UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
MARK
ONE:
[X] |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Fiscal Year ended December 31, 2014 |
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION
FILE NUMBER: 0-11772
SPO
GLOBAL INC.
(Name
of registrant as specified in its chapter)
Delaware |
11-3223672 |
(State
or Other Jurisdiction of Incorporation) |
(IRS
Employer Identification No.) |
3
Gavish Street, POB 2454, Kfar Saba, Israel
(Address
of Principal Executive Offices)
9-966-2520
(Registrant's
telephone number, including area code)
Securities
Registered Pursuant to Section 12(b) of the Exchange Act: None
Securities
Registered Pursuant to Section 12(g) of the Exchange Act: $0.01 par value common stock
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 Regulation S-T (232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and
no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "accelerated filer”, “large accelerated filer" and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [_] |
|
Accelerated
filer [_] |
|
|
|
Non-accelerated
filer [_] (Do not check if a smaller reporting company) |
Smaller reporting
company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes [ ]
No [ X ]
The
registrant had 7,039,679 shares of common stock outstanding as of April 14, 2015. The aggregate market value of the
voting and non-voting common stock held by non-affiliates of the registrant, computed by reference to the closing price of such
common stock on the OTC Market on June 30, 2014, was approximately $118,000.
SPO
GLOBAL INC.
2014
FORM 10-K ANNUAL REPORT
TABLE
OF CONTENTS
PART
I |
Item
1 |
Business |
3 |
Item
1A |
Risk
Factors |
9 |
Item
1B |
Unresolved
Staff Comments |
16 |
Item
2 |
Properties |
16 |
Item
3 |
Legal
Proceedings |
17 |
Item
4 |
Mine
Safety Disclosures |
17 |
|
|
|
PART
II |
Item
5 |
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
17 |
Item 6 |
Selected Financial
Data |
18 |
Item
7 |
Management's
Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item
7A |
Quantitative
and Qualitative Disclosures about Market Risk |
21 |
Item
8 |
Financial
Statements and Supplementary Data |
21 |
Item
9 |
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure |
21 |
Item 9A |
Controls
and Procedures |
21 |
Item
9B |
Other
Information |
22 |
|
|
|
PART
III |
Item
10 |
Directors,
Executive Officer and Corporate Governance |
22 |
Item
11 |
Executive
Compensation |
24 |
Item
12 |
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
26 |
Item
13 |
Certain
Relationships and Related Transactions and Director Independence |
27 |
Item
14 |
Principal
Accounting Fees and Services |
28 |
|
|
|
PART
IV |
Item
15 |
Exhibits,
Financial Statement Schedules |
29 |
FORWARD
LOOKING STATEMENTS
THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS
FORM 10-K. CERTAIN STATEMENTS MADE IN THIS DISCUSSION ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECTS," "INTENDS," "ANTICIPATES," "BELIEVES,"
"ESTIMATES," "PREDICTS," OR "CONTINUE" OR THE NEGATIVE OF THESE TERMS OR OTHER COMPARABLE TERMINOLOGY
AND INCLUDE, WITHOUT LIMITATION, STATEMENTS BELOW REGARDING: THE COMPANY’S ABILITY TO CONTINUE AS A GOING CONCERN; THE COMPANY'S
BUSINESS PLANS; TIMING OF PLANNED PRODUCT ROLLOUTS; EXPECTATIONS AS TO PRODUCT PERFORMANCE; EXPECTATIONS AS TO MARKET ACCEPTANCE
OF THE COMPANY'S PRODUCTS; AND BELIEF AS TO THE SUFFICIENCY OF CASH RESERVES. BECAUSE FORWARD-LOOKING STATEMENTS INVOLVE RISKS
AND UNCERTAINTIES, THERE ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE COMPANY’S ABILITY TO CONTINUE AS
A GOING CONCERN, THE COMPANY'S ABILITY TO OBTAIN NECESSARY FINANCING; SUFFICIENCY OF CASH RESERVES; SUCCESS OF RESTRUCTURED OPERATIONS;
ORDER BACKLOG RESULTING IN REVENUES; THE COMPETITIVE ENVIRONMENT GENERALLY AND IN THE COMPANY'S SPECIFIC MARKET AREAS; CHANGES
IN TECHNOLOGY; THE AVAILABILITY OF AND THE TERMS OF FINANCING; INFLATION; CHANGES IN COSTS AND AVAILABILITY OF GOODS AND SERVICES;
ECONOMIC CONDITIONS IN GENERAL AND IN THE COMPANY'S SPECIFIC MARKET AREAS; DEMOGRAPHIC CHANGES; CHANGES IN FEDERAL, STATE AND
/OR LOCAL GOVERNMENT LAW AND REGULATIONS AFFECTING THE TECHNOLOGY; CHANGES IN OPERATING STRATEGY OR DEVELOPMENT PLANS; AND THE
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL. ALTHOUGH THE COMPANY BELIEVES THAT EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CANNOT GUARANTEE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER THE COMPANY NOR
ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THESE FORWARD-LOOKING STATEMENTS. THE COMPANY IS
UNDER NO DUTY TO UPDATE ANY FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS REPORT TO CONFORM SUCH STATEMENTS TO ACTUAL RESULTS.
PART
I
ITEM
1. BUSINESS
Overview
SPO
Global Inc. (“we” or the “Company”) is engaged in the design, development and marketing of
non-invasive pulse oximetry technologies to measure blood oxygen saturation and heart rate. We have developed and patented
proprietary technology that enables the measurement of heart rate and oxygen saturation levels in the blood, which is known
as Reflectance Pulse Oximetry (RPO). Using RPO, a sensor can be positioned on various body parts, hence minimizing problems
from motion artifacts and poor perfusion. The unique design features contribute to substantially lower power requirements and
enhance wireless, stand-alone configurations facilitating expanded commercial possibilities. As of April 2015, we held 12
patents issued by the United States Patent and Trademark Office ("USPTO") covering various aspects of our
technologies. As further discussed below, our technologies are currently applied to products that are designed for use by in
the homecare, general wellness, sports, safety and search and rescue markets.
We
are primarily engaged in developing, manufacturing and licensing our technology to third parties for integration with products
in the general wellness, recreational, baby monitoring and sports monitoring fields. We pursue joint ventures through strategic
market partners, OEM type arrangements, research and or subcontracting agreements relating to our oximetry technology with respect
to the general wellness, recreational, baby monitoring and sports monitoring fields. Since August 2012, we have partnered with
HoMedics LLC, a distributor and manufacturer of leading brands in an array of consumer health, wellness and electronic
lifestyle categories throughout the Americas, Europe, the Asia-Pacific region, Africa and the Middle-East, for the distribution
of a private labeled, over the counter pulse oximeter for non-medial consumer wellness applications.
We
need to raise additional funds on an immediate basis in order to meet our on-going operating requirements, pay outstanding loans
in the aggregate approximate amount of $2,185,000 and to realize our restructured business plan. If we are unable to generate
cash flow or raise capital, it may be necessary for us to cease operations entirely. No assurance can be given that we will be
able to raise the needed capital. These conditions raise substantial doubt about our ability to continue as a going concern.
Background
of Pulse Oximetry
Pulse
oximetry is an important non-invasive process used both to measure blood oxygen saturation levels (SpO2) by monitoring the percentage
of hemoglobin that is saturated with oxygen and to measure heart rate. This procedure has been used regularly in hospitals during
the past twenty years and is established as an essential measurement in medical practice to ensure maintenance of adequate oxygen
and prevention of respiratory difficulty. In many disease states, oxygen saturation is one of the most important vital signs to
monitor.
There
are two methods to measure pulse oximetry by transmission through a body part or by reflection. In general, the transmission method
can only be used on certain areas of the body, such as fingers, earlobes, etc. Furthermore, in some instances when the transmission
method is used, physiological conditions such as stress and temperature can adversely affect the accuracy of pulse oximetry readings.
Since
pulse oximetry measurements taken on-site in an emergency, at local medical practices, and/or in home care can save lives and
curtail intervention costs, mobile units have been developed. However, mobile oximetry units have not been widely adopted because
their power requirements (and hence limited battery life) often make them impractical. In addition, existing mobile units require
patients to remain absolutely stationary to produce reliable results, further reducing their practicality.
Our
solution
Responding
to the need for life-saving information in the field where people cannot be absolutely stationary, we have developed patented
sensors that work accurately during mild physical activity. This technique uses a reflectance method (known as RPO) whereby a
very small sensor placed on the body at various locations has the ability to measure oxygen saturation and heart pulse rate. We
have incorporated our patented reflectance technology into portable devices for medical and consumer applications. Moreover, these
devices operate at a power requirement approximately 1/50th of that compared to other commercially available portable systems.
This puts pulse oximetry into the hands medical practitioners and emergency personnel on-site for the safety and benefit of all
and offers the opportunity to create new commercial and consumer applications.
We
intend to continue to leverage our core technologies to develop new, innovative product applications for the general
wellness, recreational, baby monitoring and sports monitoring markets. In furtherance of this goal, we intend to pursue joint
ventures, OEM type arrangements, and research and or sub-contractor agreements relating to our oximetry technology with
respect to these fields.
Products
We
are currently focused on exploiting the sports and wellness markets by developing cutting edge products based on our proprietary
technology. Our current wellness products include an innovative wellness watch, and an oximetry product for sports and recreational
use. In addition, we are currently working with partners for the development of a baby monitoring unit and a sports watch based
on our proprietary technology.
HoMedics
Deluxe Pulse Oximeter TM — this private-label branded product addresses the sports and general recreational markets and
is marketed under the HoMedics brand via drug-store retailer outlets. It offers the general consumer the ability to monitor vital
signs under motion for a variety of recreational purposes. The HoMedics Deluxe Pulse Oximeter TM was first introduced commercially
during the fourth quarter of 2012. The product accounts for the principal amount of our revenues in 2014.
Wellness
Watch; “Live Well by SHARP TM” — this branded label product is an easy-to-use time-piece that can be worn on
the hand to continually measure the number of activities and calories burned by an individual on a daily basis; this wellness
watch is marketed to the market for overweight adults and children. The watch features a display function to continuously measure
the number of daily activities against preset recommended goals. We have designed and patented the functionality of the watch
to be an affordable, simple-to-use, fashion accessory to encourage users to increase their mobility and overall wellness and to
wear it with pride. The watch is commercially available through an exclusive agreement with MZB and Company Inc (a large private
time-piece manufacture) to manufacture and sell the product to department stores, mid-tier mass-market and food & drug stores
throughout North America. The agreement specifies that the MZB will finance all costs associated with bringing the wellness watch
to the marketplace. We and MZB have agreed to divide the profit margin from the sale of the wellness watch net of all manufacturing
related costs. The term of the agreement continues through December 2015. All intellectual property rights are retained by us.
Initial product revenues were recorded in 2014.
Baby
Movement Monitor — a monitor being designed and developed specifically for the use with infants. This unique monitor is
being designed for continual non-invasive monitoring of an infant particularly during the hours that the baby is sleeping. This
parental reassurance tool gives the company a technological competitive edge in providing an innovative, high performance solution
for a market application that is applicable to most family homes. Additionally, we are looking to expand the baby product offering
by introducing a forehead thermometer incorporating our RPO technology which will enable monitoring vital sign information of
babies and infants. Subject to raising significant funds and securing a partnership with an existing market player, of which no
assurances can be provided, we believe that these products could become commercially available during 2016.
Sports
Watch — a sports watch for monitoring hear rate for sports enthusiast to monitor their wellness while training or engaging
in sport activities without the requirement to wear a conventional chest strap or equivalent. This is achieved using proprietary
intellectual property developed by us to address problems associated with motion artifacts which are typical during sports and
recreational related activities. This is a major and unique practical advantage over current products that we believe exist in
the general leisure and wearable technology market. As importantly, the watch will be able to read the heart rate without
the sports enthusiast ceasing his physical activity. This will be made possible through the use of our patented RPO technology.
Subject to raising significant funds and securing a partnership with an existing market player, of which no assurances can be
provided, we anticipate that the product could become commercially available during 2016.
Our
research and development activities as well as product design activities are primarily conducted on an outsourcing basis.
The
following details the PulseOx medical product line that is commercially available under license in the medical field that utilizes
our unique pulse oximetry technology.
PulseOx
5500TM — a stand-alone commercial RPO spot check monitor for SpO2 and heart rate. The PulseOx 5500TM uses SPO patented technology
to provide a medical device that is easier to use for many patients and less expensive to operate than any other device that is
commercially available. Its main advantages include: (i) long lasting battery with more than 1,000 hours, using only a fraction
of the power used by competitive devices and (ii) resistance to many forms of motion, reducing its susceptibility to the motion
artifacts that are typical of other pulse oximetry devices. The PulseOx 5500 was launched commercially during the fourth quarter
of 2004. The device was approved and registered by the Food and Drug Administration ("FDA") in June 2004. The device
also carries the CE (European Directives 93/42/EEC and 90/385/EEC for regulatory and safety standards of medical equipment) and
Canadian Standards Association (CSA) mark for safety and audited manufacturing processes, all of which were obtained in February
2005.
Check
MateTM — addresses the sports and aviation market’s demand for a lightweight, inexpensive monitor for measuring
SpO2 and heart rate during physically active and high-altitude activities. It offers the user a greater ability to monitor
these vital signs under motion and is less expensive than most other available devices. The Check Mate was first introduced
commercially during third quarter of 2005. The Check Mate does not require FDA approval or registration. It carries the CE
and CSA mark for safety and audited manufacturing processes.
PulseOx
7500TM — a monitor for extended monitoring of SpO2 and heart rate by means of RPO. The monitor is being initially
marketed for pre screening of sleep apnea sufferers. Its main advantages include: (i) long lasting battery equivalent to a
month’s use of monitoring using only a fraction of the power used by competitive devices and hence a
lower cost of ownership and (ii) resistance to many forms of motion, reducing its susceptibility to the motion artifacts that
are typical of other similar pulse oximetry devices.
PulseOx
6000 TM — a professional stand-alone commercial RPO spot check monitor for SpO2 and heart rate. The PulseOx 6000TM uses
our patented technology to provide a medical device which is easier to use for many patients and less expensive to operate than
any other device that is commercially available. Its main advantages include: (i) long lasting battery with more than 500 hours,
using only a fraction of the power used by competitive devices and (ii) AutospotTM technology which compensates for resistance
to many forms of motion, thereby reducing its susceptibility to the motion artifacts that are typical of other pulse oximetry
devices and low perfusion experienced in certain patients. The PulseOx 600TM was first introduced commercially during the first
quarter of 2008. The device is approved and registered by the Food and Drug Administration ("FDA"). The device carries
the CE and CSA mark for safety and audited manufacturing processes.
PulseOx
6100 TM — a professional stand-alone hand held commercial RPO spot check monitor for SpO2 and heart rate. The PulseOx 6100TM
uses our patented technology to provide a medical device that is easier to use for many patients and less expensive to operate
than any other device that is commercially available. Its main advantages include: (i) long lasting battery with more than 200
hours, using only a fraction of the power used by competitive devices, (ii) AutospotTM technology which compensates for resistance
to many forms of motion reducing its susceptibility to the motion artifacts that are typical of other pulse oximetry devices and
low perfusion experienced in certain patients and (iii) flash memory for recording multiple patient readings. The PulseOx 6100TM
was first introduced commercially during the first quarter of 2008. The device carries the CE and CSA mark for safety and audited
manufacturing processes.
The
PulseOx product line is subject to various licenses and distribution agreements that we have granted pursuant to which we are
entitled to royalties from the PulseOx product line (whether distributed as a standalone or as part of bundled products). As of
December 31, 2014, we have generated to date revenues of $47,214 from one of these agreements which is currently in default due
to a failure of the licensee to pay a minimum annual royalty of $60,000. This agreement is now operating on a non-exclusive basis.
Business
Strategy
Our
mission is to build a profitable business via strategic partnership relationships that develops and commercializes our wellness
technology through consumer products that improve people's lives and provide reassurance of wellness and thereby increase stockholder
value
To
achieve our objectives, we are pursuing the following business strategies:
Increasing
growth potential by pursuing new market opportunities. Through our initial success in penetrating the medical device market
with our proprietary oximetry technology, we intend to diligently pursue other market opportunities that are seeking similar technological
solutions and product offerings as previously demonstrated and implemented by us. These include the recreational, sports and wellness
markets.
Partner
with highly qualified, focused companies, internationally. We intend to continue to seek out collaborative arrangements with
leading international distributors for our consumer products for which we have developed the prototypes, in preparation for technological
due diligence. We have identified a number of potential partners for these products, although there can be no assurance that we
will be able to enter into any such collaborative arrangement.
Research
and Development. Subject to raising additional capital, our research and development strategy in the near future will focus
on our consumer product lines to enable the Company to partner with client corporations for commercialization and distribution.
Suppliers
We
currently outsource industrial design, associated prototyping activities and product manufacturing. However, the outsourcing of
these operations may mean that some degree of risks related to delivery schedules, yields, and other factors are not directly
under our control.
Marketing
and Sales Organization
Following
the restructuring of our business operations in 2010, we are primarily engaged in managing research and development and design
activities on an outsourcing basis as well as business development activities with potential client corporations for commercialization
and distribution of our oximetry technology. We intend to pursue joint ventures, OEM type arrangement, research and or sub
contractor agreements relating to our oximetry technology with respect to the recreational, baby wellness and sports monitoring
fields. We anticipate that our prospective partners, if any, will take responsibility for manufacturing and sales/marketing of
their products that incorporate the oximetry technology component from us.
Since
August 2012, we have partnered with HoMedics LLC, a distributor and manufacturer of leading brands in an array of consumer
health, wellness and electronic lifestyle categories throughout the Americas, Europe, the Asia-Pacific region, Africa and the
Middle-East, for the distribution of a private labeled, over the counter pulse oximeter for non-medial consumer wellness applications.
Patents
and Proprietary Information
We
currently rely on a combination of patent, trade secret, copyright and trademark law, as well as non-disclosure agreements
and invention assignment agreements, to protect proprietary information. However, such methods may not afford complete
protection and there can be no assurance that other competitors will not independently develop such processes, concepts,
ideas and documentation. As of April 2015, we held twelve patents issued by the United States Patent and Trademark Office
("USPTO") covering various aspects of our unique sensors for radiance based diagnostics using pulse oximetry.
Although we believe that our existing issued patents provide a competitive advantage, there can be no assurance that the
scope of our patent protection is or will be adequate to protect our technologies or that the validity of any patent issued
will be upheld in the future.
Because
of the uncertainty of patent protection and the unavailability of patent protection for certain processes and techniques, our
policy is to require our employees, consultants, other advisors, as well as utility and design collaborators, to execute confidentiality
and assignment of invention agreements upon the commencement of employment, consulting or advisory relationships. These agreements
generally provide that all confidential information developed or made known to a party by us during the course of the party's
association with the Company is to be kept confidential and not to be disclosed to third parties except in specific circumstances.
In the case of employees and consultants, the agreements also provide that all inventions conceived by the individual in the course
of their employment or consulting relationship will be our exclusive property.
Employees
As
of April 2015, we had two employees working on a full time basis. None of these employees are subject to collective bargaining
agreements.
Competition
We
believe that most of the companies that possess oximetry technology are currently offering commercial solutions exclusively in
the medical or related market applications. We are not aware of specific entities that have a similar strategy as implemented
by the Company using their RPO technology to target sports, baby monitoring and general wellness markets with their oximetry technology
offerings. We further believe that the reflective oximetry nature of the Company’s technology is a limiting factor for other
entities to operate in non-medical or related market applications.
There
are number of companies, some of which are substantially larger than we are and with significantly more resources, that are
engaged in manufacturing competing products specifically in the medical market. Our competitors include Nonin Medical Inc. of
Plymouth, Minnesota, a privately owned company; and Smiths Medical PM Inc. of Waukesha, WI, which is the designer, manufacturer,
and distributor of the BCI(R) brand of patient monitoring equipment which competes with our products.
Within
the last few years several Chinese based medical device manufacturers extended their share of the homecare medical market and
have become direct competitors to a number of our medical products. Their pricing models have significantly impacted this market
and in particular under the current economic conditions being experienced across world wide markets.
Since
2013, several small development companies have been attempting to bring to market a baby monitoring system based on conventional
pulse oximetry and associated wellness sensors. The market presence of these new industry entrants could have an impact on this
growing market and in particular through increasing awareness of technology solutions for this consumer retail space.
Governmental
Regulations
The
manufacture and sale of the PulseOx products by our licensee are subject to extensive regulation by numerous governmental authorities,
principally by the FDA and corresponding foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act and the
regulations promulgated thereunder. The PulseOx 5500TM, PulseOx 60000TM, PulseOx 6100TM and PulseOx 7500TM are sold in the United
States and are subject to the FDA's standards and procedures for the manufacture of medical devices and our facilities are subject
to inspection by the FDA for compliance with such standards and procedures.
The
FDA classifies each medical device into one of three classes depending on the degree of risk associated with the device and
the extent of control needed to ensure safety and effectiveness. Our medical products have been classified by the FDA as
Class II device and have secured a 510(k) pre-market notification clearance before being introduced into the United States
market. For additional products, the process of obtaining 510(k) clearance typically takes several months and may involve the
submission of limited clinical data supporting assertions that the product is substantially equivalent to an already approved
device or to a device that was on the market before the enactment of the Medical Device Amendments of 1976.
Every
company that manufactures or assembles medical devices to be sold in the United States is required to register with the FDA and
adhere to certain "good manufacturing practices" in accordance with the FDA's Quality System Regulation which regulates
the manufacture of medical devices, prescribes record keeping procedures and provides for the routine inspection of facilities
for compliance with such regulations. The FDA also has broad regulatory powers in the areas of clinical testing, marketing and
advertising of medical devices.
Medical
device manufacturers are routinely subject to periodic inspections by the FDA. If the FDA believes that a company may not be operating
in compliance with applicable laws and regulations, it can:
|
• |
place
the company under observation and re-inspect the facilities; or issue a warning letter apprising of violating conduct; |
|
• |
detain
or seize products; |
|
• |
enjoin
future violations; and |
|
• |
assess
civil and criminal penalties against the company, its officers or its employees. |
We
are also subject to regulation in each of the foreign countries in which we sell our products. Many of the regulations applicable
to our products in such countries are similar to those of the FDA. The national health or social security organizations of certain
countries require our products to be qualified before they can be marketed in those countries.
AVAILABLE
INFORMATION
Our
Internet website is located at http://www.spoglobal.com. This reference to our Internet websites do not constitute incorporation
by reference in this report of the information contained on or hyperlinked from our Internet website and such information should
not be considered part of this report.
The
public may read and copy any materials we file with the Securities and Exchange Commission ("SEC") at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public
Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC. The SEC's Internet website
is located at http://www.sec.gov.
ITEM
1A. RISK FACTORS
The
following risk factors should be considered carefully in addition to the other information presented in this report. This report
contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to,
the following:
RISKS
RELATED TO OUR BUSINESS
WE
NEED ADDITIONAL FINANCING ON AN IMMEDIATE BASIS AND FAILURE TO OBTAIN ADEQUATE FINANCING COULD LEAD TO THE FINANCIAL AND OPERATING
FAILURE OF OUR COMPANY.
We
believe that our existing cash resources are insufficient to enable us to maintain operations as presently conducted and meet
our obligations as they come due, as well pay outstanding loans which are currently due and payable. Our currently existing cash
resources from sales will however enable us to maintain operations as presently conducted through September 30, 2015, so long
as we do not settle any of our loans that are scheduled to mature during the period. Unless we raise additional funds or generate
fees on an immediate basis, whether through the issuance of our securities, licensing fees for our technology or otherwise, we
will be required to scale back operations. If we are unsuccessful in these efforts, we may consequently have to cease operations
entirely. Without adequate funding, we also may not be able to accelerate the development and deployment of our products,
respond to competitive pressures and develop new or enhanced products. At the present time, we have no commitments for any financing,
and there can be no assurance that capital will be available to us on commercially acceptable terms or at all. We may have difficulty
obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our stockholders.
Any failure to achieve adequate funding will delay our development programs and product launches and could lead to abandonment
of one or more of our development initiatives, as well as prevent us from responding to competitive pressures or take advantage
of unanticipated acquisition opportunities. In addition to a number of outstanding amounts owed to suppliers and professional
service providers, as of December 31, 2014 we owed approximately $2,185,000 on outstanding notes that we issued. We currently
do not have the capital resources from which to pay these amounts.
Any
additional equity financing may be dilutive to stockholders, and debt and certain types of equity financing, if available, may
involve restrictive covenants or other provisions that would limit how we conduct our business or finance our operations.
Even
if we raise funds to address our immediate working capital requirements, we also may be required to seek additional financing
in the future to respond to increased expenses or shortfalls in anticipated revenues, accelerate product development and deployment,
respond to competitive pressures, develop new or enhanced products, or take advantage of unanticipated acquisition opportunities.
In addition, the deterioration in the general economic environment that began in 2008 and continued into 2014 further complicates
our capital raising efforts.
These
conditions raise substantial doubt as to our ability to continue as a going concern and may make it more difficult for us to raise
additional capital when needed. The accompanying consolidated financial statements do not include any adjustments relating to
the recoverability of reported assets or liabilities should we be unable to continue as a going concern.
WE
HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES AND NEGATIVE OPERATING CASH FLOWS IN THE FUTURE.
Our
accumulated deficit was approximately $22.3 million as of December 31, 2014. We expect our operating losses to continue as we
continue to expend resources to further develop and enhance our technology offering, to complete prototyping for proof-of-concept,
obtain regulatory clearances or approvals as required, expand our business development activities and finance capabilities and
conduct further research and development. We also expect to experience negative cash flow in the short-term until licensing revenues
become available through the implementation of the Company’s technology via client corporations for commercialization and
distribution of products that include our technology.
WE
DO NOT HAVE A LONG OPERATING HISTORY, WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS.
SPO
Ltd. commenced operations in 1998. We introduced our first product into the marketplace in the fourth quarter of 2004. Accordingly,
there is limited historical information regarding our revenue trends and operations upon which investors can evaluate our business.
Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by entrants
into the medical device industry, which is characterized by increasing intense competition and the relative failure rates.
THE
SALE OF OUR PULSEOX PRODUCTS IN THE UNITED STATES IS SUBJECT TO GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO OBTAIN CERTAIN
NECESSARY CLEARANCES OR APPROVALS.
The
design, manufacturing, labeling, distribution and marketing of medical device products in the United States is subject to extensive
and rigorous regulation by the Food and Drug Administration (FDA). In order for us to market our products in the United States,
we must obtain clearance or approval from the FDA which can be expensive and uncertain and can cause lengthy delays before we
can begin selling our products. We cannot be sure:
|
• |
that we, or any
collaborative partner, will make timely filings with the FDA; |
|
• |
that the FDA will
act favorably or quickly on these submissions; |
|
• |
that we will not
be required to submit additional information or perform additional clinical studies; |
|
• |
that we would
not be required to submit an application for pre-market approval, rather than a 510(k) pre-market notification submission
as described below; or |
|
• |
that other significant
difficulties and costs will not be encountered to obtain FDA clearance or approval. |
The
FDA may impose strict labeling or other requirements as a condition of its clearance or approval, any of which could limit our
ability to market our products. Further, if we wish to modify a product after FDA clearance of a pre-market notification or approval
of a pre-market approval application, including changes in indications or other modifications that could affect safety and efficacy,
additional clearances or approvals will be required from the FDA. Any request by the FDA for additional data, or any requirement
by the FDA that we conduct additional clinical studies or submit to the more rigorous and lengthier pre-market approval process,
could result in a significant delay in bringing our products to market and substantial additional research and other expenditures.
Similarly, any labeling or other conditions or restrictions imposed by the FDA on the marketing of our products could hinder our
ability to effectively market our products. Any of the above actions by the FDA could delay or prevent altogether our ability
to market and distribute our products. Further, there may be new FDA policies or changes in FDA policies that could be adverse
to us.
OUTSIDE
THE UNITED STATES, WE ARE SUBJECT TO GOVERNMENT REGULATION, WHICH COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCTS IN CERTAIN
JURISDICTIONS.
In
order for us to market our products in Europe and some other international jurisdictions, we and our distributors and agents
must obtain required regulatory registrations or approvals. We must also comply with extensive regulations regarding safety,
efficacy and quality in those jurisdictions. We may not be able to obtain the required regulatory registrations or approvals,
or we may be required to incur significant costs in obtaining or maintaining any regulatory registrations or approvals we
receive. Delays in obtaining any registrations or approvals required to market our products, failure to receive these
registrations or approvals, or future loss of previously obtained registrations or approvals would limit our ability to sell
our products internationally. For example, international regulatory bodies have adopted various regulations governing product
standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. These regulations vary from country to country.
EVEN
IF WE OBTAIN CLEARANCE OR APPROVAL TO SELL OUR PULSEOX MEDICAL PRODUCT LINE, WE ARE SUBJECT TO ONGOING REQUIREMENTS AND INSPECTIONS
THAT COULD LEAD TO THE RESTRICTION, SUSPENSION OR REVOCATION OF OUR CLEARANCE.
We
are required to adhere to applicable FDA regulations and ISO standards regarding good manufacturing practice, which include testing,
control, and documentation requirements with respect to the PulseOx product line. We are subject to similar regulations in foreign
countries. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements will be strictly enforced
in the United States through periodic inspections by state and federal agencies, including the FDA, and in international jurisdictions
by comparable Notified Body for CE Marking and ISO Standards. Failure to comply with these regulatory requirements could result
in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure to obtain premarket clearance or premarket approval for devices, withdrawal of approvals previously
obtained, and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to
comply with regulatory requirements would limit our ability to operate and could increase our costs.
OUR
SUCCESS LARGELY DEPENDS ON OUR ABILITY TO OBTAIN AND PROTECT THE PROPRIETARY INFORMATION ON WHICH WE BASE OUR PRODUCTS.
Our
success depends in large part upon our ability to establish and maintain the proprietary nature of our technology through the
patent process, as well as our ability to license from others patents and patent applications necessary to develop our products.
If any of our patents are successfully challenged, invalidated or circumvented, or our right or ability to manufacture our products
was to be limited, our ability to continue to manufacture and market our products could be adversely affected.
The
defense of patent infringement suits is costly and time-consuming and their outcome is uncertain. In addition, our limited financial
resources may limit our ability to defend our granted patents, if challenged. An adverse determination in litigation could subject
us to significant liabilities, require us to obtain licenses from third parties, or restrict or prevent us from selling our products
in certain markets. Although patent and intellectual property disputes are often settled through licensing or similar arrangements,
costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, the necessary licenses
may not be available to us on satisfactory terms, if at all. Thus, as discussed above, if third party patents cover any aspect
of our products or processes, then we may lack freedom to operate in accordance with our business plan.
As
of April 2015, we have been issued twelve United States patents. One or more of the patents for our existing or future products,
may be successfully challenged, invalidated or circumvented, or we may otherwise be unable to rely on these patents. These risks
are also present for the process we use or will use for manufacturing our products. In addition, our competitors, many of whom
have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that
prevent, limit or interfere with our ability to make, use and sell our products, either in the United States or in international
markets.
The
medical device industry has been characterized by extensive litigation regarding patents and other intellectual property
rights. In addition, the United States Patent and Trademark Office may institute interference proceedings. The defense and
prosecution of intellectual property suits, Patent and Trademark Office proceedings and related legal and administrative
proceedings are both costly and time consuming. Moreover, we may need to litigate to enforce our patents, to protect our
trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings involving us may require us to incur substantial legal and other fees and expenses and
may require some of our employees to devote all or a substantial portion of their time to the proceedings. An adverse
determination in the proceedings could subject us to significant liabilities to third parties, require us to seek licenses
from third parties or prevent us from selling our products in some or all markets. We may not be able to reach a satisfactory
settlement of any dispute by licensing necessary patents or other intellectual property. Even if we reached a settlement, the
settlement process may be expensive and time consuming, and the terms of the settlement may require us to pay substantial
royalties. An adverse determination in a judicial or administrative proceeding or the failure to obtain a necessary license
could prevent us from manufacturing and selling our products.
In
addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality
and proprietary information agreements. The other parties to these agreements may breach these provisions, and we may not have
adequate remedies for any breach. Additionally, our trade secrets could otherwise become known to or be independently developed
by competitors.
OUR
PRODUCTS USE NOVEL TECHNOLOGIES OR APPLY TECHNOLOGIES IN MORE INNOVATIVE WAYS THAN OTHER COMPETING MEDICAL DEVICES AND ARE OR
WILL BE NEW TO THE MARKET; ACCORDINGLY, WE MAY NOT BE SUCCESSFUL IN ACHIEVING WIDE ACCEPTANCE OF OUR PRODUCTS AND OUR OPERATIONS
AND GROWTH WOULD BE ADVERSELY AFFECTED.
Our
technology offering is based on new methods of reflective pulse oximetry. If products that include our technology do not achieve
significant market acceptance, our royalties from sales will be limited and our financial condition may suffer. To date, few independent
studies regarding our technology have been published. The lack of independent studies limits the ability of potential OEM/licensing
partners to compare products that include our technology within to conventional products.
OUR
LIMITED BUSINESS DEVELOPMENT AND MARKETING EXPERIENCE MAKES OUR REVENUE UNCERTAIN.
We
are responsible for business development and marketing our oximetry technology offering. We have relatively limited experience
in business development and marketing and only have one internal person responsible for these tasks. In order to successfully
continue to promote our technology offering, we must partner with client corporations for commercialization and distribution of
products that include our technology. We may not be able to successfully reach agreements with client corporations for commercialization
and distribution of products that include our technology. In addition, we compete with other companies that have experienced and
well-funded marketing and sales operations. If we enter into a marketing arrangement with a third party, any revenues we would
receive will be dependent on this third party, and we will likely be required to pay a sales commission or similar compensation
to this party. The efforts of these third parties for the marketing and sale of products that include our technology within may
not be successful.
BECAUSE
WE OPERATE IN AN INDUSTRY WITH SIGNIFICANT PRODUCT LIABILITY RISK, AND WE HAVE NOT SPECIFICALLY INSURED AGAINST THIS RISK, WE
MAY BE SUBJECT TO SUBSTANTIAL CLAIMS AGAINST OUR PRODUCTS.
Medical
products entail significant risks of product liability claims. We currently have limited product liability insurance coverage
beyond that provided by our general liability insurance. Accordingly, we may not be adequately protected from any liabilities,
including any adverse judgments or settlements, we might incur in connection with the development, clinical testing, manufacture
and sale of our products. A successful product liability claim or series of claims brought against us that result in an adverse
judgment against or settlement by us in excess of any insurance coverage could seriously harm our financial condition or reputation.
In addition, product liability insurance is expensive and may not be available to us on acceptable terms, if at all.
THE
AVAILABILITY OF THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS VIA OUR LICENSEE IS UNCERTAIN, WHICH MAY LIMIT CONSUMER USE AND THE
MARKET FOR OUR PRODUCTS.
In
the United States and elsewhere, sales of medical products are dependent, in part, on the ability of consumers of these products
to obtain reimbursement for all or a portion of their cost from third-party payors, such as government and private insurance plans.
Any inability of patients, hospitals, physicians and other users of products that include our technology to obtain sufficient
reimbursement from third-party payors for our products, or adverse changes in relevant governmental policies or the policies of
private third-party payors regarding reimbursement for these products, could limit the marketability of these products. We are
unable to predict what changes will be made in the reimbursement methods used by third-party health care payors. Moreover, third-party
payors are increasingly challenging the prices charged for medical products and services, and some health care providers are gradually
adopting a managed care system in which the providers contract to provide comprehensive health care services for a fixed cost
per person. Patients, hospitals and physicians may not be able to justify the use of products that include our technology by the
attendant cost savings and clinical benefits that we believe will be derived from the use of such products, and therefore may
not be able to obtain third-party reimbursement.
Reimbursement
and health care payment systems in international markets vary significantly by country and include both government sponsored health
care and private insurance. Our Licensee may not be able to obtain approvals for reimbursement from these international third-party
payors in a timely manner, if at all. Any failure to receive international reimbursement approvals could have an adverse effect
on market acceptance of products that include our technology in the international markets in which approvals are sought.
OUR
CHIEF EXECUTIVE OFFICER HAS CONTROL OVER KEY DECISION MAKING AS A RESULT OF HIS CONTROL OF A MAJORITY OF OUR VOTING STOCK.
Michael
Braunold, our President and Chief Executive Officer, is able to exercise voting rights with respect to a majority of the voting
power of our outstanding capital stock and therefore has the ability to control the outcome of matters submitted to our stockholders
for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets.
This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially
all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation
of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential
investor from acquiring our common stock due to the limited voting power of such stock relative to the Series A Preferred Stock,
$0.01 par value per share held by Mr. Braunold, and might harm the trading price of our common stock. As a board member and officer,
Mr. Braunold owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be
in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Braunold is entitled to
vote his shares in his own interests, which may not always be in the interests of our stockholders generally.
THERE
IS NO ESTABLISHED MARKET FOR OUR COMMON STOCK AND NONE MAY DEVELOP OR BE SUSTAINED.
Our
Common Stock has been quoted on the OTC Market (Pink Sheets) under the symbol “SPOM”. The OTC Market (Pink Sheets)
is a centralized quotation service that collects and publishes market maker quotes in real time. Because our stock does not trade
on a national securities exchange this may affect the liquidity of our Common Stock.
There
has been very limited trading activity in our Common Stock. There can be no assurance that a more active or established
trading market will commence in our securities. Further, in the event that an established trading market commences, there can
be no assurance as to the level of any market price of our shares of common stock, whether any trading market will provide
liquidity to investors, or whether any trading market will be sustained. Investors should be aware that our stock may be
illiquid.
FUTURE
SALES OF COMMON STOCK OR OTHER DILUTIVE EVENTS MAY ADVERSELY AFFECT PREVAILING MARKET PRICES FOR OUR COMMON STOCK.
As
of April 14, 2015, we had 100 million authorized shares of Common Stock, of which 7,039,679 shares of our Common Stock were issued
and outstanding as of such date. An additional estimated 14,825,748 shares may be issued upon exercise or conversion of outstanding
options, warrants and convertible securities. Many of the those options, warrants and convertible securities contain provisions
that require the issuance of increased numbers of shares of common stock upon exercise or conversion in the event of stock splits,
redemptions, mergers or other transactions. The occurrence of any such event or the exercise or conversion of any of the options,
warrants or convertible securities described above would dilute the interest in our company represented by each share of Common
Stock and may adversely affect the prevailing market price of our Common Stock.
Our
board of directors has the authority, without further action or vote of our stockholders, to issue all or any part of the shares
of our Common Stock that are authorized for issuance and neither issued nor reserved for issuance. Additionally, we require additional
funds to continue to meet our liquidity needs and maintain our operations as presently conducted and to realize our business plan.
Such stock issuances may be made at a price that reflects a discount from the then-current trading price of our Common Stock.
In order to raise capital that we need at today's stock prices, we would likely need to issue securities that are convertible
into or exercisable for a significant number of shares of our Common Stock.
The
shares of Common Stock issuable upon conversion of our securities or the outstanding shares are saleable without restriction.
Any of these issuances will dilute the percentage ownership interests of our current stockholders, which will have the effect
of reducing their influence on matters on which our stockholders vote, and might dilute the book value and market value of our
Common Stock. Our stockholders may incur additional dilution upon the exercise of currently outstanding or subsequently granted
options or warrants to purchase shares of our Common Stock.
OUR
STOCK PRICE MAY BE VOLATILE.
There
is a very limited market for our stock. The market price of our common stock will likely fluctuate significantly in response to
the following factors, some of which are beyond our control:
|
• |
Variations in
our quarterly operating results due to a number of factors, including but not limited to those identified in this "RISK
FACTORS" section; |
|
• |
Changes in financial
estimates of our revenues and operating results by securities analysts or investors; |
|
• |
Announcements
by us of commencement of, changes to, or cancellation of significant contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments; |
|
• |
Additions or departures
of key personnel; |
|
• |
Stock market price
and volume fluctuations attributable to inconsistent trading volume levels of our stock; |
|
• |
Commencement of
or involvement in litigation; and |
|
• |
announcements
by us or our competitors of technological innovations or new products |
In
addition, the equity markets have experienced volatility that has particularly affected the market prices of equity securities
issued by high technology companies and that often has been unrelated or disproportionate to the operating results of those companies.
These broad market fluctuations may adversely affect the market price of our Common Stock.
ADDITIONAL
BURDENS IMPOSED UPON BROKER-DEALERS BY THE APPLICATION OF THE "PENNY STOCK" RULES TO OUR COMMON STOCK MAY LIMIT THE
MARKET FOR OUR COMMON STOCK.
Broker-dealer
practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the
Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current prices and volume information
with respect to transactions in such securities are provided by the exchange or system). If our Common Stock continues to be offered
at a market price less than $5.00 per share, and does not qualify for any exemption from the penny stock regulations, our Common
Stock will continue to be subject to these additional regulations relating to low-priced stocks.
The
penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver
a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny
stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser's written agreement to the transaction. These requirements have historically resulted in reducing the level
of trading activity in securities that become subject to the penny stock rules.
The additional
burdens imposed upon broker-dealers by these penny stock requirements may discourage broker-dealers from effecting transactions
in the Common Stock, which could severely limit the market liquidity of our Common Stock and our shareholders' ability to sell
our Common Stock in the secondary market.
OUR
BOARD OF DIRECTORS' RIGHT TO AUTHORIZE THE ISSUANCE OF ADDITIONAL SHARES OF PREFERRED STOCK COULD ADVERSELY IMPACT THE RIGHTS
OF HOLDERS OF OUR COMMON STOCK.
Our
board of directors currently has the right to designate and authorize the issuance of our preferred stock, in one or more series,
with such voting, dividend and other rights as our directors may determine. The board of directors can designate new series of
preferred stock without the approval of the holders of our Common Stock. The rights of holders of our Common Stock may be adversely
affected by the rights of any holders of shares of preferred stock that may be issued in the future, including without limitation
dilution of the equity ownership percentage of our holders of Common Stock and their voting power if we issue preferred stock
with voting rights. Additionally, the issuance of preferred stock could make it more difficult for a third party to acquire a
majority of our outstanding voting stock.
RISKS
RELATED TO OPERATIONS IN ISRAEL
WE
DEPEND ON OUTSOURCED RESEARCH AND DEVLOPMENT FACILITIES IN ISRAEL AND ARE SUSCEPTIBLE TO ANY EVENT THAT WOULD ADVERSELY AFFECT
THEIR CONDITION.
All
of our current outsourced research and development facilities are located in the State of Israel. Fire, natural disaster or
any other cause of material disruption in our operation in this location could have a material adverse effect on our
business, financial condition and operating results. As discussed above, to remain competitive in the network communications
industry, we must respond quickly to technological developments. Damage to facilities in Israel could cause serious delays in
the development of new products and services and, therefore, could adversely affect our business. In addition, the particular
risks relating to our location in Israel are described below.
WE
MAY BE ADVERSELY AFFECTED FROM FOREIGN CURRENCY MARKET FLUCTUATIONS.
A
significant portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels
“NIS”. As a result, we have significant exposure to the risk of fluctuating exchange rates with the US Dollar, our
primary reporting currency. The recent volatility in the international currency markets has been equally reflected against NIS
and this may continue in the future. Owing to the lack of cash flow resources and financing, we are limited in our ability to
hedge against currency fluctuations.
THE
TRANSFER AND USE OF SOME OF OUR TECHNOLOGY AND ITS PRODUCTION IS LIMITED BECAUSE OF THE RESEARCH AND DEVELOPMENT GRANTS WE RECEIVED
FROM THE ISRAELI GOVERNMENT TO DEVELOP SUCH TECHNOLOGY. SUCH LIMITATIONS MAY RESTRICT OUR BUSINESS GROWTH AND PROFITABILITY.
Our
research and development efforts associated with the development of oximetry products have been partially financed through grants
from the Office of the Chief Scientist of the State of Israel (the "Chief Scientist"). We are subject to certain restrictions
under the terms of the Chief Scientist grants. Specifically, the products developed with the funding provided by these grants
may not be manufactured, nor may the technology which is embodied in our products be transferred outside of Israel without appropriate
governmental approvals and/or fines.
These
restrictions do not apply to the sale or export from Israel of our products developed with this technology. These restrictions
could limit or prevent our growth and profitability.
DETERIORATION
OF POLITICAL, ECONOMIC AND SECURITY CONDITIONS IN ISRAEL MAY ADVERSELY AFFECT OUR OPERATIONS.
Any
major hostilities involving Israel, a substantial decline in the prevailing regional security situation or the interruption or
curtailment of trade between Israel and its present trading partners could have a material adverse effect on our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors
and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Beginning in
September 2000, the overall relationship and security situation between Israel and the Palestinians deteriorated significantly
and continues to be marked by ongoing violence, also varying in its degree of severity. During the summer of 2006, Israel was
engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party; and during the winter
of 2008-2009, Israel was engaged in an armed conflict with Hamas, a militia group and political party operating in the Gaza Strip.
These conflicts involved missile strikes against civilian targets in various parts of. To date, these matters have not had any
material effect on our business and results of operations, but there can be no assurance that they will not do so in the future.
In
addition, civil unrest, often accompanied by violence, has spread throughout the region. Protestors have demanded economic and
political reforms, and to date, there have been several regime changes in other countries. Civil unrest could continue to spread
throughout the region or grow in intensity, leading to regime changes resulting in governments that are hostile to the US, civil
wars, or regional conflict. There have also been rising international tensions over Iran, which was censured by the
United Nations over suspicions that it is trying to develop nuclear weapons. Certain countries have considered actions ranging
from economic sanctions to pre-emptive strikes on suspected nuclear sites, and Iranian officials have threatened retaliation by,
among other actions, closing the Strait of Hormuz, through which a significant portion of the global crude oil supply is transported.
Prolonged
and/or widespread regional conflict in the Middle East could have the following results, among others:
|
• |
Capital market
reassessment of risk and subsequent redeployment of capital to more stable areas making it more difficult for us to obtain
financing for potential development projects; |
|
• |
security concerns
in Israel, making it more difficult for our personnel or supplies to enter or exit the country; |
|
• |
security concerns
leading to evacuation of our personnel; |
|
• |
inability of our
service and equipment providers to deliver items necessary for us to conduct our operations in, resulting in delays;
and |
Loss
of property and/or interruption of our business plans resulting from hostile acts could have a significant negative impact on
our earnings and cash flow. In addition, we may not have enough insurance to cover any loss of property or other claims resulting
from these risks.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
We
do not own any real property.
We
lease approximately 250 square feet in Kfar Saba, Israel which are the administrative offices for our subsidiary SPO Ltd. We paid
$3,000 for the use of the office space for each of the fiscal years 2014 and 2013.
We
believe that our facilities are generally in good condition and suitable to carry on our business. We also believe that, if required,
suitable alternative or additional space will be available to us on commercially reasonable terms.
ITEM
3. LEGAL PROCEEDINGS
There
are no material pending legal proceedings to which we are a party or to which any of our properties are subject. There are no
material proceedings known to us to be contemplated by any governmental authority.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
Common Stock is quoted on the OTC Market (Pink Sheets) under the symbol “SPOM”. Trading of our Common Stock has been
sporadic and limited. There can be no assurance that an established trading market will develop, that the current market will
be maintained or that a liquid market for our Common Stock will be available in the future. Investors should not rely on historical
stock price performance as an indication of future price performance.
The
following table shows the quarterly high and low bid prices for our Common Stock over the last two completed fiscal years. The
prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commission and may not represent
actual transactions. Prices have been adjusted to reflect the 1- for -20 reverse stock split of our common stock that became effective
on October 7, 2013.
| |
HIGH | |
LOW |
Year Ended December 31, 2014 | |
| | | |
| | |
First Quarter | |
$ | 0.06 | | |
$ | 0.0251 | |
Second Quarter | |
$ | 0.04 | | |
$ | 0.0032 | |
Third Quarter | |
$ | 0.065 | | |
$ | 0.008 | |
Fourth Quarter | |
$ | 0.015 | | |
$ | 0.0101 | |
| |
| | | |
| | |
Year Ended December 31, 2013 | |
| | | |
| | |
First Quarter | |
$ | 0.57 | | |
$ | 0.148 | |
Second Quarter | |
$ | 0.57 | | |
$ | 0.126 | |
Third Quarter | |
$ | 0.20 | | |
$ | 0.10 | |
Fourth Quarter | |
$ | 0.196 | | |
$ | 0.03 | |
As
of April 14, 2015, there were approximately 159 holders of record of our Common Stock. We believe that a number of shares of our
Common Stock are held in either nominee name or street name brokerage accounts and, consequently, we are unable to determine the
exact number of beneficial owners of our stock.
DIVIDEND
POLICY
We
have paid no dividends on our Common Stock and do not expect to pay cash dividends in the foreseeable future with respect to the
Common Stock. It is the present policy of our board of directors to retain all earnings to provide funds for our growth. The declaration
and payment of dividends in the future will be determined by our board based upon our earnings, financial condition, capital requirements
and such other factors as our board may deem relevant. We are not under any contractual restriction as to our present or future
ability to pay dividends.
RECENT
SALES OF UNREGISTERED SECURITIES
We
sold no securities during the three months ended December 31, 2014.
ITEM
6. SELECTED FINANCIAL DATA
Not
Applicable.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES RELATED TO THOSE STATEMENTS. SOME
OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE RISK FACTORS SECTION OF THIS ANNUAL REPORT.
OVERVIEW
We
are engaged in the design and development of non-invasive pulse oximetry technologies to measure blood oxygen saturation and
heart rate. We have developed and patented proprietary technology that enables the measurement of heart rate and oxygen
saturation levels in the blood, which is known as Reflectance Pulse Oximetry (RPO). RPO functions using an ASIC (application
specific integrated circuit), which is equivalent to a “customized” semi-conductor. Using this technology, a
sensor can be positioned on various body parts, minimizing problems from motion artifacts and poor perfusion. The unique
design features contribute to substantially lower power requirements and enhance wireless, stand-alone configurations
facilitating expanded commercial possibilities. As of April 2015, we held 12 patents issued by the United States Patent and
Trademark Office ("USPTO") and European Patent Authorities covering various aspects of our technologies.
We
are primarily engaged in developing, manufacturing and licensing our technology to third parties for integration with products
in the general wellness, recreational, baby monitoring and sports monitoring fields. We pursue joint ventures, OEM type arrangements,
research and or subcontracting agreements relating to our oximetry technology with respect to the general wellness, recreational,
baby monitoring and sports monitoring fields. Since August 2012, we have partnered with HoMedics LLC, a distributor and manufacturer
of leading brands in an array of consumer health, wellness and electronic lifestyle categories throughout the Americas, Europe,
the Asia-Pacific region, Africa and the Middle-East, for the distribution of a private labeled, over the counter pulse oximeter
for non-medial consumer wellness applications.
We
are currently focused on exploiting the sports and wellness markets by developing cutting edge products based on our proprietary
technology.
The
SPO sports watch has been designed to measure continuous heart-rate wirelessly, without the need to wear a conventional chest
strap. This is a major and unique practical advantage over current products that we believe exist in the general leisure
and wellness market. As importantly, the sports watch will be able to read the heart rate without the sports enthusiast
ceasing his physical activity. This will be made possible through the use of SPO’s patented reflectance technology. Subject
to raising significant additional funds and securing a partnership with an existing market player, of which no assurances can
be provided, we anticipate that the product should become commercially available through an OEM arrangement with a strategic market
partner during 2016.
In
addition to the sports watch, we launched an innovative wellness watch that measures the number of activities and calories burned
by an individual performs on a given day. The watch, designed for both children and adults, features a display function
to continuously measure the number of daily activities against preset recommended goals. SPO has designed and patented the functionality
of the watch to be an affordable, simple-to-use, fashion accessory to encourage users to increase their mobility and overall wellness
and to wear it with pride.
In
addition, we are developing an innovative home-baby monitoring device for continuous measurement of wellness information to the
parent or caregiver, while the baby is sleeping. This parental reassurance tool gives the company a technological competitive
edge in providing an innovative, high performance solution for a market application that is applicable to most family homes. Subject
to raising significant additional funds and securing a partnership with an existing market player, of which no assurances can
be provided, we believe that the product could become commercially available through an OEM arrangement with a strategic market
partner during 2016.
Current
Operational Highlights
Since
August 2012, we have partnered with HoMedics LLC, a distributor and manufacturer of leading brands in an array of consumer
health, wellness and electronic lifestyle categories throughout the Americas, Europe, the Asia-Pacific region, Africa and the
Middle-East, for the distribution of a private labeled, over the counter pulse oximeter for non-medial consumer wellness applications.
We
recorded revenues of $461,000 for the twelve months ended December 31, 2014. Revenues resulted primarily from the initial
shipments of a new consumer wellness product to mass-market retailers based in the United States. We have generated
significant operating losses since inception and we have a limited operating history upon which an evaluation of our
prospects can be made. Our prospects must therefore be evaluated in light of the problems, expenses, delays and complications
associated with a development stage company. As of December 31, 2014, we had a backlog of approximately $814,000, consisting
of orders for additional units of our wellness product that we expect to deliver during 2015.
However,
we need to raise additional funds on an immediate basis in order to realize our business plan as well as pay outstanding loans
in the approximate amount of $2,185,000, which are past due or mature during the year ended December 31, 2015. In January 2010,
we restructured our operations in an attempt to focus primarily on our core technology for non-medical market operations. As of
April 14, 2015, we had two employees working on a full-time basis. In addition, all research and development activities are performed
on a sub-contracted basis. If we are unable to raise capital on an immediate basis, it may be necessary for us to take further
cost cutting measures to reduce our cash burn including laying-off additional personnel and/or cease operations entirely. No assurance
can be given that we will be able to raise the needed capital. These conditions raise substantial doubt about our ability to continue
as a going concern.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial
statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation
of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate
our estimates, including those related to revenue recognition, bad debts, investments, intangible assets and income taxes. Our
estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates.
We
have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.
REVENUE
RECOGNITION
We
generate revenues principally from product manufacturing and the provision of subcontracted research and development services.
Revenues generated from product manufacturing are recognized when such products are shipped; subcontracted research and development
services are recognized when such services are performed.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
COMPARISON
OF THE YEAR ENDED DECEMBER 31, 2014 (the “2014 Period”) AND THE YEAR ENDED DECEMBER 31, 2013 (the “2013 Period”)
REVENUES.
Revenues for the 2014 Period were $461,000 compared to $556,000 in the 2013 Period. The decrease in revenues during the 2014 Period
as compared to the 2013 Period is attributable to a decrease in purchase order of our consumer wellness product from mass-market
retailers.
COSTS
OF REVENUES. Costs of revenues include all costs related to products sold. Costs of revenues for the 2014 Period were 285,000
compared to $411,000 for the 2013 Period. The decrease in cost of revenues is primarily attributable to reduction in purchase
orders and product shipped.
RESEARCH
AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net consist primarily of expenses incurred in the
design, development and testing of our products net of government grants and participation by others. These expenses consist
primarily of contract design and testing services, supplies used and consulting and license fees paid to third parties.
Research and development expenses, net, for the 2014 Period were 13,000 compared to $0 for the 2013 Period. The increase in
research and development expenses, net in the 2014 Period as compared to the 2013 Period is primarily attributable to costs
associated with new consumer related products under development.
SELLING
AND MARKETING EXPENSES. Selling and marketing expenses consist primarily of costs relating to compensation attributable to
consultants for the provision of public relations, promotion and marketing services geared to the recreational sports and wellness
markets. Selling and marketing expenses for 2014 Period were $108,000 compared to $58,000. The increase in selling and marketing
expenses in the 2014 Period as compared to the 2013 Period is primarily attributable to additional marketing activities in preparation
for the introduction of new consumer products.
GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses primarily consist of salaries and other related costs for
personnel in executive and other administrative functions. Other significant costs include professional fees for legal and accounting
services. General and administrative expenses for the 2014 Period were $442,000 compared to $447,000 for the 2013 Period. The
decrease in general and administrative expenses is primarily attributable to reduced costs of service providers.
FINANCIAL EXPENSE,
NET. Financial expense net for the 2014 Period was $207,000 compared to $323,000 for the 2013 Period. The change from the 2013
Period to the 2014 Period was primarily attributable to an increase in interest on debt and non-cash expenses related to convertible
debt and warrants in the amount of $107,000, and Exchange rate differences caused by fluctuations in the exchange rate with the
New Israeli Shekel (“NIS”) on liabilities denominated in NIS held by the subsidiary fluctuated from a $112,000
loss in 2013 to a $111,000 gain in 2014.
NET
LOSS. For the 2014 Period and 2013 Period, we had a net loss of $594,000 and $683,000, respectively. The decrease in net loss
for the 2014 Period compared to the 2013 Period is primarily attributable to an increase in gross profits in the approximate amount
of $31,000, an increase in our selling and marketing expenses in the approximate amount of $50,000, a decrease in our general
and administrative expenses in the approximate amount of $5,000, and a decrease in financial expenses in the approximate amount
of $116,000.
LIQUIDITY
AND CAPITAL RESOURCES
We
need to raise additional funds and/or generate revenues on an immediate basis in order to meet our on-going operating requirements,
pay outstanding loans in the aggregate approximate amount of $2,185,000 and to realize our restructured business plan. Our currently
existing cash resources from sales are sufficient to satisfy our operating requirements through September 30, 2015. If we are
unable to raise capital on an immediate basis through a financial raise or revenues it may be necessary for us to take further
measures to reduce our cash burn including laying-off additional personnel, or ceasing operations entirely. No assurance
can be given that we will be able to raise the needed capital. These conditions raise substantial doubt about our ability to continue
as a going concern. Any additional equity financings is likely to be dilutive to holders of our Common Stock and debt financing,
if available, may require us to be bound by significant repayment obligations and covenants that restrict our operations.
As
of December 31, 2014, we had approximately $2,000 from cash and cash equivalents available to us, compared to $286,000 cash and
cash equivalents as at December 31, 2013.
We
generated negative cash flow from operating activities of approximately $694,000 during the 2014 Period compared to negative cash
flow of $274,000 for the 2013 Period. The increase in negative cash flows is primarily attributable to increased receivables and
prepaid expenses
To
date, we have financed our operations primarily from debt financing and the sale of our securities. See Notes 5 and 9 in our consolidated
financial statements accompanying this Annual Report on Form 10-K.
During
2014, we raised $425,000 from order financing promissory notes. These notes were paid or are scheduled to be paid in 2015.
Recently
Issued Accounting Pronouncements
During
2014, there were no recently issued accounting pronouncements which were issued and which have relevancy to our business.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
Applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
information called for by this Item 8 is included following the "Index to Consolidated Financial Statements" contained
in this Annual Report on Form 10-K.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES.
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to management, including our Chief Executive Officer, as appropriate, to
allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures"
in Rule 13a-14(c).
As
of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of
management, including our Chief Executive Officer, who serves as our principal executive officer and principal financial and accounting
officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our
Chief Executive Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered
by this report to provide reasonable assurance that material information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules
and forms.
Management
is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative
and financial matters. However, at this time, management has decided that considering the employees involved, the control procedures
in place, and the outsourcing of certain financial functions, the risks associated with such lack of segregation are low and the
potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such
increases. Management will periodically reevaluate this situation. If the volume of the business increases and sufficient capital
is secured, it is our intention to increase staffing to mitigate the current lack of segregation of duties within the general
administrative and financial functions.
A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in all control systems no evaluation of
controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such
limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can
occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established
process.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING; CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
During
the course of 2011 we affected a series of reductions in workforce that caused the number of our employees to drop from six as
of December 31, 2010, to two as of December 31, 2014. As a result of this decline, we were unable to ensure a proper segregation
of duties amongst different employees. This had an effect on our internal controls over financial reporting, primarily in the
authorization, monitoring and segregation of duties.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management,
has, with the assistance of external financial advisor and our audit committee, conducted an evaluation of the effectiveness of
our internal control over financial reporting. Our management assessed the effectiveness of its internal control over financial
reporting as of December 31, 2014. In making this assessment, management employed the framework incorporated under the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013).
Based on use of this framework, management believes that, as of December 31, 2014, the Company’s internal control over
financing reporting were effective based on those criteria.
Changes
in Internal Control over Financial Reporting
During
the quarter ended December 31, 2014, there have been no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Management
The individuals
who serve as our executive officers and directors are:
NAME | |
AGE | |
POSITION |
Michael Braunold | |
| 55 | | |
| President, Chief Executive Officer and Director | |
Sidney Braun | |
| 55 | | |
| Director (1) | |
(1) |
Audit
Committee and Compensation Committee Member. |
The
business experience, principal occupations and employment, as well as the periods of service, of each of our directors and executive
officers during at least the last five years are set forth below.
MICHAEL
BRAUNOLD has been Chief Executive Officer of SPO Ltd. since March 1998 and the President and Chief Executive Officer of the
Company since May 18, 2005. Prior to March 1998, Mr. Braunold was Senior Director of Business Development at Scitex
Corporation Ltd., a multinational corporation specializing in visual information communication. In such capacity, Mr.
Braunold played a strategic role in managing a team of professionals assigned to M&A activities. During his 12-year
tenure at Scitex, he held various positions within the worldwide organization, including a period in the United States as
Vice President of an American subsidiary of Scitex specializing in medical imaging. From March 2000 through September 2000,
Mr. Braunold was also the Chief Executive Officer and Chairman of Ambient Corporation, a Delaware company, that specializes
in the implementation of a proposed comprehensive high-speed communication infrastructure that is designed to utilize
existing electrical power distribution lines as a high-speed communication medium. Mr. Braunold served as a director of
Amedia Networks, Inc. (formerly TTR Technologies, Inc.) from February 2000 through August 2002. Mr. Braunold obtained a
Bachelor of Science degree with honors in Engineering and Management Sciences from Imperial College Business School, London.
Mr. Braunold as Chief Executive Officer of the company along with his seasoned corporate experience makes him well suited to
confront the challenges our company faces.
SIDNEY
BRAUN has served as a director since April 21, 2005. From June 2004 to December 2006, Mr. Braun has served as the President and
Chief Operating Officer for Med-Emerg International Inc. (MEII), a public healthcare services company incorporated in the Province
of Ontario. Mr. Braun served on the board of directors from June 2004 until June 2009, and as chair of the strategic development
committee during the last 2 years. Since September 2006, Mr. Braun is also a director of Romlight International Inc., an energy
saving lighting solutions company. Since June 2009, Mr. Braun has served on the board of directors of AIM Health Group, a publically
listed company on TSVX and as a member of their Audit Committee. Mr. Braun has extensive experience in commerce both in North
America and Europe, including manufacturing, distribution and trading. Prior to his position at MEII and Romlight, Mr. Braun worked
for many years in investment banking with a focus on emerging markets, and took several companies public in the UK, Germany and
Switzerland. Mr. Braun’s wide experience both as an entrepreneur and in the finance markets affords the company access to
wide array of prospective financing parties.
Committees
of the Board of Directors
Our
Board of Directors operates with the assistance of the Audit Committee and the Compensation Committee. Due to the small size of
our Board, we do not presently maintain a formal nominating committee. The entire Board participates in the process of nominating
candidates for the Board of Directors.
The
function of the Audit Committee is to (i) make recommendations to the full Board of Directors with respect to appointment of our
independent public accountants, and (ii) meet periodically with our independent public accountants to review the general scope
of audit coverage, including consideration of internal accounting controls and financial reporting.
The
Board of Directors has determined that at present we have no audit committee financial expert serving on the Audit Committee.
The
Compensation Committee sets compensation policy and administers our cash and equity incentive programs for the purpose of attracting
and retaining skilled executives who will promote the Company’s business goals and build shareholder value. The committee
is also responsible for reviewing and making recommendations to the Board regarding all forms of compensation to be provided to
the Company’s named executive officers, including stock compensation and bonuses.
All
directors are elected by a plurality vote at the annual meeting of the shareholders, and hold office until a successor is duly
elected and qualified. Any vacancy occurring in the Board of Directors may be filled by the stockholders, the Board of Directors,
or if the Directors remaining in office constitute less than a quorum of the Board of Directors, they may fill the vacancy by
the affirmative vote of a majority of the Directors remaining in office. A director elected to fill a vacancy is elected for the
unexpired term of his predecessor in office. Any directorship filled by reason of an increase in the number of directors shall
expire at the next shareholders' meeting in which directors are elected, unless the vacancy is filled by the shareholders, in
which case the term shall expire on the later of (i) the next meeting of the shareholders or (ii) the term designated for the
director at the time of creation of the position being filled.
Our
executive officers are appointed by our board of directors. Each officer shall hold office until the earlier of: his death; resignation
or removal from office; or the appointment and qualification of his successor.
CODE
OF ETHICS
We
have adopted a code of ethics that applies to our chief executive officer, president, chief financial officer, controller and
others performing similar executive and financial functions at the Company. A copy of our policy was attached as an exhibit to
our annual report on Form 10-KSB for the year ended December 31, 2005. We intend to satisfy the disclosure requirement under Item
10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our
Website, at the address and location specified above.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires each of our officers and directors and each person who owns
more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent
reports of changes in such ownership. Such persons are further required by SEC regulation to furnish us with copies of all Section
16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us
with respect to fiscal year 2014, or written representations from certain reporting persons, we believe all of our directors and
executive officers met all applicable filing requirements.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth all compensation for the last fiscal year awarded to, earned by, or paid to our Chief Executive Officer,
our sole executive officer (the "Named Executive Officer").
SUMMARY
COMPENSATION TABLE
Name & Principal Position | |
Year | |
Salary ($) | |
Bonus ($) | |
Option Awards ($) | |
All Other Compensation ($) | |
Total ($) |
MICHAEL BRAUNOLD | |
| 2014 | | |
$ | 159,000 | (1) | |
| — | | |
| — | | |
$ | 24,666 | (2) | |
$ | 183,666 | |
President and Chief Executive Officer | |
| 2013 | | |
$ | 159,000 | (3) | |
| — | | |
| — | | |
$ | 73,662 | (4) | |
$ | 232,662 | |
(1) |
Of
this amount, $51,750 was paid in 2014 and $107,250 is being deferred. |
(2) |
Reflects
remuneration for automobile and related benefits ($4,828), accrued vacation, and contributions to insurance premiums paid
under Israeli law for pension, severance and further education funds ($19,838). |
(3) |
Of
this amount, $50,940 was paid in 2013 and $108,060 is being deferred. |
(4) |
Reflects
payments made by us in connection with a leased automobile and related benefits ($6,782), accrued vacation, and contributions
to insurance premiums paid under Israeli law for pension, severance and further education funds ($66,880 of which $44,062
is being deferred). |
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2014
Name | |
Number of Securities Underlying Unexercised Options (#)(1) Exercisable | |
Number of Securities Underlying Unexercised Options (#) Unexercisable | |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | |
Option Exercise Price ($) | |
Option Expiration Date |
Michael Braunold | |
| 12,500 | | |
| — | | |
| — | | |
$ | 12.00 | | |
| | 12/22/2015 |
| |
| 10,000 | | |
| — | | |
| — | | |
$ | 2.60 | | |
| | 12/05/2018 |
(1) |
Options
were issued under our 2005 Equity Incentive Plan and are fully vested. |
EMPLOYMENT
AGREEMENTS WITH SOLE EXECUTIVE OFFICER
MICHAEL
BRAUNOLD. On May 18, 2005, we entered into an employment agreement with Michael Braunold, pursuant to which he serves as our
Chief Executive Officer and President. On such date, Mr. Braunold and SPO Ltd., entered into an employment agreement pursuant
to which Mr. Braunold serves as SPO Ltd.'s Chief Executive Officer. Each of the agreements with us and SPO Ltd. continues in effect
through May 18, 2010; thereafter, the agreement and is automatically renewable for successive two year terms unless we or Mr.
Braunold indicate in writing, upon 90 days prior to the scheduled termination of the term that such party does not intend to renew
the agreement. Mr. Braunold is currently entitled to a monthly salary of $13,250 under the agreement with SPO Ltd. However, in
order to reduce operating expenses and conserve cash, since July 2008 Mr. Braunold has been deferring a part of his salary and
social benefits due thereon until such time as our cash position permits payment of salary in full without interfering with our
ability to pursue our plan of operations, and, as of December 31, 2014, such deferred amount totaled an aggregate of $684,252.
The agreements may be terminated by Mr. Braunold for any reason on 60 days written notice or for Good Reason (as defined in the
employment agreement) or by us for Just Cause (as defined in the employment agreement) or for any other reason. In the event of
a termination by Mr. Braunold for Good Reason or by us for any reason other than Just Cause, we are to pay Mr. Braunold an amount
equal the base salary then payable, if any, for a period of twelve months as if the agreement had not been so terminated.
The
agreement includes certain customary intellectual property development rights, confidentiality and non-compete provisions that
prohibit the executive from competing with us for one year, or soliciting our employees for one year, following the termination
of his employment.
COMPENSATION
OF DIRECTOR
The
following table summarizes data concerning the compensation of our sole non-employee director for the fiscal year ended December
31, 2014.
| |
Fees Earned | |
Option | |
|
| |
or paid | |
Awards($) | |
Total |
Sidney Braun | |
$ | 10,000 | (1) | |
| — | | |
$ | 10,000 | |
(1) |
Of
this amount, $5,000 is being deferred (total deferred as of December 31, 2014 was $35,000). |
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth information as of the close of business on April 14, 2015, concerning shares of our common stock and
other voting securities beneficially owned by each director and named executive officer, each other person beneficially owning
more than 5% of our Common Stock and by all directors and executive officers as a group. The column entitled "Percentage
of Outstanding Common Stock" shows the percentage of voting common stock beneficially owned by each listed person. The
column entitled "Percentage of Outstanding Series A Preferred Stock" shows the percentage of total Series A Preferred
Stock, par value $0.01 per share, beneficially owned by each listed person.
In
accordance with the rules of the SEC, the table gives effect to the shares of common stock that could be issued upon the exercise
of outstanding options and warrants within 60 days of April 14, 2015. Unless otherwise noted in the footnotes to the table and
subject to community property laws where applicable, the following individuals have sole voting and investment control with respect
to the shares beneficially owned by them. We have calculated the percentages of shares beneficially owned based on 7,039,679 shares
of Common Stock outstanding at April 14, 2015.
Name of Beneficial Owner (1) | |
Number of Shares of Common Stock Owned Beneficially | |
% of Outstanding Shares of Common Stock | |
Number of Shares of Series A Owned | |
% of Outstanding Series A Preferred Stock |
| |
| |
| |
| |
|
| |
| |
| |
| |
|
Michael Braunold | |
| 59,696 | (2) | |
| * | | |
| 100 | | |
| 100 | % |
| |
| | | |
| | | |
| | | |
| | |
Sidney Braun | |
| 8,750 | (3) | |
| * | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
All officers and directors | |
| 68,446 | | |
| * | | |
| 100 | | |
| 100 | % |
as a group (2 persons) | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
5% Stockholders | |
| | | |
| | | |
| | | |
| | |
AM145 Holdings LLC | |
| 355,000 | (4) | |
| 5.0 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
LE7 Consulting Group | |
| 370,000 | (5) | |
| 5.3 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
KCG Americas LLC | |
| 700,871 | (6) | |
| 9.9 | % | |
| | | |
| | |
(1) |
Except
as otherwise indicated, the address of each beneficial owner is c/o SPO Medical, 3 Gavish Street POB 2454, Kfar Saba, Israel
44425. |
(2) |
Includes
22,500 shares of our Common Stock that are issuable upon exercise of vested options issued under our 2005 Equity Incentive
Plan (the "2005 Plan"). |
(3) |
Represents
(i) shares issuable upon exercise of currently exercisable options under the Company's 2005 Non-Employee Directors Stock Option
Plan and (ii) warrants to purchase 5,000 shares of our Common Stock issued in December 2009. |
|
|
(4) |
The
above disclosure is based on a Schedule 13G filed by the stockholder on May 16, 2013. |
|
|
(5) |
Represents
(i) 145,000 shares of the Company’s Common and (ii) a warrant for the purchase of 225,000 shares of the Company’s
Common Stock. The above disclosure is based on a Schedule 13G filed by the stockholder on May 16, 2013. |
|
|
(6) |
The above disclosure
is based on a Schedule 13G filed by the stockholder on February 6, 2015, as amended. |
EQUITY
COMPENSATION PLAN INFORMATION
We
have two compensation plans (excluding individual stock option grants outside of such plans) under which our equity securities
are authorized for issuance to employees, directors and consultants in exchange for services - the 2005 Equity Incentive Plan
(the "2005 Plan") and the 2005 Non-Employee Directors Stock Option Plan (the "2005 Directors Plan"; together
with the 2005 Plan, the "Plans"). Our shareholders have approved these plans.
The
following table presents information as of December 31, 2014 with respect to compensation plans under which equity securities
were authorized for issuance, including the 2005 Plan and the Non-Employee Directors Plan and agreements granting options or warrants
outside of these plans.
| |
NUMBER OF SECURITIES | |
| |
|
| |
TO BE ISSUED UPON | |
WEIGHTED- AVERAGE | |
NUMBER OF SECURITIES |
| |
EXERCISE OF | |
EXERCISE PRICE OF | |
REMAINING AVAILABLE FOR |
| |
OUTSTANDING OPTIONS, | |
OUTSTANDING OPTIONS, | |
FUTURE ISSUANCE UNDER |
| |
WARRANTS OR RIGHTS | |
WARRANTS OR RIGHTS | |
EQUITY COMPENSATION PLANS |
| |
| |
| |
|
Equity compensation plans approved by security holders | |
| 95,000 | | |
$ | 7.80 | | |
6,500 |
Equity compensation plans not approved by security holders | |
| 295,884 | | |
$ | 0.30 | | |
|
Total | |
| 390,884 | | |
$ | 2.12 | | |
6,500 |
NON-SHAREHOLDER
APPROVED PLANS
The
following is a description of options and warrants granted to employees, directors, advisory directors and consultants that were
outstanding as of December 31, 2014.
As
of December 31, 2014, we had outstanding options and warrants to purchase an aggregate of 295,884 shares of our Common Stock which
were granted outside of the Plans. These are comprised of the following: (i) to employees 22,319, and (ii) 273,565 warrants issued
to service providers.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain
Relationships and Related Transactions
Since
the beginning of its last fiscal year, the Company has not engaged in any transaction, or any proposed transaction, to which the
Company or any of its subsidiaries was or is to be a party and (1) in which the amount involved exceeds the lesser of $120,000
or one percent of the average of the Company’s assets at year end for the last three completed fiscal years and (2) in which
any of the Company’s directors, nominees for director, executive officers or beneficial owners of more than 5% of its Common
Stock, or members of the immediate families of those individuals, had or will have, a direct or indirect material interest.
Director
Independence
The
Board believes that Sidney Braun meets the independence criteria set out in Rule 4200(a)(14) of the Marketplace Rules of the National
Association of Securities Dealers and the rules and other requirements of the SEC. Mr. Braun was appointed to the Audit Committee
in 2005, and is presently the sole member of the committee.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit
and Non-Audit Fees
The
following table presents fees for professional audit services rendered by Brightman Almagor Zohar & Co., Certified Public
Accountants, a member firm of Deloitte Touche Tohmatsu Limited, for the audit of our annual financial statements for the year
ended December 31, 2014 and 2013.
| |
Fiscal Year Ended | |
Fiscal Year Ended |
| |
December 31, 2014 | |
December 31, 2013 |
Audit Fees | |
$ | 26,500 | | |
$ | 26,500 | |
Audit Related Fees | |
$ | — | | |
| — | |
Tax Fees | |
$ | 3,500 | | |
$ | 3,500 | |
All Other Fees | |
$ | — | | |
| — | |
Total | |
$ | 30,000 | | |
$ | 30,000 | |
AUDIT
FEES were for professional services rendered for the audits of our consolidated financial statements, quarterly review of the
financial statements included in our Quarterly Reports on Form 10-QSB, consents, and other assistance required to complete the
year-end audit of the consolidated financial statements.
AUDIT-RELATED
FEES were for assurance and related services reasonably related to the performance of the audit or review of financial statements
and not reported under the caption Audit Fees.
TAX
FEES were for professional services related to tax compliance, tax authority audit support and tax planning.
All
OTHER FEES include professional advisory fees relating to Company’s efforts to raise additional funds through a public offering
of our securities outside the United States.
Our
audit committee (the "Audit Committee") reviews non-audit services rendered for each year and determines whether such
services are compatible with maintaining the accountants' independence. The Audit Committee's policy is to pre-approve all audit
services and all non-audit services that our independent public accountants are permitted to perform for us under applicable federal
securities regulations. As permitted by the applicable regulations, the Audit Committee's policy utilizes a combination of specific
pre-approval on a case-by-case basis of individual engagements of the independent public accountants and general pre-approval
of certain categories of engagements up to predetermined dollar thresholds that are reviewed annually by the Audit Committee.
Specific pre-approval is mandatory for, among other things, the annual financial statement audit engagement.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The
following exhibits are incorporated herein by reference or are filed with this report as indicated below.
EXHIBIT NO. |
|
DESCRIPTION |
|
|
|
2.1 |
|
Restated Capital
Stock Exchange Agreement dated as of April 21, 2005 among the Company, SPO Ltd. and the SPO Ltd. shareholders specified therein.
(1) |
3.1* |
|
Amended and Restated
Certificate of Incorporation of the Company. (2) |
3.2 |
|
Certificate of
Amendment of the Amended and Restated Certificate of Incorporation of the Company |
3.3 |
|
Articles of Amendment
– Certificate of Designation of Series A Preferred Stock Certificate of Incorporation of the Company (12) |
3.4 |
|
Bylaws of the
Company (1) |
3.5 |
|
Articles of Association
of SPO Medical Equipment Ltd. (3) |
4.1 |
|
Form of Promissory
Note issued to certain investors. (1) |
4.2 |
|
Form of Warrant
Instrument issued to certain investors.(1) |
4.3 |
|
Form of Promissory
Note issued in connection with the Subscription Agreement referred to in Item 10.1. (5) |
4.4 |
|
Form of Warrant
issued in connection with the Agreement referred to in Item 10.1 (4) |
4.5 |
|
Form of Warrant
(5) |
4.6 |
|
Form of Common
Stock Purchase Warrant (5) |
4.7 |
|
Form of Investor
Warrant used in the Financing Referred to in Exhibit 10.16. (6) |
4.8 |
|
Form of Investor
Warrant used in the Financing Referred to in Exhibit 10.17(11) |
10.1 |
|
Form of subscription
Agreement with certain investors. (4) |
10.2 |
|
Employment Agreement
effective as of May 18, 2005 between the Company and Michael Braunold. (7)+ |
10.3 |
|
Employment Agreement
effective as of May 18, 2005 between SPO Ltd. and Michael Braunold. (7)+ |
10.4 |
|
Company's 2005
Equity Incentive plan |
10.5 |
|
Company's
2005 Non-Employee Directors Stock option Plan |
10.5 |
|
Form of Subscription
Agreement between SPO Global Inc. and certain Buyers (4) |
10.6 |
|
Form of First
Amendment to Subscription Agreement between SPO Global Inc. and parties thereto. (8) |
10.6 |
|
Form of Second
Amendment to an SPO Subscription Agreement (8) |
10.7 |
|
Form of Warrant
Exercise and Note Conversion Agreement dated as of March 26, 2008 (9) |
10.9 |
|
Form
of Subscription Agreement (9) |
10.14 |
|
Alliance and License
Agreement, dated as of December 1, 2009 between SPO Medical Equipment Ltd. and SPO Medical Systems Ltd. (10) |
10.15 |
|
Placement Agency
Agreement dated as of July 12, 2010 by and between SPO Global Inc. and Emerson Equity LLC. (6) |
10.16 |
|
Form of Subscription
Agreement. (6) |
10.17 |
|
Form of Subscription
Agreement (11) |
10.18 |
|
Preferred Stock
Purchase Agreement dated August 26, 2013 between SPO Global Inc. and Michael Braunold (12) |
14.1 |
|
Code of Conduct
(11) |
31* |
|
Certification
of the Chief Executive Officer (Principal Executive officer and Principal financial and accounting officer) pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
32* |
|
Certification
of the Chief Executive Officer (Principal Executive officer and Principal financial and accounting officer) pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
|
XBRL
Instance Document |
101.SCH |
|
XBRL Taxonomy
Extension Schema |
101.CAL |
|
XBRL Taxonomy
Extension Calculation Linkbase |
101.DEF |
|
XBRL Taxonomy
Extension Definition Linkbase |
101.LAB |
|
XBRL Taxonomy
Extension Label Linkbase |
101.PRE |
|
XBRL Taxonomy
Extension Presentation Linkbase |
+
Management Agreement
* Attached
hereto
(1) |
Incorporated
by reference to Current Report on Form 8-K filed April 27, 2005. |
(2) |
Incorporated by
reference to the Company's Annual Report Form 10-K for the year ended December 31, 2010 |
(3) |
Incorporated by
reference to the Company's Annual Report Form 10-KSB for the fiscal year ended December 31, 2005 |
(4) |
Incorporated by
reference to the Company's Quarterly Report Form 10-QSB for the quarter ended September 30, 2006 |
(5) |
Incorporated by
reference to the Company's Quarterly Report Form 10-QSB for the quarter ended March 31, 2008 |
(6) |
Incorporated by
reference to the Company's Quarterly Report Form 10-Q for the quarter ended September 30, 2010 |
(7) |
Incorporated by
reference to the Company's Quarterly Report Form 10-QSB for the quarter ended June 30, 2005 |
(8) |
Incorporated by
reference to the Company's Quarterly Report Form 10-QSB for the quarter ended September 30, 2006 |
(9) |
Incorporated by
reference to the Company's Quarterly Report Form 10-QSB for the quarter ended March 31, 2008 |
(10) |
Incorporated
by reference to the Company's Annual Report Form 10-K for the year ended December 31, 2010 |
(11) |
Incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 |
(12) |
Incorporated by
reference to Current Report on Form 8-K filed August 30, 2013 |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE:
April 14, 2015 |
/s/
Michael Braunold |
|
Michael Braunold |
|
Chief Executive
Officer (Principal Executive Officer
and Principal Financial and Accounting Officer) and
Director |
In accordance
with the Exchange Act, this report has been signed below by the following persons on behalf of the issuer and in the capacities
and on the dates indicated.
SIGNATURE |
|
TITLE |
|
DATE |
|
|
|
|
|
/s/
Sidney Braun |
|
Chairman, Director |
|
April 14, 2015 |
Sidney Braun |
|
|
|
|
|
|
|
|
|
/s/
Michael Braunold |
|
President, Chief
Executive Officer and Director |
|
April 14, 2015 |
Michael Braunold |
|
|
|
|
SPO
GLOBAL INC. AND ITS SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2013
U.S.
DOLLARS IN THOUSANDS
INDEX
|
|
Page |
|
|
|
Report of Independent
Registered Public Accounting Firm |
|
F-1 |
|
|
|
Consolidated Balance
Sheets |
|
F-2 |
|
|
|
Consolidated Statements
of Operations |
|
F-3 |
|
|
|
Statements of
Changes in Stockholders' Deficiency |
|
F-4 |
|
|
|
Consolidated Statements
of Cash Flows |
|
F-5 |
|
|
|
Notes to Consolidated
Financial Statements |
|
F-6 |
![](image_001.jpg)
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Stockholders of
SPO
GLOBAL Inc.
We
have audited the accompanying consolidated balance sheets of SPO GLOBAL INC. ("the Company") and its subsidiary as of
December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders' deficiency and cash
flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, such consolidated financial statements, present fairly, in all material respects, the financial position of the Company
and its subsidiary as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company's recurring losses from operations and deficiency in stockholders'
equity raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are
also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Brightman
Almagor Zohar & Co
Brightman
Almagor Zohar & Co.
Certified
Public Accountants
A member
firm of Deloitte Touche Tohmatsu Limited
Tel-Aviv,
Israel
April 14,
2015
![](image_002.jpg)
SPO GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and
per share data)
| |
December 31, | |
December 31, |
| |
2014 | |
2013 |
| |
| |
|
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 2 | | |
$ | 286 | |
Accounts receivable | |
| 139 | | |
| — | |
Prepaid expenses and other accounts receivable | |
| 300 | | |
| 61 | |
| |
| | | |
| | |
| |
| 441 | | |
| 347 | |
| |
| | | |
| | |
LONG TERM ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Severance pay fund | |
| 159 | | |
| 168 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, NET | |
| 31 | | |
| 22 | |
| |
| | | |
| | |
Total assets | |
$ | 631 | | |
$ | 537 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Short-term loans | |
$ | 2,185 | | |
$ | 700 | |
Trade payables | |
| 67 | | |
| 38 | |
Employees and Payroll accruals | |
| 848 | | |
| 774 | |
Accrued expenses and other liabilities | |
| 512 | | |
| 531 | |
| |
| 3,612 | | |
| 2,043 | |
| |
| | | |
| | |
Long-Term Liabilities | |
| | | |
| | |
Long-Term Loans | |
| — | | |
| 882 | |
Accrued severance pay | |
| 258 | | |
| 271 | |
| |
| 258 | | |
| 1,153 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENT LIABILITIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’ DEFICIENCY | |
| | | |
| | |
Preferred stock $0.01 par value | |
| | | |
| | |
Authorized - 2,000,000 shares, issued and outstanding - 100 Series A shares at December 31, 2014 and 2013, respectively | |
| — | (*) | |
| — | (*) |
Common stock $0.01 par value- | |
| | | |
| | |
Authorized - 100,000,000 shares, issued and outstanding - 6,418,368 and 5,305,608 shares as at December 31, 2014 and 2013, respectively (**) | |
| 64 | | |
| 53 | |
Additional paid-in capital | |
| 18,974 | | |
| 18,971 | |
Accumulated deficit | |
| (22,277 | ) | |
| (21,683 | ) |
| |
| (3,239 | ) | |
| (2,659 | ) |
Total liabilities and stockholders’ deficiency | |
$ | 631 | | |
$ | 537 | |
| |
| | | |
| | |
(*) Less than $1 | |
| | | |
| | |
(**) The number of shares have been adjusted retroactively to reflect the one for twenty reverse split of our common stock dated October 7, 2013. | |
| | | |
| | |
The accompanying notes to these financial statements
are an integral part thereof.
SPO GLOBAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and
per share data)
| |
12 Months ended December 31, |
| |
2014 | |
2013 |
| |
| |
|
| |
| |
|
Revenues | |
$ | 461 | | |
$ | 556 | |
Cost of revenues | |
| 285 | | |
| 411 | |
| |
| | | |
| | |
Gross profit | |
| 176 | | |
| 145 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Research and development | |
| 13 | | |
| — | |
Selling and marketing | |
| 108 | | |
| 58 | |
General and administrative | |
| 442 | | |
| 447 | |
| |
| | | |
| | |
| |
| | | |
| | |
Total operating expenses | |
| 563 | | |
| 505 | |
| |
| | | |
| | |
Operating loss | |
| (387 | ) | |
| (360 | ) |
| |
| | | |
| | |
Financial expense, net | |
| (207 | ) | |
| (323 | ) |
Net loss for the period | |
$ | (594 | ) | |
$ | (683 | ) |
| |
| | | |
| | |
Basic and diluted loss per share (*) | |
$ | (0.10 | ) | |
$ | (0.17 | ) |
Weighted average number of shares outstanding used in computation of basic loss per share (*) | |
| 6,046,686 | | |
| 4,103,186 | |
| |
| | | |
| | |
(*) The number of shares have been adjusted retroactively to reflect the one for twenty reverse split of our common stock dated October 7, 2013. | |
| | | |
| | |
The accompanying notes to these financial statements
are an integral part thereof.
SPO GLOBAL INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
U.S. dollars in thousands (except share and
per share data)
| |
| |
Additional | |
| |
|
| |
| |
paid-in | |
Accumulated | |
|
| |
Stock capital | |
capital | |
deficit | |
Total |
Balance as of January 1, 2013 | |
$ | 565 | | |
$ | 17,832 | | |
$ | (21,000 | ) | |
$ | (2,603 | ) |
| |
| | | |
| | | |
| | | |
| | |
Conversion of convertible debt to shares | |
| 307 | | |
| (158 | ) | |
| | | |
| 149 | |
Issuance of debt containing beneficial conversion feature | |
| | | |
| 204 | | |
| | | |
| 204 | |
Exercise of Penny warrants | |
| 24 | | |
| | | |
| | | |
| 24 | |
Revaluation of warrants | |
| | | |
| 12 | | |
| | | |
| 12 | |
Shares issued for cash ($0.025 per share) | |
| 100 | | |
| 127 | | |
| | | |
| 227 | |
Issuance of warrants to an investor | |
| | | |
| 2 | | |
| | | |
| 2 | |
Issuance of ordinary stock to service providers | |
| 1 | | |
| 8 | | |
| | | |
| 9 | |
1 for 20 reverse stock split | |
| (944 | ) | |
| 944 | | |
| | | |
| — | |
Net Loss | |
| | | |
| | | |
| (683 | ) | |
| (683 | ) |
Balance as of December 31, 2013 | |
$ | 53 | | |
$ | 18,971 | | |
$ | (21,683 | ) | |
$ | (2,659 | ) |
| |
| | | |
| | | |
| | | |
| | |
Conversion of convertible debt to shares | |
| 11 | | |
| 3 | | |
| | | |
| 14 | |
Net Loss | |
| | | |
| | | |
| (594 | ) | |
| (594 | ) |
Balance as of December 31, 2014 | |
$ | 64 | | |
$ | 18,974 | | |
$ | (22,277 | ) | |
$ | (3,239 | ) |
The accompanying notes to these financial statements
are an integral part thereof.
SPO GLOBAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands (except share and
per share data)
| |
12 Months ended December 31, |
| |
2014 | |
2013 |
| |
| |
|
Cash Flows from Operating Activities | |
| | | |
| | |
Net Loss for the period | |
$ | (594 | ) | |
$ | (683 | ) |
Adjustments to reconcile loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 6 | | |
| 7 | |
Non-cash expenses related to convertible debt | |
| 40 | | |
| 103 | |
Stock-based compensation to service providers | |
| — | | |
| 9 | |
Non-cash (income) related to warrants to issue shares | |
| — | | |
| (18 | ) |
Non-cash expense related to warrants issued to an investor | |
| — | | |
| 2 | |
Changes in assets and liabilities: | |
| | | |
| | |
Increase in accrued interest payable on loans | |
| 152 | | |
| 50 | |
(Increase) in accounts receivable | |
| (139 | ) | |
| — | |
(Increase) in prepaid expenses and other receivables | |
| (239 | ) | |
| (51 | ) |
Increase in trade payables | |
| 29 | | |
| 33 | |
(Decrease) increase in accrued severance pay, net | |
| (4 | ) | |
| 10 | |
Increase in accrued expenses and other liabilities | |
| 55 | | |
| 264 | |
Net cash used in operating activities | |
| (694 | ) | |
| (274 | ) |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchase of property | |
| (15 | ) | |
| (29 | ) |
Net cash used in investing activities | |
| (15 | ) | |
| (29 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from sale of shares and warrants, net of issuance costs | |
| — | | |
| 227 | |
Payments of loans | |
| — | | |
| (14 | ) |
Proceeds from loan | |
| 425 | | |
| 352 | |
Net cash provided by financing activities | |
| 425 | | |
| 565 | |
| |
| | | |
| | |
Increase (decrease) in cash and cash equivalents | |
| (284 | ) | |
| 262 | |
Cash and cash equivalents at the beginning of the period | |
| 286 | | |
| 24 | |
Cash and cash equivalents at the end of the period | |
$ | 2 | | |
$ | 286 | |
| |
| | | |
| | |
Non cash transactions | |
| | | |
| | |
Conversion of convertible debt to shares | |
$ | 14 | | |
$ | 149 | |
Exercise of warrants in consideration of concession of debt | |
$ | — | | |
$ | 24 | |
Discount on convertible notes recognized to beneficial conversion feature | |
$ | — | | |
$ | 204 | |
Reduced exercise price of warrants in consideration of concession of debt | |
$ | — | | |
$ | 12 | |
| |
| | | |
| | |
Supplemental Disclosure of Cash Flow Information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | 138 | | |
$ | 76 | |
The accompanying notes to these financial statements
are an integral part thereof.
SPO
GLOBAL INC.
NOTES
TO THE FINANCIAL STATEMENTS
U.S.
dollars in thousands (except share data)
NOTE
1 GENERAL
SPO
Global Inc. (hereinafter referred to as "SPO" or the "Company") is engaged in the design, development and
marketing of non-invasive pulse oximetry technologies to measure blood oxygen saturation and heart rate. The applications are
marketed in the following sectors; professional medical care, homecare, sports, safety and search & rescue.
The
Company was originally incorporated under the laws of the State of Delaware in September 1981 under the name "Applied DNA
Systems, Inc." On November 16, 1994, the Company changed its name to "Nu-Tech Bio-Med, Inc." On December 23, 1998,
the Company changed its name to "United Diagnostic, Inc." Effective April 21, 2005, the Company acquired (the "Acquisition
Transaction") 100% of the outstanding capital stock of SPO Medical Equipment Ltd., a company incorporated under the laws
of the State of Israel ("SPO Ltd."), pursuant to a Capital Stock Exchange Agreement dated as of February 28, 2005 between
the Company, SPO Ltd. and the shareholders of SPO Ltd., as amended and restated on April 21, 2005 (the "Exchange Agreement").
In exchange for the outstanding capital stock of SPO Ltd., the Company issued to the former shareholders of SPO Ltd. a total of
5,769,106 shares of the Company's common stock, par value $0.01 per share ("Common Stock"), representing approximately
90% of the Common Stock then issued and outstanding after giving effect to the Acquisition Transaction. As a result of the Acquisition
Transaction, SPO Ltd. became a wholly owned subsidiary of the Company as of April 21, 2005 and, subsequent to the Acquisition
Transaction, the Company changed its name to "SPO Medical Inc." Upon consummation of the Acquisition Transaction, the
Company effectuated a forward subdivision of the Company's Common Stock issued and outstanding on a 2.65285:1 basis.
The
merger between UNDI and the SPO Ltd was accounted for as a reverse merger. As the shareholders of SPO Ltd received the largest
ownership interest in the Company, SPO Ltd was determined to be the "accounting acquirer" in the reverse acquisition.
As a result, the historical financial statements of the Company were replaced with the historical financial statements of the
SPO Ltd.
The
Company and its subsidiary, SPO Ltd., are collectively referred to as the "Company". In January 2010, the Company restructured
its operations to focus primarily on licensing its core technology for non-medical market applications. Following the restructure,
the Company ceased its previous operations associated with the distribution of the PulseOx line in the medical field. In February
2011, the Company transferred research and development activities to subcontractors, thereby ceasing all internal research and
development activities.
Effective
October 4, 2013, the Company changed its corporate name to “SPO Global Inc”.
The
Company implemented a 1-for-20 reverse stock split on October 7, 2013. All share and per share amounts and calculations in these
financial statements have been retroactively adjusted to reflect the effects of the reverse stock split.
NOTE
2 GOING CONCERN
As
reflected in the accompanying financial statements, the Company’s operations for the year ended December 31, 2014, resulted
in a net loss of $594, and the Company’s balance sheet reflects a net stockholders’ deficit of $3,239. The Company’s
ability to continue operating as a “going concern” is dependent on its ability to raise sufficient additional working
capital. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial
statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. As disclosed in previous filings with the Securities and Exchange Commission, management has
been attempting to raise additional cash from current and potential stockholders and plans to continue these efforts. There can
be no assurance that this capital will be available and if it is not, the Company may be forced to substantially curtail or cease
operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE
3 SIGNIFICANT ACCOUNTING POLICIES
The
financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the
United States of America.
Principles
of Consolidation:
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, SPO Ltd. All material inter-company
accounts and transactions have been eliminated in consolidation.
Use
of Estimates:
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Financial
Statements in U.S. dollars:
The
reporting currency of the Company is the U.S. dollar ("dollar"). The dollar is the functional currency of the Company.
Transactions and balances originally denominated in dollars are presented at their original amounts. Non-dollar transactions and
balances are remeasured into dollars in accordance with the principles set forth in Accounting Standards Codification (ASC) 830-10,
"Foreign Currency Translation". All exchange gains and losses from remeasurement of monetary balance sheet items resulting
from transactions in non-dollar currencies are recorded in the statement of operations as they arise.
Cash
and Cash Equivalents:
The
Company considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.
Property
and Equipment:
Property
and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets, as follows:
Office furniture, equipment and molds |
five - fifteen years |
Automobile |
six years |
In
accordance with ASC 360-10, “Accounting for Impairment or Disposal of Long-Lived Assets”, management reviews long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable
based on estimated future undiscounted cash flows. If so indicated, an impairment loss would be recognized for the difference
between the carrying amount of the asset and its fair value. There were no impairment losses in the years ended December 31, 2014
and 2013.
Revenue
Recognition:
The
company generates revenues principally from manufacturing of products, on a subcontracted basis, and licensing of its core technology
for non-medical market applications. Revenues are recognized when products are shipped and when the license fee is fixed, determinable
and collectability is reasonably assured.
Research
and Development Costs:
Research
and development costs, net of government grants and participation by others, are charged to expenses as incurred.
Income
Taxes:
The
Company accounts for income taxes in accordance with ASC 740-10, "Accounting for Income Taxes" This statement prescribes
the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value.
Fair
Value of Financial Instruments:
The
financial instruments of the Company consist mainly of cash and cash equivalents, accounts payable and short-term loans. In view
of their nature, the fair value of the Company’s financial instruments is usually identical or close to their carrying value.
Stock-Based
Compensation:
Effective
January 1, 2006, the Company adopted ASC 718, "Share-Based Payment" requiring that compensation cost relating to share-based
payment awards made to employees and directors be recognized in the financial statements. The awards issued under Company's stock-based
compensation plans to employees are described in Note 11, “Stockholder's Deficiency". The cost for such awards
is measured at the grant date based on the calculated fair value of the award. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award)
in the Company's Consolidated Statement of Operations.
Stock-based
compensation cost relating to stock options is based on the value of the portion of the award that is ultimately expected to vest. ASC
718-10 requires forfeitures to be estimated at the time of grant in order to estimate the portion of the award that will
ultimately vest. Such portion is currently estimated at 0%, based on the Company's historical rates of forfeiture.
The
following table summarizes the effects of stock-based compensation resulting from the application of ASC 718 and ASC 505-50 included
in Statement of Operations:
| |
Year ended December 31, |
| |
2014 | |
2013 |
| |
| |
|
Selling and marketing | |
$ | — | | |
$ | 9 | |
General and administrative | |
| — | | |
| — | |
Financing | |
| — | | |
| — | |
| |
$ | — | | |
$ | 9 | |
On
May 8, 2013, 50,000 (post reverse stock split) warrants were issued to a consultant. The fair value of the warrants in the amount
of $9 was calculated using Black-Scholes and the following assumptions, estimated life of 0.25 years remaining, volatility of
309%, risk free interest rate of 0.04%, and dividend yield of 0%.
Basic
and Diluted Net Loss Per Share:
Basic
and diluted net loss per share is presented in accordance with ASC 260-10, "Earnings Per Share" for all periods presented.
Basic and diluted net loss per share of Common Stock was determined by dividing net loss attributable to Common stock holders
by weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share of Common Stock
is the same as basic net loss per share of Common Stock for all periods presented as the effect of the Company's potential additional
shares of Common Stock were anti-dilutive.
All
outstanding stock options and warrants have been excluded from the calculation of the diluted net loss per share of Common Stock
because all such securities are anti-dilutive since the Company reported losses for those years.
NOTE
4 PROPERTY AND EQUIPMENT, NET
| |
As of December 31, |
| |
2014 | |
2013 |
Cost: | |
| | | |
| | |
Office furniture, equipment and molds | |
$ | 20 | | |
$ | 5 | |
Automobile | |
$ | 24 | | |
$ | 24 | |
| |
| | | |
| | |
Less accumulated depreciation: | |
$ | 13 | | |
$ | 7 | |
| |
| | | |
| | |
Property and Equipment, net | |
$ | 31 | | |
$ | 22 | |
Depreciation
expenses for the years ended December 31, 2014 and 2013 amounted to $6 and $7, respectively.
NOTE
5 LOANS PAYABLE
In
December 2005, the Company completed the private placement to certain accredited investors that commenced in April 2005 for the
issuance of up to $1,544 of units of its securities, with each unit comprised of (i) the Company’s 18 month 8% promissory
note (collectively, the "April 2005 Notes") and (ii) three year warrants (expired). As of December 31, 2014, the remaining
outstanding April 2005 Notes principal and accrued interest totaled $692. The Company reached an agreement with the investors
to extend the maturity date of loans totaling $304 for an additional 24 months to December 31, 2015. The remaining balance of
$388 is past due.
In
July 2006, the Company commenced a private placement of units of its securities, the (“Loan Notes”), with each unit
comprised of (i) the Company’s 8% month promissory note due 12 months from the date of issuance and (ii) warrants, pursuant
to which the Company raised $550 (the maximum amount that could be raised from this offering). As of December 31, 2014, approximately
$191 in respect of the principal and accrued interest on these notes remains outstanding. These notes are past due.
On
March 25, 2011, the Company and one of its stockholders entered into a loan agreement pursuant to which the stockholder loaned
to the Company $50 for working capital purposes. The original maturity date of the loan was March 25, 2012. The loan continues
to bear interest at a per annum rate of 8% and is now payable on demand.
In
July, 2011, the Company received a $5 loan from an investor. The loan was scheduled to mature in June 2013 and bear interest at
the rate of 8% per annum. The loan is past due.
In
August and November, 2011, the Company received $75 and $200 from existing investors on account for loans. The loans were scheduled
to mature in August and November 2013 and bear interest at the rate of 15% per annum. Principal and accrued interest is convertible
into shares of the Company’s common stock at the option of the holder at the conversion price of $0.50 (post reverse stock
split) per share. In August 2013, the Company issued to the investors warrants, exercisable through August and November, 2015,
to purchase, in the aggregate, up to 45,833 shares of our common stock at a per share exercise price of $0.50. The Company reached
an agreement with the investors to extend the maturity date of each loan to February and May 2015, respectively.
On
March 22, 2012, the Company entered into Convertible Note Agreements with two investors pursuant to which the Company
received $25 from each investor. The original maturity date of the notes was originally scheduled for September 22, 2012. The
notes bear interest at a per annum rate of 20%. The principal and accrued interest are convertible to common stock of the
Company at a conversion rate of $0.50 (post reverse stock split) per share. The Company reached an agreement with the
investors to extend the maturity date of each loan for an additional 18 months to February 21, 2015 and March 22,
2015.
On
May 1, 2012, the Company entered into a Convertible Note Agreement with an investor pursuant to which the Company received $25.
The maturity date of the note was November 1, 2012. The note representing the advance bears interest at a per annum rate of 20%.
The principal and accrued interest are convertible to common stock of the Company at a conversion rate of $0.50 (post reverse
stock split) per share. The Company reached an agreement with the investor to extend the maturity date to May 1, 2015.
On
June 19, 2012, the Company entered into a Convertible Note Agreement with an investor pursuant to which the Company received $50.
The original maturity date of the note representing the advance was June 19, 2013. The Note bears interest at a per annum rate
of 23%. The principal and accrued interest are convertible to common stock of the Company at a conversion rate of $0.50 (post
reverse stock split) per share. The Company reached an agreement with the investor to extend the maturity date to December 19,
2014. The loan is past due.
On
July 19, 2012, the Company entered into a Convertible Note Agreement with an investor pursuant to which the Company received $50.
The original maturity date of the note representing the advance was July 19, 2013. The note bears interest at a per annum rate
of 23%. The principal and accrued interest are convertible to common stock of the Company at a conversion rate of $0.50 (post
reverse stock split) per share. The Company reached an agreement with the investor to extend the maturity date s to January 19,
2015.
On
August 23, 2012, the Company entered into a Convertible Note Agreement with an investor pursuant to which the Company received
$50. The original maturity date of the note was August 23, 2013. The note bears interest at a per annum rate of 23%. The principal
and accrued interest are convertible to common stock of the Company at a conversion rate of $0.50 (post reverse stock split) per
share. The Company reached an agreement with the investor to extend the maturity date to February 23, 2015.
On
August 27, 2012, the Company entered into a Loan Agreement with an investor pursuant to which the Company was to be advanced $29
in monthly installments ranging from $4 to $1 from August 2012 through June 2013. As of December 31, 2014, the Company received
$21 pursuant to the loan agreement. The loan is due on demand and is non-interest bearing.
On
April 12, 2013, the Company entered into a Convertible Note Agreement pursuant to which the Company received an additional loan
in the principal amount of $32.5 from the above referenced investor. The scheduled maturity date of the note was April 12, 2014.
The note bears interest at a per annum rate of 8%. Commencing October 9, 2013, the Investor is entitled to convert all or any
part of the outstanding and unpaid principal amount on the note, as well as the interest accrued, into shares of the Company’s
Common Stock at a conversion rate equal to 55% of the average of the five lowest closing sale prices during the ten days preceding
the conversion date. As of December 31, 2014, $28 of principal and accrued interest was converted into shares of Common Stock.
On
December 27, 2013, the Company entered into agreements with an accredited investor and a current shareholder of the Company,
relating to a private placement of $250 in principal amount of the Company’s Convertible Promissory Note due December
28, 2015. The note was issued pursuant to a Subscription Agreement dated as of December 27, 2013 between the Company and the
Investor. Interest on the Note accrues at the rate of 10% per annum and is payable in cash in arrears upon the earlier of (i)
each six months from the date of the note (ii) or the date of conversion or (iii) at maturity, whichever occurs first, and
will continue to accrue until the Note is fully converted and/or paid in full. The note is convertible into shares of the
Company’s common stock at the Investor’s option at a conversion rate equal to the average of the closing price of
the Common Stock for the ten consecutive trading days immediately preceding the date a notice of conversion is delivered. The
Investor may not exercise the conversion right if the shares issuable upon conversion, together with shares held by the
Investor, exceed 9.99% of the then outstanding shares of the Company after such conversion and/or exercise. Under the terms
of the Subscription Agreement, at any time that the note (or any portion thereof) is converted, the Investor is to receive
warrants, exercisable for two years following the date of issuance for Common Stock equal to 50% of the number of shares of
Common Stock issued upon conversion of the Note (or any part thereof) at a per share warrant exercise price equal to twice
the conversion price.
On
May 23, 2014, the Company entered into a loan agreement with an investor pursuant to which the Company received a loan in the
principal amount of $175 to be used for order financing. The principle amount of the loan with a $10 fee is repayable by September
30, 2014 and such loan may be pre-paid, at the option of the Company, without notice or penalty. If the loan is not repaid by
the scheduled maturity date, the principle amount of the loan shall begin to accrue interest at a rate of 12% per annum from the
maturity date until repayment in full.
On
July 1, 2014, the Company entered into a loan agreement with an investor pursuant to which the Company received a loan in the
principal amount of $50 to be used for order financing. The principle amount of the loan with a $4 fee was repayable by November
30, 2014. If the loan is not repaid by the scheduled maturity date, the principle amount of the loan shall begin to accrue interest
at a rate of 12% per annum from the maturity date until repayment in full.
On
August 1, 2014, the Company entered into a loan agreement with an investor pursuant to which the Company received a loan in the
principal amount of $200 to be used for order financing. The principle amount of the loan with a $16 fee was repayable by November
30, 2014. If the loan is not repaid by the scheduled maturity date, the principle amount of the loan shall begin to accrue interest
at a rate of 12% per annum from the maturity date until repayment in full.
NOTE
6 EMPLOYEES AND PAYROLL ACCRUALS
The
Company recorded a liability to its employees in respect of unpaid salaries and employment benefits, which also includes accruals
for salaries and benefits thereon that have been deferred since July 2008. On July 15, 2010, the Company issued to part of the
employees three year warrants to purchase up to 345,000 shares of the Company’s Common Stock at a per share exercise price
of $0.20 (post reverse stock split) in consideration of the waiver by such employees of amounts payable to them. As of December
31, 2014 and 2013, the Company’s liability to its employees in respect of unpaid salaries aggregated $705 and $622, respectively.
NOTE
7 ACCRUED EXPENSES AND OTHER LIABILITIES
| |
As of December 31, |
| |
2014 | |
2013 |
| |
| |
|
Royalties to the office of the Chief Scientist | |
$ | 452 | | |
$ | 467 | |
Other accrued expenses | |
| 60 | | |
| 64 | |
| |
$ | 512 | | |
$ | 531 | |
NOTE
8 ACCRUED SEVERANCE PAY
The
Company's liability for severance pay is calculated in accordance with Israeli law based on the most recent salary paid to employees
and the length of employment in the Company. The Company's liability for severance pay has been fully provided for. Part of the
liability is funded through individual insurance policies. These policies are assets of the Company and under labor agreements,
subject to certain limitations, they may be transferred to the ownership of the beneficiary employees.
Severance
pay expense/(income) for the years ended December 31, 2014 and 2013 amounted to $(22) and $10, respectively, after conversion
from NIS to U.S. dollars.
NOTE
9 CAPITAL TRANSACTIONS
Common
Stock and Common Stock Equivalents
On
May 8, 2013, the Company entered into a Subscription Agreement with two accredited investors (the “Investors”),
pursuant to which the Company sold and issued to the Investors (the “Private Placement”) a total of 500,000 (post
reverse stock split) shares of the Company's Common Stock for proceeds of $227, net of issuance expenses. In connection with
the Private Placement, warrants (the “Warrants”) for an additional 250,000 (post reverse stock split) shares of
the Company’s Common Stock were issued to one of the Investors. The Warrants are exercisable through May 8, 2018 at a
per share exercise price of $2.00 (post reverse stock split).
On
May 29, 2013, the Company issued 118,332 (post reverse stock split) shares to satisfy an obligation to issue shares.
On
December 9, 2013, the Company issued 150,000 (post reverse stock split) shares to a service provider for consulting services.
The shares were valued at the market price on the date issued.
During the
year ended December 31, 2013, the Company issued 1,713,743 (post reverse stock split) shares of its common stock upon conversion
of $149 in principal and accrued interest of convertible promissory notes.
During the
year ended December 31, 2014, the Company issued 1,112,760 (post reverse stock split) shares of its common stock upon conversion
of $14 in principal of convertible promissory notes.
Series
A Preferred Stock
On
August 26, 2013, the Company designated 100 shares of its preferred stock as Series A Preferred Stock, par value $0.01 per share
(the “Series A Preferred Stock”). Among other things, the Certificate of Designation for the Series A Preferred
Stock provides that each one share of Series A Preferred Stock has voting rights equal to (x) 0.019607 multiplied by the
total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the "Numerator"), divided
by (y) 0.49, minus (z) the Numerator. On August 26, 2013, the Company entered into a Preferred Stock Purchase Agreement
pursuant to which it issued one hundred (100) shares of its Series A Preferred Stock to its Chief Executive Officer. The Series
A Preferred Stock has no economic value and was issued solely for voting purposes.
NOTE
10 WARRANTS
On
May 8, 2013, 12,500 (post reverse stock split) warrants were issued to an investor in conjunction with financing. The fair value
of the warrants was calculated using Black-Scholes and the following assumptions, estimated life of 0.25 years remaining, volatility
of 309%, risk free interest rate of 0.04%, and dividend yield of 0%.
On
December 31, 2013, 160,000 warrants were issued to an investor in conjunction with financing. The fair value of the warrants was
calculated using Black-Scholes and the following assumptions, estimated life of 0.25 years remaining, volatility of 400%, risk
free interest rate of 0.07%, and dividend yield of 0%.
NOTE
11 STOCKHOLDER'S DEFECIENCY
Authorized
Shares
The
Company has two classes of capital stock: common and preferred. As of December 31, 2014 and 2013, the Company had 100,000,000
shares of common stock authorized and 2,000,000 shares of preferred stock authorized both at $0.01 par value per share.
The
Company’s Board of Directors is authorized to issue from time to time up to 2 million shares of preferred stock in one or
more series, and to fix for each such series such voting power and such designations, preferences, relative participating or other
rights, redemption rights, conversion privileges and such qualifications or restrictions thereof as shall be adopted by the board
and set forth in an amendment to the Company’s Certificate of Incorporation. Unless a vote of any shareholders is required
pursuant to the rights of the holders of preferred stock then outstanding, the board may from time to time increase or decrease
(but not below the number of shares of such series outstanding) the number of shares of any series of Preferred Stock subsequent
to the issuance of shares of that series.
Reverse
Stock Split
The
Company declared a 1-for-20 reverse stock split with an effective date of October 7, 2013. All share and per share amounts and
calculations in these financial statements have been retroactively adjusted to reflect the effects of the reverse stock split.
Equity
Incentive Plans
In
April 2005, the Company adopted the 2005 Equity Incentive Plan (the "2005 Plan"). A total of 87,500 (post reverse stock
split) shares of Common Stock were originally reserved for issuance under the 2005 Plan. The 2005 Plan provides for the grant
of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, bonus stock, awards in lieu
of cash obligations, other stock-based awards and performance units. The 2005 Plan also permits cash payments under certain conditions.
The compensation committee of the Board of Directors is responsible for determining the type of award, when and to who awards
are granted, the number of shares and the terms of the awards and exercise prices. The options are exercisable for a period not
to exceed ten years from the date of grant. Vesting periods range from immediately to four years. Under the 2005 plan options
granted expire no later than the tenth anniversary from the date of the grant.
In
April 2005, the Company adopted the 2005 Non-Employee Directors Stock Option Plan (the "2005 Directors Plan") providing
for the issuance of up to 20,000 (post reverse stock split) shares of Common Stock to non-employee directors. Under the 2005 Directors
Plan, only non-qualified options may be issued and they will be exercisable for a period of up to six years from the date of grant.
With
respect to compensation expenses recorded in 2014 and 2013, relating to options granted through December 31, 2014, the Company
applied the provisions of ASC 718-10, which require employee share-based equity awards to be accounted for under the fair value
method, ASC 718-10 requires the use of an option pricing model for estimating fair value, which is then amortized to
expense over the service periods.
During
2014 and 2013 the Company recorded Stock-based compensation expenses in the amount of $0 and $9, respectively.
The
2005 Plan and the Non-Employee Directors Plan authorized options exercisable into 95,000 (post reverse stock split) shares of
common stock at an exercise price of $7.80. As of December 31, 2014, options for an aggregate of 6,500 (post reverse stock split)
shares of Common Stock remain available for future grants under the Company’s 2005 Plan and 2005 Directors Plan.
Stock
Options:
Options
outstanding and exercisable at December 31, 2014 and 2013 (post reverse stock split):
| |
As of December 31, 2014 |
| |
Amount of Options | |
Weighed Average Exercise Price |
| |
| |
|
Outstanding at the beginning of the year | |
| 77,500 | | |
$ | 9.20 | |
Expired | |
| 20,450 | | |
| — | |
Outstanding at the end of the year | |
| 57,050 | | |
$ | 9.41 | |
| |
| | | |
| | |
Exercisable at the end of the year | |
| 57,050 | | |
$ | 9.41 | |
| |
As of December 31, 2013 |
| |
Amount of Options | |
Weighed Average Exercise Price |
| |
| |
|
Outstanding at the beginning of the year | |
| 77,500 | | |
$ | 9.20 | |
Forfeited | |
| — | | |
| — | |
Outstanding at the end of the year | |
| 77,500 | | |
$ | 9.20 | |
| |
| | | |
| | |
Exercisable at the end of the year | |
| 77,500 | | |
$ | 9.20 | |
| |
| | | |
| | |
The
options outstanding as of December 31, 2014, have been separated into ranges of exercise price as follows:
Range of exercise price | |
Options outstanding as of December 31, 2014 | |
Weighted average remaining contractual life (years) | |
Weighted average exercise price | |
Options exercisable as of December 31, 2014 | |
Weighted average exercise price of options exercisable |
| |
| |
| |
| |
| |
|
$ | 2.60 | | |
| 24,250 | | |
| 3.69 | | |
$ | 2.60 | | |
| 24,250 | | |
$ | 2.60 | |
$ | 3.00 | | |
| 6,650 | | |
| 3.83 | | |
$ | 3.00 | | |
| 6,650 | | |
$ | 3.00 | |
$ | 12.00 | | |
| 18,150 | | |
| 0.97 | | |
$ | 12.00 | | |
| 18,150 | | |
$ | 12.00 | |
$ | 17.00 | | |
| 3,000 | | |
| 2.00 | | |
$ | 17.00 | | |
| 3,000 | | |
$ | 17.00 | |
$ | 37.00 | | |
| 5,000 | | |
| 1.80 | | |
$ | 37.00 | | |
| 5,000 | | |
$ | 37.00 | |
| | | |
| 57,050 | | |
| 2.59 | | |
$ | 9.41 | | |
| 57,050 | | |
$ | 9.41 | |
Stock
Warrants
The
Company has the following warrants outstanding (post reverse stock split) as of December 31, 2014:
Issuance date | |
number of warrants issued | |
Exercise price | |
Exercisable as of December 31, 2014 | |
Exercisable Through |
| |
| |
| |
| |
|
2005-2010 (1) | |
| 245,884 | | |
| 0.20 | | |
| 245,884 | | |
April -September 2015 |
2012 (2) | |
| 45,833 | | |
| 0.50 | | |
| 45,833 | | |
October 2015 |
2013 (3) | |
| 160,000 | | |
| 0.10 | | |
| 160,000 | | |
December 2019 |
2013 (4) | |
| 12,500 | | |
| 2.00 | | |
| 12,500 | | |
May 2018 |
2013 (5) | |
| 50,000 | | |
| 0.80 | | |
| 50,000 | | |
May 2018 |
(1) |
|
Warrants
issued to service providers 223,565, and ex-employees 22,319. |
|
|
|
(2) |
|
Warrants
issued to investors. |
|
|
|
(3) |
|
Warrants
issued to lenders in return for extended maturity dates. |
|
|
|
(4) |
|
Warrants
issued to investors. |
|
|
|
(5) |
|
Warrants
issued in connection with capital raise. |
Dividends
The
Company does not intend to pay cash dividends in the foreseeable future.
NOTE
12 FINANCIAL EXPENSE
Financial
expense is comprised of the following:
| |
Year Ended | |
Year Ended |
| |
December 31, | |
December 31, |
| |
2014 | |
2013 |
Non-cash expenses related to convertible debt | |
$ | (40 | ) | |
$ | (103 | ) |
| |
| | | |
| | |
Non-cash expenses related to warrants to issue shares | |
| — | | |
| 18 | |
| |
| | | |
| | |
Interest in respect of debt instruments and liabilities | |
| (278 | ) | |
| (126 | ) |
| |
| | | |
| | |
Exchange rate differences caused by fluctuations in the exchange rate with the New Israeli Shekel (“NIS”) on liabilities denominated in NIS held by the subsidiary | |
| 111 | | |
| (112 | ) |
| |
| | | |
| | |
| |
$ | (207 | ) | |
$ | (323 | ) |
NOTE
13 DEFERRED TAXES
Measurement
of taxable income under the Income Tax Law (Inflationary Adjustments), 1985:
The
results for tax purposes of the Israeli subsidiary are measured in terms of earnings in NIS. As explained in Note 3, the functional
currency is the U.S. dollar. The Company has not provided deferred income taxes on the difference between the functional currency
and the tax bases of assets and liabilities at the Israeli subsidiary.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
In
accordance with ASC 740-10, the components of deferred income taxes are as follows:
| |
As of December 31, |
| |
2014 | |
2013 |
| |
| |
|
Tax on net operating losses carryforward | |
$ | 6,374 | | |
$ | 6,030 | |
Less - valuation allowance | |
| (6,374 | ) | |
| (6,030 | ) |
| |
$ | — | | |
$ | — | |
The
Company has provided valuation allowances in respect of deferred tax assets resulting from tax loss carryforward and other temporary
differences. Management currently believes that since the Company has a history of losses it is more likely than not that the
deferred tax regarding the loss carryforward and other temporary differences will not be realized in the foreseeable future.
Net
operating loss carryforwards as of December 31, 2014 and 2013 are as follows:
| |
As of December 31, |
| |
2014 | |
2013 |
| |
| |
|
Israel | | |
$ | 11,671 | | |
$ | 10,749 | |
USA | | |
| 9,876 | | |
| 9,550 | |
Total | | |
$ | 21,547 | | |
$ | 20,299 | |
Net
operating losses in Israel may be carried forward indefinitely. Net operating losses in the U.S. are available through 2034.
NOTE
14 COMMITMENTS AND CONTINGENCIES
Government
of Israel
The
Company’s wholly owned subsidiary, SPO Ltd., is committed to pay royalties to the Office of the Chief Scientist of the
Government of Israel (“OCS”) on sales of products, the research and development of which the OCS has participated
in by way of grants, up to the amount of 100%-150% of the grants received plus interest at dollar LIBOR. The royalties are
payable at a rate of 3% for the first three years of product sales and 3.5% thereafter. The total amount of grants received
or accrued, net of royalties paid or accrued, as of December 31, 2014 was $1.3 million. The refund of the grants is
contingent upon the successful outcome of the research and development and the attainment of sales. The Company has no
obligation to refund these grants, if sales are not generated. The financial risk is assumed completely by the OCS. The
grants were received from the OCS on a project-by-project basis. If the project fails the Company has no obligation to repay
any grant received for the specific unsuccessful or aborted project. As of December 31, 2014 and 2013 the Company has
recorded a provision for $452 and $467, respectively, in royalties from sales of its products. Owing to the current financial
situation of the Company, the Company has deferred these payments under an informal agreement with the OCS.
Contractual
Undertaking to a Private Party
Under
the Subscription Agreement dated December 27, 2013 referred to in Note 5, the Company agreed to pay to the Investor the amount
of Five Dollars in respect of each baby monitor which incorporates the Company’s patented PulseOx technology that it sells
and for which it receives payment, up to a maximum amount of $75 (the “Revenue Based Payment”). Additionally, 50%
the aggregate amount of the Revenue Based Payment made during the term of the promissory note representing the advance made by
such investor shall be applied to the amount outstanding under such note. Accordingly, upon payment or conversion, the amount
being repaid or converted under the note will be reduced by an amount equal to 50% of the aggregate Revenue Based Payment actually
made on or prior to the date of payment/conversion.
NOTE
15 SUBSEQUENT EVENTS
On
February 3, 2015, the Company issued 319,672 shares of its common stock upon conversion of convertible debt of approximately $2.
On
February 9, 2015, the Company issued 301,639 shares of its common stock upon conversion of convertible debt of approximately $2.
EXHIBIT 31
RULE 13A-14(A) / 15D-14(A) CERTIFICATION
I, Michael Braunold, certify that:
1. I have reviewed
this Annual Report on Form 10-K for the year ended December 31, 2014 of SPO Global Inc.
2. Based on my knowledge,
this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within
those entities, particularly during the period in which this report is being prepared;
b) designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5. I have disclosed,
based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant's board of directors (or persons fulfilling the equivalent function):
a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: April 14, 2015
|
/s/ Michael Braunold |
|
Michael Braunold |
|
Chief Executive Officer (Principal Executive Officer
and Principal Financial and Accounting Officer) |
EXHIBIT 32
SECTION 1350 CERTIFICATION
In connection with the Annual Report of SPO
Global Inc. (the "Company") on Form 10-K for the year ended December 31, 2014 (the "Report") filed with the
Securities and Exchange Commission, I, Michael Braunold, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
April 14, 2015
|
/s/ Michael Braunold |
|
Michael Braunold |
|
Chief Executive Officer (Principal Executive Officer
and Principal Financial and Accounting Officer) |
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT
REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO SPO GLOBAL INC. AND WILL BE RETAINED BY SPO MEDICAL INC. AND FURNISHED TO THE SECURITIES
AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.
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