Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-QSB
 
MARK ONE
 
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period ended March 31, 2007; or
 
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________
 
COMMISSION FILE NUMBER: 0-11772
 
SPO MEDICAL INC.
(Exact name of small business issuer as specified in its charter)
 
 
Delaware
  
25-1411971
(State or other jurisdiction of
  
(I.R.S. Employer Identification No.)
incorporation or organization)
    
 
 
21860 BURBANK BLVD., NORTH BUILDING, SUITE 380
Woodland Hills, CA 91367
(Address of principal executive offices, including zip code)
 
 
818-888-4380
(Issuer's telephone number, including area code)
 
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o
 
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 1b-2 of the Exchange Act). Yes o     No x.
 
As of May 11, 2007, SPO Medical Inc. had outstanding 19,355,525 shares of common stock, par value $0.01 per share.
 
Transitional Small Business Disclosure Format (Check one) Yes o     No x
 
 
INDEX PAGE

PART I -- FINANCIAL INFORMATION
  
PAGE
Forward Looking Statements
ii
   
Item 1 - Financial Statements
  
Consolidated Balance Sheet March 31, 2007, Unaudited
2
Unaudited Consolidated Statements of Operations for three months ended March 31, 2007 and 2006
3
Unaudited Statements of Changes in Stockholders Deficiency
4
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006
5
Notes to Consolidated Financial Statements
6
   
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
7
   
Item 3 - Controls and Procedures
10
   
PART II -- OTHER INFORMATION
  
   
Item 1 - Legal Proceedings
10
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
10
Item 3 - Defaults upon Senior Securities
11
Item 4 - Submission of Matters to a Vote of Security Holders
11
Item 5 - Other Information
11
Item 6 - Exhibits
11
 
SIGNATURES
12

 
-i-
 
FORWARD LOOKING STATEMENTS
 
The following discussion and explanations should be read in conjunction with the financial statements and related notes contained elsewhere in this quarterly report on Form 10-QSB. Certain statements made in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "intends", "anticipates", "believes", "estimates", "predicts", or "continue" or the negative of these terms or other comparable terminology and include, without limitation, statements below regarding: the Company's intended business plans; expectations as to product performance; intentions to acquire or develop other technologies; and belief as to the sufficiency of cash reserves. Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Although the Company believes that expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any forward-looking statements after the date of this report to conform such statements to actual results.
 
-ii-
 
 
SPO MEDICAL INC.
AND ITS SUBSIDIARY
U.S. dollars in thousands

   
March 31, 2007
  
   
Unaudited
  
       
       
ASSETS
      
CURRENT ASSETS
      
Cash and cash equivalents
 
$
908
  
Trade receivables
    
483
  
Other accounts receivable and prepaid expenses
    
270
  
Inventories
   
1,006
  
   
$
2,667
  
LONG-TERM ASSETS
       
Deposits
    
13
  
Severance pay fund
    
232
  
     
245
  
         
PROPERTY AND EQUIPMENT, NET 
    
112
  
Total assets
  
$
3,024
  
         
         
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
        
Current Liabilities
        
Short-term loans
 
$
1,658
  
Trade payables
    
603
  
Employees and payroll accruals
    
192
  
Deferred revenues
    
485
  
Other payables and accrued expenses
    
604
  
     
3,542
  
         
Long-Term Liabilities
       
Long term loans
   
208
 
Accrued severance pay
   
356
  
     
564
  
         
STOCKHOLDERS’ DEFICIENCY
        
Stock capital
   
193
  
Additional paid-in capital
    
10,005
  
Accumulated deficit
    
(11,280
)
     
(1,082
)
         
Total liabilities and stockholders’ deficiency
  
$
3,024
  
       
       
The accompanying notes to these financial statements are an integral part thereof.
 
-2-
 
SPO MEDICAL INC.
AND ITS SUBSIDIARY
U.S. dollars in thousands except share data


   
Three months ended
March 31,
  
   
2007
  
2006
  
   
Unaudited
  
       
Revenues
  
$
1,256
  
$
701
  
Cost of revenues
    
559
    
371
  
               
Gross profit
    
697
    
330
  
               
Operating expenses
              
 Research and development, net
    
276
    
151
  
Selling and marketing
    
165
    
141
 
General and administrative
    
247
    
220
  
Total operating expenses
    
688
    
512
  
Operating profit (loss)
    
9
    
(182
)
               
Financial expenses, net
   
240
    
939
  
Loss for the period
  
$
231
  
$
1,121
  
             
Basic and diluted loss per ordinary share
  
$
(0.01
)
$
(0.06
)
             
Weighted average number of shares
              
outstanding used in computation of basic and diluted loss per share
    
19,069,380
    
18,382,715
  
             
             
The accompanying notes to these financial statements are an integral part thereof.
 
-3-
 
 
SPO MEDICAL INC.
AND ITS SUBSIDIARY
  
 
U.S. dollars in thousands
  
 
   
Stock capital
  
Additional
paid-in
capital
  
Deferred
compensation
  
Accumulated deficit
  
Total
  
                       
Balance as of January 1, 2005
  
$
600
  
$
2,675
  
$
—
  
$
(4,048
)
$
(773
)
Issuance of ordinary shares upon conversion of loans
    
35
   
224
               
259
 
Warrants issued in private placement
          
949
               
949
 
Warrants issued in connection with loans
          
22
               
22
 
Deferred stock-based compensation related to options granted to employees and consultants
          
762
   
(762
)
        
—
  
Amortization of deferred Stock-based compensation related to options granted to employees
               
187
         
187
 
Amortization of deferred Stock-based compensation related to options granted to consultants
                
348
         
348
 
Reverse merger transaction and forward split of issued share capital
    
(465
)
  
201
               
(264
)
Net Loss
                     
(2,038
)
  
(2,038
)
Balance as of December 31, 2005
    
170
   
4,833
   
(227
)
  
(6,086
)
  
(1,310
)
Deferred compensation reclassified due to FAS 123R implementation for the first time
          
(227
)
  
227
         
-
 
Warrants issued in connection with loans
          
530
               
530
 
Amortization of deferred stock-based compensation related to options granted to consultants
          
893
               
893
 
Exercise of warrants by external consultant
    
5
                     
5
 
Benefit resulting from changes to warrant terms
          
2,534
               
2,534
 
Exercise of convertible notes
    
9
   
560
               
569
 
Amortization of deferred stock-based compensation related to options granted to employees
          
189
               
189
 
Amortization of deferred stock-based compensation related to options granted to directors
    
 
     71          
 
    
71
 
Issuance of ordinary shares
    
9
   
571
               
580
 
Net Loss
                      
(4,963
)
  
(4,963
)
Balance as of December 31, 2006
    
193
   
9,954
   
—
    
(11,049
)
  
(902
)
Warrants issued in connection with credit line
          
19
               
19
 
Amortization of deferred stock-based compensation related to options granted to employees
          
32
               
32
 
Net Loss
                      
(231
)
  
(231
)
Balance as of March 31, 2007, Unaudited
  
$
193
  
$
10,005
  
$
—
  
$
(11,280
)
$
(1,082
)
                               
                               
The accompanying notes to these financial statements are an integral part thereof.
 
-4-
 

SPO MEDICAL INC.
AND ITS SUBSIDIARY
U.S. dollars in thousands
 
     
Three months ended
March 31,
  
     
2007
    
2006
  
     
Unaudited
  
Cash Flows from Operating Activities              
Loss for the period
  
$
(231
)
$
(1,121
)
Adjustments to reconcile loss to net cash used in operating activities:
              
Depreciation
   
7
    
7
  
Stock-based compensation expenses
    
51
    
950
  
Amortization of loan discounts
    
173
    
—
  
Increase (decrease) in accrued severance pay, net
    
2
    
(4
)
Increase in accrued interest payable on loans
    
41
    
35
  
               
Changes in assets and liabilities:
              
Decrease (increase) in trade receivables
    
85
    
(119
)
Increase in other receivables
    
(20
)
  
(10
)
Increase in inventories
    
(195
)
  
(92
)
Increase (decrease) in accounts payable
    
115
    
124
  
Increase (decrease) in other payables and accrued expenses
    
100
    
(40
)
Net cash provided by (used in) operating activities
    
128
    
(270
)
               
Cash Flows from Investing Activities
              
               
Increase in short-term investments
    
(2
)
  
(1
)
Purchase of property and equipment
    
(13
)
  
(34
)
Net cash used in investing activities
    
(15
)
  
(35
)
               
Cash Flows from Financing Activities
             
               
Issuance of stock capital
    
—
    
5
  
Receipt of short-term loans
    
—
    
150
  
Repayment of short-term loans
    
(41
)
  
(222
)
Receipt of payments on account of shares
    
—
    
485
  
Net cash provided by (used in) financing activities
    
(41
)
  
418
  
               
Increase in cash and cash equivalents
    
72
    
113
  
Cash and cash equivalents at the beginning of the period
    
836
    
493
  
Cash and cash equivalents at the end of the period
  
$
908
  
$
606
  
             
             
The accompanying notes to these financial statements are an integral part thereof.
 
-5-
 
 
SPO MEDICAL INC
AND ITS SUBSIDIARY
U.S. dollars in thousands (except share data)

NOTE 1 -
General

SPO Medical Inc. (hereinafter referred to as "SPO" or the "Company") was originally incorporated under the laws of the State of Delaware in September 1981 under the name "Applied DNA Systems, Inc." On November 16, 1994, the Company changed its name to "Nu-Tech Bio-Med, Inc." On December 23, 1998, the Company changed its name to "United Diagnostic, Inc." Effective April 21, 2005, the Company acquired (the "Acquisition Transaction") 100% of the outstanding capital stock of SPO Medical Equipment Ltd., a company incorporated under the laws of the State of Israel ("SPO Ltd."), pursuant to a Capital Stock Exchange Agreement dated as of February 28, 2005 between the Company, SPO Ltd. and the shareholders of SPO Ltd., as amended and restated on April 21, 2005 (the "Exchange Agreement"). In exchange for the outstanding capital stock of SPO Ltd., the Company issued to the former shareholders of SPO Ltd. a total of 5,769,106 shares of the Company's common stock, par value $0.01 per share ("Common Stock"), representing approximately 90% of the Common Stock then issued and outstanding after giving effect to the Acquisition Transaction. As a result of the Acquisition Transaction, SPO Ltd. became a wholly owned subsidiary of the Company as of April 21, 2005 and, subsequent to the Acquisition Transaction, the Company changed its name to "SPO Medical Inc." Upon consummation of the Acquisition Transaction, the Company effectuated a forward subdivision of the Company's Common Stock issued and outstanding on a 2.65285:1 basis. 
 
The merger between UNDI and the SPO Ltd was accounted for as a reverse merger. As the shareholders of SPO Ltd received the largest ownership interest in the Company, SPO Ltd was determined to be the "accounting acquirer" in the reverse acquisition. As a result, the historical financial statements of the Company were replaced with the historical financial statements of SPO Ltd.
 
The Company and its subsidiary, SPO Ltd., are collectively referred to as the "Company".
 
NOTE 2 -
Basis of Presentation

The accompanying un-audited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-QSB and Article 10 of Regulation S-X. These financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position of the Company as of March 31, 2007 and the results of operations and cash flows for the interim periods indicated in conformity with generally accepted accounting principles applicable to interim periods. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Operating results for the three months ended March 31, 2007, are not necessarily indicative of the results that may be expected for the year ended December 31, 2007.
 
Certain prior years' amounts have been reclassified in conformity with current year's financial statements.
 
-6-
 
SPO MEDICAL INC
AND ITS SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)
 
NOTE 3 -
Going Concern

As reflected in the accompanying financial statements, the Company’s operations for the three months ended March 31, 2007, resulted in a net loss of $231 and the Company’s balance sheet reflects a net stockholders’ deficit of $1,082. The Company’s ability to continue operating as a “going concern” is dependent on its ability to raise additional working capital. Management’s plans in this regard include raising additional cash from current and potential stockholders and increasing the marketing of its current and new products.

NOTE 4 -
Line Of Credit

On March 27, 2007, the Company entered into a Line of Credit Facility with an institutional investor pursuant to which the Company can borrow up to $200, which can be drawn on demand at the discretion of the Company. The facility continues in effect until January 28, 2008. Amounts outstanding accrue interest at a per annum rate of 9% and accrued interest is payable on a quarterly basis. All amounts borrowed and accrued and unpaid interest are required to be repaid by January 28, 2009. In consideration of the line of credit facility, the Company issued to the investor warrants for 50,000 shares of its Common Stock, exercisable through March 27, 2010 at a per share exercise price of $1.50, of which warrants for 20,000 shares are exercisable immediately and the warrants for the remaining 30,000 shares exercisable only following (and subject to) the Company first draw-down under the facility. As of the date of signing the Quarterly Report on Form 10-0SB for the quarter ended March 31, 2007, the Company has not drawn down under the line of credit facility.
 
-7-
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES RELATED TO THOSE STATEMENTS. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE RISK FACTORS SECTION OF THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2006.
 
OVERVIEW
 
SPO Medical Inc. is engaged in the design, development and marketing of non-invasive pulse oximetry technologies to monitor blood oxygen saturation and heart rate for a variety of markets, including medical, homecare, sports and search & rescue. Pulse oximetry is a non-invasive process used to measure blood oxygen saturation levels and is an established procedure in medical practice. We utilize proprietary and patented technologies to deliver oximetry functionality through innovative commercial products that address such applications as emergency care, home monitoring, sleep apnea, cardiovascular performance, cardiac rehabilitation and the physiological monitoring of military personnel and safety care workers.

We have developed and patented proprietary technology that enables the use of pulse oximetry in a reflectance mode of operation (i.e. a sensor that can be affixed to a single side of a body part). This technique is known as Reflectance Pulse Oximetry (RPO). Using RPO, a sensor can be positioned on various body parts, hence minimizing problems of motion and poor profusion. The unique design features contribute to substantially lower electric power requirements and enable a wireless, stand-alone configuration with expanded commercial possibilities. We hold three patents issued by the United States Patent and Trademark Office ("USPTO") covering various aspects of our unique sensors for radiance based diagnostics using pulse oximetry. Although we believe that our existing issued patents provide a competitive advantage, there can be no assurance that the scope of our patent protection is or will be adequate to protect our technologies or that the validity of any patent issued will be upheld in the future.
 
We were originally organized under the laws of the State of Delaware in September 1981 under the name "Applied DNA Systems, Inc." On November 16, 1994, we changed our name to "Nu-Tech Bio-Med, Inc." On December 23, 1998, we changed our name to "United Diagnostic, Inc." Effective April 21, 2005, we acquired 100% of the outstanding capital stock of SPO Ltd. pursuant to a Capital Stock Exchange Agreement dated as of February 28, 2005 among the Company, SPO Ltd. and the shareholders of SPO Ltd., as amended and restated on April 21, 2005 pursuant to which we issued to the former shareholders of SPO Ltd. a total of 5,769,106 shares of the Company's Common Stock representing approximately 90% of the Common Stock then issued and outstanding.
 
CRITICAL ACCOUNTING POLICIES
 
The discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts, investments, intangible assets and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
 
We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

REVENUE RECOGNITION
 
We generate revenues principally from sales of our products. Revenues from the sale of products are recognized when delivery has occurred, persuasive evidence of an arrangement exists, the vendor's fee is fixed or determinable, no further obligation exists and collection of is probable and there are no remaining significant obligations. Delivery is deemed to have occurred upon shipment of products from any of the distribution centers of the Company.
 
We also generate revenues from the provision of research and development services. Revenues generated from research and development services are recognized when such services are performed.
 
INVENTORY VALUATION
 
Inventories are stated at the lower of cost or market value. Cost is determined as follows: Raw materials, components and finished products are valued using the first in first out (FIFO) basis. Work-in-process - is valued on the basis of cost or market value of the raw materials components plus the related manufacturing costs.
 
-8-
 
USE OF ESTIMATES
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
RESULTS OF OPERATIONS
 
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2007 AND THE THREE MONTHS ENDED
 
MARCH 31, 2006
 
REVENUES. Revenues are currently derived primarily from sales of our PulseOX 5500 TM designed for the medical, homecare and sports markets. Revenues for the three months ended March 31, 2007 and 2006 were $1,256,000 and $701,000, respectively. The increase in revenues during the 2007 period reflected increased sales of our products.
 
COSTS OF REVENUES. Costs of revenues for the three months ended March 31, 2007 and 2006 were $559,000 and $371,000, respectively. Costs of revenues include all costs related to manufacturing and selling products and services and consist primarily of direct material costs and salaries and related expenses for personnel. This increase in cost of revenues during the 2007 period is primarily attributable to the increase in sales of our products and costs associated with additional quality control processes on the introduction of new components into the products.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses consist primarily of expenses incurred in the design, development and testing of our products. These expenses consist primarily of salaries and related expenses for personnel, contract design and testing services, supplies used and consulting and license fees paid to third parties and are net of any government grants and development fees charged to third parties. Research and development expenses for the three months ended March 31, 2007 and 2006 were $276,000 and $151,000, respectively. The increase in research and development expenses during the 2007 period as compared to the 2006 period is primarily attributable to the increase in employee and related compensation costs and in the investment of developing new products.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist primarily of costs relating to compensation attributable to employees engaged in sales and marketing activities, promotion, sales support, travel and related expenses. Selling and marketing expenses for the three months ended March 31, 2007 and 2006 were $165,000 and $141,000, respectively. The increase in selling and marketing expenses during the 2007 period is primarily attributable to the increase in employee and related compensation costs.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses primarily consist of salaries and other related costs for personnel in executive and other administrative functions. Other significant costs include professional fees for legal, accounting services. General and administrative expenses for the three months ended March 31, 2007 and 2006 were $247,000 and $220,000, respectively. The increase in general and administrative expenses during the 2007 period as compared to the 2006 period is primarily attributable to the increase in employee and related compensation costs.
 
FINANCIAL EXPENSES, NET. Financial expense net, for the three months ended March 31, 2007 and 2006 were $240,000 and $939,000, respectively. The decrease in financial expenses, net, during the three months ended March 31, 2007 as compared to the 2006 period is primarily attributable to the decrease in non cash compensation benefits for the period which amounted to $178,000 in the period in 2007 and $913,000 in the corresponding period in 2006 ..
 
NET LOSS. For the three months ended March 31, 2007 and 2006 we had a net loss of $231,000 and $1,121,000 respectively 
 
LIQUIDITY AND CAPITAL RESOURCES
 
As at March 31, 2007, we had cash and cash equivalents of approximately $908,000, compared to $836,000 at December 31, 2006.
 
We generated positive cash flow from operating activities of approximately $128,000 during the three months ended March 31, 2007 compared to negative cash flow from operating activities of approximately $270,000 for the three months ended March 31, 2006.

In December 2005 we completed the private placement to certain accredited investors that we commenced in April 2005 for the issuance of up to $1,544,000 of units of our securities, with each unit comprised of (i) our 18 month 6% promissory note (collectively, the "April 2005 Notes") and (ii) three year warrants to purchase up to such number of shares of our Common Stock as are determined by the principal amount of the Note purchased by such investor divided by $ 0.85 (collectively the "April 2005 Warrants"). In September 2006, we offered to the holders of the April 2005 Notes to revise certain of the terms of the original offering in order to facilitate an extension to the scheduled maturity date of the Note, (hereinafter the "Amendment"). The Amendment provides that (a) the maturity date of the April 2005 Notes is to be extended by one year from the original maturity date on the original note, (b) the exercise period of the April 2005 Warrants is to be extended from three to five years and the per share exercise price was adjusted to $0.60 and (c) the interest rate on the amounts outstanding under the April 2005 Notes was increased to 8% per annum, effective July 12, 2006. The Amendment also provides that if we subsequently issue shares of our Common Stock at an effective per share exercise price less than that of the adjusted per share exercise price of the April
 
-9-
 

2005 Warrants during the adjusted exercise period, then the exercise price thereof is to be reduced to such lower exercise price; provided, that, this protection will not apply to certain of our equity or debt issuances (i) from approved stock option plans to employees, directors and other service providers, (ii) upon exercise of options and warrants outstanding as of September 27, 2006 and (iii) to our consultants that an unaffiliated third party would deem to be commercially reasonable and fair. In addition, the Amendment also provides that, subject to certain qualifications, our obligation to file a registration statement under the Securities Act of 1933, as amended, relating to the resale of our Common Stock underlying the April 2005 Warrants is extended to April 15, 2007. The Amendment became effective as of September 30, 2006. The Amendment resulted in a one time non-cash finance expense in the amount of approximately $2,500,000 being recognized in 2006. As of May 11, 2007, holders of Notes in the principal amount $1,439,000 have signed the Amendment and the holder of a note in the principal amount of $50,000 which matured on November 30, 2006 has requested repayment of principle and accrued interest. The Company is currently in contact with the remaining note holders of $55,000 of the April 2005 Notes with respect to obtaining their formal execution of the Amendment.
 
Our recent financings are discussed below.
 
In March 2007, we entered into a Line of Credit Facility with an institutional investor pursuant to which we can borrow up to $200,000, which can be drawn on demand at the discretion of the Company. The facility continues in effect until January 28, 2008. Amounts outstanding accrue interest at a per annum rate of 9% and accrued interest is payable on a quarterly basis, All amounts borrowed and accrued and unpaid interest need to be repaid by January 28, 2009. In consideration of the line of credit facility, we issued to the investor a warrant for 50,000 shares of our Common Stock, exercisable through March 27, 2010 at a per share exercise price of $1.50, of which warrants for 20,000 shares is exercisable immediately and the warrants for the remaining 30,000 shares exercisable only following (and subject to) our first draw-down under the facility. As of the filing of this Quarterly Report on Form 10-QSB for the three months ended March 31, 2007 , we have not drawn down any amounts under the line of credit facility.
 
We will need to raise additional funds to be able to satisfy our cash requirements over the next twelve months. Product development, corporate operations and marketing expenses will continue to require additional capital. Our current revenue from operations are insufficient to cover our current operating expenses and projected expansion plans. We therefore are aggressively seeking additional financing through the sale of our equity and/or debt securities to satisfy future capital requirements until such time as we are able to generate sufficient cash flow from revenues to finance on-going operations. No assurance can be provided that additional capital will be available to us on commercially acceptable or at all. Our auditors included a "going concern" qualification in their auditors' report for the year ended December 31, 2006. While we raised approximately $1,300,000 in gross proceeds from the issuance of our debt and equity securities during 2006, such "going concern" qualification may make it more difficult for us to raise funds when needed. Additional equity financings may be dilutive to holders of our Common Stock.

ITEM 3.
CONTROLS AND PROCEDURES
 
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c).
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
 
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the quarter ended March 31, 2007, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, these controls.
 
PART II - OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS.
 
None.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the three months ended March 31, 2007, we issued unregistered securities as follows:
 
In March 2007, in consideration of a line of credit facility, we issued to an institutional investor warrants to purchase up to 50,000 shares of our Common Stock, exercisable through March 27, 2010 at a per share exercise price of $1.50, of which warrants for 20,000 shares is
 
-10-
 
 
exercisable immediately and the warrants for the remaining 30,000 shares exercisable only following (and subject to) our first draw-down under the facility.

These securities were issued without registration under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act. Appropriate legends were affixed to the share certificates issued in all of the above transactions. The Company believes that each of the recipients was an “accredited investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act, or had such knowledge and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in our common stock. All recipients had adequate access, through their relationships with the Company and its officers and directors, to information about the Company. None of the transactions described above involved general solicitation or advertising.
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
 
None.
 
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
None.
 
ITEM 5.
OTHER INFORMATION.
 
None.
 
ITEM 6.
EXHIBITS.
 
4.1
Warrant issued in March 2007 to Innopex Limited.
 
10.1
Line of Credit Facility dated as of March 27, 2007 between SPO Medical Inc. and Innopex Limited. (1)
 
31.1
Rule 13a - 14(a) Certification of Principal Executive Officer
 
31.2
Rule 13a - 14(a) Certification of Principal Financial officer
 
32.1
Section 1350 Certification of Principal Executive Officer
 
32.2
Section 1350 Certification of Principal Financial officer
 
 
(1)
Attached as an exhibit to the Company’s registration statement on Form SB-2 filed on April 16, 2007 and incorporated herein by reference

 
-11-
 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the small business issuer has caused this report to be signed by the undersigned thereunto duly authorized.
 
DATE:  May 14, 2007
 
SPO MEDICAL INC.
 
/s/ MICHAEL BRAUNOLD
MICHAEL BRAUNOLD
PRESIDENT AND CHIEF EXECUTIVE OFFICER

 
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
 
DATE:  May 14, 2007
BY:  /s/ JEFF FEUER
JEFF FEUER,
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
 
 
 
-12-