our business is subject;
 
 
 
·
We or our suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, we or our suppliers may have excess or inadequate inventory of materials and components;
 
 
 
·
We may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;
 
 
 
·
We may experience delays in delivery by our suppliers due to changes in demand from us or their other customers;
 
 
 
·
We or our suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of our systems;
 
 
 
·
Our suppliers may be subject to allegations by other parties of misappropriation of proprietary information in connection with their supply of products to us, which could inhibit their ability to fulfill our orders and meet our requirements;
 
 
 
·
Fluctuations in demand for products that our suppliers manufacture for others may affect their ability or willingness to deliver components to us in a timely manner;
 
 
 
·
Our suppliers may wish to discontinue supplying components or services to us (e.g., for risk management reasons); and
 
 
 
·
We may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable.
 
If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products could be impacted. If we are unable to satisfy commercial demand for Renaissance or for our single-use disposable components in a timely manner, our ability to generate revenue would be impaired, market acceptance of our products could be adversely affected, and customers may instead purchase or use alternative products. In addition, we could be forced to secure new or alternative components through a replacement supplier. Securing a replacement supplier could be difficult, especially for complex components such as Renaissance components that are manufactured in accordance with our custom specifications. The introduction of new or alternative components may require design changes to our system that are subject to FDA and other regulatory clearances or approvals. We may also be required to assess the new manufacturer’s compliance with all applicable regulations and guidelines, which could further impede our ability to manufacture our products in a timely manner. As a result, we could incur increased production costs, experience delays in deliveries of our products, suffer damage to our reputation and experience an adverse effect on our business and financial results.
 
 
14

 
 
 We have limited sales and marketing experience and capabilities, which could impair our ability to achieve profitability.
 
To reach our revenue targets, we need to expand and strengthen our U.S. direct sales force and our foreign sales channels. Developing a sales and marketing infrastructure is expensive and time consuming and an inability to develop such an organization in a timely manner could delay the successful adoption of our products. Additionally, any sales and marketing organization that we develop may be competing against the experienced and well-funded sales and marketing infrastructure of some of our competitors. We will face significant challenges and risks in developing our sales and marketing organization, including, among others:
 
 
 
·
our ability to recruit, train and retain adequate numbers of qualified sales and marketing personnel;
 
 
 
·
the ability of sales personnel to obtain access to surgeons and persuade adequate numbers of hospitals to purchase our products;
 
 
 
·
costs associated with hiring, maintaining and expanding a sales and marketing organization; and
 
 
 
·
government scrutiny with respect to promotional activities in the healthcare industry both domestically and abroad.
 
We believe that to sell and market our products effectively, we must establish a compelling clinical and commercial offering with our products. However, potential customers (e.g., surgeons and hospitals) sometimes have long-standing relationships with large, better known companies that dominate the medical devices industry through collaborative research programs and other relationships. Because of these existing relationships, some of which may be contractually enforced, surgeons and hospitals may be reluctant to adopt Renaissance, particularly if it competes with or has the potential to compete with or diminish the need/utilization of products supported through their own collaborative research program or by these existing relationships. Even if these surgeons and hospitals purchase Renaissance, they may be unwilling to enter into collaborative relationships with us to promote joint marketing programs or to provide us with clinical and financial data.
 
We face competition from large, well-established medical device companies that are likely to launch new navigation or robotic–based products, as well as new techniques and devices for minimally invasive approaches in spine surgeries.
 
Large, well-established medical device companies, such as Medtronic Inc., Stryker Corporation, and Brainlab AG, have navigation-based products with applications for spine surgeries that have a relatively low market share but which could be further developed and marketed with greater success. Other companies, including Intuitive Surgical Inc., IMRIS Inc. and Mako Surgical Corp., have developed robotic devices for use in other parts of the human anatomy that could be modified or improved to better compete in the spine surgery market.  Even if these companies currently do not have an established presence in our fields, they may attempt to enter our markets and to apply their technologies to compete directly with us.  For example, Intuitive Surgical’s da Vinci® robot has been clinically applied in several medical centers to perform anterior-approach spine surgeries.
 
While we are unaware of any current computer-assisted product or robotic-device that could directly compete with Renaissance at this time in the spine surgery market, it is likely that at some point there will be new market entrants. Many medical device competitors enjoy competitive advantages over us, including:
 
 
 
·
significantly greater name recognition;
 
 
 
·
longer operating histories;
 
 
 
·
established exclusive relations with healthcare professionals, customers and third-party payors;
 
 
 
·
established distribution networks;
 
 
 
·
additional lines of products and the ability to offer rebates or bundle products to offer higher discounts or incentives to gain a competitive advantage;
 
 
 
·
greater experience in conducting research and development, manufacturing, clinical trials, obtaining regulatory clearance for products and marketing approved products; and
 
 
 
·
greater financial and human resources for product development, sales and marketing and patent litigation.
 
There can be no assurance that we will be able to compete successfully against current or future competitors or that competition will not have a material adverse effect on our future revenues and, consequently, on our business, operating results and financial condition.
 
 
15

 
 
Medical device development is costly and involves continual technological change, which may render our current or future products obsolete.
 
Innovation is rapid and continuous in the medical device industry, and our competitors in the medical device industry make significant investments in research and development.  If new products or technologies emerge that provide the same or superior benefits as our products at equal or lower cost, they could render our products obsolete or unmarketable. Because our products can have long development and regulatory clearance or approval cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer demands. In addition, we face increasing competition from well-financed medical device companies in our attempts to acquire such new technologies, products and businesses. As a result, we cannot be certain that our products will be competitive with current or future products and technologies.
 
Our success depends, in part, on our ability to enter the brain-surgery market, and this market has significant barriers to entry.

Computer-assisted surgeries are the accepted standard-of-care in brain procedures, and stereotactic frames and frameless navigation devices have dominated this market for almost two decades. In recent years, new robotic devices, such as Medtech’s Rosa, have been used in brain surgery and are gaining acceptance, though still not prevalent and in very early stages. Some products will compete directly with Renaissance. As a result, we cannot be certain that surgeons will use our products or that our products will be competitive with current or future products and technologies. If we are unable to penetrate the brain-surgery market, we may not be able to generate the revenue necessary to develop a sustainable, profitable business. 
 
We may encounter problems or delays in the assembly of our products or fail to meet certain regulatory requirements.

The current and intended future versions of Renaissance are complex and require the integration of a number of separate components and processes. To become profitable, we must assemble and test Renaissance in commercial quantities in compliance with regulatory requirements and at an acceptable cost. Increasing our capacity to assemble and test our products on a commercial scale will require us to improve internal efficiencies. We may encounter a number of difficulties in increasing our assembly and testing capacity, including:
 
 
 
·
managing production yields; 
 
 
 
·
maintaining quality control and assurance;

 
 
·
providing component and service availability; 

 
 
·
hiring and retaining qualified personnel; and 

 
 
·
complying with state, federal and foreign regulations.
 
If we are unable to satisfy commercial demand for our Renaissance system due to our inability to assemble and test the system in compliance with applicable regulations, our business and financial results, including our ability to generate revenue, would be impaired, market acceptance of our products could be materially adversely affected and customers may instead purchase or use competing products.
 
Any failure in our efforts to train surgeons or hospital staff adequately could result in lower than expected product sales and potential liabilities.
 
A critical component of our sales and marketing efforts is the training of surgeons and operating room staff to properly use Renaissance. We rely on surgeons and hospital staff to devote adequate time to learn to use our products. Convincing surgeons and hospital staff to dedicate the time and energy necessary for adequate training in the use of our system is challenging, and we cannot assure that we will be successful in these efforts. If surgeons or hospital staffs are not properly trained, they may misuse or ineffectively use our products. If nurses or other members of the hospital staff are not adequately trained to assist in using our Renaissance system, surgeons may be unable to use our products. Insufficient training may result in reduced system use, unsatisfactory patient outcomes, patient injury and related liability or negative publicity, which could have an adverse effect on our product sales or create substantial potential liabilities.
 
 
16

 

We will likely continue to experience extended and variable sales cycles, which could cause significant variability in our results of operations for any given quarter.
 
    Our Renaissance system has a lengthy sales cycle because it is a major piece of capital equipment, the purchase of which will generally require the approval of senior management at hospitals, inclusion in the hospitals’ budget process for capital expenditures and, in some instances, a certificate of need from the state or other regulatory clearance. As a result, a relatively small number of units are currently installed each quarter. We estimate that the sales cycle of Renaissance will continue to take between nine and eighteen months from the point of initial identification and contact with a qualified surgeon until closing of the purchase with the hospital. In addition, the introduction of new products could adversely impact our sales cycle as customers take additional time to assess them. Because of the lengthy sales cycle, the unit price of Renaissance and the relatively small number of systems installed each quarter, each installation of a Renaissance system can represent a significant component of our revenue for a particular quarter, particularly in the near term and during any other periods in which our sales volume is relatively low.
 
Certain factors that may contribute to variability in our operating results may include:
 
 
 
·
delays in shipments due, for example, to natural disasters or labor disturbances;
 
 
 
·
delays or unexpected difficulties in the manufacturing processes of our suppliers or in our assembly process;
 
 
 
·
timing of the announcement, introduction and delivery of new products or product upgrades by us and by our competitors;
 
 
 
 
·
timing and level of expenditures associated with expansion of sales and marketing activities and our overall operations;
 
 
 
·
changes in third-party coverage and reimbursement, changes in government regulation, or a change in a customer’s financial condition or ability to obtain financing; and          
 
 
 
·
hospitals tend to group purchases at the beginning of their budgetary cycle, which is different among hospitals.
 
These factors are difficult to forecast and may contribute to substantial fluctuations in our quarterly revenue and substantial variation from our projections, particularly during the periods in which our sales volume is low. Moreover, many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any quarter. Based on the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. These and other potential fluctuations also mean that you will not be able to rely upon our operating results in any particular period as an indication of future performance. 
 
We may be subject to cost containment efforts by our customers, which could have an adverse impact on our sales, financial condition and results of operations.
 
Some of our customers and potential customers have joined group purchasing organizations in an effort to contain costs; these group purchasing organizations negotiate pricing arrangements with medical supply manufacturers and distributors and make these negotiated prices available to the group purchasing organization’s affiliated hospitals and other members.  If we fail to respond to the cost containment efforts of our customers and potential customers, we may lose sales or face downward pricing pressure, which could result in an adverse impact on our financial condition and results of operations. 

If we receive a significant number of warranty claims or our Renaissance system units require significant amounts of service after sale, our costs will increase and our business and financial results will be adversely affected.
 
Sales of the our Renaissance system generally include a warranty and maintenance obligation on our part for services for a period of twelve months from the date Renaissance is installed at a customer’s facility. We also provide technical and other services to customers beyond the warranty period pursuant to a supplemental service plan sold with each system. If product returns or warranty claims are significant or exceed our expectations, we could incur unanticipated reductions in sales or additional expenditures for parts and service. In addition, our reputation could be damaged and our products may not achieve market acceptance.
 
 
17

 

Software defects may be discovered in our products.

Our Renaissance system incorporates sophisticated computer software. Complex software frequently contains errors, especially when first introduced. Because our products are designed to be used to perform complex surgical procedures, we expect that physicians and hospitals will have an increased sensitivity to the potential for software defects. We cannot assure you that our software will not experience errors or performance problems in the future. If we experience software errors or performance problems, we would likely also experience:

 
 
·
loss of revenue;
 
 
 
·
delay in market acceptance of our products;
 
 
 
·
damage to our reputation;
 
 
 
·
additional regulatory filings;
 
 
 
·
product recalls;
 
 
 
·
increased service or warranty costs; and
 
 
·
product liability claims relating to the software defects.
 
We may be subject to product liability claims, product actions, including product recalls, and other field or regulatory actions that could be expensive, divert management’s attention and harm our business.
 
Our business exposes us to potential liability risks, product actions and other field or regulatory actions that are inherent in the manufacturing, marketing and sale of medical device products, particularly those used in surgery. We may be held liable if our products cause injury or death or are found otherwise unsuitable or defective during usage. Renaissance incorporates mechanical and electrical parts, complex computer software and other sophisticated components, any of which can contain errors or failures. Complex computer software is particularly vulnerable to errors and failures, especially when first introduced. In addition, new products or enhancements to our existing products may contain undetected errors or performance problems that, despite testing, are discovered only after installation.
 
 If any of our products are defective, whether due to design or manufacturing defects, improper use of the product or other reasons, we may voluntarily or involuntarily undertake an action to remove, repair, or replace the product at our expense. In some circumstances we will be required to notify regulatory authorities of an action pursuant to a product failure. We are also required to submit a Medical Device Report, or MDR, to the FDA for any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.
 
A required notification to a regulatory authority or a failure to make a timely required notification could result in an investigation by regulatory authorities of our products, which could in turn result in field corrective actions, restrictions on the sale of the products, and civil or criminal penalties. In addition, because our products are designed to perform complex surgical procedures, defects could result in a number of complications, some of which could be serious and could cause significant harm to the patient or even cause death. The adverse publicity resulting from any of these events could cause surgeons or hospitals to review and potentially terminate their relationships with us.
 
The medical device industry has historically been subject to extensive litigation over product liability claims. We anticipate that as part of our ordinary course of business we will be subject to product liability claims alleging defects in the design, manufacture or labeling of our products. A product liability claim, regardless of its merit or eventual outcome, could result in significant legal defense costs and high punitive damage payments. Although we maintain product liability insurance, the coverage is subject to deductibles and limitations, and may not be adequate to cover future claims. Additionally, we may be unable to maintain our existing product liability insurance in the future at satisfactory rates or adequate amounts.
 
 
18

 

If coverage or reimbursement from third-party payors for procedures in which Renaissance is used, namely spinal fusions, is decreased or limited, hospitals may not purchase Renaissance and surgeons may perform fewer spinal fusions, which would harm our business and financial results.
 
Our ability to successfully commercialize Renaissance depends significantly on the availability of coverage and reimbursement for thoracic-lumbar spinal fusion procedures from third-party payors, including governmental programs such as Medicare and Medicaid, as well as private insurance and private health plans. Reimbursement is a significant factor considered by hospitals in determining whether to acquire new capital equipment such as our technology. Although our customers have been successful in obtaining coverage and reimbursement for procedures using our products, we cannot be assured that procedures using our technology will be covered or reimbursed by third-party payors in the future or that such reimbursements will not be reduced to the extent that they will adversely affect capital allocations for purchase of our Renaissance system.
 
As part of healthcare reform and other cost containment initiatives, the U.S. Congress may pass legislation impacting coverage and reimbursement for healthcare services, including Medicare reimbursement to physicians and hospitals. Many private third-party payors look to Medicare’s coverage and reimbursement policies in setting their coverage policies and reimbursement amounts. If the Centers for Medicare & Medicaid Services, or CMS, the federal agency that administers the Medicare program, or Medicare contractors limit payments to hospitals or surgeons for thoracic-lumbar spinal fusion surgeries, private payors may similarly limit payments. In addition, state legislatures may enact laws limiting or otherwise affecting the level of Medicaid reimbursements. As a result, hospitals may not purchase Renaissance and surgeons may choose to decrease their volume of thoracic-lumbar spinal fusions, and, as a result, our business and financial results would be adversely affected.
 
Because hospitals receive a fixed reimbursement amount from Medicare for specified procedures or conditions, a hospital must absorb the cost of our products as part of the reimbursement payment it receives, which makes the hospital’s purchasing decisions more risky, particularly those related to expensive capital equipment.
 
Medicare pays acute care hospitals a prospectively determined amount for inpatient operating costs under the Medicare hospital inpatient prospective payment system, or PPS. Under the Medicare PPS, the prospective payment for a patient’s stay in an acute care hospital is determined by the patient’s condition and other patient data and procedures performed during the inpatient stay using a classification system known as diagnosis related groups, or DRGs. CMS implemented a revised version of the DRG system that uses Medicare Severity DRGs, or MS-DRGs, instead of the DRGs which Medicare used previously. The MS-DRGs are intended to more accurately account for the patient’s severity of illness when assigning each patient’s stay to a payment classification. Medicare pays a fixed amount to the hospital based on the MS-DRG into which the patient’s stay is assigned, regardless of the actual cost to the hospital of furnishing the procedures, items and services provided. Accordingly, acute care hospitals generally do not receive direct Medicare reimbursement under the PPS for the specific costs incurred in purchasing medical devices, except under limited circumstances. Rather, reimbursement for these costs is deemed to be included within the MS-DRG based payments made to hospitals for the services furnished to Medicare eligible inpatients in which the devices are utilized. Accordingly, a hospital must absorb the cost of our products as part of the payment it receives for the procedure in which the device is used. In addition, physicians that perform procedures in hospitals are paid a set amount by Medicare for performing such services under the Medicare Physician Fee Schedule. Medicare payment rates for both systems are established annually.
 
At this time, we do not know the extent to which hospitals and physicians would consider third-party reimbursement levels adequate to cover the cost of our products. Failure by hospitals and surgeons to receive an amount that they consider to be adequate reimbursement for procedures in which our products are used could deter them from purchasing or using our products and limit our sales growth. In addition, pre-determined MS-DRG payments or Medicare Physician Fee Schedule payments may decline over time, which could deter hospitals from purchasing our products or physicians from using them. If hospitals are unable to justify the costs of our products or physicians are not adequately compensated for procedures in which our products are utilized, they may refuse to purchase or use them, which would significantly harm our business.
 
Notwithstanding current or future FDA clearances, if granted, third-party payors may deny coverage and reimbursement if the payor determines that a therapeutic medical device is unnecessary, inappropriate, not cost-effective or experimental, or is used for a non-approved indication. Although we are not aware of any potential customer that has declined to purchase our Renaissance system based upon third-party payors’ coverage and reimbursement policies, cost control measures adopted by third-party payors may have a significant effect on surgeries performed using Renaissance or as to the levels of reimbursement.
 
Broad-based domestic and international government initiatives to reduce spending, particularly those related to healthcare costs, may reduce reimbursement rates for spinal surgery procedures, which will reduce the cost-effectiveness of our products.
 
Healthcare reforms, changes in healthcare policies and changes to third-party coverage and reimbursement, including recently enacted legislation reforming the U.S. healthcare system, may affect demand for our products 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-party payors will not adversely affect the demand for our products or our ability to sell products on a profitable basis.
 
 
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                The Patient Protection and Affordable Care Act, or “PPACA”, adopted in the United States in March 2010 and related regulations include new taxes impacting certain health-related industries, including medical device manufacturers.  Beginning in 2013, each medical device manufacturer will have to pay an excise tax (or sales tax) in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices. This excise tax applies to our medical devices products. Other significant measures contained in PPACA include initiatives to revise Medicare payment methodologies, initiatives to promote quality indicators in payment methodologies, initiatives related to the coordination and promotion of research on comparative clinical effectiveness of different technologies and procedures, and annual reporting requirements related to payments to physicians and teaching hospitals.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted.  On August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year. On January  2, 2013,  President Obama signed into law the American Taxpayer Relief Act of 2012,  or the ATRA, which delayed for another two months  the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011.  On March 1, 2013, the President signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.
 
We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or internationally, or the effect any future legislation or regulation will have on us. The taxes imposed by PPACA and the expansion of government’s role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursements by third-party payors for surgeries in which our products are used, and reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations, possibly materially.
 
Changing models for the provision of healthcare may affect the cost-effectiveness of Renaissance.
 
All third-party payors, whether governmental or private, whether inside the United States or outside, are developing increasingly sophisticated methods of controlling healthcare costs. These cost control methods include prospective payment systems, capitated rates, benefit redesigns, pre-authorization or second opinion requirements prior to major surgery, an emphasis on wellness and healthier lifestyle interventions and an exploration of other cost-effective methods of delivering healthcare. These cost control methods also potentially limit the amount which healthcare providers may be willing to pay for medical technology which could, as a result, adversely affect our business and financial results. In addition, no uniform policy of coverage and reimbursement for medical technology exists among all these payors. Therefore, coverage and reimbursement for medical technology can differ significantly from payor to payor, and country to country.
 
We may attempt to acquire new products or technologies, and if we are unable to successfully complete these acquisitions or to integrate acquired businesses, products, technologies or employees, we may fail to realize expected growth.
 
Our success will depend, in part, on our ability to expand our product offerings and continue to offer the advanced computer assisted solutions for spine surgery and grow our business in response to changing technologies, customer demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses, products or technologies rather than through internal development. Successful acquisitions present a number of hurdles and risk, including:
 
 
 
·
The identification of suitable acquisition candidates can be difficult, time consuming and costly;
 
 
 
·
Integrating any acquisitions that we make into our operations is difficult, time consuming, and expensive, and may involve new regulatory requirements; and
 
 
 
·
Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges such as amortization of intangible assets, any of which could harm our business and materially adversely affect our financial results or cause a reduction in the price of our Ordinary Shares.
 
 
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If we do not effectively manage our growth, we may be unable to successfully develop, market and sell our products.
 
In order to achieve our business objectives, we must continue to grow. Continued growth presents numerous challenges, including:
 
 
 
·
implementing appropriate operational and financial systems and controls;
 
 
 
·
expanding manufacturing and assembly capacity and increasing production;
 
 
 
 
·
developing our sales and marketing infrastructure and capabilities;
 
 
 
·
identifying, attracting and retaining qualified personnel in our areas of activity;
 
 
 
·
hiring, training, managing and supervising our personnel; and
 
 
 
 
·
continuous compliance with regulatory and quality assurance requirements.
 
We cannot be certain that our systems, controls, infrastructure and personnel will be adequate to support our future operations. Any failure to effectively manage our growth could impede our ability to successfully develop, market and sell our products and our business will be harmed.
 
If we are successful in our efforts to market and sell Renaissance outside of the United States, we will be subject to various risks relating to our international activities, which could adversely affect our business and financial results.
 
We are continuing to pursue international markets for the sale of our products and, as of June 30, 2013, there were 54 SpineAssist and Renaissance systems installed in the United States, Europe and Asia. As a result of these efforts and sales, we are exposed to risks separate and distinct from those we face in our U.S. operations. Our international business may be adversely affected by changing economic conditions in foreign countries. In addition, because international sales would most likely be denominated in the functional currency of the country where the product is being shipped, increases or decreases in the value of the U.S. dollar relative to foreign currencies could affect our results of operations. Engaging in international business inherently involves a number of other difficulties and risks, including:
 
 
 
·
approval of product submissions with healthcare systems outside the United States;
 
 
 
·
gathering the clinical data that may be required for product submissions with healthcare systems outside the United States;
 
 
 
·
import restrictions and controls and other government regulation relating to technology;
 
 
 
·
pricing pressures that we may experience internationally;
 
 
 
·
the availability and level of reimbursement within prevailing foreign healthcare payment systems;
 
 
·
compliance with existing and changing applicable foreign regulatory laws and requirements, including but not limited to the European Medical Device Directive (Council Directive 93/42/EEC), the U.S. Foreign Corrupt Practices Act of 1977, or FCPA, and the U.K. Bribery Act;
 
 
 
·
foreign laws and business practices favoring local companies;
 
 
 
 
·
longer payment cycles; and
 
 
 
 
·
shipping delays.
 
Our exposure to each of these risks may increase our costs, impair our ability to market and sell our products and require significant management attention, resulting in harm to our business and financial results.

Our Renaissance system is used mainly for vertebral fixation procedures during thoracic-lumbar spinal fusion surgeries. Should the standard of care change and these procedures be abandoned as the treatment of choice for the current indications, it might negatively affect our business.
 
According to the Orthopedic Network News reported dated October 2012, about 360,000 thoracic-lumbar fusion surgeries were performed in the United States during 2012. These surgeries are the standard of care in several common spinal pathologies. However, new treatment methods continue to be innovated, such as motion preserving techniques and devices that might not be benefitted by the use of Renaissance during such surgical procedures. In such a case, the appeal to surgeons in using Renaissance could be diminished and have a negative effect on our business performance.

 
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Risks Related to Our Intellectual Property
 
If we, or the other parties from whom we license intellectual property, are unable to secure and maintain patent or other intellectual property protection for the intellectual property used in our products, our ability to compete will be harmed.
 
Our commercial success depends, in part, on obtaining and maintaining patent and other intellectual property protection for the technologies used in our products. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal and factual questions. Furthermore, we might in the future opt to license intellectual property from other parties. If we, or the other parties from whom we would license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products, resulting in harm to our competitive business position. In addition, patent and other intellectual property protection may not provide us with a competitive advantage against competitors that devise ways of making competitive products without infringing any patents that we own or have rights to.
 
U.S. patents and patent applications may be subject to interference proceedings, and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices. Any of these proceedings could result in loss of the patent or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. Changes in either patent laws or in interpretations of patent laws may also diminish the value of our intellectual property or narrow the scope of our protection. Interference, re-examination and opposition proceedings may be costly and time consuming, and we, or the other parties from whom we might potentially license intellectual property, may be unsuccessful in defending against such proceedings. Thus, any patents that we own or might license may provide limited or no protection against competitors. In addition, our pending patent applications and those we may file in the future may have claims narrowed during prosecution or may not result in patents being issued. Even if any of our pending or future applications are issued, they may not provide us with adequate protection or any competitive advantages. Our ability to develop additional patentable technology is also uncertain.
 
Non-payment or delay in payment of patent fees or annuities, whether intentional or unintentional, may also result in the loss of patents or patent rights important to our business. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States, particularly in the field of medical products and procedures.  Among these countries is China where we have sales pursuant to a distribution agreement with a local distributor.

If we are unable to prevent unauthorized use or disclosure of our proprietary trade secrets and unpatented know-how, our ability to compete will be harmed.
 
Proprietary trade secrets, copyrights, trademarks and unpatented know-how are also very important to our business. We rely on a combination of trade secrets, copyrights, trademarks, confidentiality agreements and other contractual provisions and technical security measures to protect certain aspects of our technology, especially where we do not believe that patent protection is appropriate or obtainable. We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to us all inventions conceived during the term of their employment or engagement while using our property or which relate to our business. We also have taken precautions to initiate reasonable safeguards to protect our information technology systems. However, these measures may not be adequate to safeguard our proprietary intellectual property and conflicts may, nonetheless, arise regarding ownership of inventions. Such conflicts may lead to the loss or impairment of our intellectual property or to expensive litigation to defend our rights against competitors who may be better funded and have superior resources. Our employees, consultants, contractors, outside clinical collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors. In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. As a result, other parties may be able to use our proprietary technology or information, and our ability to compete in the market would be harmed.
 
 
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We could become subject to patent and other intellectual property litigation that could be costly, result in the diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.
 
The medical device industry is characterized by competing intellectual property and a substantial amount of litigation over patent and other intellectual property rights. In particular, the fields of orthopedic implants, computer-assisted surgery, or CAS, systems, and robotics are well established and crowded with the intellectual property of competitors and others. A number of companies in our market, as well as universities and research institutions, have been issued patents and have filed patent applications which relate to the use of CAS.
 
Determining whether a product infringes a patent involves complex legal and factual issues, and the outcome of a patent litigation action is often uncertain. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors, and no assurance can be given that patents containing claims covering our products, parts of our products, technology or methods do not exist, have not been filed or could not be filed or issued. Because of the number of patents issued and patent applications filed in our technical areas, our competitors or other parties may assert that our products and the methods we employ in the use of our products are covered by U.S. or foreign patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. There could also be existing patents that one or more of our products or parts may infringe and of which we are unaware. As the number of competitors in the market for computer and robotic-assisted surgery grows, and as the number of patents issued in this area grows, the possibility of patent infringement claims against us increases. In certain situations, we may determine that it is in our best interests or their best interests to voluntarily challenge a party’s products or patents in litigation or other proceedings, including patent interferences or re-examinations. As a result, we may become involved in unwanted litigation that could be costly, result in diversion of management’s attention, require us to pay damages and force us to discontinue selling our products.
 
Infringement actions and other intellectual property claims and proceedings brought against or by us, whether with or without merit, may cause us to incur substantial costs and could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation. Some of our competitors may be able to sustain the costs of complex patent or intellectual property litigation more effectively than we can because they have substantially greater resources.
 
We cannot be certain that we will successfully defend against allegations of infringement of patents and intellectual property rights of others. In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the other party’s patents or other intellectual property were upheld as valid and enforceable and we were found to infringe the other party’s patents or violate the terms of a license to which we are a party, we could be required to pay damages. We could also be prevented from selling our products unless we could obtain a license to use technology or processes covered by such patents or will be able to redesign the product to avoid infringement. A license may not be available at all or on commercially reasonable terms or we may not be able to redesign our products to avoid infringement. Modification of our products or development of new products could require us to conduct clinical trials and to revise our filings with the FDA and other regulatory bodies, which would be time consuming and expensive. In these circumstances, we may be unable to sell our products at competitive prices or at all, our business and operating results could be harmed.
 
          On August 14, 2013, the Company received a letter from Neutar, L.L.C., or Neutar, advising that Neutar believes that the Company uses technology that is protected by United States Patent No. 6,529,765 for “Instrument and Actuated Guidance Fixture for Stereotactic Surgery” and United States Patent No. 6,298,262 for “Instrument Guidance for Stereotactic Surgery”, which are allegedly owned by Neutar, and that our Spine Assist miniature robot infringes the above-reference patents.  Neutar asked to discuss with the Company’s management an amicable business resolution to this situation and stated that if such discussions did not occur, Neutar would consider other legal options.  After reviewing Neutar’s claims and consulting with counsel, the Company believes that the claims referred to in the above mentioned patents, raised by Neutar, are not infringed by the Company, and/or those claims are invalid.  At this preliminary stage, however, it is impossible for the Company to determine the degree of probability that a suit may be filed and the Company is unable to estimate the probability of an adverse outcome were suit to be filed or the effect of an adverse outcome on the Company’s business, if any.
 
Our product development is limited by existing intellectual property owned by other companies. Our development of new generations of our products might depend on licensing of such intellectual property.
 
As we enhance our current product offerings and develop new ones, we may find it advisable or necessary to seek licenses from other parties who hold patents covering technology or methods necessary for the development of our products. If we cannot obtain these licenses, we could be forced to design around those patents at additional cost or abandon the product altogether. As a result, our ability to grow our business and compete in the market may be harmed.
 
 
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We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees were previously employed at universities or other medical device companies, including our competitors or potential competitors. We could in the future be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies or features that are important or essential to our products would have a material adverse effect on our business, and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and be a distraction to management. Incurring such costs could have a material adverse effect on our financial condition, results of operations and cash flow.
 
Risks Related to Regulatory Compliance
 
If we fail to comply with the extensive government regulations relating to our business, we may be subject to fines, injunctions and other penalties that could harm our business.
 
Our medical device products and operations are subject to extensive regulation by the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, or FDCA, and various other federal, state and foreign governmental authorities. Government regulations and requirements specific to medical devices are wide ranging and govern, among other things:
 
 
 
·
design, development and manufacturing;
 
 
 
·
testing, labeling and storage;
 
 
 
·
clinical trials;
 
 
 
·
product safety;
 
 
 
·
marketing, sales and distribution;
 
 
 
·
premarket clearance or approval;
 
 
 
·
record keeping procedures;
 
 
 
·
advertising and promotions;
 
 
 
·
recalls and field corrective actions;
 
 
 
·
post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; and
 
 
 
·
product import and export.
 
In the United States, before we can market a new medical device, or a new use of, or claim for, or significant modification to, an existing product, we must first receive either premarket clearance under Section 510(k) of the FDCA, or approval of a PMA from the FDA, unless an exemption applies. In the 510(k) marketing clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Bench tests, pre-clinical and/or clinical data are sometimes required to support substantial equivalence. The PMA approval pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on data obtained in clinical trials. Both of these processes can be expensive and lengthy and entail significant fees, unless exempt. The FDA’s 510(k) marketing clearance process usually takes from three to 12 months, but it can last longer. The process of obtaining PMA approval is much more costly and uncertain than the 510(k) marketing clearance process. It generally takes from one to three years, or even longer, from the time the PMA application is submitted to the FDA, until an approval is obtained. There is no assurance that we will be able to obtain FDA clearance or approval for any of our new products on a timely basis, or at all.
 
 
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In the United States, our currently commercialized products have received pre-market clearance under Section 510(k) of the FDCA. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline. In addition, the FDA may determine that future products will require the more costly, lengthy and uncertain PMA process. Although we do not currently market any devices under PMA, the FDA may demand that we obtain a PMA prior to marketing certain of our future products.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared products on a timely basis. For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the program, and in January 2011, announced several proposed actions intended to reform the review process governing the clearance of medical devices.  The FDA intends these reform actions to improve the efficiency and transparency of the clearance process, as well as bolster patient safety. In addition, as part of FDASIA, Congress reauthorized the Medical Device User Fee Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms which are further intended to clarify and improve medical device regulation both pre- and post-approval.
 
Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing responsibilities under FDA regulations. The failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as:
 
 
·
warning letters;
 
 
·
fines;
 
 
·
injunctions;
 
 
·
civil penalties;
 
 
·
termination of distribution;
 
 
·
recalls or seizures of products;
 
 
·
delays in the introduction of products into the market;
 
 
 
·
total or partial suspension of production;
 
 
·
refusal to grant future clearances or approvals;
 
 
·
withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products; and
 
 
·
in the most serious cases, criminal penalties.
 
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, results of operations and financial condition.

 
 
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 Modifications to our currently FDA-cleared products or the introduction of new products may require new regulatory clearances or approvals or require us to recall or cease marketing our current products until clearances or approvals are obtained.
 
Our Renaissance system has received marketing clearance from the FDA based on 510(k) applications. See “Business – Regulatory Requirements of the U.S. Food and Drug Administration.”  We have not been required by the FDA to obtain premarket approval, or PMA, nor to conduct any clinical trials in support of these applications. Modifications to our products, however, may require new regulatory approvals or clearances or require us to recall or cease marketing the modified products until these clearances or approvals are obtained. Any modification to one of our 510(k) cleared products that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of the device would require us to obtain a new 510(k) marketing clearance and may even, in some circumstances, require the submission of a PMA application, if the change raises complex or novel scientific issues or the product has a new intended use. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s decision. The latest 510(k) marketing clearance expands the indication for use of Renaissance to brain surgeries, an application which has not yet been commercially released. We may continue to make additional modifications in the future to Renaissance without seeking additional clearances or approvals if we believe such clearances or approvals are not necessary. It is expected that the FDA will introduce stringent new changes to existing policy and practices regarding the assessment of whether a new 510(k) is required for changes or modifications to existing devices. For example, in response to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k) regulatory pathway, the FDA initiated an evaluation of the program, and in January 2011, announced several proposed actions intended to reform the review process governing the clearance of medical devices.   Most recently, on July 9, 2012, the Food and Drug Administration Safety and Modernization Act, or FDASIA, was enacted which, among other requirements, obligates the FDA to prepare a report for Congress on the FDA’s approach for determining when a new 510(k) will be required for modifications or changes to a previously cleared device. After submitting this report, the FDA is expected to issue revised guidance to assist device manufacturers in making this determination. Until then, manufacturers may continue to adhere to the FDA’s 1997 guidance on this topic when making a determination as to whether or not a new 510(k) is required for a change or modification to a device, but the practical impact of the FDA’s continuing scrutiny of these issues remains unclear.  If the FDA disagrees with our past or future decisions not to seek a new 510(k) for changes or modifications to existing devices and requires new clearances or approvals, we may be required to recall and stop marketing our products as modified, which could require us to redesign our products, conduct clinical trials to support any modifications, and pay significant regulatory fines or penalties. In addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining required clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. Any of these actions would harm our operating results.
 
Moreover, clearances and approvals are subject to continual review, and the later discovery of previously unknown problems can result in product labeling restrictions or withdrawal of the product from the market. The loss of previously received approvals or clearances, or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.
 
We are currently required by the FDA to refrain from using certain terms to label and market our products, which could harm our ability to market and commercialize our current or future products.
 
The FDA's 510(k) clearances include a specification of a product's indication for use, and also authorize specific labeling and marketing claims and language in promotional materials for the U.S. market.  Failure to conform with the specific cleared labeling of our product or the use of the term Robot in our product or corporate promotional material would be considered mislabeling or off-label promotion which might lead to:
 
 
 
·
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
 
 
 
·
customer notifications, refunds, detention or seizure of our products;
 
 
 
·
refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;
 
 
 
·
withdrawing 510(k) marketing clearances or PMA approvals that have already been granted;
 
 
 
·
refusing to provide Certificates for Foreign Government;
 
 
 
·
refusing to grant export approval for our products; or
 
 
 
·
pursuing criminal prosecution.
 
Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and financial condition.
 
 
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We may inadvertently breach government and contractual privacy laws and obligations.
 
In the course of performing our business, we obtain certain confidential patient health information, such as patient names and dates of Renaissance procedures.  In the event of an inadvertent disclosure, we could be subject to enforcement measures, including civil and criminal penalties and fines for violations of the privacy or security standards, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, or subject to violation of contractual claims of customers.
 
Failure to obtain regulatory approval in additional foreign jurisdictions will prevent us from expanding the commercialization of our products abroad.
 
To be able to market and sell our products in most countries other than the United States, we must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals and the time required for regulatory review, vary from country to country. Clearance or approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA clearance or approval.  Obtaining and maintaining foreign regulatory approvals are expensive, and we cannot be certain that we will receive regulatory approvals in any foreign country in which we plan to market our products, on a timely basis, if at all. If we fail to obtain or maintain regulatory approval in any foreign country in which we plan to market our products on a timely basis, or at all, our ability to generate revenue will be harmed.
 
As we modify existing products or develop new products in the future, including new accessories, we apply for permission to affix to such products a European Union CE mark, which is a legal requirement for medical devices intended for sale in the European Union. In addition, we will be subject to annual regulatory audits in order to maintain those CE mark permissions. We do not know whether we will be able to continue to affix the CE mark for new or modified products or that we will continue to meet the quality and safety standards required to maintain the permissions we have already received. If we are unable to maintain permission to affix the CE mark to our products, we will no longer be able to sell our products in member countries of the European Union or other areas of the world that require CE marking for the marketing and distribution of medical devices.
 
If we or our third-party manufacturers or suppliers fail to comply with the FDA’s Quality System Regulation, our manufacturing operations could be interrupted and our product sales and operating results could suffer.
 
We and some of our third-party manufacturers and suppliers are required to comply with the FDA’s Quality System Regulation, or QSR, which covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. We and our manufacturers and suppliers are also subject to the regulations of foreign jurisdictions regarding the manufacturing process if we or our distributors market our products abroad.  We continue to monitor our quality management in order to improve our overall level of compliance. Our facilities are subject to periodic and unannounced inspection by U.S. and foreign regulatory agencies to audit compliance with the QSR and comparable foreign regulations.  If our facilities or those of our manufacturers or suppliers are found to be in violation of applicable laws and regulations, or if we or our manufacturers or suppliers fail to take satisfactory corrective action in response to an adverse inspection, the regulatory authority could take enforcement action, including any of the following sanctions:
 
 
 
·
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
 
 
 
·
customer notifications or repair, replacement, refunds, detention or seizure of our products;
 
 
 
·
operating restrictions or partial suspension or total shutdown of production;
 
 
 
·
refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;
 
 
 
·
withdrawing 510(k) marketing clearances or PMA approvals that have already been granted;
 
 
 
·
refusing to provide Certificates for Foreign Government;
 
 
 
·
refusing to grant export approval for our products; or
 
 
 
·
pursuing criminal prosecution.
 
Any of these sanctions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands, and could have a material adverse effect on our reputation, business, results of operations and financial condition. We may also be required to bear other costs or take other actions that may have a negative impact on our future sales and our ability to generate profits.
 
 
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Our products may in the future be subject to product actions that could harm our reputation, business operations and financial results.
 
Manufacturers may, on their own initiative, initiate actions, including a non-reportable market withdrawal or a reportable product recall, for the purpose of correcting a material deficiency, improving device performance, or other reasons. Additionally, the FDA and similar foreign health or governmental authorities have the authority to require an involuntary recall of commercialized products in the event of material deficiencies or defects in design, manufacturing or labeling or in the event that a product poses an unacceptable risk to health. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is a reasonable probability that a device intended for human use would cause serious, adverse health consequences or death. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture. Product actions involving any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.
 
Companies are required to maintain certain records of actions, even if they determine such actions are not reportable to the FDA. If we determine that certain actions do not require notification of the FDA, the FDA may disagree with our determinations and require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted or failing to timely report or initiate a reportable product action.

                Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines.

If our products, or malfunction of our products, cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
 
Under FDA regulations, we are required to report to the FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices in European Union markets are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the relevant authority in whose jurisdiction the incident occurred. We anticipate that in the future it is likely that we may experience events that would require reporting to the FDA pursuant to the MDR regulations. Any adverse event involving our products could result in future voluntary corrective actions, such as product actions or customer notifications, or agency actions, such as inspection, mandatory recall or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
 
In addition, as the frequency of use of Renaissance increases and our business continues to grow, we may experience an increase in the number of incidents that could lead to MDR reports which we might need to file. The decision to file an MDR involves a judgment by us as the manufacturer. We have made decisions that certain types of events are not reportable under the MDR regulations; however, there can be no assurance that the FDA will agree with our decisions. If we fail to report MDRs to the FDA within the required timeframes, or at all, or if the FDA disagrees with any of our determinations regarding the reportability of certain events, the FDA could take enforcement actions against us, which could have an adverse impact on our reputation and financial results.
 
We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and business.
 
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may use our products off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. If the FDA determines that our promotional materials or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, which could have an adverse impact on our reputation and financial results.
 
 
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We may be subject to fines, penalties, or licensure requirements, or legal liability, if it is determined that our Renaissance clinical sales representatives and other employees are practicing medicine without a license.
 
State laws prohibit the practice of medicine without a license. Our clinical sales representatives, or CSRs, provide preoperative and intraoperative clinical and technical support to our customers, including assistance setting up the equipment, participation in the preoperative planning process, and facilitation of the surgeon’s use of Renaissance during surgery. We do not believe that our CSRs are engaged in the practice of medicine, but rather are assisting our customers in the safe and proper usage of our equipment and products. Nevertheless, a governmental authority or individual actor could allege the activities of our CSRs to constitute the practice of medicine. A state may seek to have us discontinue the services provided by our CSRs or subject us to fine, penalties or licensure requirements. Any determination that our CSRs are practicing medicine without a license may result in significant liability to us.
 
The application of state certificate of need regulations could substantially limit our ability to sell our products and grow our business.
 
Some states require healthcare providers to obtain a certificate of need or similar regulatory approval prior to the acquisition of high-cost capital equipment such as Renaissance. In some states, the process required of our customers to obtain this certificate is lengthy and could result in a longer sales cycle for Renaissance. Further, in many cases, only a limited number of these certificates are available. As a result, our customers may be unable to obtain a certificate of need for the purchase of our Renaissance system which could cause our sales to decline.
 
Federal regulatory reforms may adversely affect our ability to sell our products profitably.
 
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a medical device. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
 
Without limiting the generality of the foregoing, Congress has enacted, and the President signed into law, the Food and Drug Administration Amendments Act of 2007, or the Amendments. This law requires, among other things, that the FDA propose, and ultimately implement, regulations that will require manufacturers to label medical devices with unique identifiers unless a waiver is received from the FDA. Once implemented, compliance with those regulations may require us to take additional steps in the manufacture of our products and labeling. These steps may require additional resources and could be costly. In addition, the Amendments will require us to, among other things, pay annual establishment registration fees to the FDA for each of our FDA registered facilities and certify to the clinical trial reporting provisions contained in the Amendments.
 
We may be subject, directly or indirectly, to federal and state healthcare regulations and could face substantial penalties if we are unable to fully comply with such regulations and laws.
 
While we do not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, many healthcare laws and regulations apply to our business. For example, we could be subject to patient privacy regulation and enforcement by both the federal government and the states in which we conduct our business. There are multiple healthcare laws and regulations that may affect our ability to operate.  New laws and regulations are being continually proposed.  For example, PPACA imposes new reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed to physicians and teaching hospitals. Device manufacturers were required to begin collecting data on August 1, 2013 and will be required to submit reports  to CMS by March  31, 2014 (and the 90th day of each subsequent calendar  year).  The implementation of the infrastructure to comply with these bills and regulations could be costly and any failure to provide the required information may result in civil monetary penalties.   See “Business – Fraud and Abuse Laws - Anti-Kickback Statutes and Federal False Claims Act.”
 
If we fail to comply with federal or state anti-kickback laws, we could be subject to criminal and civil penalties, loss of licenses and exclusion from Medicare, Medicaid and other federal and state healthcare programs, which could have a material adverse effect on our business, financial condition and results of operations.
 
Section 1128B(b) of the Social Security Act, or the SSA, commonly referred to as the “Anti-Kickback Statute,” prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or services payable by the Medicare and Medicaid programs or any other federally funded healthcare program. The Anti-Kickback Statute is very broad in scope, and many of its provisions have not been uniformly or definitively interpreted by courts or regulations.
 
We have arrangements with surgeons, hospitals and other entities which may be subject to scrutiny. For example, we have consulting agreements with spine surgeons and neurosurgeons using or considering the use of our present and future Renaissance system, for assistance in product development, and professional training and education, among other things. Payment for some of these consulting services has been in the form of stock options rather than per hour or per diem amounts that would require verification of time worked. We may continue in the future to make payment for these consulting services in the form of royalties or also possibly in the form of part-time employment.   In addition, various agencies may view these arrangements with our customers, including the provision of marketing grants to customers for the purposes of training surgeons and the provision of accessories at no charge or discounted prices with the purchase of our Renaissance system as not fully complying with federal and state fraud and abuse laws. To the extent we are found to not be in compliance, we could face potentially significant fines and penalties in addition to other more significant sanctions and we may be required to restructure our operations.
 
 
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Violations of the Anti-Kickback Statute and similar state laws may result in significant fines, imprisonment and exclusion from the Medicare, Medicaid and other federal or state healthcare programs. Such fines and exclusion could have a material adverse effect on our business, financial condition and results of operations. While we believe that our arrangements with physician consultants in product development and product training and education do not violate the law, there can be no assurance that federal or state regulatory authorities will not challenge these arrangements under anti-kickback laws.  See “Business – Fraud and Abuse Laws - Anti-Kickback Statutes and Federal False Claims Act.”
 
  The orthopedic medical device industry is, and in recent years has been, under heightened scrutiny.
 
The orthopedic medical device industry is, and in recent years 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, specifically including arrangements with physician consultants.
 
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, including the FCPA, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Any penalties, damages, fines, exclusions, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If the surgeons or other providers or entities with whom we do business are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on our business.

Risks Relating Primarily to Our Location in Israel
 
Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely affected by military instability in Israel.

Our executive offices are located in Israel. In addition, the majority of our officers and directors are residents of Israel. Accordingly, geopolitical and/or military conditions in Israel and its region may directly or indirectly 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 countries. 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. During November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of northern Israel, including areas in which our employees and consultants are located, and negatively affected business conditions in Israel. An escalation in tension and violence between Israel and the militant Hamas movement (which controls the Gaza Strip) and other Palestinian Arab groups, culminated with Israel’s military campaign in Gaza in December 2008 and again in November 2012 in an endeavor to prevent continued rocket attacks against Israel’s southern towns. In addition, Israel faces threats from more distant neighbors, in particular, Iran, an ally of Hezbollah and Hamas.  The United States has threatened Syria, another ally of Iran, with military action and there is a risk that as a result of such military confrontation, Israel will be attacked.

Popular uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries.  Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously limit our ability to sell our products to customers in those countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease and adversely affect the share price of publicly traded companies having operations in Israel, such as us. Similarly, Israeli corporations are limited in conducting business with entities from several countries. For example, in 2008, the Israeli legislator provided a law forbidding any investments in entities that transact business with Iran.
 
 
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Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business have sometimes declined 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.
 
Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business.

Our operations may be disrupted as a result of the obligation of management or key personnel to perform military service.

Our male employees and consultants in Israel, including members of our senior management, may be obligated to perform up to one month, and in some cases longer periods, of annual military reserve duty until they reach the age of 45 (or older, for citizens who hold certain positions in the Israeli armed forces reserves), and, in the event of a military conflict, may be called to active duty. 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, employees and consultants. Such disruption could materially adversely affect our business and operations.
 
Exchange rate fluctuations between the U.S. dollar and the NIS currencies may negatively affect our earnings.
 
We incur expenses both in U.S. dollars and NIS, but our financial statements are denominated in U.S. dollars.  As a result, we are exposed to the risks that the NIS may appreciate relative to the U.S. dollar, or the NIS instead devalues relative to the U.S. dollar, and the inflation rate in Israel may exceed such rate of devaluation of the NIS, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the U.S. dollar cost of our operations in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the NIS against the U.S. dollar.

Our operations also could be adversely affected if we are unable to effectively hedge against currency fluctuations in the future. We engage in currency hedging activities. These measures, however, may not adequately protect us from material adverse effects due to the impact of inflation in Israel or from fluctuations in the relative values of the dollar and foreign currencies in which we transact business, and may result in a financial loss. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this prospectus.
 
We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

                 We enter into assignment of invention agreements with our employees pursuant to which such individuals agree to assign to us all rights to any inventions created in the scope of their employment or engagement with us.  A significant portion of our intellectual property has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law,  inventions conceived by an employee during the scope of his or her employment with a company are regarded as "service inventions," which belong to the employer, absent a specific agreement between employee and employer giving the employee service invention rights.  The Patent Law also provides that if there is no such agreement between an employer and an employee 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 their inventions.  Recent decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this Committee-enforced remuneration.  Although our employees have agreed to assign to us rights, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and/or former employees, or be forced to litigate such claims, which could otherwise negatively affect our business.

We receive significant tax benefits in Israel that may be reduced or eliminated in the future.
 
Our investment program in Israel has been granted “beneficiary enterprise” status and we are therefore eligible for significant tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959.
 
For example, we are exempt from corporate tax for a period of two years and are subject to a reduced corporate tax rate of between 10% and 25% for the remainder of the benefits period, depending on the level of foreign investment in our company in each year.

In order to remain eligible for the tax benefits of an Approved Enterprise and Beneficiary Enterprise, we must continue to meet certain conditions stipulated in the Investment Law and its regulations. If we do not meet these requirements, we may not be eligible to receive tax benefits and we could be required to refund any tax benefits that we may receive in the future, in whole or in part, with interest. Further, the tax benefits available under the Investment Law may be terminated or reduced in the future. If these tax benefits are terminated, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The standard corporate tax rate for Israeli companies in 2013 is 25% and as of January 1, 2014 it will be 26.5%. See “United States and Israeli Income Tax Considerations.”

 
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Additionally, if we increase our activities outside of Israel (for example, through acquisitions) our expanded activities might not be eligible for inclusion in future Israeli tax benefit programs. Finally, in the event of a distribution of a dividend from the income that will be tax exempt under the Investment Law, in addition to withholding tax at a rate of 15% (or a reduced rate under an applicable double tax treaty) we will be subject to tax at the corporate tax rate applicable to our Approved Enterprise’s and Beneficiary Enterprise’s income on the amount distributed in accordance with the reduced corporate tax applicable to such profits. See “United States and Israeli Income Tax Considerations.”
 
Government authorities may question our tax positions or transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.
 
We conduct operations with our Subsidiary pursuant to transfer pricing arrangements. Transfer prices are prices that one company in a group of related companies charges to another member of the group for goods, services or the use of property. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arms' length and that contemporaneous documentation is maintained to support the transfer prices. While we believe we have proper transfer pricing arrangements, our transfer pricing procedures are not binding on applicable tax authorities. Tax laws are continually changing and are subject to the interpretation of government agencies, which from time to time review and audit our business in the jurisdictions in which we conduct business throughout the world. If regulators challenge our tax positions, corporate structure, transfer pricing arrangements or intercompany transfers, we may be subject to fines and payment of back taxes, our effective tax rate may increase and our financial condition, results of operations and cash flow could be materially adversely affected.
 
In the past, we received Israeli government grants for certain of our research and development activities. The terms of those grants may require us, in addition to payment of royalties, to satisfy specified conditions in order to manufacture products and transfer technologies outside of Israel. We may be required to pay penalties in addition to repayment of the grants.

Our research and development efforts, during the period between 2003 through 2010 were financed in part through royalty-bearing grants, in an amount of $1.3 million that we received from the OCS. With respect to such grants we are committed to pay royalties at a rate of 3% to 3.5% on sales proceeds up to the total amount of grants received, linked to the dollar and bearing interest at an annual rate of LIBOR applicable to dollar deposits. Even after payment in full of these amounts we will still be required to comply with the requirements of the Israeli Encouragement of Industrial Research and Development Law, 1984, or the R&D Law, and related regulations, with respect to those past grants. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the R&D Law restrict the transfer outside of Israel of such know-how, and the manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the OCS. Therefore, if aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of know how or manufacturing or manufacturing rights related to those aspects of such technologies. Furthermore, the OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development out of Israel or may not grant such approvals at all.

The transfer of OCS-supported technology or know-how outside of Israel may involve the payment of significant amounts, depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and other factors. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.

Provisions of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a change of control, even when the terms of such a transaction are favorable to us and our shareholders.

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company's issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company's outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.
 
 
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Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to a shareholder whose country of residence does not have a tax treaty with Israel exempting such shareholder from Israeli tax.  For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.

These and other similar provisions could delay, prevent or impede an acquisition of us or our merger with another company, even if such an acquisition or merger would be beneficial to us or to our shareholders.
 
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 U.S., to assert United States securities laws claims in Israel or to serve process on our officers and directors and these experts.

We were incorporated in Israel. Substantially all of our executive officers and directors currently reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. 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 effect 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, it may be impossible to collect any damages awarded by either a U.S. or foreign court.

The rights and responsibilities of a shareholder will be governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.

The rights and responsibilities of the holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-registered corporations. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the company and other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our Ordinary Shares that are not typically imposed on shareholders of U.S. corporations.
 
Risks Related to an Investment in ADSs and this Offering
 
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 our Ordinary Shares or ADSs if we are or were to become a PFIC.
 
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. We believe that we will not be a PFIC for our current taxable year and do not expect to become a PFIC in the foreseeable future. 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 our 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 our Ordinary Shares or ADSs, 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 our Ordinary Shares or ADSs by the U.S. taxpayer: (1) would be allocated ratably over the U.S. taxpayer’s holding period for the Ordinary Shares (or ADSs, as the case may be); (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 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 our Ordinary Shares or ADSs 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. Although we have no obligation to do so, we intend to notify U.S. taxpayers that hold our Ordinary Shares or ADSs 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 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 our Ordinary Shares or ADSs 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 our Ordinary Shares or ADSs in the event that we are a PFIC. See “United States and Israeli Tax Considerations—U.S. Federal Income Tax Considerations” for additional information.
 
 
33

 
The market prices of our Ordinary Shares and the ADSs are subject to fluctuation, which could result in substantial losses by our investors.
 
The stock market in general and the market prices of our Ordinary Shares on the TASE and the ADSs on NASDAQ, in particular, are subject to fluctuation, and changes in these prices may be unrelated to our operating performance. The market price of our Ordinary Shares and ADSs are subject to a number of factors, including:
 
 
 
·
announcements of technological innovations or new products by us or others;
 
 
 
·
announcements by us of significant acquisitions, strategic partnerships, in-licensing, out-licensing, joint ventures or capital commitments;
 
 
 
·
expiration or terminations of licenses, research contracts or other collaboration agreements;
 
 
 
·
public concern as to the safety of our equipment we sell;
 
 
 
·
general market conditions;
 
 
 
·
the volatility of market prices for shares of medical devices companies generally;
 
 
 
·
success or failure of research and development projects;
 
 
 
·
departure of key personnel;
 
 
 
·
developments concerning intellectual property rights or regulatory approvals;
 
 
 
·
developments concerning standard-of-care in spine;
 
 
 
·
variations in our and our competitors’ results of operations;
 
 
 
·
changes in revenues, gross profits and earnings announced by the company;
 
 
 
·
changes in estimates or recommendations by securities analysts, if our Ordinary Shares or the ADSs are covered by analysts;
 
 
 
 
·
changes in government regulations or patent decisions; and
 
 
 
·
general market conditions and other factors, including factors unrelated to our operating performance.

These factors may materially and adversely affect the market price of our Ordinary Shares and the ADSs and result in substantial losses by our investors.
 
 
34

 
If you purchase ADSs in this offering, you will suffer immediate dilution in the book value of your Ordinary Shares.

The offering price of the ADSs is substantially higher than the net tangible book value per share of our Ordinary Shares. Therefore, if you purchase ADSs 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 the offering price of $             per ADS, you will experience immediate dilution of $             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. In addition, purchasers of ADSs in this offering will have contributed approximately             % of the aggregate price paid by all purchasers of our Ordinary Shares but will own only approximately               % of our Ordinary Shares outstanding after this offering. See “Dilution.”

We do not know whether a market for the ADSs will be sustained or what the trading price of the ADSs will be and as a result it may be difficult for you to sell your ADSs

Although the ADSs now trade on NASDAQ, an active trading market for the ADSs may not be sustained. It may be difficult for you to sell your ADSs without depressing the market price for the ADSs or at all. As a result of these and other factors, you may not be able to sell your ADSs at or above the offering price or at all. Further, an inactive market may also impair our ability to raise capital by selling ADSs and Ordinary Shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using our Ordinary Shares as consideration.

Future sales of our Ordinary Shares or the ADSs could reduce the market price of our Ordinary Shares and the ADSs.
 
Substantial sales of our Ordinary Shares or the ADSs, either on the TASE or on NASDAQ, including in this offering, may cause the market price of our Ordinary Shares or ADSs to decline. All of our outstanding Ordinary Shares are registered and available for sale in Israel. Sales by us or our securityholders of substantial amounts of our Ordinary Shares or ADSs, or the perception that these sales may occur in the future, could cause a reduction in the market price of our Ordinary Shares or ADSs.
 
The issuance of any additional Ordinary Shares, any additional ADSs, or any securities that are exercisable for or convertible into our Ordinary Shares or ADSs, may have an adverse effect on the market price of our Ordinary Shares and the ADSs and will have a dilutive effect on our existing shareholders and holders of ADSs.

You may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive dividends or other distributions on our Ordinary Shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed under an applicable exemption from registration. In addition, conversion into U.S. dollars from foreign currency that was part of a dividend made in respect of deposited Ordinary Shares may require the approval or license of, or a filing with, any government or agency thereof, which may be unobtainable. In these cases, the depositary may determine not to distribute such property and hold it as “deposited securities” or may seek to effect a substitute dividend or distribution, including net cash proceeds from the sale of the dividends that the depositary deems an equitable and practicable substitute. We have no obligation to register under U.S. securities laws any ADSs, Ordinary Shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, Ordinary Shares, rights or anything else to holders of ADSs. In addition, the depositary may withhold from such dividends or distributions its fees and an amount on account of taxes or other governmental charges to the extent the depositary believes it is required to make such withholding. This means that you may not receive the same distributions or dividends as those we make to the holders of our Ordinary Shares, and, in some limited circumstances, you may not receive any value for such distributions or dividends if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company.

Holders of our ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Ordinary Shares in accordance with the provisions of the deposit agreement for the ADSs. Under Israeli law, the minimum notice period required to convene a shareholders meeting is no less than 35 or 21 calendar days, depending on the proposals on the agenda for the shareholders meeting. When a shareholder meeting is convened, holders of our ADSs may not receive sufficient notice of a shareholders’ meeting to permit them to withdraw their Ordinary Shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as a holder of ADSs, they will not be able to call a shareholders’ meeting .

 
35

 
Raising additional capital by issuing securities may cause dilution to existing shareholders.
 
We may need to raise substantial future capital to continue to complete commercialization of our products and the research and development and clinical and regulatory activities necessary to develop new products. Our future capital requirements will depend on many factors, including:
 
 
 
·
Our success in market penetration of our products;
 
 
 
·
The results of clinical studies;
 
 
 
·
Our ability to obtain regulatory approvals for our products in the United States and in international markets;
 
 
 
·
The cost, timing and outcome of regulatory review;
 
 
 
·
The cost of developing new products;
 
 
 
·
The cost of market penetration and expansion;
 
 
 
·
The costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our issued patents and defending intellectual property-related claims;
 
 
 
 
·
The extent to which we acquire or invest in businesses, products or technologies and other strategic relationships; and
 
 
 
·
The costs of financing working capital requirements.

If we raise additional funds by issuing equity or convertible debt securities, we will reduce the percentage ownership of our then-existing shareholders, and these securities may have rights, preferences or privileges senior to those of our existing shareholders.

Management will have broad discretion as to the use of the proceeds from this offering.

We have not determined the amount of net proceeds of this offering to be used specifically for the purposes described. As a result, 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.  Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds.

We do not intend to pay any cash dividends on our Ordinary Shares in the foreseeable future and, therefore, any return on your investment in our Ordinary Shares or the ADSs must come from increases in the value and trading price of our Ordinary Shares and the ADSs.

We have never declared or paid cash dividends on our Ordinary Shares and do not anticipate that we will pay any cash dividends on our Ordinary Shares in the foreseeable future, therefore, any return on your investment in our Ordinary Shares or the ADSs must come from increases in the value and trading price of our Ordinary Shares and the ADSs.

We intend to retain our earnings to finance the development and expenses of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our Ordinary Shares or ADSs less attractive if we rely on these exemptions. If some investors find our Ordinary Shares or ADSs less attractive as a result, there may be a less active trading market for our Ordinary Shares or the ADSs and the price of our Ordinary Shares or the ADSs may be more volatile.

 
36

 
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period is irrevocable.
 
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our Ordinary Shares and the ADSs will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our Ordinary Shares and the ADSs, the price of our Ordinary Shares and the ADSs would likely decline. In addition, if one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
 
Risks Associated with the NASDAQ Listing of the ADSs
 
Our Ordinary Shares and the ADSs will be traded on different markets and this may result in price variations.
 
Our Ordinary Shares have been traded on the TASE since August 2007.  The ADSs have been traded on NASDAQ since May 2013.  Trading in those securities on those markets takes place in different currencies (dollars on NASDAQ and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our securities on these two markets may differ due to these and other factors. Any decrease in the price of our securities on one of these markets could cause a decrease in the trading price of our securities on the other market.
 
We will incur additional increased costs as a result of the listing of the ADSs for trading on NASDAQ, and our management will be required to devote substantial time to new compliance initiatives and reporting requirements.
 
As a public company in the United States, we will incur additional significant accounting, legal and other expenses as a result of the listing of the ADSs on NASDAQ in May 2013.  These include costs associated with corporate governance requirements of the SEC and the Marketplace Rules of NASDAQ, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations have increased our legal and financial compliance costs, introduced new costs such as investor relations, stock exchange listing fees and shareholder reporting, and made some activities more time consuming and costly.  Any future changes in the laws and regulations affecting public companies in the United States and Israel, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the rules of NASDAQ, as well as applicable Israeli reporting requirements, 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.
 
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic issuers.
 
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under the rules of NASDAQ for domestic issuers. For instance, we may follow home country practice in Israel with regard to, among other things, composition of the board of directors, director nomination procedure, approval of compensation of officers, and quorum at shareholders’ meetings. In addition, we will expect to follow our home country law, instead of the rules of NASDAQ, which require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.  Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on NASDAQ may provide less protection than is accorded to investors under the rules of NASDAQ applicable to domestic issuers.
 
 
37

 
In addition, as a foreign private issuer, we are exempt from the rules and regulations under the Exchange Act, related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
 
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a "foreign private issuer," as such term is defined in Rule 405 under the Securities Act, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under Rule 405, 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, 2014.

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. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the U.S. Securities and Exchange Commission, or the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the SEC forms applicable to foreign private issuers permit them to disclose compensation information on an aggregate basis if executive compensation disclosure on an individual basis is not required or otherwise has not been provided in the issuer's home jurisdiction. We disclose individual compensation information, but this disclosure is not as comprehensive as that required of U.S. domestic issuers since we are not required to disclose more detailed information in Israel.  We intend to continue this practice as long as it is permitted under the SEC’s rules and Israel’s rules do not require more detailed disclosure. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with U.S. domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. 
 
If we are unable to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act as they apply to a foreign private issuer that is listing on a U.S. exchange for the first time, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned and the price of our Ordinary Shares and the ADSs may suffer.
 
Section 404 of the Sarbanes-Oxley Act requires a company subject to the reporting requirements of the U.S. securities laws to do a comprehensive evaluation of its and its subsidiaries’ internal control over financial reporting. To comply with this statute, we will be required to document and test our internal control procedures; our management will be required to assess and issue a report concerning our internal control over financial reporting. In addition, our independent registered public accounting firm may be required to issue an opinion on the effectiveness of our internal control over financial reporting at a later date.
 
The continuous process of strengthening our internal controls and complying with Section 404 is complicated and time-consuming. Furthermore, as our business continues to grow both domestically and internationally, our internal controls will become more complex and will require significantly more resources and attention to ensure our internal controls remain effective overall. During the course of its testing, our management may identify material weaknesses or significant deficiencies, which may not be remedied in a timely manner. If our management cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm identifies material weaknesses in our internal control, investor confidence in our financial results may weaken, and the market price of our securities may suffer.
 
 
38

 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
    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,” “project,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.
 
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, statements relating to the research, development and use of our products, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
 
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

Important factors that could cause actual results, developments and business decisions to differ materially from those anticipated in these forward-looking statements include, among other things:
 
 
 
·
the overall global economic environment;
 
 
 
·
the impact of competition and new technologies;
 
 
 
 
·
general market, political and economic conditions in the countries in which we operate;
 
 
 
·
projected capital expenditures and liquidity;
 
 
 
·
changes in our strategy;
 
 
 
·
government regulations and approvals;
 
 
 
 
·
changes in customers’ budgeting priorities;
 
 
 
 
·
litigation and regulatory proceedings; and
 
 
·
those factors referred to in “Risk Factors,” “Business,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this prospectus generally.
 
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.
 
 
39

 
 
PRICE RANGE OF OUR ORDINARY SHARES

Our Ordinary Shares have been trading on the TASE under the symbol "MZOR" since August 2007.
 
The following table sets forth, for the periods indicated, the reported high and low closing sale prices of our Ordinary Shares on the TASE in NIS and U.S. dollars. U.S. dollar per Ordinary Share amounts are calculated using the U.S. dollar representative rate of exchange on the date to which the high or low market price is applicable, as reported by the Bank of Israel.
 
   
NIS
   
U.S.$
 
   
Price per Ordinary Share
   
Price per Ordinary Share
 
                         
   
High
   
Low
   
High
   
Low
 
                         
Annual:
                       
                         
2012                                                                    
    9.00       3.46       2.38       0.88  
2011                                                                    
    10.80       2.82       2.99       0.76  
2010                                                                    
   
12.00
      7.29       3.18       1.93  
2009                                                                    
    10.06       4.33       2.57       1.04  
2008                                                                    
    10.76       5.75       2.85       1.49  
                                 
Quarterly:                                                                    
                               
                                 
Third Quarter 2013 (through September 18, 2013)
    30.32       21.01       8.41       5.88  
Second Quarter 2013
    26.97       14.85       7.48       4.10  
First Quarter 2013                                                               
    15.59       8.28       4.27       2.21  
Fourth Quarter 2012                                                               
    9.00       5.89       2.38       1.51  
Third Quarter 2012                                                                    
    5.85       4.08       1.49       1.03  
Second Quarter 2012                                                               
    4.67       3.46       1.24       0.88  
First Quarter 2012                                                                    
    4.38       3.55       1.14       0.95  
Fourth Quarter 2011                                                               
    5.07       3.53       1.41       0.95  
Third Quarter 2011                                                                    
    8.06       2.82       2.34       0.76  
Second Quarter 2011                                                               
    9.96       7.41       2.87       2.12  
First Quarter 2011                                                                    
    10.8       9.18       2.98       2.58  
                                 
Most Recent Six Months:
                               
September 2013 (through September 18, 2013)
    30.32       26.39       8.41       7.30  
Aug-13
    27.40       24.50       7.60       6.91  
Jul-13
    26.70       21.01       7.35       5.88  
Jun-13
    26.97       19.54       7.48       5.35  
May-13
    19.90       16.90       5.39       4.73  
Apr-13
    18.50       14.85       5.11       4.10  
Mar-13
    15.59       10.80       4.27       2.91  
 
 
40

 
 
    PRICE RANGE OF THE ADSs
 
The ADSs have been trading on NASDAQ under the symbol "MZOR" since May 2013.

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of the ADSs on NASDAQ in U.S. dollars.
 
   
U.S.$
 
   
Price Per
 
   
ADSs
 
   
High
 
Low
 
             
Quarterly:                                                                    
           
             
Third Quarter 2013 (through September 18, 2013)
   
16.78
     
11.76
 
Second Quarter 2013 (since May 28, 2013)
   
15.01
     
10.40
 
                 
Most Recent Six Months:
               
September 2013 (through September 18, 2013)
   
16.78
     
15.10
 
Aug-13
   
15.56
     
13.83
 
Jul-13
   
14.20
     
11.76
 
Jun-13
   
15.01
     
10.90
 
May 2013 (since May 28, 2013)
   
11.44
     
10.40
 

 
41

 
USE OF PROCEEDS
 
We estimate that our net proceeds from the this offering will be approximately $             million, assuming a public offering price of $          per ADS, the last reported sale price of the ADSs on NASDAQ on             , 2013, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional ADSs in full, we estimate that we will receive additional net proceeds of approximately $              million. A $1.00 increase (decrease) in the assumed public offering price of $    per ADS would increase (decrease) our net proceeds from this offering by approximately $    million, assuming that the number of ADSs 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 and estimated offering expenses. We may also increase or decrease the number of ADSs we are offering.  An increase of                   ADSs in the number of ADSs offered by us, together with a concomitant $1.00 increase in the assumed public offering price of $                  per ADS would increase the net proceeds to us from this offering by approximately $                  million after deducting estimated underwriting discounts and estimated offering expenses payable by us.  Conversely, a decrease of                  ADSs in the number of ADSs offered by us together with a concomitant $1.00 decrease in the assumed public offering price of $                  per ADS would decrease the net proceeds to us from this offering by approximately $                  million after deducting estimated underwriting discounts and estimated offering expenses payable by us.
 
The principal purpose for this offering is to increase our capital resources that will support our continued growth and increase our and our Renaissance system’s awareness in the marketplace.

We intend to use the net proceeds from this offering for our operations and for other general corporate purposes, including, but not limited to, working capital, intellectual property protection and enforcement, capital expenditures, investments, acquisitions or collaborations, research and development and product development.  We have not determined the amount of net proceeds to be used specifically for each of the foregoing purposes and the amounts and timing our actual expenditures may vary significantly depending on numerous factors.  As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.  We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds.

Pending use of the net proceeds, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, investment-grade, interest-bearing instruments.
 
 
42

 


We have never declared or paid cash dividends on our Ordinary Shares and do not anticipate that we will pay any cash dividends on our Ordinary Shares in the foreseeable future.
 
We intend to retain our earnings to finance the development and expenses of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Israeli law and other factors our board of directors may deem relevant. Accordingly, we have not appointed any paying agent.

Pursuant to our articles of association, dividends may be declared by our board of directors. Dividends must be paid out of our profits and other surplus funds, as defined in the Companies Law, as of the end of the most recent year or as accrued over a period of the most recent two years, whichever amount is greater, provided that there is no reasonable concern that payment of a dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In addition, because we have received certain benefits under the Israeli law relating to approved enterprises and privileged enterprises, our payment of dividends may subject us to certain Israeli taxes to which we would not otherwise be subject. In the event that we declare cash dividends, we may pay those dividends in NIS. See “Risk Factors— Risks Related to an Investment in ADSs and this Offering—We do not intend to pay any cash dividends on our Ordinary Shares in the foreseeable future and, therefore, any return on your investment in our Ordinary Shares or the ADSs must come from increases in the value and trading price of our Ordinary Shares and the ADSs.”
 
 
43

 

CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2013:

 
·
on an actual basis; and
 
 
·
on an as adjusted basis to give effect to the sale of          ADSs in this offering at an assumed public offering price of $      per ADS, the last reported sale price of the ADSs on NASDAQ on             , 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale of the ADSs had occurred on June 30, 2013.
 
    You should read this table in conjunction with the sections titled “Selected 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, 2013
 
  (in thousands)
 
Actual
   
As Adjusted   (1)
 
             
Cash and cash equivalents
 
$
18,332
   
$
   
                 
Liabilities to the OCS
 
$
672
   
$
   
Total liabilities
   
672
         
Shareholders' equity:
               
Share capital                                                                                                                   
   
80
         
Share premium                                                                                                                   
   
70,968
         
Amounts allocated to share options                                                                              
   
9,833
         
Capital reserve for share-based payment transactions                                                     
   
3,330
         
Foreign currency translation reserve                                                                                
   
2,119
         
Accumulated loss                                                                                                    
   
(66,975
)
       
Total shareholders’ equity                               
   
19,355
         
Total capitalization
 
$
20,027
   
$
   
 
(1)
As Adjusted column reflects the repayment in August 2013 of $390,625 to OCS to satisfy certain obligations.  In addition, the As Adjusted column reflects the following equity transactions that have occurred since June 30, 2013:
 
 
(a)
An issuance of 2,664,667 Ordinary Shares in connection with the exercise of warrants issued in September 2012. Total aggregate consideration received for these issuances was approximately $4,000,000.

 
(b)
An issuance of 68,600 Ordinary Shares in connection with the exercise of stock options. Total aggregate consideration received for these issuances was approximately NIS 510,000 (approximately $143,000).

 
(c)
The issuance of 800,000 of our Ordinary Shares in connection with the exercise of warrants issued in a private placement in February 2011. Total aggregate consideration received for these issuances was approximately $3,086,000.
 
(2)
A $1.00 increase (decrease) in the assumed public offering price of $         per ADS, which is the last reported sale price of the ADS on NASDAQ on           , 2013, would increase (decrease) the as adjusted amount of each of cash and cash equivalents and total shareholders' equity by approximately $           million, assuming that the number of ADS 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                 -ADS increase in the number of ADSs offered by us together with a concomitant $1.00 increase in the assumed public offering price of $                 per ADS would increase our as adjusted cash and cash equivalents by approximately $                 million after deducting estimated underwriting discounts and estimated offering expenses payable by us.  Conversely, a                 -ADS decrease in the number of ADSs offered by us together with a concomitant $1.00 decrease in the assumed public offering price of $                 per ADS would decrease our as adjusted cash and cash equivalents by approximately $                 million after deducting estimated underwriting discounts and estimated offering expenses payable by us.
 
 
44

 
 
 
The selected consolidated financial data for the fiscal years set forth in the table below have been derived from our consolidated financial statements and notes thereto. The selected consolidated statement of operations data for the fiscal years ended December 31, 2012, 2011 and 2010, and the selected consolidated balance sheet data as of December 31, 2012 and 2011, have been derived from our audited consolidated financial statements and notes thereto set forth elsewhere in this prospectus. The selected consolidated statement of operations data for fiscal year ended December 31, 2009, and the selected consolidated balance sheet data as of December 31, 2010 have been derived from other audited consolidated financial statements not included herein. The selected consolidated statement of operations data for year ended December 31, fiscal year 2008, and the selected consolidated balance sheet data as of December 31, 2009 and 2008 have been derived from other unaudited consolidated financial statements not included herein. We derived the selected consolidated financial data as of and for the six months ended June 30, 2013 and June 30, 2012 from our unaudited consolidated financial statements included elsewhere in this prospectus.  The selected consolidated financial data should be read in conjunction with our consolidated financial statements, and are qualified entirely by reference to such consolidated financial statements, and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.  Additionally, and as explained in Note 2B to the December 31, 2012 consolidated financial statements, the Company determined that its functional currency had changed in September 2012 from NIS to U.S. dollars.  Our historical results are not necessarily indicative of results to be expected for future periods.
 
(in thousands except net loss per share data)
 
Years Ended
December 31,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2010
   
2009
   
2008
   
2013
   
2012
 
Statements of Operations Data
                                         
Revenue
 
$
12,175
   
$
5,904
   
$
3,973
   
$
1,363
   
$
584
   
$
11,150
   
$
5,350
 
Cost of sales
 
$
2,893
   
$
1,879
   
$
961
   
$
473
   
$
438
   
$
2,216
   
$
1,340
 
Gross profit
   
9,282
     
4,025
     
3,012
     
890
     
146
     
8,934
     
4,010
 
Operating costs and expenses:
                                                       
Research and development, net
 
$
2,760
   
$
3,062
   
$
2,292
   
$
1,382
   
$
1,936
   
$
1,915
   
$
1,262
 
Selling and Marketing
 
$
8,887
   
$
6,990
   
$
4,592
   
$
2,461
   
$
2,615
   
$
7,121
   
$
4,134
 
General and administrative
 
$
1,845
   
$
1,639
   
$
1,424
   
$
1,184
   
$
1,456
   
$
1,235
   
$
899
 
Total operating costs and expenses
 
$
13,492
   
$
11,691
   
$
8,308
   
$
5,027
   
$
6,007
   
$
10,271
   
$
6,295
 
Loss from operations
 
$
(4,210
)
 
$
(7,666
)
 
$
(5,296
)
 
$
(4,137
)
 
$
(5,861
)
 
$
(1,337
)
 
$
(2,285
)
Net loss
 
$
(7,064
)