Lifeward Ltd. annual report, FY2018

Business context and reporting period

Registrant: ReWalk Robotics Ltd. (the filing is not identified as Lifeward Ltd. in the supplied text). This is the annual report on Form 10-K for the fiscal year ended December 31, 2018; it is not a quarterly report. Amounts below are in U.S. dollars unless noted.

ReWalk develops and sells robotic exoskeletons for people with mobility impairments. Its marketed products were ReWalk Personal for home and community use and ReWalk Rehabilitation for clinical settings. The company was also developing ReStore, a soft exo-suit for stroke rehabilitation, with a planned 2019 launch contingent on regulatory clearance.

Financial results and liquidity

• Revenue fell 16% year over year, mainly because fewer units were placed: 85 total (82 Personal and 3 Rehabilitation), versus 107 (103 Personal and 4 Rehabilitation) in 2017.
• Gross margin improved on sales mix and lower product costs. Operating expenses declined to $22.039 million from $25.093 million: sales and marketing fell 30% to $7.897 million, and general and administrative fell 12% to $6.793 million. Research and development rose 22% to $7.349 million, primarily reflecting ReStore development and clinical-study costs and fewer IIA grants.
• Financial expenses, net, were $2.466 million, including $2.398 million related to the Kreos loan. The 2017 figures included a $313,000 debt-extinguishment loss.
• At December 31, 2018, current assets were $13.237 million and current liabilities were $5.382 million. Kreos loan principal outstanding was $8.7 million, secured by a first-priority lien on company assets. The revised repayment schedule deferred $3.9 million of payments otherwise due in 2018–2019 into later periods.
• Financing cash flow was $9.711 million in 2018, including net proceeds from the November public offering, the Timwell first tranche, and the ATM program, offset by loan repayments and related costs. The November offering raised $13.1 million gross; it involved substantial share and warrant issuance.
• Management and the auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The company had a $152.9 million accumulated deficit and negative operating cash flow, and said it expected to fund the next 12 months through existing cash, spending reductions, and additional equity or debt financing.

Material changes versus the prior comparable period

• Revenue decreased from $7.753 million to $6.545 million, while gross margin increased from 40.0% to 43.2%.
• Net loss narrowed from $24.717 million to $21.675 million, and operating cash use declined from $22.462 million to $14.774 million. The company nevertheless remained loss-making and cash balances fell by approximately $5.0 million during the year.
• Cash and cash equivalents declined by $5.021 million; shareholders’ equity fell from $3.707 million to $1.945 million. Ordinary shares issued and outstanding increased from approximately 30.0 million to 70.3 million.
• The company reduced headcount from 65 to 58 as part of expense-reduction efforts, while increasing investment in ReStore development.
• In November, the company completed a heavily dilutive public offering and amended its Kreos financing arrangements. The first $5 million Timwell investment tranche closed, but the remaining $15 million was uncertain.

Outlook, risks, contingencies, and unusual items

• Outlook: Management planned to continue expense reductions while focusing on ReStore regulatory clearance and commercialization, broader reimbursement for ReWalk Personal, and the FDA-mandated postmarket study. ReStore was targeted for European and U.S. commercialization in the third quarter of 2019, subject to CE mark and FDA clearance; timing was not assured.
• Financing and listing risk: Management said it no longer expected to close the remaining $15 million of the Timwell investment on the original terms and saw a significant risk of no revised agreement. The company also reported Nasdaq deficiencies relating to the minimum bid price and market value of listed securities, with an April 24, 2019 compliance deadline; a reverse split and further fundraising were under consideration.
• Reimbursement and customer concentration: Broad U.S. commercial insurance coverage was not established. The VA represented 38.0% of 2018 revenue, and U.S. sales represented 54.3%. The company reported 217 pending insurance claims at year-end. It placed 38 units funded by insurance reimbursement in 2018, versus 44 in 2017.
• Regulatory and product safety: The FDA characterized a voluntary labeling-related corrective action as a Class II recall. ReWalk also remained subject to an FDA Section 522 postmarket study; at year-end only 11 subjects had enrolled, two sites had enrolled patients, and the FDA considered progress inadequate. The filing warns of possible further regulatory action, restrictions, or loss of U.S. marketing ability.
• Debt and dilution: The $8.7 million Kreos principal balance carried a 10.75% annual interest rate and was secured by substantially all assets. The November offering included warrants exercisable at low prices, creating potential dilution; the filing reported approximately 59.7 million warrants outstanding at year-end.
• Other contingencies: One IPO-related securities class action remained pending after partial dismissal; the company could not estimate a possible loss and recorded no reserve. The company also disclosed a $1.5 million contingent IIA royalty liability and obligations under its Harvard collaboration and license agreements.
• Other operating risks: Manufacturing depended on a single Sanmina facility in Israel; the company cited geopolitical, supply, reimbursement, competition, currency, and cybersecurity risks. It reported that no cyberattack had materially affected operations or financial condition.

Important facts for investors to verify

1. Current cash, burn rate, and whether the company obtained financing sufficient to address the going-concern uncertainty.
2. Nasdaq compliance status and any subsequent reverse split, financing, or listing action.
3. Actual progress and enrollment in the FDA Section 522 study, status of the Class II corrective action, and any FDA decisions affecting U.S. sales.
4. Whether ReStore obtained required CE mark and FDA clearance, and whether commercialization occurred on the planned timetable.
5. Reimbursement outcomes, pending claims, VA unit placements, and the extent to which revenue remains concentrated in the VA and U.S. market.
6. Remaining Kreos repayment terms, potential asset-lien consequences, and dilution from outstanding warrants and other share issuances.
7. Status and potential financial impact of the remaining Timwell transaction and the pending IPO-related litigation.