zk1414865.htm

Assumed initial public offering price per share

Pro forma net tangible book value per share before this offering, as ofDecember 31, 2013

Increase in pro forma net tangible book value per share attributable to new investors in this offering

Pro forma net tangible book value per share after offering

Dilution in pro forma tangible book value per share to new investors

PROSPECTUS SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider before buying our ordinary shares. Therefore, you should read the entire prospectus carefully, especially the “Risk Factors” section beginning on page 12 and our financial statements and the related notes appearing at the end of this prospectus before deciding to invest in our ordinary shares.

THE COMPANY

Overview

We are an emerging biopharmaceutical company that is developing a proprietary nitric oxide (NO) formulation and delivery system to treat acute respiratory infections for which current treatments have limited effectiveness. Our novel system delivers a safe dosage of NO to the lungs using positive air pressure that for the first time is able to completely eliminate infection-causing bacteria, viruses and other microbes. NO is produced naturally by the body as a highly effective antimicrobial defense mechanism, but to date no delivery system has been able to deliver an effective and non-toxic antimicrobial dosage to the lungs. Our unique and proprietary system continuously monitors safety and efficacy parameters in the patient and is adaptable to treat a wide range of lung infections.

Our general target indication for our platform is Acute Lower Respiratory Tract Infections (ALRTI), including our first two targets, children with bronchiolitis and lung infections in patients with Cystic Fibrosis (CF), as well as secondary targets including pneumonia and severe (infectious induced) asthma. A Phase 1 clinical trial demonstrating the safety of our system has been completed. We have also recently completed two Phase 2a safety and efficacy trials to treat bronchiolitis and CF-related lung infections and are analyzing the data. NO is eligible for favorable orphan drug designation by the U.S. Food and Drug Administration (FDA) for CF-related lung infections. Additionally, it may be able to benefit from prior clearance of NO by the FDA for medical use in neonates.

We have licensed and own a broad intellectual property portfolio directed to our device and mode of delivery, monitoring parameters and methods of treating specific disease indications. Our portfolio consists of 19 patents and patent applications, of which six patents are licensed from SensorMedics Corporation (CareFusion), one of the largest worldwide providers of inhalation medical devices.

Advantages of AIT’s system

Our proprietary NO formulation and delivery system is uniquely suitable for therapeutic use in humans and has a number of advantages including the following:

It safely and effectively eliminates bacteria, viruses, fungi and other microbes from the lungs using a constant flow of NO.

It is not based on antibiotics, which are only partially effective and are increasingly becoming subject to resistance.

It is capable of being programmed to deliver different protocol treatments for a wide range of lung infections.

It reduces the mucus caused by lung infections and enhances vasodilation for improved blood flow.

Market opportunity and indications

There are over 1.5 million hospitalizations related to ALRTI annually in the United States, and ALRTI is the third leading cause of death worldwide, responsible for over three million deaths annually, according to the World Health Organization (WHO). Our ALRTI target indications are as follows:

Bronchiolitis. Bronchiolitis is the most common ALRTI in infants and the most common cause of hospitalization of infants during the first year of life. A bronchiolitis infection causes inflammation of the airways in the lungs which then fill with mucus. The reduction in air exchange in the lung causes reduction in the oxygen concentration in the blood (hypoxemia). The current course of treatment for acute lung infections in infants is largely supportive and non-therapeutic and is based on prolonged hospitalization during which the infant receives a constant flow of oxygen to reduce hypoxemia. In addition, systemic steroids and inhalation with bronchodilators are sometimes administered until recovery, but these treatments are not able to eliminate all microbes. Over 150 million new cases of bronchiolitis are reported worldwide each year. In the United States, there are approximately 150,000 annual bronchiolitis hospitalizations among children five years old or younger and 200 deaths among children less than two years old. In 2009, hospital charges in the United States for bronchiolitis reached $1.7 billion.

Cystic Fibrosis. CF is a lifelong hereditary disease that causes mucus to form in the lungs and other organs. In 90% of CF cases, this mucus blocks the airways in the lungs, making it hard to breathe and leading to serious lung infections. For hospitalized CF patients, current treatments are supportive through the administration of oxygen and inhalation with bronchiodilators, and include broad spectrum antibiotics and sometimes systemic steroids. Because these treatments do not eliminate all microbes, patients often suffer recurrent infections causing lung damage and ultimately in many cases respiratory failure. According to the CF Foundation, there are approximately 30,000 CF patients in the United States. According to the Cystic Fibrosis Foundation, the average longevity of CF patients is 40 years. Approximately 30,000 children and adults suffer from CF in the United States, and the annual cost per patient is estimated according to different sources in the range of $45,000 and $50,000, resulting in more than $1 billion in annual costs on the care of CF patients in the United States. CF is a complex disease with many different manifestations, all of which we believe can be effectively treated by our NO delivery system.

Pneumonia and Severe Asthma. Our third and fourth target indications are pneumonia and severe (infectious induced) asthma. Treatment regimens for pneumonia and severe (infectious induced) asthma have the same limitations as those for bronchiolitis and CF. Globally, approximately 450 million people suffer from pneumonia every year. Pneumonia is the single largest cause of death in children under the age of five, and is responsible for the annual death worldwide of over a million children within this group, according to the WHO. In the United States, there were approximately 4.2 million ambulatory care visits for pneumonia in 2006, and 1.1 million hospitalizations which caused approximately 50,000 deaths in 2009, according to the Center for Disease Control. The annual economic burden associated with pneumonia in the United States exceeds $17 billion.

Asthma is one of the most common and costly diseases in America. Since the 1970s the prevalence of asthma has increased significantly. In 2007, in the United States alone, there were 1.75 million (1.11 million for adults and 0.64 million for children) asthma-related emergency department visits and 456,000 (299,000 for adults and 157,000 for children) asthma related hospitalizations, which constituted about one third of the total $14.7 billion in US annual asthma-related health care expenditures.

Strategy and Clinical Trials

Our objective is to build a leading biopharmaceutical company focused on developing and commercializing proprietary products for the treatment of respiratory infections and diseases of the lungs. Upon successful completion of our planned clinical trials, we expect to commercialize our products by establishing distribution capabilities and pursuing strategic collaborations with large pharmaceuticals and medical device companies. We expect to target sales to hospital customers, and, for CF patients, we also intend to develop a delivery system for home use.

Our completed clinical trials and plans for future clinical trials are as follows:

Bronchiolitis. Phase 1 safety studies have been successfully completed at the hospital of the University of British Columbia, showing that our unique dosage is safe for inhalation. We are currently analyzing the data from our Phase 2a, double blind, randomized study in children with bronchiolitis. We intend to conduct Phase 2b and Phase 3 clinical trials in the United States, and, if successful, file a New Drug Application (NDA) with the FDA for the pediatric population in the United States.

CF-Related Lung Infections. We recently completed a Phase 2a open label, multi-center study of CF patients who are over 10 years old and are currently analyzing the data. We plan to conduct Phase 2b studies in the United States for CF patients in 2015. We also plan to conduct Phase 2b and Phase 3 clinical trials in the United States for the treatment of CF-related infections in children and adults, and, if successful, file an NDA in the United States. We are planning to file an application with the FDA for orphan drug designation for our CF-related product candidate.

European Union (EU). We also plan to conduct clinical trials in the EU for both bronchiolitis and CF-related lung infections, and, if successful, file for marketing approval in the EU.

Japan. We plan to conduct clinical trials in Japan for bronchiolitis and, if successful, file for marketing approval in Japan.

Pneumonia and Severe Asthma. In 2015, we also plan to conduct clinical trials for pneumonia and pre-clinical studies for severe (infectious induced) asthma.

Risks Associated with Our Business

Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled “Risk Factors” immediately following this prospectus summary. These are not the only risks we face. These risks include, among others, that:

we are a development-stage biopharmaceutical company and have a limited operating history on which to assess our business, have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future;

even if this offering is successful, we expect that we will need to raise additional funding before we can expect to become profitable from sales of our products;

we are heavily dependent upon the success of our product candidates, which are in the early stages of clinical development, and we cannot provide any assurance that any of our product candidates will receive regulatory approval;

our competitors may develop or commercialize products faster or more successfully than us;

because some of our the target patient populations of our product candidates are small, we must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth;

our reliance on third parties to help conduct our pre-clinical studies and clinical trials;

we do not have any products approved for sale by the FDA or any other regulatory bodies;

if we are unable to obtain and maintain effective intellectual property rights for our technologies, product candidates or any future product candidates, we may not be able to compete effectively in our markets; and

our future success depends in part upon our ability to retain our executive and scientific teams, and to attract, retain and motivate other qualified personnel.

Corporate Information

We are an Israeli corporation based in Rehovot, Israel, and were incorporated on May 1, 2011. Our principal executive offices are located at Derech Meir Weisgal 2, Rehovot, 7632605 Israel, and our telephone number is +972-8-6843313.

Implications of being an Emerging Growth Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 (Securities Act), as modified by the Jumpstart Our Business Startups Act of 2012 (JOBS Act). As such, we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging growth companies” including, but not limited to:

only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; and

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We intend to take advantage of these exemptions. We could remain an “emerging growth company” for up to five years.

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are, for the time being, electing to delay such adoption of new or revised accounting standards.

Implications of being a Foreign Private Issuer

Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the Securities and Exchange Commission (SEC), and certain regulations of The NASDAQ Stock Market, including the proxy rules, the short-swing profits recapture rules, the composition of various board committees and certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. In addition, we will not be required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as registered U.S. companies.

THE OFFERING

Ordinary shares offered by us	ordinary shares
Ordinary shares to be outstanding after this offering	ordinary shares (or ___ ordinary shares if the over-allotment option is exercised in full)
Over-allotment option	We have granted the underwriters the right to purchase up to additional ordinary shares from us at the public offering price less the underwriting discount within 45 days from the date of this prospectus to cover over-allotments.
Underwriter compensation warrants Use of proceeds	We will issue to Maxim Group LLC, the representative of the underwriters (Maxim), upon closing of this offering, compensation warrants entitling Maxim to purchase 5.0% of the aggregate number of ordinary shares issued in this offering, including ordinary shares issued pursuant to the exercise of the over-allotment option. The underwriter warrants will have a term of six years and may be exercised commencing 12 months after the date of effectiveness of the Registration Statement on Form F-1 of which this prospectus forms a part. The underwriter warrants may be exercised on a cashless basis. We expect to receive approximately $ million in net proceeds from the sale of ordinary shares offered by us in this offering (approximately $ million if the underwriters exercise their over-allotment option in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming the shares are offered at $ per share, the midpoint of the estimated price range set forth on the cover of this prospectus. We currently expect to use the net proceeds from this offering for: We currently expect to use the net proceeds from this offering for: · completing necessary preparations and conducting a Phase 2b clinical study for NOxBR for the treatment of bronchiolitis, estimated at ; · completing necessary preparations and conducting a Phase 3 clinical study for NOxBR for the treatment of bronchiolitis, estimated at ; · completing necessary preparations and conducting a Phase 2b clinical study for NOxCF for the treatment of cystic fibrosis, estimated at ; · completing necessary preparations and conducting a Phase 3 clinical study for NOxCF for the treatment of cystic fibrosis, estimated at ; · completing necessary preparations and conducting a Pre-clinical study for NOxAST for the treatment of asthma, estimated at ; · completing necessary preparations and conducting a Phase 2a study for NOxPN for the treatment of pneumonia, estimated at ; · developing NOxSysBS for hospital use for the treatment of bronchiolitis, estimated at ; and · the remainder for working capital and general corporate purposes.
Risk factors	You should read the “Risk Factors” section starting on page 12 of this prospectus for a discussion of factors to consider carefully before deciding to invest in ordinary shares.
Proposed NASDAQ Capital Market symbol	We intend to apply for the listing of our ordinary shares on the NASDAQ Capital Market under the symbol “AITP.”

The number of ordinary shares to be outstanding after this offering is based on 11,628,100 ordinary shares outstanding as of May 8, 2014 and excludes the following:

·	815,927 ordinary shares issuable upon the exercise of stock options under our 2013 Share Option Plan (2013 Plan) outstanding as of May 8, 2014, at a weighted-average exercise price of $0.20 per ordinary share;

·	882,282 series A preferred shares (which will automatically be converted into ordinary shares) issuable upon the exercise of warrants with an exercise price of $0.306 per share;

·	430,753 ordinary shares reserved for future issuance under our 2013 Plan;

·	1,176,374 ordinary shares issuable upon the exercise of options issued in connection with our convertible promissory notes which options will be granted upon the consummation of this offering with an exercise price of $0.680056 per ordinary share; and

·	32,678 series A preferred shares issuable to a consultant upon the exercise of consultant options at an exercise price which equals the par value per share and subject to the exercise of another investor's warrants.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

·	the automatic conversion, on a one-for-one basis, of all 4,215,346 outstanding series A preferred shares into 4,215,346 ordinary shares, which will occur automatically immediately prior and subject to the consummation of this offering;

the issuance of 41,607 ordinary shares issuable upon the exercise of consultant options outstanding as of May 8, 2014, at an exercise price which equals the par value per share, including: (i) 32,677 series A preferred shares issued (which will be automatically converted on a one-for-one basis into ordinary shares immediately prior and subject to the consummation of this offering) issuable in connection with the exercise of another investor’s warrants, and (ii) 8,930 ordinary shares issuable upon conversion of convertible notes of another investor;

·	the automatic conversion of convertible promissory notes in the aggregate principal amount of $800,000, and accrued interest in the amount of $9,728 as of May 8, 2014 into an aggregate of 1,190,678 ordinary shares, which will occur immediately prior and subject to the consummation of this offering;

the exercise of warrants to purchase 1,568,502 ordinary shares, including (i) 882,281 warrants to purchase series A preferred shares (which will be automatically converted on a one-for-one basis into ordinary shares immediately prior and subject to the consummation of this offering) with an exercise price of $0.306 per share and (ii) 686,220 warrants to purchase ordinary shares with an exercise price of $1.02 per share;

·	the filing of our amended and restated articles of association, which will occur immediately prior and subject to the consummation of this offering; and

·	no exercise of the underwriters’ over-allotment option.

SUMMARY FINANCIAL DATA

The following table summarizes our financial data. We have derived the following statements of operations data for the years ended December 31, 2013 and 2012 and the balance sheet data as of December 31, 2013 from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Numbers in the following tables are in U.S. dollars and, except share and per share amounts, in thousands.

	Years Ended December 31,
	2013			2012
Statements of Operations Data:

Research and development expenses	$	898		$	134

General and administrative expenses		486			48

Financial expense (income), net		(7	)		(4	)

Revaluation of warrants to purchase series A preferred shares		197			(3	)

Loss attributable to holders of ordinary shares		1,574			175

Weighted average number of ordinary shares used in computing basic and diluted net loss per share		11,628,100			10,615,556

	As of December 31, 2013
	Actual			Pro Forma(1) (unaudited)		Pro Forma As Adjusted(2) (unaudited)
Balance Sheet Data:
	$					$
Total current assets		76			1,994
Total long-term assets		117			117
Total current liabilities		425			412
Long term liabilities		588			294
Shareholders’ equity		(820	)		1,405

____________

(1) On a pro forma basis to give effect to (i) the automatic conversion, on a one-for-one basis, of 4,215,346 outstanding series A preferred shares into 4,215,346 ordinary shares, which will occur automatically immediately prior and subject to the consummation of this offering, (ii) the exercise of warrants to purchase 1,568,502 ordinary shares, including (A) 882,281 warrants to purchase series A preferred shares (which will automatically be converted on a one-for-one basis into ordinary shares immediately prior and subject to the consummation of this offering) with an exercise price of $0.306 per share and (B) 686,220 warrants to purchase ordinary shares with an exercise price of $1.02 per share, (iii) the issuance of 41,607 ordinary shares issuable upon the exercise of consultant options outstanding as of May 8, 2014, at an exercise price which equals the par value per share, including: (A) 32,677 series A preferred shares (which will be automatically converted on a one-for-one basis into ordinary shares immediately prior and subject to the consummation of this offering) issuable in connection with the exercise of another investor’s warrants, and (B) 8,930 ordinary shares issuable upon conversion of convertible notes of another investor, and (iv) the automatic conversion of convertible notes outstanding in the aggregate principal amount of $800,000 and accrued interest as of May 8, 2014 in the amount of $9,728 into an aggregate of 1,190,678 ordinary shares.

(2) Pro forma, as adjusted data gives retroactive effect to the adjustments described in footnote (1) above and the sale of ordinary shares in this offering at an initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2013.

RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this prospectus, including our financial statements and the notes thereto, before deciding to invest in our ordinary shares. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our ordinary shares could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Condition and Capital Requirements

We are a development-stage company and have a limited operating history on which to assess the prospects for our business, have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a development-stage biopharmaceutical company with a limited operating history. We have incurred net losses since our inception in May 2011, including net losses of approximately $1.6 million for the year ended December 31, 2013. As of December 31, 2013, we had an accumulated deficit of approximately $1.8 million.

We have devoted substantially all of our financial resources to design and develop our product candidates, including conducting clinical studies and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sale of equity securities. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are in the early stages of clinical and preclinical development for our product candidates, we have not yet commenced pivotal clinical studies for any product candidate, and it may be several years, if ever, before we complete pivotal clinical studies and have a product candidate approved for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of the markets for which our product candidates may receive approval and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for our product candidates in those markets.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

continue our research and preclinical and clinical development of our product candidates;

expand the scope of our current clinical studies for our product candidates;

advance our programs into more expensive clinical studies;

initiate additional preclinical, clinical or other studies for our product candidates;

establish our supply chain;

seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies;

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

seek to identify, assess, acquire, license and/or develop other product candidates;

seek to maintain, protect and expand our intellectual property portfolio;

seek to attract and retain skilled personnel;

create additional infrastructure to support our operations as a public company and our product development and planned future commercialization efforts; and

experience any delays or encounter issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges that require longer follow-up of existing studies, additional major studies or additional supportive studies in order to pursue marketing approval.

Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

We have never generated any revenue from product sales and may never be profitable.

We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize, one or more of our product candidates. We do not anticipate generating revenue from product sales for a significant period of time. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:

completing research and preclinical and clinical development of our product candidates;

obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies;

establishing and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate (in amount and quality) products to support clinical development and the market demand for our product candidates, if approved;

launching and commercializing product candidates if and when we obtain regulatory and marketing approval, either directly or with a collaborator or distributor;

exposing, educating and training physicians to use our products;

obtaining market acceptance of our product candidates as viable treatment options;

addressing any competing technological and market developments;

identifying, assessing, acquiring and/or developing new product candidates;

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

attracting, hiring and retaining qualified personnel.

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency (EMA) or other regulatory agencies, domestic or foreign, to change our manufacturing processes, or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at an acceptable price and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. Additionally, if we are not able to generate revenue from the sale of any approved products, we may be forced to cease operations.

Even if this offering is successful, we expect that we will need to raise substantial additional funding before we can expect to become profitable from sales of our products. This additional financing may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We are currently advancing two product candidates through clinical development for the treatment of CF and bronchiolitis. Developing our product candidates is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates through clinical studies.

If our product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with other organizations to provide these capabilities for us. We have used substantial funds to develop our product candidates and will require significant funds to conduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to manufacture and market products, if any, which are approved for commercial sale.

As of December 31, 2013, our cash and cash equivalents were $23,000. Upon the completion of this offering, based upon our currently expected level of operating expenditures, we expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our current operations through December 31, 2017; however, we expect that we will require substantial additional capital to obtain regulatory approval for, and to commercialize, our product candidates. In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including but not limited to:

the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities;

developing and manufacturing our product candidates for use in clinical trials;

the cost of manufacturing or obtaining clinical supplies, and establishing commercial supplies, of our product candidates and any future products;

the number and characteristics of product candidates that we pursue;

the cost, timing and outcomes of regulatory approvals;

the cost and timing of establishing sales, marketing and distribution capabilities; and

the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone and royalty payments thereunder.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

Raising additional capital would cause dilution to our existing shareholders, and may restrict our operations or require us to relinquish rights.

We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt or making capital expenditures. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that are not favorable to us.

Risks Related to the Discovery and Development of Our Product Candidates

We are heavily dependent on the success of our product candidates, which are in the early stages of clinical development. We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.

To date, we have invested substantially all of our efforts and financial resources to design and develop our product candidates, including conducting clinical studies and providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize one or more product candidates. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.

Each of our product candidates is in the early stages of development and will require additional clinical development (and in some cases additional preclinical development), management of nonclinical, clinical and manufacturing activities, regulatory approval, obtaining adequate manufacturing supply, building of a commercial organization and significant marketing efforts before we generate any revenue from product sales. We recently completed two Phase 2a clinical studies primarily designed to test safety and tolerability, and none of our product candidates has advanced into a pivotal study and are currently analyzing the data. It may be years before a pivotal study is initiated, if at all. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates.

We as a company have never submitted marketing applications to the FDA or comparable foreign regulatory authorities. We cannot be certain that any of our product candidates will be successful in clinical studies or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical studies. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the EU and in additional foreign countries. To obtain regulatory approvals we must comply with the numerous and varying regulatory requirements of such countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. If we are unable to obtain approval for our product candidates in multiple jurisdictions, our revenue and results of operations would be negatively affected.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical studies and depends upon numerous factors. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;

we may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidate’s safety-benefit ratio for its proposed indication is acceptable;

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical studies;

the data collected from clinical studies of our product candidates may not be sufficient to support the submission of a NDA in the United States or elsewhere;

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and

competitors may obtain orphan drug exclusivity for CF before we do, thus potentially delaying our entry into certain markets for a number of years.

This lengthy approval process, as well as the unpredictability of the results of clinical studies, may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects.

Clinical drug and medical device development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical study process. The results of preclinical studies and early clinical studies of our product candidates may not be predictive of the results of later-stage clinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent advanced clinical studies. There is a high failure rate for drugs and medical devices proceeding through clinical studies, and product candidates in later stages of clinical studies may fail to show the desired safety and efficacy traits despite having progressed satisfactorily through preclinical studies and initial clinical studies. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical studies due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. We do not know whether any Phase 2, Phase 3 or other clinical studies we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our product candidates.

We may find it difficult to enroll patients in our clinical studies. Difficulty in enrolling patients could delay or prevent clinical studies of our product candidates.

Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends in part on the speed at which we can recruit patients to participate in testing our product candidates, and we may experience delays in our clinical studies if we encounter difficulties in enrollment.

Some of the conditions for which we plan to evaluate our current product candidates are for rare diseases. For example, we estimate that 30,000 patients suffer from CF in the United States. Accordingly, there is a limited patient pool from which to draw for clinical studies. Further, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study. Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and benefits of the product candidate under study, particularly the toxicity of NO in certain doses, the availability and efficacy of competing therapies and clinical studies, the proximity and availability of clinical study sites for prospective patients and the patient referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products will be delayed.

If we experience delays in the completion or termination of any clinical study of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing our clinical studies will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory approval of our product candidates.

We may encounter substantial delays in our clinical studies, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include but are not limited to:

inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of human clinical studies;

delays in reaching a consensus with regulatory agencies on study design;

delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;

delays in obtaining required Institutional Review Board (IRB) approval at each clinical study site;

imposition of a clinical hold by regulatory agencies, after review of an investigational new drug (IND) application, or equivalent application, or an inspection of our clinical study operations or study sites;

delays in recruiting suitable patients to participate in our clinical studies;

difficulty collaborating with patient groups and investigators;

failure by our CROs, other third parties or us to adhere to clinical study requirements;

failure to perform in accordance with the FDA’s good clinical practices requirements, or applicable regulatory guidelines in other countries;

delays in having patients complete participation in a study or return for post-treatment follow-up;

patients dropping out of a study;

occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

the cost of clinical studies of our product candidates being greater than we anticipate;

clinical studies of our product candidates producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs; and

delays in manufacturing, testing, releasing, validating or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, we may need to conduct additional studies to bridge our repurposed product candidates to generic products in the market. We may also be required to conduct additional safety, efficacy and comparability studies before we will be allowed to start clinical studies with our repurposed drugs. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to obtain orphan exclusivity and successfully commercialize our product candidates and may harm our business and results of operations.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in a more restrictive marketing label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. There is currently limited data regarding possible side effects for an antimicrobial dosage of NO treatments, such as our product candidates. Potential side effects of NO treatments may include high methamoglobin, nitrogen dioxide (NO2), toxicity, nose bleeding and low blood pressure. Results of our studies may identify unacceptable severity and prevalence of these or other side effects. In such an event, our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications.

Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product liability claims.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including but not limited to:

regulatory authorities may withdraw approvals of such product;

regulatory authorities may require additional warnings on the label;

we may be required to create a Risk Evaluation and Mitigation Strategy (REMS) plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use;

we could be sued and held liable for harm caused to patients; and

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.

If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices (cGMP) regulations and Quality System Regulation (QSR). As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP, QSR and adherence to commitments made in any NDA. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they do not have FDA approval. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our products in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical study to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval. Furthermore, any new legislation addressing drug safety issues could result in delays in product development or commercialization or increased costs to assure compliance. Foreign regulatory authorities impose similar requirements.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

issue warning letters;

impose civil or criminal penalties;

suspend or withdraw regulatory approval;

suspend any of our ongoing clinical studies;

refuse to approve pending applications or supplements to approved applications submitted by us;

impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

seize or detain products, or require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.

Risks Related to our Reliance on Third Parties

We rely on third parties to conduct our preclinical and clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical and clinical studies, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current Good Manufacturing Practice (cGCP), cGMP, QSR and Good Laboratory Practices (GLP), which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area (EEA), and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical studies before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical studies comply with cGCP regulations. In addition, our clinical studies must be conducted with products which are produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical studies may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely completely on third parties to manufacture our NO formulation and delivery system. Our business could be harmed if those third parties fail to provide us with sufficient quantities of our needed supplies, or fail to do so at acceptable quality levels or prices.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture the components of our NO formulation and delivery system, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on third parties for such supplies. There are a limited number of manufacturers who have the ability to produce our delivery system, and there may be a need to identify alternate manufacturers to prevent a possible disruption of our clinical studies. Any significant delay or discontinuity in the supply of these components could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates, which could harm our business and results of operations.

We and our collaborators and contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with cGMP. In addition, manufacturers of medical devices are subject to QSR. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We, our collaborators or our contract manufacturers must supply all necessary documentation in support of an NDA, or Marketing Authorization Application (MAA) on a timely basis and must adhere to GLP, cGMP and QSR regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our contract manufacturers have never produced a commercially approved pharmaceutical product and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales, or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

If we, our collaborators, or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authority can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product, withdrawal of an approval or suspension of production. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA or MAA amendment, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

Risks Related to Commercialization of Our Product Candidates

If the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

Our projections of both the number of people who have our target diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

We intend to rely on third-party manufacturers to produce our product candidates, but we have not entered into binding agreements with any such manufacturers to support commercialization.

We have not yet secured manufacturing capabilities for commercial quantities of our product candidates. We intend to rely on third-party manufacturers for commercialization. We may be unable to negotiate binding agreements with the manufacturers to support our commercialization activities at commercially reasonable terms.

We face intense competition and rapid technological change and the possibility that our competitors may discover, develop or commercialize therapies that are similar, more advanced or more effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products. We are aware of several companies currently developing and selling NO therapies for various indications such as pulmonary hypertension. For example Ikaria, Inc. commercializes INOMAX® (nitric oxide) for inhalation, which is approved for use to treat newborns suffering from HRF-PPHN, in the United States, Canada, Australia, Mexico and Japan. The Linde Group has marketing rights to INOMAX® in Europe. Air Liquide sells a similar product in Europe, called VasoKINOX™, together with their delivery platform called OptiKINOX™, for the treatment of pulmonary hypertension that occurs during or after heart surgery. In Europe, Bedfont Scientific Ltd. has a delivery system called NOxBOX® and Air Products PLC has a gas product called NOXAP®, each used in delivering inhaled NO. Geno LLC is developing NO based products for the treatment of a variety of pulmonary and cardiac diseases such as acute vasoreactivity testing, pulmonary arterial hypertension and pulmonary hypertension associated with idiopathic pulmonary fibrosis. In addition, 12th Man Technologies Inc. may be developing a generic NO delivery system with CareFusion. and Praxair Inc. Ceretec, Inc., a company affiliated with 12th Man Technologies Inc., recently obtained clearance from the FDA to market an NO gas product for use in membrane diffusing capacity testing in pulmonary function laboratories in the United States. Novoteris, LLC recently received orphan drug designation from the FDA for the use of inhaled NO in treating CF.If the FDA approves Novoteris’ product candidate, then Novoteris may be eligible for orphan drug exclusivity.

In addition to NO treatments currently available or under development, we also face competition from non-NO based drugs and therapies. For example, the successful development of immunizations for bronchiolitis may render useless any product we develop for that indication. Also, antibiotic treatments for infections associated with CF, and inhaled short-acting beta-2 agonist and oral corticosteroids for the treatment of asthma may be preferred over any product that we develop. Even if we successfully develop our product candidates, and obtain approval for them, other treatments may be preferred and we may not be successful in commercializing our product candidates.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.

We currently have no marketing and sales organization. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.

Although our employees may have sold other similar products in the past while employed at other companies, we as a company have no experience selling and marketing our product candidates and we currently have no marketing or sales organization. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others. If our product candidates receive regulatory approval, we intend to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets, which will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products.

Further, given our lack of prior experience in marketing and selling biopharmaceutical products, our initial estimate of the size of the required sales force may be materially more or less than the size of the sales force actually required to effectively commercialize our product candidates. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of our product candidates or we may incur excess costs as a result of hiring more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates will depend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

the safety and efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;

the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;

the clinical indications for which approval is granted;

relative convenience and ease of administration;

the cost of treatment, particularly in relation to competing treatments;

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

the strength of marketing and distribution support and timing of market introduction of competitive products;

publicity concerning our products or competing products and treatments; and

sufficient third-party insurance coverage and reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be fully known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful. If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

The pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure. Our per-patient prices must be sufficient to recover our development and manufacturing costs and potentially achieve profitability. Accordingly, the availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford expensive treatments such as ours, assuming approval. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government authorities, private health insurers and other third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare & Medicaid Services (CMS), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for products such as ours.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicinal products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the Health Care Reform Law), was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Health Care Reform Law, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs and promotes a new Medicare Part D coverage gap discount program.

In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment reductions went into effect. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain effective patent rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and product candidates. Our success depends in large part on our and our licensors’ ability to obtain and maintain intellectual property protection in the United States and in other countries with respect to our proprietary technology and products.

We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

We have filed several patent applications directed to various aspects of our product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. In addition, some or all of our patent applications may not result in issued patents.

If we cannot obtain and maintain effective patent rights for our product candidates, we may not be able to compete effectively and our business and results of operations would be harmed.

At least one third party has rights, and other third parties may acquire rights, in patents related to methods and devices for delivering nitric oxide to patients included in the non-exclusive license granted to us by CareFusion which could allow them to make and sell product candidates in competition with ours.

To the extent that we do not have exclusive rights in the patents covered by the license granted to us by CareFusion, we may be unable to prevent third parties from making, using, importing, offering for sale and selling nitric oxide delivery systems in competition with ours. While we are unaware of any other licenses issued by CareFusion to third parties granting rights in the patents CareFusion licensed to us, we cannot be sure other licenses have not already been granted, or will not be granted in the future, by CareFusion to third parties.

Four of the patents licensed to us by CareFusion are jointly owned by Pulmonox Technologies Corporation (Pulmonox). Thus, even if any negotiations with CareFusion regarding an exclusive license are ultimately successful, at least Pulmonox would still have rights in those patents and so we may be unable to prevent Pulmonox, or other third parties, from making, using, importing, offering for sale and selling nitric oxide delivery systems covered by those patents. Absent any agreement between CareFusion and Pulmonox to the contrary, each of the joint owners may make, use, offer to sell, or sell the patent invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owner. Pulmonox may have the right to make, use, import, offer for sale and sell products covered by the four patents, and Pulmonox has the right to license third-parties under those patents without consent of CareFusion or the Company. If Pulmonox or another party develops, manufactures, markets and sells any product covered by the same patent rights and technologies that compete with ours, it could significantly undercut the value of any of our product candidates, which would materially adversely affect our revenue, financial condition and results of operations.

The terms of our non-exclusive license with CareFusion leaves full control of any and all enforcement of the licensed patents with CareFusion. If CareFusion elects to not enforce any or all of the licensed patents it could significantly undercut the value of any of our product candidates, which would materially adversely affect our revenue, financial condition and results of operations. For four of the licensed patents, CareFusion is a joint owner with Pulmonox and thus for any enforcement action against a third party CareFusion would need to join Pulmonox who may not be willing to participate on commercially reasonable terms or at all. Failure of Pulmonox to join CareFusion in any enforcement of the jointly owned patents against a third party, or Pulmonox’s license of a third-party under those patents, could significantly harm our business, results of operations, and prospects.

Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidate. Such litigation or licenses could be costly or not available on commercially reasonable terms.

Given the number of companies developing various types of NO devices, it is difficult to conclusively assess our freedom to operate without infringing on third party rights. There are numerous companies that have pending patent applications and issued patents in the field of therapeutic NO delivery. Our competitive position may suffer if patents issued to third parties or other third party intellectual property rights cover our products or elements thereof, or our manufacture or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products or our product candidates unless we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. There may be pending patent applications of which we are not aware, that if they result in issued patents, could be alleged to be infringed by our product candidates. If such an infringement claim should be brought and be successful, we may be required to pay substantial damages, be forced to abandon our product candidates or seek a license from any patent holders. No assurances can be given that a license will be available on commercially reasonable terms, if at all.

It is also possible that we have failed to identify relevant third party patents or applications. For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidate or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our product candidate or the use of our product candidate. Third party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in pursuing the development of and/or marketing our product candidate. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing our product candidate that is held to be infringing. We might, if possible, also be forced to redesign our product candidate so that we no longer infringe the third party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Patent terms are limited and we may not be able to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited.

In addition, upon issuance in the United States, patent term can be adjusted based on certain delays caused by the applicant(s) or the U.S. Patent and Trademark Office (USPTO). Even if we obtain effective patent rights for our product candidates, we may not have sufficient patent terms or regulatory exclusivity to protect our products, and our business and results of operations would be adversely affected.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensor were the first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to invent the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (Leahy-Smith Act), enacted on September 16, 2011, the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

If we are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be able to compete effectively in our markets.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

All of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology enter into confidentiality agreements and we expect they will assign all rights in their inventions to us pursuant to the terms of such agreements, however, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. We do not know whether there are any third-party patents that would impair our ability to commercialize these product candidates. We also cannot be sure that we have identified each and every patent and pending patent application in the United States and abroad that is relevant or necessary to the commercialization of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable.

Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

We currently own and have in-licensed rights to intellectual property, through licenses from third parties and under patents that we own, to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, we may have to abandon development of that program and our business and financial condition could suffer.

If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are currently a party to intellectual property license agreements that are important to our business, and we expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. For example, our existing license agreement with CareFusion imposes several milestones we are obligated to achieve between 2017 and 2021 relating to the clinical trial plan for the license product, obtaining FDA approval and sale thereof. If we fail to comply with our obligations under the CareFusion agreement or other agreements, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose our license or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. Additionally, payments associated with these licenses will make it less profitable for us to develop our product candidates. See “Business—Intellectual Property” for a description of our current license agreements.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:

the scope of rights granted under the license agreement and other interpretation-related issues;

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

the sublicensing of patent and other rights;

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and

the priority of invention of patented technology.

If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensor, which could be expensive, time consuming and unsuccessful.

Competitors may infringe the patents of our licensor. If our licensing partner were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

Proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensor. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter into development partnerships that would help us bring our product candidates to market.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in or right to compensation with respect to our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or claiming the right to compensation. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. To the extent that our employees have not effectively waived the right to compensation with respect to inventions that they helped create, they may be able to assert claims for compensation with respect to our future revenue may be successful. As a result, we may receive less revenue from future products if such claims are successful which in turn could impact our future profitability.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity. Therefore, obtaining and enforcing biotechnology patents is costly, time consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.

Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.

We generally enter into non-competition agreements with our employees and certain key consultants. These agreements prohibit our employees and certain key consultants, if they cease working for us, from competing directly with us or working for our competitors or clients for a limited period of time. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.

Risks Related to Our Business Operations

We manage our business through a small number of employees and key consultants. We depend on them even more than similarly-situated companies.

We have three full-time employees and three dedicated consultants. We conduct much of our research through the academic researchers, each of whom has time commitments and obligations to third parties. In addition, any of our employees and consultants may leave our company at any time, subject to certain notice periods. The loss of the services of any of our executive officers or any key employees or consultants would adversely affect our ability to execute our business plan and harm our operating results.

We do not currently carry “key person” insurance on the lives of members of management.

We will need to expand our organization and we may experience difficulties in recruiting needed additional employees and consultants, which could disrupt our operations.

As our development and commercialization plans and strategies develop and because we are so leanly staffed, we will need additional managerial, operational, sales, marketing, financial, legal and other resources. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

If we fail to obtain or maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced.

In some cases, our business strategy focuses on the development of drugs that are eligible for FDA and EU orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products (COMP), grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union Community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Because the extent and scope of patent protection for our products may in some cases be limited, orphan drug designation is especially important for our products for which orphan drug designation may be available. For eligible drugs, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.

Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Novoteris recently received orphan drug designation from the FDA for the use of inhaled NO in treating CF. This does not preclude us from obtaining the designation because more than one sponsor may receive orphan drug designation of the same drug for the same rare disease or condition Currently, neither Novoteris nor any other company has orphan drug exclusivity for an NO based treatment of CF. In the event that Novoteris’s designated orphan product receives marketing approval form the FDA before we do, they may be entitled to orphan drug exclusivity and our ability to obtain product approval for treating CF will be significantly impaired.

We may not be successful in our efforts to identify, license or discover additional product candidates.

Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our existing product candidates, the success of our business also depends upon our ability to identify, license or discover additional product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including but not limited to the following:

our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;

we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

our product candidates may not succeed in preclinical or clinical testing;

our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;

competitors may develop alternatives that render our product candidates obsolete or less attractive;

product candidates we develop may be covered by third parties’ patents or other exclusive rights;

the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license or discover additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and The NASDAQ Stock Market has imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and pay parity. Recent legislation permits smaller “emerging growth companies” to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report, commencing in our annual report on Form 20-F for the year ending December 31, 2014, on the effectiveness of our internal controls over financial reporting, if then required by Section 404 of the Sarbanes-Oxley Act. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or if we identify or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC and by NASDAQ, would likely result in increased costs to us as we respond to their requirements.

We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;

the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology and Clinical Health Act (HITECH), and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;

the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States or Israel.

Other than our headquarters and other operations which are located in Israel (as further described below), we currently have limited international operations, but our business strategy incorporates potentially significant international expansion, particularly in anticipation of approval of our product candidates. We plan to maintain sales representatives and conduct physician and patient association outreach activities, as well as clinical trials, outside of the United States and Israel. Doing business internationally involves a number of risks, including but not limited to:

multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals, permits and licenses;

failure by us to obtain regulatory approvals for the use of our products in various countries;

additional potentially relevant third-party patent rights;

complexities and difficulties in obtaining protection and enforcing our intellectual property;

difficulties in staffing and managing foreign operations;

complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;

limits in our ability to penetrate international markets;

financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;

natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;

certain expenses including, among others, expenses for travel, translation and insurance; and

regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act (FCPA), its books and records provisions or its anti-bribery provisions.

Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

The use of any of our product candidates could result in product liability or similar claims that could be expensive, damage our reputation and harm our business.

Our business exposes us to an inherent risk of potential product liability or similar claims. The medical device industry has historically been litigious, and we face financial exposure to product liability or similar claims if the use of any of our products were to cause or contribute to injury or death. There is also the possibility that defects in the design or manufacture of any of our products might necessitate a product recall. Although we plan to maintain product liability insurance, the coverage limits of these policies may not be adequate to cover future claims. In the future, we may be unable to maintain product liability insurance on acceptable terms or at reasonable costs and such insurance may not provide us with adequate coverage against potential liabilities. A product liability claim, regardless of merit or ultimate outcome, or any product recall could result in substantial costs to us, damage to our reputation, customer dissatisfaction and frustration and a substantial diversion of management attention. A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to this Offering and Ownership of Our Ordinary Shares

There is a risk that we may be classified as a passive foreign investment company (PFIC), which could result in adverse U.S. federal income tax consequences to U.S. investors.

In general, we will be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (including our pro rata share of the gross income of our 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (including our pro rata share of the assets of our 25% or more-owned corporate subsidiaries) is attributable to assets that produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents, royalties and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder (as defined in the section titled “Taxation—U.S. Federal Income Taxation—General”) of our ordinary shares, the U.S. Holder may be subject to increased U.S. federal income tax liability upon a sale or other disposition of the ordinary shares or the receipt of certain excess distributions from us and may be subject to additional reporting requirements. In particular, if the U.S. Holder did not make an election to treat us as a “qualified electing fund” (QEF), or make a “mark-to-market” election, then “excess distributions” to the U.S. Holder, and any gain realized on the sale or other disposition of our ordinary shares by the U.S. Holder: (1) would be allocated ratably over the U.S. Holder’s holding period for the ordinary shares, (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC would be taxed as ordinary income and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the Internal Revenue Service (IRS) determines that we are a PFIC for a year with respect to which we have determined that we were not a PFIC, it may be too late for a U.S. Holder to make a timely QEF or mark-to-market election. U.S. Holders that have held our ordinary shares during a period when we were a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC in subsequent years, subject to exceptions for U.S. Holders who made a timely QEF or mark-to-market election. A U.S. Holder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto.

Based on the anticipated composition (and estimated values) of our assets and the nature of our expected income and operations, we do not expect to be treated as a PFIC for our current taxable year. Our actual PFIC status for our current taxable year or any subsequent taxable year, however, is uncertain and will not be determinable until after the end of such taxable year. In addition, our PFIC status may depend in part on the market value of our ordinary shares. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. We do not intend to notify U.S. Holders that hold our ordinary shares if we believe we will be treated as a PFIC for any taxable year in order to enable U.S. Holders to consider whether to make a QEF election. In addition, we do not intend to furnish such U.S. Holders annually with information needed in order to complete IRS Form 8621 and to make and maintain a valid QEF election for any year in which we or any of our subsidiaries are a PFIC.

U.S. investors are urged to consult their own tax advisors regarding the possible application of the PFIC rules. For more information, see “Taxation—U.S. Federal Income Taxation—U.S. Holders—Passive Foreign Investment Company Rules.”

The market price of our ordinary shares may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has not been a public market for our ordinary shares. If an active trading market for our ordinary shares does not develop following this offering, you may not be able to sell your shares quickly or at the market price. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market.

The trading price of our ordinary shares is likely to be volatile. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our ordinary shares:

inability to obtain the approvals necessary to commence further clinical trials;

unsatisfactory results of clinical trials;

announcements of regulatory approval or the failure to obtain it, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

announcements of therapeutic innovations or new products by us or our competitors;

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

changes or developments in laws or regulations applicable to any candidate product of our in each of our platforms;

any adverse changes to our relationship with manufacturers or suppliers;

any intellectual property infringement actions in which we may become involved;

announcements concerning our competitors or the pharmaceutical industry in general;

achievement of expected product sales and profitability or our failure to meet expectations;

our commencement of, or involvement in, litigation;

any major changes in our board of directors or management; and

legislation in the United States relating to the sale or pricing of pharmaceuticals.

In addition, the stock market in general, and The NASDAQ Stock Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. Broad market and industry factors may negatively affect the market price of our ordinary shares, regardless of our actual operating performance. Further, a systemic decline in the financial markets and related factors beyond our control may cause our share price to decline rapidly and unexpectedly.

Our principal shareholders and directors currently own 99.2% of our outstanding ordinary shares and will own approximately % of our ordinary shares upon the closing of this offering. They will therefore be able to exert significant control over matters submitted to our shareholders for approval.

After this offering, our officers and directors and shareholders who own more than 5% of our outstanding ordinary shares before this offering will, in the aggregate, beneficially own approximately % of our ordinary shares (assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options). This significant concentration of share ownership may adversely affect the trading price for our ordinary shares because investors often perceive disadvantages in owning stock in companies with controlling shareholders. As a result, these shareholders, if they acted together, could significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with our interests or the interests of other shareholders.

If you purchase our ordinary shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price is substantially higher than the net tangible book value per share of our ordinary shares. Investors purchasing ordinary shares in this offering will pay a price per share that substantially exceeds the net tangible book value of our ordinary shares. As a result, investors purchasing ordinary shares in this offering will incur immediate dilution of $ per share, based on the initial public offering price of $ per share, and our pro forma net tangible book value as of December 31, 2013. The exercise of outstanding warrants and options may result in further dilution of your investment. In addition, if we raise funds by issuing additional shares or convertible securities in the future, the newly issued shares may further dilute your ownership interest. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the purchase price paid in this offering in the event of liquidation. For more information, please see “Dilution.”

Future sales of our ordinary shares, or the perception that future sales may occur, may cause the market price of our ordinary shares to decline, even if our business is doing well.

Sales of substantial amounts of our ordinary shares in the public market after this offering, or the perception that these sales may occur, could materially and adversely affect the price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. The shares of ordinary shares sold in this offering will be freely tradable, without restriction, in the public market, except for any shares sold to our affiliates.

In connection with this offering, we, our officers and directors and holders of 1% or more of our currently outstanding shares of ordinary shares have agreed prior to the commencement of this offering, subject to limited exceptions, not to sell or transfer any shares of ordinary shares for 180 days after the date of this prospectus without the consent of Maxim. However, Maxim may release these shares from any restrictions at any time. We cannot predict what effect, if any, market sales of shares held by any stockholder or the availability of shares for future sale will have on the market price of our ordinary shares.

Approximately ordinary shares may be sold in the public market by existing security holders after the date of this prospectus and an additional ordinary shares may be sold in the public market by existing security holders on or about 180 days after the date of this prospectus, subject to volume and other limitations imposed under the federal securities laws. Sales of substantial amounts of our ordinary shares in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our ordinary shares and could materially impair our ability to raise capital through offerings of our ordinary shares. See the section entitled “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling shares of our ordinary shares after this offering.

We are issuing a warrant to the underwriter in this offering to purchase an additional ordinary shares, including ordinary shares pursuant to the exercise of the overallotment option. In addition, as of May 8, 2014, we had outstanding options to purchase 815,927 ordinary shares, and outstanding warrants to purchase an aggregate of 686,220 ordinary shares and an aggregate of 1,764,563 series A preferred shares convertible on a one-for-one basis into ordinary shares. We plan to register for offer and sale the ordinary shares that are reserved for issuance pursuant to outstanding options and warrants. Shares covered by such registration statements upon the exercise of stock options and warrants generally will be eligible for sale in the public market, except that affiliates will continue to be subject to volume limitations and other requirements of Rule 144 under the Securities Act of 1933, as amended. The issuance or sale of such shares could depress the market price of our ordinary shares.

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our shareholders.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our shares, our share price and trading volume could decline.

The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

Because we do not intend to declare cash dividends on our ordinary shares in the foreseeable future, shareholders must rely on appreciation of the value of our ordinary shares for any return on their investment.

We have never declared or paid cash dividends on our ordinary shares. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. As a result, only appreciation of the price of our ordinary shares, if any, will provide a return to investors in this offering.

The requirements associated with being a public company will require significant company resources and management attention.

Following this offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act), the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our ordinary shares is traded and other applicable securities rules and regulations. The Exchange Act requires that we file periodic reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and The NASDAQ Stock Market may also impose various additional requirements on public companies. As a result, we will incur additional legal, accounting and other expenses that we did not incur as a nonpublic company, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our development plans. We have made changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations. The measures we take, however, may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our ordinary shares, fines, sanctions and other regulatory action and potentially civil litigation.

The JOBS Act and our status as a foreign private issuer will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our ordinary shares.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

the provisions of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

the “say on pay” provisions requiring a non-binding shareholder vote to approve compensation of certain executive officers and the “say on golden parachute” provisions requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer;

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act, and instead provide a reduced level of disclosure concerning executive compensation;

our ability not to comply with new accounting principles that do not apply to public companies until such accounting principles become applicable to private companies;

any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements; and

our ability to furnish two rather than three years of income statements and statements of cash flows in various required filings.

We intend to take advantage of these exemptions until we are no longer an “emerging growth company.” We expect to remain an emerging growth company for up to five years.

Our status as a foreign private issuer also exempts us from compliance with certain SEC laws and regulations and certain regulations of The NASDAQ Stock Market, including the proxy rules, the short-swing profits recapture rules and certain governance requirements.

We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile and may decline.

Risks Related to Israeli Law and Our Operations in Israel

Our headquarters and other significant operations are located in Israel and, therefore, our results may be adversely affected by political, economic and military instability in Israel.

Our executive offices are located in Rehovot, Israel. In addition, the majority of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. Since March 2011, there has been a civil war in Syria, Israel’s neighboring country to the north. Occasionally, violence from Syria has spilled over into Israel, and Israel has responded militarily several times since the onset of the civil war. During November 2012, Israel was engaged in an armed conflict with a militia group and political party which controls the Gaza Strip, and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party. These conflicts involved missile strikes against civilian targets in various parts of Israel, including areas in which our employees and some of our consultants are located, and negatively affected business conditions in Israel. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions and could harm our results of operations and could make it more difficult for us to raise capital. Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.

Our commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government has in the past covered the reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our operating results, financial conditions or the expansion of our business.

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

Our male employees and consultants in Israel, including members of our senior management, may be obligated to perform one month, and in some cases longer periods, of annual military reserve duty until they reach the age of 40 (or older, for citizens who hold certain positions in the Israeli armed forces reserves), and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of our officers, directors, employees and consultants. Such disruption could materially adversely affect our business and operations.

Exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel currencies may negatively affect our earnings.

We incur expenses both in U.S. dollars and New Israeli Shekels, but our financial statements are denominated in U.S. dollars. As a result, we are exposed to the risks that the New Israeli Shekel may appreciate relative to the U.S. dollar, or, if the New Israeli Shekel instead devalues relative to the U.S. dollar, that the inflation rate in Israel may exceed such rate of devaluation of the New Israeli Shekel, or that the timing of such devaluation may lag behind inflation in Israel. In any such event, the U.S. dollar cost of our operations in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the New Israeli Shekel against the U.S. dollar.

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

Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to such types of transactions. For example, a merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of both merging companies have approved the merger. In addition, a majority of each class of securities of the target company must approve a merger. Moreover, a tender offer for all of a company’s issued and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender offer, the acquirer would hold at least 98% of the Company’s outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek such appraisal rights.

Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to our shareholders whose country of residence does not have a tax treaty with Israel exempting such shareholders from Israeli tax. See “Taxation—Israeli Tax Considerations” for additional information.

Our amended and restated articles of association that will be in effect immediately prior and subject to the consummation of this offering will also contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions will include the following:

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; and

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.

It may be difficult to enforce a judgment of a U.S. court against us and our officers and directors and the Israeli experts named in this prospectus in Israel or the United States, to assert U.S. securities laws claims in Israel or to serve process on our officers and directors and these experts.

We were incorporated in Israel. Substantially all of our executive officers and directors reside outside of the United States, and all of our assets and most of the assets of these persons are located outside of the United States. Therefore, a judgment obtained against us, or any of these persons, including a judgment based on the civil liability provisions of the U.S. securities laws, may not be collectible in the United States and may not necessarily be enforced by an Israeli court. It also may be difficult for you to affect service of process on these persons in the United States or to assert U.S. securities law claims in original actions instituted in Israel. Additionally, it may be difficult for an investor, or any other person or entity, to initiate an action with respect to U.S. securities laws in Israel. Israeli courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proven as a fact by expert witnesses, which can be a time consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any damages awarded by either a U.S. or foreign court. See “Enforceability of Civil Liabilities” for additional information on your ability to enforce a civil claim against us and our executive officers or directors named in this prospectus.

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

The rights and responsibilities of the holders of our ordinary shares are governed by our amended and restated articles of association and by Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in typical U.S.-based companies. In particular, a shareholder of an Israeli company has certain duties to act in good faith and fairness towards the Company and other shareholders, and to refrain from abusing its power in the Company. See “Management—Approval of Related Party Transactions under Israeli Law—Shareholder Duties” for additional information. There is limited case law available to assist us in understanding the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. companies.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements made under “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.

Forward-looking statements include, but are not limited to, statements about:

·	our goals and strategies;
·	our timeline for our product candidate development path, including the anticipated starting and ending dates of our anticipated clinical trials;
·	the timing and conduct of our research and development programs;
·	anticipated actions of the FDA or other regulatory bodies, including approval to conduct clinical trials, the scope of those trials and the prospects for regulatory approval of, or other regulatory action with respect to our product candidates;
·	the commercial launch and future sales of our existing product candidates or any other future potential product candidates;
·	our ability to achieve favorable pricing;
·	our expectations regarding the commercial supply of our products;
·	third-party payor reimbursement for our products;
·	our estimates regarding anticipated expenses, future revenues, capital requirements and our needs for additional financing;
·	the patient market size and market adoption of our product candidates by physicians and patients;
·	the timing, cost or other aspects of the commercial launch of our product candidates;
·	completion and receiving favorable results of our anticipated clinical trials;
·	market acceptance of our product;
·	our expectations regarding licensing and strategic partnering;
·	the impact of government laws and regulations;
·	difficulties in maintaining commercial scale manufacturing capacity and capability;
·	our intended use of proceeds of this offering;
·	general economic conditions and market conditions in our industry;
·	unanticipated financial resources needed to respond to technological changes and increased competition;
·	claims that might be brought in excess of our insurance coverage; and
·	our ability to recruit and retain qualified regulatory and research and development personnel.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” and elsewhere in this prospectus. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

USE OF PROCEEDS

We expect to receive approximately $ million in net proceeds from the sale of ordinary shares offered by us in this offering (approximately $ million if the underwriters exercise their over-allotment option in full), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from this offering for:

completing necessary preparations and conducting a Phase 2b clinical study for NOxBR for the treatment of bronchiolitis, estimated at ;

completing necessary preparations and conducting a Phase 3 clinical study for NOxBR for the treatment of bronchiolitis, estimated at ;

completing necessary preparations and conducting a Phase 2b clinical study for NOxCF for the treatment of cystic fibrosis, estimated at ;

completing necessary preparations and conducting a Phase 3 clinical study for NOxCF for the treatment of cystic fibrosis, estimated at ;

completing necessary preparations and conducting a pre-clinical study for NOxAST, estimated at ;

completing necessary preparations and conducting a Phase 2a study for NOxPN for the treatment of pneumonia, estimated at ; and

developing NOxSysBS for hospital use for the treatment of bronchiolitis, estimated at $ .

We will use the remaining net proceeds for the further advancement of our early-stage development programs, for further product development, and for general corporate purposes, including general and administrative expenses, working capital and prosecution and maintenance of our intellectual property rights.

The amounts and timing of our actual expenditures will depend upon numerous factors, including the progress of our development and commercialization efforts, the status of and results from our clinical trials, whether or not we enter into strategic collaborations or partnerships, and our operating costs and expenditures. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering.

We have no current understandings, commitments or agreements with respect to any material acquisition of or investment in any technologies, products or companies.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our ordinary shares and do not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

The Israeli Companies Law imposes further restrictions on our ability to declare and pay dividends. See “Description of Share Capital—Dividend and Liquidation Rights” for additional information.

Payment of dividends may be subject to Israeli withholding taxes. See “Taxation—Israeli Tax Considerations” for additional information.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2013:

on an actual basis;

on a pro forma basis to give effect to (i) the automatic conversion, on a one-for-one basis, of 4,215,346 outstanding series A preferred shares into 4,215,346 ordinary shares, which will occur automatically immediately prior and subject to the consummation of this offering, (ii) the exercise of warrants to purchase 1,568,502 series A preferred shares, which will automatically be converted on a one-for-one basis into 1,568,502 ordinary shares, including (A) 882,281 warrants to purchase series A preferred shares with an exercise price of $0.306 per share and (B) 686,220 warrants to purchase ordinary shares with an exercise price of $1.02 per share, which will occur immediately prior and subject to the consummation of this offering, (iii) the issuance of 41,607 ordinary shares issuable upon the exercise of consultant options outstanding as of May 8, 2014, at an exercise price which equals the par value per share, including: (A) 32,677 series A preferred shares (which will be automatically converted on a one-for-one basis into ordinary shares immediately prior and subject to the consummation of this offering) issuable in connection with the exercise of another investor’s warrants, and (B) 8,930 ordinary shares issuable upon conversion of convertible notes of another investor, and (iv) the automatic conversion of convertible notes outstanding in the aggregate principal amount of $800,000 and accrued interest as of May 8, 2014 in the amount of $9,728 into an aggregate of 1,190,678 ordinary shares; and

on a pro forma, as adjusted, basis to also give effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us, at the closing of the offering, as if the sale of the shares in each case had occurred on December 31, 2013.

You should read this table in conjunction with the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Information in the table below is in thousands, except for share and per share amounts.

	December 31, 2013
	Actual			Pro forma (unaudited)			Pro Forma as adjusted (unaudited)
Ordinary shares of NIS 0.01 par value; 93,954,736 shares authorized and 11,628,100 shares issued and outstanding actual; 93,954,736 shares authorized and 18,644,232 shares issued and outstanding pro forma; __________ shares authorized and __________shares issued and outstanding pro forma as adjusted		29			49
Series A Preferred shares of NIS 0.01 par value; 6,045,264 shares authorized and 3,583,044 shares issued and outstanding actual; 6,045,264 shares authorized and no shares issued and outstanding pro forma; __________ shares authorized and no shares issued and outstanding pro forma as adjusted		9			-
Additional paid-in capital	$	891		$	3,142		$
Deficit accumulated during the development stage	$	(1,749	)	$	(1,786	)	$
Total shareholders’ equity (deficiency)	$	(820	)	$	1,405		$

The outstanding share information above excludes the following, each as of May 8, 2014:

815,927 ordinary shares issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $0.20 per ordinary share;

430,753 ordinary shares reserved for future issuance under our 2013 Plan;

882,282 preferred series A shares (which will automatically be converted into ordinary shares) issuable upon the exercise of warrants with an exercise price of $0.306 per share;

32,678 preferred series A shares issuable to a consultant upon the exercise of consultant options at an exercise price which equals the par value per share and subject to the exercise of another investor's warrants; and

1,176,374 ordinary shares issuable upon the exercise of options issued in connection with our convertible promissory notes, which options will be granted upon the consummation of this offering with an exercise price of $0.680056 per share.

DILUTION

If you invest in our ordinary shares, you will experience immediate and substantial dilution to the extent of the difference between the initial public offering price of our ordinary shares and the pro forma as adjusted net tangible book value (deficit) per share of our ordinary shares immediately after the offering.

Our historical net tangible book value (deficit) per share is determined by dividing our total tangible assets, less total liabilities, by the actual number of outstanding ordinary shares. The historical net tangible book deficit of our ordinary shares as of December 31, 2013 was $820, or $0.071 per share. The pro forma net tangible book value (deficit) of our ordinary shares as of December 31, 2013 was $1,405,000 or $0.08 per ordinary share, during the development stage. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding ordinary shares, after giving effect to the pro forma adjustments referenced under “Capitalization.”

The pro forma as adjusted net tangible book value (deficit) of our ordinary shares as of December 31, 2013, was $ , or $ per share. The pro forma as adjusted net tangible book value (deficit) gives effect to the sale of ordinary shares in this offering at the initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The difference between the initial public offering price and the pro forma as adjusted net tangible book value (deficit) per share represents an immediate dilution of $ per share to new investors purchasing ordinary shares in this offering.

The following table illustrates this dilution on a per share basis to new investors:

If the underwriters’ over-allotment option to purchase additional shares from us is exercised in full, and based on the initial public offering price of $ per share, the pro forma as adjusted net tangible book value (deficit) per share after this offering would be approximately $ per share, the increase in the pro forma net tangible book value (deficit) per share attributable to new investors would be approximately $ per share and the dilution to new investors purchasing shares in this offering would be approximately $ per share.

The table below summarizes as of December 31, 2013, on the pro forma as adjusted basis described above, the number of ordinary shares we issued and sold, the total consideration we received and the average price per share (1) paid by our existing shareholders and (2) to be paid by new investors purchasing our ordinary shares in this offering at the initial public offering price of $ per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

	Shares Purchased				Total Consideration				Average Price
	Number	Percent			Amount	Percent			Per Share
Existing shareholders		%			$			%	$
New investors		%
Total			100	%	$		100	%	$

The number of ordinary shares outstanding immediately after this offering is based on 18,644,232 ordinary shares, on an as converted basis, giving effect to the pro forma transactions described in “Capitalization.”

This number excludes the following, each as of May 8, 2014:

815,927 ordinary shares issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $0.20 per ordinary share;

430,753 ordinary shares reserved for future issuance under our 2013 Plan;

882,282 preferred series A shares (which will automatically be converted into ordinary shares) issuable upon the exercise of warrants with an exercise price of $0.306 per share;

To the extent that new options are granted under our equity benefit plans, there will be further dilution to investors purchasing ordinary shares in this offering.

SELECTED FINANCIAL DATA

	Years ended December 31,
	2013			2012
Statements of Operations Data:

Research and development expenses	$	898		$	134

General and administrative expenses		486			48

Financial expense (income), net		(7	)		(4	)

Revaluation of warrants to purchase series A preferred shares		197			(3	)

Loss attributable to holders of ordinary shares		1,574			175

Weighted average number of ordinary shares used in computing basic and diluted net loss per share		11,628,100			10,615,556

	As of December 31, 2013
	Actual			Pro Forma(1) (unaudited)		Pro Forma As Adjusted(2) (unaudited)
Balance Sheet Data:
	$					$
Total current assets		76			1,994
Total long-term assets		117			117
Total current liabilities		425			412
Long term liabilities		588			294
Shareholders’ equity		(820	)		1,405

(1) Gives effect to the pro forma adjustments referenced under “Capitalization.”

(2) Gives effect to the adjustments described in footnote (1) above and the sale of ordinary shares in this offering at the initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if the sale had occurred on December 31, 2013.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of the prospectus contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Introduction

We are an emerging biopharmaceutical company that is developing a proprietary NO formulation and delivery system to treat acute respiratory infections for which current treatments have limited effectiveness. Our novel system delivers a safe dosage of NO to the lungs using positive air pressure that for the first time is able to completely eliminate infection-causing bacteria, viruses and other microbes. NO is produced naturally by the body as a highly effective antimicrobial defense mechanism, but to date no delivery system has been able to deliver an effective and non-toxic antimicrobial dosage to the lungs. Our unique and proprietary system continuously monitors safety and efficacy parameters in the patient and is adaptable to treat a wide range of lung infections.

Our general target indication for our platform is ALRTI, including our first two targets, children with bronchiolitis and lung infections in patients with CF, as well as secondary targets including pneumonia and severe (infectious induced) asthma. A Phase 1 clinical trial demonstrating the safety of our system has been completed. We have also recently completed two Phase 2a safety and efficacy trials to treat bronchiolitis and CF-related lung infections and are analyzing the data. NO is eligible for favorable orphan drug designation by the FDA for CF-related lung infections. Additionally, it may be able to benefit from prior clearance of NO by the FDA for medical use in neonates.

To date, we have not generated revenue from the sale of any product, and we do not expect to generate significant revenue unless and until we obtain marketing approval of, and commercialize our product candidates. As of December 31, 2013, we had an accumulated deficit of $1.8 million. Our financing activities are described below under “Liquidity and Capital Resources.”

Financial Overview

Operating Expenses

Our current operating expenses consist of two components — research and development expenses and general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist primarily of cost of third party clinical consultants and expenses related to conducting clinical and preclinical trials, salaries and related personnel expenses, share-based compensation expenses, travel expenses and other research and development expenses.

We expect that our research and development expenses will materially increase as we plan to initiate clinical activity and prepare to conduct clinical trials in the near future.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, share-based compensation expense, professional service fees for accounting, legal, bookkeeping and facilities, travel expenses and other general and administrative expenses.

We expect our general and administrative expenses, such as accounting and legal fees, to increase after we become a U.S. public company, and we expect increases in the number of our executive, accounting and administrative personnel due to the anticipated growth of our company.

Financial Expense and Income

Financial expense and income consist of bank fees and other transactional costs and exchange rate differences.

Critical Accounting Policies and Estimate

We describe our significant accounting policies more fully in Note 2 to our financial statements for the year ended December 31, 2013. We believe that the accounting policies below are critical in order to fully understand and evaluate our financial condition and results of operations.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP).

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. Our management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

JOBS Act

On April 5, 2012, the U.S. Congress enacted the JOBS Act. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards. As a result, our financial statements may not be comparable to companies that comply with the public company effective date.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on other exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company.”

Stock-Based Compensation and Fair Value of Ordinary Shares

We account for stock-based compensation in accordance with ASC 718, “Compensation — Stock Compensation,” which requires companies to estimate the fair values of equity-based payments awards on the date of grant using an option-pricing model. The value of the stock options is recognized as an expense over the requisite service periods in our statement of statement of comprehensive loss. We recognize compensation expenses for the value of our awards granted based on accelerated method over the requisite service period of each of the awards.

The fair value of the ordinary shares was based on the application of Option-Pricing Method (OPM). The first step in performing a valuation using OPM involves estimating the fair value of the total shareholders’ equity (capital instruments). As part of our analysis, we used recent investment rounds or the Discounted Cash Flows method, respectively to the option valuation dates, in our shares in order to evaluate the fair value of our total shareholders’ equity.

Under the option-pricing method, we estimated the fair value of the ordinary shares as the net value of a series of call options, representing the present value of the expected future returns to the ordinary shareholders. Essentially, the rights of the ordinary shareholders are equivalent to a call option on any value of the Company above the respective preferred shareholders’ liquidation preferences, with adjustment to account for the rights retained by the preferred shareholders related to their share in any value above the values at which they would convert to ordinary shares. Thus, the ordinary shares were valued by estimating the value of its share in each of these call option rights. As most of the options were granted at par value and the exercise price is negligible, the fair value of the options is equal to the share price.

We primarily selected the Black-Scholes-Merthon model, which is the most common model in use in evaluating stock options. This model evaluates the options as if there is a single exercise point, and thus considers and expected option life (expected term). The input factored in this model is constant for the entire expected life of the option.

The computation of expected volatility is based on historical volatility of our stock. The risk-free interest rate assumption is the implied yield currently available on United States treasury zero-coupon issues with a remaining term equal to the expected life term of the options. We determined the expected life of the options based on the "simplified method," representing the period of time that options granted are expected to be outstanding.

We apply ASC 718 and ASC 505-50, "Equity-Based Payments to Non-Employees" with respect to options and warrants issued to non-employees. ASC 718 requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date.

Share-based compensation expense recognized under ASC 718 and ASC 505-50 were approximately, $215,000 and $12,000 for the year ended December 31, 2013 and 2012, respectively.

Warrants to purchase preferred shares:

The Company accounts for freestanding warrants to purchase shares of its preferred shares as a liability on its balance sheet at fair value. The warrants to purchase preferred shares are recorded as a liability as the underlying preferred shares are contingently redeemable (upon a deemed liquidation event) and, therefore, may obligate the Company to transfer assets in the future. The warrants are subject to re-measurement to fair value at each balance sheet date and any change in fair value is recognized as a component of financial income (expense), net, on the statements of comprehensive loss. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of deemed liquidation event or the conversion of series A preferred shares into Ordinary Shares.

Results of Operations
	Year ended December 31,
	2013			2012
	(in thousands)
Research and development expenses	$	898		$	134
General and administrative expenses		486			48
Operating loss		1,384			182
Financial Expense (income), net		(7	)		(4	)
Adjustment of Liability in respect of stock options and warrants issued		197			(3	)
Net comprehensive loss	$	1,574		$	175

Comparison of the Year Ended December 31, 2013 to the Year Ended December 31, 2012

Research and development expenses

The following table discloses the breakdown of research and development expenses for the last two fiscal years.


	December 31,
	2013		2012
	(in thousands)
Cost to third-party clinical consultants and expenses related to conducting clinical and preclinical trials	$	572	$	63
Salaries and related personnel		93		25
Share-based compensation		55		—
Patents		130		42
Other		48		4
Total	$	898	$	134

Our research and development expenses for the year ended December 31, 2013, amounted to $898,000, representing an increase of $764,000, or 570%, compared to $134,000 for the year ended December 31, 2012. The increase was primarily attributable to an increase of expenses related to third party preclinical consultants and other expenses related to conducting preclinical trials in an amount of $509,000 and to an increase of salaries and related personnel expenses in an amount of $68,000 reflecting an increase in the number of employees engaged in research and development related activities from one to two, in addition an increase of stock based compensation expenses of $55,000 in 2013 from $0 in 2012.

Research and Development by clinical study
	December 31,
	2013		2012		Change
	(in thousands)				%
Bronchiolitis study	$	195	$	63		210
Cystic Fibrosis study	$	67		---		---
Other	$	310		---		---
Total	$	572	$	63		808

Our research and development expense is highly dependent on the execution of clinical trials and therefore fluctuates highly from year to year.

The variances in expense between the year ended December 31, 2013, and the corresponding period in 2012 are mainly due to the following projects:

Bronchiolitis clinical study. Our expenses related to Bronchiolitis clinical study for the year ended December 31, 2013, amounted to $195,000, representing an increase of $132,000, or 210%, compared to $63,000 for the year ended December 31, 2012. The increase was primarily attributable to the study research agreement as well as medical device purchases. The clinical study was initiated in December 2012, therefore the majority of the expenses and activities related to the study were in 2013. In addition, during 2013 the number of employees involved in this clinical study was increased.

CF clinical study. Our expenses related to the CF clinical study for the year ended December 31, 2013, amounted to $67,000. This study was initiated in 2013; therefore, there were no expenses in 2012.

Other R&D expenses. Our expenses related to these general R&D expenses for the year ended December 31, 2013, amounted to $310,000. These expenses were primarily attributable to a research agreement as well as a license purchased from University of British Columbia allowing us to use certain technology developed at the university. Payment for these agreements occurred during 2013; therefore, there were no expenses in 2012.

General and administrative expenses

Our general and administrative expenses totaled $486,000 for the year ended December 31, 2013, an increase of $438,000, or 912%, compared to $48,000 for the year ended December 31, 2012. The increase resulted primarily from an increase of $160,000 in share-based compensation expenses, an increase of payroll in an amount of $46,000 reflecting an increase of payroll to our employees, and an increase of $161,000 in professional services.

Operating loss

As a result of the foregoing, our operating loss for the year ended December 31, 2013, was $ 1,384,000, as compared to an operating loss of $182,000 for the year ended December 31, 2012, an increase of $1,202,000, or 660%.

Financial expense and income

We recognized financial income of $7,000 for the year ended December 31, 2013, compared to financial income of $4,000 for the year ended December 31, 2012.

Revaluation of warrants to Preferred A Shares

We recognized an adjustment of liability in respect of stock options and warrants issued of $197,000 for the year ended December 31, 2013, compared to income of $3,000 for the year ended December 31, 2012.

Loss

As a result of the foregoing, our loss for the year ended December 31, 2013, was $1,574,000, as compared to $175,000 for the year ended December 31, 2012, an increase of $1,399,000 or 799%.

Liquidity and Capital Resources

Overview

Since our inception through December 31, 2013, we have funded our operations principally with $1,062,000 from the issuance of ordinary and preferred shares and $98,000 from loans and convertible promissory notes. As of December 31, 2013, we had $23,000 in cash and cash equivalents. In the first quarter of 2014, and in connection with convertible notes promissory issued to certain investors, we received a net total consideration of $665,000.

The table below presents our cash flows for the years 2013 and 2012:

	Years Ended December 31,
	2013			2012
	(in thousands)
Operating activities	$	(804	)	$	(142	)
Investing activities		298			(444	)
Financing activities		362			753
Net increase (decrease) in cash and cash equivalents	$	(144	)	$	167

Operating Activities

Net cash used in operating activities of $804,000 during the year ended December 31, 2013, was primarily used for payment of $400,000 for clinical trials and other third party expenses and an aggregate of $200,000 in salaries and related personnel expenses. The remaining amount of $204,000 was for travel, patent, rent and other miscellaneous expenses. Net cash used in operating activities of $142,000 during the year ended December 31, 2012, was primarily used for salary payments and for clinical trials and other third party expenses.

Investing Activities

Net cash from investing activities during 2013 primarily reflected an increase in property and equipment and cash from deposits. Net cash used in investing activities during 2012, primarily reflected investment in property and bank deposit.

Financing Activities

Net cash provided by financing activities in the year ended December 31, 2013, consisted of approximately $312,000 of net proceeds from issuance of series A preferred shares and warrants to purchase series A preferred shares. Net cash provided by financing activities in the year ended December 31, 2012, consisted of approximately $745,000 of net proceeds from issuance of series A preferred shares and warrants to purchase series A preferred shares.

Current Outlook

We have financed our operations to date primarily through proceeds from sales of our ordinary shares, series A preferred shares and convertible promissory notes. We have incurred losses and generated negative cash flows from operations since inception. To date, we have not generated any revenue from the sale of products and we do not expect to generate revenues from sale of our products in the next few years.

Our independent registered public accounting firm’s report to our financial reports for the fiscal year ended December 31, 2013, states that there is a substantial doubt that we will be able to continue as a going concern. Furthermore, according to our estimates, based on our budget, if we are not successful in obtaining additional capital resources, there is a substantial doubt that we will be able to continue our activities after September 30, 2014. Even if we are able to raise funds in the offering contemplated herein, we believe that we will need to raise additional funds before we generate positive cash flow from operations.

As of December 31, 2013, our cash, cash equivalents totaled $23,000. In April 2014, we issued an aggregate of 632,302 series A preferred shares for an aggregate amount of $187,500. Between December 2013 and May 8, 2014, we raised $800,000, and accrued interest in the amount of $9,728, via the issuance of convertible promissory notes. We believe that our existing cash resources and the net proceeds from the current offering will be sufficient to fund our projected cash requirements approximately through the conclusion of 2017. Nevertheless, we will require significant additional financing in the future to fund our operations if and when we obtain regulatory approval and commercialize our products. We currently anticipate that, assuming consummation of the current offering, we will utilize approximately $18 million for clinical trial activities over the course of the next 42 months. We also anticipate utilizing approximately between $2 million for the development and manufacture of our delivery systems intended for use in clinical trials. Our future capital requirements will depend on many factors, including:

the progress and costs of our preclinical study, clinical trials and other research and development activities;

the scope, prioritization and number of our clinical trials and other research and development programs;

the costs and timing of obtaining regulatory approval for our product candidates;

the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;

the costs of, and timing for, strengthening our manufacturing agreements for production of sufficient clinical quantities of our product candidates;

the potential costs of contracting with third parties to provide marketing and distribution services for us or for building such capacities internally;

the costs of acquiring or undertaking the development and commercialization efforts for additional, future therapeutic applications of our product candidates;

the magnitude of our general and administrative expenses; and

any cost that we may incur under current and future in- and out-licensing arrangements relating to our product candidates.

In April 2014, we issued an aggregate of 632,302 series A preferred shares for an aggregate amount of $187,500. Since December 2013, we have issued convertible promissory notes having an aggregate principal amount of $800,000. As of May 8, 2014, the aggregate accrued interest on such convertible promissory notes was $9,728. The convertible promissory notes will automatically convert into ordinary shares immediately prior and subject to the consummation of this initial public offering, at a conversion rate of $0.680056 per share.

Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through the net proceeds from the current offering, debt or equity financings or by out-licensing applications of our drug candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our drug candidates. This may raise substantial doubts about the Company’s ability to continue as a going concern.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2013:

	Total		Less than 1 year		1 – 3 years		4 – 5 years		More than 5 years
	(in thousands US$)
Operating leases:
Facility		3		3		—		—		—
Motor Vehicles		22		—		22		—		—

During the year ended December 31, 2013, we engaged with few service providers and vendors. However, we do not deem such engagements as significant compared with our current financial resources.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of foreign currency exchange rates.

Foreign Currency Exchange Risk

Our results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. Certain of our expenses are denominated in New Israeli Shekels. Our results of operations and cash flow are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. Approximately 30% of our expenses are denominated in New Israeli Shekel. Changes of 5% and 10% in the USD/NIS exchange rate will increase/decrease the operation expenses by 1.5% and 3%, respectively. We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.

BUSINESS

Overview

We are an emerging biopharmaceutical company that is developing a proprietary nitric oxide (NO) formulation and delivery system to treat acute respiratory infections for which current treatments have limited effectiveness. Our system delivers a safe dosage of NO to the lungs using positive air pressure that for the first time is able to completely eliminate infection-causing bacteria, viruses and other microbes. NO is the body’s own highly effective antimicrobial defense mechanism, but to date no delivery system has been able to deliver an effective and non-toxic antimicrobial dosage to the lungs. Our unique and proprietary system continuously monitors safety and efficacy parameters in the patient and is adaptable to treat a wide range of lung infections.

Our general target indication for our NO platform is Acute Lower Respiratory Tract Infections (ALRTI), including our first two targets, children with bronchiolitis and lung infections in patients with Cystic Fibrosis (CF), as well as secondary targets including pneumonia and severe, infectious induced asthma. There are over 1.5 million hospitalizations related to ALRTI annually in the United States, and ALRTI is the third leading cause of death worldwide. Over 150 million new cases of bronchiolitis are reported worldwide each year. In the United States, there are approximately 150,000 annual bronchiolitis hospitalizations among children five years old or younger. According to the CF Foundation, there are approximately 30,000 CF patients in the United States. Globally, approximately 450 million people suffer from pneumonia every year, and pneumonia is the single largest cause of death in children under the age of five.

The current course of treatment for acute lung infections in infants is largely supportive and non-therapeutic and is based on prolonged hospitalization during which the infant receives a constant flow of oxygen to reduce hypoxemia, which is a reduced concentration of oxygen in the blood. In addition, systemic steroids and inhalation with bronchodilators are sometimes administered until recovery, but these treatments are not able to eliminate all microbes. For hospitalized CF patients, current treatments are supportive through the administration of oxygen and inhalation with bronchiodilators, and include broad spectrum antibiotics and sometimes systemic steroids. Because these treatments do not eliminate all microbes, patients often suffer recurrent infections causing lung damage and ultimately in many cases respiratory failure.

In contrast, our system safely and effectively eliminates bacteria, viruses, fungi and other microbes from the lungs, is not based on antibiotics (which are only partially effective and are increasingly becoming subject to resistance) and reduces the mucus caused by lung infections and enhances vasodilation for improved blood flow.

A Phase 1 clinical trial demonstrating the safety of our system has been completed. We have also recently completed two Phase 2a safety and efficacy trials to treat bronchiolitis and CF-related lung infections and are analyzing the data.

We have licensed and own a broad intellectual property portfolio related to our device and mode of delivery, monitoring parameters and methods of treating specific disease indications. Our portfolio consists of 19 patents and patent applications, of which six patents are licensed from SensorMedics Corporation (CareFusion), one of the largest worldwide providers of inhalation medical devices.

ADVANCED INHALATION THERAPIES (AIT) LTD

(A development stage company)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2013

U.S. DOLLARS IN THOUSANDS

INDEX

	Page

Report of Independent Registered Public Accounting Firm	F - 2

Balance Sheets	F-3 - F-4

Statements of Comprehensive Loss	F - 5

Statements of Changes in Shareholders' Equity (Deficiency)	F - 6

Statements of Cash Flows	F- 7

Notes to Financial Statements	F-8 - F-27

F - 1

Kost Forer Gabbay & Kasierer

3 Aminadav St.

Tel-Aviv 6706703, Israel

Tel: +972-3-6232525

Fax: +972-3-5622555

ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

ADVANCED INHALATION THERAPIES (AIT) LTD

(A development stage company)

We have audited the accompanying balance sheets of Advanced Inhalation Therapies (AIT) Ltd. (a development stage company) ("the Company") as of December 31, 2013 and 2012, and the related statements of comprehensive loss, changes in shareholders' equity (deficiency) and cash flow for each of the two years in the period ended December 31, 2013 and for the period from May 1, 2011 (date of inception) to December 31, 2013. 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. We were not engaged to perform an audit of the Company’s 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Inhalation Therapies (AIT) Ltd. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013 and for the period from May 1, 2011 (date of inception) through December 31, 2013, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1b to the financial statements, the Company has incurred losses in the amount of $1,574 thousand during the year ended December 31, 2013, and has an accumulated deficit of $1,749 as of December 31, 2013. Its ability to continue to operate is dependent upon obtaining additional financial support. These conditions, among other matters described in Note 1b, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
May 13, 2014	A Member of EY Global

F - 2

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

BALANCE SHEETS

U.S. dollars in thousands

	December 31,
	2013		2012

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	23	$	167
Short-term bank deposit		-		387
Restricted bank deposits		13		-
Receivables and prepaid expenses		40		20

Total current assets		76		574

LONG-TERM ASSETS:

Long-term lease deposit		3		-
Property and equipment, net		114		56

Total long-term assets		117		56

TOTAL ASSETS	$	193	$	630

The accompanying notes are an integral part of the financial statements.

F - 3

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

BALANCE SHEETS

U.S. dollars in thousands, (except share and per share data)

	December 31,
	2013			2012

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Trade payables	$	67		$	10
Other accounts payable		336			31
Loans from related party		9			8
Convertible note		13			-

Total current liabilities		425			49

LONG TERM LIABILITIES:
Warrants to Preferred A Shares	$	588		$	340

TOTAL LIABILITIES		1,013			389

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIENCY):

Ordinary shares of NIS 0.01 par value -
93,954,736 and 94,085,444 shares authorized at December 31, 2013 and 2012, respectively
11,628,100 issued and outstanding shares at December 31, 2013
and 2012		29			29
Preferred A shares of NIS 0.01 par value –
6,045,264 and 5,914,556 shares authorized at December 31, 2013 and 2012, respectively;
3,583,044 and 2,529,208 issued and outstanding shares at
December 31, 2013 and 2012, respectively		9			7
Additional paid- in capital		891			380
Deficit accumulated during the development stage		(1,749	)		(175	)

Total shareholders' equity (deficiency)		(820	)		241

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)	$	193		$	630

The accompanying notes are an integral part of the financial statements.

May 13, 2014
Date of approval of the	Yosef Av- Gay	Eli Gendler
financial statements	Chairman of the Board of Directors Director	Chief Financial Officer

F - 4

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

STATEMENTS OF COMPREHENSIVE LOSS

U.S. dollars in thousands, (except share and per share data)

	Year ended December 31,						Period from May 1, 2011 (date of inception) to December 31,
	2013			2012			2013

Research and development expenses	$	898		$	134		$	1,032

General and administrative expenses		486			48			534

Operating loss		1,384			182			1,566

Financial income, net		(7	)		(4	)		(11	)
Revaluation of warrants to Preferred A Shares		197			(3	)		194

Net comprehensive loss	$	1,574		$	175		$	1,749

Net basic and diluted loss per share		(0.14	)		(0.02	)

Weighted average number of Ordinary shares used in computing basic and diluted net loss per share		11,628,100			10,615,556

The accompanying notes are an integral part of the financial statements.

F - 5

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

U.S. dollars in thousands, except share data

	Ordinary shares				Preferred A shares				Additional paid-in			Deficit accumulated during the development			Total shareholders' equity
	Number		Amount		Number		Amount		capital			stage			(deficiency)

Balance as of May 1, 2011 (Date of inception)		-		-		-		-		-			-			-
Issuance of Ordinary Shares, Net		10,000,000		25		-		-		(25	)		-			-

Balance as of December 31, 2011		10,000,000		25		-		-		(25	)		-			-

Share based compensation related to Ordinary Shares granted to a consultant		814,000		2						12			-			14
Issuance of Ordinary Shares to existing shareholders		814,100		2		-		-		(2	)		-			-
Issuance of Series A Preferred Shares, net ($0.306 per share)		-		-		2,529,208		7		395			-			402
Net loss		-		-		-		-		-			(175	)		(175	)

Balance as of December 31, 2012		11,628,100		29		2,529,208		7		380			(175	)		241

Issuance of Series A Preferred Shares, net ($0.306 per share)		-		-		1,053,836		2		259			-			261
Share based compensation related to options granted to consultants and employees		-		-		-		-		215			-			215
Beneficial conversion feature with respect to a convertible note		-		-		-		-		37			-			37
Net loss		-		-		-		-		-			(1,574	)		(1,574	)

Balance as of December 31, 2013		11,628,100	$	29		3,583,044	$	9	$	891		$	(1,749	)	$	(820	)

*) Represents an amount lower than $ 1.

The accompanying notes are an integral part of the financial statements.

F - 6

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

	Year ended December 31,						Period from May 1, 2011 (date of inception) to December 31,
	2013			2012			2013
Cash flows from operating activities

Net loss	$	(1,574	)	$	(175	)	$	(1,749	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		15			1			16
Stock based compensation		215			14			229
Increase in receivables and prepaid expenses		(20	)		(20	)		(40	)
Increase in trade payables		57			10			67
Increase in other accounts payable		305			31			336
Interest on related party loan and convertible note		1			*	)		1
Revaluation of warrants to Preferred A Shares		197			(3	)		194

Net cash used in operating activities		(804	)		(142	)		(946	)

Cash flows from investing activities

Purchase of property and equipment		(73	)		(57	)		(130	)
Redemption (investment) in bank deposits		374			(387	)		(13	)
Increase in long – term lease deposits		(3	)		-			(3	)

Net cash provided by (used in) investing activities		298			(444	)		(146	)

Cash flows from financing activities

Loan from related party		-			8			8
Proceeds from convertible note		50			-			50
Proceeds from issuance of Preferred A Shares and warrants to Preferred A Shares, net		312			745			1,057

Net cash provided by financing activities		362			753			1,115

Increase (decrease) in cash and cash equivalents		(144	)		167			23
Cash and cash equivalents at the beginning of the period		167			-			-

Cash and cash equivalents at the end of the period	$	23		$	167		$	23

The accompanying notes are an integral part of the financial statements.

F - 7

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 1:-

GENERAL

Advanced Inhalation Therapies (AIT) Ltd. (a development stage Company) (the "Company") was incorporated in Israel on May 1, 2011 and commenced its operation in May, 2012. The Company is an emerging Israeli drug development company focusing on the development and commercialization of nitric oxide formulations for the treatment of respiratory infections and diseases. The AIT pipeline includes therapies against respiratory infections in acute and chronic diseases such as: bronchiolitis (RSV), cystic fibrosis (CF), pneumonia, and asthma.

The Company has not generated revenue from the sale of any product, and does not expect to generate significant revenue unless and until the obtaining of marketing approval and commercializing its products. Accordingly, the Company is considered to be in the development stage as defined in Accounting Standards Codification ("ASC") 915, "Development stage entities".

The Company has incurred losses in the amount of $1,574 during the year ended December 31, 2013. The Company has an accumulated deficit in the total amount of $1,749 as of December 31, 2013 and as of that date the accumulated negative cash flow from operating activity amounted to $946. These conditions raise substantial doubts about the Company's ability to continue as a going concern. The Company's ability to continue to operate is dependent upon raising additional funds to finance its activities. If the Company is not successful in obtaining additional capital resources to maintain its operational activities, there is substantial doubt that the Company will be able to continue its activity after June 30, 2014. The Company plans to have its securities listed in the third quarter of 2014, for the purpose of raising capital to finance its operations. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its products. The financial statements do not include any adjustments with respect to the carrying amounts of assets and liabilities and their classification that might be necessary should the Company be unable to continue as a going concern.

F - 8

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").

Use of estimates:

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Financial statements in U.S. dollars in thousands:

The majority of the Company's operations are currently conducted in Israel while a significant part of the Company's expenses and financing activities are denominated and determined in U.S. dollars. The Company's management believes that the U.S. dollar is the currency of the primary economic environment in which the Company operates and expects to continue to operate in the foreseeable future. Thus, the functional and reporting currency of the Company is the U.S. dollar.

The Company's transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to U.S. dollars in accordance with ASC 830, "Foreign Currency Matters", of the Financial Accounting Standards Board ("FASB"). All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.

Cash equivalents:

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.

Short-term bank deposit

Short-term bank deposits are deposits with maturities of more than three months but less than one year. The short–term bank deposits are presented at their cost, including accrued interest, which approximates fair value.

F - 9

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Restricted bank deposits:

Restricted bank deposits are pledged in favor of a bank which provides to the Company guarantees with respect to office lease agreements.

Property and equipment, net:

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:

		%

Computers and electronic equipment		33
Office furniture and equipment		7-15
Clinical and medical equipment		15

The Company's property and equipment are reviewed for impairment in accordance with ASC 360, "Property, Plant, and Equipment," whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In 2013 and 2012, no impairment losses have been identified.

Long-term lease deposits:

Long-term deposits include long-term deposits for motor vehicles under operating leases, presented at their cost.

Research and development expenses:

Research and development expenses are expensed as incurred. Those expenses includes payments to third party clinical consultants, expenses related to conducting clinical trials, salaries and related personnel expenses, travel expenses, and share based compensations expenses to research and development employees.

F - 10

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Severance pay:

The Company's liability for severance pay is pursuant to Section 14 of the Severance Compensation Act, 1963 ("Section 14"), all the employees are included under this section, and entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in the employee's name with insurance companies. Payments in accordance with Section 14 release the Company from any future severance payments in respect of those employees. The fund is made available to the employee at the time the employer-employee relationship is terminated, regardless of cause of termination. The severance pay liabilities and deposits under section 14 are not reflected in the balance sheet as the severance pay risks have been irrevocably transferred to the severance funds.

Severance pay expense for the years ended December 31, 2013 and 2012 amounted to $10 and $3, respectively.

Income taxes:

The Company accounts for income taxes in accordance with ASC 740, "Income Taxes". This topic 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, to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company implements a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.

As of December 31, 2013 and 2012, the Company has not recorded a liability for uncertain tax positions.

Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short term bank deposit and restricted bank deposits.

F - 11

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Cash, cash equivalents, short term bank deposit and restricted bank deposits are invested in major banks in Israel. Management believes that the financial institutions that hold the Company's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

Fair value of financial instruments:

ASC 820, "Fair Value Measurements and Disclosures", defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 -

Quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access at the measurement date.

Level 2 -

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 -

Unobservable inputs for the asset or liability.

Warrants to Preferred A Shares are classified within level 3 as the valuation inputs are unobservable and significant to the overall financial instrument.Refer to Note 7 for changes in fair value of the warrants to Preferred A Shares (changes in level 3).

F - 12

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

The carrying amounts of cash and cash equivalents, short-term bank deposits, restricted bank deposits, trade payables, and other accounts payable approximate their fair value due to the short-term maturities of such instruments

Basic and diluted net loss per share:

Basic net loss per share is computed based on the weighted average number of Ordinary Shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of Ordinary Shares outstanding during each year plus dilutive potential equivalent Ordinary shares considered outstanding during the year, in accordance with ASC 260, "Earnings per Share."

All outstanding stock options and warrants have been excluded from the calculation of the diluted net loss per share as all such securities are anti-dilutive for all periods presented.

Stock-based compensation:

The Company accounts for stock-based compensation in accordance with ASC 718, "Compensation - Stock Compensation" that requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the option award is recognized as an expense over the requisite service periods in the Company's statement of operations.

The Company selected the Black-Scholes-Merton ("Black-Scholes") option-pricing model as the fair value method for its stock-options awards. The option-pricing model requires a number of assumptions as noted below:

Expected dividend yield - The expected dividend yield assumption is based on the Company's historical experience and expectation of no future dividend payouts. The Company has historically not paid cash dividends and has no foreseeable plans to pay cash dividends in the future.

Volatility - Since the Company is not traded on any stock exchange market, quoted prices of the Company's share are unavailable. According to ASC 718, due to insufficient or no historical data for the Company, the expected volatility determination was based on similar companies' stock volatility.

Risk free interest rate - The risk free interest rate is based on the yield of U.S Treasury bonds with equivalent terms.

F - 13

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Expected term - ASC 718 provides the factors to consider when estimating the expected term of an option: An option's expected term must at least include the vesting period and the employees' historical exercise and post-vesting employment termination behavior for similar grants. It also determines that if the amount of past exercise data is limited, that data may not represent a sufficiently large sample on which to base a robust conclusion on expected exercise behavior. In that circumstance, it may be appropriate to consider external data or the SEC staff's "simplified" method to the expected term. Accordingly, the Company used the "simplified" method, meaning the expected life can be set as the average of the vesting period for each vested tranche of options and the contractual term for those options.

As there has been no public market for the Company's Ordinary Shares, the fair value of the Ordinary Shares underlying the options granted in 2013 had been determined by the Company's management, using the assistance of an independent valuation firm. The valuation of the Ordinary Shares in 2013 was based on discounted cash flow model and by applying the option-pricing method.

The fair value for options granted in 2013 to employees and directors of the Company are estimated at the date of grant using a Black-Scholes-Merton options pricing model with the following weighted average assumptions:

	2013

Dividend yield	0%
Expected volatility	80%
Risk-free interest	1.87-2.12%
Expected life (years)	5.5-6

The Company recognizes compensation expenses for the value of its awards granted based on the accelerated method over the requisite service period of each of the awards.

The Company applies ASC 505-50, "Equity-Based Payments to Non-Employees" ("ASC 505") with respect to options and warrants issued to non-employees which requires the use of option valuation models to measure the fair value of the options and warrants at the measurement date.

F - 14

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

o. Warrants to purchase preferred shares:

NOTE 3:-

RECEIVABLES AND PREPAID EXPENSES

	December 31,
	2013		2012

Advances to suppliers	$	12	$	-
Prepaid expenses		1		-
Governments authorities		27		20

	$	40	$	20

NOTE 4:-

PROPERTY AND EQUIPMENT, NET

	December 31,
	2013		2012
Cost:
Computers and electronic equipment	$	7	$	2
Office furniture and equipment		6		1
Clinical and medical equipment		117		54

		130		57
Accumulated depreciation:
Computers and electronic equipment		2		*) -
Office furniture and equipment		*) -		*) -
Clinical and medical equipment		14		1

		16		1

Depreciated cost	$	114	$	56

Depreciation expenses for the years ended December 31, 2013 and 2012 were $15 and $1, respectively.

*) Represents an amount lower than $ 1.

F - 15

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 5:-

OTHER ACCOUNTS PAYABLE

	December 31,
	2013		2012

Employees and payroll accruals	$	33	$	15
Accrued expenses		303		16

	$	336	$	31

NOTE 6:-

CONVERTIBLE NOTE

In December 2013 the Company entered into a certain convertible notes agreements in the amount of $200 of which an amount of $50 was received by December 31, 2013. The loans bear an interest rate of 8% per annum and are convertible, with accrued interest, to the most senior shares of the Company. The maturity date of the note, unless converted earlier, is December 12, 2017. The conversion price was set to be at the lowest of 33.3% discount of such shares or a price per share of $0.68 upon mandatory conversion or a price per share of $0.31 upon voluntary conversion in the event that a "triggering event" (as defined in the agreement) has not occurred. In accordance with ASC 470-20, the Company recorded a beneficial conversion feature in the amount of $37, which would be amortized along the period of the convertible note through financial expenses unless mandatorily converted earlier.

NOTE 7:-

LIABILITY IN RESPECT OF WARRANTS TO PREFERRED A SHARES

In November 2012 and August 2013, the Company issued Preferred A Shares for a total consideration of $745 (net of issuance costs) and $312, respectively. As part of each financing round, the Company has issued 1,633,855 and 130,708 warrants to purchase Preferred A Shares, respectively. The warrants are exercisable to Preferred A Shares on a 1:1 basis with an exercise price of $0.31 per share. Half of the warrants may be exercised in whole or in part, in a fully cash payment, at any time until the earlier of: (i) the expiry of 36 months from the date of the first closing and (ii) consummation of the next equity financing round in the company by, inter alia, non affiliated investors, in an aggregate consideration of at least $1,000 ("the first financing"). The second half of the warrants may be exercised in whole or in part, in a fully cash payment, at any time until the earlier of: (i) the expiry of 24 months from the date of consummation of the "first financing" and (ii) consummation of the next equity financing round in the company following the first financing by, inter alia, non-affiliated investors in an aggregate consideration of at least $1,000.

The Company has allocated the proceeds and issuance expenses in each financing round to the warrants and Preferred A shares issued.

In accordance with ASC 480 "Distinguishing Liabilities from Equity", the warrants to preferred A Shares are classified as a liability and remeasured to fair value at each reporting date. The changes in the fair value are recorded as an expense or income in the statements of comprehensive loss.

F - 16

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 7:-

LIABILITY IN RESPECT OF WARRANTS TO PREFERRED A SHARES (Cont.)

Summary of warrants to Preferred A Shares activity is as follow:

	Warrants issued 2012			Warrants issued 2013			Total

Fair value at issuance date, net		343			-			343
Revaluation to fair value at year end		(3	)		-			(3	)

Fair value as of December 31, 2012		340			-			340

Fair value at issuance date, net		-			51			51
Revaluation to fair value at year end		207			(10	)		197

Fair value as of December 31, 2013		547			41			588

As of December 31, 2013 all warrants remained outstanding.

NOTE 8:-

INCOME TAXES

Tax rates applicable to the Company:

Taxable income of Israeli companies is subject to tax rate of 25% in 2013 and 24% in 2012. On July 30, 2013, the Israeli Parliament (the Knesset) approved the second and third readings of the Economic Plan for 2013-2014 ("Amended Budget Law") which consists, among others, of fiscal changes whose main aim is to enhance the collection of taxes in those years.

These changes include, among others, raising the Israeli corporate tax rate from 25% to 26.5%, effective from January 1, 2014.

Net operating losses carry forward:

The Company has accumulated losses for tax purposes as of December 31, 2013 in the amount of approximately $853 which may be carried forward and offset against taxable income in the future for an indefinite period.

F - 17

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 8:-

INCOME TAXES (Cont.)

Deferred income taxes:

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. Significant components of the Company's deferred tax assets are as follows:

	December 31,
	2013			2012
Deferred tax assets:
Operating loss carry forward	$	226		$	32
Reserves and allowances		3			1
Research and Development		181			16

Net deferred tax asset before valuation allowance		410			49
Valuation allowance		(410	)		(49	)

Net deferred tax asset	$	-		$	-

As of December 31, 2013, the Company has provided valuation allowances of $410 in respect to deferred tax assets resulting from tax loss carry forward 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 carry forward and other temporary differences will not be realized in the foreseeable future.

No liability for uncertain tax positions was recorded as a result of implementation of ASC 740.

The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowances in respect to deferred taxes relating to net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.

NOTE 9:-

CONTINGENT LIABILITIES AND COMMITMENTS

The Company is engaged in an operating lease agreement for its office facilities. Future minimum non-cancelable rental payments under the operating lease are $3 for the year ending December 31, 2014. Rent expenses for the year ended December 31, 2013 amounted to $10.

The Company leases motor vehicles under cancelable lease agreement. The Company has an option to be released from this lease agreement, which may result in penalties in a maximum amount of approximately $3.

F - 18

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 9:-

CONTINGENT LIABILITIES AND COMMITMENTS (Cont.)

Rent and motor vehicle expenses under operating leases for the year ended December 31, 2013 were $19.

In September 2012, the Company entered into a certain research agreement with a medical center. According to the agreement, the medical center will perform medical study on behalf of the Company for a total consideration of up to $169, based on achievements of milestones as described in the agreement. In June 2013, the agreement was amended such that the total amount increased to $204. The Company retains the right to terminate the agreement at any time subject to thirty days written notice. In the event that early termination occurs, the costs of non-cancelable items and remuneration expenses shall be paid by the Company. For the year ended December 31, 2013 the Company recorded expenses in the amount of $77 in respect to this agreement.

In November, 2013 the Company entered into a certain research agreements with medical centers. According to the agreements, the medical centers will perform the medical study on behalf of the Company for a total consideration of up to $79, based on achievements of milestones as described in the agreements. The Company retains the right to terminate the agreements at any time subject to thirty days written notice. In the event that early termination occurs, the costs of non-cancelable items and remuneration expenses shall be paid by the Company. For the year ended December 31, 2013, the Company recorded expenses in the amount of $8 in respect to these agreements.

In November 2011, one of the Company's shareholders entered into a technology license agreement with a university for a total consideration of $40 on behalf of the Company. The consideration was paid by the shareholder and subsequently after the Company commenced operation in 2012 was assumed by the Company. According to the agreement, the university grants the Company certain exclusive rights to a technology for the earlier of a period of 10 years or the termination of collaborative research agreement which will be agreed between the parties. In February 2013, the Company has entered into the collaborative research agreement with the university where the Company agreed to fund the research in the amount of $188 in four equal installments. For the years ended December 31, 2013 and 2012 the Company recorded expenses in the amount of $188 and $40, respectively, for the collaborative research agreement and the technology agreement.

In October 2013, the Company entered into certain patent license agreement with a third party. According to the agreement the Company shall pay to the third party a non-refundable upfront fee in the amount of $150. Furthermore, the Company is obligated to pay the third party 5% royalties of the licensed product revenues, but at least $50 per annum at the royalty period. The Company did not record any revenues and therefore no royalties were paid or accrued. For the year ended December 31, 2013, the Company recorded expenses in the amount of $188 in respect to the upfront fees, including associated withholding taxes.

F - 19

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 10:-

SHAREHOLDERS' EQUITY (DEFICIENCY)

All ordinary shares and per share data included in these financial statements for all periods presented have been retroactively adjusted to reflect the issuance in July 2013 of 24,999-to-one bonus shares (equivalent to a 25,000-for-1 share split).

Share capital:

Ordinary Shares

The Ordinary Shares confer upon their holders the right to participate and vote in general shareholders meetings of the Company and to share in the distribution of dividends, if any, declared by the Company, rights to receive a distribution of assets upon liquidation.

Preferred A Shares:

The Preferred A Shares confer on the holders thereof all rights accruing to holders of Ordinary Shares in the Company and, in addition, bear the following rights (and such other rights set forth in the Company's Article of Association):

Voting - Every holder of Preferred A Shares shall have one vote for each Ordinary Share into which the Preferred A Shares held by him of record could be converted, on every resolution, without regard to whether the vote thereon is conducted by a show of hands, by written ballot or by any other means. The holders of each class of Preferred A Shares shall vote separately on all matters that by law or under the Articles of Association are subject to a class vote.

Conversion - Each Preferred A Share shall be convertible, without payment of additional consideration, by the holder thereof into Ordinary Shares at the option of the holder thereof, at any time after the date on which such Preferred A Share was issued by the Company. In addition, all Preferred A Shares are mandatorily convertible into Ordinary Shares simultaneously with the occurrence of the first to occur of (A) the consummation of an initial public offering of the Company’s Ordinary Shares ("IPO"), reflecting a pre-money valuation of the Company of no less than $20,000 and netting to the Company proceeds of no less than $5,000; or (B) the holders of the majority of the issued and outstanding Preferred A Shares elect to convert their Preferred A Shares into Ordinary Shares.

F - 20

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 10:-

SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

Dividend Preference - When, as, and if a dividend is declared and distributed, the holders of the Preferred A Shares shall be entitled to receive, prior to any distribution of dividends to the holders of Ordinary Shares, a dividend, up to the cumulative aggregate amount, with respect to all dividends distributed, of the Preferred A Preference Amount (as defined below). After the dividend preferences of the Preferred A Shares have been paid in full, the Preferred A Shares will participate pro-rata with the Ordinary Shares in the receipt of any additional dividends on an as-converted basis.

Liquidation Preference- In the event of any liquidation (including a deemed-liquidation event), each of the holders of Preferred A Shares, then outstanding, shall be entitled to be paid out of the assets available for distribution to the shareholders, whether capital, surplus, earnings, securities or assets of any kind (the “Liquidation Assets”), prior and in preference to any distribution, declaration or setting apart for payment of any amount made in respect of any other shareholder an amount per share equal to the original issue price plus 8% per annum, plus any accrued but unpaid dividends thereon, but minus any dividends previously declared and paid for such share (“Preferred A Preference Amount”). In case the assets and funds thus distributed among the holders of the Preferred A Shares shall be insufficient to permit the payment to such holders of the full Preferred A Preference Amount, then all the liquidation assets shall be distributed ratably among the holders of the Preferred A Shares in proportion to the full preferential amounts such holders are entitled to receive.

Notwithstanding the above mentioned, the total amount distributed to the holders of Preferred A Shares, shall not exceed the greater of: (a) (i) if the Liquidation Event or Deemed Liquidation Event shall occur during a period of three years following the closing of the SPA, a total liquidation amount per share equal to three times the original issue price, plus any declared but unpaid dividends or (ii) if a Liquidation Event shall occur following a period of three years following the closing of the SPA, a total liquidation amount per share equal to four times the original issue price, plus any declared but unpaid dividends, and (b) the amount such holder would receive if all shares of Preferred A Shares had been converted to Ordinary Shares immediately prior to such Liquidation Event or Deemed Liquidation.

The Preferred A Preference amount or the liquidation preference as of December 31, 2013 amounted to $1,177.

F - 21

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 10:-

SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

Issuances of shares:

In May 2011, upon the Company`s incorporation, the Company issued 100 Ordinary Shares, to one of its founders, for their par value of 0.01 NIS per share. In June 2012, the Company issued an additional 300 Ordinary Shares to its other founders, for their par value of 0.01 NIS per share.

In July 2012, the Company issued bonus shares to all existing shareholders of the Company, so that for each share of the Company, nominal value 0.01 NIS, will be issued additional 24,999 Ordinary Shares, so that following such issuance, the toal outstanding shares will amount to 10,000,000 shares.

In August 2012, the Company issued 1,628,100 Ordinary Shares, of which 814,100 shares were issued to then current shareholders for their par value of 0.01 NIS and 814,000 shares were issued to a legal consultant in respect to legal services. The total share based expenses recognized as general and administrative expenses were $14.

In November 2012, the Company signed a Share Purchase Agreement ("SPA") with various investors to raise capital and issue up to 4,084,638 shares of the Company`s Series A Preferred Shares, par value of 0.01 NIS, for a total consideration of up to $1,250, reflecting a price per share of $0.306025. The Company has issued 2,450,783 Preferred A Shares for a total consideration of $750. In addition, the Company issued additional 78,425 Preferred A Shares at par value to a consultant in respect to services provided as part of the SPA.

In addition, as part of the SPA, the Company has issued to one of the investors 1,633,855 warrants to purchase Preferred A Shares (Refer to Note 7 for further details).

In August 2013, as a second installment to the SPA dated November 2012, the Company issued 1,021,159 Preferred A Shares for a total consideration of $312. In addition, the Company issued additional 32,677 Preferred A Shares at par value to a consultant in respect to services provided as part of the SPA.

In addition, as part of the second installment of the SPA, the Company issued to one of the investors 130,708 warrants to Preferred A Shares (Refer to Note 7 for further details).

In October 2013, the Company engaged into a strategic advisory agreement with a certain third party. According to the agreement, the Company issued the third party fully vested warrants to purchase 686,220 Ordinary Shares of the Company at an exercise price of $1.02 per warrant.

F - 22

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 10:-

SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

Stock options granted to employees.

In September and December 2013, the Company authorized through its 2013 incentive option plan (the "2013 Plan"), the grant of options to officers, directors, advisors, management and other key employees. The Company reserved for grants of options up to 1,246,680 of the Company's Ordinary Shares. The options granted have generally between 2 to 4 years vesting terms and expire 10 years after the grant date. Certain options will be accelerated upon fulfillment of certain conditions. As of December 31, 2013, 593,519 options were still available for future grants under the Plan.

A summary of the Company's options activity (for employees and directors) under the Company's 2013 Share Option Plan is as follows:

	Year ended December 31,
	2013
	Number of options		Weighted average exercise price			Weighted average remaining contractual life

Outstanding at beginning of year		-		-			-
Granted		439,719	$	0.01			9.7
Exercised		-		-			-
Forfeited		-		-			-

Outstanding at end of year		439,719	$	0.01			9.7

Options vested and expected to vest		439,719	$	0.01			9.7
Options exercisable		194,663	$	*	)		9.7

As of December 31, 2013, the aggregated intrinsic value of outstanding options and exercisable options is $122 and $56, respectively.

As of December 31, 2013, the unrecognized compensation expenses are $57 and $5 to be recognized in 2014 and 2015, respectively.

Total weighted average grant date fair value of options granted in 2013 is $0.26.

F - 23

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 10:-

SHAREHOLDERS' EQUITY (DEFICIENCY) (Cont.)

Options granted to consultants:

The Company granted options to certain service providers under the Company's ESOP plan and accounted for these options in accordance with ASC 505-50.

The outstanding options granted to the Company's consultants are as follows:

Grant date	Number of options		Exercise price			Expiration date
September 8, 2013		166,469	$	0.5		September 8, 2023
September 8, 2013		18,789	$	*	)	September 8, 2023
December 29, 2013		28,184	$	0.5		December 29, 2023

		213,442

Represents an amount lower than $ 1.

Share-based payment:

The share based expense recognized in the financial statements for services received from employees and non-employees is shown in the following table:

	Year ended December 31,				Period from May 1, 2011 (date of inception) to December 31,
	2013		2012		2013

Research and development	$	55		-	$	55
General and administrative expenses		160		14		174

	$	215		14	$	229

F - 24

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 11:-

RELATED PARTY BALANCES AND TRANSACTIONS

Balances with related parties:

	December 31,
	2013		2012

Convertible note (f)	$	50	$	-

Other accounts payable (c),(d),(e),	$	6		8

Loan from related party (b)	$	9	$	8

Related parties' expenses:

	Year ended December 31,
	2013		2012
Amounts charged to:

General and administrative expenses (e)	$	23	$	28

Research and Development expenses (d), (c)	$	77	$	10

Financial expense (b), (f)	$	1	$	*	)

On February 15, 2012 the Company received $20 loan from a shareholder. The loan did not bear interest and was fully paid at the same year.

On April 9, 2012, the Company signed a loan agreement with one of its shareholders for a total amount of $27. The loan bears an interest of 3% per annum and is payable on the earlier of June 15, 2014 or in two installments of $20 pursuant to a financing round of $200 and $7 pursuant to a financing round of $3,000. On November 2012, an amount of $20 was repaid by the Company.

On September 9, 2012, the Company signed an agreement with a consultant, who is also one of the Company's shareholders, such agreement was amended on November 8, 2012. According to the agreement the consultant will provide the Company with Chief Medical Officer Services for a consideration of approximately $2 per month.

On December 15, 2012, the Company signed an agreement with a consultant, who is also one of the Company's shareholders. According to the agreement the consultant will provide the Company with all Chief Scientific Officer services for a consideration of approximately $2 per month.

F - 25

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 11:-

RELATED PARTY BALANCES AND TRANSACTIONS (Cont.)

On November 26, 2012 the Company signed an agreement with a consultant, who is also a related party of the Company. According to the agreement, the Company will receive legal and notary services from the consultant. For the years ended December 31, 2013 and 2012 the Company recorded expenses in the amounts of $23 and $14, respectively.

On December 15, 2013 the Company signed a certain convertible note agreement for a total consideration of $50, see note 6 for further details.

NOTE 12:-

FINANCIAL INCOME, NET

	Year ended December 31,						Period from May 1, 2011 (date of inception) to December 31,
	2013			2012			2013
Financial expenses:
Interest expense	$	5		$	12		$	17
Exchange rate		-			12			12

	$	5		$	24		$	29
Financial income:
Interest income		*	)		*	)		*	)
Exchange rate		12			28			40

	$	12		$	28		$	40

	$	(7	)	$	(4	)	$	(11	)

NOTE 13:-

BASIC AND DILUTED NET LOSS PER SHARE

The following table sets forth the computation of the Company's basic and diluted net loss per share of Ordinary share:

	Year ended December 31
	2013			2012

Net comprehensive loss	$	(1,574	)	$	(175	)
Preferred A Shares dividend		(71	)		(10	)
Net loss attributable to Ordinary shares		(1,645	)		(185	)

Shares used in computing net loss per share of Ordinary shares, basic and diluted		11,628,100			10,615,556

Net loss per share of Ordinary share, basic and diluted		(0.14	)		(0.02	)

F - 26

ADVANCED INHALATION THERAPIES (AIT) LTD.

(A development stage company)

NOTES TO FINANCIAL STATEMENTS

U.S. dollars in thousands, except share data

NOTE 13:-

BASIC AND DILUTED NET LOSS PER SHARE (Cont.)

For the years ended December 31, 2013 and 2012, all outstanding options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.

NOTE 14:-

SUBSEQUENT EVENTS

State of Israel	2834	Not Applicable
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

Racheli Vizman – Chief Operation Officer	Zysman, Aharoni, Gayer and
Advanced Inhalation Therapies (AIT) Ltd. 2 Derech Meir Weisgal	Sullivan & Worcester LLP 1633 Broadway
Rehovot, 7632605 Israel Tel: +972.8.684.3313	New York, NY 10019 Tel: 212.660.5000
(Address, including zip code, and telephone number,	(Name, address, including zip code, and telephone
including area code, of registrant’s principal executive offices)	number, including area code, of agent for service)

Edwin L. Miller Jr.	Eran Ben-Dor	Mitchell S. Nussbaum	Barry Levenfeld
Oded Har-Even	Zysman, Aharoni, Gayer & Co.	Angela M. Dowd	Eric Spindel
Shy S. Baranov	41-45 Rothschild Blvd.	Loeb & Loeb LLP	Yigal Arnon & Co.
Zysman, Aharoni, Gayer and	Beit Zion	345 Park Avenue	1 Azrieli Center
Sullivan & Worcester LLP	Tel-Aviv, Israel 65784	New York, NY 10154	Tel Aviv, Israel 67021
1633 Broadway	Tel: +972.3.795.5555	Tel: 212.407.4159	Tel: +972.3.608.7777
New York, NY 10019
Tel: 212.660.5000

Title of Each Class of Securities to be Registered		Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee
Ordinary shares, par value NIS 0.01 per share(2)(3)	$
Representative’s warrants to purchase ordinary shares(4)
Ordinary shares underlying representative’s warrants(5)
TOTAL	$

		Per Share		Total
Initial public offering price	$		$
Underwriting discounts and commissions (1)	$		$
Proceeds to us (before expenses)	$		$

	Page
Summary	11
Risk Factors	12
Cautionary Note Regarding Forward-Looking Statements	42
Use of Proceeds	43
Dividend Policy	43
Capitalization	44
Dilution	46
Selected Financial Data	48
Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Business	56
Management	73
Principal Shareholders	93
Description of Share Capital	95
Shares Eligible for Future Sale	103
Taxation	104
Underwriting	112
Expenses	118
Legal Matters	118
Experts	118
Enforceability of Civil Liabilities	118
Where You Can Find Additional Information	119
Index of Financial Statements	F - 1

Name	Age	Position
Yossef Av-Gay	52	Chairman of the Board of Directors and Chief Scientific Officer
Racheli Vizman	33	Chief Operation Officer
Eli Gendler	46	Chief Financial Officer
David Greenberg	54	Director and Chief Medical Officer
Amir Avniel	41	Director
Pinchas Yizchak Ben-Elazar (1)	45	Director
Ari Raved	61	Director

	No. of Shares Beneficially Owned Prior to this Offering		Percentage Owned Before this Offering			Percentage Owned After this Offering

Holders of more than 5% of our voting securities:
Mor Research Application Ltd.(1)		2,500,000		15.8	%
David Greenberg*		2,500,000		15.8	%
Yossef Av-Gay*		2,907,050		18.3	%
Amir Avniel* (2)		3,132,624		19.5	%
Rony and Ari Raved* (3)		4,953,934		28.3	%
Enrique Derzavich (4)		1,097,569		6.8	%
Ronen Kantor		814,000		5.1	%
Directors and executive officers who are not 5% holders:
Racheli Vizman* (5)		439,424		2.7	%
Eli Gendler*		-		-
Pinchas Yizchak Ben-Elazar*		-		-

All directors and executive officers as a group		13,933,032		76.6	%

	Fee Per Share(1)	Total Without Exercise of Over-Allotment	Total With Exercise of Over-Allotment
Public offering price	$	$	$
Discount	$	$	$

SEC filing fee	$	*
FINRA filing fee		*
Transfer agent fees and expenses		*
Printer fees and expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Miscellaneous		*
Total	$

Exhibit Number		Exhibit Description
1.1*		Form of Underwriting Agreement by and among the Company and the underwriters named therein
3.1*		Articles of Association of the Company, as currently in effect
3.2*		Amended and Restated Articles of Association of the Company, to be in effect upon completion of this offering
4.1*		Form of Representative’s Warrant
4.2*		Registration Rights Agreement between the Company and the holders of Ordinary Shares that are parties thereto
4.3*		Convertible Promissory Note, dated December 12, 2013, and as amended in March 2014, by and between the Company and Amir Avniel
4.4*		Convertible Promissory Note, dated December 15, 2013, and as amended in April 2014, by and between the Company and Zur Erez
4.5*		Convertible Promissory Note, dated January 6, 2013, and as amended in March 2014, by and between the Company and Derzavich Gurvich Enrique
4.6*		Convertible Promissory Note, dated January 22, 2014, and as amended in April 2014, by and between the Company and Ari Raved
4.7*		Convertible Promissory Note, dated January 22, 2014, and as amended in April 2014, by and between the Company and Amir Avniel
4.8*		Convertible Promissory Note, dated February 19, 2014, and as amended in April 2014, by and between the Company and Amir Avniel

4.9*		Convertible Promissory Note, dated February 26, 2014, and as amended in April 2014, by and between the Company and Ari Raved
4.10*		Convertible Promissory Note, date February 26, 2014, and as amended in April 2014, by and between the Company and Botein & Company LLC
4.11*		Convertible Promissory Note, dated February 27, 2014, and as amended in April 2014, by and between the Company and Amir Avniel
4.12*		Convertible Promissory Note, dated March 2, 2014, and as amended in April 2014, by and between the Company and Amir Avniel
4.13*		Convertible Promissory Note, dated March 10, 2014, and as amended in April 2014, by and between the Company and Derzavich Gurvich Enrique
4.14*		Convertible Promissory Note, dated March 16, 2014, and as amended in April 2014, by and between the Company and INF Pro Enterprises, Inc.
4.15*		Convertible Promissory Note, dated April 2, 2014, by and between the Company and Amir Avniel
4.16*		Convertible Promissory Note, dated April 10, 2014, by and between the Company and Landslide IP Group, LLC
4.17*		Convertible Promissory Note, dated April 17, 2014, by and between the Company and Ruth Gorenstein
4.18*		Convertible Promissory Note, dated May 7, 2014, by and between the Company and Racheli Vizman
5.1*		Opinion of Zysman, Aharoni, Gayer & Co., Israeli counsel to the Company, as to the validity of the ordinary shares being offered (including consent)
10.1*		Advanced Inhalation Technologies (AIT) Ltd. 2013 Share Option Plan
10.2(a)*		Employment Agreement, dated September 9, 2012, by and between the Company and Racheli Vizman
10.2(b)*		Addendum to Employment Agreement, dated May 30, 2013, by and between the Company and Racheli Vizman
10.2(c)*		Addendum to Employment Agreement, dated April 8, 2014, by and between the Company and Racheli Vizman
10.3*		Service Agreement, dated April 23, 2014, by and between the Company and Guberman Consulting Ltd.
10.4*		Collaborative Research Agreement dated November 1, 2011, by and between the Company and the University of British Columbia
10.5*		License Agreement, dated November 1, 2011, by and between the Company and the University of British Columbia
23.1*		Consent of Kost Forer Gabbay & Kasierer (a Member of EY Global)
23.2*		Consent of Zysman, Aharoni, Gayer & Co. (included in Exhibit 5.1)
24.1		Power of Attorney (included on the signature page of the Registration Statement)

Signature	Title	Date


	Chairman of the Board and Chief Scientific Officer	May [__], 2014
Yossef Av-Gay

	Chief Operation Officer (Principal Executive Officer)	May [__], 2014
Racheli Vizman

	Chief Financial Officer (Principal Financial and Accounting Officer)	May [__], 2014
Eli Gendler

	Director and Chief Medical Officer	May [__], 2014
David Greenberg

	Director	May [__], 2014
Amir Avniel

	Director	May [__], 2014
Pinchas Yizchak Ben Elazar

	Director	May [__], 2014
Ari Raved